Document:

St. Jude Medical, Inc. Exhibit 10.2 to Form 8-K

Exhibit 10.2

 

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment to Employment Agreement (this “Amendment”) is made as of July 27, 2006, by and between Advanced Neuromodulation Systems, Inc., a wholly-owned subsidiary of St. Jude Medical, Inc. (“ANS”), and Christopher G. Chavez (“Employee”). This Amendment amends the Employment Agreement (the “Employment Agreement”), effective as of April 1, 2002, by and between ANS and Employee. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Employment Agreement.

W I T N E S S E T H:

WHEREAS, concurrently with the execution hereof, St. Jude Medical, Inc. and Employee are entering into a Severance Agreement dated as of the date hereof (the “Severance Agreement”); and

WHEREAS, ANS desires to enter into this Amendment to clarify that if Employee receives severance benefits under Section 4 of the Severance Agreement, then Employee will not be entitled to receive severance compensation under the Employment Agreement.

NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ANS and Employee hereby agree as follows:

SECTION 1. The first paragraph under Section 10(c) of the Employment Agreement is hereby deleted and replaced with the following:

“(c) However, if Employee receives severance benefits under Section 4 of that certain severance agreement between St. Jude Medical, Inc. and Employee dated as of July 27, 2006, as it may be amended and/or replaced from time to time (the “Severance Agreement”), then Employee will not be entitled to any payments under the preceding subparagraphs (a) and (b), and Employee’s rights to severance compensation shall be governed by the terms of the Severance Agreement.”

SECTION 2. Except as expressly amended hereby, the Employment Agreement is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect.

SECTION 3. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

SECTION 4. This Amendment shall be governed by and construed in accordance with the laws of the State of Minnesota.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties have caused this Amendment to Employment Agreement to be duly executed as of the day and year first above written.

 

	
             
 	
             
 	
            ADVANCED NEUROMODULATION
SYSTEMS, INC.
 
	
              
 	
             
 	
            By: 
 	
            
/s/ John C. Heinmiller
 
	
             
 	
             
 	
             
 	
            Name: John C. Heinmiller

Title: Vice President
 
	
             
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
            EMPLOYEE

 
 
	
             
 	
             
 	
            /s/ Christopher G. Chavez     
 
	
             
 	
             
 	
            Christopher G. ChavezExhibit 10.1

    
      

    

    Exhibit
      10.1

    

     

    CREDIT
      AGREEMENT

    

    by
      and
      between

    

    

    

    KEY
      TECHNOLOGY, INC., an Oregon corporation

    

    and

    

    

    WELLS
      FARGO HSBC TRADE BANK, N.A.

    

    

    

    

    Dated
      as
      of

    

    

    July
      27,
      2006

    

    

    
 

    Exhibit
      A
      - Addendum to Credit Agreement

    Exhibit
      B
      - Revolving
      Credit Facility
      Supplement

    Exhibit
      C
      - Collateral/Credit Support Document

    

     

    
      
        
          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    WELLS
      FARGO HSBC TRADE BANKCREDIT
      AGREEMENT                                                                                                                                                                           CREDIT AGREEMENT

    

    

    KEY
      TECHNOLOGY, INC., an Oregon corporation ("Borrower”),
      organized
      under the laws of the State of Oregon
      whose
      chief executive office is located at the address specified after its signature
      to this Agreement (“Borrower’s
      Address”) and
      WELLS
      FARGO HSBC TRADE BANK, N.A.
      (“Trade
      Bank”), whose address is specified after its signature to this Agreement, have
      entered into this CREDIT
      AGREEMENT
      as of
July
      27, 2006
      ("Effective Date"). All references to this "Agreement" include those covenants
      included in the Addendum to Agreement ("Addendum") attached as Exhibit A
      hereto.

     

    I.
      CREDIT
      FACILITY

    

    1.1  The
      Facility.
      Subject
      to the terms and conditions of this Agreement, Trade Bank will make available
      to
      Borrower a Revolving
      Credit
      Facility
      (“Facility”) for which a Facility Supplement ("Supplement") is attached as
      Exhibit B hereto. Additional terms for the Facility (and each subfacility
      thereof ("Subfacility")) are set forth in the Supplement. The Facility will
      be
      available from the Closing Date up to and until June
      30,
      2008
      (“Facility Termination Date”). Collateral and credit support required for the
      Facility is set forth in Exhibit C hereto. Definitions for those capitalized
      terms not otherwise defined are contained in Article 8 below.

    

    1.2  Credit
      Extension Limit.
      The
      aggregate outstanding amount of all Credit Extensions may at no time exceed
      Ten
      Million
      Dollars
      ($10,000,000)
      ("Overall Credit Limit"). The aggregate outstanding amount of all Credit
      Extensions outstanding at any time under
      Revolving Credit
      Facility
      may not
      exceed that amount specified as the "Credit Limit" in the Supplement for
the
      Facility,
      and the aggregate outstanding amount of all Credit Extensions outstanding at
      any
      time under each Subfacility (or any subcategory thereof) may not exceed that
      amount specified as the "Credit Sublimit" in the Supplement for the Facility.
      An
      amount equal to 100% of each unfunded Credit Extension shall be used in
      calculating the outstanding amount of Credit Extensions under this
      Agreement.

    

    The
      Subfacility(s) of the
      Revolving Credit
      Facility
      are as follows:

    

    
      	(a)  	
              Sight
                Commercial Letters of Credit

            

    

    
      	(b)  	
              Standby
                Letters of Credit

            

    

    

    1.3  Overadvance.
      All
      Credit Extensions made hereunder shall be added to and deemed part of the
      Obligations when made. If, at any time and for any reason, the aggregate
      outstanding amount of all Credit Extensions made pursuant to this Agreement
      exceeds the dollar limitation in Section 1.2,
      then
      Borrower shall immediately pay to Trade Bank on demand, in cash, the amount
      of
      such excess.

    

    1.4  Repayment;
      Interest and Fees.
      Each
      funded Credit Extension shall be repaid by Borrower, and shall bear interest
      from the date of disbursement at those per annum rates and such interest shall
      be paid, at the times specified in the Supplement, Note or Facility Document.
      Borrower agrees
      to pay
      to Trade Bank
      with
      respect to (a) the Revolving Credit Facility, interest at a per annum rate
      equal to (i) the
      Prime
      Rate minus
      1.75%
      as
      specified in the Note,
      or
      (ii) Wells
      Fargo's LIBOR Rate plus 1%
      as
      specified in the Note,
      and
      (b) the Subfacilities,
      the fees
      specified in the Supplement as well as those fees specified in the relevant
      Facility Document(s). Interest and fees will be calculated on the basis of
      a
360
      day
      year, actual days elapsed. Any overdue payments of principal (and interest
      to
      the extent permitted by law) shall bear interest at a per annum floating rate
      equal to the Prime Rate plus 5%.

    

    1.5  Prepayments.
      Credit
      Extensions under any Facility may only be prepaid in accordance with the terms
      of the Supplement. At the time of any prepayment (including, but not limited
      to,
      any prepayment which is a result of the occurrence of an Event of Default and
      an
      acceleration of the Obligations) Borrower will pay to Trade Bank all interest
      accrued on the amount so prepaid to the date of such prepayment and all costs,
      expenses and fees specified in the Loan Documents.

     

    
      
        
        

      

      
        Page
          1

        
          

        

      

      
        
        

      

    

     

    II.
      REPRESENTATIONS
      AND WARRANTIES

     

    Borrower
      represents
      and
      warrants
      to Trade
      Bank that the following representations and warranties are true and
      correct:

    

    2.1  Legal
      Status.
      Borrower is duly organized and existing and in good standing under the laws
      of
      the jurisdiction indicated in this Agreement, and is qualified or licensed
      to do
      business in all jurisdictions in which such qualification or licensing is
      required and in which the failure to so qualify or to be so licensed could
      have
      a material adverse affect on Borrower.

    

    2.2  Authorization
      and Validity.
      The
      execution, delivery and performance of this Agreement, and all other Loan
      Documents to which Borrower is a party, have been duly and validly authorized,
      executed and delivered by Borrower and constitute legal, valid and binding
      agreements of Borrower, and are enforceable against Borrower in accordance
      with
      their respective terms.

    

    2.3  Borrower's
      Name.
      The name
      of Borrower set forth at the end of this Agreement is its correct name. If
      Borrower is conducting business under a fictitious business name, Borrower
      is in
      compliance with all laws relating to the conduct of such business under such
      name.

