Document:

Exhibit
10.31

 

 

 

LOAN AND
SECURITY AGREEMENT

ADVANCED
POWER TECHNOLOGY, INC., ADVANCED POWER

TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY

COLORADO, INC. AND ADVANCED POWER TECHNOLOGY RF-

PENNSYLVANIA, INC.

 

 

1

 

TABLE OF CONTENTS

 

	
  1

  	
  ACCOUNTING AND OTHER TERMS

  	
   

  
	
   

  	
   

  	
   

  
	
  2

  	
  LOAN AND TERMS OF PAYMENT

  	
   

  
	
   

  	
  2.1

  	
  Promise
  to Pay

  	
   

  
	
   

  	
  2.2

  	
  Termination of
  Commitment to Lend

  	
   

  
	
   

  	
  2.3

  	
  Overadvances

  	
   

  
	
   

  	
  2.4

  	
  Interest Rate, Payments

  	
   

  
	
   

  	
  2.5

  	
  Fees

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3

  	
  CONDITIONS
  OF LOANS

  	
   

  
	
   

  	
  3.1

  	
  Conditions
  Precedent to Initial Credit Extension

  	
   

  
	
   

  	
  3.2

  	
  Conditions
  Precedent to all Credit Extensions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4

  	
  CREATION OF SECURITY
  INTEREST

  	
   

  
	
   

  	
  4.1

  	
  Grant of Security
  Interest

  	
   

  
	
   

  	
  4.2

  	
  Authorization of File

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
   

  
	
   

  	
  5.1

  	
  Due
  Organization and Authorization

  	
   

  
	
   

  	
  5.2

  	
  Collateral

  	
   

  
	
   

  	
  5.3

  	
  Litigation

  	
   

  
	
   

  	
  5.4

  	
  No
  Material Adverse Change in Financial Statements

  	
   

  
	
   

  	
  5.5

  	
  Solvency

  	
   

  
	
   

  	
  5.6

  	
  Regulatory Compliance

  	
   

  
	
   

  	
  5.7

  	
  Investments in
  Subsidiaries

  	
   

  
	
   

  	
  5.8

  	
  Full
  Disclosure

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6

  	
  AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
  6.1

  	
  Government Compliance

  	
   

  
	
   

  	
  6.2

  	
  Financial
  Statements, Reports, Certificates

  	
   

  
	
   

  	
  6.3

  	
  Inventory; Returns

  	
   

  
	
   

  	
  6.4

  	
  Taxes

  	
   

  
	
   

  	
  6.5

  	
  Insurance

  	
   

  
	
   

  	
  6.6

  	
  Primary Accounts

  	
   

  
	
   

  	
  6.7

  	
  Financial Covenants

  	
   

  
	
   

  	
  6.8

  	
  Registration
  of Intellectual Property Rights

  	
   

  
	
   

  	
  6.9

  	
  Further Assurances

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7

  	
  NEGATIVE
  COVENANTS

  	
   

  
	
   

  	
  7.1

  	
  Dispositions

  	
   

  
	
   

  	
  7.2

  	
  Changes
  in Business, Ownership, Management or Locations of Collateral

  	
   

  
	
   

  	
  7.3

  	
  Mergers or Acquisitions

  	
   

  
	
   

  	
  7.4

  	
  Indebtedness

  	
   

  
	
   

  	
  7.5

  	
  Encumbrance

  	
   

  
	
   

  	
  7.6

  	
  Distributions;
  Investments

  	
   

  
	
   

  	
  7.7

  	
  Transactions with
  Affiliates

  	
   

  
	
   

  	
  7.8

  	
  Subordinated Debt

  	
   

  
	
   

  	
  7.9

  	
  Compliance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8

  	
  EVENTS
  OF DEFAULT

  	
   

  
	
   

  	
  8.1

  	
  Payment
  Default

  	
   

  

 

2

 

	
   

  	
  8.2

  	
  Covenant Default

  	
   

  
	
   

  	
  8.3

  	
  Material Adverse Change

  	
   

  
	
   

  	
  8.4

  	
  Attachment

  	
   

  
	
   

  	
  8.5

  	
  Insolvency

  	
   

  
	
   

  	
  8.6

  	
  Other Agreements

  	
   

  
	
   

  	
  8.7

  	
  Judgments

  	
   

  
	
   

  	
  8.8

  	
  Misrepresentations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9

  	
  BANK’S RIGHTS AND REMEDIES

  	
   

  
	
   

  	
  9.1

  	
  Rights and Remedies

  	
   

  
	
   

  	
  9.2

  	
  Power of Attorney

  	
   

  
	
   

  	
  9.3

  	
  Bank
  Expenses

  	
   

  
	
   

  	
  9.4

  	
  Bank’s Liability
  for Collateral

  	
   

  
	
   

  	
  9.5

  	
  Remedies Cumulative

  	
   

  
	
   

  	
  9.6

  	
  Demand
  Waiver

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10

  	
  NOTICES

  	
   

  
	
   

  	
   

  	
   

  
	
  11

  	
  CHOICE OF
  LAW, VENUE AND JURY TRIAL WAIVER

  	
   

  
	
   

  	
   

  	
   

  
	
  12

  	
  GENERAL PROVISIONS

  	
   

  
	
   

  	
  12.1

  	
  Successors and Assigns

  	
   

  
	
   

  	
  12.2

  	
  Indemnification

  	
   

  
	
   

  	
  12.3

  	
  Time
  of Essence

  	
   

  
	
   

  	
  12.4

  	
  Severability of
  Provision

  	
   

  
	
   

  	
  12.5

  	
  Amendments in
  Writing, Integration

  	
   

  
	
   

  	
  12.6

  	
  Counterparts

  	
   

  
	
   

  	
  12.7

  	
  Survival

  	
   

  
	
   

  	
  12.8

  	
  Confidentiality

  	
   

  
	
   

  	
  12.9

  	
  Attorneys’
  Fees, Costs and Expenses

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  13

  	
  DEFINITIONS

  	
   

  
	
   

  	
  13.1

  	
  Definitions

  	
   

  

 

3

 

This LOAN AND SECURITY AGREEMENT dated as of the Effective Date, between
SILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 and ADVANCED POWER TECHNOLOGY, INC., ADVANCED POWER TECHNOLOGY
COLORADO, INC., ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA, INC. and ADVANCED
POWER TECHNOLOGY RF, INC. (Advanced Power Technology, Inc., Advanced Power
Technology Colorado, Inc., Advanced Power Technology RF-Pennsylvania, Inc. and
Advanced Power Technology RF, Inc. may be collectively referred to as “Borrower”),
whose address is 405 S.W. Columbia Street, Bend, OR  97702, provides the terms on which Bank will
lend to Borrower and Borrower will repay Bank. 
The parties agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

Accounting
terms not defined in this Agreement will be construed following GAAP.
Calculations and determinations must be made following GAAP.  The term “financial statements” includes the
notes and schedules.  The terms “including”
and “includes” always mean “including (or includes) without limitation,” in
this or any Loan Document.

 

2                                         LOAN AND TERMS OF PAYMENT

 

2.1                               Promise to Pay.

 

Borrower
promises to pay Bank the unpaid principal amount of all Credit Extensions and
interest on the unpaid principal amount of the Credit Extensions.

 

2.1.1                     Revolving Advances.

 

(a)
 Bank will make Advances not exceeding
the Committed Revolving Line.  Amounts
borrowed under this Section may be repaid and reborrowed during the term
of this Agreement.

 

(b)
 To obtain an Advance, Borrower must
notify Bank by facsimile or telephone by 12:00 p.m. Pacific Time on the
Business Day the Advance is to be made. 
Borrower must promptly confirm the notification by delivering to Bank
the Payment/Advance Form attached as Exhibit B. 
Bank will credit Advances to Borrower’s deposit account.  Bank may make Advances under this Agreement
based on instructions from a Responsible Officer or his or her designee or
without instructions if the Advances are necessary to meet Obligations, which
have become due.  Bank may rely on any
telephone notice given by a person whom Bank believes is a Responsible Officer
or designee. Borrower will indemnify Bank for any loss Bank suffers due to such
reliance.

 

(c)
 The Committed Revolving Line terminates
on the Revolving Maturity Date, when all Advances are immediately payable.

 

2.1.2                     Cash Management Services.

 

Borrower
may use up to $290,000 for Bank’s cash management services, which may include
merchant services in the sum of up to $285,000 and business credit card
services in the sum of up to $5,000 (the “Cash Management Services Sublimit”).  All amounts Bank pays for any Cash Management
Services will not be treated as Advances under the Committed Revolving Line.

 

2.2                               Termination of Commitment to
Lend.

 

Bank’s
obligation to lend the undisbursed portion of the Obligations will terminate
if, in Bank’s sole discretion, there has been a material adverse change in the
general affairs, management, results of operation, condition (financial or
otherwise) or the prospect of repayment of the Obligations, or there has been
any material adverse deviation by Borrower from the most

 

4

 

recent business plan of Borrower presented to and
accepted by Bank prior to the execution of this Agreement.

 

2.3                               Overadvances.

 

If
Borrower’s Obligations under Section 2.1.1 exceed the Committed Revolving
Line, Borrower must immediately pay Bank the excess.

 

2.4                               Interest Rate, Payments.

 

2.4.1                     As to Advances.

 

(a)
 Interest Rate.  Advances accrue interest on the outstanding
principal balance at a per annum rate equal to the applicable Prime Rate Margin
above the Prime Rate or, if Borrower elects, at the applicable LIBOR Rate Margin
above the LIBOR Rate in accordance with the terms of the Libor Supplement to
Agreement, which is incorporated by this reference. Any change in the Prime
Rate Margin shall take effect as of the first day of the month after Bank’s
receipt of Borrower’s Compliance Certificate which requires the Prime Rate
Margin to be changed based on the Adjusted Quick Ratio calculation.  Any change in the LIBOR Rate Margin based on
changes in the Adjusted Quick Ratio calculation shall not affect any existing
LIBOR Rate Loans (as defined in the LIBOR Supplement to Agreement), but shall
take effect with respect to any LIBOR Rate election made by Borrower after Bank’s
receipt of the Borrower’s Compliance Certificate.  After an Event of Default, Obligations accrue
interest at 5 percent above the rate effective immediately before the Event of
Default.  The interest rate increases or
decreases when the Prime Rate changes. 
Interest is computed on a 360 day year for the actual number of days
elapsed.

 

(b)
 Payments.  (i) If interest is based on the Prime Rate
plus the applicable Prime Rate Margin, then interest due on the Committed
Revolving Line is payable on the 14th of each month; and (ii) if interest is
based on the LIBOR Rate plus the applicable LIBOR Rate Margin, then interest on
each LIBOR Rate Loan (defined in the LIBOR Supplement to Agreement) shall be
payable on the earlier of ninety days after the date the LIBOR Rate Loan was
made or the last day of the Interest Period (defined in the LIBOR Supplement to
Agreement) for such Loan; provided however that with respect to a LIBOR Rate
Loan with a six-month Interest Period, Interest shall be payable ninety days
after the date the LIBOR Rate Loan was made and shall also be payable on the
last day of the six-month Interest Period. 
Payments received after 12:00 noon Pacific Time are considered received
at the opening of business on the next Business Day.  When a payment is due on a day that is not a
Business Day, the payment is due the next Business Day and additional interest
shall accrue.

 

2.4.2                     Request to Debit Accounts.

 

Bank
may debit any of Borrower’s deposit accounts including Account Number                                             
for principal and interest payments or any amounts Borrower owes Bank when
due.  Bank will notify Borrower when it
debits Borrower’s accounts.  These debits
are not a set-off.

 

2.5                               Fees.

 

Borrower
will pay:

 

(a)
 Facility Fee.  A fully earned, non-refundable Facility Fee
of $20,000 for the Committed Revolving Line due on the Effective Date;

 

(b)  Unused Line Fee.  In the event, in any calendar quarter (or
portion thereof at the beginning and end of the term hereof), the average daily
principal balance of the Advances

 

5

 

outstanding during the
quarter is less than the Committed Revolving Line, Borrower shall pay to Bank
an unused line fee in an amount equal to 0.20% per annum on the difference
between the Committed Revolving Line and the average daily principal balance of
the Advances outstanding during the quarter, which unused line fee shall be
computed and paid quarterly, in arrears, on the first day of the following
month.

 

(b)
 Bank Expenses. All Bank Expenses
(including reasonable attorneys’ fees and reasonable expenses) incurred through
and after the date of this Agreement, are payable when due.

 

3                                         CONDITIONS OF LOANS

 

3.1                               Conditions Precedent to
Initial Credit Extension.

 

Bank’s
obligation to make the initial Credit Extension is subject to the condition
precedent that it receive the agreements, documents
and fees it requires.

 

3.2                               Conditions Precedent to all
Credit Extensions.

 

Bank’s
obligations to make each Credit Extension, including the initial Credit
Extension, is subject to the following:

 

(a)
 timely receipt
of any Payment/Advance Form; and

 

(b)
 the representations and warranties in Section 5
must be materially true on the date of the Payment/Advance Form and on the
effective date of each Credit Extension and no Event of Default may have
occurred and be continuing, or result from the Credit Extension.  Each Credit Extension is Borrower’s
representation and warranty on that date that the representations and
warranties of Section 5 remain true.

 

4                                         CREATION OF SECURITY
INTEREST

 

4.1                               Grant of Security Interest.

 

Borrower
grants Bank a continuing security interest in all presently existing and later
acquired Collateral to secure all Obligations and performance of each of
Borrower’s duties under the Loan Documents. 
Except for Permitted Liens, any security interest will be a first
priority security interest in the Collateral. 
If this Agreement is terminated, Bank’s lien and security interest in
the Collateral will continue until Borrower fully satisfies its Obligations.

 

4.2                               Authorization to File.

 

Borrower
authorizes Bank to file financing statements without notice to Borrower, with
all appropriate jurisdictions, as Bank deems appropriate, in order to perfect
or protect Bank’s interest in the Collateral.

 

5                                         REPRESENTATIONS AND
WARRANTIES

 

Borrower
represents and warrants as follows:

 

5.1                               Due Organization and
Authorization.

 

Each
Borrower and each Subsidiary is duly existing and in good standing in its state
of formation and qualified and licensed to do business in, and in good standing
in, any state in which the conduct of its business or its ownership of property
requires that it be qualified, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change.

 

6

 

Borrower has not changed its
state of formation or its organizational structure or type or any
organizational number (if any) assigned by its jurisdiction of formation.

 

The
execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s formation documents, nor
constitute an event of default under any material agreement by which Borrower
is bound.  Borrower is not in default
under any agreement to which or by which it is bound in which the default could
reasonably be expected to cause a Material Adverse Change.

 

5.2                               Collateral.

 

Borrower
has good title to the Collateral, free of Liens except Permitted Liens or
Borrower has Rights to each asset that is Collateral.  Borrower has no other deposit account, other
than the deposit accounts described in the Schedule.  The Accounts are bona fide, existing
obligations, and the service or property has been performed or delivered to the
account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor.  The
Collateral is not in the possession of any third party bailee (such as at a
warehouse).  In the event that Borrower,
after the date hereof, intends to store or otherwise deliver the Collateral to
such a bailee, then Borrower will receive the prior written consent of Bank and
such bailee must acknowledge in writing that the bailee is holding such
Collateral for the benefit of Bank. 
Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor.  All Inventory is in all material respects of good and marketable
quality, free from material defects. 
Borrower is the sole owner of the Intellectual Property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business.  Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party, except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.

 

5.3                               Litigation.

 

Except
as shown in the Schedule, there are no actions or proceedings pending or, to
the knowledge of Borrower’s Responsible Officers, threatened by or against any
Borrower or any Subsidiary in which a likely adverse decision could reasonably
be expected to cause a Material Adverse Change.

 

5.4                               No Material Adverse Change
in Financial Statements.

 

All
consolidated financial statements for Borrower, and any Subsidiary, delivered
to Bank fairly present in all material respects Borrower’s consolidated
financial condition and Borrower’s consolidated results of operations.  There has not been any material deterioration
in Borrower’s consolidated financial condition since the date of the most
recent financial statements submitted to Bank.

 

5.5                               Solvency.

 

The
fair salable value of Borrower’s assets (including goodwill minus disposition
costs) exceeds the fair value of its liabilities; the Borrower is not left with
unreasonably small capital after the transactions in this Agreement; and
Borrower is able to pay its debts (including trade debts) as they mature.

 

5.6                               Regulatory Compliance.

 

Borrower
is not an “investment company” or a company “controlled” by an “investment
company” under the Investment Company Act. 
Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve

 

7

 

Board of Governors). 
Borrower has complied in all material respects with the Federal Fair
Labor Standards Act.  Borrower has not
violated any laws, ordinances or rules, the violation of which could reasonably
be expected to cause a Material Adverse Change. 
None of Borrower’s or any Subsidiary’s properties or assets has been
used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by
previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. 
Borrower and each Subsidiary has timely filed all required tax returns
and paid, or made adequate provision to pay, all material taxes, except those
being contested in good faith with adequate reserves under GAAP.  Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary
to continue its business as currently conducted, except where the failure to do
so could not reasonably be expected to cause a Material Adverse Change.

 

5.7                               Investments in Subsidiaries.

 

Borrower
does not own any stock, partnership interest or other equity securities except
for Permitted Investments.

