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Exhibit 10.14    
  

NEITHER
THIS NOTE NOR THE SECURITIES INTO WHICH IT IS CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS AND THEY
MAY NOT BE OFFERED FOR SALE OR SOLD, ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS WRITTEN EVIDENCE REASONABLY SATISFACTORY TO EXCELERATE TECHNOLOGIES, LLC IS SUPPLIED
TO EXCELERATE TECHNOLOGIES, LLC TO THE EFFECT THAT THE PROPOSED OFFER, SALE, ASSIGNMENT OR OTHER TRANSFER MAY BE EFFECTED WITHOUT SUCH REGISTRATION. 

EXCELERATE
TECHNOLOGIES HOLDINGS, LLC

CONVERTIBLE PROMISSORY NOTE 

	$500,000.00	 	May 3, 2002

        FOR
VALUE RECEIVED, the undersigned, excelerate technologies Holdings, LLC, a Delaware limited liability company (the "Company"), promises to pay, subject to the terms and conditions
contained herein, to the order of AUGUST TECHNOLOGY CORPORATION with an address at 4900 West 78th Street, Bloomington, Minnesota 55435 (hereinafter referred to as the "Holder"), the
principal sum of Five Hundred Thousand Dollars ($500,000) (hereinafter called the "Principal"), plus interest thereon at the rate set forth below, on the Maturity Date. 

        The
following is a statement of the rights of the Holder and the conditions to which this Note is subject, to which the Holder hereof, by the acceptance of this Note, agrees: 

        1.    Definitions.    As used in this Note, the following terms, unless the context otherwise requires, have the
following meanings: 

        1.1  "Delayed
Conversion" shall mean the automatic conversion of this Note as of the Maturity Date pursuant to Section 3.2, if a conversion pursuant to
Section 3.1 has not occurred prior to that date. 

        1.2  "Delayed
Conversion Price" shall mean $4 million dollars divided by the number of shares of the Company outstanding on a fully diluted basis (which shall mean all
outstanding shares of the Company, all outstanding employee incentive shares of excelerate technologies Incentive Plan, LLC, and all then outstanding rights or securities, if any, exercisable for or
convertible into shares of the Company, but excluding this Note), immediately prior to a Delayed Conversion. By way of example, assume that immediately prior to the Delayed Conversion, there are the
same 11,913,750 shares and options of the Company outstanding on a fully diluted basis as are outstanding on the date of this Note. The Delayed Conversion Price would then be equal to $0.33575 per
share. Assuming that the total principal and interest outstanding under this Note as of such date were $520,000, then this Note would convert into 1,548,771 Series A Preferred Shares. 

        1.3  "Maturity
Date" shall mean the November 2, 2002, which is the date which is six months after the date of this Note. 

        1.4  "Note"
shall mean this Convertible Promissory Note in the original principal amount of $500,000.00. 

        1.5  "Noteholder,"
"Holder," or similar terms, when the context refers to a holder of this Note, shall mean any person who shall at the time be the holder of this Note. 

        1.6  "Price
Per Share" shall mean the price per share at which preferred shares of the Company are sold in a Qualifying Preferred Share Financing. In the event that not all
shares are sold at the same price in such financing, then the Price Per Share shall be the weighted average price of the first shares sold with proceeds aggregating $3 million. 

        1.7  "Qualifying
Preferred Share Financing" shall mean the sale by the Company on or after the date hereof of shares of a series of preferred shares of the Company in one or
more closings with aggregate proceeds of at least $3 million. 

        1.8  "Underlying
Securities" shall mean the shares of a series of preferred shares of the Company into which the outstanding principal of, and accrued but unpaid interest on,
this Note will be convertible pursuant to Section 3 hereof. 

        2.    Terms of Note.    

        2.1  Subject
to Section 3 hereof, the Company shall pay to the Holder on the Maturity Date the indebtedness (i.e., the Principal and all accrued but unpaid interest
thereon) evidenced hereby. 

        2.2  This
Note shall bear interest on the outstanding Principal until paid in full at the rate of eight percent (8%) per annum, simple interest, or the maximum amount
permissible by law, whichever is less. Interest shall accrue until the earlier of the repayment of the outstanding Principal with all accrued interest in accordance with this Note or the conversion of
this Note pursuant to Section 3 hereof. Upon conversion of this Note pursuant to Section 3 hereof, all accrued but unpaid interest shall be converted into Underlying Securities as
provided in Section 3 hereof. Interest will be computed on the basis of a year of 365 days for the number of days actually elapsed. 

        2.3  This
Note may not be prepaid by the Company without the prior written consent of the Holder hereof; provided,  however, that the Company may prepay this Note
without the Holder's prior written consent at any time during the two calendar weeks immediately
preceding the Maturity Date. 

        2.4  If
any one or more of the following events (hereinafter called "Events of Default") shall occur after the date hereof: 

        (a)  the
Company shall (A) make an assignment, or establish a trust, for the benefit of creditors, (B) petition or apply for the appointment of a liquidator,
receiver or the like, (C) commence, acquiesce in, or consent to any proceeding relating to it under any bankruptcy, insolvency or similar law, or (D) admit in writing its inability to
pay its debts as they mature; or 

        (b)  an
order for relief shall be entered in any bankruptcy proceeding relating to the Company or an order shall be entered (A) appointing a liquidator or receiver for
the Company or a substantial part of any of its properties or (B) adjudicating it bankrupt or insolvent and such order is not lifted within thirty days; 

then
at the Holder's option the entire unpaid Principal and all accrued and unpaid interest hereunder shall become immediately due and payable in cash, without presentment, demand, protest or notice.
Such acceleration of amounts due under this Note shall not affect any other rights which the Holder
may have at law, in equity or otherwise. All rights and remedies hereunder shall be cumulative and in addition to those provided by law, and may be exercised separately, concurrently, or successively. 

        3.    Conversion.    

        3.1    Qualifying Preferred Share Financing.    Effective upon the closing of a Qualifying Preferred Share Financing,
this Note will be cancelled and the outstanding Principal of, and accrued but unpaid interest on, this note will be converted, automatically and without any action on the part of the Company or the
Holder, into shares of the preferred shares of the Company sold in the Qualifying Preferred Share Financing; provided, that Holder's receipt of such
shares (but not the cancellation of this Note) will be subject to the Holder's execution and delivery to the Company of such documents, including the Company's limited liability company agreement, as
shall be executed generally by the purchasers in the Qualifying Preferred Share Financing. The Holder of this Note, upon such conversion, will receive such number of Underlying Securities as 

the outstanding Principal of, and accrued but unpaid interest on, this Note could purchase at the Price Per Share. Upon such conversion, the Holder shall receive the same rights, including dividend,
voting, registration, preemptive, tag-along and liquidation rights, if any, as those granted to the purchasers of shares in the Qualifying Preferred Share Financing. 

        3.2    Delayed Conversion.    In the event the Qualifying Preferred Share Financing has not occurred prior to the
Maturity Date or this Note, including the outstanding Principal and all accrued interest thereon, has not been paid in full by or on such date, then effective at the close of business on that date
this Note will be cancelled and the outstanding Principal of, and accrued but unpaid interest on, this Note will be converted, automatically and without any action on the part of the Company or the
Holder, into Series A Preferred Shares of the Company; provided, that Holder's receipt of such shares (but not the cancellation of this Note)
will be subject to the Holder's execution and delivery to the Company of the Company's limited liability company agreement. The Holder of this Note, upon such conversion, will receive such number of
Underlying Securities as the outstanding Principal of, and accrued but unpaid interest on, this Note could purchase at the Delayed Conversion Price. Series A Preferred shares issued pursuant to
a Delayed Conversion shall have substantially the rights, preferences and privileges as those attached hereto as Exhibit A. 

        3.3    Return of Note.    Upon any conversion pursuant to this Section 3, the Holder agrees to return this Note
to the Company for cancellation. Notwithstanding any failure of the Holder to so return this Note or any failure of Company to request the same, this Note shall be automatically cancelled effective
upon such conversion, without any action of the parties. 

        4.    Miscellaneous.    

        4.1  The
Company hereby waives presentment, demand, protest, and notice of every kind; and the Company assents to any extension or postponement of time and any other
indulgence. 

        4.2  Delay
or omission by the Holder to exercise any right or power or failure by the Holder to insist upon the strict performance of any of the covenants and agreements
herein set forth or to exercise any rights or remedies hereunder shall not impair any such right or power or be considered or taken as a waiver or relinquishment for the future of the right to insist
upon and to enforce strict compliance by the Company with all of the covenants and agreements herein. Delay, omission or waiver on any one occasion shall not be deemed a bar to or waiver of the same
or any other right on any future occasion. 

        4.3  This
Note shall be binding upon the Company and its legal representatives, successors and assigns, and shall inure to the benefit of the Holder and its legal
representatives, successors and assigns. 

        4.4  No
modification or waiver of any provision of this Note, and no consent of the Holder to any departure therefrom by the Company, shall be effective unless such
modification, waiver or consent shall be in a writing signed both by the Holder and the Company. 

        4.5  The
Holder acknowledges that the Holder is an "accredited investor" within the meaning of that term as defined in Rule 501(a) of Regulation D of the
Securities Act. The Holder acknowledges that the Holder has had an opportunity to discuss the business, affairs and current prospects of the Company with representatives of the Company. The Holder
further acknowledges having had access to information about the Company that the Holder has requested. The Holder understands that the Company has a limited operating history and losses are to be
expected. The Holder acknowledges that the Holder is able to fend for itself in deciding to make an investment in the Company and has the ability to bear the economic risks of its investment in this
Note and the Underlying Securities. 

        4.6  The
Holder represents and warrants that this Note is being acquired, and the Underlying Securities will be acquired, for the Holder's own account, not as a nominee or
agent, and not with a view to or in connection with the sale or distribution of any part thereof. 

        4.7  The
Holder understands that this Note and the Underlying Securities will not be registered under the Securities Act, on the ground that the issuances thereof are exempt
from registration under of the Securities Act, and that the reliance of the Company on such exemptions is predicated in part on the Holder's representations set forth in this Note. The Holder
understands that this Note and the Underlying Securities are restricted securities within the meaning of Rule 144 under the Securities Act and that this Note and the Underlying Securities must
be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. 

        4.8  This
Note is not transferable by the Holder hereof except with the prior written consent of the Company. 

        4.9  This
Note shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of Delaware, without regard to the doctrine of conflicts
of laws. 

        4.10 The
Holder, by executing and delivering to the Company the enclosed copy of this Note, which execution and delivery shall be a condition of the Company's obligations
hereunder, hereby agrees to the agreements and covenants of the Holder contained herein and any subsequent holder of this Note will take this note subject to such agreements and covenants. 

[REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK] 

        IN
WITNESS WHEREOF, each of the Company and the Holder has caused this Note to be signed in its name as of the date first above written. 

