Document:

Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT
(this “Agreement”) dated as of the Effective
Date between SILICON VALLEY BANK, a California
corporation (“Bank”), and MINDSPEED
TECHNOLOGIES, INC., a Delaware corporation (“Borrower”),
provides the terms on which Bank shall lend to Borrower and Borrower shall
repay Bank.  The parties agree as
follows:

 

1                                         ACCOUNTING
AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall
be construed following GAAP. 
Calculations and determinations must be made following GAAP.  Capitalized terms shall have the meanings set
forth in Section 13.  All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meaning provided by the Code to the extent such terms are defined therein.

 

2                                         LOAN
AND TERMS OF PAYMENT

 

2.1                               Promise
to Pay.  Borrower hereby
unconditionally promises to pay Bank the outstanding principal amount of all
Credit Extensions and accrued and unpaid interest thereon as and when due in
accordance with this Agreement.

 

2.1.1                     Revolving
Advances.

 

(a)                                  Availability.  Subject to the terms and conditions of this
Agreement and to deduction of Reserves, Bank shall make Advances not exceeding
the Availability Amount.  Amounts
borrowed hereunder may be repaid and, prior to the Revolving Line Maturity
Date, reborrowed, subject to the applicable terms and conditions precedent
herein.

 

(b)                                 Termination;
Repayment.  The Revolving Line
terminates on the Revolving Line Maturity Date, when the principal amount of
all Advances, the unpaid interest thereon, and all other Obligations relating
to the Revolving Line shall be immediately due and payable.

 

2.1.2                     Letters of
Credit Sublimit.

 

(a)                                  Subject
to the Overall Sublimit in Section 2.1.5 below, as part of the Revolving
Line, Bank shall issue or have issued Letters of Credit for Borrower’s
account.  Such aggregate amounts utilized
hereunder shall at all times reduce the amount otherwise available for Advances
under the Revolving Line. The aggregate amount available to be used for the
issuance of Letters of Credit is subject to the Overall Sublimit in Section 2.1.5
below, and in addition may not exceed the Availability Amount.  If, on the Revolving Line Maturity Date,
there are any outstanding Letters of Credit, then on such date Borrower shall
provide to Bank cash collateral in an amount equal to 105% of the face amount
of all such Letters of Credit plus all interest, fees, and costs due or to
become due in connection therewith (as estimated by Bank in its good faith
business judgment), to secure all of the Obligations relating to said Letters
of Credit.  All Letters of Credit shall
be in form and substance acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank’s standard Application and Letter
of Credit Agreement (the “Letter of Credit
Application”).  Borrower
agrees to execute any further documentation in connection with the Letters of
Credit as Bank may reasonably request. 
Borrower further agrees to be bound by the regulations and interpretations
of the issuer of any Letters of Credit guarantied by Bank and opened for
Borrower’s account or by Bank’s interpretations of any Letter of Credit issued
by Bank for Borrower’s account, and Borrower understands and agrees that Bank
shall not be liable for any error, negligence, or mistake, whether of omission
or commission, in following Borrower’s instructions or those contained in the
Letters of Credit or any modifications, amendments, or supplements thereto.

 

(b)                                 The
obligation of Borrower to immediately reimburse Bank for drawings made under
Letters of Credit shall be absolute, unconditional, and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.

 

(c)                                  Borrower
may request that Bank issue a Letter of Credit payable in a Foreign
Currency.  If a demand for payment is
made under any such Letter of Credit, Bank shall treat such demand as an
Advance to Borrower of the equivalent of the amount thereof (plus fees and
charges in connection therewith such as wire, cable, 

 

 

SWIFT or similar charges) in Dollars at the
then-prevailing rate of exchange in San Francisco, California, for sales of the
Foreign Currency for transfer to the country issuing such Foreign Currency.

 

(d)                                 To
guard against fluctuations in currency exchange rates, upon the issuance of any
Letter of Credit payable in a Foreign Currency, Bank shall create a reserve
(the “Letter of Credit Reserve”) under the
Revolving Line in an amount equal to ten percent (10%) of the face amount of
such Letter of Credit.  The amount of the
Letter of Credit Reserve may be adjusted by Bank from time to time to account
for fluctuations in the exchange rate. 
The availability of funds under the Revolving Line shall be reduced by
the amount of such Letter of Credit Reserve for as long as such Letter of
Credit remains outstanding.

 

2.1.3                     Foreign
Exchange Sublimit.  Subject to the
Overall Sublimit in Section 2.1.5 below, as part of the Revolving Line,
Borrower may enter into foreign exchange contracts with Bank under which
Borrower commits to purchase from or sell to Bank a specific amount of Foreign
Currency (each, a “FX Forward Contract”)
on a specified date (the “Settlement Date”).  FX Forward Contracts shall have a Settlement
Date of at least one (1) FX Business Day after the contract date and shall
be subject to a reserve of ten percent (10%) of each outstanding FX Forward
Contract (the “FX Reserve”).  The aggregate amount of FX Forward Contracts
at any one time may not exceed ten (10) times the amount of the FX
Reserve.  The amount otherwise available
for Credit Extensions under the Revolving Line shall be reduced by an amount
equal to ten percent (10%) of each outstanding FX Forward Contract (the “FX Reduction Amount”).  Unless paid on the Settlement
Date, any amounts needed to fully reimburse Bank will be treated as Advances
under the Revolving Line from and after the Settlement Date and will accrue
interest at the interest rate applicable to Advances.

 

2.1.4                     Cash
Management Services Sublimit. 
Subject to the Overall Sublimit in Section 2.1.5 below, Borrower
may use up to $2,500,000 of the Revolving Line for Bank’s cash management
services which may include merchant services, direct deposit of payroll, business
credit card, and check cashing services identified in Bank’s various cash
management services agreements (collectively, the “Cash
Management Services”).  Any
amounts Bank pays on behalf of Borrower for any Cash Management Services as a
result of Borrower’s failure to pay its obligations with respect thereto on a
timely basis (as opposed to Borrower’s mere utilization of the Cash Management
Services products) will be treated as Advances under the Revolving Line and
will accrue interest at the interest rate applicable to Advances.

 

2.1.5                     Overall
Aggregate Sublimit.  In no event
shall the total amount of (i) all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve),
plus (ii) the FX Reserve, plus (iii) the amount of the Revolving Line
utilized for Cash Management Services, at any time exceed $2,500,000 in the
aggregate (the “Overall Sublimit”).

 

2.2                               Overadvances.
 If, at any time, the sum of (a) the
outstanding principal amount of any Advances (including any amounts used for
Cash Management Services), plus  (b) the
face amount of any outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve), plus  (c) the FX Reduction Amount (such sum being an “Overadvance”) exceeds the lesser of either the Revolving
Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash such
Overadvance.  Without limiting Borrower’s
obligation to repay Bank any amount of the Overadvance, Borrower agrees to pay
Bank interest on the outstanding amount of any Overadvance, on demand, at the
Default Rate.

 

2.3                               Payment
of Interest on the Credit Extensions.

 

(a)                                  Interest
Rate; Advances.  Subject to Section 2.3(b),
the principal amount outstanding under the Revolving Line shall accrue interest
at a per annum rate based on Borrower’s Quick Ratio (as defined below), as
follows:

 

	
  Quick Ratio as of the end of a quarter

  	
   

  	
  Interest Rate

  
	
  Greater than 1.00 to
  1.00

  	
   

  	
  Prime Rate plus 0.25%

  
	
  Less
  than 1.00 to 1.00 but equal to or greater than 0.85 to 1.00

  	
   

  	
  Prime Rate plus 0.75%

  
	
  Less than 0.85 to 1.00

  	
   

  	
  Prime Rate plus 1.25%

  

 

2

 

The initial interest rate in effect on the date hereof shall be a rate
equal to the Prime Rate plus 0.25%. Interest shall be payable monthly.  Changes in the interest rate based on
Borrower’s Quick Ratio as provided above shall go into effect as of the first
day of the month following the month  in which
Borrower’s quarterly financial statements are received, reviewed and approved
by Bank.  If, based on the Quick Ratio as
shown in Borrower’s financial statements there is to be an increase or decrease
in the interest rate, the interest rate increase or decrease shall be put into
effect by Bank as of the first day of the month  following
the date on which the quarterly financial statements are due, even if the
delivery of the financial statements is delayed.  As used above, “Quick Ratio” shall mean the
ratio of (A) the sum of Borrower’s consolidated unrestricted cash and
unrestricted Cash Equivalents plus Borrower’s Accounts to (B) the sum of
Borrower’s current liabilities determined in accordance with GAAP.

 

(b)                                 Default
Rate.  Immediately upon the
occurrence and during the continuance of an Event of Default, Obligations shall
bear interest at a rate per annum which is five percentage points above the
rate that is otherwise applicable thereto (the “Default Rate”).  Payment or acceptance of the increased
interest rate provided in this Section 2.3(b) is not a permitted
alternative to timely payment and shall not constitute a waiver of any Event of
Default or otherwise prejudice or limit any rights or remedies of Bank.

 

(c)                                  Adjustment
to Interest Rate.  Changes to the
interest rate of any Credit Extension based on changes to the Prime Rate shall
be effective on the effective date of any change to the Prime Rate and to the
extent of any such change.

 

(d)                                 360-Day
Year.  Interest shall be computed on
the basis of a 360-day year for the actual number of days elapsed.

 

(e)                                  Debit
of Accounts.  Bank shall debit any of
Borrower’s deposit accounts, including the Designated Deposit Account, for
principal and interest payments or any other amounts Borrower owes Bank when
due.  These debits shall not constitute a
set-off.

 

(f)                                    Payment;
Interest Computation; Float Charge. 
Interest is payable monthly on the last calendar day of each month.  In computing interest on the Obligations, all
Payments received after 12:00 p.m. Pacific time on any day shall be deemed
received on the next Business Day.  In
addition, if any principal or interest with respect to any Credit Extension is
outstanding, and Borrower has not met the Net Cash Test on the last day of the
immediately preceding fiscal quarter, then Bank shall be entitled to charge
Borrower a “float” charge in an amount equal to two Business Days interest, at
the interest rate applicable to the Advances, on all Payments received by Bank.
The float charge for each month shall be payable on the last day of the
month.  Bank shall not, however, be
required to credit Borrower’s account for the amount of any item of payment
which is unsatisfactory to Bank in its good faith business judgment, and Bank
may charge Borrower’s Designated Deposit Account for the amount of any item of
payment which is returned to Bank unpaid.

 

2.4                               Fees.  Borrower shall pay to Bank:

 

(a)                                  Commitment
Fee.  A fully earned, non-refundable
commitment fee of $56,250 per year for the three-year term of this Agreement,
payable in three annual installments of $56,250 each, commencing on the
Effective Date and continuing on each anniversary of the Effective Date, or on
any earlier termination of this Agreement; and

 

(b)                                 Letter
of Credit Fee.  Bank’s customary fees
and expenses for the issuance or renewal of Letters of Credit, including,
without limitation, a Letter of Credit Fee of two percent (2.00%) per annum of
the face amount of each Letter of Credit issued, upon the issuance, each
anniversary of the issuance, and the renewal of such Letter of Credit by Bank;  and

 

(c)                                  Termination
Fee.  Subject to the terms of Section 4.1,
a termination fee as described in Section 12.1; and

 

(d)                                 Unused
Revolving Line Facility Fee.  A fee
(the “Unused Revolving Line Facility Fee”),
payable monthly, in arrears, in an amount equal to 0.375% per annum of the
average unused portion of the Revolving Line, as determined by Bank, subject to
confirmation by Borrower (although such confirmation is not a condition
precedent to the obligation to the payment of any such fee).  The unused portion of the Revolving Line, for
the purposes of this calculation, shall include amounts reserved under the Cash
Management Services Sublimit for products provided and under the Foreign
Exchange Sublimit for FX Forward Contracts. 
Borrower shall not be 

 

3

 

entitled to any credit, rebate or repayment of any
Unused Revolving Line Facility Fee previously earned by Bank pursuant to this Section notwithstanding
any termination of the Agreement, or suspension or termination of Bank’s obligation
to make loans and advances hereunder; and

 

(e)                                  Collateral
Monitoring Fee.  A monthly collateral
monitoring fee of $2,500, payable in arrears on the last day of each month
(prorated for any partial month at the beginning and upon termination of this Agreement),
provided that for any month in which there were no Advances outstanding at any
times, the monthly collateral monitoring fee shall be $500; and

 

(f)                                    Bank
Expenses.  All Bank Expenses
(including reasonable attorneys’ fees and expenses, plus expenses, for
documentation and negotiation of this Agreement) incurred through and after the
Effective Date, 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 Borrower shall consent to or have delivered, in form
and substance satisfactory to Bank, such documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate, including,
without limitation:

 

(a)                                  duly
executed original signatures to the Loan Documents to which it is a party;

 

(b)                                 its
Operating Documents and a good standing certificate of Borrower certified by
the Secretary of State of the State of Delaware and the Secretary of State of
the State of California as of a date no earlier than thirty (30) days prior to
the Effective Date;

 

(c)                                  duly
executed original signature of the secretary or assistant secretary of Borrower
with respect to a general certificate of Borrower as to, among other things,
the Resolutions for Borrower;

 

(d)                                 duly
executed guaranty agreement and security agreement by each entity identified on
Exhibit D;

 

(e)                                  duly
executed original signature of the secretary or assistant secretary of each
Guarantor with respect to a general certificate of such Guarantor as to, among
other things, the Resolutions for such Guarantor;

 

(f)                                    certified
copies, dated as of a recent date, of financing statement searches, as Bank
shall request, accompanied by written evidence (including any UCC termination
statements) that the Liens indicated in any such financing statements either
constitute Permitted Liens or have been or, in connection with the initial
Credit Extension, will be terminated or released;

 

(g)                                 the
Perfection Certificate executed by Borrower;

 

(h)                                 a
duly executed legal opinion of Borrower’s counsel dated as of the Effective
Date;

 

(i)                                     evidence
satisfactory to Bank that the insurance policies required by this Agreement are
in full force and effect, together with appropriate evidence showing lender
loss payable and/or additional insured clauses or endorsements in favor of
Bank; and

 

(j)                                     payment
of the fees and Bank Expenses then due as specified in Section 2.4  hereof.

 

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)                                  except
as otherwise provided in Section 3.4, timely receipt of an executed
Transaction Report;

 

(b)                                 the
representations and warranties in Section 5 shall be true in all material
respects on the date of the Transaction Report and on the Funding Date of each
Credit Extension; provided, however, that such materiality qualifier shall not
be applicable to any representations and warranties that already are qualified
or 

 

4

 

modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material
respects as of such date, and no Event of Default shall 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 in Section 5 remain true in
all material respects; provided, however, that such materiality qualifier shall
not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific
date shall be true, accurate and complete in all material respects as of such
date; and

 

(c)                                  in
Bank’s sole discretion, there has not been a Material Adverse Change.

 

3.3                               Covenant
to Deliver.

 

Borrower agrees to
deliver to Bank each item required to be delivered to Bank under this Agreement
as a condition to any Credit Extension. 
Borrower expressly agrees that a Credit Extension made prior to the
receipt by Bank of any such item shall not constitute a waiver by Bank of
Borrower’s obligation to deliver such item, and any such Credit Extension in
the absence of a required item shall be made in Bank’s sole discretion.

 

3.4                               Procedures
for Borrowing.  Subject to the prior
satisfaction of all other applicable conditions to the making of an Advance set
forth in this Agreement, to obtain an Advance (other than Advances under
Sections 2.1.2, 2.1.3 or 2.1.4), Borrower shall notify Bank (which notice shall
be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m.
Pacific time on the Funding Date of the Advance.  Together with such notification, Borrower
must promptly deliver to Bank by electronic mail or facsimile a completed
Transaction Report executed by a Responsible Officer or his or her
designee.  Bank shall credit Advances to
the Designated 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 repay Obligations that were not paid when due.  Bank may rely on any telephone notice given
by a person whom Bank believes is a Responsible Officer or designee.

 

4                                         CREATION
OF SECURITY INTEREST

 

4.1                               Grant
of Security Interest.  Borrower
hereby grants Bank, to secure the payment and performance in full of all of the
Obligations, a continuing security interest in, and pledges to Bank, the
Collateral, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof. 
Borrower represents, warrants, and covenants that the security interest
granted herein is and shall at all times continue to be a first priority
perfected security interest in the Collateral (subject only to Permitted Liens
that may have superior priority to Bank’s Lien under this Agreement).  If Borrower shall acquire a commercial tort
claim, Borrower shall promptly notify Bank in a writing signed by Borrower of
the general details thereof and grant to Bank in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance reasonably
satisfactory to Bank.

 

If this Agreement
is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations and obligations for
which cash collateral has been provided in a manner and in an amount deemed
acceptable to Bank) are repaid in full in cash. 
Upon payment in full in cash of the Obligations and
at such time as Bank’s obligation to make Credit Extensions has terminated,
Bank shall, at Borrower’s sole cost and expense, release its Liens in the
Collateral and all rights therein shall revert to Borrower.

 

4.2                               Authorization
to File Financing Statements. 
Borrower hereby authorizes Bank to file financing statements with all
appropriate jurisdictions to perfect or protect Bank’s interest or rights
hereunder, including a notice that certain dispositions of the Collateral, by
either Borrower or any other Person, would be deemed to violate the rights of
Bank under the Code.  Promptly after the
filing thereof, Bank shall provide Borrower with a copy of any financing
statement filed to protect Bank’s interest or rights hereunder.