 

5.8                               Full Disclosure.

 

No
written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements contained in the certificates or statements not
misleading.  It being recognized by Bank
that the projections and forecasts provided by Borrower in good faith and based
upon reasonable assumptions are not viewed as facts
and that actual results during the period or periods covered by such
projections and forecasts may differ from the projected and forecasted results.

 

6                                         AFFIRMATIVE COVENANTS

 

Borrower
will do all of the following for so long as Bank has an obligation to lend, or
there are outstanding Obligations:

 

6.1                               Government Compliance.

 

Borrower
will maintain its and all Subsidiaries’ legal existence and good standing in
its jurisdiction of formation and maintain qualification in each jurisdiction
in which the failure to so qualify would reasonably be expected to cause a
material adverse effect on Borrower’s business or operations.  Borrower will comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower’s business or operations or would reasonably be expected to cause a
Material Adverse Change.

 

6.2                               Financial Statements,
Reports, Certificates.

 

(a)
 Borrower will deliver to Bank:  (i) within 5 days of filing, copies of all
statements, reports and notices made available to Borrower’s security holders
or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission; (ii) a prompt report of
any legal actions pending or threatened against any Borrower or any Subsidiary
that could result in damages or costs to Borrower or any Subsidiary of $100,000
or more; (iii) budgets, sales projections, operating plans or other financial
information Bank reasonably requests; and (iv) prompt notice of any material
change in the composition of the Intellectual Property or knowledge of an event
that materially adversely affects the value of the Intellectual Property.

 

8

 

(b)
 Within 30 days after the last day of
each month, Borrower will deliver to Bank with the monthly financial statements
a Compliance Certificate signed by a Responsible Officer in the form of Exhibit
C.

 

6.3                               Inventory; Returns.

 

Borrower
will keep all Inventory in good and marketable
condition, free from material defects. 
Returns and allowances between Borrower and its account debtors will
follow Borrower’s customary practices, as they exist at execution of this
Agreement.  Borrower must promptly notify
Bank of all returns, recoveries, disputes and claims that involve more than
$50,000.

 

6.4                               Taxes.

 

Borrower
will make, and cause each Subsidiary to make, timely payment of all material
federal, state, and local taxes or assessments and will deliver to Bank, on
demand, appropriate certificates attesting to the payment.

 

6.5                               Insurance.

 

Borrower
will keep its business and the Collateral insured for risks and in amounts, as
Bank may reasonably request.  Insurance
policies will be in a form, with companies, and in amounts that are satisfactory
to Bank in Bank’s reasonable discretion. 
All property policies will have a lender’s loss payable endorsement
showing Bank as an additional loss payee and all liability policies will show
the Bank as an additional insured and provide that the insurer must give Bank
at least 20 days notice before canceling its policy.  At Bank’s request, Borrower will deliver
certified copies of policies and evidence of all premium payments.  Proceeds payable under any policy will, at
Bank’s option, be payable to Bank on account of the Obligations.

 

WARNING

 

Unless you provide us with evidence of the insurance coverage
as required by our contract or loan agreement, we may purchase insurance at
your expense to protect our interest. 
This insurance may, but need not, also protect your interest.  If the collateral becomes damaged, the
coverage we purchase may not pay any claim you make or any claim made against
you.  You may later cancel this coverage
by providing evidence that you have obtained property coverage elsewhere.

 

You are responsible for the cost of any insurance purchased
by us.  The cost of this insurance may be
added to your contract or loan balance. 
If the cost is added to your contract or loan balance, the interest rate
on the underlying contract or loan will apply to this added amount.  The effective date of coverage may be the
date your prior coverage lapsed or the date you failed to provide proof of
coverage.

 

This coverage we purchased may be considerably more expensive
than insurance you can obtain on your own and may not satisfy any need for
property damage coverage or any mandatory liability insurance requirements
imposed by applicable law.

 

6.6                               Primary Accounts.

 

Borrower
will maintain its primary depository and operating accounts with Bank.

 

6.7                               Financial Covenants.

 

Borrower
will maintain as of the last day of each month:

 

9

 

(i)                                     Quick Ratio (Adjusted).  A ratio of Quick Assets to Current Liabilities of at least 1.85 to
1.00.

 

(ii)                                  Tangible Net Worth.  A Tangible
Net Worth of at least $35,000,000 plus (a) 100% of all equity or capital
contributed to Borrower and all Subordinated Debt; and (b) 50% of all positive
quarterly net income (adjusted quarterly).

 

6.8                               Registration of Intellectual
Property Rights.

 

Borrower
shall provide written notice to Bank of any application filed by Borrower to
register any Copyrights or Mask Works with the United States Copyright Office
within 30 days of any such filing. 
Borrower shall provide written notice to Bank of any application filed
by Borrower in the United States Patent Trademark Office for a patent or to
register a trademark or service mark within 30 days of any such filing.

 

Borrower
will (i) protect, defend and maintain the validity and enforceability of the
Intellectual Property and promptly advise Bank in writing of material
infringements and (ii) not allow any Intellectual Property to be abandoned,
forfeited or dedicated to the public without Bank’s written consent.

 

6.9                               Further Assurances.

 

Borrower
will execute any further instruments and take further action as Bank reasonably
requests to perfect or continue Bank’s security interest in the Collateral or
to effect the purposes of this Agreement.

 

7                                         NEGATIVE COVENANTS

 

For
so long as Bank has an obligation to lend or there are any outstanding
Obligations, Borrower shall not, without Bank’s prior written consent (which
shall be a matter of its good faith business judgment), do any of the
following:

 

7.1                               Dispositions.

 

Convey,
sell, lease, transfer or otherwise dispose of (collectively “Transfer”), or
permit any of its Subsidiaries to Transfer, all or any part of its business or
property, except  for Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.

 

7.2                               Changes in Business,
Ownership, Management or Locations of Collateral.

 

Engage
in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto or
have a material change in its ownership or management of greater than 25%.  Borrower will not, without at least 30 days
prior written notice, relocate its chief executive office, change its state of
formation (including reincorporation), change its organizational number or name
or add any new offices or business locations (such as warehouses) in which
Borrower maintains or stores over $5,000 in Collateral.

 

7.3                               Mergers or Acquisitions.

 

Merge
or consolidate, or permit any of its Subsidiaries to merge or consolidate, with
any other Person, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of another Person, except
where (i) no Event of Default has occurred

 

10

 

and is continuing or would result from such
action during the term of this Agreement and (ii) such transaction would
not result in a decrease of more than 25% of Tangible Net Worth.  A Subsidiary may merge or consolidate into
another Subsidiary or into Borrower.

 

7.4                               Indebtedness.

 

Create,
incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to
do so, other than Permitted Indebtedness.

 

7.5                               Encumbrance.

 

Create,
incur, or allow any Lien on any of its property, or assign or convey any right
to receive income, including the sale of any Accounts, or permit any of its
Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not
to be subject to the first priority security interest granted here, subject to
Permitted Liens.

 

7.6                               Distributions; Investments.

 

Directly
or indirectly acquire or own any Person, or make any Investment in any Person,
other than Permitted Investments, or permit any of its Subsidiaries to do
so.  Pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock.

 

7.7                               Transactions with
Affiliates.

 

Directly
or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for transactions
that are in the ordinary course of Borrower’s business, upon fair and
reasonable terms that are no less favorable to Borrower than would be obtained
in an arm’s length transaction with a non-affiliated Person.

 

7.8                               Subordinated Debt.

 

Make
or permit any payment on any Subordinated Debt, except under the terms of the
Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank’s prior written consent.

 

7.9                               Compliance.

 

Become
an “investment company” or a company controlled by an “investment company,”
under the Investment Company Act of 1940 or undertake as one of its important
activities extending credit to purchase or carry margin stock, or use the
proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could reasonably be expected to have a material adverse effect on Borrower’s
business or operations or would reasonably be expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.

 

8                                         EVENTS OF DEFAULT

 

Any
one of the following is an Event of Default:

 

8.1                               Payment Default.

 

If
Borrower fails to pay any of the Obligations within 3 days after their due
date, however, during such period no Credit Extensions will be made;

 

11

 

8.2                               Covenant Default.

 

(a)
 If Borrower fails to perform any
obligation under Sections 6.2 or 6.7 or violates any of the covenants contained
in Section 7 of this Agreement, or

 

(b)
 If Borrower fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and Bank
and as to any default under such other term, provision, condition, covenant or
agreement that can be cured, has failed to cure such default within ten (10)
days after the occurrence thereof; provided, however, that if the default
cannot by its nature be cured within the ten (10) day period or cannot after
diligent attempts by Borrower be cured within such ten (10) day period, and
such default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Credit Extensions will be made during such cure
period);

 

8.3                               Material Adverse Change.

 

If
there (i) occurs a material adverse change in the business, operations, or
financial condition of the Borrower, or (ii) is a material impairment of the
prospect of repayment of any portion of the Obligations; or (iii) is a material
impairment of the value or priority of Bank’s security interests in the
Collateral (the foregoing being defined as a “Material Adverse Change”).

 

8.4                               Attachment.

 

If
any material portion of Borrower’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver and the attachment, seizure or
levy is not removed in 10 days, or if Borrower is enjoined, restrained, or
prevented by court order from conducting a material part of its business or if
a judgment or other claim becomes a Lien on a material portion of Borrower’s
assets, or if a notice of lien, levy, or assessment is filed against any of
Borrower’s assets by any government agency and not paid within 10 days after
Borrower receives notice.  These are not
Events of Default if stayed or if a bond is posted pending contest by Borrower
(but no Credit Extensions will be made during the cure period);

 

8.5                               Insolvency.

 

If
Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed
within 30 days (but no Credit Extensions will be made before any Insolvency
Proceeding is dismissed);

 

8.6                               Other Agreements.

 

If
there is a default in any agreement between Borrower
and a third party that gives the third party the right to accelerate any
Indebtedness exceeding $100,000 or that could cause a Material Adverse Change;

 

8.7                               Judgments.

 

If
a money judgment(s) in the aggregate of at least $50,000 is rendered against
Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensions
will be made before the judgment is stayed or satisfied);

 

12

 

8.8                               Misrepresentations.

 

If
Borrower or any Person acting for Borrower makes any material misrepresentation
or material misstatement now or later in any warranty or representation in this
Agreement or in any writing delivered to Bank or to induce Bank to enter this
Agreement or any Loan Document; or

 

9                                         BANK’S RIGHTS AND REMEDIES

 

9.1                               Rights and Remedies.

 

When
an Event of Default occurs and continues Bank may, without notice or demand, do
any or all of the following:

 

(a)
 Declare all Obligations immediately due
and payable (but if an Event of Default described in Section 8.5 occurs all
Obligations are immediately due and payable without any action by Bank);

 

(b)
 Stop advancing money or extending credit
for Borrower’s benefit under this Agreement or under any other agreement
between Borrower and Bank;

 

(c)
 Settle or adjust disputes and claims
directly with account debtors for amounts, on terms and in any order that Bank
considers advisable; notify any Person owing Borrower money of Bank’s security
interest in the funds and verify the amount of the Account.  Borrower must collect all payments in trust
for Bank and, if requested by Bank, immediately deliver the payments to Bank in
the form received from the account debtor, with proper endorsements for
deposit;

 

(d)
 Make any payments and do any acts it
considers necessary or reasonable to protect its security interest in the
Collateral.  Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates.  Bank may enter premises where the Collateral
is located, take and maintain possession of any part of the Collateral, and
pay, purchase, contest, or compromise any Lien which appears to be prior or
superior to its security interest and pay all expenses incurred. Borrower
grants Bank a license to enter and occupy any of its premises, without charge,
to exercise any of Bank’s rights or remedies;

 

(e)
 Bank may place a ‘hold’ on any account
maintained with Bank and deliver a notice of exclusive control, any entitlement
order, or other directions or instructions pursuant to any control agreement or
similar agreements providing control of any Collateral.  Apply to the Obligations (i) any balances and
deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for
the credit or the account of Borrower;

 

(f)
 Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell the
Collateral.  Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank’s exercise of its rights under this Section, Borrower’s
rights under all licenses and all franchise agreements inure to Bank’s benefit;
and

 

(g)
 Dispose of the Collateral according to
the Code.

 

9.2                               Power of Attorney.

 

Effective
only when an Event of Default occurs and continues, Borrower irrevocably
appoints Bank as its lawful attorney to: (i) endorse Borrower’s name on any
checks or other forms of payment or security; (ii) sign Borrower’s name on any
invoice or bill of lading for any Account or drafts against account debtors,
(iii) make, settle, and adjust all claims under Borrower’s

 

13

 

insurance policies; (iv) settle and adjust disputes
and claims about the Accounts directly with account debtors, for amounts and on
terms Bank determines reasonable; and (v) transfer the Collateral into the name
of Bank or a third party as the Code permits. 
Bank may exercise the power of attorney to sign Borrower’s name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred.  Bank’s appointment as Borrower’s attorney in
fact, and all of Bank’s rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and Bank’s
obligation to provide Credit Extensions terminates.

 

9.3                               Bank Expenses.

 

If
Borrower fails to pay any amount or furnish any required proof of payment to
third persons, Bank may make all or part of the payment or obtain insurance
policies required in Section 6.5, and take any action under the policies
Bank deems prudent.  Any amounts paid by
Bank are Bank Expenses and immediately due and payable, bearing interest at the
then applicable rate and secured by the Collateral.  No payments by Bank are deemed an agreement
to make similar payments in the future or Bank’s waiver of any Event of
Default.

 

9.4                               Bank’s Liability for
Collateral.

 

If
Bank complies with reasonable banking practices and Section 9-207 of the
Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any loss
or damage to the Collateral; (c) any diminution in the value of the Collateral;
or (d) any act or default of any carrier, warehouseman, bailee, or other
person.  Except as provided above,
Borrower bears all risk of loss, damage or destruction of the Collateral.

 

9.5                               Remedies Cumulative.

 

Bank’s
rights and remedies under this Agreement, the Loan Documents, and all other
agreements are cumulative.  Bank has all
rights and remedies provided under the Code, by law, or in equity.  Bank’s exercise of one right or remedy is not
an election, and Bank’s waiver of any Event of Default is not a continuing
waiver.  Bank’s delay is not a waiver,
election, or acquiescence.  No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.

 

9.6                               Demand Waiver.

 

Borrower
waives demand, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees held by Bank on which Borrower is liable.

 

10                                  NOTICES

 

All
notices or demands by any party about this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement.  A party may change its
notice address by giving the other party written notice.

 

11                                  CHOICE OF LAW, VENUE AND
JURY TRIAL WAIVER

 

Oregon
law governs the Loan Documents without regard to principles of conflicts of
law.  Borrower and Bank each submit to
the exclusive jurisdiction of the State and Federal courts in Multnomah County,
Oregon.

 

14

 

BORROWER
AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.  THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH
PARTIES TO ENTER INTO THIS AGREEMENT. 
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12                                  GENERAL PROVISIONS

 

12.1                        Successors and Assigns.

 

This
Agreement binds and is for the benefit of the successors and permitted assigns
of each party.  Borrower may not assign
this Agreement or any rights under it without Bank’s prior written consent,
which may be granted or withheld in Bank’s discretion.  Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank’s obligations, rights and benefits
under this Agreement.

 

12.2                        Indemnification.

 

Borrower
will indemnify, defend and hold harmless Bank and its officers, employees, and
agents against:  (a) all obligations,
demands, claims, and liabilities asserted by any other party in connection with
the transactions contemplated by the Loan Documents; and (b) all losses or Bank
Expenses incurred, or paid by Bank from, following, or consequential to
transactions between Bank and Borrower (including reasonable attorneys fees and
expenses), except for losses caused by Bank’s gross negligence or willful
misconduct.

 

12.3                        Time of Essence.

 

Time
is of the essence for the performance of all obligations in this Agreement.

 

12.4                        Severability of Provision.

 

Each
provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.

 

12.5                        Amendments in Writing,
Integration.

 

All
amendments to this Agreement must be in writing and signed by Borrower and
Bank.  This Agreement represents the
entire agreement about this subject matter, and supersedes prior negotiations
or agreements.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement
and the Loan Documents.

 

12.6                        Counterparts.

 

This
Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
are an original, and all taken together, constitute one Agreement.

 

12.7                        Survival.

 

All
covenants, representations and warranties made in this Agreement continue in
full force while any Obligations remain outstanding.  The obligations of Borrower in Section 12.2
to indemnify Bank will survive until all statutes of limitations for actions
that may be brought against Bank have run.

 

15

 

12.8                        Confidentiality.

 

In
handling any confidential information, Bank will exercise the same degree of
care that it exercises for its own proprietary information, but disclosure of
information may be made (i) to Bank’s subsidiaries or affiliates in connection
with their business with Borrower, (ii) to prospective transferees or
purchasers of any interest in the loans (provided, however, Bank shall use
commercially reasonable efforts in obtaining such prospective transferee or
purchasers agreement of the terms of this provision), (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank’s
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement.  Confidential
information does not include information that either: (a) is in the public
domain or in Bank’s possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (b) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.

 

12.9                        Attorneys’ Fees, Costs and
Expenses.

 

In
any action or proceeding between Borrower and Bank arising out of the Loan
Documents, the prevailing party will be entitled to recover its reasonable
attorneys’ fees and other reasonable costs and expenses incurred at trial, on
appeal and in any arbitration or bankruptcy proceeding, in addition to any
other relief to which it may be entitled.