	 	 	EXCELERATE TECHNOLOGIES HOLDINGS, LLC
 
	

 	
 	

By:	

 Name:

Title:

Accepted and agreed to:  

AUGUST
TECHNOLOGY CORPORATION 

	By:	
 Name:

Title:
	

 	

Duly authorized hereunto

	

Address:	

	

 	

 
 

Exhibit A    
  

INVESTMENT TERMS  

Rights, Preferences and Privileges of Series A Preferred Shares:  

        Dividends.    The Series A Preferred Shares will accrue an 8% dividend annually, payable upon liquidation or redemption,
and shall also receive all distributions made to holders of Common Shares (on an as-if-converted basis). Distributions will not be made on the Common Shares at any time before
payment in full of the liquidation preference and all accrued and unpaid dividends on the Series A Preferred Shares. 

        Optional Conversion.    Each Series A Preferred Share may be converted at any time, at the holder's option, into Common
Shares based on a rate (the "Series A Conversion Rate") equal to the Delayed Conversion Price divided by the conversion price, which shall initially be the Delayed Conversion Price (the
"Series A Conversion Price"). The Series A Conversion Price shall be subjected to certain anti-dilution adjustments. 

        Automatic Conversion.    The Series A Preferred Shares will automatically convert into Common Shares, at the
Series A Conversion Price, in the event of: 1) an underwritten public offering of shares of the Company or a successor to the Company with an aggregate value of not less than
$20 million (before deduction of underwriter's commissions and expenses) and a minimum offering price of five times the original purchase price per share for the Series A Preferred
Shares (a "Qualified IPO") or 2) in the event that the holders of more than 80% of the outstanding Series A Preferred Shares consent to such conversion. 

        Liquidation Preference.    The Series A Preferred Shares shall rank senior to all other equity securities of the Company
as to liquidation, distributions, redemptions and any other payment with respect to equity securities. In addition, each Series A Preferred Share shall have a liquidation preference equal to
one times the Delayed Conversion Price of the Series A Preferred Shares plus all accrued dividends (the "Liquidation Preference"). 

        A
merger, acquisition, sale of voting control or sale of substantially all of the assets of the Company in which the shareholders of the Company do not own a majority of the outstanding
shares of the surviving entity shall be deemed to be a liquidation. 

        Weighted Average Anti-Dilution Protection.    In the event the Company issues any additional Common Shares,
convertible securities or warrants, or grants any shares in excelerate technologies Incentive Plan, LLC (the "Incentive Plan") (or shares or options in any successor) or issues any other Common Share
equivalents at a purchase price less than the Series A Conversion Price (the "Down Round Price"), then the Series A Conversion Price of all of the Series A Preferred Shares will
be adjusted based upon a weighted average anti-dilution formula in the form of Annex A hereto. The antidilution adjustments will not be triggered by (i) shares or warrants issued to
banks, equipment lessors and similar entities in connection with commercial credit arrangements or equipment financings that have a principal purpose other than equity financing, (ii) shares or
warrants issued pursuant to a joint venture, technology licensing, distribution or other similar transaction that is primarily for a purpose other than raising capital, and (iii) shares issued
in connection with an acquisition of another business or company, provided, however, that the total number of shares issued that are subject to the foregoing exceptions in clauses (i), (ii) and
(iii) shall not exceed 2,000,000 in the aggregate. 

        The
Series A Conversion Price will also be subject to proportional adjustment for splits, distributions of shares, recapitalizations and the like. 

        Voting Rights.    The Series A Preferred Shares will vote together with the Common Shares and not as a separate class
except as specifically provided herein or as otherwise required by law. Each Series A Preferred Share shall have a number of votes equal to the number of Common Shares then issuable upon
conversion of such Series A Preferred Share. 

        Optional Redemption.    During the six months preceding the fifth anniversary of the closing, the holders of 70% of the
outstanding Series A Preferred Shares, by written notice to the Company, shall be entitled to cause the Company to redeem all of the outstanding Series A Preferred Shares at a redemption
price equal to the fair market value of the Series A Preferred Shares as determined by appraisal. 

        Mandatory Redemption.    The Series A Preferred Shares shall be redeemable five years after closing at a mandatory
redemption price equal to the Liquidation Preference. In addition, the Company will be required to redeem all of the Series A Preferred Shares upon: 1) a Change of Control, initial
public offering or a sale of significant assets; or 2) the Company's failure to observe any Protective Provision. In the event any of the preceding occurs, holders of Series A Preferred
Shares may require the Company to redeem for cash (or shares in the acquiror in the event of a non-cash merger or acquisition) any or all of the Series A Preferred Shares held by
such holder at price equal to the per share Liquidation Preference at the date of redemption. Change of Control shall mean the acquisition by any person or group of persons, directly or indirectly and
in one transaction or a series of transactions (whether pursuant to share acquisition or exchange, merger, reorganization, recapitalization or similar transaction), of 51% or more of the voting
securities of the Company determined on a fully diluted basis. 

        Protective Provisions.    The consent of the holders of more than 70% of the outstanding Series A Preferred Shares will
be required for any action which: 1) materially or adversely alters or changes the rights, preferences or privileges of the Series A Preferred Shares; 2) increases the authorized
number of shares of Common or Preferred Shares; 3) creates (by reclassification or otherwise) any new class or series of shares having rights, preferences or privileges senior to or on a parity
with the Series A Preferred Shares; 4) results in any merger, other reorganization, sale of control, or any transaction in which all or substantially all of the assets of the Company are
sold; 5) authorizes the payment of any dividend; or 6) repurchases any Series A Preferred Shares (provided that any repurchase required by the terms of the Series A
Preferred Shares shall not require such approval) or Common Shares or other junior securities (other than repurchase of shares in the Incentive Plan or any shares of any successor issued pursuant to
an employee plan approved by the Board, or exercise of any rights of first refusal in favor of the Company or its assignees). 

Information and Inspection Rights:  

        The holders of Series A Preferred Shares shall be entitled to monthly and quarterly unaudited, and annual audited and unaudited, financial statements as
well as inspection rights. The Company will provide these reports on a timely basis but under no circumstances later than 45 calendar days following the close of the period (except that the Company
may deliver the annual audited financial statements within 120 days following the close of the fiscal year). 

Registration Rights:  

        If the Qualifying Preferred Share Financing occurs, the holders of Series A Preferred Shares shall have rights at the Company's expense to:
1) beginning 6 months after the Company's IPO, two long-form demand registrations; 2) five short-form registrations; and 3) unlimited piggyback
registrations, subject to customary underwriters' cutbacks and lock-up provisions. 

        If
the Delayed Conversion occurs pursuant to Section 3.2 of the Bridge Note, the holders of Series A Preferred Shares shall have the same piggyback registration rights as
are set forth in Section 16 of the Series A Preferred Shares Purchase Warrant issued by the Company in conjunction with the Bridge Note. 

Rights of First Refusal:  

        The holders of Series A Preferred Shares and Baljit Singh shall have the right, in the event the Company proposes to offer equity securities to any person
(other than securities issued pursuant to employee benefit plans or pursuant to acquisitions) to purchase their pro rata portion of such shares. 

        The
Company will have a right of first refusal with respect to all transfers of shares in the Company by shareholders other than transfers subject to the Incentive Plan's or any
successor's employee plan. Any shares not purchased by the Company will be offered on the same terms to the holders of the Common Shares assuming all Series A Preferred Shares have been
converted into Common Shares. 

Co-Sale Agreement:  

        All shareholders shall enter into a standard co-sale agreement. 

 
 

Annex A    
  

        Except for issuances of shares or other equity purchase right specifically permitted by the terms of Exhibit A, if and whenever this Corporation shall
issue or sell any Common Shares for a consideration per share less than the Series A Conversion Price then in effect (other than dividends payable in Common Shares), or shall issue any options,
warrants or other rights for the purchase of such shares (collectively, "Convertible Securities") at a consideration per share of less than the Series A Conversion Price then in effect, then
the Series A Conversion Price in effect immediately prior to such issuance or sale shall be adjusted and shall be equal to (i) the Series A Conversion Price then in effect,
multiplied by (ii) a fraction, the numerator of which shall be an amount equal to the sum of (a) the number of Common Shares and Convertible Securities outstanding immediately prior to
such issuance or sale multiplied by the Series A Conversion Price then in effect, and (b) the total consideration payable to this Corporation upon such issuance or sale of such shares
and such purchase rights and upon the exercise of such purchase rights, and the denominator of which shall be the amount determined by multiplying (aa) the number of Common Shares and Convertible
Securities outstanding immediately after such issuance or sale plus the number of the Common Shares issuable upon the exercise of any purchase rights thus issued, by (bb) the Series A
Conversion Price then in effect. If any options or purchase rights that are taken into account in any such adjustment of the Series A Conversion Price subsequently expire without exercise, the
Series A Conversion Price shall be recomputed by deleting such options or purchase rights. If the Series A Conversion Price is adjusted as the result of the issuance of any options,
warrants or other purchase rights, no further adjustment of the Series A Conversion Price shall be made at the time of the exercise of such options, warrants or other purchase rights. 

 
 

AMENDMENT TO CONVERTIBLE PROMISSORY NOTE    
  

	DATE:	 	October 29, 2002	 	 
	

PARTIES:	
 	

Excelerate Technologies Holdings, LLC	
 	

("Excelerate")
	

 	
 	

August Technology Corporation	
 	

("August Technology")

RECITALS:

	A.
	August
Technology is the holder of a Convertible Promissory Note issued by Excelerate dated May 6, 2002, in the principal amount of $500,000 (the "Note").

	B.
	August
Technology and Excelerate wish to amend the Note to extend the maturity date of the Note and modify the prepayment provisions of the Note. 

NOW,
THEREFORE, RESOLVED, that in consideration of the premises and other good and valuable consideration, August Technology and Excelerate agree as follows: 

        1.    Maturity Date.    

Section 1.3
of the Note shall be amended and restated in its entirety to read as follows: 

	1.3
	"Maturity
Date" shall mean May 5, 2003, which is the date which is twelve months after the date of this Note. 

IN
WITNESS WHEREOF, the Parties hereto have executed this Amendment to the Convertible Promissory Note as of the day and year first above written. 

	Excelerate Technologies Holdings, LLC	 	August Technology Corporation
 
	

By:	

 Name: Baljit Singh

Title: President & Chief Executive Officer	
 	

By:	

 Name: John M. Vasuta

Title: Vice President, Intellectual Property and General Counsel

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Exhibit 10.14

Exhibit A

Annex A

AMENDMENT TO CONVERTIBLE PROMISSORY NOTEQuickLinks
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Exhibit 10.31    
  

 
 

REVOLVING CREDIT AGREEMENT    
  

        THIS REVOLVING CREDIT AGREEMENT, dated as of July 26, 2002, is by and between AUGUST TECHNOLOGY CORPORATION, a Minnesota corporation (the
"Borrower"), and EXCEL BANK MINNESOTA, a Minnesota state banking corporation (the "Bank"). 

