AMENDED AND RESTATED LOAN AGREEMENT

Section 1.1   Certain Defined Terms

Section 1.2   General Principles Applicable to Definitions

Section 1.3   Accounting Terms

Section 1.4   UCC Terms

Section 2.1   The Loans.

(a)   Revolving Credit Line

(b)   Term Loan

Section 2.2   Manner of Borrowing

Section 2.3   Repayment of Principal.

(a)   Revolving Credit Line

(b)   Term Loan

Section 2.4   Interest on Loans.

(a)   General Provisions

(b)   Selection of Alternative Rates.

(c)   Applicable Days for Computation of Interest

(d)   Unavailable LIBOR Rate

(e)   Increased Costs

(f)   Increased Capital Requirements

(g)   Illegality

Section 2.5   Notes; Recordation of Loans.

(a)   Notes

(b)   Recordation of Loans

Section 2.6   Manner of Payments.

(a)   Form and Place of Payment

(b)   Authorization to Charge Borrower’s Account

(c)   Non-Business Days

Section 2.7   Prepayments

Section 2.8   Application of Payments.

(a)   Payments Before Default

(b)   Payments After Default

Section 2.9   Unused Commitment Fees

Section 3.1   Conditions to Initial Loan

(a)   Loan Documents

(b)   Borrower Authority

(c)   Certificate

(d)   Loan Fees

(e)   Evidence of Security

(f)   Evidence of Insurance

(g)   Consents

Section 3.2   Conditions to All Loans

(a)   Prior Conditions

(b)   Notice of Borrowing

(c)   No Default

(d)   Other Information

Section 4.1   Existence and Power

Section 4.2   Authorization

Section 4.3   Government Approvals, Etc.

Section 4.4   Binding Obligations, Etc.

Section 4.5   Litigation

Section 4.6   Financial Condition

Section 4.7   Title and Liens

Section 4.8   Intellectual Property

Section 4.9   Environmental Laws, Etc.

Section 4.10   Taxes

Section 4.11   Other Agreements

Section 4.12   Labor Matters

Section 4.13   Federal Reserve Regulations

Section 4.14   ERISA.

Section 4.15   Subsidiaries

Section 4.16   Not Investment Company, Etc.

Section 4.17   Representations as a Whole

Section 5.1   Use of Proceeds

Section 5.2   Payment

Section 5.3   Preservation of Corporate Existence, Etc.

Section 5.4   Visitation Rights

Section 5.5   Keeping of Books and Records

Section 5.6   Maintenance of Property, Etc.

Section 5.7   Compliance With Laws, Etc.

Section 5.8   Other Obligations

Section 5.9   Insurance

Section 5.10   Borrower Financial Information

(a)   Annual Audited Financial Statements

(b)   Monthly Unaudited Financial Statements

(c)   Monthly Compliance Certificates

(d)   Reports to Stockholders

(e)   Other

Section 5.11   Notification

Section 5.12   Payment of Expenses

Section 5.13   Additional Payments; Additional Acts

Section 5.14   Financial Covenants.

(a)   Debt to Tangible Net Worth Ratio

(b)   Fixed Charge Coverage Ratio

(c)   Minimum Net Income

Section 6.1   Dividends

Section 6.2   Liquidation, Merger, Sale of Assets

Section 6.3   Indebtedness

Section 6.4   Guaranties, Etc.

Section 6.5   Liens

Section 6.6   Investments

Section 6.7   Operations

Section 6.8   ERISA Compliance

Section 6.9   Accounting Change

Section 7.1   Events of Default

(a)   Payment Default

(b)   Breach of Warranty

(c)   Breach of Certain Covenants

(d)   Breach of Other Covenants

(e)   Extraordinary Situation

(f)   Cross-default

(g)   Involuntary Bankruptcy, Etc.

(h)   Voluntary Bankruptcy, Etc.

(i)   Judgment

(j)   ERISA

(k)   Change in Ownership or Control

(l)   Condemnation

(m)   Governmental Approvals

(n)   Other Government Action

(o)   Failure of Security

(p)   Invalidity of Loan Documents

Section 7.2   Consequences of Default.