 

12.10                 Joint and Several Obligations.

 

If
Borrower consists of more than one person or entity, all Obligations of
Borrower under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower.

 

13                                  DEFINITIONS

 

13.1                        Definitions.

 

In
this Agreement:

 

“Accounts” are all existing and later
arising accounts, contract rights, and other obligations owed Borrower in
connection with its sale or lease of goods (including licensing software and
other technology) or provision of services, all
credit insurance, guaranties, other security and all merchandise returned or
reclaimed by Borrower and Borrower’s Books relating to any of the foregoing, as
such definition may be amended from time to time according to the Code.

 

“Advance” or “Advances” is a loan advance (or advances) under the Committed
Revolving Line.

 

“Affiliate” of a Person is a Person that
owns or controls directly or indirectly the Person, any Person that controls or
is controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners
and, for any Person that is a limited liability company, that Person’s managers
and members.

 

“Bank Expenses” are all audit fees and
expenses and reasonable costs and expenses (including reasonable attorneys’
fees and expenses) for preparing, negotiating, administering, defending and
enforcing the Loan Documents (including appeals or Insolvency Proceedings).

 

“Borrower’s Books” are all Borrower’s books
and records including ledgers, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition and all
computer programs or discs or any equipment containing the information.

 

16

 

“Business Day” is any day that is not a
Saturday, Sunday or a day on which the Bank is closed.

 

“Cash Management Services” are defined in Section 2.1.2.

 

“Code” is the Oregon Uniform Commercial
Code, as applicable.

 

“Collateral” is the property described on Exhibit
A.

 

“Committed Revolving Line” is an Advance of
up to $10,000,000.

 

“Contingent Obligation” is, for any Person,
any direct or indirect liability, contingent or not, of that Person for (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another
such as an obligation directly or indirectly guaranteed, endorsed, co-made,
discounted or sold with recourse by that Person, or for which that Person is
directly or indirectly liable; (ii) any obligations for undrawn letters of credit
for the account of that Person; and (iii) all obligations from any interest
rate, currency or commodity swap agreement, interest rate cap or collar
agreement, or other agreement or arrangement designated to protect a Person
against fluctuation in interest rates, currency exchange rates or commodity
prices;  but “Contingent Obligation” does
not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the
stated or determined amount of the primary obligation for which the Contingent
Obligation is made or, if not determinable, the maximum reasonably anticipated
liability for it determined by the Person in good faith; but the amount may not
exceed the maximum of the obligations under the guarantee or other support arrangement.

 

“Copyrights” are all copyright rights,
applications or registrations and like protections in each work of authorship
or derivative work, whether published or not (whether or not it is a trade
secret) now or later existing, created, acquired or held.

 

“Credit Extension” is each Advance or any
other extension of credit by Bank for Borrower’s benefit.

 

“Current Liabilities” are the aggregate
amount of Borrower’s Total Liabilities that mature within one (1) year and all
outstanding Advances hereunder.

 

“Effective Date” is the date Bank executes
this Agreement.

 

“Equipment” is all present and future
machinery, equipment, tenant improvements, furniture, fixtures, vehicles,
tools, parts and attachments in which Borrower has any interest.

 

“ERISA” is the Employment Retirement Income
Security Act of 1974, and its regulations.

 

“GAAP” is generally accepted accounting
principles.

 

“Indebtedness” is (a) indebtedness for
borrowed money or the deferred price of property or services, such as
reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c)
capital lease obligations and (d) Contingent Obligations.

 

“Insolvency Proceeding” are proceedings by
or against any Person under the United States Bankruptcy Code, or any other
bankruptcy or insolvency law, including assignments for the benefit of
creditors, compositions, extensions generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.

 

“Intellectual  Property” is all of Borrower’s:

 

17

 

(a)
 Copyrights, Trademarks, Patents, and
Mask Works including amendments, renewals, extensions, and all licenses or
other rights to use and all license fees and royalties from the use;

 

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

 

(c)
 All design rights that may be available
to Borrower now or later created, acquired or held;

 

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

 

All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.

 

“Inventory” is present and future inventory
in which Borrower has any interest, including merchandise, raw materials,
parts, supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or later owned by or in the custody
or possession, actual or constructive, of Borrower, including inventory
temporarily out of its custody or possession or in transit and including
returns on any accounts or other proceeds (including insurance proceeds) from
the sale or disposition of any of the foregoing and any documents of title.

 

“Investment” is any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.

 

“LIBOR Rate Margin” means the
following:  (a) if the Adjusted Quick Ratio
is greater than or equal to 3.00 to 1.00, then the LIBOR Rate Margin is 1.75%;
(b) if the Adjusted Quick Ratio is less than 3.00 to 1.00 and greater than 2.50
to 1.00, then the LIBOR Rate Margin is 2.00%; and (c) if the Adjusted Quick
Ratio is less than or equal to 2.50 to 1.00, then the LIBOR Rate Margin is
2.25%.

 

“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.

 

“Loan Documents” are, collectively, this
Agreement, any note, or notes or guaranties executed by Borrower or Guarantor,
and any other present or future agreement between Borrower and/or for the
benefit of Bank in connection with this Agreement, all as amended, extended or
restated.

 

“Mask Works” are all mask works or similar
rights available for the protection of semiconductor chips, now owned or later
acquired.

 

“Material Adverse Change” is defined in Section 8.3.

 

“Obligations” are debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later,
including cash management services, letters of credit and foreign exchange
contracts, if any and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.

 

“Patents” are patents, patent applications
and like protections, including improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.

 

18

 

“Permitted Indebtedness” is:

 

(a)
 Borrower’s indebtedness to Bank under
this Agreement or any other Loan Document;

 

(b)
 Indebtedness existing on the Effective
Date and shown on the Schedule;

 

(c)
 Subordinated Debt;

 

(d)
 Indebtedness to trade creditors incurred
in the ordinary course of business; and

 

(e)
 Indebtedness secured by Permitted Liens.

 

“Permitted Investments” are:

 

(a)
 Investments shown on the Schedule and
existing on the Effective Date; and

 

(b)
 (i) marketable direct obligations issued
or unconditionally guaranteed by the United States or its agency or any State
maturing within 1 year from its acquisition, (ii) commercial paper maturing no
more than 1 year after its creation and having the highest rating from either
Standard & Poor’s Corporation or Moody’s Investors Service, Inc., and (iii)
Bank’s certificates of deposit issued maturing no more than 1 year after issue.

 

“Permitted Liens” are:

 

(a)
 Liens existing on the Effective Date and
shown on the Schedule or arising under this Agreement or other Loan
Documents;

 

(b)
 Liens for taxes, fees, assessments or
other government charges or levies, either not delinquent or being contested in
good faith and for which Borrower maintains adequate reserves on its Books, if
they have no priority over any of Bank’s security interests;

 

(c)
 Purchase money Liens (i) on Equipment
acquired or held by Borrower or its Subsidiaries incurred for financing the
acquisition of the Equipment, or (ii) existing on equipment when acquired, if
the Lien is confined to the property and improvements and the proceeds of the
equipment;

 

(d)
 Licenses or sublicenses granted in the
ordinary course of Borrower’s business and any interest or title of a licensor
or under any license or sublicense, if the licenses and sublicenses
permit granting Bank a security interest;

 

(e)
 Leases or subleases granted in the
ordinary course of Borrower’s business, including in connection with Borrower’s
leased premises or leased personal property;

 

(f)
 Liens incurred in the extension, renewal
or refinancing of the indebtedness secured by Liens described in (a) through
(c), but any extension, renewal or replacement Lien must be limited to
the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase.

 

“Person” is any individual, sole
proprietorship, partnership, limited liability company, joint venture, company
association, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate,
entity or government agency.

 

“Prime Rate” is Bank’s most recently
announced “prime rate,” even if it is not Bank’s lowest rate.

 

19

 

“Prime Rate Margin” means the
following:  (a) if the Adjusted Quick
Ratio is greater than or equal to 3.00 to 1.00, then the Prime Rate Margin is
-.25%; and (b) if the Adjusted Quick Ratio is less than 3.00 to 1.00, then the
Prime Rate Margin is 0.00%.

 

“Quick Assets” is, on any date, the Borrower’s
consolidated, unrestricted cash, cash equivalents, short-term investments in
available-for-sale securities and net-billed accounts receivable determined
according to GAAP.

 

“Responsible  Officer” is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.

 

“Revolving Maturity Date” is June 30,
2006.

 

“Rights”, as applied to the Collateral, means the Borrower’s rights and
interests in, and powers with respect to, that Collateral, whatever the nature
of those rights, interests and powers and, in any event, including Borrower’s
power to transfer rights in such Collateral to Bank.

 

“Schedule” is any attached schedule of
exceptions.

 

“Subordinated Debt” is debt incurred by
Borrower subordinated to Borrower’s indebtedness owed to Bank and which is
reflected in a written agreement in a manner and form acceptable to Bank and
approved by Bank in writing.

 

“Subsidiary” is for any Person, or any other
business entity of which more than 50% of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by the Person or one
or more Affiliates of the Person.

 

“Tangible Net Worth” is, on any date, the
consolidated total assets of Borrower and its Subsidiaries minus, (i)
any amounts attributable to (a) goodwill, (b) intangible items such as
unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid
expenses, and (c) reserves not already deducted from assets, and (ii)
Total Liabilities.

 

“Total  Liabilities”
is on any day, obligations that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all
Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.

 

“Trademarks” are trademark and servicemark
rights, registered or not, applications to register and registrations and like
protections, and the entire goodwill of the business of Borrower connected with
the trademarks.

 

[Signature page follows]

 

20

 

UNDER
OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK CONCERNING
LOANS AND OTHER CREDIT EXTENSIONS WHICH 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 BANK TO BE ENFORCEABLE.

 

	
  BORROWER:

  
	
   

  
	
  ADVANCED POWER TECHNOLOGY,
  INC.

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ADVANCED POWER TECHNOLOGY
  RF, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ADVANCED POWER TECHNOLOGY
  COLORADO, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ADVANCED POWER TECHNOLOGY
  RF-PENNSYLVANIA, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BANK:

  	
   

  
	
   

  	
   

  	
   

  
	
  SILICON VALLEY BANK

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Effective Date:

  	
   

  	
   

  
						

 

21

 

EXHIBIT A

 

The
Collateral consists of all of Borrower’s right, title and interest in and to
the following whether owned now or hereafter arising and whether the Borrower
has rights now or hereafter has rights therein and wherever located:

 

All
goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

 

All
inventory, now owned or hereafter acquired, including, without limitation, all
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products including such inventory as is
temporarily out of Borrower’s custody or possession or in transit and including
any returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above;

 

All
contract rights and general intangibles (as such definitions may be amended
from time to time according to the Code), now owned or hereafter acquired,
including, without limitation, goodwill, trademarks, servicemarks, trade
styles, trade names, patents, patent applications, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, infringements, claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, design rights, income tax refunds,
payments of insurance and rights to payment of any kind;

 

All
now existing and hereafter arising accounts, contract rights, royalties,
license rights and all other forms of obligations owing to Borrower arising out
of the sale or lease of goods, the licensing of technology or the rendering of
services by Borrower (as such definitions may be amended from time to time
according to the Code) whether or not earned by performance, and any and all
credit insurance, insurance (including refund) claims and proceeds, guaranties,
and other security thereof, as well as all merchandise returned to or reclaimed
by Borrower;

 

All
documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
letter of credit rights, certificates of deposit, instruments and chattel paper
and electronic chattel paper now owned or hereafter acquired and Borrower’s
Books relating to the foregoing;

 

All
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and

 

All
Borrower’s Books relating to the foregoing and any and all claims, rights and
interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.

 

Notwithstanding
the foregoing, the Collateral shall not be deemed to include any copyrights,
copyright applications, copyright registrations and like protection in each
work of authorship and derivative work thereof, whether published or
unpublished, now owned or hereafter acquired; any patents, patent applications
and like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same, trademarks, servicemarks and applications therefor, whether registered or
not, and the goodwill of the business of Borrower connected with and symbolized
by such trademarks, any trade secret rights, including any rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; or any claims for
damage by way of any past,

 

 

present and future
infringement of any of the foregoing (collectively, the “Intellectual Property”),
except that the Collateral shall include the proceeds of all the Intellectual
Property that are accounts, (i.e. accounts receivable) of Borrower, or general
intangibles consisting of rights to payment, if a judicial authority (including
a U.S. Bankruptcy Court) holds that a security interest in the underlying
Intellectual Property is necessary to have a security interest in such accounts
and general intangibles of Borrower that are proceeds of the Intellectual
Property, then the Collateral shall automatically, and effective as of the
Effective Date, include the Intellectual Property to the extent necessary to
permit perfection of Bank’s security interest in such accounts and general
intangibles of Borrower that are proceeds of the Intellectual Property.

 

 

EXHIBIT B

 

LOAN PAYMENT/ADVANCE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.S.T.

	
  Fax To:

  	
   

  	
  Date:

  	
   

  	
   

  

 

LOAN PAYMENT:

Advanced Power Technology, Inc., Advanced
Power Technology RF, Inc., Advanced Power Technology Colorado, Inc. and
Advanced Power Technology RF-Pennsylvania, Inc.  (Borrower)

 

	
  From Account
  #

  	
   

  	
   

  	
   

  	
  To Account #

  	
   

  	
   

  
	
   

  	
  (Deposit Account #)

  	
   

  	
   

  	
  (Loan Account #)

  	
   

  
	
   

  	
   

  	
   

  
	
  Principal $

  	
   

  	
    and/or
  Interest $

  	
   

  	
   

  
													

 

All
Borrower’s representation and warranties in the Loan and Security Agreement are
true, correct and complete in all material respects up to and including the
date of the transfer request for a loan payment, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of that date:

 

	
  Authorized
  Signature:

  	
   

  	
  Phone Number:

  	
   

  

 

LOAN ADVANCE:

Complete Outgoing Wire
Request section below if all or a portion of the funds from
this loan advance are for an outgoing wire.

 

	
  From Account #

  	
   

  	
   

  	
   

  	
  To Account #

  	
   

  	
   

  
	
   

  	
  (Loan Account #)

  	
   

  	
   

  	
  (Deposit Account #)

  	
   

  
	
   

  	
   

  	
   

  
	
  Amount of Advance $

  	
   

  	
   

  	
   

  	
   

  
										

 

All
Borrower’s representation and warranties in the Loan and Security Agreement are true, correct and complete in all material
respects up to and including the date of the transfer request for an advance,
but those representations and warranties expressly referring to another date
shall be true, correct and complete in all material respects as of that date:

 

	
  Authorized
  Signature:

  	
   

  	
    Phone Number:

  	
   

  

 

OUTGOING WIRE REQUEST

Complete only if all or a portion of funds from the loan advance above are to be wired.

Deadline for same day processing is 12:00pm, P.S.T.

 

	
  Beneficiary Name:

  	
   

  	
   

  	
   

  	
  Amount of Wire: $

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beneficiary Bank:

  	
   

  	
   

  	
   

  	
  Account Number:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  City and State:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beneficiary Bank Transit
  (ABA) #:

  	
   

  	
   

  	
  Beneficiary Bank Code
  (Swift, Sort, Chip, etc.

  	
   

  	
   

  
	
   

  	
   

  	
   (For International Wire Only)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Intermediary Bank:

  	
   

  	
   

  	
   

  	
  Transit (ABA) #:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  For Further Credit to:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Special Instruction:

  	
   

  	
   

  	
   

  
																							

 

By signing below, I (we) acknowledge and agree that my (our)
funds transfer request shall be processed in accordance with and subject to the
terms and conditions set forth in the agreements(s) covering funds transfer
service(s), which agreements(s) were previously received and executed by me
(us).