 

5                                         REPRESENTATIONS
AND WARRANTIES

 

Borrower represents
and warrants as follows:

 

5.1                               Due
Organization, Authorization; Power and Authority.  Borrower is duly existing and in good
standing as a Registered Organization in its jurisdiction of formation and is
qualified and licensed to do business and is in good standing in any
jurisdiction in which the conduct of its business or its ownership of property 

 

5

 

requires that it be qualified except where the failure
to do so could not reasonably be expected to have a material adverse effect on
Borrower’s business.  In connection with
this Agreement, Borrower has delivered to Bank a completed certificate signed
by Borrower, entitled “Perfection Certificate”. 
Borrower represents and warrants to Bank that (a) Borrower’s exact
legal name is that indicated on the Perfection Certificate and on the signature
page hereof; (b) Borrower is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate; (c) the
Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate accurately sets forth Borrower’s place of business, or,
if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) Borrower (and
each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) as of the
Closing Date, all other information set forth on the Perfection Certificate
pertaining to Borrower and each of Borrower’s Subsidiaries is accurate and
complete in all material respects; provided, however, it is
understood and agreed that Borrower may from time to time update the
information described in clauses (a) through (e) above after the
Effective Date to the extent otherwise permitted by this Agreement, and, as a
result, the information in the Perfection Certificate shall be deemed modified
by any such updates.  Further, Borrower
hereby agrees to update the information set forth in the Perfection Certificate
on an annual basis, if the Bank so requests, provided that Borrower
shall not be required to provide a level of detail in connection therewith
greater than that provided by Borrower in connection with the delivery of the
original Perfection Certificate, unless Bank, in its reasonable, good faith
business judgment, determines that certain specific information is necessary in
order to further effectuate the purposes of this Agreement.

 

The execution, delivery
and performance by Borrower of the Loan Documents to which it is a party have
been duly authorized, and do not (i) conflict with any of Borrower’s
organizational documents, (ii) contravene, conflict with, constitute a
default under or violate any material Requirement of Law, (iii) contravene,
conflict or violate any applicable order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority by which (A) Borrower
or any Guarantor or any of their material property or material assets may be
bound or affected, or (B) Subsidiaries of Borrower other than any
Guarantor, or any of their property or assets may be bound or affected in a
manner that would reasonably be expected to result in a material adverse effect
on Borrower’s business, (iv) require any action by, filing, registration,
or qualification with, or Governmental Approval from, any Governmental
Authority (except such Governmental Approvals which have already been obtained
and are in full force and effect) or (v) constitute an event of default
under any material agreement by which Borrower is bound.  Borrower is not in default under any
agreement to which it is a party or by which it is bound in which the default
could reasonably be expected to have a material adverse effect on Borrower’s
business.

 

5.2                               Collateral.
Borrower has good title to, has rights in, and the power to transfer each item
of the Collateral upon which it purports to grant a Lien hereunder, free and
clear of any and all Liens except Permitted Liens.  Borrower has no deposit accounts other than
the deposit accounts with Bank, the deposit accounts, if any, described in the
Perfection Certificate delivered to Bank in connection herewith, or of which
Borrower has given Bank notice and beginning not later than the 91st day after the Effective Date (in accordance
with the provisions set forth in Section 6.8(a) hereof), Borrower has
taken such actions as are necessary to give Bank a perfected security interest
therein.  The Accounts are bona fide,
existing obligations of the Account Debtors.

 

As of the Closing Date, the Collateral is not in the
possession of any third party bailee (such as a warehouse) except as otherwise
provided in the Perfection Certificate and as set forth in the following
sentence, provided that in connection with any such third party bailee
locations Borrower shall, within 90 days of the date hereof, use all
commercially reasonable efforts to obtain third party bailee letter agreements
from the owners/operators of such locations, which shall be in form and
substance acceptable to Bank.  Other than
inventory located, in the ordinary course of business, at locations for the
purpose of testing thereof, none of the Collateral shall be maintained at
locations other than as provided in the Perfection Certificate and as otherwise
permitted pursuant to this Agreement, including, without limitation, Section 7.2.  The provisions of this paragraph shall not
apply to Inventory that has been shipped, but as to which title has not yet
passed to the buyer thereof, but which is intended, in the ordinary course of
business, to result in having title to such Inventory pass to such buyer.

 

All Inventory is in all material respects of good and
marketable quality, free from material defects, taking into account all
Inventory write-downs and reserves.

 

Borrower is the sole owner of its intellectual
property, except for licenses granted to its customers in the ordinary course
of business consistent with the past business practices of Borrower.  No part of the intellectual property has been
judged invalid or unenforceable, in whole or in part, and, to Borrower’s
knowledge, no claim has 

 

6

 

been made that any part of the intellectual property violates the
rights of any third party, except to the extent such claim would not reasonably
be expected to have a material adverse effect on Borrower’s business.

 

5.3                               Accounts
Receivable; Inventory.

 

(a)                                  For each
Account with respect to which Advances are requested, on the date each Advance
is requested and made, such Account shall be an Eligible Account.

 

(b)                                 All
statements made and all unpaid balances appearing in all invoices, instruments
and other documents evidencing the Eligible Accounts are and shall be true and
correct and all such invoices, instruments and other documents, and all of
Borrower’s Books are genuine and in all respects what they purport to be.  Whether or not an Event of Default has
occurred and is continuing, Bank may verify the amount of any Account.  All sales and other transactions underlying
or giving rise to each Eligible Account shall comply in all material respects with
all applicable laws and governmental rules and regulations.  Borrower has no knowledge of any actual or
imminent Insolvency Proceeding of any Account Debtor whose accounts are
Eligible Accounts in the most recent Transaction Report.  To the best of Borrower’s knowledge, all
signatures and endorsements on all documents, instruments, and agreements
relating to all Eligible Accounts are genuine, and all such documents,
instruments and agreements are legally enforceable in accordance with their
terms.

 

5.4                               Litigation.  Except as previously disclosed to Bank in
writing, there are no actions or proceedings pending or, to the knowledge of
the Responsible Officers, threatened in writing by or against Borrower or any
of its Subsidiaries involving more than $500,000.

 

5.5                               No
Material Deviation in Financial Statements. 
All consolidated financial statements for Borrower and any of its
Subsidiaries delivered to Bank fairly present in all material respects Borrower’s
consolidated financial condition and Borrower’s consolidated results of operations
as of the dates and for the periods presented therein.  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 that is reasonably expected to
result in Borrower breaching any of the financial covenants set forth in Section 6.9
as of the end of the current fiscal quarter, provided, however,
it is the intention of the parties hereto that nothing in the foregoing
representation as so stated is intended to, nor shall the foregoing in any
manner derogate from whatsoever, the availability or enforceability of an Event
of Default arising from any of the components of a Material Adverse Change
Event of Default under Section 8.3 hereof, all of which components are hereby
specifically affirmed by Borrower as enforceable and effective provisions.

 

5.6                               Solvency.  The fair salable value of Borrower’s assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; 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.

 

5.7                               Regulatory
Compliance.  Borrower is not an “investment
company” or a company “controlled” by an “investment company” under the
Investment Company Act of 1940, as amended. 
Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations X, T and U of the Federal Reserve
Board of Governors).  Borrower has complied
in all material respects with the Federal Fair Labor Standards Act.  Neither Borrower nor any of its Subsidiaries
is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary
company” of a “holding company” as each term is defined and used in the Public
Utility Holding Company Act of 2005. 
Borrower has not violated any laws, ordinances or rules, the violation
of which could reasonably be expected to have a material adverse effect on its
business.  None of Borrower’s or any of
its Subsidiaries’ 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 or as would not reasonably be expected to have a
material adverse effect on Borrower’s or such Subsidiary’s business,
respectively.  Borrower and each of its
Subsidiaries have obtained all material consents, approvals and authorizations
of, made all declarations or filings with, and given all notices to, all
Government Authorities that are necessary to continue their respective
businesses as currently conducted in all material respects.

 

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

 

5.9                               Tax
Returns and Payments; Pension Contributions.  Borrower (i) has timely filed all
required income, payroll and sales tax returns and reports and timely paid all
such taxes owed by Borrower; and (ii) subject to the following proviso,
except as would relate to tax obligations not in the aggregate in excess of
$250,000 (the 

 

7

 

“Exception Amount”), has timely filed all other tax
returns and reports and timely paid all other foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower, as long as the
failure to pay the Exception Amount of taxes would not reasonably be expected
to result in a Material Adverse Change. 
Borrower may defer payment of any contested taxes, provided that
Borrower (a) in good faith contests its obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (b) notifies
Bank in writing of the commencement of, and any material development in excess
of 250,000, (c) posts bonds or takes any other steps required to prevent
the governmental authority levying such contested taxes from obtaining a Lien
upon any of the Collateral that is other than a “Permitted Lien”.  Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result
in additional taxes of $100,000 or more becoming due and payable by Borrower or
that otherwise would reasonably be expected to result in a Material Adverse
Change.  Borrower has paid all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, and has not permitted partial or complete termination of, or
permitted the occurrence of any other event with respect to, any such plan
which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.

 

5.10                        Use of
Proceeds.  Borrower shall use the
proceeds of the Credit Extensions solely as working capital (including for the
payment of interest on Subordinated Debt), to fund its general business
requirements and to repay or repurchase 2009 Unsecured Senior Notes, and not
for personal, family, household or agricultural purposes.

 

5.11                        Full
Disclosure.  No written
representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank, as of the date such representation, warranty,
or other statement was made, taken together with all such written certificates
and written statements given 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 or forecasted results).

 

5.12                        Existing Liens Relating to Shares. 
Reference is made to the issued and outstanding shares of capital stock
owned by Borrower of any Subsidiary which is organized under the laws of a
jurisdiction other than the United States or any state or territory thereof or
the District of Columbia (the “Foreign Shares”).  Borrower has informed Bank that a prior
lienholder in such Foreign Shares has not completed all steps necessary to
extinguish, of record, all evidence of such liens in all jurisdictions.  In connection therewith, however, Borrower
hereby represents and warrants to Bank that there is, and shall remain, no
obligations outstanding or otherwise owing to the holder of any lien in any of
the Foreign Shares.

 

5.13                        Domestic
Subsidiaries. The only domestic Subsidiaries of Borrower that have assets
of at least $100,000 are the entities set forth on Exhibit D attached
hereto, and such other entities that may arise after the Effective Date that
become Guarantors by virtue of the operation of Section 6.12 hereof and
that enter in to guaranties and security agreements in form and substance
acceptable to Bank.

 

6                                         AFFIRMATIVE
COVENANTS

 

Borrower shall do all of
the following:

 

6.1                               Government
Compliance.

 

(a)                                  Maintain
its and all its Subsidiaries’ legal existence and good standing in their
respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
have a material adverse effect on Borrower’s business or operations.  Borrower shall 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.

 

(b)                                 Obtain
all of the Governmental Approvals necessary for the performance by Borrower of
its obligations under the Loan Documents to which it is a party and the grant
of a security interest to Bank in the Collateral.  Borrower shall promptly provide copies of any
such material Governmental Approvals to Bank.

 

8

 

6.2                               Financial
Statements, Reports, Certificates.

 

(a)                                  Borrower
shall provide Bank with the following:

 

(i)             (A) Subject
to clause (B) hereof, a Transaction Report (and any schedules related
thereto), within fifteen (15) days after the end of each fiscal month and with
each request for an Advance (collectively the “Standard Transaction
Reporting”), provided, however, if Borrower has not met the
Net Cash Test as of any fiscal quarter end date, a Transaction Report (and any
schedules related thereto) shall be provided weekly and with each request for
an Advance and any other Credit Extension until such time as Borrower has
thereafter met the Net Cash Test, as of a fiscal quarter end date, whereupon
only Standard Transaction Reporting shall be required;

 

                        (B)  If at any time, the
sum of the aggregate principal amount of outstanding Credit Extensions
hereunder minus the aggregate amount of
unrestricted deposits of Borrower with Bank is greater than Zero Dollars ($0)
(such an occurrence and condition being referred to herein as “Excess Credit
Exposure”), then within three (3) Business Days of such date Borrower
shall provide to Bank a Transaction Report (and any schedules related thereto),
and Borrower shall thereafter provide to Bank such a Transaction Report on a
weekly basis as well as with each request for an Advance and each request for
any other Credit Extension until there is no longer any Excess Credit Exposure,
at which time the reporting requirements of clause (A) above shall apply.

 

(ii) within
fifteen (15) days after the end of each fiscal month, (A) monthly accounts
receivable agings, aged by invoice date, (B) monthly accounts payable
agings, aged by invoice date, and outstanding or held check registers, if any,
and (C) monthly reconciliations of accounts receivable agings (aged by
invoice date), transaction reports and general ledger,

 

(iii) as
soon as available, and in any event within thirty (30) days after the end of
each month, monthly unaudited financial statements;

 

(iv) within
thirty (30) days after the end of each fiscal quarter a Compliance Certificate
signed by a Responsible Officer, certifying that as of the end of such fiscal
quarter, Borrower was in full compliance with all of the terms and conditions
of this Agreement, and setting forth calculations showing compliance with the financial
covenants set forth in this Agreement and such other information as Bank shall
reasonably request, including, without limitation, a statement that at the end
of such month there were no held checks payable to Borrower;

 

(v) 
(A) within 90 days of the beginning of each fiscal year of Borrower annual
financial projections for such fiscal year (on a quarterly basis) presented to,
and not objected to by, Borrower’s board of directors, together with any
related business forecasts used in the preparation of such annual financial
projections; and (B) any updates to any such projections as Borrower may
prepare from time to time and, if so prepared, as Bank then may request;

 

 (vii)  as soon as available, but no later
than five (5) days after filing with the Securities Exchange Commission,
Borrower’s 10K (to include an unqualified opinion of Borrower’s independent
certified public accountants), 10Q, and 8K reports, provided that the same
shall be deemed to have been delivered on the date on which Borrower posts such
report or provides a link thereto on Borrower’s or another website on the
Internet;

 

(viii) 
such reports as Bank shall request from time to time to ensure Eligible
Accounts which are foreign Accounts supported by foreign credit insurance are
appropriately covered by such foreign credit insurance.

 

 (b)                              Prompt
written notice of (i) the registration of any copyright, including any
subsequent ownership right of Borrower in or to any copyright, or (iii) Borrower’s
knowledge of an event that materially adversely affects the value of the
intellectual property material to the business of Borrower.

 

6.3                               Accounts
Receivable.

 

(a)                                  Schedules
and Documents Relating to Accounts.  Borrower shall deliver to Bank transaction
reports and schedules of collections, as provided in Section 6.2, on Bank’s
standard forms; provided, however, that Borrower’s failure to execute and
deliver the same shall not affect or limit Bank’s Lien and other rights in all
of Borrower’s Accounts, nor shall Bank’s failure to advance or lend against a
specific Account affect or limit Bank’s Lien and other rights therein.  If requested by Bank after the occurrence and
during the continuance of an Event of Default, Borrower shall furnish Bank with
copies (or, at Bank’s request, originals) of all contracts, 

 

9

 

orders,
invoices, and other similar documents, and all shipping instructions, delivery
receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Accounts.  In addition, Borrower shall deliver to Bank,
on its request, the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Accounts, in the same form as received, with all necessary endorsements,
and copies of all credit memos for $100,000 or more.

 

(b)                                 Disputes.  Borrower shall promptly notify Bank of such
disputes or claims relating to Accounts that exceed at any time either $250,000
individually or $1,000,000 in the aggregate relating to all such disputes.  Borrower may forgive (completely or
partially), compromise, or settle any Account for less than payment in full, or
agree to do any of the foregoing so long as Borrower does so in good faith, in
a commercially reasonable manner, in the ordinary course of business, in arm’s-length
transactions, and reports the same to Bank in the regular reports provided to
Bank, provided, further, Borrower shall ensure that after taking into account
all such discounts, settlements and forgiveness, the total outstanding Advances
will not exceed the lesser of the Revolving Line Maximum Dollar Amount or the
Aggregate Borrowing Base by taking such actions, including, without limitation,
the making of payments to reduce the Obligations.

 

(c)                                  Collection
of Accounts. 
Borrower shall have the right to collect all Accounts, unless and until
a Default or an Event of Default has occurred and is continuing.  Whether or not an Event of Default has
occurred and is continuing, Borrower shall hold all payments on, and proceeds
of, Accounts in trust for Bank, and Borrower shall immediately deliver all such
payments and proceeds to Bank in their original form, duly endorsed, to be
applied to the Obligations in such order as Bank shall determine in its sole
discretion, provided that if the Net Cash Test was met on the last day of the
preceding fiscal quarter of Borrower, and no Event of Default has occurred and
is continuing, then such payments and proceeds of Accounts shall be deposited
in the Designated Deposit Account. 
Borrower shall cause all proceeds of Accounts to be deposited into the
Designated Deposit Account, a cash collateral account (in the case of proceeds
received by Borrower by wire transfer) or a lockbox account (in the case of
proceeds received by check or other payment), as Bank may specify, pursuant to
a blocked account agreement or similar agreement in such form as Bank may
specify in its good faith business judgment.

 

(d)                                 Returns.  Provided no Event of
Default has occurred and is continuing, if any Account Debtor returns any
Inventory to Borrower, Borrower shall employ its usual and customary procedures
in connection therewith, which include, without limitation, the following as
applicable:  (i) determination of
the reason for such return, (ii) issuance of a credit memorandum to the
Account Debtor in the appropriate amount, and (iii) providing a copy of
such credit memorandum to Bank for such returns in excess of $250,000, upon
request from Bank.  In the event any attempted
return occurs after the occurrence and during the continuance of any Event of
Default, upon the written request of Bank, Borrower shall hold the returned
Inventory in trust for Bank, and immediately notify Bank of the return of
the Inventory with a value in excess of $250,000.

 

(e)                                  Verification.  Bank may, from time
to time, verify directly with the respective Account Debtors the validity,
amount and other matters relating to the Accounts, either in the name of
Borrower or Bank or such other name as Bank may choose.