RECITALS:  

        A. The Borrower has requested that the Bank make available to the Borrower a revolving credit facility in an aggregate principal amount not to exceed $5,000,000
(the "Revolving Credit Facility"). 

        B.
The Borrower will use the proceeds of advances under the Revolving Credit Facility to pay off existing indebtedness and for the Borrower's general working capital purposes. 

AGREEMENTS:  

        IN CONSIDERATION of the foregoing premises, and the mutual covenants set forth herein, the parties agree as follows: 

 ARTICLE 1    DEFINITIONS AND ACCOUNTING TERMS  

        Section 1.1    Defined Terms.    In addition to the terms
defined elsewhere in this Agreement, the following terms shall have the meanings set out respectively after each (and such meanings shall be equally applicable to both the singular and plural form of
the terms defined, as the context may require): 

        Act of Bankruptcy:    With respect to any Person, if (i) the Person shall (1) be or become insolvent, or
(2) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or the like of the Person or of all or a substantial part of the
Person's property, or (3) commence a voluntary case under any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding under the
laws of any jurisdiction, or (4) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of
debts, or (5) admit in writing its inability to pay its debts as they mature, or (6) make an assignment for the benefit of its creditors; or (ii) a proceeding or case shall be
commenced, without the application or consent of the Person, in any court of competent jurisdiction, seeking (1) the liquidation, reorganization, dissolution, winding up or the composition or
adjustment of debts of the Person, (2) the appointment of a trustee, receiver, custodian or liquidator or the like of the Person or of all or any substantial part of the Person's property, or
(3) similar relief in respect of the Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts. 

        Affiliate:    Any Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled
by, or is under common control with, the Borrower or any of its Subsidiaries, or (ii) five percent (5%) or more of the equity interest of which is held beneficially or of record by the Borrower
or any of its Subsidiaries. Control for purposes of this definition means the possession, directly or indirectly, of the power to cause the direction of management and policies of a Person, whether
through the ownership of voting securities or otherwise. 

        Agreement:    This Revolving Credit Agreement, as it may be amended, modified, supplemented, restated or replaced from time to
time. 

1

 

        Borrowing Base:    At any time and subject to change from time to time in the Bank's discretion, an amount  equal to
(a) 80% of Eligible Receivables, plus (b) the lesser of (1) 25% of Eligible Inventory or (2) $1,000,000 (provided,
however, that in no event shall the amount of Eligible Inventory included in the Borrowing Base exceed 20% of the total Borrowing Base). 

        Borrowing Base Certificate:    The borrowing base certificate in such form as the Bank may require from time to time to be
delivered by the Borrower to the Bank. 

        Business Day:    Any day (other than a Saturday, Sunday or legal holiday in the State of Minnesota) on which state banks are
permitted to be open in Minneapolis, Minnesota. 

        Capital Expenditure:    Any amount debited to the fixed asset account on the balance sheet of the Borrower in respect of
(a) the acquisition (including, without limitation, acquisition by entry into a Capitalized Lease), construction, improvement, replacement or betterment of land, buildings, machinery, equipment
or of any other fixed assets or leaseholds, (b) to the extent related to and not included in (a) above, materials, contract labor and direct labor (excluding expenditures properly
chargeable to repairs or maintenance in accordance with GAAP), and (c) other capital expenditures and other uses recorded as capital expenditures or similar terms having substantially the same
effect. 

        Capitalized Lease:    Any lease which is or should be capitalized on the books of the lessee in accordance with GAAP. 

        Code:    The Internal Revenue Code of 1986, as amended, or any successor statute, together with regulations thereunder. 

        Collateral:    The collateral as defined in Section 5.1. 

        Compliance Certificate:    The compliance certificate in such form as the Bank may require from time to time to be delivered by
the Borrower to the Bank. 

        Credit Party:    The Borrower, any guarantor of the Obligations, or any one or more of them. 

        Default:    Any event which, with the giving of notice to the Borrower or lapse of time, or both, would constitute an Event of
Default. 

        Eligible Inventory:    The dollar value of all raw materials and finished goods inventory held for sale or lease which are
merchantable and not unsaleable or obsolete, owned solely by the Borrower that is at all times subject to a first priority perfected security interest in favor of the Bank and is not subject to any
other Liens which the Bank deems to be Eligible Inventory. Without limiting the generality of the
foregoing, Eligible Inventory shall not include work-in-process inventory. Inventory which is at any time Eligible Inventory but which subsequently fails to meet any of the
foregoing requirements shall forthwith cease to be Eligible Inventory. The value of Eligible Inventory shall be the lower of the cost or market value of the Eligible Inventory computed in accordance
with GAAP on a first in, first out basis and shall be determined from the Borrowing Base Certificate and supporting reports delivered to the Bank pursuant to this Agreement. 

        Eligible Receivables:    The dollar value of any account receivable owing to the Borrower for services rendered or to be
rendered or goods sold in the ordinary course of business that has been invoiced, or consistent with the Borrower's past practice will be invoiced, to its customer by the Borrower, is owned solely by
the Borrower and is subject to a first priority perfected security interest in favor of the Bank at the time it comes into existence and continues to meet the same until it is collected in full and is
not 

2

 

subject to any other Liens which the Bank deems to be an Eligible Receivable. Without limiting the generality of the foregoing, a receivable shall not be an Eligible Receivable if: 

        (a)  it
has been unpaid more than 90 days past the invoice date thereof or it is owed by an account debtor which has 10% or more of its receivables unpaid more than
90 days past the invoice date thereof; 

        (b)  it
is subject to any Lien, other than the security interest of the Bank; 

        (c)  it
is not a valid, legally enforceable obligation of the account debtor to the full extent of its amount; 

        (d)  it
is subject to any setoff, counterclaim, credit allowance, retainage, current claim against the warranty or adjustment by the account debtor thereunder, or to any
claim by such account debtor denying liability thereunder in whole or in part, or such account debtor has refused to accept or has returned or offered to return any of the goods which are subject to
such receivable; 

        (e)  the
account debtor is also a supplier or creditor of the Borrower, to the extent of any contra account; 

        (f)    it
did not arise in the ordinary course of the Borrower's business; 

        (g)  any
notice of the bankruptcy, insolvency or financial impairment of the account debtor thereunder has been received by the Borrower; 

        (h)  it
arose out of any contract or order which by its terms, forbids or makes void or unenforceable its assignment by the Borrower to the Bank; 

        (i)    it
is a receivable owing by (1) the United States government or any department, agency or other subdivision thereof (except to the extent that the Borrower
complies with the Federal Assignment of Claims Act of 1940, as amended); (2) a Person located in any jurisdiction outside the United States or Canada; or (3) any Affiliate, shareholder
or employee of the Borrower; or 

        (j)    it
relates to retainages or progress billings. 

A
receivable which is at any time an Eligible Receivable but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be an Eligible Receivable. The amount of
Eligible Receivables shall be determined from the Borrowing Base Certificate and supporting reports delivered to the Bank pursuant to the terms of this Agreement. 

        ERISA:    The Employee Retirement Income Security Act of 1974, as amended, and any successor statute, together with regulations
thereunder. 

        ERISA Affiliate:    Any trade or business (whether or not incorporated) that is a member of a group of which the Borrower is a
member and which is treated as a single employer under Section 414 of the Code. 

        Event of Default:    Any event described in Section 10.1. 

        Federal Reserve Board:    The Board of Governors of the Federal Reserve System or any successor thereto. 

        Financing Statements:    UCC-1 Financing Statements naming the Borrower as debtor and the Bank as secured party and
describing the Collateral as the property covered thereby. 

        GAAP:    Generally accepted accounting principles, consistently applied. 

        Indebtedness:    Without duplication, all obligations, contingent or otherwise, which in accordance with GAAP should be
classified upon the obligor's balance sheet as liabilities, but in any event 

3

 

including the following (whether or not they should be classified as liabilities upon such balance sheet): (a) obligations secured by any mortgage, pledge, security interest, lien, charge or
other encumbrance existing on property owned or acquired subject thereto, whether or not the obligation secured thereby shall have been assumed and whether or not the obligation secured is the
obligation of the owner or another party; (b) any obligation on account of deposits or advances; (c) any obligation for the deferred purchase price of any property or services;
(d) any obligation as lessee under any Capitalized Lease; (e) all guaranties, endorsements and other contingent obligations respecting Indebtedness of others; and (f) undertakings
or agreements to reimburse or indemnify issuers of letters of credit. For all purposes of this Agreement (i) the Indebtedness of any Person shall include the Indebtedness of any partnership in
which such Person is a general partner, and (ii) the Indebtedness of any Person shall include the Indebtedness of any joint venture in which such Person is a joint venturer. 

        Investment:    The acquisition, purchase, making or holding of any stock or other security, any loan, advance, contribution to
capital, extension of credit (except for trade and customer accounts receivable for inventory sold or services rendered in the ordinary course of business and payable in accordance with customary
trade terms), any acquisitions of real or personal property (other than real and personal property acquired in the ordinary course of business) and any purchase or commitment or option to purchase
stock or other debt or equity securities of or any interest in another Person or any integral part of any business or the assets comprising such business or part thereof. 

        LIBOR Rate:    The "London Interbank Offered Rates (LIBOR)" for one month as published in the "Money Rates" column of  The Wall Street Journal on the first Business Day of each month (or, if The Wall Street Journal ceases
to publish a rate so designated, any similar successor rate as the Bank shall in good faith designate). 

        Lien:    Any security interest, mortgage, pledge, lien, hypothecation, judgment lien or similar legal process, charge,
encumbrance, title retention agreement or analogous instrument or device (including, without limitation, the interest of the lessors under Capitalized Leases and the interest of a vendor under any
conditional sale or other title retention agreement). 

        Loan Documents:    This Agreement, the Revolving Note, the Security Agreement, the Financing Statements, and each other
instrument, document, guaranty, security agreement, mortgage, or other agreement executed and delivered by the Borrower or any guarantor or party granting security interests in connection with this
Agreement, the Revolving Loans or any collateral for the Revolving Loans. 

        Obligations:    The obligation of the Borrower: (a) to pay the principal of and interest on the Revolving Note in
accordance with the terms hereof and thereof, and to satisfy all of the Borrower's other obligations to the Bank, whether hereunder or otherwise, whether now existing or hereafter incurred, matured or
unmatured including without limitation the obligations pursuant to letters of credit, direct
or contingent, joint or several, and including without limitation obligations to or credit from others in which the Bank has a direct or indirect interest (including without limitation
participations), including any extensions, modifications, renewals thereof and substitutions therefor; (b) to repay to the Bank all amounts advanced by the Bank hereunder or otherwise on behalf
of the Borrower, including, but without limitation, advances for principal or interest payments to prior secured parties, mortgagees or lienors, or for taxes, levies, insurance, rent, repairs to or
maintenance or storage of any of the Collateral; and (c) to pay all of the Bank's expenses and costs, together with the reasonable fees and expenses of its counsel in connection with the
preparation and negotiation of this Agreement and other Loan Documents, and any amendments thereto and the documents required hereunder or thereunder, or any proceedings brought or threatened to
enforce payment of any of the Obligations described in clauses (a) or (b) above. 