 

	
  Authorized Signature:

  	
   

  	
   

  	
   

  	
  2nd Signature
  (If Required):

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Print Name/Title:

  	
   

  	
   

  	
   

  	
  Print Name/Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Telephone #

  	
   

  	
   

  	
   

  	
  Telephone #

  	
   

  	
   

  
											

 

 

Schedule to
Loan and Security Agreement

 

	
  The exact correct
  corporate name of Borrower is (attach a copy of the formation documents,
  e.g., articles, partnership agreement): 

  
	
   

  	
   

  
	
   

  
	
  Borrower’s State of
  formation: 

  	
   

  	
   

  
	
   

  
	
  Borrower has operated
  under only the following other names (if none, so state):

  
	
   

  
	
   

  
	
  All other address at which
  the Borrower does business are as follows (attach additional sheets if
  necessary and include all warehouse

  
	
  addresses):

  	
   

  
	
   

  
	
  Borrower has deposit
  accounts and/or investment accounts located only at the following
  institutions:

  
	
   

  
	
  List Acct. Numbers:

  	
   

  
	
   

  
	
  Liens existing on the
  Effective Date and disclosed to and accepted by Bank in writing:

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  Investments existing on
  the Effective Date and disclosed to and accepted by Bank in writing:

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  Subordinated Debt:

  	
   

  
	
   

  
	
   

  
	
   

  
	
  Indebtedness on the
  Effective Date and disclosed to and consented to by Bank in writing:

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  The following is a list of
  the Borrower’s copyrights (including copyrights of software) that are
  registered with the United States 

  
	
  Copyright Office. (Please
  include name of the copyright and registration number and attach a copy of
  the registration):

  	
   

  
	
   

  
	
   

  
	
   

  
	
  The following is a list of
  all software that the Borrower sells, distributes or licenses to others,
  which is not registered with the United 

  
	
  States Copyright Office.
  (Please include versions that are not registered:

  	
   

  
	
   

  	
   

  
	
   

  
	
  The following is a list of
  all of the Borrower’s patents that are registered with the United States
  Patent Office. (Please include name of 

  
	
  the patent and
  registration number and attach a copy of the registration.):

  	
   

  
	
   

  
	
   

  
	
   

  
	
  The following is a list of
  all of the Borrower’s patents which are pending with the United States Patent
  Office. (Please include name of 

  
	
  the patent and a copy of
  the application.):

  	
   

  
	
   

  
	
   

  
												

 

 

	
  The following is a list of
  all of the Borrower’s registered trademarks. (Please include name of the
  trademark and a copy of the 

  
	
  registration.):

  	
   

  
	
   

  
	
   

  
	
  Borrower is not subject to
  litigation that would have a material adverse effect on the Borrower’s
  financial condition, except the 

  
	
  following (attach
  additional comments, if needed):

  	
   

  
	
   

  
	
   

  
	
   

  
	
  Tax ID Number 

  	
   

  	
   

  
	
   

  
	
  Organizational Number, if
  any:

  	
   

  	
   

  
							

 

 

EXHIBIT C

COMPLIANCE CERTIFICATE

 

	
  TO:

  	
   

  	
  SILICON VALLEY BANK

  
	
   

  	
   

  	
  3003 Tasman Drive

  
	
   

  	
   

  	
  Santa Clara, CA 95054

  
	
   

  	
   

  	
   

  
	
  FROM:

  	
   

  	
  ADVANCED POWER TECHNOLOGY,
  INC., ADVANCED POWER TECHNOLOGY RF, INC.,

  ADVANCED POWER TECHNOLOGY COLORADO, INC. AND ADVANCED POWER TECHNOLOGY

  RF-PENNSYLVANIA, INC.

  

 

The
undersigned Responsible Officer of ADVANCED POWER TECHNOLOGY, INC., ADVANCED
POWER TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY COLORADO, INC. AND
ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA, INC. (collectively “Borrower”)
certifies that under the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is in
complete compliance for the period ending                                
with all required covenants except as noted below and (ii) all representations
and warranties in the Agreement are true and correct in all material respects
on this date.  In addition, the
undersigned certifies that Borrower, and each Subsidiary, has timely filed all
required tax returns and paid, or made adequate provision to pay, all material
taxes, except those being contested in good faith with adequate reserves under
GAAP.  Attached are the required
documents supporting the certification. 
The Officer certifies that these are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) consistently applied from one
period to the next except as explained in an accompanying letter or
footnotes.  The Responsible Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.

 

Please
indicate compliance status by circling Yes/No under “Complies” column.

 

	
  Reporting
  Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10-Q, 10-K and 8-K

  	
   

  	
  Within 5 days after filing
  with SEC

  	
   

  	
  Yes 

  	
  No

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  Financial
  Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maintain on a Monthly
  Basis:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum Quick Ratio (Adjusted)

  	
   

  	
  1.85:1.00

  	
   

  	
        :1.00

  	
   

  	
  Yes 

  	
  No

  
	
  Minimum Tangible Net Worth

  	
   

  	
  $

  	
  35,000,000

  	
  *

  	
  $

  	
               

  	
   

  	
  Yes  

  	
  No

  
										

 

*plus (a) 100% of all equity
or capital contributed to Borrower and all Subordinated Debt; and (b) 50% of
all positive quarterly net income (adjusted quarterly).

 

	
  Have there been updates to
  Borrower’s intellectual property?

  	
  Yes / No

  	
   

  
	
  Borrower only has deposit
  accounts located at the following institutions:

  	
   

  	
  .

  

 

 

	
  Comments
  Regarding Exceptions:
  See Attached.

  	
   

  	
  BANK USE ONLY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Received by:

  	
   

  	
   

  	
   

  
	
  Sincerely,

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  	
   

  
	
  ADVANCED POWER TECHNOLOGY,
  INC., ADVANCED POWER

  	
   

  	
   

  	
   

  
	
  TECHNOLOGY RF, INC.,
  ADVANCED POWER TECHNOLOGY

  	
  Verified:

  	
   

  	
   

  
	
  COLORADO, INC. AND
  ADVANCED POWER TECHNOLOGY

  	
  AUTHORIZED SIGNER

  	
   

  
	
  RF-PENNSYLVANIA, INC.

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SIGNATURE

  	
   

  	
  Compliance Status:

  	
  Yes

  	
  No

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TITLE

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DATE

  	
   

  	
   

  	
   

  	
   

  
													

 

 

SILICON
VALLEY BANK

 

PRO FORMA
INVOICE FOR LOAN CHARGES

 

BORROWER:                                                                                   ADVANCED POWER TECHNOLOGY,
INC., ADVANCED POWER TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY COLORADO,
INC. AND ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA, INC.

 

	
  LOAN
  OFFICER:

  	
   

  	
  Ron
  Sherman

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DATE:

  	
   

  	
  March       ,
  2005

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Revolving
  Loan Fee 

  	
   

  	
  $

  	
  20,000.00

  	
   

  
	
   

  	
   

  	
  UCC
  Search and Filing Fees

  	
   

  	
  1,555.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Less
  Deposit

  	
   

  	
  $

  	
  5,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TOTAL FEE
  DUE

  	
   

  	
  $

  	
  16,555.00

  	
   

  

 

	
  Legal Fee
  for professional services

  rendered by Harrang Long Gary

  Rudnick

  	
   

  	
  To be

  billed

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Costs
  estimate (including UCC

  searches)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  To be

  billed

  	
   

  

 

Please
indicate the method of payment:

 

{              }                        A check for the total amount
is attached.

 

{              }                        Debit DDA #                                 
for the total amount.

 

{              }                        Loan proceeds

 

 

Borrower:  ADVANCED POWER TECHNOLOGY, INC., ADVANCED
POWER TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY COLORADO, INC. AND
ADVANCED POWER TECHNOLOGY RF PENNSYLVANIA, INC.

 

	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Authorized
  Signer)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Silicon
  Valley Bank

  	
  (Date)

  	
   

  	
   

  
	
  Account Officer’s
  Signature

  	
   

  	
   

  
								

 

 

CORPORATE
BORROWING RESOLUTION

 

	
  Borrower:

  	
   

  	
  ADVANCED
  POWER TECHNOLOGY, INC.

  405 S.W. Columbia Street

  Bend, OR 97702

  	
   

  	
  Bank:

  	
   

  	
  Silicon
  Valley Bank

  3003 Tasman Drive

  Santa Clara, CA 95054-1191

  	
   

  

 

I, the
Secretary or Assistant Secretary of ADVANCED POWER TECHNOLOGY, INC. (“Borrower”),
CERTIFY that Borrower
is a corporation existing under the laws of the State of Delaware.

 

I certify that at a meeting of Borrower’s
Directors (or by other authorized corporate action) duly held the following
resolutions were adopted.

 

It is resolved that any one of the following officers of
Borrower, whose name, title and signature is below:

 

	
  NAMES

  	
   

  	
  POSITIONS

  	
   

  	
  ACTUAL SIGNATURES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

may act for Borrower and:

 

Borrow Money.  Borrow money from Silicon Valley
Bank (“Bank”).

 

Execute Loan Documents. 
Execute any loan documents Bank requires.

 

Grant Security.  Grant Bank a security interest
in any of Borrower’s assets.

 

Negotiate Items.  Negotiate or discount all
drafts, trade acceptances, promissory notes, or other indebtedness in which
Borrower has an interest and receive cash or otherwise use the proceeds.

 

Letters of Credit.  Apply for letters of credit from
Bank.

 

Foreign Exchange Contracts. 
Execute spot or forward foreign exchange contracts.

 

Issue Warrants.  Issue warrants for Borrower’s
stock.

 

Further Acts.  Designate other individuals to
request advances, pay fees and costs and execute other documents or agreements
(including documents or agreement that waive Borrowers right to a jury trial)
they think necessary to effectuate these Resolutions.

 

Further resolved that all acts authorized by
these Resolutions and performed before they were adopted are ratified. These
Resolutions remain in effect and Bank may rely on them until Bank receives
written notice of their revocation.

 

I certify that the persons listed above are
Borrower’s officers with the titles and signatures shown following their names
and that these resolutions have not been modified are currently effective.

 

CERTIFIED TO
AND ATTESTED BY:

 

	
  X

  	
   

  	
   

  
	
   

  	
  *Secretary or Assistant
  Secretary

  
	
   

  	
   

  
	
  X

  	
   

  	
   

  
				

 

*NOTE: In case the Secretary
or other certifying officer is designated by the foregoing resolutions as one
of the signing officers, this resolution should also be signed by a second
Officer or Director of Borrower.

 

 

CORPORATE BORROWING RESOLUTION

 

	
  Borrower:

  	
   

  	
  ADVANCED
  POWER

  TECHNOLOGY RF, INC.

  405 S.W. Columbia Street

  Bend, OR 97702

  	
   

  	
  Bank:

  	
   

  	
  Silicon
  Valley Bank

  3003 Tasman Drive

  Santa Clara, CA 95054-1191

  	
   

  

 

I, the
Secretary or Assistant Secretary of ADVANCED POWER TECHNOLOGY RF, INC. (“Borrower”),
CERTIFY that Borrower
is a corporation existing under the laws of the State of Delaware.

 

I certify that at a meeting of Borrower’s
Directors (or by other authorized corporate action) duly held the following
resolutions were adopted.

 

It is resolved that any one of the following officers of
Borrower, whose name, title and signature is below:

 

	
  NAMES

  	
   

  	
  POSITIONS

  	
   

  	
  ACTUAL SIGNATURES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

may act for Borrower and:

 

Borrow Money.  Borrow money from Silicon Valley
Bank (“Bank”).

 

Execute Loan Documents. 
Execute any loan documents Bank requires.

 

Grant Security.  Grant Bank a security interest
in any of Borrower’s assets.

 

Negotiate Items.  Negotiate or discount all
drafts, trade acceptances, promissory notes, or other indebtedness in which
Borrower has an interest and receive cash or otherwise use the proceeds.

 

Letters of Credit.  Apply for letters of credit from
Bank.

 

Foreign Exchange Contracts. 
Execute spot or forward foreign exchange contracts.

 

Issue Warrants.  Issue warrants for Borrower’s
stock.

 

Further Acts.  Designate other individuals to
request advances, pay fees and costs and execute other documents or agreements
(including documents or agreement that waive Borrowers right to a jury trial)
they think necessary to effectuate these Resolutions.

 

Further resolved that all acts authorized by
these Resolutions and performed before they were adopted are ratified. These
Resolutions remain in effect and Bank may rely on them until Bank receives
written notice of their revocation.

 

I certify that the persons listed above are
Borrower’s officers with the titles and signatures shown following their names
and that these resolutions have not been modified are currently effective.

 

CERTIFIED TO
AND ATTESTED BY:

 

	
  X

  	
   

  	
   

  
	
   

  	
  *Secretary or Assistant
  Secretary

  
	
   

  	
   

  
	
  X

  	
   

  	
   

  

 

*NOTE: In case the Secretary
or other certifying officer is designated by the foregoing resolutions as one
of the signing officers, this resolution should also be signed by a second
Officer or Director of Borrower.

 

 

CORPORATE BORROWING RESOLUTION

 

	
  Borrower:

  	
   

  	
  ADVANCED
  POWER

  TECHNOLOGY COLORADO, INC.

  405 S.W. Columbia Street

  Bend, OR 97702

  	
   

  	
  Bank:

  	
   

  	
  Silicon
  Valley Bank

  3003 Tasman Drive

  Santa Clara, CA 95054-1191

  	
   

  

 

I, the
Secretary or Assistant Secretary of ADVANCED POWER TECHNOLOGY COLORADO, INC. (“Borrower”),
CERTIFY that Borrower
is a corporation existing under the laws of the State of                              .

 

I certify that at a meeting of Borrower’s
Directors (or by other authorized corporate action) duly held the following
resolutions were adopted.

 

It is resolved that any one of the following officers of
Borrower, whose name, title and signature is below:

 

	
  NAMES

  	
   

  	
  POSITIONS

  	
   

  	
  ACTUAL SIGNATURES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

may act for Borrower and:

 

Borrow Money.  Borrow money from Silicon Valley
Bank (“Bank”).

 

Execute Loan Documents. 
Execute any loan documents Bank requires.

 

Grant Security.  Grant Bank a security interest
in any of Borrower’s assets.

 

Negotiate Items.  Negotiate or discount all
drafts, trade acceptances, promissory notes, or other indebtedness in which
Borrower has an interest and receive cash or otherwise use the proceeds.

 

Letters of Credit.  Apply for letters of credit from
Bank.

 

Foreign Exchange Contracts. 
Execute spot or forward foreign exchange contracts.

 

Issue Warrants.  Issue warrants for Borrower’s
stock.

 

Further Acts.  Designate other individuals to
request advances, pay fees and costs and execute other documents or agreements
(including documents or agreement that waive Borrowers right to a jury trial)
they think necessary to effectuate these Resolutions.

 

Further resolved that all acts authorized by
these Resolutions and performed before they were adopted are ratified. These
Resolutions remain in effect and Bank may rely on them until Bank receives
written notice of their revocation.

 

I certify that the persons listed above are
Borrower’s officers with the titles and signatures shown following their names and
that these resolutions have not been modified are currently effective.

 

CERTIFIED TO
AND ATTESTED BY:

 

	
  X

  	
   

  	
   

  
	
   

  	
  *Secretary or Assistant
  Secretary

  
	
   

  	
   

  
	
  X

  	
   

  	
   

  

 

*NOTE: In case the Secretary
or other certifying officer is designated by the foregoing resolutions as one
of the signing officers, this resolution should also be signed by a second
Officer or Director of Borrower.

 

 

CORPORATE BORROWING RESOLUTION

 

	
  Borrower:

  	
   

  	
  ADVANCED
  POWER TECHNOLOGY, RF-

  PENNSYLVANIA, INC.

  405 S.W. Columbia Street

  Bend, OR 97702

  	
   

  	
  Bank:

  	
   

  	
  Silicon
  Valley Bank

  3003 Tasman Drive

  Santa Clara, CA 95054-1191

  	
   

  

 

I, the
Secretary or Assistant Secretary of ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA,
INC. (“Borrower”), CERTIFY that Borrower is a corporation existing under the laws of the State of
Delaware.

 

I certify that at a meeting of Borrower’s
Directors (or by other authorized corporate action) duly held the following
resolutions were adopted.

 

It is resolved that any one of the following officers of
Borrower, whose name, title and signature is below:

 

	
  NAMES

  	
   

  	
  POSITIONS

  	
   

  	
  ACTUAL SIGNATURES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

may act for Borrower and:

 

Borrow Money.  Borrow money from Silicon Valley
Bank (“Bank”).

 

Execute Loan Documents. 
Execute any loan documents Bank requires.

 

Grant Security.  Grant Bank a security interest
in any of Borrower’s assets.

 

Negotiate Items.  Negotiate or discount all
drafts, trade acceptances, promissory notes, or other indebtedness in which
Borrower has an interest and receive cash or otherwise use the proceeds.

 

Letters of Credit.  Apply for letters of credit from
Bank.

 

Foreign Exchange Contracts. 
Execute spot or forward foreign exchange contracts.

 

Issue Warrants.  Issue warrants for Borrower’s
stock.

 

Further Acts.  Designate other individuals to
request advances, pay fees and costs and execute other documents or agreements
(including documents or agreement that waive Borrowers right to a jury trial)
they think necessary to effectuate these Resolutions.

 

Further resolved that all acts authorized by
these Resolutions and performed before they were adopted are ratified. These
Resolutions remain in effect and Bank may rely on them until Bank receives
written notice of their revocation.

 

I certify that the persons listed above are
Borrower’s officers with the titles and signatures shown following their names
and that these resolutions have not been modified are currently effective.

 

CERTIFIED TO
AND ATTESTED BY:

 

	
  X

  	
   

  	
   

  
	
   

  	
  *Secretary or Assistant
  Secretary

  
	
   

  	
   

  
	
  X

  	
   

  	
   

  

 

*NOTE: In case the Secretary
or other certifying officer is designated by the foregoing resolutions as one
of the signing officers, this resolution should also be signed by a second
Officer or Director of Borrower.

 

 

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA  95054

Attn:  Loan Services

 

CONSENT TO REMOVAL OF PERSONAL PROPERTY

 

KNOW ALL PERSONS BY THESE
PRESENTS:

 

(a)                                  The undersigned has an interest as owner and
landlord in the following described real property (the “Real Property”):  SEE
ATTACHMENT 1 ATTACHED HERETO FOR FULL LEGAL DESCRIPTION, commonly
known as 405 S.W. Columbia Street, Bend, OR 97702.

 

(b)                                 ADVANCED POWER TECHNOLOGY, INC., ADVANCED
POWER TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY COLORADO, INC. AND
ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA, INC. 
(collectively “Borrower”), whose address is 405 S.W. Columbia Street,
Bend, OR 97702, has entered into or will enter into a Loan and Security
Agreement with Silicon Valley Bank (“Bank”) dated as of the Effective Date (as
defined therein) (as amended and supplemented from time to time, the “Loan
Agreement”).  As a condition to entering
into the Loan Agreement, Bank requires that the undersigned consent to the
removal by Bank of the equipment and other assets covered by the Loan Agreement
(hereinafter called “Equipment”) from the Real Property.