    

    2.4  Financial
      Condition and Statements.
      All
      financial statements of Borrower delivered to Trade Bank have been prepared
      in
      conformity with GAAP, and completely and accurately reflect the financial
      condition of Borrower (and any consolidated Subsidiaries) at the times and
      for
      the periods stated in such financial statements. Neither Borrower nor any
      Subsidiary has any material contingent liability not reflected in the aforesaid
      financial statement. Since the date of the financial statements delivered to
      Trade Bank for the last fiscal period of Borrower to end before the Effective
      Date, there has been no material adverse change in the financial condition,
      business or prospects of Borrower. Borrower
      is
      solvent.

    

    2.5  Litigation.
      Except
      as disclosed in writing to Trade Bank prior to the Effective Date, there is
      no
      action, claim, suit, litigation, proceeding or investigation pending or (to
      best
      of Borrower’s knowledge) threatened by or against or affecting Borrower or any
      Subsidiary in any court or before any governmental authority, administrator
      or
      agency which may result in (a) any material adverse change in the financial
      condition or business of Borrower’s, or (b) any material impairment of the
      ability of Borrower to carry on its business in substantially the same manner
      as
      it is now being conducted.

    

    2.6  No
      Violation.
      The
      execution, delivery, and performance by Borrower of each of the Loan Documents
      do not violate any provision of any law or regulation, or contravene any
      provision of the
      Articles
      of Incorporation or By-Laws
      of
      Borrower, or result in a breach of or constitute a default under any contract,
      obligation, indenture, or other instrument to which Borrower is a party or
      by
      which Borrower may be bound.

    

    2.7  Income
      Tax Returns.
      Borrower
      has
      no
      knowledge of any pending assessments or adjustments of its income tax payable
      with respect to any year.

    

    2.8  No
      Subordination.
      There
      is no agreement, indenture, contract, or instrument to which Borrower is a
      party
      or by which Borrower may be bound that requires the subordination in right
      of
      payment of any of Borrower's obligations subject to this Agreement to any other
      obligation of Borrower.

    

    2.9  ERISA.
      Borrower is in compliance in all material respects with all applicable
      provisions of the Employee Retirement Income Security Act of 1974, as amended
      or
      recodified from time to time ("ERISA"); Borrower
      has
      not
      violated any provision of any defined employee pension benefit plan (as defined
      in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
      Reportable Event, as defined in ERISA, has occurred and is continuing with
      respect to any Plan initiated by Borrower; Borrower has met its minimum funding
      requirements under ERISA with respect to each Plan; and each Plan will be able
      to fulfill its benefit obligations as they come due in accordance with the
      Plan
      documents and under GAAP.

    

    2.10  Other
      Obligations.
      Except
      as disclosed in writing to Trade Bank prior to the Effective Date, neither
      Borrower nor any Subsidiary are in default of any obligation for borrowed money,
      any purchase money obligation or any material lease, commitment, contract,
      instrument or obligation.

     

    
      
        
        

      

      
        Page
          2

        
          

        

      

      
        
        

      

    

     

    2.11  No
      Defaults.
      No
      Event of Default, and event which with the giving of notice or the passage
      of
      time or both would constitute an Event of Default, has occurred and is
      continuing.

    

    2.12  Information
      Provided to Trade Bank.
      The
      information provided to the Trade Bank concerning Borrower's business is true
      and correct.

    

    2.13  Environmental
      Matters.
      Except
      as disclosed by Borrower to Trade Bank in writing prior to the Effective Date,
      Borrower (as well as any Subsidiary) is each in compliance in all material
      respects with all applicable Federal or state environmental, hazardous waste,
      health and safety statutes, and any rules or regulations adopted pursuant
      thereto, which govern or affect any Borrower's or any Subsidiary's operations
      and/or properties, including without limitation, the Comprehensive Environmental
      Response, Compensation and Liability Act of 1980, the Superfund Amendments
      and
      Reauthorization Act of 1986, the Federal Resource Conservation and Recovery
      Act
      of 1976, the Federal Toxic Substances Control Act and the California Health
      and
      Safety Code, as any of the same may be amended, modified or supplemented from
      time to time. None of the operations of Borrower or of any Subsidiary is the
      subject of any Federal or state investigation evaluating whether any remedial
      action involving a material expenditure is needed to respond to a release of
      any
      toxic or hazardous waste or substance into the environment.

    

    

    III.
      CONDITIONS
      TO EXTENDING FACILITIES

     

    3.1  Conditions
      to Initial Credit Extension.
      The
      obligation of Trade Bank to make the first Credit Extension is subject to the
      fulfillment to Trade Bank's satisfaction of the following
      conditions:

    

    
      	(a)  	
              Approval
                of Trade Bank Counsel.
                All legal matters relating to making the
                Facility
                available to Borrower must be satisfactory to counsel for Trade
                Bank.

            

    

    

    
      	(b)  	
              Documentation.
                Trade Bank must have received, in form and substance satisfactory
                to Trade
                Bank, the following documents and instruments duly executed and in
                full
                force and effect:

            

    

    

    
      	(1)  	
              a
                corporate borrowing resolution and incumbency certificate if Borrower
                is a
                corporation, a partnership or joint venture borrowing certificate
                if
                Borrower is a partnership or joint venture, and a limited liability
                company borrowing certificate if Borrower is a limited liability
                company;

            

    

    

    
      	(2)  	
              the
                Facility Documents for
                the
                Facility, including, but not limited to, note(s) ("Notes") for
                the Revolving Credit Facility,
                Trade Bank's standard Commercial Letter of Credit Agreement or Standby
                Letter of Credit Agreement for any letter of credit
                Facility;

            

    

    

    
      	(3)  	
              those
                guarantees, security agreements, deeds of trust, subordination agreements,
                intercreditor agreements, factoring agreements, tax service contracts,
                and
                other Collateral Documents required by Trade Bank to evidence the
                collateral/credit support specified in the
                Supplement;

            

    

    

    
      	(4)  	
              if
                an audit or inspection of any books, records or property is specified
                in
                the Supplement for
                the
                Facility, an audit or inspection report from Wells Fargo or another
                auditor or inspector acceptable to Trade Bank reflecting values and
                property conditions satisfactory to Trade Bank;
                and

            

    

    

    
      	(5)  	
              if
                insurance is required in the Addendum, the insurance policies specified
                in
                the Addendum (or other satisfactory proof thereof) from insurers
                acceptable to Trade Bank.

            

    

    

    3.2  Conditions
      to Making Each Credit Extension.
      The
      obligation of Trade Bank to make each Credit Extension is subject to the
      fulfillment to Trade Bank's satisfaction of the following
      conditions:

    

    
      	(a)  	
              Representations
                and Warranties.
                The representations and warranties contained in this Agreement, the
                Facility Documents and the Collateral Documents will be true and
                correct
                on and

            

    

     

    
      
        
        

      

      
        Page
          3

        
          

        

      

      
        
        

      

    

     

    
      	
            	
              as
                of the date of the Credit Extension with the same effect as though
                such
                representations and warranties had been made on and as of such
                date;

            

    

     

    
      	(b)  	
              Documentation.
                Trade Bank must have received, in form and substance satisfactory
                to Trade
                Bank, the following documents and instruments duly executed and in
                full
                force and effect:

            

    

    

    
      	(1)  	
              if
                the Credit Extension is the issuance of a Commercial Letter of Credit,
                Trade Bank's standard Application For Commercial Letter of Credit
                or
                standard Application and Agreement For Commercial Letter of Credit;
                

            

    

    

    
      	(2)  	
              if
                the Credit Extension is the issuance of a Standby Letter of Credit,
                Trade
                Bank's standard Application For Standby Letter of Credit or standard
                Application and Agreement For Standby Letter of
                Credit;

            

    

    

    
      	(3)  	
              if
                a Borrowing Base Certificate is required for the Credit Extension,
                a
                Borrowing Base Certificate demonstrating compliance with the requirements
                for such Credit Extension.

            

    

    

    
      	(c)  	
              Fees.
                Trade Bank must have received any fees required by the Loan Documents
                to
                be paid at the time such Credit Extension is
                made.

            

    

    

    

    
      	IV.  	
              AFFIRMATIVE
                COVENANTS

            

    

     

    Borrower
      covenants
      that so
      long as Trade Bank remains committed to make Credit Extensions to Borrower,
      and
      until payment of all Obligations and Credit Extensions, Borrower will comply
      with each of the following covenants: (For purposes of this Article IV, and
      Article V below, reference to "Borrower" may also extend to Borrower's
      subsidiaries, if so specified in the Addendum.)