        PBGC:    The Pension Benefit Guaranty Corporation, established pursuant to Subtitle A of Title IV of ERISA, and any successor
thereto or to the functions thereof. 

4

 

        Permitted Lien:    Any Lien of a kind specified in paragraphs (a)-(f) of  Section 9.11.

        Person:    Any natural person, corporation, partnership, joint venture, firm, association, trust, unincorporated organization,
government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity. 

        Plan:    An employee benefit plan or other plan, maintained for employees of the Borrower or of any ERISA Affiliate, and subject
to Title IV of ERISA or Section 412 of the Code. 

        Reportable Event:    A reportable event as defined in Section 4043 of ERISA and the regulations issued under such
Section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that it be notified within
30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code and Section 302 of ERISA shall be a reportable
event regardless of the issuance of any such waivers in accordance with Section 412(d) of the Code. 

        Revolving Credit Expiration Date:    The date that first occurs: (i) April 30, 2004, or (ii) the date on
which the Revolving Credit Facility is terminated pursuant to Section 10.2. 

        Revolving Credit Facility:    The revolving credit facility under which the Bank may make loans to the Borrower in accordance
with Article 2 and the Revolving Note up to an aggregate principal amount at any one time outstanding not to exceed to the lesser of
(a) the Borrowing Base or (b) $5,000,000. 

        Revolving Interest Rate:    The annual rate of interest equal to the LIBOR Rate, as in effect on the date hereof and as the same
may adjust monthly, plus 2.25%. The Revolving Interest Rate shall automatically adjust on the first Business Day of each month in the event there has
been any change in the LIBOR Rate. Notwithstanding the foregoing, from and after the occurrence of any Default or Event of Default and continuing thereafter until such Default or Event of Default
shall be remedied to the written satisfaction of the Bank, the Revolving Interest Rate shall, at the election of the Bank, be that rate of interest that would otherwise be then in effect  plus 2.0%. The
Bank may lend to its customers at rates that are at, above, or below the Revolving Interest Rate. 

        Revolving Loans:    Any loans made by the Bank to the Borrower under the Revolving Credit Facility. 

        Revolving Note:    That certain Revolving Note dated the date hereof executed by the Borrower and made payable to the order of
the Bank in the original principal amount of $5,000,000, as it may be amended, modified, supplemented, restated or replaced from time to time. 

        Security Agreement:    That certain Security Agreement, dated the date hereof, executed by the Borrower, and delivered to the
Bank, as it may be amended, modified, supplemented, restated or replaced from time to time. 

        Subordinated Debt:    Any Indebtedness of the Borrower, now existing or hereafter created, incurred or arising, which is
subordinated in right of payment to the payment of the Obligations in a manner and to an extent that the Bank has approved in writing prior to the date hereof or prior to the creation of such
Indebtedness. 

        Subsidiary:    Any Person of which or in which the Borrower and its other Subsidiaries own directly or indirectly 50% or more
of: (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a
corporation, (b) the capital interest or profit interest of such Person, if it is a partnership, joint venture or similar entity, or (c) the beneficial interest of such Person, if it is
a trust, association or other unincorporated organization. 

5

 

        Tangible Net Worth:    As of any date of determination, the total of all assets appearing on the balance sheet of the Borrower,
prepared in accordance with GAAP, after deducting all proper reserves (including reserves for depreciation, obsolescence and amortization) minus all
Indebtedness of the Borrower; excluding, however, from the determination of total assets: (i) memberships, trademarks, trade names, service
marks, copyrights, patents, licenses, organization expenses, research and development expenses and other similar intangibles; (ii) all prepaid expenses, (iii) all deferred charges and
unamortized debt discount; (iv) treasury stock; (v) securities that are not readily marketable; (vi) any write-up in the book value of any assets subsequent to
December 31, 2001; (vii) amounts due from directors, officers, employees and Affiliates; and (viii) goodwill. 

        Trade Accounts Payable:    The trade accounts payable of any Person with a maturity of not greater than 90 days incurred
in the ordinary course of such Person's business. 

        Section 1.2    Accounting Terms and Calculations.    Except as
may be expressly provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder (including, without limitation, determination of
compliance with financial ratios and restrictions in Articles 8 and 9 hereof) shall be made in
accordance with GAAP consistently applied. 

        Section 1.3    Other Definitional Terms.    The words
"hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to Sections, Exhibits, Schedules and like references are
to this Agreement unless otherwise expressly provided. 

 ARTICLE 2    TERMS OF LENDING  

        Section 2.1    Revolving Credit Facility.    Subject to and
upon the terms and conditions hereof and in reliance upon the representations and warranties of the Borrower herein, the Bank agrees to make Revolving Loans to the Borrower under this  Section 2.1 from time to time from the date hereof until the Revolving Credit Expiration Date, during which period the Borrower may repay and
reborrow in accordance with the provisions hereof, provided, that the aggregate unpaid principal amount of all outstanding loans under this Section 2.1  shall not exceed the amount of the Revolving
Credit Facility at any time. If, at any time, or for any reason, the principal amount outstanding under the Revolving Loan exceeds
the Revolving Credit Facility, the Borrower shall immediately pay to the Bank, in cash, the amount of such excess. 

        Section 2.2    Borrowing Procedures.    Each time the Borrower
desires to obtain a loan under the Revolving Credit Facility pursuant to Section 2.1, such request shall be in writing (which may be by telecopy)
or by telephone, and must be given so as to be received by the Bank not later than 11:00 a.m., Minneapolis
time, on the date of the requested advance. Each request for a Revolving Loan shall specify (i) the borrowing date (which shall be a Business Day), and (ii) the amount of such Loan. Any
request for a Revolving Loan shall be deemed to be a representation that no event has occurred and is continuing, or will result from such Revolving Loan, which constitutes a Default or an Event of
Default, and that the Borrower's representations and warranties contained in Article 7 are true and correct as of the date of the Revolving Loan
as though made on and as of such date. Unless the Bank determines that any applicable condition specified in Article 6 has not been satisfied,
the Bank shall make the amount of the requested advance available to the Borrower at the Bank's principal office in Edina, Minnesota, in immediately available funds not later than 5:00 p.m.,
Minneapolis time, on the date requested. The Borrower shall be obligated to repay all advances the Bank reasonably determines were requested on behalf of the Borrower notwithstanding the fact that the
person requesting the same was not in fact authorized to do so. 

        Section 2.3    The Revolving Note.    The obligation of the
Borrower to repay any and all Revolving Loans made under Section 2.1 shall be evidenced by the Revolving Note of the Borrower, in form and
substance acceptable to the Bank, in the amount of $5,000,000 and dated as of the date of this 

6

 

Agreement. The Bank shall enter in its records the amount of each advance under, and the payments made on, the Revolving Credit Facility, and such records shall be deemed conclusive evidence of the
subject matter thereof, absent manifest error. 

 ARTICLE 3    INTEREST AND COSTS  

        Section 3.1    Interest on Revolving Loan.    The unpaid
principal amount of the Revolving Loan shall bear interest at the Revolving Interest Rate. 

        Section 3.2    Computation.    Interest on the Revolving Note
shall be computed on the basis of actual days elapsed and a year of 360 days. 

        Section 3.3    Payment Dates.    Interest accruing on the
Revolving Note shall be due and payable as specified in such Note. 

        Section 3.4    Increased Costs.    If, as a result of any
generally applicable law, rule, regulation, treaty or directive, or any generally applicable change therein or in the interpretation or administration thereof, or compliance by the Bank with any
generally applicable request or directive (whether or not having
the force of law) from any court, central bank, governmental authority, agency or instrumentality, or comparable agency: 

        (a)  any
tax, duty or other charge with respect to the Revolving Note or the Revolving Credit Facility is imposed, modified or deemed applicable, or the basis of taxation of
payments to the Bank of interest or principal of the Revolving Loans (other than taxes imposed on the overall net income of the Bank by the jurisdiction in which the Bank has its principal office) is
changed; 

        (b)  any
reserve, special deposit, special assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Bank is
imposed, modified or deemed applicable; 

        (c)  any
increase in the amount of capital required or expected to be maintained by the Bank or any Person controlling the Bank is imposed, modified or deemed applicable; or 

        (d)  any
other condition affecting this Agreement, the Revolving Loans or the Revolving Credit Facility is imposed on the Bank or the relevant funding markets; 

and
the Bank reasonably and in good faith determines that, by reason thereof, the cost to the Bank of making or maintaining the Revolving Loans or the Revolving Credit Facility is increased, or the
amount of any sum receivable by the Bank hereunder or under the Revolving Note is reduced; 

then, the Borrower shall pay to the Bank upon demand (which demand shall include sufficient evidence thereof) such additional amount or amounts as will
compensate the Bank (or the controlling Person in the instance of (c) above) for such additional costs or reduction. Determinations by the Bank for purposes of this  Section 3.5 of the
additional amounts required to compensate the Bank shall be conclusive in the absence of manifest error. In determining such
amounts, the Bank may use any reasonable averaging, attribution and allocation methods. 

        Section 3.5    Late Fees.    In the event that any interest is
not paid within 10 days after the due date thereof, the Borrower shall pay to the Bank upon demand a late charge equal to 5% of such overdue amount or $5.00, whichever is greater. This late
charge is in addition to any default rate of interest that may be imposed. 

        Section 3.6    Closing Fee.    The Borrower shall pay the Bank
a closing fee in the amount of $6,250, which will be due and payable upon execution of this Agreement. 

        Section 3.7    Compensating Balance Shortfall Fee.    The
Borrower agrees to maintain average collected balances in an aggregate amount of at least $2,500,000 in one or more depository products at 

7

 

the Bank (excluding any amounts swept to third party accounts) (the "Minimum Deposit Amount"). In the event that the aggregate of the average collected
balances of the Borrower's depository products at the Bank falls below the Minimum Deposit Amount in any quarter, then the Borrower shall pay to the Bank a compensating balance shortfall fee in an
amount equal to 0.50% per annum of such shortfall amount. Any compensating balance shortfall fee shall be calculated by the Bank and billed to the Borrower quarterly in arrears, and such amount shall
be payable upon receipt of the bill. 

 ARTICLE 4    PAYMENTS AND PREPAYMENTS  

        Section 4.1    Repayment.    Principal of the Revolving Loan
shall be due and payable as specified in the Revolving Note. 

        Section 4.2    Optional Prepayments.    The Borrower may prepay
the Revolving Loan in whole or in part at any time without premium or penalty. Any such prepayment must be accompanied by accrued and unpaid interest on the amount prepaid. 