 

NOW, THEREFORE, the
undersigned consents to the placing of the Equipment on the Real Property, and
agrees with Bank as follows:

 

1.                                       The undersigned waives and releases each and
every right which undersigned now has, under applicable law or by virtue of the
lease for the Real Property now in effect, to levy or distrain upon for rent,
in arrears, in advance or both, or to claim or assert title to the Equipment
that is already on said Real Property, or may hereafter be delivered or
installed thereon.

 

2.                                       The Equipment shall be considered to be
personal property and shall not be considered part of the Real Property
regardless of whether or by what means it is or may become attached or affixed
to the Real Property.

 

3.                                       The undersigned will permit Bank, or its
agent or representative, to enter upon the Real Property for the purpose of
exercising any right they may have under the terms of the Loan Agreement or
otherwise, including, without limitation, the right to remove the Equipment;
provided, however, that if Bank, in removing the Equipment damage any
improvements of the undersigned on the Real Property, Bank will, at its
expense, cause same to be repaired.

 

4.                                       This agreement shall be binding upon the
heirs, successors and assigns of the undersigned and shall inure to the benefit
of each Bank and its respective successors and assigns.

 

IN WITNESS WHEREOF, the
undersigned has executed this instrument at                    ,
this               day
of                   ,
2005.

 

 

	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

 

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA  95054

Attn:  Loan Services

 

CONSENT TO REMOVAL OF PERSONAL PROPERTY

 

KNOW ALL PERSONS BY THESE
PRESENTS:

 

(a)                                  The undersigned has an interest as owner and
landlord in the following described real property (the “Real Property”):  SEE
ATTACHMENT 1 ATTACHED HERETO FOR FULL LEGAL DESCRIPTION, commonly
known as 296 SW Columbia Street, Suite C, Bend, OR 97702.

 

(b)                                 ADVANCED POWER TECHNOLOGY, INC., ADVANCED
POWER TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY COLORADO, INC. AND
ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA, INC. 
(collectively “Borrower”), whose address is 405 S.W. Columbia Street,
Bend, OR 97702, has entered into or will enter into a Loan and Security
Agreement with Silicon Valley Bank (“Bank”) dated as of the Effective Date (as
defined therein) (as amended and supplemented from time to time, the “Loan
Agreement”).  As a condition to entering
into the Loan Agreement, Bank requires that the undersigned consent to the
removal by Bank of the equipment and other assets covered by the Loan Agreement
(hereinafter called “Equipment”) from the Real Property.

 

NOW, THEREFORE, the
undersigned consents to the placing of the Equipment on the Real Property, and
agrees with Bank as follows:

 

1.                                       The undersigned waives and releases each and
every right which undersigned now has, under applicable law or by virtue of the
lease for the Real Property now in effect, to levy or distrain upon for rent,
in arrears, in advance or both, or to claim or assert title to the Equipment
that is already on said Real Property, or may hereafter be delivered or
installed thereon.

 

2.                                       The Equipment shall be considered to be
personal property and shall not be considered part of the Real Property
regardless of whether or by what means it is or may become attached or affixed
to the Real Property.

 

3.                                       The undersigned will permit Bank, or its
agent or representative, to enter upon the Real Property for the purpose of
exercising any right they may have under the terms of the Loan Agreement or
otherwise, including, without limitation, the right to remove the Equipment;
provided, however, that if Bank, in removing the Equipment damage any improvements
of the undersigned on the Real Property, Bank will, at its expense, cause same
to be repaired.

 

4.                                       This agreement shall be binding upon the
heirs, successors and assigns of the undersigned and shall inure to the benefit
of each Bank and its respective successors and assigns.

 

IN WITNESS WHEREOF, the
undersigned has executed this instrument at                   ,
this               day
of                   ,
2005.

 

 

	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

 

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA  95054

Attn:  Loan Services

 

CONSENT TO REMOVAL OF PERSONAL PROPERTY

 

KNOW ALL PERSONS BY THESE
PRESENTS:

 

(a)                                  The undersigned has an interest as owner and
landlord in the following described real property (the “Real Property”):  SEE
ATTACHMENT 1 ATTACHED HERETO FOR FULL LEGAL DESCRIPTION, commonly
known as                                                  Bend,
OR 97702.

 

(b)                                 ADVANCED POWER TECHNOLOGY, INC., ADVANCED
POWER TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY COLORADO, INC. AND
ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA, INC. 
(collectively “Borrower”), whose address is 405 S.W. Columbia Street,
Bend, OR  97702, has entered into or will
enter into a Loan and Security Agreement with Silicon Valley Bank (“Bank”)
dated as of the Effective Date (as defined therein) (as amended and
supplemented from time to time, the “Loan Agreement”).  As a condition to entering into the Loan
Agreement, Bank requires that the undersigned consent to the removal by Bank of
the equipment and other assets covered by the Loan Agreement (hereinafter
called “Equipment”) from the Real Property.

 

NOW, THEREFORE, the
undersigned consents to the placing of the Equipment on the Real Property, and
agrees with Bank as follows:

 

1.                                       The undersigned waives and releases each and
every right which undersigned now has, under applicable law or by virtue of the
lease for the Real Property now in effect, to levy or distrain upon for rent,
in arrears, in advance or both, or to claim or assert title to the Equipment
that is already on said Real Property, or may hereafter be delivered or
installed thereon.

 

2.                                       The Equipment shall be considered to be
personal property and shall not be considered part of the Real Property
regardless of whether or by what means it is or may become attached or affixed
to the Real Property.

 

3.                                       The undersigned will permit Bank, or its
agent or representative, to enter upon the Real Property for the purpose of
exercising any right they may have under the terms of the Loan Agreement or
otherwise, including, without limitation, the right to remove the Equipment;
provided, however, that if Bank, in removing the Equipment damage any
improvements of the undersigned on the Real Property, Bank will, at its
expense, cause same to be repaired.

 

4.                                       This agreement shall be binding upon the
heirs, successors and assigns of the undersigned and shall inure to the benefit
of each Bank and its respective successors and assigns.

 

IN WITNESS WHEREOF, the
undersigned has executed this instrument at                   ,
this                 day
of                     ,
2005.

 

 

	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

 

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA  95054

Attn:  Loan Services

 

CONSENT TO REMOVAL OF PERSONAL PROPERTY

 

KNOW ALL PERSONS BY THESE
PRESENTS:

 

(a)                                  The undersigned has an interest as owner and
landlord in the following described real property (the “Real Property”):  SEE
ATTACHMENT 1 ATTACHED HERETO FOR FULL LEGAL DESCRIPTION, commonly
known as 3000 Oakmead Village Drive, Santa Clara, CA  95051-0808.

 

(b)                                 ADVANCED POWER TECHNOLOGY, INC., ADVANCED
POWER TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY COLORADO, INC. AND
ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA, INC. 
(collectively “Borrower”), has entered into or will enter into a Loan
and Security Agreement with Silicon Valley Bank (“Bank”) dated as of the
Effective Date (as defined therein) (as amended and supplemented from time to
time, the “Loan Agreement”).  As a
condition to entering into the Loan Agreement, Bank requires that the
undersigned consent to the removal by Bank of the equipment and other assets
covered by the Loan Agreement (hereinafter called “Equipment”) from the Real
Property.

 

NOW, THEREFORE, the
undersigned consents to the placing of the Equipment on the Real Property, and
agrees with Bank as follows:

 

1.                                       The undersigned waives and releases each and
every right which undersigned now has, under applicable law or by virtue of the
lease for the Real Property now in effect, to levy or distrain upon for rent,
in arrears, in advance or both, or to claim or assert title to the Equipment
that is already on said Real Property, or may hereafter be delivered or
installed thereon.

 

2.                                       The Equipment shall be considered to be personal
property and shall not be considered part of the Real Property regardless of
whether or by what means it is or may become attached or affixed to the Real
Property.

 

3.                                       The undersigned will permit Bank, or its
agent or representative, to enter upon the Real Property for the purpose of
exercising any right they may have under the terms of the Loan Agreement or
otherwise, including, without limitation, the right to remove the Equipment;
provided, however, that if Bank, in removing the Equipment damage any
improvements of the undersigned on the Real Property, Bank will, at its
expense, cause same to be repaired.

 

4.                                       This agreement shall be binding upon the
heirs, successors and assigns of the undersigned and shall inure to the benefit
of each Bank and its respective successors and assigns.

 

IN WITNESS WHEREOF, the
undersigned has executed this instrument at                   ,
this                day
of                   ,
2005.

 

 

	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

 

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA  95054

Attn:  Loan Services

 

CONSENT TO REMOVAL OF PERSONAL PROPERTY

 

KNOW ALL PERSONS BY THESE
PRESENTS:

 

(a)                                  The undersigned has an interest as owner and
landlord in the following described real property (the “Real Property”):  SEE
ATTACHMENT 1 ATTACHED HERETO FOR FULL LEGAL DESCRIPTION, commonly
known as 140 Commerce Drive, Montgomeryville, PA  18936.

 

(b)                                 ADVANCED POWER TECHNOLOGY, INC., ADVANCED
POWER TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY COLORADO, INC. AND
ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA, INC. 
(collectively “Borrower”), has entered into or will enter into a Loan
and Security Agreement with Silicon Valley Bank (“Bank”) dated as of the
Effective Date (as defined therein) (as amended and supplemented from time to
time, the “Loan Agreement”).  As a
condition to entering into the Loan Agreement, Bank requires that the
undersigned consent to the removal by Bank of the equipment and other assets
covered by the Loan Agreement (hereinafter called “Equipment”) from the Real
Property.

 

NOW, THEREFORE, the
undersigned consents to the placing of the Equipment on the Real Property, and
agrees with Bank as follows:

 

1.                                       The undersigned waives and releases each and
every right which undersigned now has, under applicable law or by virtue of the
lease for the Real Property now in effect, to levy or distrain upon for rent,
in arrears, in advance or both, or to claim or assert title to the Equipment
that is already on said Real Property, or may hereafter be delivered or
installed thereon.

 

2.                                       The Equipment shall be considered to be
personal property and shall not be considered part of the Real Property
regardless of whether or by what means it is or may become attached or affixed
to the Real Property.

 

3.                                       The undersigned will permit Bank, or its
agent or representative, to enter upon the Real Property for the purpose of
exercising any right they may have under the terms of the Loan Agreement or
otherwise, including, without limitation, the right to remove the Equipment;
provided, however, that if Bank, in removing the Equipment damage any
improvements of the undersigned on the Real Property, Bank will, at its
expense, cause same to be repaired.

 

4.                                       This agreement shall be binding upon the
heirs, successors and assigns of the undersigned and shall inure to the benefit
of each Bank and its respective successors and assigns.

 

IN WITNESS WHEREOF, the
undersigned has executed this instrument at                   ,
this                day
of                   ,
2005.

 

 

	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

 

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA  95054

Attn:  Loan Services

 

CONSENT TO REMOVAL OF PERSONAL PROPERTY

 

KNOW ALL PERSONS BY THESE
PRESENTS:

 

(a)                                  The undersigned has an interest as owner and
landlord in the following described real property (the “Real Property”):  SEE
ATTACHMENT 1 ATTACHED HERETO FOR FULL LEGAL DESCRIPTION, commonly
known as                                                                            Colorado                   .

 

(b)                                 ADVANCED POWER TECHNOLOGY, INC., ADVANCED
POWER TECHNOLOGY RF, INC., ADVANCED POWER TECHNOLOGY COLORADO, INC. AND
ADVANCED POWER TECHNOLOGY RF-PENNSYLVANIA, INC. 
(collectively “Borrower”), has entered into or will enter into a Loan
and Security Agreement with Silicon Valley Bank (“Bank”) dated as of the
Effective Date (as defined therein) (as amended and supplemented from time to
time, the “Loan Agreement”).  As a
condition to entering into the Loan Agreement, Bank requires that the
undersigned consent to the removal by Bank of the equipment and other assets
covered by the Loan Agreement (hereinafter called “Equipment”) from the Real
Property.

 

NOW, THEREFORE, the
undersigned consents to the placing of the Equipment on the Real Property, and
agrees with Bank as follows:

 

1.                                       The undersigned waives and releases each and
every right which undersigned now has, under applicable law or by virtue of the
lease for the Real Property now in effect, to levy or distrain upon for rent,
in arrears, in advance or both, or to claim or assert title to the Equipment
that is already on said Real Property, or may hereafter be delivered or
installed thereon.

 

2.                                       The Equipment shall be considered to be
personal property and shall not be considered part of the Real Property
regardless of whether or by what means it is or may become attached or affixed
to the Real Property.

 

3.                                       The undersigned will permit Bank, or its
agent or representative, to enter upon the Real Property for the purpose of
exercising any right they may have under the terms of the Loan Agreement or
otherwise, including, without limitation, the right to remove the Equipment;
provided, however, that if Bank, in removing the Equipment damage any
improvements of the undersigned on the Real Property, Bank will, at its
expense, cause same to be repaired.

 

4.                                       This agreement shall be binding upon the
heirs, successors and assigns of the undersigned and shall inure to the benefit
of each Bank and its respective successors and assigns.

 

IN WITNESS WHEREOF, the
undersigned has executed this instrument at                    ,
this                 day
of                    ,
2005.

 

 

	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:EXHIBIT
10.1

 

SUMMA INDUSTRIES

AMENDED &
RESTATED

2005 EQUITY INCENTIVE PLAN

 

ARTICLE I

PURPOSE OF PLAN

 

The Company has adopted
this Plan to promote the interests of the Company and its stockholders by using
investment interests in the Company to attract, retain and motivate its
management, directors, employees and other persons, to encourage and reward
their contributions to the performance of the Company, and to align their
interests with the interests of the Company’s stockholders.  Capitalized terms not otherwise defined
herein have the meanings ascribed to them in Article VIII.

 

ARTICLE II

EFFECTIVE DATE AND TERM OF PLAN

 

2.1         Term
of Plan.

 

This Plan became
effective as of the Effective Date and will continue in effect until the
earlier of (a) the Expiration Date, or (b) the date of any Plan
termination by the Administrator pursuant to the provisions in Section 4.4.

 

2.2         Effect
on Awards.

 

Awards may be granted
only during the Plan Term, but each Award properly granted during the Plan Term
will remain in effect after the Expiration Date until such Award has been
exercised, terminated or expired in accordance with its terms and the terms of
this Plan.

 

2.3         Stockholder
Approval.

 

This Plan shall be
approved by the Company’s stockholders. 
The effectiveness of any Awards granted prior to such stockholder
approval shall be subject to such stockholder approval.

 

ARTICLE III

SHARES SUBJECT TO PLAN

 

3.1         Number
of Shares.

 

The maximum number of
shares of Common Stock that may be issued pursuant to Awards under this Plan is
500,000, subject to adjustment as set forth in Section 3.4.

 

3.2         Source
of Shares.

 

The Common Stock to be
issued under this Plan will be made available, at the discretion of the
Administrator, either from authorized but unissued shares of Common Stock or
from previously issued shares of Common Stock reacquired by the Company,
including without limitation shares purchased on the open market.

 

3.3         Availability
of Unused Shares.

 

Shares of Common Stock
subject to unexercised portions of any Award that expire, terminate or are
canceled, and shares of Common Stock issued pursuant to an Award that are
reacquired by the Company pursuant to this Plan or the terms of the Award under
which such shares were issued, will again become available for the grant of
further Awards under this Plan as part of the shares available under Section 3.1.  However, if the exercise price of, or
withholding taxes incurred in connection with, an Award is paid with shares of
Common Stock, or if shares of Common Stock otherwise issuable pursuant to
Awards are withheld by the Company in satisfaction of an exercise price or the
withholding taxes incurred in connection with any exercise or vesting of an
Award, then the number of shares of Common Stock available for issuance under the
Plan will be reduced by the gross number of shares for which the Award is
exercised or for which the Award vests, as applicable, and not by the net
number of shares of Common Stock issued to the holder of such Award.

 

 

3.4         Adjustment
Provisions.

 

(a)                                  Adjustments.  Subject to Section 3.4(e), if the
Company consummates any Reorganization in which holders of shares of Common
Stock are entitled to receive in respect of such shares any additional shares
or new or different shares or securities, cash or other consideration
(including, without limitation, a different number of shares of Common Stock),
or if the outstanding shares of Common Stock are increased, decreased or
exchanged for a different number or kind of shares or other securities through
merger, consolidation, sale or exchange of all or substantially all of the
assets of the Company, reorganization, recapitalization, reclassification,
combination, stock dividend, stock split, reverse stock split, spin-off, or
similar transaction then, subject to Section 7.1, an appropriate
and proportionate adjustment shall be made by the Administrator in:  (i) the maximum number and kind of
shares subject to this Plan as provided in Section 3.1; (ii) the
number and kind of shares or other securities subject to then outstanding
Awards; and (iii) the price for each share or other unit of any other
securities subject to, or measurement criteria applicable to, then outstanding
Awards.

 

(b)                                 No
Fractional Interests.  No fractional interests will be issued under
the Plan resulting from any adjustments.