    

    4.1  Punctual
      Payments.
      Punctually pay all principal, interest, fees and other Obligations due under
      this Agreement or under any Loan Document at the time and place and in the
      manner specified herein or therein.

    

    4.2  Notification
      to Trade Bank.
      Promptly, but in no event more than 5 calendar days after the occurrence of
      each
      such event, provide written notice in reasonable detail of each of the
      following:

    

    
      	(a)  	
              Occurrence
                of a Default.
                The occurrence of any Event of Default or any event which with the
                giving
                of notice or the passage of time or both would constitute an Event
                of
                Default;

            

    

    

    
      	(b)  	
              Borrower's
                Trade Names; Place of Business.
                Any change of Borrower's (or any Subsidiary's) name, trade name or
                place
                of business, or chief executive
                officer;

            

    

    

    
      	(c)  	
              Litigation.
                Any action, claim, proceeding, litigation or investigation threatened
                or
                instituted by or against or affecting Borrower (or any Subsidiary)
                in any
                court or before any government authority, administrator or agency
                which
                may materially and adversely affect Borrower's (or any Subsidiary's)
                financial condition or business or Borrower's ability to carry on
                its
                business in substantially the same manner as it is now being
                conducted;

            

    

    

    
      	(d)  	
              Uninsured
                or Partially Uninsured Loss.
                Any uninsured or partially uninsured loss through liability or property
                damage or through fire, theft or any other cause affecting Borrower's
                (or
                any Subsidiary's) property in excess of the aggregate amount required
                hereunder;

            

    

    

    
      	(e)  	
              Reports
                Made to Insurance Companies.
                Copies of all material reports made to insurance companies;
                and

            

    

    

    
      	(f)  	
              ERISA.
                The occurrence and nature of any Reportable Event or Prohibited
                Transaction, each as defined in ERISA, or any funding deficiency
                with
                respect to any Plan.

            

    

     

    
      
        
        

      

      
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          4

        
          

        

      

      
        
        

      

    

     

    4.3  Books
      and Records.
      Maintain at Borrower's
      address
      books and records in accordance with GAAP, and permit any representative of
      Trade Bank, at any reasonable time, to inspect, audit and examine such books
      and
      records, to make copies of them, and to inspect the properties of
      Borrower.

    

    4.4  Tax
      Returns and Payments.
      Timely
      file all tax returns and reports required by foreign, federal, state and local
      law, and timely pay all foreign, federal, state and local taxes, assessments,
      deposits and contributions owed by Borrower. Borrower may, however, defer
      payment of any contested taxes, provided that Borrower (i) in good faith
      contests Borrower's obligation to pay the taxes by appropriate proceedings
      promptly instituted and diligently conducted, (ii) notifies Trade Bank in
      writing of the commencement of, and any material development in, the
      proceedings, (iii) posts bonds or takes any other steps required to keep
      the contested taxes from becoming a lien upon any of the Collateral, and
      (iv) makes provision, to Trade Bank's satisfaction, for eventual payment of
      such taxes in the event Borrower is obligated to make such payment.

    

    4.5  Compliance
      with Laws.
      Comply
      in all material respects with the provisions of all foreign, federal, state
      and
      local laws and regulations relating to Borrower, including, but not limited
      to,
      those relating to Borrower's ownership of real or personal property, the conduct
      and licensing of Borrower's business, and health and environmental
      matters.

    

    4.6  Taxes
      and Other Liabilities.
      Pay and
      discharge when due any and all indebtedness, obligations, assessments and taxes,
      both real and personal, including without limitation federal and state income
      taxes and state and local property taxes and assessments, except (a) such
      as Borrower may in good faith contest or as to which a bona fide dispute may
      arise, and (b) for which Borrower has made provision, to Trade Bank's
      satisfaction, for eventual payment thereof in the event that Borrower is
      obligated to make such payment.

    

    4.7  Insurance.
      Maintain and keep in force insurance of the types and in amounts customarily
      carried in lines of business similar to that of Borrower, including, but not
      limited to, fire, extended coverage, public liability, flood, property damage
      and workers' compensation, with all such insurance to be in amounts satisfactory
      to Trade Bank and to be carried with companies approved by Trade Bank before
      such companies are retained, and deliver to Trade Bank from time to time at
      Trade Bank's request schedules setting forth all insurance then in effect.
      All
      insurance policies shall name Trade Bank as an additional loss payee, and shall
      contain a lenders loss payee endorsement in form reasonably acceptable to Trade
      Bank. (Upon receipt of the proceeds of any such insurance, Trade Bank shall
      apply such proceeds in reduction of the outstanding funded Credit Extensions
      and
      shall hold any remaining proceeds as collateral for the outstanding unfunded
      Credit Extensions, as Trade Bank shall determine in its sole discretion, except
      that, provided no Event of Default has occurred, Trade Bank shall release to
      Borrower insurance proceeds with respect to equipment totaling less than
      $100,000, which shall be utilized by Borrower for the replacement of the
      equipment with respect to which the insurance proceeds were paid, if Trade
      Bank
      receives reasonable assurance that the insurance proceeds so released will
      be so
      used.) If Borrower fails to provide or pay for any insurance, Trade Bank may,
      but is not obligated to, obtain the insurance at Borrower's
      expense.

    

    4.8  Further
      Assurances.
      At
      Trade Bank's request and in form and substance satisfactory to Trade Bank,
      execute all documents and take all such actions at Borrower's
      expense
      as Trade Bank may deem reasonably necessary or useful to perfect and maintain
      Trade Bank's perfected security interest in the Collateral and in order to
      fully
      consummate all of the transactions contemplated by the Loan
      Documents.

    

    

    V.
      NEGATIVE
      COVENANTS

     

    Borrower
      covenants
      that so
      long as Trade Bank remains committed to make any Credit Extensions to Borrower
      and until all Obligations and Credit Extensions have been paid, Borrower will
      not without Trade Bank’s prior written consent:

    

    5.1  Merge
      or Consolidation, Transfer of Assets.
      Merge
      into or consolidate with any other entity; make any substantial change in the
      nature of Borrower's business as conducted as of the date hereof; acquire all
      or
      substantially all of the assets of any other entity; nor sell, lease, transfer
      or otherwise dispose of all or a substantial or material portion of Borrower's
      assets except in the ordinary course of its business.

    

    5.2  Use
      of Proceeds.
      Borrower will not use the proceeds of any Credit Extension except for the
      purposes, if any, specified for such Credit Extension in the Supplement covering
      the Facility under which such Credit Extension is made.

     

    
      
        
        

      

      
        Page
          5

        
          

        

      

      
        
        

      

    

     

    5.3  Liens.
      Mortgage, pledge, grant or permit to exist a security interest in, or lien
      upon,
      all or any portion of Borrower's assets now owned or hereafter acquired, except
      any of the foregoing in favor of Trade Bank or which is existing as of, and
      disclosed to Trade Bank in writing prior to, the date hereof, and except any,
      liens to secure indebtedness for borrowed money permitted under Section 5.6
      hereunder.

    

    5.4  Acquisitions
      of Assets.
      Borrower will not acquire any assets or enter into any other transaction outside
      the ordinary course of Borrower's business.

    

    5.5  Loans
      and Investments.
      Borrower will not make any loans or advances to, or investments in, any person
      or entity except (a) for accounts receivable created in the ordinary course
      of
      Borrower's business and (b) loans to subsidiaries not to exceed an aggregate
      amount of $2,000,000.

    

    5.6  Indebtedness
      For Borrowed Money.
      Borrower will not incur any indebtedness for borrowed money, except (a) to
      Trade
      Bank, (b) to ABN Amro not to exceed an aggregate of 2,500,000 Euro for existing
      Key Technology B.V. operating facility and (c) for indebtedness subordinated
      to
      the Obligations by an instrument or agreement in form acceptable to Trade
      Bank.

    

    5.7  Guarantees.
      Borrower will not guarantee or otherwise become liable with respect to the
      obligations of any other person or entity, except for endorsement of instruments
      for deposit into Borrower's account in the ordinary course of Borrower's
      business. 

    

    5.8  Dividends
      and Distributions of Capital of C Corporation.
      If
      Borrower is a corporation, Borrower will not pay or declare any dividends or
      make any distribution of capital on Borrower's stock (except for dividends
      payable solely in stock of Borrower), nor redeem, retire, purchase or otherwise
      acquire, directly or indirectly, any shares of any class of Borrower's stock
      now
      or hereafter outstanding.

