Document:

License Agreement

    Exhibit
      10.7

     

    LICENSE
      AGREEMENT

     

    THIS
      LICENSE AGREEMENT (this “Agreement”) is entered into as of December 20, 2000
      (the “Effective Date”), by and between Strasbaugh, a California corporation
“Strasbaugh”), and Lam Research Corporation, a Delaware corporation (“Lam”).
      Each of Strasbaugh and Lam is sometimes referred to herein as a “Party” and
      sometimes are collectively referred to herein as the “Parties.” Capitalized
      terms used and not otherwise defined herein shall have the meaning ascribed
      thereto in the Purchase Agreement (as defined below).

     

    RECITALS

     

    WHEREAS,
      Lam is engaged in the Semiconductor Processing and Integrated Circuit
      Industry;

     

    WHEREAS,
      Strasbaugh is engaged in the Semiconductor Wafer Industry and other
      industries;

     

    WHEREAS,
      Strasbaugh and Lam have entered into that certain Asset Purchase Agreement
      dated
      as of December 20, 2000 (the “Purchase Agreement”), pursuant to which Lam agreed
      to purchase, and Strasbaugh has agreed to sell the Acquired Assets;
      and

     

    WHEREAS,
      this Agreement is entered into by the Parties pursuant to Section 2(e)(B) of
      the
      Purchase Agreement and constitutes the limited license by Lam to Strasbaugh
      of
      the Acquired Assets under certain restrictions and circumstances as specified
      herein.

     

    AGREEMENT

     

    NOW,
      THEREFORE, in consideration of the foregoing and the mutual representations,
      warranties, and covenants herein contained and other good and valuable
      consideration, including but not limited to the consideration reflected in
      the
      Purchase Agreement, the receipt and adequacy of which is hereby acknowledged,
      the Parties hereby agree as follows:

     

    1.    Definitions.

     

    (a)    “Improvements”
shall
      mean any work, derivative, improvement, modification, enhancement, upgrade
      or
      adaptation of the Acquired Assets, by or for Strasbaugh and any Intellectual
      Property rights related thereto.

     

    2.    Integrated
      Circuit License and General License Grant.

     

    (a)    Integrated
      Circuit License Grant.
      Subject
      to the terms and limitations provided in this Agreement, Lam grants to
      Strasbaugh a non-exclusive, fully paid-up, royalty-free, non-sublicenseable,
      non-transferable worldwide right and license, during the term of this Agreement,
      to use, upgrade or modify the Acquired Assets in any manner within the
      Semiconductor Processing and Integrated Circuit Industry (including, without
      limitation, to make, have made, sell, offer for sale, repair and reconstruct
      Improvements thereon) and in accordance with this Agreement (the “Integrated
      Circuit License”). The Integrated Circuit License may be exercised only for the
      benefit of Strasbaugh, and shall commence as of the Effective Date provided
      that
      all other conditions of closing set forth in the Purchase Agreement are met
      by
      Strasbaugh.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)    General
      License Grant.
      Subject
      to the terms and limitations provided in this Agreement, Lam grants to
      Strasbaugh an exclusive, irrevocable, perpetual, fully paid-up, royalty-free,
      sublicenseable, transferable, worldwide right and license to use the Acquired
      Assets to make, have made, sell, offer for sale, repair and reconstruct
      Improvements in or for any field other than the Semiconductor Processing and
      Integrated Circuit Industry and in accordance with this Agreement (the “General
      License”). The General License may be exercised only for the benefit of
      Strasbaugh and its duly authorized transferees and licensees, and shall commence
      as of the Effective Date provided that all other conditions of closing set
      forth
      in the Purchase Agreement are met by Strasbaugh.

     

    (c)    Restrictions.
      Other
      than the Integrated Circuit License and the General License expressly granted
      in
      this Agreement, no rights or licenses are granted or deemed granted hereunder
      or
      in connection herewith, including, but not limited to, any rights or licenses,
      express or implied, to any other technology or Intellectual Property rights
      owned by Lam.

     

    3.    Ownership.
      As
      between the Parties and as of the Effective Date, Lam is and shall remain the
      sole and exclusive owner of all right, title and interest in and to the Acquired
      Assets and any Intellectual Property rights related thereto, subject only to
      the
      Integrated Circuit License and the General License. As between the Parties,
      Strasbaugh shall be the sole and exclusive owner of all right, title and
      interest in and to any Improvements and any Intellectual Property rights related
      thereto, subject to the right of first offer described in Section 4
      below.

     

    4.    Right
      of First Offer.
      Subject
      to the terms and conditions specified in this Section 4, Strasbaugh hereby
      grants to Lam a right of first offer with respect to any assignment, sale or
      other transfer of Improvements by Strasbaugh:

     

    (a)    Each
      time
      Strasbaugh proposes to assign, license, sell or otherwise transfer “Transfer”)
      any Improvement to a third party, Strasbaugh shall first deliver to Lam a notice
      by certified mail (“Notice”) stating (i) a detailed description of the
      Improvement, (ii) its bona fide intention to Transfer the same, and (iii) the
      price and terms upon which it proposes to do so.

     

    (b)    Thereafter,
      Lam shall have access to the Improvement reasonably sufficient to permit a
      due
      diligence evaluation of the same, and Strasbaugh shall cooperate as reasonably
      requested to assist Lam in such evaluation. Within thirty (30) days after
      receipt of the Notice, Lam may elect to purchase or otherwise obtain, at the
      price and on the terms specified in the Notice, such Improvement pursuant to
      and
      in accordance with a definitive purchase and technology transfer agreement
      as
      negotiated by the Parties in good faith, during which time Strasbaugh shall
      not
      Transfer or encumber any portion of such Improvement or enter into discussions
      with any third party concerning any such transaction.

     

    (c)    If,
      pursuant to Section 4(b), Lam does not elect to acquire an Improvement,
      Strasbaugh may, during the one hundred eighty (180) day period following the
      expiration of the period specified in Section 4(b) above, consummate a Transfer
      of such Improvement with any third party at a price not less than, and upon
      terms no more favorable to the offeree, than those specified in the Notice.
      If
      Strasbaugh does not Transfer such Improvement within such period, then the
      right
      provided to Lam hereunder shall be deemed revived and no Transfer of the
      improvement shall be effected unless first reoffered to Lam in accordance
      herewith.

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    
      (d)    This
        right of first offer may not be assigned or transferred by Lam, except to
        any
        wholly-owned subsidiary or parent of, or to any corporation or entity that
        is,
        within the meaning of the Securities Act of 1933, as amended, controlling,
        controlled by or under common control with, Lam.

    

     

    5.    Warranty
      Disclaimer.
      THE
      ACQUIRED ASSETS ARE LICENSED TO STRASBAUGH “AS IS.” LAM MAKES NO WARRANTY,
      EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, CONCERNING THE ACQUIRED ASSETS,
      LAM
      IMPROVEMENTS OR ANY OTHER SUBJECT MATTER UNDER THIS AGREEMENT, INCLUDING WITHOUT
      LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
      AND NONINFRINGEMENT.

     

    6.    Intellectual
      Property Matters.
      In the
      event either Party becomes aware of any infringement of any Intellectual
      Property right of the other which is related to the Acquired Assets or the
      Improvements, it shall provide notice thereof in writing to the other Party.
      Lam
      shall control, in its sole discretion, the protection and enforcement of the
      Acquired Assets.

     

    7.    Confidentiality.

     

    (a)    Each
      Party (a “Receiving Party”) agrees to keep confidential and not disclose or use
      except in performance of its obligations under this Agreement, confidential
      or
      proprietary information related to the technology or business of the other
      Party
      (the “Disclosing Party”) that the Receiving Party learns in connection with this
      Agreement and any other information received from the Disclosing Party,
      including without limitation, to the extent previously, currently or
      subsequently disclosed to the Receiving Party hereunder or otherwise:
      information relating to products or technology of the Disclosing Party, or
      to
      the Disclosing Party’s business (including, without limitation, computer
      programs, code, algorithms, schematics, data, know-how, processes, ideas,
      inventions (whether patentable or not), names and expertise of employees and
      consultants, all information relating to customers and customer transactions
      and
      other technical, business, financial, customer and product development plans,
      forecasts, strategies and information) (all of the foregoing, “Confidential
      Information”). Neither Party shall disclose the terms of this Agreement to any
      third Party without the prior written consent of the other (except for its
      attorneys, accountants, and other service providers as necessary, provided
      that
      such service providers are bound to maintain the confidentiality thereof).
      Each
      Party shall use reasonable precautions to protect the Confidential Information
      of the other in its possession and employ at least those precautions that such
      Party employs to protect its own similar confidential or proprietary
      information. For the purposes of this Agreement, Acquired Assets and the
      Improvements shall be deemed “Confidential Information.”

     

    (b)    “Confidential
      Information” shall not include information a Receiving Party can document is in
      or (through no improper action or inaction by the Receiving Party or any
      affiliate, agent or employee thereof) enters the public domain (and is readily
      available without substantial effort). A Receiving Party, with prior written
      notice to the Disclosing Party, may disclose such Confidential Information
      to
      the extent required to be disclosed to a governmental entity or agency in
      connection with seeking any governmental or regulatory approval, or pursuant
      to
      the lawful requirement or request of a governmental entity or agency, provided
      that reasonable measures are taken to guard against further disclosure,
      including without limitation, seeking appropriate confidential treatment or
      a
      protective order, or notifying or assisting the Disclosing Party to do
      so.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    (c)    Each
      Party acknowledges and agrees that due to the unique nature of the Confidential
      Information, there can be no adequate remedy at law for any breach of its
      obligations hereunder, that any such breach may allow the Receiving Party or
      third parties to unfairly compete with the Disclosing Party, resulting in
      irreparable harm to the Disclosing Party, and therefore, that upon any such
      breach or any threat thereof, the Disclosing Party shall be entitled to
      appropriate equitable relief in addition to whatever remedies it might have
      at
      law. A Receiving Party will notify the Disclosing Party in writing immediately
      upon the occurrence of any such unauthorized release or other breach. Any breach
      of this Section 7 will constitute a material breach of this
      Agreement.