 

(f)                                    No
Liability. 
Bank shall not be responsible or liable for any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other
disposition of which gives rise to an Account, or for any error, act, omission,
or delay of any kind occurring in the settlement, failure to settle, collection
or failure to collect any Account, or for settling any Account in good faith
for less than the full amount thereof, nor shall Bank be deemed to be
responsible for any of Borrower’s obligations under any contract or agreement
giving rise to an Account.  Nothing
herein shall, however, relieve Bank from liability for its own gross negligence
or willful misconduct.

 

6.4                               Remittance
of Proceeds.  Except as otherwise
provided in Section 6.3(c) or any other provision of this Agreement,
deliver, in kind, all proceeds arising from the disposition of any Collateral
to Bank in the original form in which received by Borrower not later than the
following Business Day after receipt by Borrower, to be applied to the
Obligations pursuant to the terms of Section 9.4 hereof; provided that, if
no Default or Event of Default has occurred and is continuing, Borrower shall
not be obligated to remit to Bank the net cash proceeds (with the computation
of net cash proceeds taking into account any income and other taxes relating to
such sale) of the sale of worn out or obsolete Equipment disposed of by
Borrower in good faith in an arm’s length transaction for an aggregate purchase
price of $1,000,000 or less (for all such transactions in any fiscal
year).   Borrower agrees that it will not
commingle proceeds of Collateral with any of Borrower’s other funds or
property, but will hold such

 

10

 

proceeds separate and apart from such other funds and
property and in an express trust for Bank. 
Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.

 

6.5                               Taxes; Pensions.  (i) Timely
file, and require each of its Subsidiaries to timely file (taking into account
all applicable extensions of time to file), all required tax returns and
reports and (ii) subject to the following proviso, except as would relate
to tax obligations not in the aggregate in excess of the Exception Amount,
timely pay, and require each of its Subsidiaries to timely file, all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries as long as the failure to pay the
Exception Amount of taxes would not reasonably be expected to result in a
Material Adverse Change, except for deferred payment of any taxes contested
pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on
demand, appropriate certificates attesting to such payments, and pay all
amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms.

 

6.6                               Access
to Collateral; Books and Records.  At
reasonable times, on five (5) Business Days’ notice (provided no notice is
required if an Event of Default has occurred and is continuing and, absent an
Event of Default, one (1) Business Day’s notice only shall be required
under circumstances where Bank reasonably determines, based on the
then-existing circumstances affecting Borrower or the integrity of the
Collateral, that such access is needed), Bank, or its agents, shall have the
right to inspect the Collateral and the right to audit and copy Borrower’s
Books, provided that (i) such audits shall be conducted no more often than
once every fiscal year, if at all times during such fiscal year no Credit
Extensions were outstanding, (ii) if during a fiscal year any Credit
Extensions were outstanding, such audits shall be conducted no more often than
twice in such fiscal year, and (iii) no Credit Extensions shall be made
if, at the date of such Credit Extension, an audit has not been completed
within the prior six months. 
Notwithstanding the foregoing, there shall be no restriction on the
number of audits if, at the time of the proposed audit, an Event of Default has
occurred and is continuing.  The
foregoing inspections and audits shall be at Borrower’s expense, and the charge
therefor shall be $750 per person per day (or such higher amount as shall
represent Bank’s then-current standard charge for the same), plus reasonable
out-of-pocket expenses.  In the event
Borrower and Bank schedule an audit more than ten (10) days in advance,
and Borrower cancels or reschedules the audit with less than ten (10) days
written notice to Bank, then (without limiting any of Bank’s rights or
remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket
expenses incurred by Bank to compensate Bank for the anticipated costs and
expenses of the cancellation or rescheduling.

 

6.7                               Insurance.  Keep its business and the Collateral insured
for risks and in amounts standard for companies in Borrower’s industry and
location and as Bank may reasonably request. 
Insurance policies shall be in a form, with companies, and in amounts
that are satisfactory to Bank.  All
property policies shall have a lender’s loss payable endorsement showing Bank
as an additional loss payee and waive subrogation against Bank, and Borrower’s
general liability policy shall show, or have endorsements showing, Bank as an
additional insured.  All policies (or the
loss payable and additional insured endorsements) shall provide that the
insurer shall endeavor to give Bank at least thirty (30) days notice before
canceling its policy prior to the expiration thereof; and Borrower shall give
Bank notice of any such intended cancellation or any material amendment to its
policy or any knowledge by Borrower of a decision by the insurer to decline to
renew its policy.  At
Bank’s request, Borrower shall deliver certified copies of policies and
evidence of all premium payments. 
Proceeds payable under any property policy shall, at Bank’s option, be
payable to Bank on account of the Obligations. 
Notwithstanding the foregoing, (a) so long as no Event of Default
has occurred and is continuing, Borrower shall have the option of applying the
proceeds of any casualty policy up to $5,000,000 with respect to any loss, but
not exceeding $10,000,000 in the aggregate for all losses under all casualty policies
in any one year, toward the replacement or repair of destroyed or damaged
property; provided that any such replaced or repaired property (i) shall
be of equal or like value as the replaced or repaired Collateral and (ii) shall
be deemed Collateral in which Bank has been granted a first priority security
interest, and (b) after the occurrence and during the continuance of an
Event of Default, all proceeds payable under such casualty policy shall, at the
option of Bank, be payable to Bank on account of the Obligations.  If Borrower fails to obtain insurance as
required under this Section 6.7 or to pay any amount or furnish any
required proof of payment to third persons and Bank, Bank may make all or part
of such payment or obtain such insurance policies required in this Section 6.7,
and take any action under the policies Bank deems prudent.

 

6.8                               Operating
Accounts.

 

(a)                          Maintain
its primary and its Subsidiaries’ primary operating and other deposit accounts
and securities accounts that are domiciled in the United States with Bank and
Bank’s Affiliates which accounts shall at all times represent at least 85% of
the dollar value of Borrower’s and such Subsidiaries accounts at all financial 

 

11

 

institutions that are
located in the United States, provided, however, Borrower shall
have ninety (90) days from the Effective Date in order to comply with this
covenant.

 

(b)                                 For
each Collateral Account that Borrower at any time maintains, Borrower shall
cause the applicable bank or financial institution (other than Bank) at or with
which any Collateral Account is maintained to execute and deliver a Control
Agreement or other appropriate instrument with respect to such Collateral
Account to perfect Bank’s Lien in such Collateral Account in accordance with
the terms hereunder.  The provisions of
the previous sentence shall not apply to deposit accounts exclusively used for
payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of Borrower’s employees and identified to Bank by Borrower as such.

 

6.9                               Financial
Covenants.

 

Borrower shall
maintain on a consolidated basis with respect to Borrower and its Subsidiaries,
a Tangible Net Worth of at least $12,500,000 (the “Minimum Tangible Net Worth”),
to be tested as of the last day of each fiscal quarter, commencing with the
fiscal quarter ending October 3, 2008, which Minimum Tangible Net Worth
shall increase by:

 

 (i) by 50%
of Net Income on a quarterly basis commencing with Net Income in the quarter
ending after October 3, 2008 and continuing with respect to each fiscal
quarter thereafter, and

 

(ii) by 50% of issuances of equity and 50% of the
principal amount of Subordinated Debt, issued after October 3, 2008,
effective on the date of such issuances, other than for issuances of
Subordinated Debt the proceeds of which are used to refinance outstanding
Subordinated Debt substantially concurrently with the issuance thereof, up to
the amount of the original principal amount the Subordinated Debt being so
replaced.

 

6.10                        Intellectual
Property Rights; Proceeds Resulting in Collateral.  Borrower shall:  (a) protect, defend and maintain the
validity and enforceability of its intellectual property; (b) promptly
advise Bank in writing of material infringements of its intellectual property;
and (c) not allow any intellectual property material to Borrower’s
business to be abandoned, forfeited or dedicated to the public without Bank’s
written consent, except in the case of clauses (a) and (c) above for
any intellectual property that Borrower determines in its good faith business
judgment is not necessary in the conduct of its business or otherwise is
material to the conduct of its business. Except as set forth in the Perfection
Certificate, as of the Closing Date, Borrower has no present maskworks,
software, computer programs and other works of authorship registered with the
United States Copyright Office, and Borrower shall not hereafter register any
maskworks, software, computer programs or other works of authorship subject to
United States copyright protection with the United States Copyright Office that
result, as proceeds thereof or otherwise, in any Collateral hereunder
(including Collateral consisting of license fees, royalties or accounts)
without first complying with the following: 
(i) providing Bank with at least 15 days prior written notice
thereof, (ii) providing Bank with a copy of the application for any such
registration and (iii) executing and filing such other instruments, and
taking such further actions as Bank may reasonably request from time to time to
perfect or continue the perfection of Bank’s interest in the Collateral.  With respect to any such registered
copyrights, upon the request of Bank, Borrower shall enter into an agreement to
be filed in the United States Copyright Office solely in order for the Bank to
be able to perfect its Lien hereunder in the Collateral (including Collateral
consisting of license fees, royalties or accounts) arising therefrom (but not
the registered copyrights themselves), which agreement shall be in form
reasonably satisfactory to the Bank.  In
connection with the existing registered copyrighted materials as set forth in
the Perfection Certificate, Borrower shall, within 30 days hereof, execute and
deliver to Bank the agreement as referenced in the immediately preceding
sentence with respect thereto.

 

6.11                        Litigation
Cooperation.  From the date hereof
and continuing through the termination of this Agreement, upon reasonable
notice and during normal business hours, make available to Bank, without
expense to Bank, Borrower and its officers, employees and agents and Borrower’s
books and records, to the extent that Bank may deem them reasonably necessary
to prosecute or defend any third-party suit or proceeding instituted by or
against Bank with respect to any Collateral or relating to Borrower.

 

6.12                        Covenant
Regarding New Loan Parties.  Borrower
hereby covenants and agrees to provide to Bank at least twenty (20) days’ prior
written notice of the creation of any new domestic Subsidiary of Borrower or a
new domestic Subsidiary of any domestic Subsidiary.  If Bank determines that any such new
Subsidiary merits becoming a secured guarantor of the Obligations hereunder
then Borrower shall cause such entity to enter into 

 

12

 

Bank’s standard guaranty agreement and security
agreement and related documents and agreements (collectively, the “Guarantor
Documents”) and take such other actions from time to time as Bank shall reasonably
determine are necessary or advisable in order to effectuate the purposes
thereof.

 

6.13                        Further
Assurances.  Execute any further
instruments and take further action as Bank reasonably requests to perfect or
continue Bank’s Lien in the Collateral or to effect the purposes of this
Agreement.  Deliver to Bank,  within five (5) days after the same are sent or
received, copies of all correspondence, reports, documents and other filings
with any Governmental Authority regarding compliance with or maintenance of
Governmental Approvals or Requirements of Law or that could reasonably be
expected to have a material effect on any of the Governmental Approvals or
otherwise on the operations of Borrower or any of its Subsidiaries.

 

6.14                                International
Cash, etc. Borrower hereby agrees to use its reasonable commercial efforts
to assist Bank in Bank’s acquisition of agreements with foreign banking
institutions in order for Bank to obtain direction and/or control with respect
to the bank accounts of the foreign Subsidiaries of Borrower; provided that, no
foreign subsidiary shall be required to enter into any such agreement that
grants a security interest in favor of Bank or guaranties all or any portion of
the Obligations, unless Borrower shall have determined that such agreement is
not reasonably expected to have adverse tax consequences to Borrower.  Further, Borrower shall not cause or permit
cash or Cash Equivalents to accumulate in any of the foreign Subsidiaries of
Borrower, excluding cash and Cash Equivalents of, and in accounts owned by,
Mindspeed Technologies K.K. (Japan) to the extent that such cash and Cash
Equivalents are materially greater than those amounts needed for the operation
of such entities in the ordinary course of business; provided that Bank will cooperate
in good faith with Borrower to moderate, in a reasonable manner, without
eliminating, the requirements of this sentence to ameliorate any material
adverse tax consequences affecting Borrower as a result thereof.

 

7                                         NEGATIVE
COVENANTS

 

Borrower shall not do any
of the following without Bank’s prior written consent:

 

7.1                               Dispositions.  Convey, sell, lease, license, 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:

 

(a)                                  Transfers
in the ordinary course of business for reasonably equivalent consideration;

 

(b)                                 Transfers
constituting Permitted Indebtedness, Permitted Investments or Permitted Liens;

 

(c)                                  Transfers
constituting (i) non-exclusive licenses and similar arrangements for the
use of the property of Borrower or its Subsidiaries in the ordinary course of
business and other non-perpetual licenses that may be exclusive in some
respects other than territory (and/or that may be exclusive as to territory
only in discreet geographical areas outside of the United States), but that
could not result in a legal transfer of Borrower’s title in the licensed
property and (ii) exclusive licenses of certain intellectual property of
Borrower that arise in the ordinary course of business consistent with the past
business practices of Borrower;

 

(d)                                 Transfers
otherwise permitted by the Loan Documents;

 

(e)                                  Transfers
of assets (other than Accounts and Inventory unless such Transfer is in the
ordinary course of Borrower’s business), provided, that the aggregate net book
value of all such Transfers by Borrower and its Subsidiaries, together, shall
not exceed in any fiscal year, exceed $1,000,000, provided that upon the
occurrence and continuance of an Event of Default no such Transfers shall be
permitted; and

 

(f)                                    Transfers
consisting of patents of Borrower that are not material to the business of
Borrower.

 

7.2                                       Changes
in Business, Control, or Business Locations. (1) Engage in any
material line of business other than those lines of business conducted by
Borrower and its Subsidiaries on the date hereof (which lines of business
include the telecommunications and semiconductor businesses) and any businesses
reasonably related, complementary or incidental thereto or reasonable
extensions thereof;  (2) permit
or suffer any Change in Control; (3) (A) change the chief executive
location of Borrower or otherwise change the location of the central operating
office of Borrower without at least thirty (30) days’ prior written notice to
Bank), or (B) locate Collateral having a value in excess of $500,000 at a
new location without (i) at least thirty (30) days’ prior written notice
to 

 

13

 

Bank and (ii) with respect to Collateral located
at domestic third party bailee locations having a value in excess of $500,000,
at least thirty (30) days’ prior written notice to Bank and with Borrower using
commercially reasonable efforts to obtain, within 60 days, third party bailee
letter agreements from the owners/operators of any such location or locations;  (4) change its jurisdiction of organization, (5) change
its organizational entity status, (6) change its legal name, or (7) change
any organizational number (if any) assigned by its jurisdiction of
organization, provided that Borrower may make any of the changes described in
clauses (4) through (7) as long as Borrower provides Bank with thirty
(30) days prior written notice thereof and takes such actions and executes such
agreements and documents as Bank determines are necessary or advisable in order
for Bank to remain perfected in the Collateral and for Borrower to remain in
compliance with the terms and conditions hereof, provided, however, under no
circumstances shall Borrower effect any such changes that would cause it to
become a corporation organized under the laws of any jurisdiction outside of
the United States.  Further, Borrower
hereby covenants and agrees to provide to Bank, upon its request, a complete
list of the locations and addresses of Borrower and each Subsidiary upon the
request of Bank at such times as Bank may reasonably request, which shall
generally be deemed to be no more than on a semi-annual basis unless Bank
determines that an update thereto is reasonably necessary or advisable.

 

7.3                               Mergers
or Acquisitions. (i) Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any Person, other than with Borrower
or any Subsidiary of Borrower (but subject to (x), (y) and (z) below
of clause (ii) hereof); or (ii) acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of a Person other than any such acquisition by Borrower or a
Subsidiary of Borrower with respect to any Subsidiary of Borrower (provided
that if the property being acquired is property of a Guarantor, the acquiring
entity must be Borrower or a Guarantor), except in each of (i) and (ii) above
where (x) no Event of Default has occurred and is continuing or would
result from such action, (y) with respect to a merger or consolidation
transaction, (1) Borrower is the surviving entity in any such transaction
where Borrower is one of the two merging entities, (2) a Guarantor is the
surviving entity in any such transaction where Guarantor is one of the two
merging entities and Borrower is not, and (3) if (1) and (2) are
not applicable, then a Subsidiary is the surviving entity resulting from any
such transaction, and (z) no Change in Control or other breach of any
other covenants set forth in this Agreement would result therefrom (including,
without limitation, no breach of the financial covenants set forth herein
determined on a pro forma basis assuming the consummation of such transaction).

 

7.4                               Indebtedness.  Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.  Make any payments on any
Permitted Notes, except that Borrower may make regularly schedules payments of
principal and interest on the Permitted Notes, and may repay or repurchase the
2009 Unsecured Senior Notes, if, in each of the foregoing instances, (i) no
Event of Default has occurred and is continuing at the time of such payment or
would result from, or after giving effect to such payment, and (ii) without
limiting the generality of the foregoing, after giving effect to such payment,
Borrower will be in compliance with the financial covenants set forth in Section 6.9
of this Agreement.

 

7.5                               Encumbrance.  Create, incur, allow, or suffer 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 and further with respect to foreign Subsidiaries of
Borrower, except for involuntary liens arising pursuant to statues or laws
under the country of organization thereof and specifically shall not include
liens for borrowed money or liens that any such entity has affirmatively agreed
to in a contract or other affirmative written agreement, document or instrument
of any kind whatsoever, permit any Collateral not to be subject to the first
priority security interest granted herein,  or enter into
any agreement, document, instrument or other arrangement (except with or in
favor of Bank) with any Person which directly or indirectly prohibits or has
the effect of prohibiting Borrower or any Subsidiary from assigning,
mortgaging, pledging, granting a security interest in or upon, or encumbering
any of Borrower’s or any Subsidiary’s intellectual property, except as is
otherwise permitted in Section 7.1 hereof and the definition of “Permitted
Lien” herein.

 

7.6                               Maintenance
of Collateral Accounts.  Maintain any
Collateral Account except pursuant to the terms of Section 6.8(b) hereof.