    

    5.9  Investments
      in, or Acquisitions of, Subsidiaries.
      Borrower will not make any investments in, or form or acquire, any subsidiaries,
      other than previously approved creation of Key Technology (Shanghai) Trading
      Co.
      LTD and investment in that subsidiary in an amount not to exceed
      $1,500,000.

    

    5.10  Capital
      Expenditures.
      Borrower shall not make any capital expenditures in any fiscal year in an
      aggregate amount in excess of $2,500,000.

    

    5.11  Lease
      Expenditures.
      Borrower shall not make any lease expenditures in any fiscal year in an
      aggregate amount in excess of $2,000,000.

    

    

    VI.
      EVENTS
      OF DEFAULT AND REMEDIES

     

    6.1  Events
      of Default.
      The
      occurrence of any of the following shall constitute an "Event of
      Default":

    

    
      	(a)  	
              Failure
                to Make Payments When Due.
                Borrower's
                failure to pay principal, interest, fees or other amounts when due
                under
                any Loan Document. 

            

    

    

    
      	(b)  	
              Failure
                to Perform Obligations.
                Any failure by Borrower to comply with any covenant or obligation
                in this
                Agreement or in any Loan Document (other than those referred to in
                subsection (a)above), and such default shall continue for a period
                of
                twenty calendar days from the earlier of (i) Borrower's failure to
                notify Trade Bank of such Event of Default pursuant to Section 4.2(a)
                above, or (ii) Trade Bank's notice to Borrower of such Event of
                Default.

            

    

    

    
      	(c)  	
              Untrue
                or Misleading Warranty or Statement.
                Any warranty, representation, financial statement, report or certificate
                made or delivered by Borrower under any Loan Document is untrue or
                misleading in any material respect when made or delivered.
                

            

    

    

    
      	(d)  	
              Defaults
                Under Other Loan Documents.
                Any "Event of Default" occurs under any other Loan Document; any
                Guaranty
                is no longer in full force and effect (or any claim thereof made
                by
                Guarantor) or any failure of a Guarantor to comply with the provisions
                thereof; or any breach of

            

    

     

    
      
        
        

      

      
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              the
                provisions of any Subordination Agreement or Intercreditor Agreement
                by
                any party other than the Trade
                Bank.

            

    

     

    
      	(e)  	
              Defaults
                Under Other Agreements or Instruments.
                Any default in the payment or performance of any obligation, or the
                occurrence of any event of default, under the terms of any other
                agreement
                or instrument pursuant to which Borrower, any Subsidiary or any Guarantor
                or general partner of Borrower has incurred any debt or other material
                liability to any person or entity.

            

    

    

    
      	(f)  	
              Concealing
                or Transferring Property.
                Borrower conceals, removes or transfers any part of its property
                with
                intent to hinder, delay or defraud its creditors, or makes or suffers
                any
                transfer of any of its property which may be fraudulent under any
                bankruptcy, fraudulent conveyance or similar law.
                

            

    

    

    
      	(g)  	
              Judgments
                and Levies Against Borrower.
                The filing of a notice of judgment lien against Borrower, or the
                recording
                of any abstract of judgment against Borrower, in any county in which
                Borrower has an interest in real property, or the service of a notice
                of
                levy and/or of a writ of attachment or execution, or other like process,
                against the assets of Borrower, or the entry of a judgment against
                Borrower.

            

    

    

    
      	(h)  	
              Event
                or Condition Impairing Payment or Performance.
                Any event occurs or condition arises which Trade Bank in good faith
                believes impairs or is substantially likely to impair the prospect
                of
                payment or performance by Borrower of the Obligations, including,
                but not
                limited to any material adverse change in Borrower's financial condition,
                business or prospects. 

            

    

    

    
      	(i)  	
              Voluntary
                Insolvency.
                Borrower, any Subsidiary or any Guarantor (i) becomes insolvent,
                (ii) suffers or consents to or applies for the appointment of a
                receiver, trustee, custodian or liquidator of itself or any of its
                property, (iii) generally fails to pay its debts as they become due,
                (iv) makes a general assignment for the benefit of creditors, or
                (v) files a voluntary petition in bankruptcy, or seeks
                reorganization, in order to effect a plan or other arrangement with
                creditors or any other relief under the Bankruptcy Reform Act, Title
                11 of
                the United States Code, as amended or recodified from time to time
                ("Bankruptcy Code"), or under any state or Federal law granting relief
                to
                debtors, whether now or hereafter in
                effect.

            

    

    

    
      	(j)  	
              Involuntary
                Insolvency.
                Any involuntary petition or proceeding pursuant to the Bankruptcy
                Code or
                any other applicable state or federal law relating to bankruptcy,
                reorganization or other relief for debtors is filed or commenced
                against
                Borrower, any Subsidiary or Guarantor, or an order for relief is
                entered
                against it by any court of competent jurisdiction under the Bankruptcy
                Code or any other applicable state or federal law relating to bankruptcy,
                reorganization or other relief for
                debtors.

            

    

    

    
      	(k)  	
              Change
                in Ownership.
                Any change in the ownership of Borrower, any general partner of Borrower
                or any Guarantor which the Trade Bank determines, in its sole discretion,
                may adversely affect the creditworthiness of Borrower or credit support
                for the Obligations.

            

    

    

    6.2  Remedies.
      Upon
      the occurrence of any Event of Default, or at any time thereafter, Trade Bank,
      at its option, and without notice or demand of any kind (all of which are hereby
      expressly waived by Borrower), may do any one or more of the following:
      (a) terminate Trade Bank's obligation to make Credit Extensions or to make
      available to Borrower the
      Facility
      or other
      financial accommodations; (b) accelerate and declare all or any part of the
      Obligations to be immediately due, payable, and performable, notwithstanding
      any
      deferred or installment payments allowed by any instrument evidencing or
      relating to any Credit Extension; and/or (c) exercise all its rights,
      powers and remedies available under the Loan Documents, or accorded by law,
      including, but not limited to, the right to resort to any or all Collateral
      or
      other security for any of the Obligations and to exercise any or all of the
      rights of a beneficiary or secured party pursuant to applicable law.
      Notwithstanding the provisions in the foregoing sentence, if any Event of
      Default set out in subsections (i) and (j) of Section 6.1 above shall
      occur, then all the remedies specified in the preceding sentence shall
      automatically take effect without notice or demand of any kind (all of which
      are
      hereby expressly waived by Borrower) with respect to any and all Obligations.
      All rights, powers and remedies of Trade Bank may be exercised at any time
      by
      Trade Bank and

     

    
      
        
        

      

      
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     from
      time to time after the occurrence of an Event of Default, are cumulative and
      not
      exclusive, and shall be in addition to any other rights, powers or remedies
      provided by law or equity.

    

    

    VII.
      GENERAL
      PROVISIONS

     

    7.1  Notices.
      All
      notices to be given under this Agreement shall be in writing and shall be given
      personally or by regular first-class mail, by certified mail return receipt
      requested, by a private delivery service which obtains a signed receipt, or
      by
      facsimile transmission addressed to Trade Bank or Borrower at the address
      indicated after their signature to this Agreement, or at any other address
      designated in writing by one party to the other party. Trade Bank is hereby
      authorized by Borrower to act on such instructions or notices sent by facsimile
      transmission or telecommunications device which Trade Bank believes come from
      Borrower. All notices shall be deemed to have been given upon delivery, in
      the
      case of notices personally delivered or delivered by private delivery service,
      upon the expiration of 3 calendar days following the deposit of the notices
      in
      the United States mail, in the case of notices deposited in the United States
      mail with postage prepaid, or upon receipt, in the case of notices sent by
      facsimile transmission.

    

    7.2  Waivers.
      No
      delay or failure of Trade Bank in exercising any right, power or remedy under
      any of the Loan Documents shall affect or operate as a waiver of such right,
      power or remedy; nor shall any single or partial exercise of any such right,
      power or remedy preclude, waive or otherwise affect any other or further
      exercise thereof or the exercise of any other right, power or remedy. Any
      waiver, consent or approval by Trade Bank under any of the Loan Documents must
      be in writing and shall be effective only to the extent set out in such
      writing.

    

    7.3  Benefit
      of Agreement.
      The
      provisions of the Loan Documents shall be binding upon and inure to the benefit
      of the respective successors, assigns, heirs, executors, administrators,
      beneficiaries and legal representatives of Borrower and Trade Bank; provided,
      however, that Borrower may not assign or transfer any of
      its
      rights
      under any Loan Document without the prior written consent of Trade Bank, and
      any
      prohibited assignment shall be void. No consent by Trade Bank to any assignment
      shall release Borrower from
      its
      liability for the Obligations unless such release is specifically given by
      Trade
      Bank to Borrower in writing. Trade Bank reserves the right to sell, assign,
      transfer, negotiate or grant participations in all or any part of, or any
      interest in, Trade Bank's rights and benefits under each of the Loan Documents.
      In connection therewith, Trade Bank may disclose any information relating to
      the
      Facility,
      Borrower or its business, or any Guarantor or its business.