(a)   General

(b)   Cash Collateral

Section 8.1   No Waiver; Remedies Cumulative

Section 8.2   Governing Law

Section 8.3   Consent to Jurisdiction

Section 8.4   Waiver of Jury Trial

Section 8.5   Notices

Section 8.6   Borrower’s Indemnity

Section 8.7   Assignment

Section 8.8   Set-Off

Section 8.9   Severability

Section 8.10   Survival

Section 8.11   Executed in Counterparts

Section 8.12   Conditions Not Fulfilled

Section 8.13   Entire Agreement; Amendment, Etc.

Section 8.14   Construction

Section 8.15   References to Loan Agreement

Section 8.16   USA Patriot Act Notice

Section 8.17   Oral Agreements Not Enforceable.

SCHEDULES

Schedule 1   -   Litigation

Schedule 2   -   Liens

Schedule 3   -   Intellectual Property Matters

Schedule 4   -   Environmental Matters

Schedule 5   -   Subsidiaries

Schedule 6   -   Indebtedness

EXHIBITS

Exhibit A-1   -   Revolving Note

Exhibit A-2   -   Term Note

Exhibit B   -   Security Agreement

THIS AMENDED AND RESTATED LOAN AGREEMENT (the “ Agreement ”) is made as of the 6th day of June, 2005, by and between KEY TECHNOLOGY, INC., an Oregon corporation (the “ Borrower ”), and BANNER BANK, a Washington banking corporation (the “ Lender ”).

A.   Borrower and Lender are parties to that certain Loan Agreement dated as of August 9, 2002, as amended by that certain Amendment to Loan Documents dated as of December 11, 2002, by that certain Letter Agreement dated March 24, 2003, by that certain Change In Terms Agreement dated May 1, 2003, by that certain Amendment to Loan Documents dated July 31, 2003, by that certain Letter Agreement dated July 26, 2004, by that certain Letter Agreement dated December 7, 2004, and by that certain Second Amendment to Loan Agreement dated March ___31___, 2005 (as amended, restated, supplemented or otherwise modified, the “ Existing Agreement ”), pursuant to which Lender agreed to make and has made revolving and term loans to Borrower.

B.   The revolving credit facility under the Existing Loan Agreement expired on April 10, 2005, and Borrower has requested Lender to extend the expiration date of such revolving credit facility until April 10, 2006, and to make certain other modifications to, and otherwise amend and restate the Existing Agreement in its entirety, which Lender has agreed to do so on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, the parties hereto hereby agree to amend and restate the Existing Agreement in its entirety as follows:

Section 1.1   Certain Defined Terms.   As used in this Agreement, the following terms have the following meanings:

“ Affiliate ” means any Person who, directly or indirectly, controls or is controlled by or is under common control with such Person.

“ Agreement ” means this Loan Agreement as it may be amended, restated, supplemented or otherwise modified from time to time.

“ Bankruptcy Code ” means Title 11 of the United States Code entitled “Bankruptcy,” as amended from time to time.

“ Borrower ” means Key Technology, Inc., an Oregon corporation, and any Successor.

“ Business Day ” means any day other than Saturday, Sunday or other day on which banks are authorized or obligated to close in Walla Walla, Washington, except that in the context of the selection of a Loan accruing interest at the Revolving LIBOR Rate or the calculation of the

 Revolving LIBOR Rate for any Interest Period, in which event “Business Day” means any day, other than Saturday, Sunday or other day on which banks are authorized or obligated to close in Walla Walla, Washington, and on which dealings are carried on in the London interbank market.

“ BV Credit Facility ” means the credit facility made available by ABN AMRO Bank N.V. to Key Technology BV, a wholly-owned Subsidiary of Borrower, comprised of a revolving line of credit and a term loan, secured in each case by the assets and properties of Key Technology BV.

“ Capital Leases ” means for any Person, all obligations of such Person under leases which shall have been, or in accordance with GAAP, should be recorded as capital leases.