        Section 4.3    Accelerated Payments.    Upon the occurrence of
an Event of Default and the acceleration of the Revolving Note, pursuant to and as permitted by Section 10.2, the Revolving Note and all other
Obligations, shall be immediately due and payable as provided in Section 10.2 and in the Revolving Note. 

        Section 4.4    Payments.    Payments and prepayments of
principal of, and interest on, the Revolving Note and all fees, expenses and other obligations under the Loan Documents shall be made without set-off or counterclaim in immediately
available funds not later than 2:00 p.m., Minneapolis time, on the dates due at the main office of the Bank in Edina, Minnesota. Funds received on any day after such time shall be deemed to
have been received on the next Business Day. Whenever any payment to be made hereunder or on the Revolving Note shall be stated to be due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall be included in the computation of any interest or fees. 

        Section 4.5    Debits; Advances.    The Bank is hereby
authorized to pay accrued interest on the Revolving Note, the principal of the Revolving Note, any and all other amounts due and payable under the Loan Documents, and any checks presented for payment,
by debiting any account of the Borrower at the
Bank or by making one or more advances under the Revolving Loan, all without further authorization of the Borrower. 

 ARTICLE 5    COLLATERAL SECURITY  

        Section 5.1    Composition of the Collateral.    The property
in which a security interest is, or is intended to be, granted pursuant to this Agreement, the Security Agreement, or any other Loan Document and the provisions of  Section 5.2 is herein
collectively called the "Collateral." The Collateral, together with all the
Borrower's other property of any kind held by the Bank, shall stand as one general, continuing collateral security for all of the Obligations, and may be retained by the Bank until all Obligations
have been satisfied in full, and the Revolving Credit Facility has terminated. 

        Section 5.2    Rights in Property Held by the Bank.    As
security for the prompt satisfaction of all Obligations, the Borrower hereby assigns, transfers and sets over to the Bank all of its right, title and interest in and to, and grants to the Bank a lien
on and a security interest in, any amounts which may be owing from time to time by the Bank to the Borrower in any capacity, including, but without limitation, any balance or share belonging to the
Borrower of any deposit or other account with the Bank, which lien and security interest shall be independent of any right of setoff which the Bank may have. 

        Section 5.3    Priority of Liens.    The liens as provided for
under this Agreement, the Security Agreement and the other Loan Documents shall be first and prior liens. 

8

 

        Section 5.4    Financing Statements.    The Borrower will
authorize, execute and deliver such security agreements, assignments, and UCC-1 financing statements (including amendments thereto and continuation statements thereof) in form satisfactory
to the Bank as the Bank may specify and will pay or reimburse the Bank for all costs of filing or recording the same in such public offices as the Bank may designate, and take such other steps as the
Bank shall direct, including the noting of the Bank's lien on the chattel paper or any vehicle certificates of title, in order to perfect the Bank's interest in the Collateral. 

 ARTICLE 6    CONDITIONS PRECEDENT  

        Section 6.1    Conditions of Initial Loan.    The obligation of
the Bank to make the initial Revolving Loan hereunder shall be subject to the satisfaction of the conditions precedent, in addition to the conditions precedent set forth in  Section 6.2 below, that
the Bank shall have received all of the following, in form and substance satisfactory to the Bank, each duly executed and
certified or dated the date hereof or such other date as is satisfactory to the Bank: 

        (a)  The
Revolving Note, duly executed by the Borrower. 

        (b)  The
Security Agreement, and any other security or pledge agreements as may be necessary to grant the Bank a first priority perfected security interest in all of the
Borrower's assets, duly executed by the Borrower. 

        (c)  The
Financing Statements, duly executed, if necessary, by the Borrower. 

        (d)  A
certificate of good standing issued by the Minnesota Secretary of State's office respecting the Borrower (and certificates of good standing from other jurisdictions
where the Borrower conducts business). 

        (e)  A
copy of the Borrower's Articles of Incorporation certified by the Minnesota Secretary of State's office. 

        (f)    A
Secretary's Certificate certifying (1) a copy of the Bylaws of the Borrower with all amendments thereto, (2) a copy of the corporate resolutions of the
Borrower authorizing the execution, delivery and performance of the Loan Documents to which it is a party, and (3) the names, titles, and signatures of the officers of the Borrower authorized
to execute the Loan Documents and to request advances hereunder. 

        (g)  Copies
of the policies of insurance or other evidence acceptable to the Bank in its absolute discretion showing that the insurance required by the Security Agreement and
the other Loan Documents is in full force and effect. 

        (h)  A
pre-funding collateral audit in form and substance, and conducted by auditors/appraisers, acceptable to the Bank in its sole discretion. 

        (i)    A
Borrowing Base Certificate duly executed by the Borrower. 

        (j)    Such
other documents or instruments as the Bank may request to consummate the transaction contemplated hereby. 

        Section 6.2    Conditions Precedent to all Loans.    The
obligation of the Bank to make any Revolving Loan hereunder shall be subject to the satisfaction of the following conditions precedent (and any request for a Revolving Loan shall be deemed a written
certification that such conditions precedent have been satisfied): 

        (a)  Before
and after giving effect to such Loan, the representations and warranties contained in Article 7 shall be
true and correct, as though made on the date of such Loan; and 

9

 

        (b)  Before
and after giving effect to such Loan, no Default or Event of Default shall have occurred and be continuing. 

        (c)  The
Borrower shall have delivered to the Bank a Borrowing Base Certificate duly executed by the Borrower. 

 ARTICLE 7    REPRESENTATIONS AND WARRANTIES  

        To induce the Bank to enter into this Agreement, and to grant the Revolving Credit Facility and to make Revolving Loans hereunder, the Borrower represents and
warrants to the Bank: 

        Section 7.1    Organization, Standing, Etc.    The Borrower is
a corporation duly incorporated and validly existing and in good standing under the laws of the State of Minnesota, and has all requisite corporate power and authority to carry on its businesses as
now conducted, to enter into the Loan Documents
and to perform its obligations under the Loan Documents. The Borrower is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character of the properties
owned, leased or operated by it or the business conducted by it makes such qualification necessary, and where the failure to so qualify could reasonably be expected to have a material adverse effect
on the business, operations, property, assets or condition (financial or otherwise) of the Borrower. The Borrower holds all certificates of authority, licenses and permits necessary to carry on its
business as presently conducted in each jurisdiction in which it is carrying on such business. 

        Section 7.2    Authorization and Validity.    The execution,
delivery and performance by the Borrower of the Loan Documents have been duly authorized by all necessary corporate action by the Borrower, and the Loan Documents constitute the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, subject to limitations as to enforceability which might result from bankruptcy,
insolvency, moratorium and other similar laws affecting creditors' rights generally and subject to limitations on the availability of equitable remedies. 

        Section 7.3    No Conflict; No Default.    The execution,
delivery and performance by the Borrower of the Loan Documents will not (a) violate any provision of any law, statute, rule or regulation or any order, writ, judgment, injunction, decree,
determination or award of any court, governmental agency or arbitrator presently in effect having applicability to the Borrower, (b) violate or contravene any provisions of the Articles of
Incorporation or Bylaws of the Borrower, or (c) result in a breach of or constitute a default under any indenture, loan or credit agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or any of its properties may be bound or result in the creation of any Lien on any asset of the Borrower, other than Liens in favor of the Bank and Permitted
Liens. The Borrower is not in default under or in violation of any such law, statute, rule or regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, loan
or credit agreement or other agreement, lease or instrument in any case in which the consequences of such default or violation could reasonably be expected to have a material adverse effect on the
business, operations, property, assets or condition (financial or otherwise) of the Borrower or on the ability of the Borrower to perform its obligations under the Loan Documents. 

        Section 7.4    Government Consent.    No order, consent,
approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority is required on the part of the Borrower to
authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, the Loan Documents. 

        Section 7.5    Financial Statements and Condition.    The
Borrower's financial statements as of March 31, 2002, as heretofore furnished to the Bank, fairly present the financial condition of the Borrower as at such date and the results of its
operations and changes in financial position for the period then ended. As of the dates of such financial statements, the Borrower has not had any material 

10

 

obligation, contingent liability, liability for taxes or long-term lease obligation which is not reflected in such financial statements or in the notes thereto. Since March 31,
2002, no event has occurred that could reasonably be expected to have a material adverse effect on the business, operations, property,
assets or condition (financial or otherwise) of the Borrower or on the ability of the Borrower to perform its obligations under the Loan Documents. 

        Section 7.6    Litigation.    There are no actions, suits or
proceedings pending or threatened against or affecting the Borrower or any of its properties before any court or arbitrator, or any governmental department, board, agency or other instrumentality
which, if determined adversely to the Borrower, could reasonably be expected to have a material adverse effect on the business, operations, property, assets or condition (financial or otherwise) of
the Borrower or on the ability of the Borrower to perform its obligations under the Loan Documents. 

        Section 7.7    Contingent Payments or Liabilities.    Except as
disclosed in the financial statements described in Section 7.5, the Borrower does not have any contingent payments or liabilities which are
material to the Borrower. 

        Section 7.8    Compliance.    The Borrower is in compliance
with all statutes and governmental rules and regulations applicable to it. 

        Section 7.9    Environmental, Health and Safety Laws.    There
does not exist any violation by the Borrower of any applicable federal, state or local law, rule or regulation or order of any government, governmental department, board, agency or other
instrumentality relating to environmental, pollution, health or safety matters which will or threatens to impose a material liability on the Borrower or which would require a material expenditure by
the Borrower to cure. The Borrower has not received any notice to the effect that any part of its operations or properties is not in material compliance with any such law, rule, regulation or order or
notice that it or its property is the subject of any governmental investigation evaluating whether any remedial action is needed to respond to any release of any toxic or hazardous waste or substance
into the environment, the consequences of which non-compliance or remedial action could reasonably be expected to have a material adverse effect on the business, operations, property,
assets or condition (financial or otherwise) of the Borrower or on the ability of the Borrower to perform its obligations under the Loan Documents. 

        Section 7.10    ERISA.    Each Plan complies with all material
applicable requirements of ERISA and the Code and with all material applicable rulings and regulations issued under the provisions of ERISA and the Code setting forth those requirements. No Reportable
Event, other than a Reportable Event for which the reporting requirements have been waived by regulations of the PBGC, has occurred and is continuing with respect to any Plan. All of the minimum
funding standards applicable to such Plans have been satisfied and there exists no event or condition which would permit the institution of proceedings to terminate any Plan under Section 4042
of ERISA. The current value of the Plans' benefits guaranteed under Title IV of ERISA does not exceed the current value of the Plans' assets allocable to such benefits. 

        Section 7.11    Regulation U.    The Borrower is not
engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (as defined in Regulation U of the Federal Reserve Board) and
no part of the proceeds of any Loan will be used to purchase or carry margin stock or for any other purpose which would violate any of the margin requirements of the Federal Reserve Board. 