     

    8.    Term
      and Termination.

     

    (a)    Term.
      This
      Agreement shall remain in effect unless terminated as provided herein, except
      for the General License, which is irrevocable.

     

    (b)    Termination
      for Cause.
      Notwithstanding the foregoing, this Agreement may be terminated for cause
      immediately by written notice upon the occurrence of any of the following
      events:

     

    (i)    If
      the
      other ceases to do business, or otherwise terminates its business operations,
      or
      by Lam if there is a change in control of Strasbaugh (which shall include,
      without limitation, the acquisition of or beneficial ownership by one or more
      related persons or entities of fifty percent (50%) or more of the
      then-outstanding stock of Strasbaugh); or

     

    (ii)    If
      the
      other Party materially breaches any material provision of this Agreement and
      fails to cure such breach within thirty (30) days of written notice describing
      the breach; or

     

    (iii)    If
      the
      other Party ceases to carry on as a going concern or becomes insolvent or seeks
      protection under any bankruptcy, receivership, trust deed, creditors
      arrangement, composition or comparable proceeding, or if any such proceeding
      is
      instituted against the other (and not dismissed within ninety (90)
      days).

     

    (c)    Termination
      for Breach of Definitive Agreement.
      The
      Parties further acknowledge that a material breach of any term of a Definitive
      Agreement shall constitute a material breach under this Agreement, and likewise,
      a material breach of this Agreement shall constitute a material breach under
      each other Definitive Agreement (each a “Breach”). Notwithstanding anything else
      provided in a Definitive Agreement, any Breach by such Party shall be subject
      to
      the terms of Sections 8 of the Purchase Agreement.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    (d)    Effect
      of Termination and Survival.
      In the
      event of termination or expiration, the Integrated Circuit License and all
      other
      rights and obligations of the parties shall terminate except that the following
      provisions shall survive termination: Sections 2(b), 3, 5, 7, 8. 10 and 12.
      Neither Party shall incur any liability whatsoever for any damage, loss or
      expenses of any kind suffered or incurred by the other arising from or incident
      to any termination of this Agreement (or any part thereof) by such Party which
      complies with the terms of this Agreement whether or not such Party is aware
      of
      any such damages or expenses. Termination is not the sole remedy under this
      Agreement and, whether or not termination is effected, all other remedies will
      remain available.

     

    9.    Limitation
      of Liability.
      EXCEPT
      FOR BREACH OF THE OBLIGATIONS SET FORTH IN SECTIONS 2(b), 3, 7 and 10 HEREIN,
      NEITHER PARTY SHALL BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY
      OR OTHER THEORY OR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING
      WITHOUT LIMITATION LOST PROFITS) WITH RESPECT TO ANY SUBJECT MATTER OF THIS
      AGREEMENT. NOTWITHSTANDING ANY OTHER PROVISIONS IN THIS AGREEMENT, NEITHER
      PARTY
      WILL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY
      CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR COST OF PROCUREMENT
      OF SUBSTITUTE GOODS, SERVICES, TECHNOLOGY OR RIGHTS OR FOR ANY AMOUNT
      AGGREGATING IN EXCESS OF FIVE HUNDRED THOUSAND DOLLARS ($500,000).

     

    10.    Indemnity.
      Strasbaugh agrees to defend, indemnify and hold harmless Lam, its directors,
      employees and agents, from and against any and all damages, liabilities, costs
      and expenses (including reasonable attorneys’ fees and expenses) arising out of
      or related to Strasbaugh’s exercise of the Integrated Circuit License and/or the
      General License, provided that Lam promptly notifies Strasbaugh of any claim
      it
      receives or that its failure to do so does not materially prejudice Strasbaugh.
      If, in accordance with the foregoing provisions of this Section 10, Lam is
      entitled to indemnification, Strasbaugh will have the right, at its sole
      expense, to contest, defend and litigate any claim, action or proceeding (a
      “Claim”), and may settle the same either before or after the initiation of
      litigation, at such time and upon such terms as Lam deems fair and reasonable.
      If Strasbaugh elects to contest, defend or litigate a Claim, then Lam shall,
      at
      Strasbaugh’s expense, provide such reasonable cooperation as is reasonably
      requested by Strasbaugh; provided, however, that Lam may elect to participate
      in
      such defense at its own expense. Any final determination of a Claim, other
      than
      a settlement, will be binding upon Lam. If, pursuant to this Section 10,
      Strasbaugh elects not to contest, defend or litigate a Claim for which Lam
      is
      entitled to indemnification hereunder and Lam defends or settles the same,
      then
      Lam will be reimbursed by Strasbaugh for all its expenses of defending the
      same
      which are incurred from time to time, including without limitation all
      out-of-pocket costs and all reasonable legal and accounting fees and
      expenses.

     

    11.    Assignment.
      Except
      as otherwise expressly provided in this Agreement, Strasbaugh shall not assign
      (by operation of law or otherwise) or otherwise transfer this Agreement or
      any
      rights or obligations herein to anyone, including any parent, subsidiaries,
      affiliated entities or third parties, or as part of the sale of any portion
      of
      its business, change of control, or pursuant to any merger, consolidation or
      reorganization, without Lam’s prior written consent. Upon any violation of this
      Section 11 by Strasbaugh, Lam shall have the right to terminate this Agreement
      immediately upon written notice.

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    12.    Miscellaneous.

     

    (a)    Governing
      Law.
      This
      Agreement shall be governed by and construed under, and the legal relations
      between the parties hereto will be determined in accordance with the laws of
      the
      State of California and the United States without regard to conflicts of law
      provisions thereof. The parties hereby agree to submit for binding arbitration
      in accordance with the following paragraph any and all disputes in connection
      with this Agreement and the performance thereof; except that Lam may take legal
      action in any jurisdiction in which specific collateral is located to realize
      on
      any such collateral or other security or to enforce specific performance of
      Strasbaugh’s obligations hereunder or a judgment or other decision. To the
      extent all or any part of this Section 12(a) is determined to be unenforceable,
      the remaining provisions will remain in effect and be interpreted to best
      effectuate the intent of the Parties.

     

    (b)    Arbitration.
      Subject
      to Section 12(a), any controversy or dispute arising out of or relating to
      this
      Agreement, or the breach thereof, shall be resolved by binding arbitration
      conducted in accordance with the arbitration rules of the American Arbitration
      Association (“AAA”) and judgment upon the award rendered by the arbitral
      tribunal may be entered in any court having jurisdiction thereof. The tribunal
      shall consist of a single arbitrator mutually agreeable to the parties, or
      in
      the absence of such an agreement within thirty (30) calendar days from the
      first
      referral of the dispute to the AAA (the “Referral Date”), designated by the AAA.
      The place of arbitration shall be Santa Clara County, California, unless the
      parties shall have agreed to another location within fifteen (15) calendar
      days
      from. the Referral Date. The arbitral award shall be final and binding. The
      parties waive any right to appeal the arbitral award, to the extent a right
      to
      appeal may be lawfully waived. Each Party retains the right to seek judicial
      assistance: (i) to compel arbitration; (ii) to obtain interim measures of
      protection prior to or pending arbitration (including, without limitation,
      injunctive relief); (iii) to seek injunctive relief in the courts of any
      jurisdiction as may be necessary and appropriate to protect the unauthorized
      disclosure of its proprietary or confidential information; and (iv) to enforce
      any decision of the arbitrator, including the final award. The arbitration
      proceedings contemplated herein shall be as confidential and private as
      permitted by law. Consequently, the parties hereto shall not disclose the
      existence, content or results of any such proceedings, and materials submitted
      in connection therewith shall not be admissible in any other proceeding,
      provided, however, that this confidentiality provision shall not prevent a
      petition to vacate or enforce an arbitral award, and shall not bar disclosures
      required by law.

     

    (c)    Entire
      Agreement.
      This
      Agreement and any other Definitive Agreement, together with all attachments
      hereto and thereto, constitute the entire understanding and agreement of the
      parties with respect to the subject matter of this Agreement, and supersedes
      all
      prior and contemporaneous understandings and agreements, whether written or
      oral, with respect to such subject matter. Any changes to the Agreement must
      be
      in writing and signed by authorized representatives of all parties.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    (d)    Waiver.
      Any
      failure on the part of any Party to enforce at any time, or for any period
      of
      time, any of the provisions of this Agreement shall not be deemed or construed
      to be a waiver of such provisions or of the right of such Party thereafter
      to
      enforce each and every such provision. No waiver will be binding unless executed
      in writing by the Party making the waiver.

     

    (e)    Independent
      Contractors.
      The
      Parties hereto are independent contractors and nothing contained in this
      Agreement shall be deemed or construed to create a partnership, joint venture,
      employment, franchise, or agency relationship between the parties. Neither
      Party
      has any right or authority to bind the other in any way.

     

    (f)    Headings.
      Headings and captions are for convenience only and are not to be used in the
      interpretation of this Agreement.

     

    (g)    Severability.
      If any
      provision of this Agreement shall be held by a court of competent jurisdiction
      to be contrary to law, the remaining provisions of this Agreement shall remain
      in full force and effect.