    

    7.4  Joint
      and Several Liability.
      If
      Borrower consists of more than one person or entity, the liability of each
      of
      them shall be joint and several, and the compromise of any claim with, or the
      release of, any one such Borrower shall not constitute a compromise with, or
      a
      release of, any other such Borrower.

    

    7.5  No
      Third Party Beneficiaries.
      This
      Agreement is made and entered into for the sole protection and benefit of
      Borrower and Trade Bank and their respective permitted successors and assigns,
      and no other person or entity shall be a third party beneficiary of, or have
      any
      direct or indirect cause of action or claim in connection with, any of the
      Loan
      Documents to which it is not a party.

    

    7.6  Governing
      Law and Jurisdiction.
      This
      Agreement shall, unless provided differently in any Loan Document, be governed
      by, and be construed in accordance with, the internal laws of the State of
      California, except to the extent Trade Bank has greater rights or remedies
      under
      federal law whether as a national bank or otherwise. Borrower and Trade Bank
      (a) agree that all actions and proceedings relating directly or indirectly
      to this Agreement shall be litigated in courts located within California;
      (b) consent to the jurisdiction of any such court and consent to service of
      process in any such action or proceeding by personal delivery or any other
      method permitted by law; and (c) waive any and all rights Borrower may have
      to object to the jurisdiction of any such court or to transfer or change the
      venue of any such action or proceeding.

    

    7.7  Mutual
      Waiver of Jury Trial.
      Borrower and Trade Bank each hereby waive the right to trial by jury in any
      action or proceeding based upon, arising out of, or in any way relating to,
      (a) any Loan Document, (b) any other present or future agreement,
      instrument or document between Trade Bank and Borrower, or (c) any conduct,
      act or omission of Trade Bank or Borrower or any of their directors, officers,
      employees, agents, attorneys or any other persons or entities affiliated with
      Trade Bank or Borrower, which waiver will apply in all of the mentioned cases
      whether the case is a contract or tort case or any other case. Borrower
      represents
      and
      warrants
      that no
      officer, representative or agent of Trade Bank has represented, expressly or
      otherwise, that Trade Bank would not seek to enforce this waiver of jury
      trial.

     

    
      
        
        

      

      
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    7.8  Severability.
      Should
      any provision of any Loan Document be prohibited by, or invalid under applicable
      law, or held by any court of competent jurisdiction to be void or unenforceable,
      such defect shall not affect, the validity of the other provisions of the Loan
      Documents.

    

    7.9  Entire
      Agreement; Amendments.
      This
      Agreement and the other Loan Documents are the final, entire and complete
      agreement between Borrower and Trade Bank concerning the Credit Extensions
      and
      the
      Facility;
      supersede all prior and contemporaneous negotiations and oral representations
      and agreements. There are no oral understandings, representations or agreements
      between the parties concerning the Credit Extensions or the
      Facility
      which
      are not set forth in the Loan Documents. This Agreement and the Supplement
      may
      not be waived, amended or superseded except in a writing executed by Borrower
      and Trade Bank.

    

    7.10  Collection
      of Payments.
      Unless
      otherwise specified in any Loan Document, other than this Agreement or any
      Note,
      all principal, interest and any fees due to Trade Bank by Borrower under this
      Agreement, the Addendum, any Supplement, any Facility Document, any Collateral
      Document or any Note, will be paid by Trade Bank having Wells Fargo debit any
      of
      Borrower’s
      accounts with Wells Fargo and forwarding such amount debited to Trade Bank,
      without presentment, protest, demand for reimbursement or payment, notice of
      dishonor or any other notice whatsoever, all of which are hereby expressly
      waived by Borrower. Such debit will be made at the time principal, interest
      or
      any fee is due to Trade Bank pursuant to this Agreement, the Addendum, any
      Supplement, any Facility Document, any Collateral Document or any
      Note.

    

    7.11  Costs,
      Expenses and Attorneys' Fees.
      Borrower will reimburse Trade Bank for all costs and expenses, including, but
      not limited to, reasonable attorneys' fees and expenses (which counsel may
      be
      Trade Bank or Wells Fargo employees), expended or incurred by Trade Bank in
      the
      preparation and negotiation of this Agreement, the Notes, the Collateral
      Documents, the Addendum, and the Facility Documents, in amending this Agreement,
      the Collateral Documents, the Notes, the Addendum, or the Facility Documents,
      in
      collecting any sum which becomes due Trade Bank on the Notes, under this
      Agreement, the Collateral Documents, the Addendum, the Supplement, or any of
      the
      Facility Documents, in the protection, perfection, preservation and enforcement
      of any and all rights of Trade Bank in connection with this Agreement, the
      Notes, any of the Collateral Documents, the Supplement, any of the Addendum,
      or
      any of the Facility Documents, including, without limitation, the fees and
      costs
      incurred in any out-of-court work out or a bankruptcy or reorganization
      proceeding.

    

    VIII. DEFINITIONS

     

    8.1  "Accounts
      Receivable"
      means
      all presently existing and hereafter arising "Rights to Payment" (as that term
      is defined in the "Continuing Security Agreement - Rights to Payment and
      Inventory" executed by Borrower in favor of Trade Bank) which arise from the
      sale, lease or other disposition of Inventory, or from performance of contracts
      for service, manufacture, construction or repair, together with all goods
      returned by Borrower's customers in connection with any of the
      foregoing.

    

    8.2  "Agreement"
      means
      this Agreement and the Addendum attached hereto, as corrected or modified from
      time to time by Trade Bank and Borrower.

    

    8.3  "Banking
      Day"
      means
      each day except Saturday, Sunday and a day specified as a holiday by federal
      or
      California statute.

    

    8.4  "Closing
      Date"
      means
      the date on which the first Credit Extension is made.

    

    8.5  "Collateral"
      means
      all property securing the Obligations.

    

    8.6  "Collateral
      Documents"
      means
      those security agreement(s), deed(s) of trust, guarantee(s), subordination
      agreement(s), intercreditor agreement(s), and other credit support documents
      and
      instruments required by the Trade Bank to effect the collateral and credit
      support requirements set forth in the Supplement with respect to the
      Facility.

    

    8.7  "Credit
      Extension"
      means
      each extension of credit under the
      Facility
      (whether
      funded or unfunded), including, but not limited to, (a) the issuance of
      sight or usance commercial letters of credit or commercial letters of credit
      supported by back-up letters of credit, (b) the issuance of standby letters
      of credit, (c) the issuance of shipping 

     

    
      
        
        

      

      
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    guarantees,
      (d) the making of revolving credit working capital loans, (e) the
      making of loans against imports for letters of credit, (f) the making of
      clean import loans outside letters of credit, (g) the making of advances
      against export orders, (h) the making of advances against export letters of
      credit, (i) the making of advances against outgoing collections,
      (j) the making of term loans, and (k) the entry into foreign exchange
      contracts.

    

    8.8  "Credit
      Limit"
      means,
      with respect to the any Facility, the amount specified under the column labeled
      "Credit Limit" in the Supplement for that related Facility.

    

    8.9  "Credit
      Sublimit"
      means,
      with respect to any Subfacility, the amount specified after the name of that
      Subfacility under the column labeled "Credit Sublimit" in the Supplement for
      the
      related Facility. 

    

    8.10  "Dollars"
      and
"$"
      means
      United States dollars.

    

    8.11  "Facility
      Documents"
      means,
      with respect to
      the
      Facility, those documents specified in the Supplement for
      the
      Facility, and any other documents customarily required by Trade Bank
      for
      said
      Facility.

    

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

    

    8.13  "Inventory"
      has
      the
      meaning assigned to such term in the “Continuing Security Agreement - Rights to
      Payment and Inventory” executed by Borrower in favor of Trade Bank.

    

    8.14  "Loan
      Documents"
      means
      this Agreement, the Addendum, the Supplement, the Facility Documents and the
      Collateral Documents.

    

    8.15  "Note"
      has the
      meaning specified in Section 3.1(b)(2) above.