 

(c)                                  Adjustments
Related to Company Stock.  To the extent any adjustments relate to stock
or securities of the Company, such adjustments will be made by the
Administrator, whose determination in that respect will be final, binding and
conclusive.

 

(d)                                 Right
to Make Adjustment.  The grant of an Award will not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part
of its business or assets.

 

(e)                                  Limitations.  Notwithstanding anything to the contrary
herein, no adjustment to the terms of an Incentive Stock Option may be made
unless such adjustment either:  (i) would
not cause the Option to lose its status as an Incentive Stock Option; or (ii) is
agreed to in writing by the Administrator and the Recipient.

 

3.5         Reservation
of Shares.

 

The Company will at all
times reserve and keep available shares of Common Stock equaling at least the
total number of shares of Common Stock issuable pursuant to all outstanding
Awards.

 

ARTICLE IV

ADMINISTRATION OF PLAN

 

4.1         Administrator.

 

(a)                                  Plan
Administration.  Subject to the
provisions of Section 4.1(b), this Plan will be administered by the
Board and may also be administered by the Compensation Committee of the Board
appointed pursuant to Section 4.1(b).

 

(b)                                 Administration
by Compensation Committee.  The Board
in its sole discretion may from time to time appoint a Compensation Committee
of not fewer than two (2) Board members with authority to administer this
Plan in whole or part and, subject to applicable law, to exercise any or all of
the powers, authority and discretion of the Board under this Plan.  As long as the Board has delegated authority
to administer this Plan to the Compensation Committee and the Company has a
class of equity securities registered under Section 12 of the Exchange
Act, this Plan may be administered by a Compensation Committee of not less than
two (2) Board members appointed by the Board in its sole discretion from
time to time, each of whom is (i) a Non-Employee Director, (ii) an “Outside
Director” as defined in the regulations adopted under Section 162(m) of
the IRC, and (iii) “independent” as defined under applicable stock
exchange regulations.  The Board may from
time to time increase or decrease (but not below two (2)) the number of members
of the Compensation Committee, remove from membership on the Compensation
Committee all or any portion of its members, and/or appoint such person or
persons as it desires to fill any vacancy existing on the Compensation
Committee, whether caused by removal, resignation or otherwise.  Unless otherwise required by this Section 4.1(b),
the Board may disband the Compensation Committee at any time.

 

4.2         Authority
of Administrator.

 

(a)                                  Authority
to Interpret Plan.  Subject to the
express provisions of this Plan, the Administrator will have the power to
implement, interpret and construe this Plan and any Awards and Award Documents
or other documents defining the rights and obligations of the Company and
Recipients hereunder and thereunder, to determine all questions 

 

 

arising
hereunder and thereunder, and to adopt and amend such rules and regulations
for the administration hereof and thereof as it may deem desirable.  The interpretation and construction by the
Administrator of any provisions of this Plan or of any Award or Award Document,
and any action taken by, or inaction of, the Administrator relating to this
Plan or any Award or Award Document, will be within the discretion of the
Administrator and will be conclusive and binding upon all persons.  Subject only to compliance with the express
provisions hereof, the Administrator may act in its discretion in matters
related to this Plan and any and all Awards and Award Documents.

 

(b)                                 Authority
to Grant Awards.  Subject to the
express provisions of this Plan, the Administrator may from time to time in its
discretion select the Eligible Persons to whom, and the time or times at which,
Awards will be granted or sold, the nature of each Award, the number of shares
of Common Stock or the number of rights that make up or underlie each Award,
the exercise price and period (if applicable) for the exercise of each Award,
and such other terms and conditions applicable to each individual Award as the
Administrator may determine.  Any and all
terms and conditions of Awards may be established by the Administrator without
regard to existing Awards or other grants and without incurring any obligation
of the Company in respect of subsequent Awards. 
The Administrator may grant at any time new Awards to an Eligible Person
who has previously received Awards or other grants (including other stock
options) regardless of the status of such other Awards or grants.  The Administrator may grant Awards singly or
in combination or in tandem with other Awards as it determines in its
discretion.

 

(c)                                  Procedures.  Subject to the
Company’s charter or bylaws or any Board resolution conferring authority on the
Compensation Committee, any action of the Administrator with respect to the
administration of this Plan must be taken pursuant to a majority vote of the
authorized number of members of the Administrator or by the unanimous written
consent of its members; provided, however,
that (i) if the Administrator is the Compensation Committee and consists
of two (2) members, then actions of the Administrator must be unanimous,
and (ii) actions taken by the Board will be valid if approved in
accordance with applicable law.

 

4.3         No
Liability.

 

No member of the Board or
the Compensation Committee or any designee thereof will be liable for any
action or inaction with respect to this Plan or any Award or any transaction
arising under this Plan or any Award except in circumstances constituting bad
faith of such member.

 

4.4         Amendments.

 

(a)                                  Plan
Amendments.  The Administrator may at
any time and from time to time in its discretion, insofar as permitted by
applicable law, rule or regulation and subject to Section 4.4(c),
suspend or discontinue this Plan or revise or amend it in any respect
whatsoever, and this Plan as so revised or amended will govern all Awards,
including those granted before such revision or amendment.  Without limiting the generality of the
foregoing, the Administrator is authorized to amend this Plan to comply with or
take advantage of amendments to applicable laws, rules or regulations,
including the Securities Act, the Exchange Act, the IRC, or the rules of
any exchange or market system upon which the Common Stock is listed or trades,
or any rules or regulations promulgated thereunder.  Except as provided in Section 4.4(c),
no stockholder approval of any amendment or revision will be required unless
such approval is required by applicable law, rule or regulation.

 

(b)                                 Award
Amendments.  The Administrator may at any time and from
time to time in its discretion, but subject to Section 4.4(c) and
Section 6.1(c) and compliance with applicable statutory or
administrative requirements, accelerate or extend the vesting or exercise
period of any Award as a whole or in part, and make such other modifications in
the terms and conditions of an Award as it deems advisable, provided, however, that any repricing,
reduction or modification of the exercise price of a Stock Option by the
Administrator is subject to Section 5.16 regarding stockholder
approval of certain actions. 
Notwithstanding the foregoing, the Administrator shall not waive any
applicable minimum restriction periods or minimum vesting periods applicable to
existing grants under the Plan.

 

(c)                                  Limitation.  Except as otherwise provided in this Plan or
in the applicable Award Document, no amendment, revision, suspension or
termination of this Plan or an outstanding Award that would cause an Incentive
Stock Option to cease to qualify as such or that would alter, impair or
diminish in any material respect any rights or obligations under any Award
theretofore granted under this Plan may be effected without the written consent
of the Recipient to whom such Award was granted.

 

 

4.5         Other
Compensation Plans.

 

The adoption of this Plan
will not affect any other stock option, restricted stock, incentive or other
compensation plans in effect from time to time for the Company, and this Plan
will not preclude the Company from establishing any other forms of incentive or
other compensation for employees, directors, advisors or consultants of the
Company, whether or not approved by stockholders.

 

4.6         Plan
Binding on Successors.

 

This Plan will be binding
upon the successors and assigns of the Company.

 

4.7         References
to Successor Statutes, Regulations and Rules.

 

Any reference in this
Plan to a particular statute, regulation or rule will also refer to any
successor provision of such statute, regulation or rule.

 

4.8         Issuances
for Compensation Purposes Only.

 

This Plan constitutes an “employee
benefit plan” as defined in Rule 405 promulgated under the Securities
Act.  Awards to eligible employees or
directors shall be made for any lawful consideration, including compensation
for services rendered, promissory notes or otherwise.  Awards to consultants and advisors shall be
made only in exchange for bona fide services rendered by such consultants or
advisors and such services must not be in connection with the offer and sale of
securities in a capital-raising transaction.

 

4.9         Invalid
Provisions.

 

In the event that any
provision of this Plan is found to be invalid or otherwise unenforceable under
any applicable law, such invalidity or unenforceability is not to be construed
as rendering any other provisions contained herein invalid or unenforceable,
and all such other provisions are to be given full force and effect to the same
extent as though the invalid and unenforceable provision were not contained herein.

 

4.10             Governing
Law.

 

This Plan will be
governed by and interpreted in accordance with the internal laws of the State
of Delaware, without giving effect to the principles of the conflicts of laws
thereof.

 

4.11             Interpretation.

 

Headings herein are for
convenience of reference only, do not constitute a part of this Plan, and will
not affect the meaning or interpretation of this Plan.  References herein to Sections or Articles are
references to the referenced Section or Article hereof, unless
otherwise specified.

 

ARTICLE V

GENERAL AWARD PROVISIONS

 

5.1         Participation
in Plan.

 

(a)                                  Eligibility
to Receive Awards.  A person is
eligible to receive grants of Awards if, at the time of the grant of the Award,
such person is an Eligible Person or has received an offer of employment from
the Company, provided, however,
that Awards granted to a person who has received an offer of employment will
terminate and be forfeited without consideration if the employment offer is not
accepted within such time as may be specified by the Company.  Status as an Eligible Person will not be
construed as a commitment that any Award will be granted under this Plan to an
Eligible Person or to Eligible Persons generally.

 

(b)                                 Eligibility
to Receive Incentive Stock Options.  Incentive Stock Options may be granted only to
Eligible Persons meeting the employment requirements of Section 422 of the
IRC.

 

 

(c)                                  Awards
to Foreign Nationals. 
Notwithstanding anything to the contrary herein, the Administrator may,
in order to fulfill the purposes of this Plan, modify grants of Awards to
Recipients who are foreign nationals or employed outside of the United States
to recognize differences in applicable law, tax policy or local custom.

 

5.2         Award
Documents.

 

Each Award must be
evidenced by an agreement duly executed on behalf of the Company and by the
Recipient or, in the Administrator’s discretion, a confirming memorandum issued
by the Company to the Recipient, setting forth such terms and conditions
applicable to the Award as the Administrator may in its discretion
determine.  Awards will not be deemed
made or binding upon the Company, and Recipients will have no rights thereto,
until such an agreement is entered into between the Company and the Recipient or
such a memorandum is delivered by the Company to the Recipient, but an Award
may have an effective date prior to the date of such an agreement or
memorandum.  Award Documents may be (but
need not be) identical and must comply with and be subject to the terms and
conditions of this Plan, a copy of which will be provided to each Recipient and
incorporated by reference into each Award Document.  Any Award Document may contain such other
terms, provisions and conditions not inconsistent with this Plan as may be
determined by the Administrator.  In case
of any conflict between this Plan and any Award Document, this Plan shall
control.

 

5.3         Payment
for Awards.

 

(a)                                  Payment
of Exercise Price.  The exercise
price or other payment for an Award is payable upon the exercise of a Stock
Option or upon other purchase of shares pursuant to an Award granted hereunder
by delivery of legal tender of the United States or payment of such other
consideration as the Administrator may from time to time deem acceptable in any
particular instance; provided, however,
that the Administrator may, in the exercise of its discretion, allow exercise
of an Award in a broker-assisted or similar transaction in which the exercise
price is not received by the Company until promptly after exercise.

 

(b)                                 No
Company Loans.  The Company may not
assist any person to whom an Award is granted (including, without limitation,
any officer or director of the Company) in the payment of the purchase price or
other amounts payable in connection with the receipt or exercise of that Award
by lending such amounts to such person.

 

(c)                                  Cashless
Exercise.  If permitted in any case
by the Administrator in its discretion, the exercise price for Awards may be
paid by capital stock of the Company delivered in transfer to the Company by or
on behalf of the person exercising the Award and duly endorsed in blank or
accompanied by stock powers duly endorsed in blank, with signatures guaranteed
in accordance with the Exchange Act if required by the Administrator; or
retained by the Company from the stock otherwise issuable upon exercise or
surrender of vested and/or exercisable Awards or other equity awards previously
granted to the Recipient and being exercised (if applicable) (in either case
valued at Fair Market Value as of the exercise date); or such other consideration
as the Administrator may from time to time in the exercise of its discretion
deem acceptable in any particular instance.

 

(d)                                 No
Precedent.  Recipients will have no
rights to the exercise techniques described in Section 5.3(c), and
the Company may offer or permit such techniques on an ad hoc
basis to any Recipient without incurring any obligation to offer or permit such
assistance or techniques on other occasions or to other Recipients.

 

5.4         No
Employment Rights.

 

Nothing contained in this
Plan (or in Award Documents or in any other documents related to this Plan or
to Awards) will confer upon any Eligible Person or Recipient any right to
continue in the employ of or engagement by the Company or any Affiliated Entity
or constitute any contract or agreement of employment or engagement, or
interfere in any way with the right of the Company or any Affiliated Entity to
reduce such person’s compensation or other benefits or to terminate the
employment or engagement of such Eligible Person or Recipient, with or without
cause.  Except as expressly provided in
this Plan or in any statement evidencing the grant of an Award, the Company has
the right to deal with each Recipient in the same manner as if this Plan and
any such statement evidencing the grant of an Award did not exist, including,
without limitation, with respect to all matters related to the hiring,
discharge, compensation and conditions of the employment or engagement of the
Recipient.  Unless otherwise set forth in
a written agreement binding upon the Company or an Affiliated Entity, all
employees of the Company or an Affiliated Entity are “at will” employees whose
employment may be terminated by the Company or the Affiliated Entity at any
time for any reason or no reason, without payment or penalty of any kind.  Any question(s) as to whether and when there
has been a termination of a Recipient’s employment or engagement, the reason
(if any) for such termination, and/or the consequences thereof under the terms
of this Plan or any statement evidencing the grant of an Award pursuant to this
Plan will be determined by the Administrator and the Administrator’s
determination thereof will be final and binding.

 

 

5.5         Restrictions
Under Applicable Laws and Regulations.

 

(a)                                  Government
Approvals.  All Awards will be
subject to the requirement that, if at any time the Company determines, in its
discretion, that the listing, registration or qualification of the securities
subject to Awards granted under this Plan upon any securities exchange or
interdealer quotation system or under any federal, state or foreign law, or the
consent or approval of any governmental or regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such an
Award or the issuance, if any, or purchase of shares in connection therewith,
such Award may not be exercised as a whole or in part unless and until such
listing, registration, qualification, consent or approval has been effected or
obtained free of any conditions not acceptable to the Company.  During the term of this Plan, the Company
will use its reasonable efforts to seek to obtain from the appropriate
governmental and regulatory agencies any requisite qualifications, consents,
approvals or authorizations in order to issue and sell such number of shares of
its Common Stock as is sufficient to satisfy the requirements of this
Plan.  The inability of the Company to
obtain any such qualifications, consents, approvals or authorizations will
relieve the Company of any liability in respect of the nonissuance or sale of
such stock as to which such qualifications, consents, approvals or
authorizations pertain.

 

(b)                                 No
Registration Obligation; Recipient Representations.  The Company will be under no obligation to
register or qualify the issuance of Awards or underlying securities under the
Securities Act or applicable state securities laws.  Unless the issuance of Awards and underlying
securities have been registered under the Securities Act and qualified or registered
under applicable state securities laws, the Company shall be under no
obligation to issue any Awards or underlying securities unless the Awards and
underlying securities may be issued pursuant to applicable exemptions from such
registration or qualification requirements. 
In connection with any such exempt issuance, the Administrator may
require the Recipient to provide a written representation and undertaking to
the Company, satisfactory in form and scope to the Company and upon which the
Company may reasonably rely, that such Recipient is acquiring such Awards and
underlying securities for such Recipient’s own account as an investment and not
with a view to, or for sale in connection with, the distribution of any such
securities, and that such person will make no transfer of the same except in
compliance with any rules and regulations in force at the time of such
transfer under the Securities Act and other applicable law, and that if
securities are issued without registration, a legend to this effect (together
with any other legends deemed appropriate by the Administrator) may be endorsed
upon the securities so issued, and to the effect of any additional
representations that are appropriate in light of applicable securities laws and
rules.  The Company may also order its
transfer agent to stop transfers of such shares.  The Administrator may also require the
Recipient to provide the Company such information and other documents as the
Administrator may request in order to satisfy the Administrator as to the
investment sophistication and experience of the Recipient and as to any other
conditions for compliance with any such exemptions from registration or
qualification.

 

5.6         Additional
Conditions.

 

Any Award may be subject
to such provisions (whether or not applicable to any other Award or Recipient)
as the Administrator deems appropriate, including without limitation provisions
for the forfeiture of or restrictions on resale or other disposition of
securities of the Company acquired under this Plan, provisions giving the
Company the right to repurchase securities of the Company acquired under this
Plan in the event the Recipient leaves the Company for any reason or elects to
effect any disposition thereof, and provisions to comply with federal and state
securities laws.

 

5.7         No
Privileges Regarding Stock Ownership or Specific Assets. 

 

Except as otherwise set
forth herein, a Recipient or a permitted transferee of an Award will have no
rights as a stockholder with respect to any shares issuable or issued in
connection with the Award until the Recipient has delivered to the Company all
amounts payable and performed all obligations required to be performed in
connection with the exercise of the Award and the Company has issued such
shares.  No person will have any right,
title or interest in any fund or in any specific asset (including shares of
capital stock) of the Company by reason of any Award granted hereunder.  Neither this Plan (or any documents related
hereto) nor any action taken pursuant hereto is to be construed to create a
trust of any kind or a fiduciary relationship between the Company and any
person.  To the extent that any person
acquires a right to receive an Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.