     

    (h)    Notices.
      All
      notices, requests, demands, applications, services of process, and other
      communications which are required to be or may be given under this Agreement
      will be in writing and will be deemed to have been duly given if sent by
      telecopy or facsimile transmission, answer back requested, or delivered by
      courier or mailed, certified first class mail, postage prepaid, return receipt
      requested, to the parties to this Agreement at the following
      addresses:

     

    
      	
              If
                to Lam:

            	
              Lam Research Corporation

              4650
                Cushing Parkway

              Fremont,
                CA 94538-6470

              Facsimile:
                (510) 572-1586

              Attention:
                Craig Garber, Vice President-Treasurer

            
	 	 
	
              with
                a copy to:

            	
              Brobeck,
                Phleger & Harrison LLP

              One
                Market

              Spear
                Street Tower

              San
                Francisco, CA 94105

              Facsimile:
                (415) 442-1010

              Attention:
                Shane M. Byrne, Esq.

            
	 	 
	
              If
                to Strasbaugh:

            	
              Strasbaugh

              825
                Buckley Road

              San
                Luis Obispo, CA 93401

              Facsimile:
                (805) 541-6425

              Attention:
                Jim Burke

            

    

    
       

      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    
      
        	
                with
                  a copy to:

              	
                Diehl
                  & Rodewald, P.C.

                1043
                  Pacific Street

                San
                  Luis Obispo, CA 93401

                Facsimile:
                  (805) 541-6870

                Attention:
                  Joseph W. Diehl, Esq.

              

      

       

      if
        to
        such other address as either Party will have furnished to the other by notice
        given in accordance with this Section. Such notice will be effective, (i)
        if
        delivered in person or by courier, upon actual receipt by the intended
        recipient, or (ii) if sent by telecopy or facsimile transmission, on the
        date of
        transmission unless transmitted after normal business hours, in which case
        on
        the following date, (iii) if mailed, upon the date of first attempted
        delivery.

    

     

    (i)    No
      Third Party Beneficiaries.
      This
      Agreement shall not confer any rights or remedies upon any Person other than
      the
      Parties and their respective successors and permitted assigns.

     

    (j)    Construction.
      The
      Parties have participated jointly in the negotiation and drafting of this
      Agreement. In the event an ambiguity or question of intent or interpretation
      arises, this Agreement shall be construed as if drafted jointly by the Parties
      and no presumption or burden of proof shall arise favoring or disfavoring either
      Party by virtue of the authorship of any of the provisions of this
      Agreement.

     

    (k)    Counterparts.
      This
      Agreement may be executed in any number of counterparts and each such
      counterpart shall be deemed an original.

     

    (This
      space intentionally left blank.)

     

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    

      IN
        WITNESS WHEREOF, the Parties have, by their respective duly authorized officers,
        executed this License Agreement as of the Effective Date.

      

      
        	
                LAM
                  RESEARCH CORPORATION,

              	 	
                STRASBAUGH,

              
	
                a
                  Delaware corporation

              	 	
                a
                  California corporation

              
	 	 	 
	 	 	
                /s/
                  April A. Strasbaugh, Secretary 
                  

                

              
	
                By:
                  /s/ Stephen G. Newberry 
                  

                

              	 	
                /s/
                  James M. Burke 
                  

                

              
	
                Name:
                  Stephen G. Newberry

              	 	
                Name:
                  James M. Burke

              
	
                Title:
                  President/COO

              	 	
                Title:
                  CEO

              

      

      

    

    -9-Unassociated Document

    Exhibit
      10.8

     

    Silicon
      Valley Bank

     

    SILICON
      VALLEY BANK LOAN AND SECURITY AGREEMENT

     

    This
      LOAN AND SECURITY AGREEMENT (this
      “Agreement”) dated as of August 23, 2004, between SILICON
      VALLEY BANK,
      a
      California chartered bank, with its principal place of business at 3003 Tasman
      Drive, Santa Clara, California 95054 (FAX 408-654-6212) (“Bank”) and STRASBAUGH,
      a California corporation, with offices at 825 Buckley Road, San Luis Obispo,
      California 93401 (FAX (805) 541-6514) (“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. The term “financial
      statements” includes the notes and schedules. The terms “including” and
“includes” always mean “including (or includes) without limitation,” in this or
      any Loan Document. Capitalized terms in this Agreement shall have the meanings
      set forth in Section 13. All other terms contained in this Agreement, unless
      otherwise indicated, shall have the meanings 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 unpaid principal amount
      of all Advances hereunder with all interest, fees and finance charges due
      thereon as and when due in accordance with this Agreement.

     

    2.1.1  
Financing
      of
      Accounts.

     

    (a)    Availability.
      Subject
      to the terms of this Agreement, Borrower may request that Bank finance specific
      Eligible Accounts. Bank may, in its good faith business discretion, finance
      such
      Eligible Accounts by extending credit to Borrower in an amount equal to the
      result of the Advance Rate multiplied by the face amount of the Eligible Account
      (the “Advance”). Bank may, in its sole discretion, change the percentage of the
      Advance Rate for a particular Eligible Account on a case by case basis. When
      Bank makes an Advance, the Eligible Account becomes a “Financed
      Receivable.”

     

    (b)    Maximum
      Advances.
      The
      aggregate face amount of all Financed Receivables outstanding at any time may
      not exceed the Facility Amount, and Bank shall have no obligation to make
      Advances in excess of FOUR MILLION DOLLARS ($4,000,000) in the aggregate at
      any
      time outstanding; provided however, Borrower acknowledges and agrees that at
      no
      time shall the aggregate outstanding Advances under this Agreement and the
      Exim
      Agreement (as defined below) combined exceed $4,000,000.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (c)    Borrowing
      Procedure.
      Borrower will deliver an Invoice Transmittal for each Eligible Account it
      offers. Bank may rely on information set forth in or provided with the Invoice
      Transmittal.

     

    (d)    Credit
      Quality; Confirmations.
      Bank
      may, at its option, conduct a credit check of the Account Debtor for each
      Account requested by Borrower for financing hereunder in order to approve any
      such Account Debtor’s credit before agreeing to finance such Account. Bank may
      also verify directly with the respective Account Debtors the validity, amount
      and other matters relating to the Accounts (including confirmations of
      Borrower’s representations in Section 5.3) by means of mail, telephone or
      otherwise, either in the name of Borrower or Bank from time to time in its
      sole
      discretion.

     

    (e)    Accounts
      Notification/Collection.
      Bank
      may notify any Person owing Borrower money of Bank’s security interest in the
      funds and verify and/or collect the amount of the Account.

     

    (f)    Maturity.
      This
      Agreement shall terminate and all Obligations outstanding hereunder shall be
      immediately due and payable on the Maturity Date.

     

    (g)    Suspension
      of Advances.
      Borrower’s ability to request that Bank finance Eligible Accounts hereunder will
      terminate if, in Bank’s sole discretion, there has been a material adverse
      change in the general affairs, management, results of operation, condition
      (financial or otherwise) or the prospect of repayment of the Obligations, or
      there has been any material adverse deviation by Borrower from the most recent
      business plan of Borrower presented to and accepted by Bank prior to the
      execution of this Agreement.

     

    2.2    Exim
      Agreement; Cross Collateralization; Cross Default.
      Bank
      and the Borrower are parties to that certain Loan and Security Agreement (Exim
      Program) of even date (the “Exim Agreement”). Both this Agreement and the Exim
      Agreement shall continue in full force and effect, and all rights and remedies
      under this Agreement and the Exim Agreement are cumulative. The term
“Obligations” as used in this Agreement and in the Exim Agreement shall include
      without limitation the obligation to pay when due all Advances made pursuant
      to
      this Agreement (the “Non-Exim Advances”) and all interest thereon and the
      obligation to pay when due all Advances made pursuant to the Exim Agreement
      (the
“Exim Advances”) and all interest thereon. Without limiting the generality of
      the foregoing, all “Collateral” as defined in this Agreement and as defined in
      the Exim Agreement shall secure all Exim Advances and all Non-Exim Advances
      and
      all interest thereon, and all other Obligations. Any Event of Default under
      this
      Agreement shall also constitute an Event of Default under the Exim Agreement,
      and any Event of Default under the Exim Agreement shall also constitute an
      Event
      of Default under this Agreement. In the event Bank assigns its rights under
      the
      Exim Agreement and/or under any Note evidencing Exim Advances and/or its rights
      under this Agreement and/or under any Note evidencing Non-Exim Advances, to
      any
      third party, including without limitation the Export-Import Bank of the United
      States (“Exim Bank”), whether before or after the occurrence of any Event of
      Default, Bank shall have the right (but not any obligation), in its sole
      discretion, to allocate and apportion Collateral to the Agreement and/or Note
      assigned and to specify the priorities of the respective security interests
      in
      such Collateral between itself and the assignee, all without notice to or
      consent of the Borrower.

     

    2.3    Collections,
      Finance Charges, Remittances and Fees.
      The
      Obligations shall be subject to the following fees and Finance Charges. Unpaid
      fees and Finance Charges may, in Bank’s discretion, accrue interest and fees as
      described in Section 9.2 hereof.

     

    2.3.1  
Collections.
      Collections will be credited to the Financed Receivable Balance for such
      Financed Receivable, but if there is an Event of Default, Bank may apply
      Collections to the Obligations in any order it chooses. If Bank receives a
      payment for both a Financed Receivable and a non-Financed Receivable, the funds
      will first be applied to the Financed Receivable and, if there is no Event
      of
      Default then existing, the excess will be remitted to Borrower, subject to
      Section 2.2.7.

     

    2.3.2   Facility
      Fee.
      A fully
      earned, non-refundable facility fee of Fifteen Thousand Dollars ($15,000) is
      due
      upon execution of this Agreement.