 

7.7                               Distributions; Investments.  (a) Pay any dividends or make
any distribution or payment or redeem, retire or purchase any capital stock
provided that (i) Borrower may pay dividends solely in common stock; and (ii) Borrower
may repurchase the stock of former employees or consultants pursuant to
restricted stock vesting plans or as part of the payment by such employees or
consultants for stock options exercised by them; or (b) directly or
indirectly make any Investment other than Permitted Investments, or permit any
of its Subsidiaries to do so.

 

14

 

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

 

7.9                               Subordinated
Debt.  (a) Make or permit any
payment on any Subordinated Debt, except under the terms of the subordination,
intercreditor, or other similar agreement to which such Subordinated Debt is
subject, or (b) amend any provision in any document relating to the
Subordinated Debt which would increase the amount thereof or adversely affect
the subordination thereof to Obligations owed to Bank, other than for the
exchange or replacement of existing Subordinated Debt for new Subordinated Debt
on substantially the same terms and conditions as the Subordinated Debt being
exchanged or replaced (subject to confirmation thereof by Bank prior to the
incurring of any such new Subordinated Debt) or such other terms and conditions
as are acceptable to Bank.

 

7.10                        Compliance.  Become an “investment company” or a company
controlled by an “investment company”, under the Investment Company Act of
1940, as amended, or undertake as one of its important activities extending
credit to purchase or carry margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System), 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 permit any of its Subsidiaries to do so; withdraw or permit any
Subsidiary to withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to,
any present pension, profit sharing and deferred compensation plan which could
reasonably be expected to result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.

 

8                                         EVENTS
OF DEFAULT

 

Any one of the following
shall constitute an event of default (an “Event of Default”)
under this Agreement:

 

8.1                               Payment
Default.  Borrower fails to (a) make
any payment of principal or interest on any Credit Extension on its due date,
or (b) pay any other Obligations within three (3) Business Days after
such Obligations are due and payable (which three (3) Business Day grace
period shall not apply to payments due on the Revolving Line Maturity
Date).  During the cure period, the
failure to cure the payment default is not an Event of Default (but no Credit
Extension will be made until such default is cured);

 

8.2                               Covenant
Default.

 

(a) Borrower fails
or neglects to perform any obligation in Sections 6.5, 6.7 or 6.9, or violates
any covenant in Section 7; or

 

(b) Borrower fails
to comply with the obligations set forth in Section 6.2, provided that
with respect to Borrower’s obligations thereunder, not more than once a year,
Borrower shall have an additional ten (10) day period within which to
comply the reporting provisions thereof as long as Borrower provides written
notice of its intent to avail itself of such additional period and provides a
reasonable explanation therefor; or

 

(c) Borrower fails or neglects to perform, keep,
or observe any other term, provision, condition, covenant or agreement
contained in this Agreement or any Loan Documents, and as to any default (other
than those specified in this Section 8) under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure the
default within ten (10) Business Days after the occurrence thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) Business Day period or cannot after diligent attempts by Borrower
be cured within such ten (10) Business Day period, and such default is
likely to be cured within a reasonable time, then Borrower shall have an
additional 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 cure the default shall not be deemed an Event of Default (but no
Credit Extensions shall be made until such default is cured).  Grace periods provided under this section
shall not apply, among other things, to financial covenants or any other
covenants set forth in subsection (a) or subsection (b) above;

 

15

 

8.3                               Material
Adverse Change.  A Material Adverse
Change occurs;

 

8.4                               Attachment;
Levy; Restraint on Business.  (a) (i) The
service of process seeking to attach, by trustee or similar process, any funds
of Borrower or of any entity under control of Borrower (including a Subsidiary)
on deposit with Bank or any Bank Affiliate, or (ii) a notice of lien,
levy, or assessment is filed against any of Borrower’s assets by any government
agency, and the same under subclauses (i) and (ii) hereof are not,
within ten (10) days after the occurrence thereof, discharged or stayed
(whether through the posting of a bond or otherwise); provided, however, no
Credit Extensions shall be made until such default is cured; and (b) (i) any
material portion of Borrower’s assets is attached, seized, levied on, or comes
into possession of a trustee or receiver, or (ii) any court order enjoins,
restrains, or prevents Borrower from conducting any part of its business;

 

8.5                               Insolvency.  (a) Borrower is unable to pay its debts
(including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within forty-five (45) days (but
no Credit Extensions shall be made while any of the conditions described in
clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6                               Other
Agreements; Guarantor Documents Default. 
There is a default in any agreement to which Borrower or any Guarantor
is a party with a third party or parties resulting in a right by such third
party or parties, whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount in excess of $1,000,000  or
that could have a material adverse effect on Borrower’s or any Guarantor’s
business; or an event of default occurs under any of the Guarantor Documents.

 

8.7                               Judgments.  One or more judgments, orders, or decrees for
the payment of money in an amount, individually or in the aggregate, of at
least $250,000 (to the extent not covered by independent third-party insurance
as to which the insurance carrier does not dispute coverage) shall be rendered
against Borrower and shall remain unsatisfied, unvacated, or unstayed for a
period of ten (10) days after the entry thereof (provided that no Credit
Extensions may be made, at the option of Bank, prior to the satisfaction,
vacation, or stay of such judgment, order, or decree);

 

8.8                               Misrepresentations.  Borrower or any Person acting for Borrower
makes any representation, warranty, or other statement now or later in this
Agreement, any Loan Document or in any writing delivered to Bank or to induce
Bank to enter this Agreement or any Loan Document, and such representation,
warranty, or other statement is incorrect in any material respect when made;

 

8.9                               Subordinated
Debt.  A default or breach occurs
under any agreement between Borrower and any creditor of Borrower owed
$1,000,000 or more that signed a subordination, intercreditor, or other similar
agreement with Bank, or any creditor that has signed such an agreement with
Bank breaches any terms of such agreement, in each case where any such default
or breach entitles the creditor party thereto to accelerate the obligations
that are the subject of any such agreement; or

 

 8.10                     Governmental
Approvals.  Any Governmental Approval
shall have been (a) revoked, rescinded, suspended, modified in an adverse
manner or not renewed in the ordinary course for a full term or (b) subject
to any decision by a Governmental Authority that designates a hearing with
respect to any applications for renewal of any of such Governmental Approval or
that could result in the Governmental Authority taking any of the actions
described in clause (a) above, and such decision or such revocation,
rescission, suspension, modification or non-renewal has, or could reasonably be
expected to have, a Material Adverse Change.

 

9                                         BANK’S
RIGHTS AND REMEDIES

 

9.1                               Rights
and Remedies.  While 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(b) or (c) 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;

 

16

 

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

 

(d)                                 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 such funds, and verify the amount
of such account;

 

(e)                                  make
any payments and do any acts it considers necessary or reasonable to protect
the Collateral and/or its security interest in the Collateral.  Borrower shall assemble the Collateral if
Bank requests 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;

 

(f)                                    apply
to the Obligations any (i) 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;

 

(g)                                 ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral.  Bank
is hereby 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;

 

(h)                                 place
a “hold” on any account maintained with Bank and/or 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;

 

(i)                                     demand
and receive possession of Borrower’s Books; and

 

(j)                                     exercise
all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of
the Collateral pursuant to the terms thereof).

 

In addition to the
foregoing, at any time after Bank accelerates the Obligations and terminates
all commitments under this Agreement, Bank may terminate any FX Forward
Contracts.

 

9.2                               Power
of Attorney.  Borrower hereby
irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the
occurrence and during the continuance of an Event of Default, to:  (a) endorse Borrower’s name on any
checks or other forms of payment or security; (b) sign Borrower’s name on
any invoice or bill of lading for any Account or drafts against Account
Debtors; (c) settle and adjust disputes and claims about the Accounts
directly with Account Debtors, for amounts and on terms Bank determines
reasonable; (d) make, settle, and adjust all claims under Borrower’s
insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral, or
any judgment based thereon, or otherwise take any action to terminate or
discharge the same; and (f) transfer the Collateral into the name of Bank
or a third party as the Code permits. 
Borrower hereby appoints Bank as its lawful attorney-in-fact to sign
Borrower’s name on any documents necessary to perfect or continue the
perfection of Bank’s security interest in the Collateral regardless of whether
an Event of Default has occurred until all Obligations have been satisfied in
full and Bank is under no further obligation to make Credit Extensions
hereunder.  Bank’s foregoing 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                               Protective
Payments.  If Borrower fails to
obtain the insurance called for by Section 6.7 or fails to pay any premium
thereon or fails to pay any other amount which Borrower is obligated to pay
under this Agreement or any other Loan Document, Bank may obtain such insurance
or make such payment, and all amounts so paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then highest applicable 

 

17

 

rate, and secured by the Collateral.  Bank will make reasonable efforts to provide
Borrower with notice of Bank obtaining such insurance at the time it is
obtained or within a reasonable time thereafter.  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                               Application
of Payments and Proceeds.  Borrower
shall have no right to specify the order or the accounts to which Bank shall
allocate or apply any payments required to be made by Borrower to Bank or
otherwise received by Bank under this Agreement when any such allocation or
application is not specified elsewhere in this Agreement.  If an Event of Default has occurred and is
continuing, Bank may apply any funds in its possession, whether from Borrower
account balances, payments, proceeds realized as the result of any collection
of Accounts or other disposition of the Collateral, or otherwise, to the Obligations
in such order as Bank shall determine in its sole discretion.  Any surplus shall be paid to Borrower by
credit to the Designated Deposit Account or to other Persons legally entitled
thereto; Borrower shall remain liable to Bank for any deficiency.  If Bank, in its good faith business judgment,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the
option, exercisable at any time, of either reducing the Obligations by the
principal amount of the purchase price or deferring the reduction of the
Obligations until the actual receipt by Bank of cash therefor.

 

9.5                               Bank’s
Liability for Collateral.  So long as
Bank complies with reasonable banking practices regarding the safekeeping of
the Collateral in the possession or under the control of Bank, Bank shall not
be liable or responsible 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.  Borrower bears
all risk of loss, damage or destruction of the Collateral.

 

9.6                               No
Waiver; Remedies Cumulative.  Bank’s
failure, at any time or times, to require strict performance by Borrower of any
provision of this Agreement or any other Loan Document shall not waive, affect,
or diminish any right of Bank thereafter to demand strict performance and
compliance herewith or therewith.  No
waiver hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it is given.  Bank’s rights and remedies under this
Agreement and the other Loan Documents 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 in exercising any remedy is not
a waiver, election, or acquiescence.

 

9.7                               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, consents,
requests, approvals, demands, or other communication by any party to this
Agreement or any other Loan Document must be in writing and shall be deemed to
have been validly served, given, or delivered: (a) upon the earlier of
actual receipt and three (3) Business Days after deposit in the U.S. mail,
first class, registered or certified mail return receipt requested, with proper
postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a
reputable overnight courier with all charges prepaid; or (d) when
delivered, if hand-delivered by messenger, all of which shall be addressed to
the party to be notified and sent to the address, facsimile number, or email
address indicated below.  Bank or
Borrower may change its mailing or electronic mail address or facsimile number
by giving the other party written notice thereof in accordance with the terms
of this Section 10.

 

18

 

	
  If to Borrower:

  	
   

  	
  Mindspeed
  Technologies, Inc.

  
	
   

  	
   

  	
  4000 MacArthur
  Blvd., East Tower

  
	
   

  	
   

  	
  Newport Beach,
  CA 92660

  
	
   

  	
   

  	
  Attn: Chief
  Financial Officer

  
	
   

  	
   

  	
  Fax:
  949-579-6106

  
	
   

  	
   

  	
  Email:   bret.johnsen@mindspeed.com

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Mindspeed
  Technologies, Inc.

  
	
   

  	
   

  	
  4000 MacArthur
  Blvd., East Tower

  
	
   

  	
   

  	
  Newport Beach,
  CA 92660

  
	
   

  	
   

  	
  Attn: General
  Counsel

  
	
   

  	
   

  	
  Fax:
  949-579-3010

  
	
   

  	
   

  	
  Email:   brandi.steege@mindspeed.com

  
	
   

  	
   

  	
   

  
	
  If to Bank:

  	
   

  	
  Silicon Valley Bank

  
	
   

  	
   

  	
  38 Technology Drive,
  Suite 150

  
	
   

  	
   

  	
  Irvine, CA 92618

  
	
   

  	
   

  	
  Attn: Derek Brunelle

  
	
   

  	
   

  	
  Fax: 949-790-9007

  
	
   

  	
   

  	
  Email:   dbrunelle@svb.com

  

 

11                                  CHOICE
OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

 

California 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 Santa Clara County, California; provided, however, that
nothing in this Agreement shall be deemed to operate to preclude Bank from
bringing suit or taking other legal action in any other jurisdiction to realize
on the Collateral or any other security for the Obligations, or to enforce a
judgment or other court order in favor of Bank. 
Borrower expressly submits and consents in advance to such jurisdiction
in any action or suit commenced in any such court, and Borrower hereby waives
any objection that it may have based upon lack of personal jurisdiction,
improper venue, or forum non conveniens and hereby consents to the granting of such
legal or equitable relief as is deemed appropriate by such court.  Borrower hereby waives personal service of
the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower’s actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.

 

TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, 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.

 

WITHOUT INTENDING IN ANY
WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL
BY JURY, if the above waiver of the right to a trial by jury is not
enforceable, the parties hereto agree that any and all disputes or
controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if
they cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the
dispute falls within the exclusive jurisdiction of the federal courts), sitting
without a jury, in Santa Clara County, California; and the parties hereby submit
to the jurisdiction of such court.  The
reference proceedings shall be conducted pursuant to and in accordance with the
provisions of California Code of Civil Procedure §§ 638 through 645.1,
inclusive.  The private judge shall have
the power, among others, to grant provisional relief, including without
limitation, entering temporary restraining orders, issuing preliminary and
permanent injunctions and appointing receivers. 
All such proceedings shall be closed to the public and confidential and
all records relating thereto shall be permanently sealed.  If during the course of any dispute, a party
desires to seek provisional relief, but a judge has not been appointed at that
point pursuant to the judicial reference procedures, then such party may apply
to the Santa Clara County, California Superior Court for such relief.  The proceeding before the private judge shall
be conducted in the 

 

19

 

same manner as it would be before a court under the rules of
evidence applicable to judicial proceedings. 
The parties shall be entitled to discovery which shall be conducted in
the same manner as it would be before a court under the rules of discovery
applicable to judicial proceedings.  The
private judge shall oversee discovery and may enforce all discovery rules and
order applicable to judicial proceedings in the same manner as a trial court
judge.  The parties agree that the
selected or appointed private judge shall have the power to decide all issues
in the action or proceeding, whether of fact or of law, and shall report a
statement of decision thereon pursuant to the California Code of Civil
Procedure § 644(a).  Nothing in this
paragraph shall limit the right of any party at any time to exercise self-help
remedies, foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine all
issues relating to the applicability, interpretation, and enforceability of
this paragraph.

 

12                                  GENERAL
PROVISIONS

 

12.1                        Termination
Prior to Revolving Line Maturity Date. 
This Agreement may be terminated prior to the Revolving Line Maturity
Date by Borrower, effective three (3) Business Days after written notice
of termination is given to Bank. 
Notwithstanding any such termination, Bank’s lien and security interest
in the Collateral shall continue until Borrower fully satisfies its Obligations
(other than for inchoate indemnity obligations) and provides cash collateral
for any Letters of Credit in an amount and subject to such terms and conditions
as are acceptable to Bank.  If such
termination is at Borrower’s election or at Bank’s election due to the
occurrence and continuance of an Event of Default, Borrower shall pay to Bank,
in addition to the payment of any other expenses or fees then-owing, a termination
fee in an amount equal to the following:

 

(i) 3.00% of the Revolving Line Maximum Dollar
Amount if termination is effective prior to the first anniversary of the
Effective Date;

 

(ii) 2.00% of the Revolving Line Maximum Dollar
Amount if termination is effective on or after the first anniversary of the
Effective Date and prior to the second anniversary of the Effective Date; and

 

(iii) 1.00% of the Revolving Line Maximum Dollar
Amount if termination is effective on or after the second anniversary of the
Effective Date and prior to 90 days before the third anniversary of the
Effective Date;

 

provided that no termination fee shall be charged if
the credit facility hereunder is replaced with a new facility from Bank or
another division of Bank.

 

12.2                        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 or obligations 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 and the other Loan Documents.

 

12.3                        Indemnification.  Borrower agrees to indemnify, defend and hold
Bank and its directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Bank (each, an “Indemnified
Person”) harmless against:  (a) all
obligations, demands, claims, and liabilities (collectively, “Claims”) 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 such Indemnified Person from, following, or
arising from transactions between Bank and Borrower (including reasonable
attorneys’ fees and expenses), except for Claims and/or losses directly caused
by such Indemnified Person’s gross negligence or willful misconduct.

 

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

 

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

 

12.6                        Amendments
in Writing; Integration.  All
amendments to this Agreement must be in writing and signed by both Bank and
Borrower.  This Agreement and the Loan
Documents represent the entire agreement about this subject matter and supersede
prior negotiations or agreements.  All
prior agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement and the Loan
Documents merge into this Agreement and the Loan Documents.

 

20

 

12.7                        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.

 

12.8                        Survival.  All covenants, representations and warranties
made in this Agreement continue in full force until this Agreement has
terminated pursuant to its terms and all Obligations (other than inchoate
indemnity obligations and any other obligations which, by their terms, are to
survive the termination of this Agreement) have been satisfied.  The obligation of Borrower in Section 12.2
to indemnify Bank shall survive until the statute of limitations with respect
to such claim or cause of action shall have run.