    

    8.16  "Obligations"
      means
      (a) the obligation of Borrower to pay principal, interest and fees on all
      funded Credit Extensions and fees on all unfunded Credit Extensions, and
      (b) the obligation of Borrower to pay and perform when due all other
      indebtedness, liabilities, obligations and covenants required under the Loan
      Documents.

    

    8.17  "Person"
      means
      and includes natural persons, corporations, limited partnerships, general
      partnerships, joint stock companies, joint ventures, associations, companies,
      trusts, banks, trust companies, land trusts, business trusts or other
      organizations, whether or not legal entities, and governments and agencies
      and
      political subdivisions thereof.

    

    8.18  "Prime
      Rate"
      means
      the rate most recently announced by Wells Fargo at its principal office in
      San
      Francisco, California as its "Prime Rate", with the understanding that the
      Prime
      Rate is one of Wells Fargo's base rates and serves as the basis upon which
      effective rates of interest are calculated for those loans making reference
      thereto, and is evidenced by the recording thereof after its announcement in
      such internal publication or publications as Wells Fargo may designate. Any
      change in an interest rate resulting from a change in the Prime Rate shall
      become effective as of 12:01 a.m. of the Banking Day on which each change in
      the
      Prime Rate is announced by Wells Fargo.

    

    8.19  "Subsidiary"
      means
      (i) any corporation at least the majority of whose securities having ordinary
      voting power for the election of directors (other than securities having such
      power only by reason of the happening of a contingency) are at the time owned
      by
      Borrower and/or one or more Subsidiaries, and (ii) any joint venture or
      partnership in which Borrower and/or one or more Subsidiaries has a majority
      interest.

    

    8.20  "Wells
      Fargo"
      means
      Wells Fargo Bank, N.A.

    

    IX.
      ARBITRATION

     

    9.1  Arbitration.
      The
      parties hereto agree, upon demand by any party, to submit to binding arbitration
      all claims, disputes and controversies between or among them (and their
      respective employees, officers, directors, attorneys, and other agents), whether
      in tort, contract or otherwise arising out of or relating to in any way (i)
      the
      loan and related loan 

     

    
      
        
        

      

      
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    and
      security documents which are the subject of this Agreement and its negotiation,
      execution, collateralization, administration, repayment, modification,
      extension, substitution, formation, inducement, enforcement, default or
      termination; or (ii) requests for additional credit.

    

    9.2  Governing
      Rules.
      Any
      arbitration proceeding will (i) proceed in a location in California selected
      by
      the American Arbitration Association (“AAA”); (ii) be governed by the Federal
      Arbitration Act (Title 9 of the United States Code), notwithstanding any
      conflicting choice of law provision in any of the documents between the parties;
      and (iii) be conducted by the AAA, or such other administrator as the parties
      shall mutually agree upon, in accordance with the AAA’s commercial dispute
      resolution procedures, unless the claim or counterclaim is at least
      $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in
      which
      case the arbitration shall be conducted in accordance with the AAA’s optional
      procedures for large, complex commercial disputes (the commercial dispute
      resolution procedures or the optional procedures for large, complex commercial
      disputes to be referred to, as applicable, as the “Rules”). If there is any
      inconsistency between the terms hereof and the Rules, the terms and procedures
      set forth herein shall control. Any party who fails or refuses to submit to
      arbitration following a demand by any other party shall bear all costs and
      expenses incurred by such other party in compelling arbitration of any dispute.
      Nothing contained herein shall be deemed to be a waiver by any party that is
      a
      bank of the protections afforded to it under 12 U.S.C. §91 or any similar
      applicable state law.

    

    9.3  No
      Waiver of Provisional Remedies, Self-Help and
      Foreclosure.
      The
      arbitration requirement does not limit the right of any party to (i) foreclose
      against real or personal property collateral; (ii) exercise self-help remedies
      relating to collateral or proceeds of collateral such as setoff or repossession;
      or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
      relief, attachment or the appointment of a receiver, before during or after
      the
      pendency of any arbitration proceeding. This exclusion does not constitute
      a
      waiver of the right or obligation of any party to submit any dispute to
      arbitration or reference hereunder, including those arising from the exercise
      of
      the actions detailed in sections (i), (ii) and (iii) of this
      paragraph.

    

    9.4  Arbitrator
      Qualifications and Powers.
      Any
      arbitration proceeding in which the amount in controversy is $5,000,000.00
      or
      less will be decided by a single arbitrator selected according to the Rules,
      and
      who shall not render an award of greater than $5,000,000.00. Any dispute in
      which the amount in controversy exceeds $5,000,000.00 shall be decided by
      majority vote of a panel of three arbitrators; provided however, that all three
      arbitrators must actively participate in all hearings and deliberations. The
      arbitrator will be a neutral attorney licensed in the State of California or
      a
      neutral retired judge of the state or federal judiciary of California, in either
      case with a minimum of ten years experience in the substantive law applicable
      to
      the subject matter of the dispute to be arbitrated. The arbitrator will
      determine whether or not an issue is arbitratable and will give effect to the
      statutes of limitation in determining any claim. In any arbitration proceeding
      the arbitrator will decide (by documents only or with a hearing at the
      arbitrator's discretion) any pre-hearing motions which are similar to motions
      to
      dismiss for failure to state a claim or motions for summary adjudication. The
      arbitrator shall resolve all disputes in accordance with the substantive law
      of
      California and may grant any remedy or relief that a court of such state could
      order or grant within the scope hereof and such ancillary relief as is necessary
      to make effective any award. The arbitrator shall also have the power to award
      recovery of all costs and fees, to impose sanctions and to take such other
      action as the arbitrator deems necessary to the same extent a judge could
      pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil
      Procedure or other applicable law. Judgment upon the award rendered by the
      arbitrator may be entered in any court having jurisdiction. The institution
      and
      maintenance of an action for judicial relief or pursuit of a provisional or
      ancillary remedy shall not constitute a waiver of the right of any party,
      including the plaintiff, to submit the controversy or claim to arbitration
      if
      any other party contests such action for judicial relief.

    

    9.5  Discovery.
      In any
      arbitration proceeding discovery will be permitted in accordance with the Rules.
      All discovery shall be expressly limited to matters directly relevant to the
      dispute being arbitrated and must be completed no later than 20 days before
      the
      hearing date and within 180 days of the filing of the dispute with the AAA.
      Any
      requests for an extension of the discovery periods, or any discovery disputes,
      will be subject to final determination by the arbitrator upon a showing that
      the
      request for discovery is essential for the party's presentation and that no
      alternative means for obtaining information is available.

    

    9.6  Class
      Proceedings and Consolidations.
      The
      resolution of any dispute arising pursuant to the terms of this Agreement shall
      be determined by a separate arbitration proceeding and such dispute shall not
      be
      consolidated with other disputes or included in any class
      proceeding.

     

    
      
        
        

      

      
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    9.7  Payment
      Of Arbitration Costs And Fees.
      The
      arbitrator shall award all costs and expenses of the arbitration
      proceeding.

    

    9.8  Real
      Property Collateral; Judicial Reference.
      Notwithstanding anything herein to the contrary, no dispute shall be submitted
      to arbitration if the dispute concerns indebtedness secured directly or
      indirectly, in whole or in part, by any real property unless (i) the holder
      of
      the mortgage, lien or security interest specifically elects in writing to
      proceed with the arbitration, or (ii) all parties to the arbitration waive
      any
      rights or benefits that might accrue to them by virtue of the single action
      rule
      statute of California, thereby agreeing that all indebtedness and obligations
      of
      the parties, and all mortgages, liens and security interests securing such
      indebtedness and obligations, shall remain fully valid and enforceable. If
      any
      such dispute is not submitted to arbitration, the dispute shall be referred
      to a
      referee in accordance with California Code of Civil Procedure Section 638 et
      seq., and this general reference agreement is intended to be specifically
      enforceable in accordance with said Section 638. A referee with the
      qualifications required herein for arbitrators shall be selected pursuant to
      the
      AAA’s selection procedures. Judgment upon the decision rendered by a referee
      shall be entered in the court in which such proceeding was commenced in
      accordance with California Code of Civil Procedure Sections 644 and
      645.

    

    9.9  Miscellaneous.
      To the
      maximum extent practicable, the AAA, the arbitrators and the parties shall
      take
      all action required to conclude any arbitration proceeding within 180 days
      of
      the filing of the dispute with the AAA. No arbitrator or other party to an
      arbitration proceeding may disclose the existence, content or results thereof,
      except for disclosures of information by a party required in the ordinary course
      of its business or by applicable law or regulation. If more than one agreement
      for arbitration by or between the parties potentially applies to a dispute,
      the
      arbitration provision most directly related to the documents between the parties
      or the subject matter of the dispute shall control. This Agreement may be
      amended or modified only in writing signed by each party hereto. If any
      provision of this Agreement shall be held to be prohibited by or invalid under
      applicable law such provision shall be ineffective only to the extent of such
      prohibition or invalidity, without invalidating the remainder of such provision
      or any remaining provisions of this Agreement. This arbitration provision shall
      survive termination, amendment or expiration of any of the documents or any
      relationship between the parties.