     

    2.3.3   Finance
      Charges.
      In
      computing Finance Charges on the Obligations under this Agreement, all
      Collections received by Bank shall be deemed applied by Bank on account of
      the
      Obligations three (3) Business Days after receipt of the Collections. Borrower
      will pay a finance charge (the “Finance Charge”) on each Financed Receivable
      which is equal to the Applicable Rate divided
      by
      360
multiplied
      by
      the
      number of days each such Financed Receivable is outstanding multiplied
      by
      the
      outstanding Financed Receivable Balance for such Financed Receivable. The
      Finance Charge is payable when the Advance made based on such Financed
      Receivable is payable in accordance with Section 2.3 hereof. In the event that
      the aggregate amount of Finance Charges earned by Bank in any Reconciliation
      Period is less than the Minimum Finance Charge, Borrower shall pay to Bank
      an
      additional Finance Charge equal to (i) the Minimum Finance Charge minus (ii)
      the
      aggregate amount of all Finance Charges earned by Bank in such Reconciliation
      Period. Such additional Finance Charge shall be payable on the first day of
      next
      Reconciliation Period.

     

    2.4    Administrative
      Fee.
      Borrower shall pay to Bank an Administrative Fee equal to 0.50% of the face
      amount of each Financed Receivable first financed during that Reconciliation
      Period (the “Administrative Fee”). The Administrative Fee is payable when the
      Advance made based on such Financed Receivable is payable in accordance with
      Section 2.3 hereof. After an Event of Default, the Administrative Fee will
      increase an additional 0.50% effective immediately upon such Event of
      Default.

     

    2.5    Accounting.
      After
      each Reconciliation Period, Bank will provide an accounting of the transactions
      for that Reconciliation Period, including the amount of all Financed
      Receivables, all Collections. Adjustments, Finance Charges, Administrative
      Fee
      and the Facility Fee. If Borrower does not object to the accounting in writing
      within thirty (30) days it shall be considered accurate. All Finance Charges
      and
      other interest and fees are calculated on the basis of a 360 day year and actual
      days elapsed.

     

    2.6    Deductions.
      Bank
      may deduct fees, Finance Charges, Advances which become due pursuant to Section
      2.3, and other amounts due pursuant to this Agreement from any Advances made
      or
      Collections received by Bank.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    2.7    Lockbox;
      Account Collection Services.
      As and
      when directed by Bank from time to time, at Bank’s option and at the sole and
      exclusive discretion of Bank (regardless of whether an Event of Default has
      occurred), Borrower shall direct each Account Debtor (and each depository
      institution where proceeds of Accounts are on deposit) to remit payments with
      respect to the Accounts to a lockbox account established with Bank or to wire
      transfer payments to a cash collateral account that Bank controls (collectively,
      the “Lockbox”). It will be considered an immediate Event of Default if the
      Lockbox is not set-up and operational within forty-five (45) days from the
      date
      of such direction by Bank. Until such Lockbox is established, the proceeds
      of
      the Accounts shall be paid by the Account Debtors to an address consented to
      by
      Bank. Upon receipt by Borrower of such proceeds, the Borrower shall immediately
      transfer and deliver same to Bank, along with a detailed cash receipts journal.
      Provided no Event of Default exists or an event that with notice or lapse of
      time will be an Event of Default, within three (3) days of receipt of such
      amounts by Bank, Bank will turn over to Borrower the proceeds of the Accounts
      other than Collections with respect to Financed Receivables and the amount
      of
      Collections in excess of the amounts for which Bank has made an Advance to
      Borrower, less any amounts due to Bank, such as the Finance Charge, the Facility
      Fee, payments due to Bank, other fees and expenses, or otherwise; provided,
      however, Bank may hold such excess amount with respect to Financed Receivables
      as a reserve until the end of the applicable Reconciliation Period if Bank,
      in
      its discretion, determines that other Financed Receivable(s) may no longer
      qualify as an Eligible Account at any time prior to the end of the subject
      Reconciliation Period. This Section does not impose any affirmative duty on
      Bank
      to perform any act other than as specifically set forth herein. All Accounts
      and
      the proceeds thereof are Collateral and if an Event of Default occurs, Bank
      may
      apply the proceeds of such Accounts to the Obligations.

     

    2.8    Good
      Faith Deposit.
      Borrower has paid to Bank a Good Faith Deposit of $15,000 (the “Good Faith
      Deposit”) to initiate Bank’s due diligence review process. Any portion of the
      Good Faith Deposit not utilized to pay Bank Expenses will be applied to the
      Facility Fee.

     

    2.9    Repayment
      of Obligations; Adjustments.

     

    2.10   Repayment.
      Borrower will repay each Advance on the earliest of: (a) the date on which
      payment is received of the Financed Receivable with respect to which the Advance
      was made, (b) the date on which the Financed Receivable is no longer an Eligible
      Account, (c) the date on which any Adjustment is asserted to the Financed
      Receivable (but only to the extent of the Adjustment if the Financed Receivable
      remains otherwise an Eligible Account), (d) the date on which there is a breach
      of any warranty or representation set forth in Section 5.3 or a breach of any
      covenant in this Agreement, or (e) the Maturity Date (including any early
      termination). Each payment will also include all accrued Finance Charges and
      Administrative Fees with respect to such Advance and all other amounts then
      due
      and payable hereunder.

     

    2.11    Repayment
      on Event of Default.
      When
      there is an Event of Default, Borrower will, if Bank demands (or, upon the
      occurrence of an Event of Default under Section 8.5, immediately without notice
      or demand from Bank) repay all of the Advances. The demand may, at Bank’s
      option, include the Advance for each Financed Receivable then outstanding and
      all accrued Finance Charges, Administrative Fee, attorneys and professional
      fees. court costs and expenses, and any other Obligations.

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    2.12    Debit
      of Accounts.
      Bank
      may debit any of Borrower’s deposit accounts for payments or any amounts
      Borrower owes Bank hereunder. Bank shall promptly notify Borrower when it debits
      Borrower’s accounts. These debits shall not constitute a set-off.

     

    2.13    Adjustments.
      If at
      any time during the teen of this Agreement any Account Debtor asserts an
      Adjustment or if Borrower issues a credit memorandum or if any of the
      representations, warranties or covenants set forth in Section 5.3 are not longer
      true in all material respects, Borrower will promptly advise Bank.

     

    2.14    Power
      of Attorney.
      Borrower irrevocably appoints Bank and its successors and assigns as
      attorney-in-fact and authorizes Bank, to: (i) following the occurrence of an
      Event of Default, sell, assign, transfer, pledge, compromise, or discharge
      all
      or any part of the Financed Receivables; (ii) following the occurrence of an
      Event of Default, demand, collect, sue, and give releases to any Account Debtor
      for monies due and compromise, prosecute, or defend any action, claim, case
      or
      proceeding about the Financed Receivables, including filing a claim or voting
      a
      claim in any bankruptcy case in Bank’s or Borrower’s name, as Bank chooses;
      (iii) following the occurrence of an Event of Default, prepare, file and sign
      Borrower’s name on any notice, claim, assignment, demand, draft, or notice of or
      satisfaction of lien or mechanics’ lien or similar document; (iv) regardless of
      whether there has been an Event of Default, notify all Account Debtors to pay
      Bank directly; (v) regardless of whether there has been an Event of Default,
      receive, open, and dispose of mail addressed to Borrower; (vi) regardless of
      whether there has been an Event of Default, endorse Borrower’s name on checks or
      other instruments (to the extent necessary to pay amounts owed pursuant to
      this
      Agreement); and (vii) regardless of whether there has been an Event of Default,
      execute on Borrower’s behalf any instruments, documents, financing statements to
      perfect Bank’s interests in the Financed Receivables and Collateral and do all
      acts and things necessary or expedient, as determined solely and exclusively
      by
      Bank, to protect or preserve, Bank’s rights and remedies under this Agreement,
      as directed by Bank.

     

    3.      
CONDITIONS
      OF LOANS

     

    3.1    Conditions
      Precedent to Initial Advance.
      Bank’s
      agreement to make the initial Advance is subject to the condition precedent
      that
      Bank shall have received, 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, subject to the
      condition precedent that Bank shall have received, in form and substance
      satisfactory to Bank, the following:

     

    (a)    a
      certificate of the Secretary of Borrower with respect to articles, bylaws,
      incumbency and resolutions authorizing the execution and delivery of this
      Agreement;

     

    (b)    an
      Intellectual Property Security Agreement / Negative Pledge Agreement covering
      Intellectual Property;

     

    (c)    subordination
      agreements/intercreditor agreements by certain Persons;

     

    (d)    Perfection
      Certificate(s) by Borrower;

     

    (e)    Account
      Control Agreement/Investment Account Control Agreement; 

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    (f)    insurance
      certificates;

     

    (g)    payment
      of the fees and Bank Expenses then due and payable;

     

    (h)    Certificate
      of Foreign Qualification (if applicable);

     

    (i)    Certificate
      of Good Standing/Legal Existence; and

     

    (j)    such
      other documents, and completion of such other matters, as Bank may reasonably
      deem necessary or appropriate.

     

    3.2    Conditions
      Precedent to all Advances.
      Bank’s
      agreement to make each Advance, including the initial Advance, is subject to
      the
      following:

     

    (a)    receipt
      of the Invoice Transmittal;

     

    (b)    Bank
      shall have (at its option) conducted the confirmations and verifications as
      described in Section 2.1.1(d); and

     

    (c)    each
      of
      the representations and warranties in Section 5 shall be true on the date or
      the
      Invoice Transmittal and on the effective date of each Advance and no Event
      of
      Default shall have occurred and be continuing, or result from the Advance.
      Each
      Advance is Borrower’s representation and warranty on that date that the
      representations and warranties in Section 5 remain true.

     

    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 and the performance of each of Borrower’s duties under
      the Loan Documents, a continuing security interest in, and pledges and assigns
      to Bank, the Collateral, wherever located, whether now owned or hereafter
      acquired or arising, and all proceeds and products thereof. Borrower warrants
      and represents that the security interest granted herein shall be a first
      priority security interest in the Collateral.