        Section 7.12    Ownership of Property: Liens.    The Borrower
has good and marketable title to its real properties and good and sufficient title to its other properties, including all properties and assets referred to as owned by the Borrower in the financial
statements of the Borrower referred to in Section 7.5 (other than property disposed of since the date of such financial statement in the ordinary
course of business). None of the properties, revenues or assets of the Borrower is subject to a Lien, except for Permitted Liens. 

11

  

        Section 7.13    Taxes.    The Borrower has filed
all federal,
state and local tax returns required to be filed and has paid or made provision for the payment of all taxes due and payable pursuant to such returns and pursuant to any assessments made against it or
any of its property and all other taxes, fees and other charges imposed on it or any of its property by any governmental authority (other than taxes, fees or charges the amount or validity of which is
currently being contested in good faith by appropriate proceedings and with respect to which reserves in accordance with GAAP have been provided on the books of the Borrower). No tax Liens have been
filed and no material claims are being asserted with respect to any such taxes, fees or charges. The charges, accruals and reserves on the books of the Borrower in respect of taxes and other
governmental charges are adequate. 

        Section 7.14    Licenses and Infringement.    The Borrower
possesses adequate licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, to conduct its business substantially as now conducted and as presently proposed
to be conducted. There does not exist and there is no reason to anticipate that there may exist, any liability to the Borrower with respect to any claim of infringement regarding any franchise,
patent, copyright, trademark or trade name possessed or used by the Borrower. 

        Section 7.15    Investment Company Act.    The Borrower is not
an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended. 

        Section 7.16    Public Utility Holding Company Act.    The
Borrower is not a "holding company" or a "subsidiary company" of a holding company or an "affiliate" of a holding company or of a subsidiary company of a holding company within the meaning of the
Public Utility Holding Company Act of 1935, as amended. 

        Section 7.17    Subsidiaries.    The Borrower does not have any
Subsidiaries, other than August Technology International, LLC, a Minnesota limited liability company, and August Technology Limited, a UK corporation. 

        Section 7.18    Partnerships and Joint Ventures.    The
Borrower is not a partner (limited or general) in any partnerships and the Borrower is not a joint venturer in any joint ventures. 

        Section 7.19    Completeness of Disclosures.    No
representation or warranty by the Borrower contained herein or in any other Loan Document, or in any certificate or other document furnished heretofore or concurrently with the signing of this
Agreement or any other Loan Document by the Borrower to the Bank in connection with the transactions contemplated hereunder or under any other Loan Document, contains any untrue statement of a
material fact or omits to state a material fact which would prevent or materially inhibit the Borrower from performing this Agreement or any other Loan Document according to its terms. 

        Section 7.20    Survival of Representations.    All of the
representations and warranties set forth in the immediately preceding subsections shall survive until all the Obligations shall have been satisfied in full, and the Revolving Credit Facility has been
terminated. 

Each
of the foregoing warranties and representations shall be deemed to be repeated and reaffirmed on and as of the date any Revolving Loan is made hereunder by the Bank to the Borrower pursuant to  Article 2. 

 ARTICLE 8    AFFIRMATIVE COVENANTS  

        From the date of this Agreement and thereafter until the Revolving Credit Facility is terminated or expires and the Obligations have been paid in full, unless the
Bank shall otherwise expressly consent in 

12

 

writing, the Borrower will do all of the following and will cause each Subsidiary, if any, to do all of the following: 

        Section 8.1    Financial Statements and Reports.    Furnish to
the Bank: 

        (a)  As
soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, the Borrower's Annual 10-K Report as filed
with the Securities and Exchange Commission, which Report shall contain an unqualified opinion of the Borrower's independent certified public accountants of recognized standing selected by the
Borrower and acceptable to the Bank, along with a Compliance Certificate signed by the Borrower's Chief Financial Officer. 

        (b)  As
soon as available and in any event within 45 days after the end of each fiscal quarter of the Borrower, the Borrower's Quarterly 10-Q Report as
filed with the Securities and Exchange Commission, which Report shall contain an unqualified opinion of the Borrower's independent certified public
accountants of recognized standing selected by the Borrower and acceptable to the Bank, along with a Compliance Certificated signed by the Borrower's Chief Financial Officer. 

        (c)  As
soon as available and in any event within 30 days after the end of each month in which any amounts were outstanding under the Revolving Credit Facility, a
Borrowing Base Certificate (along with an aging of the Borrower's accounts receivable, and a listing of the Borrower's inventory) signed by the Borrower's Chief Financial Officer. 

        (d)  As
soon as available and in any event prior to 60 days before the start of any fiscal year, annual projections of the Borrower's business for such fiscal year, as
approved by the Borrower's board of directors, and in form and substance acceptable to the Bank. 

        (e)  Immediately
upon becoming aware of the occurrence, with respect to any Plan, of any Reportable Event (other than a Reportable Event for which the reporting requirements
have been waived by PBGC regulations) or any "prohibited transaction" (as defined in Section 4975 of the Code), a notice specifying the nature thereof and what action the Borrower proposes to
take with respect thereto, and, when received, copies of any notice from PBGC of intention to terminate or have a trustee appointed for any Plan. 

        (f)    Immediately
upon becoming aware of the occurrence thereof, notice of any violation as to any environmental matter by the Borrower and of the commencement of any judicial
or administrative proceeding relating to health, safety or environmental matters (i) in which an adverse determination or result could result in the revocation of or have a material adverse
effect on any operating permits, air emission permits, water discharge permits, hazardous waste permits or other permits held by the Borrower which are material to the operations of the Borrower, or
(ii) which will or threatens to impose a material liability on the Borrower to any Person or which will require a material expenditure by the Borrower to cure any alleged problem or violation. 

        (g)  From
time to time, such other information regarding the business, operation and financial condition of any Credit Party as the Bank may reasonably request. 

        Section 8.2    Financial Covenants.    

        (a)  Maintain
its ratio of current assets to current liabilities at all times equal to or greater than 2.0 to 1.0. 

        (b)  Maintain
its Tangible Net Worth at all times equal to or greater than $22,000,000. 

        (c)  Maintain
its ratio of total Indebtedness to Tangible Net Worth at all times equal to or less than 0.50 to 1.0. 

        Section 8.3    Corporate Existence.    Maintain its corporate
existence in good standing under the laws of its jurisdiction of incorporation and its qualification to transact business in each jurisdiction in which 

13

 

the character of the properties owned, leased or operated by it or the business conducted by it makes such qualification necessary. Without limiting the generality of the foregoing, the Borrower will
maintain all of its certificates, permits, licenses and agreements of any kind or nature necessary to the operation of its business in full force an effect and in good standing. 

        Section 8.4    Insurance.    Maintain with financially sound
and reputable insurance companies such insurance in such amounts and against such risks as is reasonably requested by the Bank or as may be required by law or as may be customary in the case of
reputable corporations engaged in the same or similar business and similarly situated, including, without limitation, property, hazard, fire, wind, hail, theft, collapse, comprehensive general public
liability, and business interruption insurance, and worker's compensation or similar insurance. The Borrower shall furnish to the Bank full information and written evidence as to the insurance
maintained by the Borrower or any Subsidiary. All policies shall contain the insurer's promise not to cancel the policy without 30 days prior written notice to the Bank at its address set forth
below. All policies shall name the Bank as an additional insured or lender loss payee, as appropriate, as its interests may appear. 

        Section 8.5    Payment of Taxes and Claims.    File all tax
returns and reports which are required by law to be filed by it and pay before they become delinquent all taxes, assessments and governmental charges and levies imposed upon it or its property and all
claims or demands of any kind (including, without limitation, those of suppliers, mechanics, carriers, warehouses, landlords and other like Persons) which, if unpaid, might result in the creation of a
Lien upon its property; provided that the foregoing items need not be paid if they are being contested in good faith by appropriate proceedings, and as
long as its title to its property is not materially adversely affected, its use of such property in the ordinary course of its business is not materially interfered with and adequate reserves with
respect thereto have been set aside on its books in accordance with GAAP. In addition, and without limitation, promptly pay all Trade Accounts Payable. 

        Section 8.6    Inspection; Collateral Audits.    Permit any
Person designated by the Bank to visit and inspect any of its properties, corporate books and financial records, to examine and to make copies of its books of accounts and other financial records, to
discuss its affairs, finances and accounts with, and to be advised as to the same by, its officers, and to conduct such collateral audits and appraisals, at such times and intervals as the Bank may
designate. The expenses of the Bank for such visits, inspections, examinations, audits and appraisals shall be at the expense of the Borrower. 

        Section 8.7    Maintenance of Properties.    Maintain its
properties used or useful in the conduct of its business in good condition, repair and working order, and supplied with all necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 

        Section 8.8    Books and Records.    Keep adequate and proper
records and books of account in which full and correct entries will be made of its dealings, business and affairs. 

        Section 8.9    Compliance.    Comply with the requirements of
all applicable state and federal laws, and of all rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject. 

        Section 8.10    ERISA.    Maintain each Plan in compliance with
all material applicable requirements of ERISA and of the Code and with all material applicable rulings and regulations issued under the provisions of ERISA and of the Code. 

        Section 8.11    Environmental Matters.    Observe and comply
with all laws, rules, regulations and orders of any government or government agency relating to health, safety, pollution, hazardous materials or other environmental matters to the extent
non-compliance could reasonably be expected to have a material adverse effect on the business, operations, property, assets or condition (financial or 

14

 

otherwise) of the Borrower or on the ability of the Borrower to perform its obligations under the Loan Documents. 

        Section 8.12    Notice of Litigation.    Promptly provide
written notice to the Bank of all litigation, arbitration or mediation proceedings, and of all proceedings by or before any court or governmental or regulatory agency affecting any Credit Party,
describing the nature thereof and the steps being taken with respect to such proceeding. 

        Section 8.13    Notice of Default.    Promptly provide written
notice to the Bank of any Default or Event of Default, describing the nature thereof and what action the Borrower proposes to take with respect thereto. 

        Section 8.14    Accounts.    Maintain the Borrower's primary
operating and depository account(s) at the Bank. 

 ARTICLE 9    NEGATIVE COVENANTS  

        From the date of this Agreement and thereafter until the Revolving Credit Facility is terminated or expires and the Obligations have been paid in full, unless the
Bank shall otherwise expressly consent in writing, the Borrower will not do any of the following and the Borrower will not cause or allow any of its Subsidiaries, if any, to do any of the following: 

        Section 9.1    Merger.    Merge or consolidate or enter into
any analogous reorganization or transaction with any Person. 

        Section 9.2    Sale of Assets.    Sell, transfer, assign, lease
or otherwise convey all or any part of its assets (whether in one transaction or in a series of transactions) to any Person other than in the ordinary course of business. 

        Section 9.3    Purchase of Assets.    Purchase or lease or
otherwise acquire any right, title or interest in or to, any real or personal property not directly related to or necessary in connection with its present operations. 