 

5.8         Nonassignability.

 

No Award is assignable or
transferable except:  (a) by will or
by the laws of descent and distribution; or (b) subject to the final
sentence of this Section 5.8, upon dissolution of marriage pursuant
to a qualified domestic relations order or, in the discretion of the
Administrator on a case-by-case basis and under circumstances that would not
adversely affect the interests of the Company, transfers for estate planning
purposes or pursuant to a nominal transfer that does not result in a change in beneficial
ownership.  Subject to the final sentence
of this Section 5.8, during the lifetime of a Recipient, an 

 

 

Award granted to such
person will be exercisable only by the Recipient (or the Recipient’s permitted
transferee) or such person’s guardian or legal representative.  Notwithstanding the foregoing, Stock Options
intended to be treated as Incentive Stock Options (or other Awards subject to
transfer restrictions under the IRC) (i) may not be assigned or
transferred in violation of Section 422(b)(5) of the IRC or the
regulations thereunder, and nothing herein is intended to allow such assignment
or transfer; and (ii) will be exercisable during a Recipient’s lifetime
only by the Recipient.

 

5.9         Information
to Recipients.

 

(a)                                  Provision
of Information.  The Administrator in its sole discretion may
determine what, if any, financial and other information is to be provided to
Recipients and when such financial and other information is to be provided
after giving consideration to applicable federal and state laws, rules and
regulations, including, without limitation, applicable federal and state
securities laws, rules and regulations.

 

(b)                                 Confidentiality.  The furnishing of financial and other
information that is confidential to the Company is subject to the Recipient’s
agreement to maintain the confidentiality of such financial and other
information, and not to disclose or use the information for any purpose other
than evaluating the Recipient’s position under this Plan.  The Administrator may impose other
restrictions on the access to and use of such confidential information and may
require a Recipient to acknowledge the Recipient’s obligations under this Section 5.9(b) (which
acknowledgment is not to be a condition to Recipient’s obligations under this Section 5.9(b)).

 

5.10             Withholding
Taxes.

 

Whenever the granting,
vesting or exercise of any Award, or the issuance of any Common Stock or other
securities upon exercise of any Award or transfer thereof, gives rise to tax or
tax withholding liabilities or obligations, the Administrator will have the
right as a condition thereto to require the Recipient to remit to the Company
an amount sufficient to satisfy any federal, state and local withholding tax
requirements arising in connection therewith. 
The Administrator may, in the exercise of its discretion, allow
satisfaction of tax withholding requirements by accepting delivery of stock of
the Company or by withholding a portion of the stock otherwise issuable in
connection with an Award, in each case valued at Fair Market Value as of the
date of such delivery or withholding, as the case may be.

 

5.11             Legends
on Awards and Stock Certificates. 

 

Each Award Document and
each certificate representing securities acquired upon vesting or exercise of
an Award must be endorsed with all legends, if any, required by applicable
federal and state securities and other laws to be placed on the Award Document
and/or the certificate.  The
determination of which legends, if any, will be placed upon Award Documents or
the certificates will be made by the Administrator in its discretion and such
decision will be final and binding.

 

5.12             Effect
of Termination of Employment on Awards.

 

(a)                                  Termination
of Vesting.  Notwithstanding anything
to the contrary herein, but subject to Section 5.12(b), Awards will
be exercisable by a Recipient (or the Recipient’s successor in interest)
following such Recipient’s termination of employment or service only to the
extent that installments thereof had become exercisable on or
prior to the date of such termination.

 

(b)                                 Alteration
of Vesting and Exercise Periods.  Subject to Section 6.1(c) and
notwithstanding anything to the contrary herein, the Administrator may in its
discretion (i) designate shorter or longer periods following a Recipient’s
termination of employment or service during which Awards may vest or be
exercised; provided, however, that any shorter
periods determined by the Administrator will be effective only if provided for
in this Plan or the instrument that evidences the grant to the Recipient of the
affected Award or if such shorter period is agreed to in writing by the
Recipient, and (ii) accelerate the vesting of all or any portion of any
Awards by increasing the number of shares purchasable at any time, without
increasing the total number of shares subject to such Awards.

 

(c)                                  Leave
of Absence.  In the case of any
employee on an approved leave of absence, the Administrator may make such
provision respecting continuance of Awards granted to such employee as the
Administrator in its discretion deems appropriate, except that in no event will
an Award be exercisable after the date such Award would expire in accordance
with its terms had the Recipient remained continuously employed.

 

(d)                                 General
Cessation.  Except as otherwise set
forth in this Plan or an Award Document or as determined by the Administrator
in its discretion, all Awards granted to a Recipient, and all of such Recipient’s
rights thereunder, will terminate upon termination for any reason of such
Recipient’s employment or service with the Company or any Affiliated Entity (or
cessation of any other service relationship between the Recipient and the
Company or any Affiliated Entity in place as of the date the Award was
granted).

 

 

5.13             Lock-Up
Agreements.

 

Each Recipient agrees as
a condition to receipt of an Award that, in connection with any public offering
by the Company of its equity securities and upon the request of the Company and
the principal underwriter (if any) in such public offering, any shares of
Common Stock acquired or that may be acquired upon exercise or vesting of an
Award may not be sold, offered for sale, encumbered, or otherwise disposed of
or subjected to any transaction that will involve any sales of securities of
the Company, without the prior written consent of the Company or such
underwriter, as the case may be, for a period of not more than 180 days after
the effective date of the registration statement for such public offering.  Each Recipient will, if requested by the
Company or the principal underwriter, enter into a separate agreement to the
effect of this Section 5.13.

 

5.14             Restrictions
on Common Stock and Other Securities. 

 

Common Stock or other
securities of the Company issued or issuable in connection with any Award will
be subject to all of the restrictions imposed under this Plan upon Common Stock
issuable or issued upon exercise of Stock Options, except as otherwise
determined by the Administrator.

 

5.15             Limits
on Awards to Eligible Persons.

 

Notwithstanding any other
provision of this Plan, no one Eligible Person shall be granted Awards with
respect to more than 100,000 shares of Common Stock in any one calendar year.
The limitation set forth in this Section 5.15 will be subject to
adjustment as provided in Section 3.4 or under Section 7.1,
but only to the extent such adjustment would not affect the status of
compensation attributable to Awards as Performance-Based Compensation.

 

5.16             No
Option Repricing.

 

Without the approval of
the stockholders of the Company, the Company shall not reprice any Stock
Options.  For purposes of this Plan, the
term “reprice” shall include (i) lowering the exercise price of previously
awarded Stock Options within the meaning of Item 402(i) under Securities
and Exchange Commission Regulation S-K, and (ii) canceling previously
awarded Stock Options and granting in their place Stock Options having a lower
exercise price.

 

 

ARTICLE VI

AWARDS

 

6.1         Stock
Options.

 

(a)                                  Nature
of Stock Options.  Stock Options may
be Incentive Stock Options or Nonqualified Stock Options.

 

(b)                                 Option
Exercise Price.  The exercise price
for each Stock Option will be determined by the Administrator as of the date
such Stock Option is granted; provided that, Stock Options shall not be granted
with exercise prices less than the fair market value of Common Stock on date of
grant.

 

(c)                                  Option
Period and Vesting.  Stock Options granted hereunder will vest and
may be exercised as determined by the Administrator; provided, however, that (i) no Stock Option shall first
become exercisable within one year from its date of grant, other than upon a
Change in Control as set forth in Section 7.1, and (ii) any
exercise of Stock Options after termination of the Recipient’s employment or
service shall be subject to Section 5.12 and Section 6.1(e).  Each Stock Option granted hereunder and all
rights or obligations thereunder shall expire on such date as may be determined
by the Administrator, but not later than 10 years after the date the Stock
Option is granted and may be subject to earlier termination as provided herein
or in the Award Document.  Except as
otherwise provided herein, a Stock Option will become exercisable, as a whole
or in part, on the date or dates specified by the Administrator and thereafter
will remain exercisable until the exercise, expiration or earlier termination
of the Stock Option.

 

(d)                                 Exercise
of Stock Options.  The exercise price for Stock
Options will be paid as set forth in Section 5.3.  No Stock Option will be exercisable except in
respect of whole shares, and fractional share interests shall be
disregarded.  Not fewer than 100 shares
of Common Stock (or such other amount as may be set forth in the applicable
Award Document) may be purchased at one time and Stock Options must be
exercised in multiples of 100 unless the number purchased is the total number
of shares for which the Stock Option is exercisable at the time of
exercise.  A Stock Option will be deemed
to be exercised when the Secretary or other designated official of the Company
receives written notice of such exercise from the Recipient in such form as the
Company may specify from time to time, together with payment of the exercise
price in accordance with Section 5.3 and any amounts required under
Section 5.10 or, with permission of the Administrator, arrangement
for such payment.  Notwithstanding any
other provision of this Plan, the Administrator may impose, by rule and/or
in Award Documents, such conditions upon the exercise of Stock Options
(including, without limitation, conditions limiting the time of exercise to
specified periods) as may be required to satisfy applicable regulatory
requirements, including, without limitation, Rule 16b-3 and Rule 10b-5
under the Exchange Act, and any amounts required under Section 5.10,
or any applicable section of or regulation under the IRC.

 

(e)                                  Termination
of Employment.

 

(i)                                     Termination
for Just Cause.  Subject to Section 5.12
and except as otherwise provided in a written agreement between the Company or
an Affiliated Entity and the Recipient, which may be entered into at any time before
or after termination of employment or service, in the event of a Just Cause
Dismissal of a Recipient all of the Recipient’s unexercised Stock Options,
whether or not vested, will expire and become unexercisable as of the date of
such Just Cause Dismissal.

 

(ii)                                  Termination
Other Than for Just Cause.  Subject
to Section 5.12 and except as otherwise provided in a written
agreement between the Company or an Affiliated Entity and the Recipient, which
may be entered into at any time before or after termination of employment or
service, if a Recipient’s employment or service with the Company or any
Affiliated Entity terminates for:

 

(A)                              any
reason other than for Just Cause Dismissal, death, Permanent Disability or
normal retirement, the Recipient’s Stock Options, to the extent unvested, will
expire and become unexercisable as of the date of termination, and to the
extent vested, will expire and become unexercisable as of the earlier of:  (1) the date such Stock Options would
expire in accordance with their terms had the Recipient remained employed; and (2) 90
days after the date of termination of employment or service.

 

(B)                                death,
Permanent Disability or normal retirement, the Recipient’s unexercised Stock
Options, to the extent unvested, will expire and become unexercisable as of the
date of termination, and to the extent vested, will expire and become
unexercisable as of the earlier of:  (1) the
date such Stock Options would expire in accordance with their terms had the
Recipient remained employed; and (2) two years after the date of
termination of employment or service.

 

(f)                                    Special
Provisions Regarding Incentive Stock Options.  Notwithstanding anything herein to the
contrary,

 

 

(i)                                     The
exercise price and vesting period of any Stock Option intended to be treated as
an Incentive Stock Option must comply with the provisions of Section 422
of the IRC and the regulations thereunder. 
As of the Effective Date, such provisions require, among other matters,
that:  (A) the exercise price must
not be less than the Fair Market Value of the underlying stock as of the date
the Incentive Stock Option is granted, and not less than 110% of the Fair
Market Value as of such date in the case of a grant to a Significant
Stockholder; and (B) that the Incentive Stock Option not be exercisable
after the expiration of 10 years from the date of grant or the expiration of 5
years from the date of grant in the case of an Incentive Stock Option granted
to a Significant Stockholder.

 

(ii)                                  If
for any reason other than death or Permanent Disability, the employment or
service of a Recipient of Incentive Stock Options with the Company or any
Affiliated Entity terminates, such Recipient’s Incentive Stock Options, whether
or not vested, shall cease to qualify as such and will be treated as Nonqualified
Stock Options as of the earlier of:  (A) the
date such Incentive Stock Options would expire in accordance with their terms
had the Recipient remained employed with the Company or any Affiliated Entity;
and (B) three months after the date of termination of the Recipient’s
employment or service.

 

(iii)                               If
as a result of death or Permanent Disability, the employment or service of a
Recipient of Incentive Stock Options with the Company or any Affiliated Entity
terminates, such Recipient’s Incentive Stock Options, whether or not vested,
shall cease to qualify as such and will be treated as Nonqualified Stock
Options as of the earlier of:  (A) the
date such Incentive Stock Options would expire in accordance with their terms
had the Recipient remained employed with the Company or any Affiliated Entity;
and (B) one year after the date of termination of the Recipient’s
employment or service.

 

(iv)                              The
aggregate Fair Market Value (determined as of the respective date or dates of
grant) of the Common Stock for which one or more Incentive Stock Options
granted to any Recipient under this Plan (or any other plan of the Company or
of any Parent Corporation or Subsidiary Corporation) may for the first time
become exercisable as Incentive Stock Options under such plans during any one
calendar year may not exceed $100,000.

 

(v)                                 Any
Stock Options granted as Incentive Stock Options pursuant to this Plan that for
any reason fail or cease to qualify as such will be treated as Nonqualified
Stock Options.  If the limit described in
Section 6.1(f)(iv) is exceeded, the earliest granted Stock
Options will be treated as Incentive Stock Options, up to such limit.

 

6.2         Performance
Awards.

 

(a)                                  Grant
of Performance Award.  The Administrator will determine in its
discretion the pre-established, objective performance goals (which need not be
identical and may be established on an individual or group basis) governing
Performance Awards, the terms thereof, and the form and time of payment of
Performance Awards.

 

(b)                                 Payment
of Award.  Upon satisfaction of the conditions applicable
to a Performance Award, payment will be made to the Recipient in cash, in
shares of Common Stock valued at Fair Market Value as of the date payment is
due, or in a combination of Common Stock and cash, as the Administrator in its
discretion may determine.

 

(c)                                  Maximum
Amount of Compensation.  The maximum
amount payable pursuant to that portion of a Performance Award granted for any
calendar year to any Recipient that is intended to satisfy the requirements for
Performance-Based Compensation shall not exceed $1,000,000.

 

6.3         Restricted
Stock.

(a)                                  Award
of Restricted Stock.  The Administrator will determine the Purchase
Price (if any), the terms of payment of the Purchase Price, the restrictions
upon the Restricted Stock, and when such restrictions will lapse.

 

(b)                                 Requirements
of Restricted Stock.  All shares of
Restricted Stock granted or sold pursuant to this Plan will be subject to the
following conditions:

 

(i)                                     No
Transfer.  The shares may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed of,
alienated or encumbered until the restrictions are removed or expire;

 

(ii)                                  Certificates.  The Administrator may require that the
certificates representing Restricted Stock granted or sold to a Recipient
remain in the physical custody of an escrow holder or the Company until all
restrictions are removed or expire;

 

(iii)                               Restrictive
Legends.  Each certificate representing Restricted Stock
granted or sold to a Recipient pursuant to this Plan will bear such legend or
legends making reference to the restrictions imposed upon such Restricted Stock
as the Administrator in its discretion deems necessary or appropriate to
enforce such restrictions; and

 

 

(iv)                              Other
Restrictions.  The Administrator may impose
such other conditions on Restricted Stock as the Administrator may deem
advisable, including, without limitation, restrictions under the Securities
Act, under the Exchange Act, under the requirements of any stock exchange or
interdealer quotation system upon which such Restricted Stock or other
securities of the Company are then listed or traded and under any blue sky or
other securities laws applicable to such shares.

 

(v)                                 Minimum
Restriction Periods.  No Restricted
Stock shall first be transferable within one year from date of grant.

 

(c)                                  Lapse
of Restrictions.  The restrictions
imposed upon Restricted Stock will lapse in accordance with such terms or other
conditions as are determined by the Administrator.

 

(d)                                 Rights
of Recipient.  Subject to the provisions
of Section 6.3(b) and any restrictions imposed upon the
Restricted Stock, the Recipient will have all rights of a stockholder with
respect to the Restricted Stock granted or sold to such Recipient under this
Plan, including, without limitation, the right to vote the shares and receive
all dividends and other distributions paid or made with respect thereto.

 

(e)                                  Termination
of Employment.  Unless the Administrator in its discretion
determines otherwise, if a Recipient’s employment or service with the Company
or any Affiliated Entity terminates for any reason, all of the Recipient’s
Restricted Stock remaining subject to restrictions on the date of such
termination of employment or service will be repurchased by the Company at the
Purchase Price (if any) paid by the Recipient to the Company, without interest
or premium, and otherwise returned to the Company without consideration.

 

6.4         Stock
Appreciation Rights.

 

(a)                                  Granting
of Stock Appreciation Rights.  The
Administrator may at any time and from time to time approve the grant to
Eligible Persons of Stock Appreciation Rights, related or unrelated to Stock
Options.

 

(b)                                 Stock
Appreciation Rights Related to Options.

 

(i)                                     A
Stock Appreciation Right related to a Stock Option will entitle the holder of
the related Stock Option, upon exercise of the Stock Appreciation Right, to
surrender such Stock Option, or any portion thereof to the extent previously
vested but unexercised, with respect to the number of shares as to which such
Stock Appreciation Right is exercised, and to receive payment of an amount
computed pursuant to Section 6.4(b)(iii).  Such Stock Option will, to the extent
surrendered, then cease to be exercisable.

 

(ii)                                  A
Stock Appreciation Right related to a Stock Option hereunder will be exercisable
at such time or times, and only to the extent that, the related Stock Option is
exercisable, and will not be transferable except to the extent that such
related Stock Option may be transferable (and under the same conditions), will
expire no later than the expiration of the related Stock Option, and may be
exercised only when the market price of the Common Stock subject to the related
Stock Option exceeds the exercise price of the Stock Option.