     

    Except
      as
      noted on the Perfection Certificate, Borrower is not a party to, nor is bound
      by, any material license or other agreement with respect to which Borrower
      is
      the licensee that prohibits or otherwise restricts Borrower from granting a
      security interest in Borrower’s interest in such license or agreement or any
      other property. Without prior consent from Bank, Borrower shall not enter into,
      or become bound by, any such license or agreement which is reasonably likely
      to
      have a material impact on Borrower’s business or financial condition. Borrower
      shall take such steps as Bank requests to obtain the consent of, or waiver
      by,
      any person whose consent or waiver is necessary for all such licenses or
      contract rights to be deemed “Collateral” and for Bank to have a security
      interest in it that might otherwise be restricted or prohibited by law or by
      the
      terms of any such license or agreement, whether now existing or entered into
      in
      the future.

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    If
      the
      Agreement is terminated, Bank’s lien and security interest in the Collateral
      shall continue until Borrower fully satisfies its Obligations. If Borrower
      shall
      at any time, acquire a commercial tort claim, Borrower shall promptly notify
      Bank in a writing signed by Borrower of the brief 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 satisfactory to Bank.

     

    4.2    Authorization
      to File Financing Statements.
      Borrower hereby authorizes Bank to file financing statements, without notice
      to
      Borrower, with all appropriate jurisdictions in order to perfect or protect
      Bank’s interest or rights hereunder, which financing statements may indicate the
      Collateral as “all assets of the Debtor” or words of similar effect, or as being
      of an equal or lesser scope, or with greater detail, all in Bank’s
      discretion.

     

    5.    
REPRESENTATIONS
      AND WARRANTIES 

     

    Borrower
      represents and warrants as follows:

     

    5.1    Due
      Organization and Authorization.
      Borrower and each Subsidiary is duly existing and in good standing in its state
      of formation and qualified and licensed to do business in, and in good standing
      in, any state in which the conduct of its business or its ownership of property
      requires that it be qualified except where the failure to do so could not
      reasonably be expected to cause a Material Adverse Change. 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; and (b) Borrower
      is
      an organization of the type, and is organized in the jurisdiction. set forth
      in
      the Perfection Certificate; and (c) the Perfection Certificate accurately sets
      forth Borrower’s organizational identification number or accurately states that
      Borrower has none; and (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, and (e) all other
      information set forth on the Perfection Certificate pertaining to Borrower
      is
      accurate and complete. If Borrower does not now have an organizational
      identification number, but later obtains one, Borrower shall forthwith notify
      Bank of such organizational identification number.

     

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

     

    5.2    Collateral.
      Borrower has good title to the Collateral, free of Liens except Permitted Liens.
      All inventory is in all material respects of good and marketable quality, free
      from material defects. Borrower has no deposit account, other than the deposit
      accounts with Bank and deposit accounts described in the Perfection Certificate
      delivered to Bank in connection herewith. The Collateral is not in the
      possession of any third party bailee (such as a warehouse). Except as hereafter
      disclosed to Bank in writing by Borrower, none of the components of the
      Collateral shall be maintained at locations other than as provided in the
      Perfection Certificate. In the event that Borrower, after the date hereof,
      intends to store or otherwise deliver any portion of the Collateral to a bailee,
      then Borrower will first receive the written consent of Bank and such bailee
      must acknowledge in writing that the bailee is holding such Collateral for
      the
      benefit of Bank.

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    5.3    Financed
      Receivables.
      Borrower represents and warrants for each Financed Receivable:

     

    (a)    Each
      Financed Receivable is an Eligible Account.

     

    (b)    Borrower
      is the owner with legal right to sell, transfer, assign and encumber such
      Financed Receivable;

     

    (c)    The
      correct amount is on the Invoice Transmittal and is not disputed;

     

    (d)    Payment
      is not contingent on any obligation or contract and Borrower has fulfilled
      all
      its obligations as of the Invoice Transmittal date;

     

    (e)    Each
      Financed Receivable is based on an actual sale and delivery of goods and/or
      services rendered, is due to Borrower, is not past due or in default, has not
      been previously sold, assigned, transferred, or pledged and is free of any
      liens, security interests and encumbrances other than Permitted
      Liens;

     

    (f)    There
      are
      no defenses, offsets, counterclaims or agreements for which the Account Debtor
      may claim any deduction or discount;

     

    (g)    Borrower
      reasonably believes no Account Debtor is insolvent or subject to any Insolvency
      Proceedings;

     

    (h)    Borrower
      has not filed or had filed against it Insolvency Proceedings and does not
      anticipate any filing;

     

    (i)    Bank
      has
      the right to endorse and/ or require Borrower to endorse all payments received
      on Financed Receivables and all proceeds of Collateral; and

     

    (j)    No
      representation, warranty or other statement of Borrower in any certificate
      or
      written statement given to Bank contains any untrue statement of a material
      fact
      or omits to state a material fact necessary to make the statement contained
      in
      the certificates or statement not misleading.

     

    5.4    Litigation.
      There
      are no actions or proceedings pending or, to the knowledge of Borrower’s
      Responsible Officers or legal counsel, threatened by or against Borrower or
      any
      Subsidiary in which an adverse decision could reasonably be expected to cause
      a
      Material Adverse Change.

     

    5.5    No
      Material Deviation in Financial Statements.
      All
      consolidated financial statements for Borrower and any Subsidiary delivered
      to
      Bank fairly present in all material respects Borrower’s consolidated financial
      condition and Borrower’s consolidated results of operations. There has not been
      any material deterioration in Borrower’s consolidated financial condition since
      the date of the most recent financial statements submitted to
      Bank.

     

    5.6    Solvency.
      Borrower is able to pay its debts (including trade debts) as they
      mature.

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    5.7    Regulatory
      Compliance.
      Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act. Borrower is not engaged
      as one of its important activities in extending credit for margin stock (under
      Regulations 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.
      Borrower has not violated any laws, ordinances or rules, the violation of which
      could reasonably be expected to cause a Material Adverse Change. None of
      Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or
      any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
      disposing, producing, storing, treating, or transporting any hazardous substance
      other than legally. Borrower and each Subsidiary has timely filed all required
      tax returns and paid, or made adequate provision to pay, all material taxes,
      except those being contested in good faith with adequate reserves under GAAP.
      Borrower and each Subsidiary has obtained all consents, approvals and
      authorizations of; made all declarations or filings with, and given all notices
      to, all government authorities that are necessary to continue its business
      as
      currently conducted except where the failure to obtain or make such consents,
      declarations, notices or filings would not reasonably be expected to cause
      a
      Material Adverse Change.

     

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

     

    5.9    Full
      Disclosure.
      No
      written representation, warranty or other statement of Borrower in any
      certificate or written statement 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.

     

    6.      
AFFIRMATIVE
      COVENANTS

     

    Borrower
      shall do all of the following:

     

    6.1    Government
      Compliance.
      Borrower shall maintain its and all Subsidiaries’ legal existence and good
      standing in its jurisdiction of formation and maintain qualification in each
      jurisdiction in which the failure to so qualify would reasonably be expected
      to
      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 or operations or would reasonably
      be expected to cause a Material Adverse Change.

     

    6.2    Financial
      Statements, Reports, Certificates.

     

    (a)    Borrower
      shall deliver to Bank: (i) as soon as available, but no later than thirty (30)
      days after the last day of each month, a company prepared consolidated balance
      sheet and income statement covering Borrower’s consolidated operations during
      the period certified by a Responsible Officer and in a form acceptable to Bank;
      (ii) as soon as available, but no later than one hundred twenty (120) days
      after
      the last day of Borrower’s fiscal year, audited consolidated financial
      statements prepared under GAAP, consistently applied, together with an
      unqualified opinion on the financial statements from an independent certified
      public accounting firm reasonably acceptable to Bank; (iii) in the event that
      Borrower’s stock becomes publicly held, within five (5) days of filing. copies
      of all statements, reports and notices made available to Borrower’s security
      holders or to any holders of Subordinated Debt and all reports on Form 10-K,
      10-Q and 8-K filed with the Securities and Exchange Commission; (iv) a prompt
      report of any legal actions pending or threatened against Borrower or any
      Subsidiary that could result in damages or costs to Borrower or any Subsidiary
      of One Hundred Thousand Dollars ($100,000.00) or more; (v) prompt notice of
      any
      material change in the composition of the Intellectual Property Collateral,
      or
      the registration of any copyright, including any subsequent ownership right
      of
      Borrower in or to any Copyright, Patent or Trademark not shown in the IP
      Agreement or knowledge of an event that materially adversely affects the value
      of the Intellectual Property Collateral; and (vi) budgets, sales projections,
      operating plans or other financial information reasonably requested by
      Bank.

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

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

     

    (c)    Borrower
      will allow Bank to audit Borrower’s Collateral, including, but not limited to,
      Borrower’s Accounts and accounts receivable, at Borrower’s expense, upon
      reasonable notice to Borrower; provided, however, prior to the occurrence of
      an
      Event of Default, Borrower shall be obligated to pay for not more than two
      (2)
      audits per year. Borrower hereby acknowledges that the next such audit will
      be
      conducted no later than January 19, 2005. After the occurrence of an Event
      of
      Default, Bank may audit Borrower’s Collateral, including, but not limited to,
      Borrower’s Accounts and accounts receivable at Borrower’s expense and at Bank’s
      sole and exclusive discretion and without notification and authorization from
      Borrower.

     

    (d)    Upon
      Bank’s request, provide a written report respecting any Financed Receivable, if
      payment of any Financed Receivable does not occur by its due date and include
      the reasons for the delay.

     

    (e)    Provide
      Bank with, as soon as available, but no later than fifteen (15) days following
      each Reconciliation Period, an aged listing of accounts receivable and accounts
      payable by invoice date, in form acceptable to Bank.

     

    (f)    Provide
      Bank with, as soon as available, but no later than fifteen (15) days following
      each Reconciliation Period, a Deferred Revenue report, in form acceptable to
      Bank.