        Section 9.4    Plans.    Permit any condition to exist in
connection with any Plan which might constitute grounds for the PBGC to institute proceedings to have such Plan terminated or a trustee appointed to administer such Plan, permit any Plan to terminate
under any circumstances which would cause the lien provided for in Section 4068 of ERISA to attach to any of its properties, revenues or assets or permit the underfunded amount of Plan benefits
guaranteed under Title IV of ERISA to exceed $50,000. 

        Section 9.5    Change in Nature of Business.    Make any
material change in the nature of its business as carried on at the date hereof. 

        Section 9.6    Subsidiaries, Partnerships, Joint
Ventures.    Do any of the following: (a) form or acquire any corporation which would thereby become a Subsidiary, except that the Company may form or acquire
one or more Subsidiaries provided that the total amount of assets in such Subsidiaries does not exceed $500,000; or (b) form or enter into any partnership as a limited or general partner or
into any joint venture; without the prior written consent of the Bank which will not be unreasonably withheld. 

        Section 9.7    Other Agreements.    Enter into any agreement,
bond, note or other instrument with or for the benefit of any Person other than the Bank which would: (a) prohibit it from granting, or otherwise limit its ability to grant, to the Bank any
Lien on any of its assets or properties; or (b) be violated or breached by its performance of its obligations under the Loan Documents. 

        Section 9.8    Restricted Payments.    Either:
(a) purchase or redeem or otherwise acquire for value any shares of its stock, declare or pay any dividends or distributions thereon, make any distribution on, or payment on account of the
purchase, redemption, defeasance or other acquisition or retirement for 

15

 

value of, any of its shares of stock or set aside any funds for any such purpose; or (b) directly or indirectly make any payment on, or redeem, repurchase, defease, or make any sinking fund
payment on account of, or any other provision for, or otherwise pay, acquire or retire for value, any of its Indebtedness that is subordinated in right of payment to the Obligations (whether pursuant
to its terms or by operation of law), except for regularly-scheduled payments of interest and principal (which shall not include payments contingently required upon occurrence of a change of control
or other event) that are not otherwise prohibited hereunder or under the document or agreement stating the terms of such subordination. 

        Section 9.9    Investments.    Acquire for value, make, have or
hold any Investments, except: 

        (a)  Investments
outstanding on the date hereof and listed on Schedule 9.9; 

        (b)  direct
obligations of the United States of America; 

        (c)  extensions
of credit in the nature of accounts receivable or notes receivable arising from the sale of goods and services in the ordinary course of business; 

        (d)  commercial
paper issued by U.S. corporations rated "A-1" by Standard & Poor Corporation or "P-1" by Moody's Investors Service or
certificates of deposit or bankers' acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal Deposit Insurance Corporation); 

        (e)  the
currently outstanding $500,000 note receivable from Excelerate Technology, Ltd.; and 

        (f)    other
Investments in an aggregate amount not to exceed $1,000,000. 

        Section 9.10    Indebtedness.    Create, incur, issue, assume
or suffer to exist any Indebtedness, except: 

        (a)  the
Obligations; 

        (b)  Indebtedness
outstanding on the date hereof and listed on Schedule 9.10; 

        (c)  Trade
Accounts Payable; 

        (d)  any
Subordinated Debt; 

        (e)  Indebtedness
to Semiconductor Technology & Instruments in an amount not to exceed $3,000,000 incurred in connection with the planned acquisition as previously
disclosed to the Bank; and 

        (f)    Indebtedness
in an amount not to exceed $500,000 per year to finance Capital Expenditures permitted under the first sentence of  Section 9.16. 

        Section 9.11    Liens.    Create, incur, assume or suffer to
exist any Lien with respect to any property, revenues or assets now owned or hereafter arising or acquired, except: 

        (a)  Liens
in favor of the Bank; 

        (b)  Liens
existing on the date of this Agreement and disclosed on Schedule 9.11; 

        (c)  Deposits
or pledges to secure payment of workers' compensation, unemployment insurance, old age pensions or other social security obligations, in the ordinary course of
its business; 

        (d)  Liens
for taxes, fees, assessments and governmental charges not delinquent or to the extent that payments therefor shall not at the time be required to be made in
accordance with the provisions of Section 8.5; 

16

 

        (e)  Liens
of carriers, warehousemen, mechanics and materialmen, and other like Liens arising in the ordinary course of business, for sums not due or to the extent that
payment therefor shall not at the time be required to be made in accordance with the provisions of Section 8.5; and 

        (f)    Liens
in connection with the acquisition of Capital Expenditures as permitted under Section 9.16, provided that
such liens attach only to the property being acquired if the Indebtedness secured thereby is permitted under Section 9.10 and does not exceed
100% of the fair market value of such property at the time of acquisition thereof. 

        Section 9.12    Contingent Payments or Liabilities.    Either:
(i) endorse, guarantee, contingently agree to purchase or to provide funds for the payment of, or otherwise become contingently liable upon, any obligation of any other Person, except by the
endorsement of negotiable instruments for deposit or collection (or similar transactions) in the ordinary course of business, or (ii) agree to maintain the net worth or working capital of, or
provide funds to satisfy any other financial test applicable to, any other Person. 

        Section 9.13    Unconditional Purchase Obligations.    Enter
into or be a party to any contract for the purchase or lease of materials, supplies or other property or services if such contract requires that payment be made by it regardless of whether or not
delivery is ever made of such materials, supplies or other property or services. 

        Section 9.14    Transactions with Affiliates.    Enter into or
be a party to any transaction or arrangement, including, without limitation, the purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of its business and upon fair and reasonable terms no less favorable to it than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate. 

        Section 9.15    Use of Proceeds.    Permit any proceeds of the
Revolving Loans to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying any margin stock" within the meaning of
Regulation U of the Federal Reserve Board, as amended from time to time, and furnish to the Bank, upon its request, a statement in conformity with the requirements of Federal Reserve
Form U-1 referred to in Regulation U. 

        Section 9.16    Capital Expenditures.    Pay or incur, or
commit to pay or incur, any Capital Expenditures during any calendar year which exceed $3,000,000 in the aggregate without the prior written consent of the Bank which will not be unreasonably
withheld. Notwithstanding the foregoing, the Borrower may consummate the planned acquisition of Semiconductor Technology & Instruments and the capitalization
of inventory for engineering purposes, all upon the terms and conditions previously disclosed to the Bank. 

 ARTICLE 10    EVENTS OF DEFAULT AND REMEDIES  

        Section 10.1    Events of Default.    The occurrence of any one
or more of the following events shall constitute an Event of Default: 

        (a)  The
Borrower shall fail to make when due, whether by acceleration or otherwise, any payment of principal of, or interest on, the Revolving Note or any fee or other
amount required to be made to the Bank pursuant to the Loan Documents; or 

        (b)  Any
representation or warranty made or deemed to have been made by or on behalf of the Borrower in the Loan Documents or on behalf of the Borrower in any certificate,
statement, report or other writing furnished by or on behalf of the Borrower to the Bank pursuant to the Loan Documents or any other instrument, document or agreement shall prove to have been false or
misleading in any material respect on the date as of which the facts set forth are stated or certified or deemed to have been stated or certified; or 

17

 

        (c)  The
Borrower shall fail to comply with Section 8.1 or Section 8.2  hereof or any Section of Article 9 hereof; or 

        (d)  Any
Credit Party shall fail to comply with any agreement, covenant, condition, provision or term contained in the Loan Documents (and such failure shall not constitute
an Event of Default under any of the other provisions of this Section 10.1); or 

        (e)  An
Act of Bankruptcy shall occur with respect to any Credit Party; or 

        (f)    A
judgment or judgments for the payment of money in excess of the sum of $50,000 in the aggregate shall be rendered against any Credit Party and such Credit Party shall
not pay or discharge the same or
provide for its discharge in accordance with its terms, or procure a stay of execution thereof, prior to any execution on such judgments by such judgment creditor, within 30 days from the date
of entry thereof, and within said period of 30 days, or such longer period during which execution of such judgment shall be stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or 

        (g)  Any
property of any Credit Party (including, without limitation, the Collateral) shall be garnished or attached in any proceeding and such garnishment or attachment
shall remain undischarged for a period of 30 days during which execution is not effectively stayed; or 

        (h)  The
institution by the Borrower or any ERISA Affiliate of steps to terminate any Plan if in order to effectuate such termination, the Borrower or any ERISA Affiliate
would be required to make a contribution to such Plan, or would incur a liability or obligation to such Plan, in excess of $50,000, or the institution by the PBGC of steps to terminate any Plan; or 

        (i)    The
maturity of any Indebtedness of any Credit Party (other than Indebtedness under this Agreement) owed to the Bank, or the maturity of any indebtedness of any Credit
Party in an aggregate amount equal to or greater than $50,000 owed to others, shall be accelerated, or any Credit Party shall fail to pay any such Indebtedness when due or, in the case of such
Indebtedness payable on demand, when demanded, or any event shall occur or condition shall exist and shall continue for more than the period of grace, if any, applicable thereto and shall have the
effect of causing or permitting (any required notice having been given and grace period having expired) the Bank or the holder of any such Indebtedness in such aggregate amount or any trustee or other
Person acting on behalf of such holder to cause, such Indebtedness to become due prior to its stated maturity or to realize upon any collateral given as security therefor; or 

        (j)    The
Borrower or any Subsidiary shall fail to pay, withhold, collect or remit any tax or tax deficiency when assessed or due or notice of any state or federal tax lien
shall be filed or issued. 

        Section 10.2    Remedies.    If (a) any Event of Default
described in Section 10.1(e) shall occur, the Revolving Credit Facility shall automatically terminate and the outstanding unpaid principal
balance of the Revolving Note, the accrued interest thereon and all other obligations of the Borrower to the Bank under the Loan Documents shall automatically become immediately due and payable; or
(b) any other Event of Default shall occur and be continuing, then the Bank may take any or all of the following actions: (i) declare the Revolving Credit Facility to be terminated,
whereupon the Revolving Credit Facility shall terminate, and (ii) declare that the outstanding unpaid principal balance of the Revolving Note, the accrued and unpaid interest thereon and all
other obligations of the Borrower to the Bank under the Loan Documents to be forthwith due and payable, whereupon such Revolving Note, all accrued and unpaid interest thereon and all such obligations
shall immediately become due and payable, in each case without further demand or notice of any kind, all of which are hereby expressly waived, anything in this Agreement or in the Revolving Note to
the contrary notwithstanding. In addition, upon any Event of Default, the Bank may exercise all rights and remedies under any other instrument, document or agreement between the Borrower and the Bank,
and enforce all rights and remedies under any applicable law, including without limitation the rights and remedies available upon 

18

 

default to a secured party under the Uniform Commercial Code as adopted in the State of Minnesota, including, without limitation, the right to take possession of the Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which the Borrower hereby expressly waives) and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and, in connection therewith, the Borrower will on demand assemble the Collateral and make it available to the Bank at a place to be designated by the Bank
which is reasonably convenient to both parties. 