 

(iii)                               Upon
the exercise of a Stock Appreciation Right related to a Stock Option, the
Recipient will be entitled to receive payment of an amount determined by
multiplying: (A) the difference obtained by subtracting the exercise price
of a share of Common Stock specified in the
related Stock Option from the Fair Market Value of a share of Common Stock on
the date of exercise of such Stock Appreciation Right (or, in the case of a
Stock Appreciation Right related to a Nonqualified Stock Option, as of such
other date or as of the occurrence of such event as may have been specified in
the instrument evidencing the grant of the Stock Appreciation Right), by (B) the
number of shares as to which such Stock Appreciation Right is exercised.

 

(c)                                  Stock
Appreciation Rights Unrelated to Options.  The Administrator may grant Stock Appreciation
Rights unrelated to Stock Options.  Section 6.4(b)(iii) will
govern the amount payable at exercise under such Stock Appreciation Right,
except that in lieu of an option exercise price the initial base amount
specified in the Award shall be used.

 

(d)                                 Limits.  Notwithstanding the foregoing, the
Administrator, in its discretion, may place a dollar limitation on the maximum
amount that will be payable upon the exercise of a Stock Appreciation Right.

 

(e)                                  Payments.  Payment of the amount determined under the
foregoing provisions may be made solely in whole shares of Common Stock valued
at their Fair Market Value on the date of exercise of the Stock Appreciation
Right or, alternatively, at the discretion of the Administrator, in cash or in
a combination of cash and shares of 

 

 

Common
Stock as the Administrator deems advisable. 
The Administrator has full discretion to determine the form in which
payment of a Stock Appreciation Right will be made and to consent to or
disapprove the election of a Recipient to receive cash in full or partial
settlement of a Stock Appreciation Right. 
If the Administrator decides to make full payment in shares of Common
Stock, and the amount payable results in a fractional share, payment for the
fractional share will be made in cash.

 

6.5         Stock
Payments.

 

The Administrator may
approve Stock Payments to any Eligible Person on such terms and conditions as
the Administrator may determine; provided that, no individual Stock Payment
shall exceed five percent (5%) of the shares reserved for issuance under the
Plan.  Stock Payments will replace cash
compensation at the Fair Market Value of the Common Stock on the date payment
is due.

 

6.6         Dividend
Equivalents.

 

The Administrator may
grant Dividend Equivalents to any Recipient who has received a Stock Option,
Stock Appreciation Right or other Award denominated in shares of Common
Stock.  Dividend Equivalents may be paid
in cash, Common Stock or other Awards; the amount of Dividend Equivalents paid
other than in cash will be determined by the Administrator by application of
such formula as the Administrator may deem appropriate to translate the cash
value of dividends paid to the alternative form of payment of the Dividend
Equivalent.  Dividend Equivalents will be
computed as of each dividend record date and will be payable to Recipients
thereof at such time as the Administrator may determine.  Notwithstanding the foregoing, if it is
intended that an Award qualify as Performance-Based Compensation, and the
amount of compensation the Recipient could receive under the Award is based
solely on an increase in value of the underlying stock after the date of the
grant or award, then the payment of any Dividend Equivalents related to the
Award shall not be made contingent on the exercise of the Award.

 

6.7         Stock
Bonuses.

 

The Administrator may
issue Stock Bonuses to Eligible Persons on such terms and conditions as the
Administrator may determine.  In no event
shall any individual grant hereunder exceed five percent (5%) of the shares reserved
for issuance under the Plan.

 

6.8         Stock
Sales.

 

The Administrator may
sell to Eligible Persons shares of Common Stock on such terms and conditions as
the Administrator may determine.

 

6.9         Phantom
Stock.

 

The Administrator may
grant Awards of Phantom Stock to Eligible Persons.  Phantom Stock is a cash payment measured by
the Fair Market Value of a specified number of shares of Common Stock on a
specified date, or measured by the excess of such Fair Market Value over a
specified minimum, which may but need not include a Dividend Equivalent.

 

6.10             Other
Stock-Based Benefits.

 

The Administrator is
authorized to grant Other Stock-Based Benefits. 
Other Stock-Based Benefits are any arrangements granted under this Plan
not otherwise described above that:  (a) by
their terms might involve the issuance or sale of Common Stock or other
securities of the Company; or (b) involve a benefit that is measured, as a
whole or in part, by the value, appreciation, dividend yield or other features
attributable to a specified number of shares of Common Stock or other
securities of the Company.  In no event
shall any individual grant hereunder exceed five percent (5%) of the shares
reserved for issuance under the Plan.

 

ARTICLE VII

CHANGE IN CONTROL

 

7.1         Provision
for Awards Upon Change in Control.

 

Subject to any required
action by stockholders, (i) the maximum number and kind of shares subject
to this Plan as provided in Section 3.1; (ii) the number and
kind of shares or other securities subject to then outstanding Awards; and (iii) the
price for each share or other unit of any other securities subject to, or
measurement criteria applicable to, then outstanding Awards shall be
proportionately adjusted for any increase of decrease in the number of issued
shares resulting from a subdivision or consolidation of shares or the payment
of a stock dividend (but only of Common Stock) or any other 

 

 

increase or decrease in
the number of issued shares effected without receipt of consideration by the
Company.  Subject to any required action
by stockholders, if the Corporation is the surviving corporation in any merger
or consolidation, each outstanding Award shall pertain and apply to the
securities to which a holder of the number of shares subject to the Award would
have been entitled.  In the event of a
Change in Control, either (a) the date of exercisability of each and every
outstanding Award shall automatically accelerate to a date and time immediately
prior to such Change in Control, or (b) Awards will be canceled and
automatically converted into the right to receive the securities, cash or other
consideration that a holder of the shares underlying such Awards would have
been entitled to receive upon consummation of such Change in Control had such
shares been issued and outstanding immediately prior to the effective date and
time of the Change in Control (net of the appropriate option exercise
prices).  To the extent that the
foregoing adjustments relate to securities of the Company, such adjustments
shall be made by the Administrator whose determination shall be conclusive and
binding on all persons. Except as expressly provided in this Section 7.1,
the Recipient shall have no rights by reason of subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by reason
of any dissolution, liquidation, merger or consolidation or spin-off of assets
or stock of another corporation, and any issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the terms of existing Awards. The grant of an Award pursuant to the
Plan shall not affect in any way the right or power to the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business assets.

 

ARTICLE VIII

DEFINITIONS

 

Capitalized terms used in
this Plan and not otherwise defined have the meanings set forth below:

“Administrator” means the Board as long as no
Compensation Committee has been appointed and is in effect and also means the
Compensation Committee to the extent that the Board has delegated authority
thereto.

“Affiliated
Entity” means any Parent Corporation of the Company or
Subsidiary Corporation of the Company or any other entity controlling,
controlled by, or under common control with the Company.

“Applicable
Dividend Period” means (i) the period between the date a
Dividend Equivalent is granted and the date the related Stock Option, SAR, or
other Award is exercised, terminates, or is converted to Common Stock, or (ii) such
other time as the Administrator may specify in the written instrument
evidencing the grant of the Dividend Equivalent.

“Award”
means any Stock Option, Performance Award, Restricted Stock, Stock Appreciation
Right, Stock Payment, Stock Bonus, Stock Sale, Phantom Stock, Dividend
Equivalent, or Other Stock-Based Benefit granted or sold to an Eligible Person
under this Plan, or any similar award granted by the Company prior to the
Effective Date and outstanding as of the Effective Date that is governed by
this Plan.

“Award
Document” means the agreement or confirming memorandum
setting forth the terms and conditions of an Award.

“Board”
means the Board of Directors of the Company.

“Change
in Control” of the Company shall be deemed to have occurred
if (i) there shall have be consummated (x) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of the Common Stock are converted into cash,
securities or other property, other than a merger of the Company in which the
holders of the Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger (including a reincorporation), or (y) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or (ii) the
stockholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company, or (iii) any person (as such
term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
shall become the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of 30% or more of the outstanding Common Stock (excluding the
Company’s 401(k) Plan from the definition of “person”), or (iv) during any
period of two consecutive years, individuals who at the beginning of such
period constitute the entire Board shall cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by the
Company’s stockholders, of each new director was approved by a vote of at least
a majority of the directors then still in office who were directors at the
beginning of the period.

 “Common
Stock” means the common stock of the Company, $0.01 par value per
share, as constituted on the Effective Date, and as thereafter adjusted under Section 3.4.

“Company”
means Summa Industries, a Delaware corporation.

“Compensation
Committee” means the compensation committee appointed by the
Board to administer this Plan pursuant to Section 4.1.

“Dividend
Equivalent” means a right granted by the Company under Section 6.6
to a holder of a Stock Option, Stock Appreciation Right or other Award
denominated in shares of Common Stock to receive from the Company during the
Applicable Dividend Period payments equivalent to the amount of dividends
payable to holders of the number of shares of Common Stock underlying such
Stock Option, Stock Appreciation Right, or other Award.

“Effective
Date” means January 24, 2005, the date this Plan was
approved and adopted by the Company’s stockholders.

 

 

“Eligible
Person” includes directors, including Non-Employee Directors,
officers, employees, consultants and advisors of the Company or of any Affiliated
Entity; provided, however, that
in order to be Eligible Persons, consultants and advisors must render bona fide services to the Company or any
Affiliated Entity that are not in connection with capital-raising.

“Exchange
Act” means the Securities Exchange Act of 1934, as amended.

“Expiration
Date” means the 10th anniversary of the Effective Date.

“Fair
Market Value” of a share of the Company’s capital stock as of
a particular date means: (i) if the stock is listed on an established
stock exchange or exchanges (including for this purpose, the Nasdaq National
Market), the closing sale price of the stock for such date on the primary
exchange upon which the stock trades, as measured by volume, as published in The Wall Street Journal, or, if no sale price was quoted for
such date, then as of the next preceding date on which such a sale price was
quoted; or (ii) if the stock is not then listed on an exchange or the
Nasdaq National Market, the average of the closing bid and asked prices per
share for the stock in the over-the-counter market on such date (in the case of
(i) or (ii), subject to adjustment as and if necessary and appropriate to
set an exercise price not less than 100% of the fair market value of the stock
on the date an Award is granted); or (iii) if the stock is not then listed
on an exchange or quoted in the over-the-counter market, an amount determined
in good faith by the Administrator, provided, however,
that (A) when appropriate, the Administrator in determining Fair Market
Value of capital stock of the Company may take into account such other factors
as it may deem appropriate under the circumstances, and (B) if the stock
is traded on the Nasdaq SmallCap Market and both sales prices and bid and asked
prices are quoted or available, the Administrator may elect to determine Fair
Market Value under either clause (i) or (ii) above.  Notwithstanding the foregoing, the Fair
Market Value of capital stock for purposes of grants of Incentive Stock Options
must be determined in compliance with applicable provisions of the IRC.  The Fair Market Value of rights or property
other than capital stock of the Company means the fair market value thereof as
determined by the Administrator on the basis of such factors as it may deem
appropriate.

“Incentive
Stock Option” means a Stock Option that qualifies as an
incentive stock option under Section 422 of the IRC, or any successor
statute thereto.

“IRC”
means the Internal Revenue Code of 1986, as amended.

“Just
Cause Dismissal” means a termination of a Recipient’s employment
for any of the following reasons:  (i) the
Recipient violates any reasonable rule or regulation of the Board, the
Company’s President or Chief Executive Officer or the Recipient’s superiors
that results in damage to the Company or any Affiliated Entity or which, after
written notice to do so, the Recipient fails to correct within a reasonable
time not exceeding 20 days; (ii) any willful misconduct or gross
negligence by the Recipient in the responsibilities assigned to the Recipient; (iii) any
willful failure to perform the Recipient’s job as required to meet the
objectives of the Company or any Affiliated Entity; (iv) any wrongful
conduct of a Recipient which has an adverse impact on the Company or any
Affiliated Entity or which constitutes a misappropriation of assets of the
Company or any Affiliated Entity; (v) the Recipient’s performing services
for any other person or entity that competes with the Company or any Affiliated
Entity while the Recipient is employed by the Company or any Affiliated Entity
without the written approval of the Chief Executive Officer of the Company; or (vi) any
other conduct that the Administrator reasonably determines in good faith
constitutes Just Cause for Dismissal; provided, however,
that if a Recipient is party to an employment agreement with the Company or any
Affiliated Entity providing for just cause dismissal (or some comparable
concept) of Recipient from Recipient’s employment with the Company or any
Affiliated Entity, “Just Cause Dismissal” for purposes of this Plan will have
the same meaning as ascribed thereto or to such comparable concept in such
employment agreement.

“Non-Employee
Director” means a director of the Company who qualifies as a “Non-Employee
Director” under Rule 16b-3 under the Exchange Act.

“Nonqualified
Stock Option” means a Stock Option that is not an Incentive
Stock Option.

“Other
Stock-Based Benefits” means an Award granted under Section 6.10.

“Parent
Corporation” means any Parent Corporation as defined in Section 424(e) of
the IRC.

“Performance
Award” means an Award under Section 6.2,
payable in cash, Common Stock or a combination thereof, that vests and becomes
payable over a period of time upon attainment of pre-established, objective
performance goals established in connection with the grant of the Award.  For this purpose, a pre-established,
objective performance goal may include one or more of the following performance
criteria:  (a) cash flow, (b) earnings
per share (including earnings before interest, taxes, and amortization), (c) return
on equity, (d) total stockholder return, (e) return on capital, (f) return
on assets or net assets, (g) income or net income, (h) operating
income or net operating income, (i) operating margin, (j) return on
operating revenue, and (k) any other similar performance criteria.

“Performance-Based
Compensation” means performance-based compensation as
described in Section 162(m) of the IRC and the regulations issued
thereunder.  If the amount of
compensation an Eligible Person will receive under any Award is not based
solely on an increase in the value of Common Stock after the date of grant or
award, the Administrator, in order to qualify an Award as performance-based
compensation under Section 162(m) of the IRC, can condition the grant,
award, vesting, or exercisability of such an Award on the attainment of a
pre-established, objective performance goal including, but not limited to,
those pre-established, objective performance goals described in the definition
of Performance Award above.

“Permanent
Disability” means that the Recipient becomes physically or
mentally incapacitated or disabled so that the Recipient is unable to perform
substantially the same services as the Recipient performed prior to incurring
such incapacity or disability (the Company, at its option and expense, being
entitled to retain a physician to confirm the existence of such 

 

 

incapacity or disability,
and the determination of such physician to be binding upon the Company and the
Recipient), and such incapacity or disability continues for a period of 3
consecutive months or 6 months in any 12-month period or such other period(s)
as may be determined by the Administrator with respect to any Award, provided, however, that for purposes of
determining the period during which an Incentive Stock Option may be exercised
pursuant to Section 6.1(e), Permanent Disability shall mean “permanent
and total disability” as defined in Section 22(e)(3) of the IRC.

“Person”
means any person, entity or group, within the meaning of Section 13(d) or
14(d) of the Exchange Act, but excluding (i) the Company and its
subsidiaries, (ii) any employee stock ownership or other employee benefit
plan maintained by the Company and (iii) an underwriter or underwriting
syndicate that has acquired the Company’s securities solely in connection with
a public offering thereof.

“Phantom
Stock” means an Award granted under Section 6.9.

“Plan”
means this 2005 Equity Incentive Plan of the Company.

“Plan
Term” means the period during which this Plan remains in
effect (commencing the Effective Date and ending on the Expiration Date).

“Purchase
Price” means the purchase price (if any) to be paid by a
Recipient for Restricted Stock as determined by the Administrator (which price
shall be at least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met).

“Recipient”
means a person who has received an Award.

“Reorganization”
means any merger, consolidation or other reorganization.

“Restricted
Stock” means Common
Stock that is the subject of an Award made under Section 6.3 and
that is nontransferable and subject to a substantial risk of forfeiture until
specific conditions are met, as set forth in this Plan and in any statement
evidencing the grant of such Award.

“Securities
Act” means the Securities Act of 1933, as amended.

“Significant
Stockholder” is an individual who, at the time a Stock Option
is granted to such individual under this Plan, owns common stock representing
more than 10% of the total combined voting power of all classes of stock of the
Company or of any Parent Corporation or Subsidiary Corporation (after
application of the attribution rules set forth in Section 424(d) of
the IRC).

“Stock
Appreciation Right” or “SAR”
means a right granted under Section 6.4 to receive a payment that
is measured with reference to the amount by which the Fair Market Value of a
specified number of shares of Common Stock appreciates from a specified date,
such as the date of grant of the SAR, to the date of exercise.

“Stock
Bonus” means an issuance or delivery of unrestricted or
restricted shares of Common Stock under Section 6.7 as a bonus for
services rendered or for any other valid consideration under applicable law.

“Stock
Option” means a right
to purchase stock of the Company granted under Section 6.1 of this
Plan.

“Stock
Payment” means a payment in shares of the Company’s Common
Stock under Section 6.5 to replace all or any portion of the compensation
or other payment (other than base salary) that would otherwise become payable
to the Recipient in cash.

“Stock
Sale” means a sale of Common Stock to an Eligible Person
under Section 6.8.

“Subsidiary
Corporation” means any Subsidiary Corporation as defined in Section 424(f) of
the IRC.

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