     

    6.3    Taxes.
      Borrower shall make, and cause each Subsidiary to make, timely payment of all
      material federal, state, and local taxes or assessments (other than taxes and
      assessments which Borrower is contesting in good faith, with adequate reserves
      maintained in accordance with GAAP) and will deliver to Bank, on demand,
      appropriate certificates attesting to such payments.

     

    6.4    Insurance.
      Borrower shall keep its business and the Collateral insured for risks and in
      amounts, 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 all liability policies shall show Bank as an
      additional insured and all policies shall provide that the insurer must give
      Bank at least twenty (20) days notice before canceling its policy. At Bank’s
      request, Borrower shall deliver certified copies of policies and evidence of
      all
      premium payments. Proceeds payable under any policy shall, at Bank’s option, be
      payable to Bank on account of the Obligations. If Borrower fails to obtain
      insurance as required under this Section 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
      and
      take any action under the policies Bank deems prudent.

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    6.5    Accounts.

     

    (a)    In
      order
      to permit Bank to monitor Borrower’s financial performance and condition,
      Borrower, and all Borrower’s Subsidiaries, shall maintain Borrower’s, and such
      Subsidiaries, primary depository and operating accounts with Bank which accounts
      shall represent at least 85% of the dollar value of Borrower’s and such
      Subsidiaries accounts at all financial institutions. Any Guarantor shall
      maintain all depository, operating and securities accounts with
      Bank.

     

    (b)    Borrower
      shall identify to Bank, in writing, any bank or securities account opened by
      Borrower with any institution other than Bank. In addition, for each such
      account that Borrower or Guarantor at any time opens or maintains, Borrower
      shall, at Bank’s request and option, pursuant to an agreement in form and
      substance acceptable to Bank, cause the depository bank or securities
      intermediary to agree that such account is the collateral of Bank pursuant
      to
      the terms hereunder; provided that with respect to any such account maintained
      by Borrower as of the date hereof, Borrower shall cause such an agreement
      between Bank and depository bank or securities intermediary to be executed
      by
      the parties by October 15, 2004. 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.

     

    6.6    Financial
      Covenants.
      Borrower shall maintain as of the last day of each month, unless otherwise
      noted, the following covenant:

     

    Minimum
      Tangible

    Net
      Worth:      
Borrower
      shall maintain a Tangible Net Worth of not less than $400,000 plus 50% of the
      Borrower’s net income in each fiscal quarter ending after the date hereof.
      Increases in the Minimum Tangible Net Worth Covenant based on net income shall
      be effective on the last day of the fiscal quarter in which said net income
      is
      realized, and shall continue effective thereafter. In no event shall the Minimum
      Tangible Net Worth Covenant be decreased.

     

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

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    6.8    Subordination.
      Concurrently herewith, Borrower shall cause each of Alan E. Strasbaugh and
      CMA
      Business Credit Services, for itself and as Trustee of certain of Borrower’s
      unsecured creditors, (each a “Creditor”) to execute and deliver to Bank a
      Subordination Agreement on Bank’s standard form with such changes as are
      acceptable to Bank in its discretion, pursuant to which the Creditor shall
      subordinate any indebtedness owed to them by the Borrower and, if applicable,
      any lien which such Creditor may have, now or in the future, against the assets
      of the Borrower to the Obligations and to any security interest and/or lien
      in
      favor of Bank. Borrower shall cause such Subordination Agreements to remain
      in
      full force and effect while any Obligations remain outstanding and while this
      Agreement is in effect. In addition, Borrower shall cause Comdisco, Inc. to
      enter into a letter agreement with Bank regarding the subordination of any
      indebtedness owed to Comdisco by the Borrower under that certain Forbearance
      Agreement between Comdisco and Borrower and dated as of November 1, 2000, and
      any lien which Comdisco may have, now or in the future, against the assets
      of
      the Borrower to the Obligations and to any security interest and/or lien in
      favor of Bank

     

    7.      
NEGATIVE
      COVENANTS

     

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

     

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

     

    7.2    Changes
      in Business, Ownership, Management or Business
      Locations.
      Engage
      in or permit any of its Subsidiaries to engage in any business other than the
      businesses currently engaged in by Borrower or reasonably related thereto,
      or
      have a material change in its ownership (other than by the sale of Borrower’s
      equity securities in a public offering or to venture capital investors so long
      as Borrower identifies to Bank the venture capital investors prior to the
      closing of the investment), or management. Borrower shall not, without at least
      thirty (30) days prior written notice to Bank: (i) relocate its chief executive
      office, or add any new offices or business locations, including warehouses
      (unless such new offices or business locations contain less than Five Thousand
      Dollars ($5,000.00) in Borrower’s assets or property), or (ii) change its
      jurisdiction of organization, or (iii) change its organizational structure
      or
      type, or (iv) change its legal name, or (v) change any organizational number
      (if
      any) assigned by its jurisdiction of organization.

     

    7.3    Mergers
      or Acquisitions.
      Merge
      or consolidate, or permit any of its Subsidiaries to merge or consolidate,
      with
      any other Person, or acquire, or permit any of its Subsidiaries to acquire,
      all
      or substantially all of the capital stock or property of another Person. A
      Subsidiary may merge or consolidate into another Subsidiary or into
      Borrower.

     

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

     

    
      
         

      

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

     

    7.6    Distributions;
      Investments.
      (i)
      Directly or indirectly acquire or own any Person, or make any Investment in
      any
      Person, other than Permitted Investments, or permit any of its Subsidiaries
      to
      do so; or (ii) pay any dividends or make any distribution or payment or redeem,
      retire or purchase any capital stock.

     

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

     

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

     

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

     

    8.      
EVENTS
      OF DEFAULT

     

    Any
      one
      of the following is an Event of Default:

     

    8.1    Payment
      Default.
      Borrower fails to pay any of the Obligations when due;

     

    8.2    Covenant
      Default.
      Borrower fails or neglects to perform any obligation in Section 6 or violates
      any covenant in Section 7 or fails or neglects to perform, keep, or observe
      any
      other material term, provision, condition, covenant or agreement contained
      in
      this Agreement, any Loan Documents and as to any default under such other term,
      provision, condition, covenant or agreement that can be cured, has failed to
      cure the default within ten (10) days after the occurrence thereof, provided,
      however, grace and cure periods provided under this section shall not apply
      to
      financial covenants or any other covenants that are required to be satisfied,
      completed or tested by a date certain;

     

    8.3    Material
      Adverse Change.
      A
      Material Adverse Change occurs;

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

     

    8.4    Attachment.
      (i) Any
      portion of Borrower’s assets is attached, seized, levied on, or comes into
      possession of a trustee or receiver and the attachment, seizure or levy is
      not
      removed in ten (10) days; (ii) the service of process upon Borrower seeking
      to
      attach, by trustee or similar process, any funds of Borrower on deposit with
      Bank, or any entity under the control of Bank (including a subsidiary); (iii)
      Borrower is enjoined, restrained, or prevented by court order from conducting
      any part of its business; (iv) a judgment or other claim becomes a Lien on
      a
      portion of Borrower’s assets; or (v) a notice of lien, levy, or assessment is
      filed against any of Borrower’s assets by any government agency and not paid
      within ten (10) days after Borrower receives notice;

     

    8.5    Insolvency.
      (i)
      Borrower is unable to pay its debts (including trade debts) as they become
      due
      or otherwise becomes insolvent; (ii) Borrower begins an Insolvency Proceeding;
      or (iii) an Insolvency Proceeding is begun against Borrower and not dismissed
      or
      stayed within thirty (30) days (but no Advances shall be made before any
      Insolvency Proceeding is dismissed);

     

    8.6    Other
      Agreements.
      If
      there is a default in any agreement to which Borrower 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 One Hundred Thousand Dollars ($100,000) or that could result in a
      Material Adverse Change;

     

    8.7    Judgments.
      If a
      judgment or judgments for the payment of money in an amount, individually or
      in
      the aggregate, of at least Two Hundred Thousand Dollars ($200,000) shall be
      rendered against Borrower and shall remain unsatisfied and unstayed for a period
      of ten (10) days (provided that no Advances will be made prior to the
      satisfaction or stay of such judgment);

     

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

     

    8.9    Subordinated
      Debt.
      A
      default or breach occurs under any agreement between Borrower and any creditor
      of Borrower that signed a subordination agreement with Bank, or any creditor
      that has signed a subordination agreement with Bank breaches any terms of the
      subordination agreement.

     

    9.      
BANK’S
      RIGHTS AND REMEDIES

     

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

     

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

     

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

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

     

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

     

    (d)    Make
      any
      payments and do any acts it considers necessary or reasonable to protect its
      security interest in the Collateral. Borrower 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;

     

    (e)    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;

     

    (f)    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;

     

    (g)    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;
      and

     

    (h)    Exercise
      all rights and remedies and dispose of the Collateral according to the
      Code,

     

    9.2    Bank
      Expenses; Unpaid Fees.
      Any
      amounts paid by Bank as provided herein shall constitute Bank Expenses and
      are
      immediately due and payable, and shall bear interest at the Default Rate and
      be
      secured by the Collateral. No payments by Bank shall be deemed an agreement
      to
      make similar payments in the future or Bank’s waiver of any Event of Default. In
      addition, any amounts advanced hereunder which are not based on Financed
      Receivables (including, without limitation, unpaid fees and Finance Charges
      as
      described in Section 2.2) shall accrue interest at the Default Rate and be
      secured by the Collateral.

     

    9.3    Bank’s
      Liability for Collateral.
      So long
      as Bank complies with reasonable banking practices regarding the safekeeping
      of
      collateral, 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.

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

     

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

     

    9.5    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.

     

    9.6    Default
      Rate.
      After
      the occurrence of an Event of Default, all Obligations shall accrue interest
      at
      the Applicable Rate plus five percent (5.0%) per annum (the “Default
      Rate”).