 

12.9                        Confidentiality.  In handling any confidential information,
Bank shall exercise the same degree of care that it exercises for its own
proprietary information, but disclosure of information may be made: (a) to
Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or
purchasers of any interest in the Credit Extensions (as long as Bank shall have
obtained such prospective transferee’s or purchaser’s agreement to the terms of
this provision or other standard non-disclosure agreements); (c) as required
by law, regulation, subpoena, or other order; (d) to Bank’s regulators or
as otherwise required in connection with Bank’s examination or audit; (e) as
Bank considers appropriate in exercising remedies under the Loan Documents; and
(f) to third-party service providers of Bank so long as such service
providers have executed a confidentiality agreement with Bank with terms no
less restrictive than those contained herein. 
Confidential information does not include information that either: (i) 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 (ii) is disclosed
to Bank by a third party, if Bank does not know that the third party is
prohibited from disclosing the information.

 

Bank may use confidential information for any purpose,
including, without limitation, for the development of client databases,
reporting purposes, and market analysis, so long as Bank does not disclose
Borrower’s identity or the identity of any person associated with Borrower
unless otherwise expressly permitted by this Agreement.  The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.

 

12.10                 Attorneys’ Fees,
Costs and Expenses.  In any action or
proceeding between Borrower and Bank arising out of or relating to the Loan
Documents, the prevailing party shall be entitled to recover its reasonable
attorneys’ fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.

 

13                                  DEFINITIONS

 

13.1                        Definitions.  As used in this Agreement, the following
terms have the following meanings:

 

“2009 Unsecured Senior Notes”
means the 3.75% Convertible Senior Notes due 2009 issued by Borrower in a
private placement in December 2004, which have a $31,000,000 outstanding
principal balance as of the Effective Date.

 

“Account” is any
“account” as defined in the Code with such additions to such term as may
hereafter be made, and includes, without limitation, all accounts receivable
and other sums owing to Borrower.

 

“Account Debtor”
is any “account debtor” as defined in the Code with such additions to such term
as may hereafter be made.

 

“Advance” or “Advances” means an advance (or advances) under the Revolving
Line.

 

“Affiliate” of
any 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.

 

“Agreement” is
defined in the preamble hereof.

 

“Availability Amount”
is (a) the lesser of (i) the Revolving Line Maximum Dollar Amount or (ii) the
amount available under the Borrowing Base minus (b) the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), plus an amount equal to the Letter of Credit Reserve, minus (c) the
FX 

 

21

 

Reserve, minus (d) any
amounts used for Cash Management Services, and minus (e) the outstanding
principal balance of any Advances.

 

“Bank” is
defined in the preamble hereof.

 

“Bank Expenses”
are all audit fees and expenses, costs, and expenses (including reasonable
attorneys’ fees and expenses) for preparing, amending, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency
Proceedings) or otherwise incurred with respect to Borrower.

 

“Borrower” is
defined in the preamble hereof

 

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

 

“Borrowing Base”
is 85% of Eligible Accounts, as determined by Bank from Borrower’s most recent
Transaction Report; provided, however, that Bank may decrease the foregoing
percentage in its good faith business judgment based on events, conditions,
contingencies, or risks which, as determined by Bank, may adversely affect
Collateral.

 

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

 

 “Cash
Equivalents” means (a) marketable direct obligations
issued or unconditionally guaranteed by the United States or any agency or any
State thereof having maturities of not more than one (1) year from the
date of acquisition; (b) commercial paper maturing no more than one (1) year
after its creation and having the highest rating from either Standard &
Poor’s Ratings Group or Moody’s Investors Service, Inc.; and (c) Bank’s
certificates of deposit issued maturing no more than one (1) year after
issue.

 

“Cash Management Services” is
defined in Section 2.1.4.

 

“Change in Control” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange Act”)), other than a trustee or other fiduciary holding securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Borrower, representing fifty percent (50%) or more of the combined voting power of Borrower’s then outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Board of Directors of Borrower (together with any new directors whose election by the Board of Directors of Borrower was approved by a vote of at least a majority of the directors then still in office who either were directions at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office.
 
“Claims” is defined in Section 12.3.
 
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.
 

“Collateral” is
any and all properties, rights and assets of Borrower described on Exhibit A.

 

“Collateral Account”
is any Deposit Account, Securities Account, or Commodity Account.

 

22

 

“Commodity Account”
is any “commodity account” as defined in the Code with such additions to such
term as may hereafter be made.

 

“Compliance Certificate”
is that certain certificate in the form attached hereto as Exhibit B.

 

“Contingent Obligation”
is, for any Person, any direct or indirect liability, contingent or not, of
that Person for (a) 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; (b) any
obligations for undrawn letters of credit for the account of that Person; and (c) 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 any guarantee or other support
arrangement.  Contingent Obligations
shall be computed on a consolidated basis, without duplication to Indebtedness
of Borrower or any Subsidiary.

 

“Control Agreement”
is any control agreement entered into among the depository institution at which
Borrower maintains a Deposit Account or the securities intermediary or
commodity intermediary at which Borrower maintains a Securities Account or a
Commodity Account, Borrower, and Bank pursuant to which Bank obtains control
(within the meaning of the Code) over such Deposit Account, Securities Account,
or Commodity Account.

 

“Credit Extension”
is any Advance, Letter of Credit, FX Forward Contract, amounts utilized for Cash
Management Services, or any other extension of credit by Bank for Borrower’s
benefit.

 

“Default Rate”
is defined in Section 2.3(b).

 

“Deferred Revenue”
is all amounts received or invoiced in advance of performance under contracts
and not yet recognized as revenue.

 

“Deposit Account”
is any “deposit account” as defined in the Code with such additions to such
term as may hereafter be made.

 

“Designated Deposit Account”
is Borrower’s deposit account being established with Bank in connection with
the closing of this Agreement.

 

“Dollars,”  “dollars” and “$” each mean
lawful money of the United States.

 

“Effective Date”
is the date Bank executes this Agreement as indicated on the signature page hereof.

 

“Eligible Accounts”
means Accounts which arise in the ordinary course of Borrower’s business that
meet all Borrower’s representations and warranties in Section 5.3.  Bank reserves the right at any time after the
Effective Date to adjust any of the criteria set forth below and to establish
new criteria in its good faith business judgment.  Eligible Accounts shall not include:

 

(a)                                  Accounts that the
Account Debtor has not paid within ninety (90) days of invoice date regardless
of invoice payment period terms;

 

(b)                                 Accounts owing from an Account Debtor, fifty percent
(50%) or more of whose Accounts have not been paid within ninety (90) days of
invoice date;

 

(c)                                  Accounts
billed in the United States and owing from an Account Debtor which does not
have its principal place of business in the United States unless such Accounts
are billed and collected in the United States, are otherwise Eligible Accounts
and are covered by credit insurance satisfactory to Bank, less any amount not
covered by such insurance, if any, and less any deductible;

 

(d)                                 Accounts
billed and payable outside of the United States unless the Bank has a first
priority, perfected security interest or other enforceable Lien in such
Accounts;

 

23

 

(e)                                  Accounts
owing from an Account Debtor to the extent that Borrower is indebted or
obligated in any manner to the Account Debtor (as creditor, lessor, supplier or
otherwise - sometimes called “contra” accounts, accounts payable, customer
deposits or credit accounts), with the exception of customary credits, adjustments
and/or discounts given to an Account Debtor by Borrower in the ordinary course
of its business;

 

(f)                                    Accounts
with credit balances over ninety (90) days from invoice date;

 

(g)                                 Accounts
owing from an Account Debtor, including Affiliates, whose total obligations to
Borrower exceed 25% of all Accounts (except for Avnet and its Affiliates, for
which such percentage shall be 35%) for the amounts that exceed that
percentage, unless Bank approves in writing;

 

(h)                                 Accounts
owing from an Account Debtor which is a United States government entity or any
department, agency, or instrumentality thereof unless Borrower has assigned its
payment rights to Bank and the assignment has been acknowledged under the
Federal Assignment of Claims Act of 1940, as amended;

 

(i)                                     Accounts
for demonstration or promotional equipment, or in which goods are consigned, or
sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other
terms if Account Debtor’s payment may be conditional;

 

(j)                                     Accounts
owing from an Account Debtor that has not been invoiced or where goods or
services have not yet been rendered to the Account Debtor (sometimes called
memo billings or pre-billings);

 

(k)                                  Accounts
subject to contractual arrangements between Borrower and an Account Debtor
where payments shall be scheduled or due according to completion or fulfillment
requirements where the Account Debtor has a right of offset for damages
suffered as a result of Borrower’s failure to perform in accordance with the
contract (sometimes called contracts accounts receivable, progress billings,
milestone billings, or fulfillment contracts);

 

(l)                                     Accounts
owing from an Account Debtor the amount of which may be subject to withholding
based on the Account Debtor’s satisfaction of Borrower’s complete performance
(but only to the extent of the amount withheld; sometimes called retainage
billings);

 

(m)                               Accounts
subject to trust provisions, subrogation rights of a bonding company, or a
statutory trust;

 

(n)                                 Accounts
owing from an Account Debtor that has been invoiced for goods that have not
been shipped to the Account Debtor unless Bank, Borrower, and the Account
Debtor have entered into an agreement acceptable to Bank in its sole discretion
wherein the Account Debtor acknowledges that (i) it has title to and has ownership
of the goods wherever located, (ii) a bona fide sale of the goods has
occurred, and (iii) it owes payment for such goods in accordance with
invoices from Borrower (sometimes called “bill and hold” accounts);

 

(o)                                 Accounts
owing from an Account Debtor with respect to which Borrower has received
Deferred Revenue (but only to the extent of such Deferred Revenue), other than
with respect to 65% of Accounts with Account Debtors consisting of domestic
distributor customers of Borrower;

 

(p)                                 Accounts
for which the Account Debtor has not been invoiced;

 

(q)                                 Accounts
that represent non-trade receivables or that are derived by means other than in
the ordinary course of Borrower’s business;

 

(r)                                    Accounts
for which Borrower has permitted Account Debtor’s payment to extend beyond 90
days;

 

(s)                                  Accounts
subject to chargebacks or others payment deductions taken by an Account Debtor
(but only to the extent the chargeback is determined invalid and subsequently
collected by Borrower);

 

(t)                                    Accounts
in which the Account Debtor disputes liability or makes any claim (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business; and

 

(u)                                 Accounts
for which Bank in its good faith business judgment determines collection to be
doubtful.

 

24

 

“Equipment” is
all “equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures,
goods, vehicles (including motor vehicles and trailers), and any interest in
any of the foregoing.

 

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

 

“Event of Default”
is defined in Section 8.

 

“Exception Amount”  is defined in Section 5.9.

 

“Excess Credit Exposure”  is defined in Section 6.2(a)(i)(B).

 

“Foreign Currency” means lawful
money of a country other than the United States.

 

“Foreign Shares”  is defined in Section 5.12.

 

“Funding Date”
is any date on which a Credit Extension is made to or on account of Borrower
which shall be a Business Day.

 

“FX Business Day”
is any day when (a) Bank’s Foreign Exchange Department is conducting its
normal business and (b) the Foreign Currency being purchased or sold by
Borrower is available to Bank from the entity from which Bank shall buy or sell
such Foreign Currency.

 

“FX Forward Contract”  is defined in Section 2.1.3.

 

“FX Reduction Amount”
is defined in Section 2.1.3.

 

“FX Reserve”  is defined in Section 2.1.3.

 

“GAAP” is
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of determination.

 

“General Intangibles”
is all “general intangibles” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation, all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work, whether published or unpublished, any patents, trademarks, service marks
and, to the extent permitted under applicable law, any applications therefor,
whether registered or not, any trade secret rights, including any rights to
unpatented inventions, payment intangibles, royalties, contract rights,
goodwill, franchise agreements, purchase orders, customer lists, route lists,
telephone numbers, domain names, claims, income and other tax refunds, security
and other deposits, options to purchase or sell real or personal property,
rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man,
property damage, and business interruption insurance), payments of insurance
and rights to payment of any kind.

 

“Governmental
Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

 

“Governmental Authority”
is any nation or government, any state or other political subdivision thereof,
any agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities
exchange and any self-regulatory organization.

 

“Guarantor”  means the Subsidiaries of Borrower identified on Exhibit D
and any future guarantor of the Obligations.

 

“Guarantor Documents” shall have
the meaning ascribed to such term in Section 6.12 hereof.

 

25

 

“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.

 

“Indemnified Person”
is defined in Section 12.3.

 

“Insolvency Proceeding”
is any proceeding 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.

 

 “Inventory” is all “inventory” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation all merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products, including without limitation such inventory as is temporarily out of
Borrower’s custody or possession or in transit and including any returned goods
and any documents of title representing any of the above.

 

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

 

“Letter of Credit”
means a standby letter of credit issued by Bank or another institution based
upon an application, guarantee, indemnity or similar agreement on the part of
Bank as set forth in Section 2.1.2.

 

“Letter of Credit
Application” is defined in Section 2.1.2(a).

 

“Letter of Credit Reserve”
has the meaning set forth in Section 2.1.2(d).

 

“Lien” is a
claim, mortgage, deed of trust, levy, charge, pledge, security interest or
other encumbrance of any kind, whether voluntarily incurred or arising by
operation of law or otherwise against any property.

 

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

 

“Material Adverse Change” is (a) a
material impairment in the perfection or priority of Bank’s Lien in the
Collateral or in the value of such Collateral; (b) a material adverse
change in the business, operations, or condition (financial or otherwise) of
Borrower; (c) a material impairment of the prospect of repayment of any
portion of the Obligations; or  (d) Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower shall fail to
comply with one or more of the financial covenants in Section 6 during the
next succeeding financial reporting period.

 

“Minimum Tangible Net Worth”  is defined in Section 13.1.

 

The “Net Cash Test”
is deemed to be met at a particular date if the total of the Credit Extensions
outstanding on such date does not exceed the sum of Borrower’s cash and Cash
Equivalents in Deposit Accounts at Bank or Securities Accounts at a Bank
Affiliate at such date (provided that until the earlier of Borrower’s
compliance with the provisions of Section 6.8(a) or the 91st day
after the Effective Date, all of Borrower’s cash and Cash Equivalents in
Deposit Accounts or Securities Accounts shall be included in such computation,
whether or not maintained at Bank) by more than $4,000,000.

 

 “Net Income” means, as calculated on a consolidated basis for
Borrower and its Subsidiaries for any period as at any date of determination,
the net profit (or loss), after provision for taxes, of Borrower and its
Subsidiaries for such period taken as a single accounting period. In
determining Net Income, an upward adjustment shall be made for non-cash
expenses (such as depreciation, amortization, and non-cash stock compensation
expenses) consistent with those adjustments made in determining Tangible Net
Worth.

 

“Obligations” are
Borrower’s obligation to pay when due any debts, principal, interest, Bank
Expenses and other amounts Borrower owes Bank now or later, whether under this
Agreement, the Loan Documents, or otherwise, including, without limitation, all
obligations relating to letters of credit (including reimbursement obligations
for 

 

26

 

drawn and undrawn letters
of credit), cash management services, and foreign exchange contracts, if any,
and including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank, and the performance
of Borrower’s duties under the Loan Documents.

 

“Operating Documents”
are, for any Person, such Person’s formation documents, as certified with the
Secretary of State of such Person’s state of formation on a date that is no
earlier than 30 days prior to the Effective Date, and, (a) if such Person
is a corporation, its bylaws in current form, (b) if such Person is a
limited liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership
agreement (or similar agreement), each of the foregoing with all current
amendments or modifications thereto.

 

“Overadvance” is
defined in Section 2.2.

 

“Overall Sublimit” is defined in Section 2.5.

 

“Perfection Certificate”
is defined in Section 5.1.

 

“Permitted Indebtedness”
is:

 

(a)                                  Borrower’s
Indebtedness to Bank under this Agreement and the other Loan Documents;

 

(b)                                 Indebtedness
consisting of Borrower’s Senior Unsecured Convertible Notes (collectively the “Permitted
Notes”), provided that the Permitted Notes have a maturity date at all times at
least 120 days after the Revolving Loan Maturity Date (except that said 120-day
requirement shall not apply to the 2009 Unsecured Senior Notes);

 

(c)                                  Subordinated
Debt;

 

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

 

(e)                                  Indebtedness
incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;

 

(f)                                    Indebtedness
in an aggregate principal amount at any time outstanding not to exceed
$250,000;

 

(g)                                 unsecured
Indebtedness owing to a Subsidiary of Borrower from another Subsidiary of
Borrower, provided that if the obligee on such Indebtedness is a Guarantor,
then the obligor on such Indebtedness must also be a Guarantor;

 

(h)                                 Indebtedness
owing by foreign Subsidiaries of Borrower to Borrower that constitutes a
Permitted Investment under clause (g) of the definition of Permitted
Investments and subject to the limitations set forth therein on an aggregate
basis for this clause (h) and such clause (g) of the definition of
Permitted Investments;

 

(i)                                     Indebtedness
owing by domestic Subsidiaries of Borrower to Borrower constituting a Permitted
Investment under clause (h) of the definition of Permitted Investments and
subject to the limitations set forth therein on an aggregate basis for this
clause (i) and such clause (h) of the definition of Permitted
Investments;

 

(j)                                     Indebtedness
owing by Borrower to Subsidiaries of Borrower, provided that any repayment
thereof shall be considered a Permitted Investment and shall be subject to the
limitations set forth in clause (g) or (h) of such definition, as
applicable, at the time of any such proposed repayment; and

 

(k)                                  extensions,
refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (j) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon Borrower or its Subsidiary, as the case
may be, provided, further, that the terms and conditions of any amended or
otherwise modified Subordinated Debt shall nevertheless remain acceptable to
Bank.