    

    Borrower
      and Trade Bank have caused this Agreement to be executed by their duly
      authorized officers or representatives on the date first written
      above.

    

    
      	
              “BORROWER”

               

              KEY
                TECHNOLOGY, INC.

               

              By:/s/
                Ronald W. Burgess

               

              Title:
                Senior
                Vice President and Chief Financial
                Officer

            

    

    

    

    
      	
              Borrower’s
                Address:

              150
                Avery Street

              Walla
                Walla, WA 99362

            

    

    

    
      	
              “LENDER”

               

              WELLS
                FARGO HSBC TRADE BANK,

              NATIONAL
                ASSOCIATION

               

              By: /s/
                Jennifer Wallis

              Jennifer
                Wallis

              Vice
                President

            

    

    

    
      	
              Lender’s
                Address:

              999
                Third Avenue, 11th Floor

              Seattle,
                WA 98104

            

    

     

    
      
        
        

      

      
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          12

        
          

        

      

      
        
        

        
        

      

    

     

    EXHIBIT
      A

    WELLS
      FARGO HSBC TRADE
      BANK                                                                                                                                                                                    
ADDENDUM
      TO CREDIT AGREEMENT

     

    THIS
      ADDENDUM IS ATTACHED TO THE CREDIT AGREEMENT ("CREDIT AGREEMENT")
      BETWEEN

    WELLS
      FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER: 

     

    NAME
      OF BORROWER:  KEY
      TECHNOLOGY, INC. 

    

    

    ADDITIONAL
      AFFIRMATIVE COVENANTS

    

    The
      following covenants are part of Article IV of the Credit Agreement:

    

    REPORTS.
      Borrower will furnish the following information or deliver the following reports
      to Trade Bank at the times indicated below:

    

    
      	·  	
              Annual
                Financial Statements:
                Not later than one
                hundred twenty (120)
                calendar days after and as of the end of each of Borrower's fiscal
                years,
                an annual unqualified audited consolidated financial statement of
                Borrower
                prepared by a certified public accountant acceptable to Trade Bank
                and
                prepared in accordance with GAAP, to include balance sheet, income
                statement and statement of cash flow and an annual Borrower prepared
                consolidating financial statement prepared in accordance with GAAP
                to
                include balance sheet and income
                statement.

            

    

    

    
      	·  	
              Quarterly
                Financial Statements:
                Not later than forty-five
                (45)
                calendar days after and as of the end of each of Borrower's fiscal
                quarters, a consolidated and consolidating financial statement of
                Borrower
                prepared by
                Borrower,
                to include balance sheet and income
                statement.

            

    

    

    Certificate
      of Compliance:
      At the
      time each financial statement of Borrower required above is delivered to Trade
      Bank, a certificate of the
      chief
      financial officer of Borrower that said financial statements are accurate and
      that there exists no Event of Default under the Agreement nor any condition,
      act
      or event which with the giving of notice or the passage of time or both would
      constitute an Event of Default.

    

    
      	·  	
              Insurance:
                Borrower will maintain in full force and effect insurance coverage
                on all
                Borrower's property, including, but not limited to, the following
                types of
                insurance coverage:

            

    

    policies
      of fire insurance

    business
      personal property insurance

     

    All
      the
      insurance referred to in the preceding sentence must be in form, substance
      and
      amounts, and issued by companies, satisfactory to Trade Bank, and cover risks
      required by Trade Bank and contain loss payable endorsements in favor of Trade
      Bank.

    

    FINANCIAL
      COVENANTS.
      Borrower will maintain the following (if Borrower has any Subsidiaries which
      must be consolidated under GAAP, the following applies to borrower and the
      consolidated Subsidiaries):

    

    
      	·  	
              Total
                Liabilities divided by Tangible Net Worth.
                Not at any time greater than 1.0
                to
                1.0. ("Tangible
                Net Worth"
                means
                the aggregate of total shareholders' equity determined in accordance
                with
                GAAP plus
                indebtedness which is subordinated
                to the Obligations to Trade Bank under a subordination agreement
                in form
                and substance acceptable to Trade Bank or by subordination language
                acceptable to Trade Bank in the instrument evidencing such indebtedness
                less
                (i) all assets which would be classified as intangible assets under
                GAAP,
                including, but not limited to, goodwill, licenses, patents, trademarks,
                trade names, copyrights, capitalized software and organizational
                costs,
                licenses and franchises, and (ii) assets which Trade Bank determines
                in
                its business judgment would not be available or would be of relatively
                small value in a liquidation of Borrower's business, including, but
                not
                limited to, loans to officers or affiliates and other items), and
                "Total
                Liabilities"
                excludes indebtedness which is subordinated to the Obligations to
                Trade
                Bank under a subordination agreement in form and substance acceptable
                to
                Trade Bank or by subordination language acceptable to Trade Bank
                in the
                instrument evidencing such
                indebtedness.)

            

    

     

    
      
        
        

      

      
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          1of 2

        
          

        

      

      
        
        

      

    

     

    
      	·  	
              Pre-Tax
                Profit.
                Not less than $1
                on
                a
                rolling four-quarter basis determined as of each fiscal quarter
                end
                based on the sum of the results of four consecutive quarters consisting
                of
                the present quarter and the three preceding
                quarters.

            

    

    

    FINANCIAL
      COVENANTS.
      Borrower will maintain the following on unconsolidated quarterly basis
      (determined as of each fiscal quarter end):

    

    
      	·  	
              Quick
                Asset Ratio.
                Not at any time less than 1.0
                to
                1.0. "Quick
                Asset Ratio"
                means "Quick Assets" divided by total current liabilities, and
                "Quick
                Assets"
                means cash on hand or on deposit in banks, readily marketable securities
                issued by the United States, readily marketable commercial paper
                rated
                “A-1” by Standard & Poor’s Corporation (or a similar rating by a
                similar rating organization), certificates of deposit and banker's
                acceptances, and accounts receivable (net of allowance for doubtful
                accounts), and with current liabilities to include the aggregate
                outstanding amount of all Credit Extensions, whether classified as
                a
                current or long-term liability per Borrower's financial
                statement.

            

    

     

    

    BY
      SIGNING HERE BORROWER AGREES TO THE DESIGNATED PROVISIONS IN THIS ADDENDUM:
      

    

    

    KEY
      TECHNOLOGY, INC.

    

    By:
      /s/
      Ronald W. Burgess

    

    Title:
      Senior
      Vice President and Chief Financial Officer

     

    
      
        
        

      

      
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          2 of 2

        
          

        

      

      
        
        

        
        

      

    

    

    EXHIBIT
      B

    WELLS
      FARGO HSBC TRADE
      BANK                                                                                                                                                                    
REVOLVING
      CREDIT FACILITY SUPPLEMENT

    

    THIS
      SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO
      HSBC
      TRADE BANK AND THE FOLLOWING BORROWER:

    

    NAME
      OF BORROWER: KEY
      TECHNOLOGY, INC.

    

    CREDIT
      LIMIT FOR THIS REVOLVING CREDIT LOAN FACILITY
      AND SUBLIMITS:
      Credit
      Limit: $10,000,000
      (subject
      to dollar limitations in Section 1.2 of Agreement)

    

    CREDIT
      SUBLIMITS:
      Subject
      to the Revolving Credit Facility Credit Limit, the Credit Sublimit for each
      Subfacility specified below refers to the aggregate amount which may be
      outstanding at any one time under each such Subfacility.

    
      	
              ·  Sight
                Commercial Letters of Credit

            	
              $3,000,000

            
	
              ·  Standby
                Letters of Credit

            	
              $3,000,000

            

    

    

    FACILITY
      DESCRIPTION:
      Trade
      Bank will make the Revolving Credit Facility available to finance Borrower's
      working capital requirements. Subject to the credit sublimits specified above,
      the Revolving Credit Facility may be supported by (i) a standby letter of
      credit in favor of Trade Bank, (ii) a guarantee or (iii) accounts
      receivable, inventory or other collateral. Revolving Credit Loans cannot be
      used
      to repay outstanding Revolving Credit Loans or Term Loans that have matured
      or
      to repay amounts due under any other Facilities provided to
      Borrower.