     

    10.    NOTICES.

     

    Notices
      or demands by either party about this Agreement must be in writing and
      personally delivered or sent by an overnight delivery service, by certified
      mail
      postage prepaid return receipt requested, or by fax to the addresses listed
      at
      the beginning of this Agreement. A party may change notice address by written
      notice to the other party.

     

    11.    CHOICE
      OF LAW, VENUE AND JURY TRIAL WAIVER

     

    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 California and Borrower accepts jurisdiction of the courts
      and
      venue in Santa Clara County, California. NOTWITHSTANDING THE FOREGOING. BANK
      SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR
      ITS
      PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY
      OR
      APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S
      RIGHTS AGAINST BORROWER OR ITS PROPERTY.

     

    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.

     

    12.      
GENERAL
      PROVISIONS

     

    12.1    Successors
      and Assigns.
      This
      Agreement binds and is for the benefit of the successors and permitted assigns
      of each party. Borrower may not assign this Agreement or any rights 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, the Loan Documents or any related
      agreement.

     

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

     

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

     

    12.3    Right
      of Set-Off.
      Borrower hereby grants to Bank, a lien, security interest and right of setoff
      as
      security for all Obligations to Bank, whether now existing or hereafter arising
      upon and against all deposits, credits, collateral and property, now or
      hereafter in the possession, custody, safekeeping or control of Bank or any
      entity under the control of Bank (including a Bank subsidiary) or in transit
      to
      any of them. At any time after the occurrence and during the continuance of
      an
      Event of Default, without demand or notice, Bank may set off the same or any
      part thereof and apply the same to any liability or obligation of Borrower
      even
      though unmatured and regardless of the adequacy of any other collateral securing
      the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR
      REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS,
      PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS
      OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
      WAIVED.

     

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

     

    12.5    Severability
      of Provision.
      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 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.

     

    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 while any Obligations remain outstanding. 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.

     

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

     

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

     

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

     

    13.         DEFINITIONS

     

    13.1      Definitions.
      In this
      Agreement:

     

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

     

    “Account
      Debtor” is
      as
      defined in the Code and shall include, without limitation, any person liable
      on
      any Financed Receivable, such as, a guarantor of the Financed Receivable and
      any
      issuer of a letter of credit or banker’s acceptance.

     

    “Adjusted
      Quick Ratio” is
      the
      ratio of Quick Assets to Current Liabilities minus Deferred
      Revenue.

     

    “Adjustments”
      are
      all
      discounts, allowances, returns, disputes, counterclaims, offsets, defenses,
      rights of recoupment, rights of return, warranty claims, or short payments,
      asserted by or on behalf of any Account Debtor for any Financed
      Receivable.

     

    “Administrative
      Fee” shall
      have the meaning as set forth in Section 2.2.4 hereof. “Advance” is defined in
      Section 2.1.1.

     

    “Advance
      Rate” shall
      mean eighty percent (80.0%), net of any offsets related to each specific Account
      Debtor, including, without limitation, Deferred Revenue, or such other
      percentage as Bank establishes under Section 2.1.1.

     

    “Affiliate”
      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.

     

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

     

    “Applicable
      Rate” is
      a per
      annum rate equal to the Prime Rate plus three and one-half percent (3.50%);
      provided, however, after the Borrower has achieved two consecutive fiscal
      quarters of profitability (commencing with any fiscal quarter ending after
      the
      date hereof), then the Applicable Rate shall mean a per annum rate equal to
      two
      and one-half percent (2.50%). Changes in the Applicable Rate based on the
      Borrower’s net income as provided above shall go into effect as of the first day
      of the month following the month in which Borrower’s financial statements are
      received, reviewed and approved by Silicon. Moreover, no decrease in the
      Applicable Rate shall go into effect if an Event of Default has occurred and
      is
      continuing at the time such decrease would go into effect.

     

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

     

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

     

    “Business
      Day” is
      any
      day that is not a Saturday, Sunday or a day on which Bank is closed. “Closing
      Date” is the date of this Agreement.

     

    “Code”
      is
      the
      Uniform Commercial Code as adopted in California, as amended and as may be
      amended and in effect from time to time.

     

    “Collateral”
      is
      any
      and all properties, rights and assets of Borrower granted by Borrower to Bank
      or
      arising under the Code, now, or in the future, in which Borrower obtains an
      interest, or the power to transfer rights, as described on Exhibit
      A.

     

    “Collections”
      are
      all
      funds received by Bank from or on behalf of an Account Debtor for Financed
      Receivables.

     

    “Compliance
      Certificate” is
      attached as Exhibit B.

     

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

     

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

     

    “Current
      Liabilities” is
      all
      obligations and liabilities of Borrower to Bank, plus, without duplication,
      the
      aggregate amount of Borrower’s Total Liabilities which mature within one (1)
      year.

     

    “Default
      Rate” is
      defined in Section 9.6.

     

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

     

    “Eligible
      Accounts” are
      billed Accounts in the ordinary course of Borrower’s business that meet all
      Borrower’s representations and warranties in Section 5.3, have been, at the
      option of Bank, confirmed in accordance with Section 2.1.1(d), and are due
      and
      owing from Account Debtors deemed creditworthy by Bank in its sole discretion.
      Without limiting the fact that the determination of which Accounts are eligible
      hereunder is a matter of Bank discretion in each instance, Eligible Accounts
      shall not include the following Accounts (which listing may be amended or
      changed in Bank’s discretion with notice to Borrower):

     

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

     

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

     

    (c)    Accounts
      for which the Account Debtor does not have its principal place of business
      in
      the United States, unless agreed to by Bank in writing, in its sole discretion,
      on a case-by-case basis;

     

    (d)    Accounts
      for which the Account Debtor is a federal, state or local government entity
      or
      any department, agency, or instrumentality thereof except for Accounts of the
      United States if the payee has assigned its payment rights to Bank and the
      assignment has been acknowledged under the Assignment of Claims Act of 1940
      (31
      U.S.C. 3727);

     

    (e)    Accounts
      for which Borrower owes the Account Debtor, but only up to the amount owed
      (sometimes called “contra” accounts, accounts payable, customer deposits or
      credit accounts);

     

    (f)    Accounts
      for demonstration or promotional equipment, or in which goods are consigned,
      sales guaranteed, sale or return, sale on approval, bill and hold, or other
      terms if Account Debtor’s payment may be conditional;

     

    (g)    Accounts
      for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
      agent;

     

    (h)    Accounts
      in which the Account Debtor disputes liability or makes any claim and Bank
      believes there may be a basis for dispute (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;

     

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

     

    (i)    Accounts
      for which Bank reasonably determines collection to be doubtful or any Accounts
      which are unacceptable to Bank for any reason.

     

    “ERISA”
      is
      the
      Employment Retirement Income Security Act of 1974, and its regulations. “Events
      of Default” are set forth in Article 8.

     

    “Facility
      Amount” is
      Five
      Million Dollars ($5,000,000).

     

    “Facility
      Fee” is
      defined in Section 2.2.2.

     

    “Finance
      Charges” is
      defined in Section 2.2.3.

     

    “Financed
      Receivables” are
      all
      those Eligible Accounts, including their proceeds which Bank finances and makes
      an Advance, as set forth in Section 2.1.1. A Financed Receivable stops being
      a
      Financed Receivable (but remains Collateral) when the Advance made for the
      Financed Receivable has been fully paid.

     

    “Financed
      Receivable Balance” is
      the
      total outstanding gross face amount, at any time, of any Financed
      Receivable.

     

    “GAAP”
      is
      generally accepted accounting principles.

     

    “Good
      Faith Deposit” is
      defined in Section 2.2.8.

     

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

     

    “Insolvency
      Proceeding” 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.

     

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

     

    “Invoice
      Transmittal” shows
      Eligible Accounts which Bank may finance and, for each such Account, includes
      the Account Debtor’s, name, address, invoice amount, invoice date and invoice
      number.

     

    “IP
      Agreement” is
      a
      certain Intellectual Property Security Agreement executed and delivered by
      Borrower to Bank.

     

    “Intellectual
      Property Collateral” is
      a
      defined in the IP Agreement.

     

    “Lockbox”
      is
      defined in Section 2.2.7.

     

    
      
         

      

      
        -20-

        
          

        

      

      
         

      

    

     

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

     

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

     

    “Material
      Adverse Change” is:
      (i) A
      material impairment in the perfection or priority of Bank’s security interest in
      the Collateral or in the value of such Collateral; (ii) a material adverse
      change in the business, operations, or condition (financial or otherwise) of
      Borrower; or (iii) a material impairment of the prospect of repayment of any
      portion of the Obligations; or (iv) 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.

     

    “Maturity
      Date” is
      364
      days from the date of this Agreement. “Minimum Finance Charge” is
      $4,000.

     

    “Obligations”
      are
      all
      advances, liabilities, obligations, covenants and duties owing, arising, due
      or
      payable by Borrower to Bank now or later under this Agreement or any other
      document, instrument or agreement, account (including those acquired by
      assignment) primary or secondary, such as all Advances, Finance Charges,
      Facility Fee, Administrative Fee, interest, fees, expenses, professional fees
      and attorneys’ fees, or other amounts now or hereafter owing by Borrower to
      Bank.

     

    “Perfection
      Certificate” is
      a
      certain representations and warranties letter agreement previously executed
      and
      delivered by Borrower to Bank in connection with this Agreement.

     

    “Permitted
      Indebtedness” is:

     

    (a)    Borrower’s
      indebtedness to Bank under this Agreement or the Loan Documents;

     

    (b)    Subordinated
      Debt;

     

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

     

    (d)    Indebtedness
      secured by Permitted Liens.