 

“Permitted Investments”
are:

 

27

 

(a)                                  Investments
shown on the Perfection Certificate and existing on the Effective Date,
Investments deemed to arise in connection with the consummation of the
transactions under this Agreement, and such other Investments as described on
Schedule I attached hereto;

 

(b)                                 (i) Cash
Equivalents, and (ii) any Investments permitted by Borrower’s investment
policy, as amended from time to time, provided that such investment policy (and
any such amendment thereto) has been approved by Bank;

 

(c)                                  Investments
consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;

 

(d)                                 Investments
consisting of deposit accounts in which Bank has a perfected security interest;

 

(e)                                  Investments
accepted in connection with Transfers permitted by Section 7.1;

 

(f)                                    Investments
of foreign Subsidiaries of Borrower in or to other foreign Subsidiaries of
Borrower or Borrower;

 

(g)                                 Investments
by Borrower or its Subsidiaries in foreign Subsidiaries of Borrower not to
exceed $7,500,000 per fiscal quarter and any such Investment to the extent that
there is no cash effect on Borrower (such as elimination of a loan for a
corresponding amount of dividends);

 

(h)                                 Investments
of domestic Subsidiaries of Borrower in or to other domestic Subsidiaries of
Borrower and Investments by Borrower in domestic Subsidiaries of Borrower not
to exceed $5,000,000  in the
aggregate in any fiscal year for all such Investments described in this clause
(h);

 

(i)                                     Investments
by Subsidiaries of Borrower in Borrower, provided that repayment by Borrower of
any such Investment shall be considered a Permitted Investment hereunder, and
shall be subject to the limitations set forth in clause (g) or (h) above,
as applicable;

 

(j)                                     Investments
made substantially contemporaneously with the consummation of transactions
otherwise permitted under Section 7.3 hereof, provided that (i) any
Investments made in connection with acquisitions of, or with respect to,
foreign domiciled or organized entities shall be considered Permitted
Investments hereunder and thus shall be subject to the limitations set forth
herein as to Permitted Investments, including under clause (g) hereof and (ii) acquisitions
of domestic entities to be permitted hereunder require that such entities
become a secured Guarantor pursuant to Section 6.12 hereof, if requested
by Bank;

 

(k)                                  Investments
consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower’s Board of Directors;

 

(l)                                     Investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent
obligations of, and other disputes with, customers or suppliers arising in the
ordinary course of business;

 

(m)                               Investments
by Borrower in the creation of new Subsidiaries provided that the dollar amount
of any such Permitted Investment shall be subject to the aggregate limitations
set forth in clauses (g) and (h) hereof, as applicable; and

 

(n)                                 Investments
consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary
course of business; provided that this paragraph (n) shall not apply to
Investments of Borrower in any Subsidiary.

 

“Permitted Liens”
are:

 

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

 

28

 

(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, provided that no notice of any such Lien
relating to taxes in excess of the Exception Amount has been filed or recorded
under the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations adopted thereunder and Borrower demonstrates to Bank that it is
proceeding diligently to have such Lien removed or resolved in a manner such
that any such recordation of notice of Lien is extinguished as promptly as is
reasonably possible;

 

(c)                                  purchase
money Liens (i) on Equipment acquired or held by Borrower 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,
additions and accessions thereto, and the proceeds of the Equipment;

 

(d)                                 Liens
of carriers, warehousemen, suppliers, or other Persons that are possessory in
nature arising in the ordinary course of business so long as such Liens attach
only to Inventory and which are not delinquent or remain payable without
penalty or which are being contested in good faith and by appropriate
proceedings which proceedings have the effect of preventing, and do prevent,
the forfeiture or sale of the property subject thereto;

 

(e)                                  Liens
to secure payment of workers’ compensation, employment insurance, old-age
pensions, social security and other like obligations incurred in the ordinary
course of business (other than Liens imposed by ERISA);

 

(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;

 

(g)                                 leases
or subleases of real property granted in the ordinary course of business, and
leases, subleases, non-exclusive licenses or sublicenses of property (other
than real property or intellectual property) granted in the ordinary course of
Borrower’s business, if the leases, subleases, licenses and sublicenses
do not prohibit granting Bank a security interest;

 

(h)                                 non-exclusive
license of intellectual property granted to third parties in the ordinary
course of business, and licenses of intellectual property that could not result
in a legal transfer of title of the licensed property that may be exclusive in
respects other than territory and that may be exclusive as to territory only as
to discreet geographical areas outside of the United States;

 

(i)                                     Liens
arising from attachments or judgments, orders, or decrees in circumstances not
constituting an Event of Default under Section 8.4, and not constituting
an Event of Default under Section 8.7 as long as the amount of the
applicable judgment does not exceed $2,000,000 unless Bank has obtained
assurances satisfactory to Bank regarding the coverage of insurance with respect
to any such judgment; and

 

(j)                                     Liens
in favor of other financial institutions arising in connection with Borrower’s
deposit and/or securities accounts held at such institutions, provided that
Bank has a perfected security interest in the amounts held in such deposit
and/or securities accounts.

 

“Permitted Notes”
is defined in the definition of “Permitted Indebtedness” above.

 

“Person” is any
individual, sole proprietorship, partnership, limited liability company, joint
venture, company, 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.

 

“Registered Organization”
is any “registered organization” as defined in the Code with such additions to
such term as may hereafter be made

 

“Related
Account Debtor” means, with respect to any Person, any Affiliate,
relative, partner, shareholder, director, officer, of employee of such Person.

 

“Requirement
of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other

 

29

 

Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.

 

“Reserves”
means, as of any date of determination, such amounts as Bank may from time to
time establish and revise in its good faith business judgment, reducing the
amount of Advances and other financial accommodations which would otherwise be
available to Borrower (a) to reflect events, conditions, contingencies or
risks which, as determined by Bank in its good faith business judgment, do or
may adversely affect (i) the Collateral or any other property which is
security for the Obligations or its value (including without limitation any
increase in delinquencies of Accounts), (ii) the assets, business or
prospects of Borrower or any Guarantor, or (iii) the security interests
and other rights of Bank in the Collateral (including the enforceability,
perfection and priority thereof); or (b) to reflect Bank’s good faith
belief that any collateral report or financial information furnished by or on
behalf of Borrower or any Guarantor to Bank is or may have been incomplete,
inaccurate or misleading in any material respect as of the date given or made
or deemed given or made pursuant hereto; or (c) in respect of any state of
facts which Bank determines in good faith constitutes an Event of Default or
may, with notice or passage of time or both, constitute an Event of Default.

 

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

 

“Resolutions” are, with respect to any Person, those
resolutions adopted by such Person’s Board of Directors and delivered by such
Person to Bank approving the Loan Documents to which such Person is a party and
the transactions contemplated thereby, together with a certificate executed by
its secretary on behalf of such Person certifying that (a) such Person has
the authority to execute, deliver, and perform its obligations under each of
the Loan Documents to which it is a party, (b) that attached as Exhibit A
to such certificate is a true, correct, and complete copy of the resolutions
then in full force and effect authorizing and ratifying the execution,
delivery, and performance by such Person of the Loan Documents to which it is a
party, (c) the name(s) of the Person(s) authorized to execute
the Loan Documents on behalf of such Person, together with a sample of the true
signature(s) of such Person(s), and (d) that Bank may conclusively
rely on such certificate unless and until such Person shall have delivered to
Bank a further certificate canceling or amending such prior certificate.

 

“Revolving Line”
is Credit Extensions in an aggregate amount up to the Revolving Line Maximum
Dollar Amount.

 

“Revolving Line Maximum Dollar Amount”
is Fifteen Million Dollars ($15,000,000).

 

“Revolving Line Maturity Date”
is September 30, 2011.

 

“Securities Account”
is any “securities account” as defined in the Code with such additions to such
term as may hereafter be made.

 

“Settlement Date”  is defined in Section 2.1.3.

 

“Standard Transaction
Reporting”  is defined in Section 6.2(a)(i)(A).

 

“Subordinated Debt”
is indebtedness incurred by Borrower subordinated to all of Borrower’s now or
hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or
other similar agreement in form and substance satisfactory to Bank entered into
between Bank and the other creditor), on terms acceptable to Bank.

 

“Subsidiary”
means, with respect to any Person, any Person of which more than 50.0% of the
voting stock or other equity interests (in the case of Persons other than
corporations) is owned or controlled directly or indirectly by such Person or
one or more of Affiliates of such Person.

 

“Tangible Net Worth”
is, on any date, the consolidated total assets of Borrower and its Subsidiaries
minus (a) any amounts attributable to (i) goodwill, (ii) intangible
items including unamortized debt discount and expense, patents, trade and
service marks and names, copyrights and research and development expenses
except prepaid expenses, (iii) notes, accounts receivable and other
obligations owing to Borrower from its officers or other Affiliates, and (iv) reserves
not already deducted from assets, minus (b) Total Liabilities, plus
(c) Subordinated Debt.  In
determining Tangible Net Worth, subsequent to the Effective Date an adjustment
shall be made for non-cash

 

30

 

items (such as
depreciation, amortization, and non-cash stock compensation expenses) consistent
with the adjustments to Net Income.

 

“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 of Subordinated Debt permitted by Bank to be
paid by Borrower, but excluding all other Subordinated Debt.

 

“Transaction Report”
is that certain report of transactions and schedule of collections in the form
attached hereto as Exhibit C.

 

“Transfer” is
defined in Section 7.1.

 

“Unused Revolving Line
Facility Fee” is defined in Section 2.4(d).

 

[Signature page follows]

 

31

 

IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be executed as of the Effective Date.

 

BORROWER:

 

MINDSPEED TECHNOLOGIES, INC.

 

 

	
  By

  	
  /s/ Bret W. Johnsen

  	
   

  
	
  Name:

  	
  Bret W. Johnsen

  
	
  Title:

  	
  Senior Vice President, Chief Financial Officer

  
	
   

  	
  and Treasurer

  
	
   

  
	
  BANK:

  
	
   

  
	
  SILICON VALLEY BANK

  
	
   

  
	
   

  
	
  By

  	
  /s/ Derek Hoyt

  	
   

  
	
  Name:

  	
  Derek Hoyt

  	
   

  
	
  Title:

  	
  Deal Team Leader

  	
   

  
							

 

 

Effective Date:  September 30, 2008

 

 

[Signature Page to
Loan and Security Agreement]

 

 

EXHIBIT A – COLLATERAL DESCRIPTION

 

The Collateral consists
of all of Borrower’s right, title and interest in and to the following personal
property:

 

All goods, Accounts (including health-care
receivables), Equipment, Inventory, contract rights or rights to payment of
money, leases, license agreements, franchise agreements, General Intangibles
(except as provided below), commercial tort claims, documents, instruments
(including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights
(whether or not the letter of credit is evidenced by a writing), securities,
and all other investment property, supporting obligations, and financial
assets, whether now owned or hereafter acquired, wherever located; 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, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of
any or all of the foregoing.

 

Notwithstanding the
foregoing, the Collateral does not include any of the following, whether now
owned or hereafter acquired:  (a) presently existing and hereafter arising issued
and outstanding shares of capital stock owned by Borrower of any Subsidiary
which is organized under the laws of a jurisdiction other than the
United States or any state or territory thereof or the District of Columbia, or (b) any copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered
or not, and the goodwill of the business of Borrower connected with and
symbolized thereby, know-how, operating manuals, trade secret rights, rights to
unpatented inventions, and any claims for damage by way of any past, present,
or future infringement of any of the foregoing; provided, however, the
Collateral shall include all Accounts, license and royalty fees and other
revenues, proceeds, or income arising out of or relating to any of the
intellectual property described in clause (b).

 

Borrower has agreed not
to encumber any of its copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work, whether published or unpublished, any patents, patent applications and
like protections, including improvements, divisions, continuations, renewals,
reissues, extensions, and continuations-in-part of the same, trademarks,
service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, and the goodwill of the
business of Borrower connected with and symbolized thereby, know-how, operating
manuals, trade secret rights, rights to unpatented inventions, and any claims
for damage by way of any past, present, or future infringement of any of the
foregoing, without Bank’s prior written consent; provided that Borrower may sell,
transfer or otherwise dispose of non-core patents that are not material to the
business of Borrower and may license intellectual property in the ordinary
course of business consistent with the past business practices of Borrower.

 

1

 

EXHIBIT B

 

Form of
Compliance Certificate

 

COMPLIANCE
CERTIFICATE

 

	
  TO:

  	
   

  	
  SILICON VALLEY
  BANK

  	
  Date:

  	
   

  
	
  FROM:

  	
   

  	
  MINDSPEED
  TECHNOLOGIES, INC.

  	
   

  	
   

  

 

The undersigned authorized officer of MINDSPEED
TECHNOLOGIES, INC., a Delaware corporation (“Borrower”), certifies that under
the terms and conditions of the Loan and Security Agreement dated as of September 30,
2008 (the “Agreement”) between Borrower and Silicon Valley Bank (“Bank”), (1) Borrower
is in compliance for the period ended
                                  
with all required covenants except as noted below, (2) there are no Events
of Default, (3) all representations and warranties in the Agreement are
true and correct in all material respects on this date except as noted below
(with any such exception not constituting an Event of Default hereunder in and
of itself solely in connection with the delivery of this Compliance Certificate
unless the fact or occurrence giving rise to any such exception otherwise
constitutes an Event of Default under the Loan Agreement pursuant to any other
term, condition, covenant or provision of the Agreement, including without
limitation in connection with the request for and the making of a Credit
Extension pursuant to Section 3.2 of the Agreement); provided, however,
that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the
text thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such specific date, (4) Borrower, and each of
its Subsidiaries have timely filed all required tax returns and reports, and
Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except in each case as
otherwise permitted pursuant to the terms of Section 6.5 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any
of its Subsidiaries relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to Bank, other than
those Liens or claims that constitute Permitted Liens.  Attached are the required documents
supporting the certifications relating to compliance with the specific
financial covenants and financial measurements as set forth specifically
below.  The undersigned certifies that
the financial statements pertaining thereto are prepared in accordance with
GAAP consistently applied from one period to the next except as explained in an
accompanying letter or footnotes (if any). 
The undersigned 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. 
Capitalized terms used but not otherwise defined herein shall have the
meanings given them in the Agreement.

 

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

 

	
  Reporting
  Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly financial
  statements for each month

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes   No

  
	
  Quarterly compliance
  certificates

  	
   

  	
  Quarterly within 30
  days

  	
   

  	
  Yes   No

  
	
  10-Q
  (including Quarterly financial statements), 10-K (including Annual financial
  statements), and 8-K

  	
   

  	
  Within 5 days after so
  filing with the SEC

  	
   

  	
  Yes   No

  
	
  A/R &
  A/P Agings, outstanding or held check registers (if any), monthly
  reconciliations, general ledger, per Section 6.2(a)(ii)

  	
   

  	
  Monthly within 15 days

  	
   

  	
  Yes   No

  
	
  Transaction Report

  	
   

  	
  If Borrower has not met the Net Cash Test as of the
  end of the fiscal quarter most recently ended and/or if there is Excess
  Credit Exposure, Weekly and when an Advance request is made, in each case per
  §6.2(a)(i). 

   

  Otherwise: within 15 days of each month end and when
  an Advance request is made.

  	
   

  	
  Yes   No

  
	
  Annual Projections

  	
   

  	
  Within 90 days of the
  beginning of each fiscal year

  	
   

  	
  Yes   No

  

 

1

 

The following copyrights
of Borrower were registered after the Effective Date (if no registrations,
state “None”)

 

	
  Financial
  Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  To be Tested on a
  Quarterly Basis:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum Tangible Net
  Worth

  	
   

  	
  The sum of: 

   

  $12,500,000; plus 

   

  50% of Net Income on a
  quarterly basis commencing with Net Income in the quarter ending after
  October 3, 2008 and continuing with respect to each fiscal quarter
  thereafter; plus 

   

  50% of issuances of
  equity and 50% of the principal amount of Subordinated Debt, issued after
  October 3, 2008, effective on the date of such issuances, other than for
  issuances of Subordinated Debt the proceeds of which are used to refinance
  outstanding Subordinated Debt substantially concurrently with the issuance
  thereof, up to the amount of the original principal amount the Subordinated
  Debt being so replaced; 

   

  which sum equals: 

   

  $

  	
   

  	
  $

  	
   

  	
  Yes   No

  
	
  Net
  Cash Test

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Credit Extensions
  

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  minus Cash
  and Cash Equivalents in Deposit Accounts at Bank or Securities Accounts at a
  Bank Affiliate as of the last day of the preceding fiscal quarter per the
  requirements of the Agreement

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  equals

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amount on preceding
  line not to be greater than $4,000,000

  	
   

  	
  Complies

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Does not comply

  	
   

  	
   

  	
   

  	
   

  

 

2

 

	
  Performance
  Pricing

  	
   

  	
  Actual

  	
   

  	
  Circle
  One

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Quick Ratio as
  of the quarter most recently ended

  	
   

  	
         to 1.00

  	
   

  	
  Greater than 1.00 to 1.00

  	
   

  	
  Less than 1.00 to 1.00 but greater than or equal to
  0.85 to 1.00

  	
   

  	
  Less than 0.85 to 1.00

  

 

The
following financial covenant and performance pricing analyses and information
set forth in Schedule 1 attached hereto are true and accurate as of the date
identified in clause (1) above.

 

The following are the
exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions
to note.”)

 

 

	
  MINDSPEED TECHNOLOGIES,
  INC.

  	
  BANK
  USE ONLY      

  
	
   

  	
   

  
	
   

  	
  Received by:

  	
   

  
	
  By:

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
  Name:

  	
   

  	
   

  	
  Date:

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Verified:

  	
   

  
	
   

  	
  AUTHORIZED SIGNER

  
	
   

  	
  Date:

  	
   

  
	
   

  	
   

  
	
   

  	
  Compliance Status:                     Yes    
  No

  
										

 

3

 

Schedule 1 to Compliance Certificate

 

Financial Covenant of Borrower/Grid Pricing Quick
Ratio Calculations

 

	
  Dated:

  	
   

  	
   

  

 

4

 

EXHIBIT C

 

Transaction
Report

 

1

 

Key

 

	
  

  	
  (Green) Indicates cells
  where figures should be typed in. Do not enter data anywhere else.

  

 

+       Ineligible worksheet to be
completed monthly, and is calculated by Borrower (with SVB as reviewer) based
on monthly A/R & A/P agings.