    

    FACILITY
      DOCUMENTS:

    

    
      	·  	
              Revolving
                Credit Loans Note:
                The term and prepayment conditions of the Loans under Revolving Credit
                Facility are set forth in Revolving Credit Loans
                Note.

            

    

    

    

    INTEREST
      RATES:

    

    
      	·  	
              Loans
                under Revolving Credit Facility:
                All outstanding Loans
                under Revolving Credit Facility
                will bear interest at the following
                rate:

            

    

    

    Prime
      Rate:
      The
      Prime Rate minus
      1.75%
      per
      annum.

    Other
      Rate: LIBOR
      plus 1% per annum.

    

    Interest
      Payment Dates:
      Interest
      on all outstanding Loans
      under Revolving Credit Facility
      will be
      paid at least once each month on the last
      day of
      the month.

    

    

    FEES:

    

    
      	·  	
              Non-Utilization
                Fee: Borrower
                will pay the following Non-Utilization Fee payable in arrears on
                a
                fiscal
                quarter basis, computed at a rate per annum of 0.125% on the average
                daily
                amount of the unused portion of the Overall Credit Limit for each
                such
                year,
                commencing on July 31, 2006.

            

    

    

     

    
      	·  	
              Sight
                Commercial Credits:

            

    

     

    Issuance
      Fees/Fees For Increasing Credit Amounts or Extending Expiration
      Dates:
      (Minimum $125)

    1/8
      of
      1%
      per
      annum of the amount of each Sight
      Commercial Credit
      and of
      any increase in such amount.

    Payable:
      At the
      time each Sight
      Commercial Credit
      is
      issued or increased and at the time the expiration date of any Sight
      Commercial Credit
      is
      extended.

     

    
      
        
        

      

      
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          1of 3

        
          

        

      

      
        
        

      

    

     

    Amendment
      Fees:
      (Minimum $100)

    $100
      for each
      amendment, unless the amendment is an increase in the Sight
      Commercial Credit
      amount
      or an extension of the expiration date, in which case the Issuance Fee above
      will substitute for any Amendment Fee.

    Payable:
      At the
      time each amendment is issued.

    

    Negotiation/Payment/Examination
      Fees:
      (Minimum $125)

    1/4
      of
      1%
      of the
      face amount of each drawing under each Sight
      Commercial Credit.

    Payable:
      At the
      time any draft or other documents are negotiated, paid or examined.

    

    
      	·  	
              Standby
                Credits:

            

    

     

    Commission
      Fees/Fees For Increasing Credit Amounts or Extending Expiration
      Dates:
      (Minimum $500)

    1.15%
      of the
      amount of each Standby Credit and of any increase in such
      amount.

    Payable:
      At the
      time each Standby Credit is issued. 

    

    Amendment
      Fees:
      (Minimum $130)

    $130
      for each
      amendment, unless the amendment is an increase in the Standby Credit amount
      or
      an extension of the expiration date, in which case a fee of 1% at the amount
      of
      each increase and 1% of the face amount of each Standby Credit for each
      extension of the expiration date.

    Payable:
      At the
      time each amendment is issued.

    

    Negotiation/Payment/Examination
      Fees:
      (Minimum $250)

    1/4
      of
      1%
      of the
      face amount of each drawing under each Standby Credit.

    Payable:
      At the
      time any draft or other documents are negotiated, paid or examined.

    

     

    COLLATERAL:
      See
      Exhibit C - Collateral/Credit Support Document.

    

    

    SUBFACILITIES
      DESCRIPTION, PURPOSE, DOCUMENTS, TERM, AND PREPAYMENTS:

    

    
      	·  	
              Sight
                Commercial Credits:

            

    

     

    Description
      And Purpose:
      Trade
      Bank will issue sight commercial letters of credit (each a "Sight Commercial
      Credit") for the account of Borrower for the purpose or purposes stated below.
      Subject to the credit sublimits specified above, these Sight Commercial Credits
      will be transferable or not transferable and have the goods related to them
      consigned to or not consigned to, or controlled by or not controlled by, Trade
      Bank. The Sight Commercial Credit Sublimit specified above refers to the
      aggregate undrawn amount of all Sight Commercial Credits which may be at any
      one
      time outstanding under this Facility together with the aggregate amount of
      all
      drafts drawn under such Sight Commercial Credits which have not been reimbursed
      as provided below at such time. 

    

    This
      Subfacility may only be used for the following purpose: for importation of
      goods.

    

    Documents:

    Before
      the first Sight Commercial Credit is issued:

    Trade
      Bank's standard form Commercial Letter of Credit Agreement;

    

    Before
      each Sight Commercial Credit is issued:

    Trade
      Bank's standard form Application For Commercial Letter of
      Credit;

    

    Before
      each Sight Commercial Credit is amended:

    Trade
      Bank's standard form Application For Amendment To Letter of
      Credit;

    

    Term:
      No
      Sight Commercial Credit may expire more than one
      hundred twenty (120)
      calendar
      days after the date it is issued.

     

    
      
        
        

      

      
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      	·  	
              Standby
                Credits:

            

    

     

    Description
      And Purpose:
      Trade
      Bank will issue standby letters of credit (each a "Standby Credit") for the
      account of Borrower the purpose or purposes stated below. Subject to the credit
      sublimits specified above, these Standby Credits will be issued to support
      Borrower's open account trade terms, bid and performance bonds, industrial
      revenue bonds, worker's compensation obligations and or the moving of Borrower
      as a new customer from another bank to Trade Bank. The Standby Credit Sublimit
      specified above refers to the aggregate undrawn amount of all Standby Credits
      which may be at any one time outstanding under this Subfacility together with
      the aggregate amount of all drafts drawn under such Standby Credits which have
      not been reimbursed as provided below at such time.

    

    This
      Subfacility may only be used for the following purpose: to secure performance
      for workman’s compensation and to secure lease agreements.

    

    Documents:

    Before
      the first Standby Credit is issued:

    Trade
      Bank's standard form Continuing Standby Letter of Credit
      Agreement.

    

    Before
      each Standby Credit is issued:

    Trade
      Bank's standard form Application For Standby Letter of Credit.

    

    Before
      each Standby Credit is amended:

    Trade
      Bank's standard form Application For Amendment To Letter of Credit.

    

    Term:
      No
      Standby Credit will expire more than three hundred sixty-five (365) calendar
      days after the date it is issued. Standby Credits will be available by sight
      drafts only.

    

    

    REIMBURSEMENTS
      FOR SIGHT
      COMMERCIAL CREDITS
      AND STANDBY
      CREDITS:

     

    The
      amount of each
      drawing
      paid by Trade Bank under a
      Sight
      Commercial Credit
      or
      Standby
      Credit will
      be
      reimbursed to Trade Bank as follows: 

     

       by
      Trade Bank
      having Wells Fargo Bank debit any of Borrower's accounts with Wells Fargo Bank
      and forwarding such amount debited to Trade Bank;
      or

     

    immediately
      on demand of Trade Bank;
      or

    

    by
      treating such amount drawn as an advance to Borrower under
      Borrower's
      Revolving Credit Facility.

    

    DEFAULT
      INTEREST RATE ON UNREIMBURSED
      SIGHT
      COMMERCIAL CREDITS
      AND
STANDBY
      CREDITS:

    

    Default
      interest will accrue at a per annum rate equal to the Prime Rate plus five
      percent
      (5%)
      ("Default Interest Rate") and be paid at least once each month as
      follows:

     

    All
      drawings
      (i)
      under
      Sight Commercial Credits and (ii)
      under Standby Credits, not
      reimbursed on the day they are paid by Trade Bank, will bear interest at the
      Default Interest Rate from the date they are paid to the date such payment
      is
      fully reimbursed.

    

    BY
      INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT:
/s/
      R.W.B

     

    
      
        
        

      

      
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    EXHIBIT
      C

    WELLS
      FARGO HSBC TRADE
      BANK                                                                                                                                                                    COLLATERAL/CREDIT
      SUPPORT DOCUMENT

    

    

    
      	·  	
              Personal
                Property Security From Borrower:
                

            

    

    First
      priority lien in the following assets of Borrower:

    accounts
      receivable

    inventory

    equipment

     

    Collateral
      Documents:

    Security
      Agreement: Rights to Payment and Inventory

    Security
      Agreement: Equipment and Fixtures

    UCC-1
      Financing Statement

    

    

    BY
      INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS
      EXHIBIT: /s/
      R.W.B.

     

    Page
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