        Section 10.3    Offset.    In addition to the remedies set
forth in Section 10.2, the Bank or any other holder of any Note may offset any and all balances, credits, deposits (general or special, time or
demand, provisional or final), accounts or monies of the Borrower then or thereafter with the Bank or such other holder, or any obligations of the Bank or such other holder of such Note, against the
Indebtedness then owed by the Borrower to the Bank. Nothing in this Agreement shall be deemed a waiver or prohibition of the Bank's rights of banker's lien, offset, or counterclaim, which right the
Borrower hereby grants to the Bank. 

 ARTICLE 11    MISCELLANEOUS  

        Section 11.1    Waiver and Amendment.    No failure on the part
of the Bank or the holder of any Note to exercise and no delay in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right preclude any other or further exercise thereof or the exercise of any other power or right. The remedies herein and in any other instrument, document or
agreement delivered or to be delivered to the Bank hereunder or in connection herewith are cumulative and not exclusive of any remedies provided by law. No notice to or demand on the Borrower not
required hereunder or under any Note shall in any event entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Bank
or the holder of any Note to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of any provision of this Agreement or consent to any
departure by the Borrower therefrom shall be effective unless the same shall be in writing and signed by the Bank, and then such amendment, modifications, waiver or consent shall be effective only in
the specific instances and for the specific purpose for which given. 

        Section 11.2    Expenses and Indemnities.    Whether or not any
Loan is made hereunder, the Borrower agrees to reimburse the Bank upon demand for all reasonable expenses paid or incurred by the Bank (including filing and recording costs, and fees and expenses of
legal counsel) in connection with the preparation of the Loan Documents. After the execution and delivery of this Agreement, the Borrower agrees to reimburse the Bank upon demand for all reasonable
expenses paid or incurred by the Bank (including fees and expenses of legal counsel) in connection with any amendment, modification, interpretation, collection and enforcement of the Loan Documents.
The Borrower agrees to pay, and
save the Bank harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of the Loan Documents. The Borrower agrees to indemnify and hold
the Bank harmless from any loss or expense which may arise or be created by the acceptance of instructions for making Revolving Loans or disbursing the proceeds thereof. The obligations of the
Borrower under this Section 11.2 shall survive any termination or expiration of the Revolving Credit Facility and payment in full of the
Obligations. 

        Section 11.3    Notices.    Except when telephonic notice is
expressly authorized by this Agreement, any notice or other communication to any party in connection with this Agreement shall be in writing and shall be sent by manual delivery, facsimile
transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of 

19

 

sending thereof if sent by facsimile transmission, from a first Business Day after the date of sending if sent by overnight courier, or from four days after the date of mailing if mailed;  provided, however, that any notice to the Bank under Article 2 hereof shall be deemed to have been given only when received by the Bank. If
notice to the Borrower of any intended disposition of the Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if
given at least ten calendar days prior to the date of intended disposition or other action. 

        Section 11.4    Successors.    This Agreement shall be binding
on the Borrower and the Bank and their respective successors and assigns, and shall inure to the benefit of the Borrower and the Bank, and the successors and assigns of the Bank. The Borrower shall
not assign its rights or duties hereunder without the written consent of the Bank. 

        Section 11.5    Participations and Information.    The Bank may
sell participation interests in any or all of the Revolving Loans and in all or any portion of the Revolving Credit Facility to any Person. The Bank may furnish any information concerning the Borrower
in the possession the Bank from time to time to participants and prospective participants and may furnish information in response to credit inquiries consistent with general banking practice. 

        Section 11.6    Severability.    Any provision of the Agreement
which is prohibited or unenforceable in any jurisdiction shall, in such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions
hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 

        Section 11.7    Captions.    The captions or headings herein
are for convenience only and in no way define, limit or describe the scope or intent of any provision of this Agreement. 

        Section 11.8    Entire Agreement.    This Agreement and the
Revolving Note, and the other Loan Documents, embody the entire agreement and understanding between the Borrower and the Bank with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject matter hereof. 

        Section 11.9    Counterparts.    This Agreement may be executed
in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties hereto may execute this Agreement by signing any such counterpart. 

        Section 11.10    Governing Law.    The validity, construction
and enforceability of this Agreement and the Revolving Note shall be governed by the internal laws of the State of Minnesota, without giving effect to conflict of laws principles thereof. 

20

 

        THE
PARTIES HERETO have caused this Revolving Credit Agreement to be executed as of the date first above written. 

	 	 	AUGUST TECHNOLOGY CORPORATION
	

 	
 	

By:	

	

 	
 	

Title:	

	

 	
 	

4900 West 78th Street

Bloomington, MN 55435

Attention: Jeff O'Dell

Telephone: (952) 820-0080

Fax: (952) 820-0060
	

 	
 	

EXCEL BANK MINNESOTA
	

 	
 	

By:	

	

 	
 	

Title:	

Vice President
	

 	
 	

5050 France Avenue

Edina, MN 55410

Attention: Mr. Ryan McKinney

Telephone: (952) 836-3152

Fax: (952) 836-3140

21

	 
	 	List of Schedules                (TO BE COMPLETED BY THE BORROWER)
 

	9.9	 	Existing Investments
	9.10	 	Existing Indebtedness
	9.11	 	Existing Liens

 
 

COMPLIANCE CERTIFICATE    
  

        I,                        , the Chief Financial Officer of August
Technology Corporation, a Minnesota corporation (the
"Borrower"), acting on behalf of the Borrower under that certain Revolving Credit Agreement dated July 26, 2002 (as amended from time to time,
the "Agreement"), hereby certify to Excel Bank Minnesota (the "Bank") as follows (all capitalized terms
used herein have the meanings given to them in the Agreement): 

        As
of the Borrower's (quarter ended) (fiscal year ended)                        , 200  , the following amounts and ratios
were true and correct: 

	1.	 	Current Ratio	 	 	 
	 	 	a.	 	Current assets	 	$	 
	 	 	b.	 	Current liabilities	 	$	 
	 	 	c.	 	Actual Current Ratio (a to b)	 	$	 
	 	 	d.	 	Minimum Current Ratio (Section 8.2(a))	 	 	2.0 to 1.0
	

2.	
 	

Tangible Net Worth	
 	
 	

 
	 	 	a.	 	Total net worth	 	$	 
	 	 	b.	 	Goodwill	 	$	 
	 	 	c.	 	Due from Affiliates	 	$	 
	 	 	d.	 	Prepaid expenses	 	$	 
	 	 	e.	 	GAAP intangibles	 	$	 
	 	 	f.	 	Actual Tangible Net Worth (a — b — c — d — e)	 	$	 
	 	 	g.	 	Minimum Tangible Net Worth (Section 8.2(b))	 	$	22,000,000
	

3.	
 	

Indebtedness to Tangible Net Worth	
 	
 	

 
	 	 	a.	 	Total Indebtedness	 	$	 
	 	 	b.	 	Actual Tangible Net Worth (from 2.f. above)	 	$	 
	 	 	c.	 	Actual Indebtedness to Tangible Net Worth (a to b)	 	 	to 1.0
	 	 	d.	 	Maximum Indebtedness to Tangible Net Worth (Section 8.2 (c))	 	 	0.50 to 1.0
	

4.	
 	

Capital Expenditures	
 	
 	

 
	 	 	a.	 	Capital Expenditures during year to date	 	$	 
	 	 	b.	 	Maximum Capital Expenditures during year (Section 9.16)	 	$	3,000,000

        As
of the date of this Certificate, no event has occurred which constitutes a Default or an Event of Default, each as defined in the Agreement. 

	Dated:            , 200  	 	
 Signature of the Chief Financial Officer of August Technology Corporation

 
 

BORROWING BASE CERTIFICATE
  (DATED:                        )    
  

        I,                        , the Chief Financial Officer of August
Technology Corporation, a Minnesota corporation (the
"Borrower"), acting on behalf of the Borrower under that certain Revolving Credit Agreement dated July 26, 2002 (as amended from time to time,
the "Agreement"), hereby certify to Excel Bank Minnesota (the "Bank") as follows (all capitalized terms
used herein have the meanings given to them in the Agreement): 

        As
of the close of business on                        , 200            ,
the Borrowing Base and the unpaid principal balance of the Revolving Note were as follows:
 

	1.	 	Accounts Receivable	 	 	 	 	$	 	(1)
	2.	 	Less: Ineligibles	 	 	 	 	 	 	 
	 	 	        Over 90 days past invoice date	 	$	 	 	 	 	 
	 	 	        10% rule	 	$	 	 	 	 	 
	 	 	        Contra Accounts	 	$	 	 	 	 	 
	 	 	        Government & Foreign	 	$	 	 	 	 	 
	 	 	        Affiliates/shareholders/employees	 	$	 	 	 	 	 
	 	 	        Retainages, progress billings, other	 	$	 	 	 	 	 
	 	 	        Total Ineligibles	 	 	 	 	$	 	(2)
	3.	 	Eligible Receivables (Line 1 minus Line 2)	 	 	 	 	$	 	(3)
	4.	 	80% of Line 3	 	 	 	 	$	 	(4)
	5.	 	Inventory	 	 	 	 	$	 	(5)
	6.	 	Less: Ineligibles (WIP, other ineligibles)	 	 	 	 	$	 	(6)
	7.	 	Eligible Inventory (Line 5 minus Line 6)	 	 	 	 	$	 	(7)
	8.	 	25% of Line 7	 	 	 	 	$	 	(8)
	9.	 	Lesser of Line 8 or $1,000,000	 	 	 	 	$	 	(9)
	10.	 	Pre-Borrowing Base (Line 4 plus Line 9)	 	 	 	 	$	 	(10)
	11.	 	20% of Line 10	 	 	 	 	$	 	(11)
	12.	 	Lesser of Line 9 or Line 11	 	 	 	 	$	 	(12)
	13.	 	Borrowing Base (Line 4 plus Line 12)	 	 	 	 	$	 	(13)
	14.	 	Revolving Credit Facility (lesser of $5,000,000 or Line 13)	 	 	 	 	$	 	(14)
	15.	 	Unpaid Principal Balance of Revolving Note	 	 	 	 	$	 	(15)
	16.	 	Availability (or Shortfall) (Line 14 minus Line 15)	 	 	 	 	$	 	(16)

        Attached
hereto is an aging of the Borrower's accounts receivable as of the date hereof, and an aging of the Borrower's inventory as of the date hereof. 

        As
of the date of this Certificate, no event has occurred which constitutes a Default or an Event of Default, each as defined in the Agreement. 

	Dated:            , 200  	 	
 Signature of the Chief Financial Officer of August Technology Corporation

QuickLinks

Exhibit 10.31

REVOLVING CREDIT AGREEMENT

COMPLIANCE CERTIFICATE

BORROWING BASE CERTIFICATE (DATED: )

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00047-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00047-of-00352.parquet"}]]