 

+       Each submission to include
the A/R aging (in order to foot to ending A/R balances).

 

+       Each submission to include
detail supporting Sch A & B (i.e.. sales journal &
collections journal - soft copy preferred).

 

+       Above detail to include a
minimum of invoice date, account debtor, dollar amount, invoice number, terms
of sale, country where account debtor is located and country from which the
invoice was billed.

 

+       Prior to completing the
report, a loan ledger report (detailing amount of collections and exact loan
balance) can be requested from SVB in order to help complete these worksheets.

 

Assumptions

 

+       Credit Facility Size =
$15,000,000

 

+       Advance rate on eligible
A/R = 85%

 

+       Sublimit: $2,500,000 for
the issuance of letters of credit, cash management, foreign exchange, etc.

 

+       Eligible Accounts shall not include:

(a)          Accounts that the Account Debtor has not paid
within ninety (90) days of invoice date regardless of invoice payment period
terms;

(b)         Accounts owing from an Account Debtor, fifty
percent (50%) or more of whose Accounts have not been paid within ninety (90)
days of invoice date;

(c)          Accounts billed in the United States and owing
from an Account Debtor which does not have its principal place of business in
the United States unless such Accounts are billed and collected in the United
States, are otherwise Eligible Accounts and are covered by credit insurance
satisfactory to Bank, less any amount not covered by such insurance, if any, and
less any deductible;

(d)         Accounts billed and payable outside of the
United States unless the Bank has a first priority, perfected security interest
or other enforceable Lien in such Accounts;

(e)          Accounts owing from an Account Debtor to the
extent that Borrower is indebted or obligated in any manner to the Account
Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra”
accounts, accounts payable, customer deposits or credit accounts), with the
exception of customary credits, adjustments and/or discounts given to an
Account Debtor by Borrower in the ordinary course of its business;

(f)            Accounts with credit balances over ninety (90)
days from invoice date;

(g)         Accounts owing from an Account Debtor,
including Affiliates, whose total obligations to Borrower exceed 25% of all
Accounts (except for Avnet and its Affiliates, for which such percentage shall
be 35%) for the amounts that exceed that percentage, unless Bank approves in
writing;

(h)         Accounts owing from an Account Debtor which is
a United States government entity or any department, agency, or instrumentality
thereof unless Borrower has assigned its payment rights to Bank and the
assignment has been acknowledged under the Federal Assignment of Claims Act of
1940, as amended;

(i)             Accounts for demonstration or promotional
equipment, or in which goods are consigned, or sold on a “sale guaranteed”,
“sale or return”, “sale on approval”, or other terms if Account Debtor’s
payment may be conditional;

(j)             Accounts owing from an Account Debtor that has
not been invoiced or where goods or services have not yet been rendered to the
Account Debtor (sometimes called memo billings or pre-billings);

(k)          Accounts subject to contractual arrangements
between Borrower and an Account Debtor where payments shall be scheduled or due
according to completion or fulfillment requirements where the Account Debtor
has a right of offset for damages suffered as a result of Borrower’s failure to
perform in accordance with the contract (sometimes called contracts accounts
receivable, progress billings, milestone billings, or fulfillment contracts);

(l)             Accounts owing from an Account Debtor the
amount of which may be subject to withholding based on the Account Debtor’s
satisfaction of Borrower’s complete performance (but only to the extent of the
amount withheld; sometimes called retainage billings);

(m)       Accounts subject to trust provisions,
subrogation rights of a bonding company, or a statutory trust;

(n)         Accounts owing from an Account Debtor that has
been invoiced for goods that have not been shipped to the Account Debtor unless
Bank, Borrower, and the Account Debtor have entered into an agreement
acceptable to Bank in its sole discretion wherein the Account Debtor
acknowledges that (i) it has title to and has ownership of the goods
wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it
owes payment for such goods in accordance with invoices from Borrower
(sometimes called “bill and hold” accounts);

(o)         Accounts owing from an Account Debtor with
respect to which Borrower has received Deferred Revenue (but only to the extent
of such Deferred Revenue), other than with respect to 65% of Accounts with
Account Debtors consisting of domestic distributor customers of Borrower;

(p)         Accounts for which the Account Debtor has not
been invoiced;

(q)         Accounts that represent non-trade receivables
or that are derived by means other than in the ordinary course of Borrower’s
business;

(r)            Accounts for which Borrower has permitted
Account Debtor’s payment to extend beyond 90 days;

(s)          Accounts subject to chargebacks or others
payment deductions taken by an Account Debtor (but only to the extent the
chargeback is determined invalid and subsequently collected by Borrower);

(t)            Accounts in which the Account Debtor disputes
liability or makes any claim (but only up to the disputed or claimed amount),
or if the Account Debtor is subject to an Insolvency Proceeding, or becomes
insolvent, or goes out of business; and

(u)         Accounts for which Bank in its good faith
business judgment determines collection to be doubtful.

 

+       All other terms and
conditions subject to Loan & Security Agreement

+       Borrower and Bank may
jointly agree to modify this transaction report from time to time.

 

 

GENERAL INPUT SHEET

 

	
   

  	
   

  	
  TO

  	
   

  	
  #REF!

  	
   

  	
  COMMENTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date of Data

  	
   

  	
  All reports

  	
   

  	
  1/0/00

  	
   

  	
   

  	
   

  
	
  Report number

  	
   

  	
  All reports

  	
   

  	
  1

  	
   

  	
   

  	
   

  
	
  Prior day’s Gross A/R
  Balance (Line 8)

  	
   

  	
  Transaction rpt

  	
   

  	
  $

  	
  —

  	
   

  	
   

  	
   

  
	
  Current day’s A/R
  ineligible Figure

  	
   

  	
  Transaction rpt

  	
   

  	
  $

  	
  —

  	
   

  	
   

  	
   

  
	
  Prior day’s Loan
  Balance (Line 17)

  	
   

  	
  Transaction rpt

  	
   

  	
  $

  	
  —

  	
   

  	
   

  	
   

  
	
  Current day’s loan
  advance request

  	
   

  	
  Transaction rpt

  	
   

  	
  $

  	
  —

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SALES
  JOURNAL

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Invoices :               Normal
  sales

  	
   

  	
  Sch. A

  	
   

  	
  $

  	
  —

  	
   

  	
  Enter as positive

  	
   

  
	
  Credit Memos:       Normal
  sales

  	
   

  	
  Sch. A

  	
   

  	
  $

  	
  —

  	
   

  	
  Enter as positive

  	
   

  
	
  Misc. Adj.:             Normal
  sales

  	
   

  	
  Sch. A

  	
   

  	
  $

  	
  —

  	
   

  	
  If addition enter as
  positive

  	
   

  
	
                            Check
  figure - Net sales journal

  	
   

  	
  $

  	
  —

  	
   

  	
  If reduction, enter as
  negative

  	
   

  
	
  CASH
  RECEIPTS

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Credit posted to A/R

  	
   

  	
  Sch. B

  	
   

  	
  $

  	
  —

  	
   

  	
  Enter as negative

  	
   

  
	
  Non-Cash reductions to
  A/R

  	
   

  	
  Sch. B

  	
   

  	
  $

  	
  —

  	
   

  	
  Enter as positive

  	
   

  
	
  Non-A/R collections

  	
   

  	
  Sch. B

  	
   

  	
  $

  	
  —

  	
   

  	
  Enter as negative

  	
   

  
	
  Total cash collected to
  Loan

  	
   

  	
  Sch. B

  	
   

  	
  $

  	
  —

  	
   

  	
  Enter as positive

  	
   

  
	
                             Check
  figure - Should be -0-       

  	
   

  	
  $

  	
  —

  	
   

  	
  credit cards posted,
  but not rec’d by bank

  	
   

  
	
  A/R
  ADJUSTMENTS - GENERAL LEDGER

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Transaction rpt

  	
   

  	
  $

  	
  —

  	
   

  	
  If addition enter as
  positive

  	
   

  
	
  Detail
  separately & remit to Bank

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  	
  If reduction, enter as
  negative

  	
   

  

 

 

Silicon
Valley Bank

	
  Commercial
  Finance Division

  	
   

  	
  Report
  No:

  	
   

  	
  1

  
	
  3003
  Tasman Drive, Santa Clara, CA 95054

  	
   

  	
  Date

  	
   

  	
            1/0/1900

  

 

TRANSACTION
REPORT AND LOAN REQUEST

 

	
   

  	
   

  	
  Domestic Non-Distributor A/R

  	
   

  	
  Domestic Distributor A/R

  	
   

  
	
  ACCOUNTS RECEIVABLE COLLATERAL

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
  Beginning
  Accounts Receivable Balance Per Previous Report (Line 8)

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  2

  	
  Add: Sales for
  Period (Schedule A)

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  3

  	
  Add: Misc.
  Customers (Schedule A)

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  4

  	
  Less: Credit
  Memos (Schedule A)

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  5

  	
  Less: Cash
  Receipts Applied To Accounts Receivable (Direct-Schedule B)

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  6

  	
  Less: Cash -
  Other

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  7

  	
  Adjustments:
  Dr. - Increase Cr. (Decrease)

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  8

  	
  Ending Accounts
  Receivable Balance (Sum Lines 1-7)

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  9

  	
  Deduct:
  Ineligible Accounts Receivable Per Aging Dated:

  	
  1/0/1900

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  10

  	
  Total Eligible Accounts Receivable

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11

  	
  Availability from
  Receivables after applying advance rate    Line Limit

  	
  $  15,000,000

  	
  85%

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  
	
  12

  	
  Availability from
  Deferred Revenue Receivables after applying advance rate

  	
   

  	
  65%

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  
	
  13

  	
  Less Reserves
  (Letters of Credit, FX, etc):                             Maximum

  	
  $    2,500,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A/R Availability:

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  COMPUTATION OF LOAN

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14

  	
  Beginning Loan
  Balance

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  15

  	
  Add: Returned
  Checks (NSF, Endorsement, etc.)

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  16

  	
  Add: Amount
  deposited back into client’s account after paying down loan balance

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  17

  	
  Less: Cash
  Applied To Loan - Accounts Receivable (Direct) from Schedule B

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  18

  	
  Less: Cash -
  Other

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  19

  	
  Ending Loan
  Balance - Before Loan Request

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  20

  	
  UNUSED BORROWING
  AVAILABILITY BEFORE LOAN REQUEST

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  21

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  22

  	
  Loan Advance =

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  23

  	
  NEW LOAN BALANCE
  - AFTER LOAN ADVANCE

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  24

  	
  REMAINING UNUSED
  BORROWING AVAILABILITY - After Loan Request

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  

 

The
above described Collateral is subject to a security interest in favor of
SILICON VALLEY BANK pursuant to the terms and

conditions
of a Loan and Security Agreement’s, as executed by and between SILICON VALLEY
BANK and the undersigned.

 

	
  BORROWER

  	
   

  	
   

  	
  SILICON VALLEY BANK

  	
   

  
	
  Mindspeed
  Technologies, Inc.

  	
   

  	
   

  	
   

  	
   

  
	
  Auth
  Signer:

  	
   

  	
  Signature

  	
   

  	
   

  
	
           Name:

  	
   

  	
  Name

  	
  Derek
  Brunelle

  	
   

  
	
           Title:

  	
   

  	
  Title

  	
  Vice
  President

  	
   

  
	
           Date:

  	
   

  	
  Date:

  	
   

  	
   

  

 

 

Silicon
Valley Bank

Commercial
Finance Division

	
  3003 Tasman Drive, Santa
  Clara, CA 95054

  	
   

  	
   

  	
   

  	
  A

  	
   

  	
  A

  	
   

  	
   

  	
   

  

 

SCHEDULE A - ACCOUNTS RECEIVABLE ASSIGNED

 

	
   

  	
   

  	
  Non-Distributor

  	
   

  	
  Distributor

  	
   

  	
   

  	
   

  
	
  Report No.   1

  	
   

  	
  Date Assigned

  	
   

  	
  1/0/1900

  	
   

  	
  1/0/1900

  	
   

  	
  From BBC

  	
   

  
										

 

	
  Customer

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Invoice

  	
   

  	
  Shipping

  	
   

  	
   

  	
   

  	
  Invoice

  	
   

  	
  Invoice

  	
   

  	
   

  	
   

  
	
  Number

  	
   

  	
  Customer
  Name

  	
   

  	
  Type

  	
   

  	
  Date

  	
   

  	
  Date

  	
   

  	
  Invoice No.

  	
   

  	
  Amount

  	
   

  	
  Amount

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Domestic 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  INVOICES,
  FREIGHT, SALES TAX - See attached detail

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Normal sales

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  To BBC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  To BBC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CREDIT MEMOS -
  See attached detail

  	
   

  	
  VOIDS

  	
   

  	
   

  	
   

  	
  Normal CMs

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  To BBC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  To BBC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MISC. CUSTOMERS
  - See attached detail

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Normal miscel.

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  To BBC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  To BBC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Net Sales

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Assignment

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
   

  	
   

  

 

 

	
  Silicon
  Valley Bank

  	
   

  	
  B

  

Commercial Finance Division

    #REF!

 

SCHEDULE
B - ACCOUNTS RECEIVABLE COLLECTION REPORT

 

Report
No.    #REF!             Date of Remittance    #REF!

 

	
  Date

  	
   

  	
  Customer

  	
   

  	
  Customer

  	
   

  	
  Invoice

  	
   

  	
  Original

  	
   

  	
  Actual
  Funds

  	
   

  	
  Discount/DM

  	
   

  	
  Amt.
  Credited

  	
   

  	
  Non-A/R

  	
   

  	
  Collection

  	
   

  
	
  Received

  	
   

  	
  No.

  	
   

  	
  Name

  	
   

  	
  Number

  	
   

  	
  Invoice
  Amt.

  	
   

  	
  Received
  (Loan)

  	
   

  	
  To A/R
  Norm.

  	
   

  	
  To A/R

  	
   

  	
  Collections

  	
   

  	
  Source

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  #REF!

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  see attached report

  	
   

  	
   

  	
   

  	
  #REF!

  	
   

  	
  #REF!

  	
   

  	
  #REF!

  	
   

  	
  #REF!

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Totals:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  #REF!

  	
   

  	
  #REF!

  	
   

  	
  #REF!

  	
   

  	
  #REF!

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Trans
  Rpt Ln 20)

  	
   

  	
  (Trans
  Rpt Ln 5)

  	
   

  	
   

  	
   

  

 

 

	
   

  	
   

  	
   

  	
   

  	
  Ineligible

  	
   

  	
  Ineligible

  	
   

  	
  Ineligibles
  per the LSA definition of “Eligible 

  
	
   

  	
   

  	
   

  	
   

  	
  #REF!

  	
   

  	
  #REF!

  	
   

  	
  Accounts”

  
	
   

  	
   

  	
   

  	
   

  	
  Non-Distributor

  	
   

  	
  Distributor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A/R
  CALCULATION

  	
   

  	
  As of:

  	
   

  	
  1/0/1900

  	
   

  	
  1/0/1900

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Unbilled Accounts

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
   

  
	
  2

  	
   

  	
  Over 90 days from
  invoice date

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  From A/R Aging

  
	
  3

  	
   

  	
  Credit Memos Over 90
  Days

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  Net credit balances
  over 90 days

  
	
  4

  	
   

  	
  Accounts cross-aged at
  50%

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  The 1-90 day portion of
  accounts where 50% is over 90 days old.

  
	
  5

  	
   

  	
  Concentrations @ 25%

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
   

  
	
  6

  	
   

  	
  Unapproved foreign
  accounts

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  Accounts outside the
  U.S. not covered by L/Cs.

  
	
  7

  	
   

  	
  Contra accounts

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  Accounts with both
  A/R & A/P balances

  
	
  8

  	
   

  	
  Federal Government
  accounts

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
   

  
	
  9

  	
   

  	
  Unapproved
  Affiliate & Related Accounts

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  Inter-Company/Affiliates

  
	
  10

  	
   

  	
  Accounts
  for Demonstration, Consignment

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
   

  
	
  11

  	
   

  	
  Accounts
  in dispute; Debtor insolvent

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
   

  
	
  12

  	
   

  	
  Doubtful Accounts

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
   

  
	
  13

  	
   

  	
  Non SVB Approved
  Accounts

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total Ineligible to BBC

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
   

  
													

 

 

EXHIBIT D

 

Guarantors

 

Maker Communications, Inc., a Delaware
corporation

 

Mindspeed Development Sub. Inc., a Delaware
corporation

 

Mindspeed Technologies, LLC, a Delaware limited
liability company

 

1Exhibit 10.1

 

CONSULTING AGREEMENT

 

THIS CONSULTING AGREEMENT (this “Agreement”)
is made and entered into as of October 1, 2008 (the “Effective
Date”) by and between Cano Petroleum, Inc., a Delaware
corporation (the “Company”), and Morris B.
Smith (“Consultant”).  The Company and Consultant are referred to in
this Agreement as the “Parties.”

 

RECITALS

 

WHEREAS, Consultant has agreed to undertake certain duties and
responsibilities and to perform certain consulting services for the period
beginning on the Effective Date and ending September 30, 2009, all as more
fully described in this Agreement; and

 

WHEREAS, the Company desires to engage Consultant to undertake certain
duties and responsibilities and to perform certain consulting services, all as
more fully described in this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, for and in consideration of the foregoing premises and
the provisions hereof and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

1.                                      Position and Services.

 

a.             Consulting Services.  During the period commencing on the Effective
Date and ending on September 30, 2009 (the “Consulting
Period”), subject to the terms of this Agreement (including the
extension and early termination provisions set for in Section 3.a.
below), the Company agrees to retain Consultant and Consultant agrees to serve,
as a consultant to the Company for the purpose of providing advice and offering
other assistance to the Company’s Chief Executive Officer (“CEO”), consistent with the resources
of Consultant, on matters as the CEO reasonably requests (the “Consulting Services”).  The Company has agreed to retain Consultant
as a consultant in reliance on the special and unique abilities of Consultant
in rendering the Consulting Services and Consultant will use Consultant’s
reasonable efforts, skills, judgment and abilities in rendering the Consulting
Services.  Consultant shall perform the
Consulting Services in a diligent, trustworthy, and businesslike manner, with
the purpose of advancing the business of the Company.  Consultant’s duties during the Consulting
Period shall require Consultant to perform Consulting Services for the Company
at least fifteen (15) hours per month. 
Consultant shall not perform non-Company related tasks on the Company’s
property.