     

    “Permitted
      Investments” are:
      (i)
      marketable direct obligations issued or unconditionally guaranteed by the United
      States or its agency or any state maturing within 1 year from its acquisition,
      (ii) commercial paper maturing no more than 1 year after its creation and having
      the highest rating from either Standard & Poor’s Corporation or Moody’s
      Investors Service, Inc., (iii) Bank’s certificates of deposit issued maturing no
      more than 1 year after issue, (iv) any other investments administered through
      Bank.

     

    “Permitted
      Liens” are:

     

    (a)    Liens
      arising under this Agreement or other Loan Documents;

     

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

     

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

     

    (c)    Purchase
      money Liens securing no more than $500,000 in the aggregate amount outstanding
      (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 and the proceeds of the
      equipment;

     

    (d)    Leases
      or
      subleases and non-exclusive licenses or sublicenses granted in the ordinary
      course of Borrower’s business, if the leases, subleases, licenses and
      sublicenses permit granting Bank a security interest;

     

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

     

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

     

    “Prime
      Rate” is
      the
      greater of (i) four percent (4.0%) or (ii) Bank’s most recently announced “prime
      rate,” even if it is not Bank’s lowest rate.

     

    “Reconciliation
      Day” is
      the
      last calendar day of each month. “Reconciliation Period” is each calendar
      month.

     

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

     

    “Subordinated
      Debt” is
      debt
      incurred by Borrower subordinated to Borrower’s debt to Bank (pursuant to a
      subordination agreement entered into between Bank, Borrower and the subordinated
      creditor), on terms acceptable to Bank.

     

    “Subsidiary”
      is
      any
      Person, corporation, partnership, limited liability company, joint venture,
      or
      any other business entity of which more than 50% of the voting stock or other
      equity interests is owned or controlled, directly or indirectly, by the Person
      or one or more Affiliates of the Person.

     

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

     

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

     

    
      
         

      

      
        -22-

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      as
      a sealed instrument under the laws of the State of California as of the date
      first above written.

     

    BORROWER:
      

     

    STRASBAUGH

     

    By:
      /s/
      Jim
      Owens                                          

    Name:
      Jim
      Owens                                           

    Title:
      President
      &
CEO                                  

     

    BANK:

     

    SILICON
      VALLEY BANK 

     

    By:
      /s/
      Robert
      Anderson                              

    Name:
      Robert
      Anderson                               

    Title:
      Vice
      President                                       

     

    
      
         

      

      
        -23-

        
          

        

      

      
         

      

    

    
EXHIBIT
      A

     

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

     

    All
      goods, equipment, inventory, contract rights or rights to payment of money,
      leases, license agreements, franchise agreements, general intangibles (including
      payment intangibles), accounts (including health-care receivables), 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), commercial tort claims,
      securities, and all other investment property, supporting obligations, and
      financial assets, whether now owned or hereafter acquired, wherever located;
      and

     

    Any
      copyright rights, copyright applications, copyright registrations and like
      protections in each work of authorship and derivative work, whether published
      or
      unpublished, now owned or later acquired; any patents, trademarks, service
      marks
      and applications therefor; trade styles, trade names, any trade secret rights,
      including any rights to unpatented inventions, know-how, operating manuals,
      license rights and agreements and confidential information, now owned or
      hereafter acquired; or any claims for damages by way of any past, present and
      future infringement of any of the foregoing; and

     

    All
      Borrower’s books relating to the foregoing and any and all claims, rights and
      interests in any of the above and all substitutions for, additions, attachments,
      accessories, accessions and improvements to and replacements, products, proceeds
      and insurance proceeds of any or all of the foregoing.

     

    
      
         

      

      
        -24-

        
          

        

      

      
         

      

    

     

    EXHIBIT
      B

     

    SILICON
      VALLEY BANK

     

     

    SPECIALTY
      FINANCE DIVISION

     

    Compliance
      Certificate

     

    I,
      as
      authorized officer of Strasbaugh (“Borrower”) certify under the Loan and
      Security Agreement (the “Agreement”) between Borrower and Silicon Valley Bank
      (“Bank”) as follows (all capitalized terms used herein shall have the meaning
      set forth in the Agreement):

     

    Borrower
      represents and warrants for each Financed Receivable:

     

    Each
      Financed Receivable is an Eligible Account.

     

    Borrower
      is the owner with legal right to sell, transfer, assign and encumber such
      Financed Receivable; The correct amount is on the Invoice Transmittal and is
      not
      disputed;

     

    Payment
      is not contingent on any obligation or contract and Borrower has fulfilled
      all
      its obligations as of the Invoice Transmittal date;

     

    Each
      Financed Receivable is based on an actual sale and delivery of goods and/or
      services rendered, is due to Borrower, is not past due or in default, has not
      been previously sold, assigned, transferred, or pledged and is free of any
      liens, security interests and encumbrances other than Permitted
      Liens;

     

    There
      are
      no defenses, offsets, counterclaims or agreements for which the Account Debtor
      may claim any deduction or discount;

     

    It
      reasonably believes no Account Debtor is insolvent or subject to any Insolvency
      Proceedings; It has not filed or had filed against it Insolvency Proceedings
      and
      does not anticipate any filing;

     

    Bank
      has
      the right to endorse and/ or require Borrower to endorse all payments received
      on Financed Receivables and all proceeds of Collateral.

     

    No
      representation, warranty or other statement of Borrower in any certificate
      or
      written statement given to Bank contains any untrue statement of a material
      fact
      or omits to state a material fact necessary to make the statement contained
      in
      the certificates or statement not misleading.

     

    Additionally,
      Borrower represents and warrants as follows:

     

    Borrower
      and each Subsidiary is duly existing and in good standing in its state of
      formation and qualified and licensed to do business in, and in good standing
      in,
      any state in which the conduct of its business or its ownership of property
      requires that it be qualified except where the failure to do so could not
      reasonably be expected to cause a Material Adverse Change. The execution,
      delivery and performance of the Loan Documents have been duly authorized, and
      do
      not conflict with Borrower’s organizational documents, nor constitute an event
      of default under any material agreement by which Borrower is bound. Borrower
      is
      not in default under any agreement to which or by which it is bound in which
      the
      default could reasonably be expected to cause a Material Adverse
      Change.

     

    
      
         

      

      
        -25-

        
          

        

      

      
         

      

    

     

    Borrower
      has good title to the Collateral, free of Liens except Permitted Liens. All
      inventory is in all material respects of good and marketable quality, free
      from
      material defects.

     

    Borrower
      is not an “investment company” or a company “controlled” by an “investment
      company” under the Investment Company Act. Borrower is not engaged as one of its
      important activities in extending credit for margin stock (under Regulations
      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. Borrower has not
      violated any laws, ordinances or rules, the violation of which could reasonably
      be expected to cause a Material Adverse Change. None of Borrower’s or any
      Subsidiary’s properties or assets has been used by Borrower or any Subsidiary
      or, to the best of Borrower’s knowledge, by previous Persons, in disposing,
      producing, storing, treating, or transporting any hazardous substance other
      than
      legally. Borrower and each Subsidiary has timely filed all required tax returns
      and paid, or made adequate provision to pay, all material taxes, except those
      being contested in good faith with adequate reserves under GAAP. Borrower and
      each Subsidiary has obtained all consents, approvals and authorizations of,
      made
      all declarations or filings with, and given all notices to, all government
      authorities that are necessary to continue its business as currently conducted
      except where the failure to obtain or make such consents, declarations, notices
      or filings would not reasonably be expected to cause a Material Adverse
      Change.

     

    Borrower
      is in compliance with the Financial Covenant(s) set forth in Section 6.6 of
      the
      Agreement.

     

    All
      representations and warranties in the Agreement are true and correct in all
      material respects on this date, and the Borrower represents that there is no
      existing Event of Default.

     

    Sincerely,

     

    Signature   
      ______________________________

     

    Title    
      ______________________________       

     

    Date    
      ______________________________

     

    
      
         

      

      
        -26-

        
          

        

      

      
         

      

    

     

    CORPORATE
      BORROWING RESOLUTION

     

    Borrower:
      Strasbaugh    Bank: Silicon
      Valley Bank

     

    I
      the
      Secretary or Assistant Secretary of Strasbaugh (“Borrower”), certify that
      Borrower is a corporation existing under the laws of the State of
      California.

     

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

     

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

    
      	
               

              NAME

            	
               

              TITLE

            	
               

              SIGNATURE

            
	
               

              Chuck
                Shillings

            	
               

              President

            	
               

              /s/
                Chuck Shillings

            
	
               

              Richard
                Nance

            	
               

              CFO

            	
               

              /s/
                Richard Nance

            
	
               

              R.
                Douglas Harbottle

            	
               

              Finance
                Manager

            	
               

              /s/
                R. Douglas Harbottle

            
	
               

              Belinda
                Reyna

            	
               

              Controller

            	
               

              /s/
                Belinda Reyna

            

    

     

    may
      act
      for Borrower and:

     

    Borrow
      Money/Sell Accounts Receivable.
      Borrow
      money from Silicon Valley Bank (“Bank”) and, or sell Borrower’s accounts
      receivable to Bank.

     

    Execute
      Loan Documents.
      Execute
      any loan documents Bank requires. Grant Security. Grant Bank a security interest
      in any of Borrower’s assets.

     

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

     

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

     

    Foreign
      Exchange Contracts.
      Execute
      spot or forward foreign exchange contracts. Issue Warrants. Issue warrants
      for
      Borrower’s stock.

     

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

     

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

     

    
      
         

      

      
        -27-

        
          

        

      

      
         

      

    

     

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

     

    /s/
      Richard Nance             
      9/29/05                            

    *Secretary
      or Assistant Secretary    Date

    

    /s/
      Douglas Harbottle                        

    *If
      the
      certifying officer is designated as a signer in these resolutions then another
      corporate officer must also sign.

     

     

     

    -28-

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