 

b.             Nature of Relationship Between Parties.  During the Consulting Period, Consultant
shall render the Consulting Services in this Agreement as an independent
contractor.  Except as otherwise agreed
by the Company, Consultant will have no authority or power to bind the Company
regarding third parties or to represent to third parties that Consultant has
authority or power to bind the Company. 
It is not the intention of the Parties to create, by virtue of this
Agreement, any employment relationship, trust, partnership or joint venture
between Consultant and the Company or any of its affiliates or, except as
specifically provided herein, to make them legal representatives or agents of
each other or to create any fiduciary relationship or additional contractual
relationship among them for the duration of the Consulting Period.  As an independent contractor, Consultant will
not be eligible for any Company-provided benefits, including, without
limitation, medical, retirement, short term disability and long term
disability.

 

 

2.                                      Consideration.

 

a.                                       Consulting Fee. 
During the Consulting Period, the Company shall pay Consultant a monthly
consulting fee of: (a) three thousand dollars ($3,000) for up to the first
fifteen (15) hours of service rendered by Consultant during such month; and (b) two
hundred dollars ($200) for each hour of service above fifteen (15) hours of
service provided by Consultant during such month (the “Consulting
Fees”), which shall be payable in accordance with the following
schedule:

 

i.              For the period beginning on the Effective Date and
ending on March 15, 2009, the Consulting Fees shall be payable in
bi-weekly installment payments in accordance with the Company’s payroll
practices;

 

ii.             For the period beginning on March 16, 2009 and
ending on April 1, 2009, the Consulting Fees shall be payable in one lump
sum payment on April 2, 2009; and

 

iii.            For all periods during the Consulting Period after April 1,
2009, the Consulting Fees shall be payable in bi-weekly installment payments in
accordance with the Company’s payroll practices.

 

Each payment made pursuant to this Section 2.a. shall be
treated as a separate payment for purposes of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”).  For purposes of clarity, any amounts earned
during the period beginning on March 16, 2009 and ending on the last day
of the sixth month following the Effective Date shall not be paid until the
first day of the seventh month following the Effective Date.

 

b.             Payments. 
The consideration described in this Section 2 shall be the
sole compensation to which Consultant shall be entitled for performance of the
Consulting Services.

 

c.             Reimbursement of Expenses. Consultant shall be
entitled to receive reimbursement for all reasonable expenses incurred by
Consultant in performing his duties and responsibilities under this Agreement,
consistent with the Company’s policies or practices for reimbursement of
expenses incurred by its independent contractors.

 

d.             Payment of Taxes. 
With respect to the Consulting Services, Consultant agrees to be solely
responsible for withholding taxes or necessary payments to any taxing authority
based on the Company’s payment of the consideration for the Consulting Services
under this Agreement.  Consultant further
agrees not to seek or make any claim against the Company, its subsidiaries or
any of their directors or employees for compensation, damages, costs, interest,
fees, assessments, withholdings, penalties or other losses, should a claim or
determination be made that Consultant has failed to withhold or make the
payments contemplated by the preceding sentence.  The withholdings referenced in this Section 2.d.
include, without limitation, Federal and State income taxes, FICA, and
Medicare.

 

e.             Facilities. 
During the Consulting Period, the Company will furnish Consultant with
office space, equipment, supplies, and such other facilities and personnel as
the Company deems necessary or appropriate for the performance of the Consulting
Services.

 

 

f.              2005 LTIP Benefits.  Exhibit A, attached hereto and
incorporated herein, sets forth as of September 30, 2008, all outstanding
and unvested awards of restricted stock (the “Restricted
Stock Awards”)  previously
granted to Consultant under the Cano Petroleum, Inc. 2005 Long-Term
Incentive Plan (the “2005 LTIP”).  The Parties both acknowledge and agree that,
other than the Restricted Stock Awards, as of the Effective Date, there are no
other outstanding and unvested awards that were previously granted to
Consultant.  As additional consideration
for Consultant’s agreement to perform the Consulting Services, on September 30,
2008, the Company’s Compensation Committee vested certain shares subject to the
Restricted Stock Awards, as shown on Exhibit A.  With respect to Restricted Stock Awards, the
Parties further agree and acknowledge that Consultant’s performance of the
Consulting Services shall not be sufficient to prevent a “Termination of
Service” (as defined in the 2005 LTIP) for purposes of such awards, and, except
to the extent otherwise provided in this Section 2.f., the Parties
agree that all unvested shares subject to the Restricted Stock Awards
terminated and were forfeited as of the date Consultant ceased providing
services to the Company as an employee.

 

3.                                      Termination.

 

a.             Termination. 
Except as otherwise provided in this Section 3.a., this
Agreement shall be effective for the Consulting Period described in Section 1.a.
above, provided, however, that the Consulting Period shall be automatically
extended for successive one-year terms unless and until terminated (upon the
earliest of the following): (a) by the death or Disability (defined below)
of Consultant, in which case the Consulting Period and this Agreement shall
terminate immediately; or (b) by any party hereto for any reason, pursuant
to a written notice provided by such party to the other party at least thirty
(30) days prior to the date of termination, in which case this Agreement, and
the Consulting Period shall terminate as of the date of termination provided in
such written notice.  Upon termination of
the Consulting Period, the Company will have no obligation whatsoever to
Consultant, except for the payment of accrued but unpaid Consulting Fees for
Consulting Services rendered prior to the termination date.  For purposes hereof, “Disability”
shall mean the inability, as determined in good faith by the Company, of
Consultant to provide the Consulting Services as a result of any illness or
physical, mental, or emotional incapacity or limitation that continues for at
least thirty (30) consecutive days or exists for at least thirty (30) aggregate
days during any consecutive twelve (12) month period.

 

b.             Survival. 
The provisions of Section 4 and Section 5 of
this Agreement shall survive termination or expiration of this Agreement.  In addition, all provisions of this Agreement
that expressly continue to operate after the Agreement’s termination shall
survive the Agreement’s termination or expiration in accordance with the terms
of such provisions.

 

4.                                      Confidentiality. 
Consultant shall not, during the Consulting Period or at any time
thereafter, disclose to anyone, or publish, use for any purpose, exploit, nor
solicit, allow or assist another person to use, disclose or exploit, except for
the benefit of the Company, without prior written authorization of the Company,
any information regarding the business affairs of the Company, strategies and
plans, business information, financial information, personnel information or
any other confidential or non-public information regarding the Company, except
as:  (1) required for Consultant’s
work for the Company; (2) required by law; or (3) directed and
authorized in writing by the Company. 
Consultant agrees to keep the terms of the Consulting Agreement
confidential.

 

5.                                      Non-disparagement. 
During the Consulting Period and any time thereafter, in consideration
for the obligations of the Company to Consultant hereunder, neither Consultant
nor any affiliate, associate, partner, or agent of Consultant shall orally or
in writing disparage, denigrate, or comment negatively upon the Company
(including any subsidiary of the Company) or any director, 

 

 

officer, employee, agent, or representatives
of the Company to or in the presence of any Person, except as required by a
valid subpoena or other Order (as defined below) (but only as and to the extent
actually required as determined in good faith by legal counsel to Consultant);
provided, however, that, if Consultant receives any subpoena or other Order,
Consultant shall (if possible) provide the Company with a copy of such subpoena
or other Order at least five (5) business days prior to the date on which
Consultant shall be required to make the disclosure(s).  Consultant acknowledges that in executing
this Agreement, Consultant has knowingly, voluntarily, and intelligently waived
any free speech, free association, free press or First Amendment to the United
States Constitution (including, without limitation, any counterpart or similar
provision or right under the Texas Constitution) rights to disclose,
communicate, or publish disparaging information concerning or related to the
Company.  Consultant also understands and
agrees that he has had a reasonable period of time to consider this
non-disparagement clause, to review the non-disparagement clause with his
attorney, and to knowingly and voluntarily consent to its terms. For purposes
hereof, “Order” shall
mean any order, including, without limitation, any permanent or temporary
restraining order, award, decision, injunction, writ, judgment, settlement,
ruling, subpoena, decree, or verdict entered, issued, made, or rendered by any
governmental authority.

 

6.             Remedies.  Consultant acknowledges that the protections
and restrictions in this Agreement, in view of the nature of the Company’s
business, are reasonable and necessary to protect the Company’s legitimate
business interests and that any violation of this Agreement would result in
irreparable injury to the Company for which there is no adequate remedy at
law.  In the event of a breach or a
threatened breach by Consultant of any provision in this Agreement, the Company
shall be entitled to a temporary restraining order and injunctive relief
restraining Consultant from the commission of any breach, and to recover the
Company’s attorneys’ fees, costs and expenses related to the breach or
threatened breach.  Nothing contained in
this Agreement shall be construed as prohibiting the Company from pursuing any
other remedies available to it for any breach or threatened breach, including,
without limitation, the recovery of money damages, equitable relief, attorneys’
fees, and costs.

 

7.             Consultant’s
Representations. 
Consultant represents and warrants to the Company that the execution and
delivery by Consultant of this Agreement do not, and the performance by
Consultant of Consultant’s obligations hereunder will not, with or without the
giving of notice or the passage of time, or both (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental authority
applicable to Consultant, or (b) conflict with, result in the breach of
any provision of or the termination of, or constitute a default under, any
agreement to which Consultant is a party or by which Consultant is or may be
bound.

 

8.             Indemnity of
Company.  Company hereby indemnifies and agrees to hold
harmless Consultant and his heirs and assigns (each an “Indemnified Person”)
from and against any and all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, costs, expenses, or disbursements of any
kind or nature as a result of a Claim of a third party (collectively, the “Third
Party Claims”), which may be imposed on, incurred by or asserted against any
Indemnified Person arising in connection with the subject matter hereof
(including, without limitation, the defense of any Indemnified Person’s actions
and/or inactions in connection with the subject matter hereof), unless such
Third Party Claims were the result of the gross negligence or willful conduct
of the Consultant.

 

9.             Indemnity of
Consultant.  Consultant hereby indemnifies and agrees to
hold harmless the Company and its officers, directors, employees, agents and
representatives (each an “Indemnified Person”) from and against all Third Party
Claims which may be imposed on, incurred by or asserted against any Indemnified
Person arising in connection with the subject matter hereof, which is solely
attributable to the gross negligence and/or willful conduct of the Consultant.

 

 

10.          Choice of Law.  This Agreement has been executed and  delivered in and shall be interpreted, construed and
enforced pursuant to and in accordance with the laws of the State of Texas,
without giving effect to the conflicts of law principles thereof.

 

11.          Waiver.  The forbearance or failure to pursue any
legal or equitable remedy or right available to any party hereto upon default
under, or upon a breach of, this Agreement shall not constitute waiver of such
right, nor shall any such forbearance, failure or actual waiver imply or
constitute waiver of a subsequent default or breach.

 

12.          Severability.  If any provision or provisions of this
Agreement shall be held to be invalid, illegal, or unenforceable for any reason
whatsoever, (a) the validity, legality and unenforceability of the
remaining provisions of this Agreement (including without limitation, all
portions of any sections
containing any such provision held to be invalid, illegal or unenforceable,
that are not themselves invalid, illegal or unenforceable), shall not in any
way be affected or impaired thereby, and (b) such provision or provisions
held to be invalid, illegal or unenforceable shall be limited or modified in
its or their application to the minimum extent necessary to avoid such
invalidity, illegality or unenforceability, and, as so limited or modified,
such provision or provisions and the balance of this Agreement shall be
enforceable in accordance with their terms.

 

13.          Headings.  The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

 

14.          Counterparts.  This
Agreement and amendments thereto shall be in writing and may be executed in
counterparts.  Each such counterpart
shall be deemed an original, but both counterparts together shall constitute
one and the same instrument.

 

15.          Further Assurances.  Each
party hereto shall execute and deliver such documents, and take all such other
actions, as may be reasonably required or reasonably requested by any other party
hereto to effect this Agreement and each transaction contemplated hereby.

 

16.          Entire Agreement;
Modification.  This Agreement constitutes the entire
agreement and understanding of the Parties hereto with respect to the subject
matter hereof and supersede all other prior agreements, arrangements, and
understandings with respect to the subject matter hereof.  No understanding, promise, inducement,
statement of intention, representation, warranty, covenant, or condition,
written or oral, express or implied, whether by statute or otherwise, has been
made by any party hereto with respect to the subject matter hereof which is not
embodied in this Agreement and no party hereto shall be bound by or liable for
any such alleged understanding, promise, inducement, statement, representation,
warranty, covenant, or condition not set forth herein with respect to the
subject matter hereof.  This Agreement
may only be amended or otherwise modified by written instrument duly executed
by each party hereto.

 

17.          Binding Effect;
Assignment; No Third Party Beneficiary.  This Agreement shall inure to the benefit of,
and be binding upon, each party hereto and each heir, executor, administrator,
legal representative, and permitted assignee of such party.  Except as otherwise provided hereby, this
Agreement, and the rights and obligations created hereunder, may not be
transferred or assigned by any party hereto without the prior consent of each
other party hereto.  The Company may
assign this Agreement upon written notice to Consultant, provided that the
assignee assumes all of the obligations of the Company under this
Agreement.  Except as otherwise expressly
provided hereby, there shall be no 

 

 

third party beneficiary of this Agreement and
this Agreement shall not inure to the benefit of, be enforceable by, or create
any right or cause of action in any Person other than the parties hereto and
their heirs, executors, administrators, legal representatives, successors, and
permitted assigns.  Neither the
availability of, nor any limit on, any remedy hereunder shall limit the
remedies of any party hereto against third parties.

 

18.          Code Section 409A;
Delay of Payments.  The terms of this Agreement have been
designed to comply with the requirements of Section 409A of the Code, where
applicable, and shall be interpreted and administered in a manner consistent
with such intent.  If deferral of any
amounts payable under this Agreement is necessary in order to prevent any
accelerated or additional tax under Section 409A of the Code, then (a) the
Company will defer the payment of any such amounts hereunder until the date
that is six (6) months and one (1) day following the Effective Date
at which time any such delayed amounts will be paid to Consultant in a single
lump sum, and (b) if any other payments of money or other benefits due to
Consultant hereunder could cause the application of an accelerated or
additional tax under Section 409A of the Code, such payments or other
benefits shall be deferred if deferral will make such payment or other benefits
compliant under Section 409A of the Code.

 

19.          Notice.  Any notice required or permitted to be
delivered hereunder shall be deemed to be delivered only when actually received
by the Company or Consultant, as the case may be, at the addresses set forth
below, or at such other addresses as they have theretofore specified by written
notice delivered in accordance herewith:

 

	
  a.

  	
   

  	
  Notice to the Company
  shall be addressed and delivered as follows:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cano Petroleum, Inc.

  
	
   

  	
   

  	
  801 Cherry Street

  
	
   

  	
   

  	
  Unit 25, Suite 3200

  
	
   

  	
   

  	
  Fort Worth, TX 76102

  
	
   

  	
   

  	
  Attn: General Counsel

  
	
   

  	
   

  	
  Facsimile: (817) 698-0796

  
	
   

  	
   

  	
   

  
	
  b.

  	
   

  	
  Notice to Consultant shall
  be addressed and delivered as set forth on the signature page.

  

 

*
* * * * * * * * * *

 

 

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed, delivered, and effective as of the date first written above.

 

	
   

  	
  THE COMPANY:

  
	
   

  	
   

  
	
   

  	
  CANO PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
  Name:

  	
  S. Jeffrey Johnson

  
	
   

  	
  Title:

  	
  Chairman and Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CONSULTANT:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Morris B. Smith

  
	
   

  	
  Name:

  	
  Morris B. Smith

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
				

 

 

EXHIBIT
A

 

	
  Grant

  Date

  	
   

  	
  Original

  Grant

  Vesting

  Date

  	
   

  	
  Number of

  Shares

  Unvested as of

  9/29/2008

  	
   

  	
  Vesting

  Period

  (Months)

  	
   

  	
  Earned

  Through

  9/30/2008

  (Months)

  	
   

  	
  Total Shares Vested as of

  9/30/2008

  	
   

  
	
  6/1/06

  	
   

  	
  5/30/09

  	
   

  	
  20,000

  	
   

  	
  36

  	
   

  	
  28

  	
   

  	
  15,556

  	
   

  
	
  7/2/07

  	
   

  	
  7/2/09

  	
   

  	
  38,333

  	
   

  	
  24

  	
   

  	
  15

  	
   

  	
  23,958

  	
   

  
	
  7/2/07

  	
   

  	
  7/2/10

  	
   

  	
  38,334

  	
   

  	
  36

  	
   

  	
  15

  	
   

  	
  15,973

  	
   

  
	
  5/12/08

  	
   

  	
  5/12/09

  	
   

  	
  40,000

  	
   

  	
  12

  	
   

  	
  5

  	
   

  	
  16,667

  	
   

  
	
  5/12/08

  	
   

  	
  5/12/10

  	
   

  	
  40,000

  	
   

  	
  24

  	
   

  	
  5

  	
   

  	
  8,333

  	
   

  
	
  5/12/08

  	
   

  	
  5/12/11

  	
   

  	
  40,000

  	
   

  	
  36

  	
   

  	
  5

  	
   

  	
  5,556

  	
   

  
	
  TOTAL

  	
   

  	
   

  	
   

  	
  216,667

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  86,043

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}]]