“ Cash Equivalents ” means for any Person, (i) marketable direct obligations issued or unconditionally guaranteed by the United States government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) commercial paper maturing no more than one year from the date issued and, at the time of acquisition, having a rate of at least A-1 from Standard & Poor’s Rating Services or at least P-1 from Moody’s Investors Service, Inc.; (iii) certificates of deposit or bankers’ acceptances maturing within one year from the date of issuance thereof issued by, or overnight reverse repurchase agreements from any commercial bank organized under the laws of the United States or any state thereof or the District of Columbia having combined capital and surplus of not less than One Hundred Million Dollars ($100,000,000); (iv) time deposits maturing no more than thirty (30) days from the date of creation thereof and demand deposits with commercial banks having membership in the Federal Deposit Insurance Corporation in amounts not exceeding the lesser of One Hundred Thousand Dollars ($100,000) or the maximum amount of insurance applicable to the aggregate amount of such Person’s deposits at such institution; and (v) deposits or investments in mutual or similar funds offered or sponsored by brokerage or other companies having membership in the Securities Investor Protector Corporation investing only in obligations described in clauses (i) through (iv) above.

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

“ Collateral ” means the property in which the Security Documents create or purport to create a security interest or other lien in favor of Lender.

“ Commitment ” means Lender’s obligation to make Revolving Loans.

“ Controlled Group ” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code.

“ Credit Utilization ” means, as of any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans; plus (ii) the Letter of Credit Usage.

“ Current Balance Sheet ” has the meaning given in Section 4.6 .

“ Default ” means any event which but for the passage of time, the giving of notice, or both would be an Event of Default.

“ EBITDA ” means, for any period, for any Person, an amount equal to the net income of such Person for such period plus the sum of the following to the extent deducted in calculating such net income (i) interest expense (exclusive of interest income) of such Person (including capitalized interest) and the interest component of rentals paid or accrued under Capital Leases, (ii) income tax expense of such Person, (iii) depreciation, amortization and other non-cash charges to income and (iv) non-cash extraordinary, unusual or nonrecurring expenses or losses, in each case determined in accordance with GAAP for such period.

“ Environmental Laws ” means all federal, state and local statutes, regulations, ordinances, and requirements, now or hereafter in effect, pertaining to environmental protection, contamination or cleanup, including without limitation (i) the Federal Resource Conservation and Recovery Act of 1976 (42 U.S.C. § 6901, et seq .), (ii) the Federal Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601, et seq .), (iii) the Federal Hazardous Materials Transportation Control Act (49 U.S.C. § 1801, et seq .), (iv) the Federal Clean Air Act (42 U.S.C. § 7401, et seq .), (v) the Federal Water Pollution Control Act, Federal Clean Water Act (33 U.S.C. § 1251, et seq .), (vi) the Federal Insecticide, Fungicide, and Rodenticide Act, Federal Pesticide Act (7 U.S.C. § 136, et seq .), (vii) the Federal Toxic Substances Control Act (15 U.S.C. § 2601, et seq .), (viii) the Federal Safe Drinking Water Act (42 U.S.C. § 300f, et seq .), (ix) the Washington Model Toxics Control Act (RCW 70.105(d), et seq. ), (x) the Washington Underground Petroleum Storage Tanks Act (RCW Chapter 70.148, et seq. ), (xi) Washington Water Pollution Control Act (RCW 90.48, et seq. ), (xii) Washington Oil and Hazardous Substance Spill Prevention and Response Act, (RCW 90.56, et seq. ), (xiii) Washington Clean Air Act (RCW 70.94, et seq. ), (xiv) Washington Hazardous Waste Management Act (RCW 70.105, et seq. ), (xv) State Environmental Policy Act (RCW 43.21C, et seq. ), (xvi) Pollution Disclosure Act of 1971 (RCW 90.52, et seq. ), (xvii) Hazardous Substances, Radiation Sources (ORS §§ 453.01, et seq. ), (xviii) Solid Waste Control (ORS §§ 459.005, et seq. ), (xix) Hazardous Waste and Hazardous Materials I (ORS §§ 465.003, et seq. ), (xx) Hazardous Waste and Hazardous Materials II (ORS §§ 466.005, et seq. ), (xxi) Air Quality (ORS §§ 468A.005, et seq. ), (xxii) Water Quality (ORS §§ 468B.005, et seq. ), (xxiii) Oregon Drinking Water Quality Act (ORS §§ 448.115, et seq. ) and (xxiv) Ground Water Act of 1955, ORS §§ 537.505, et seq. ), all as now or hereafter amended.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ Event of Default ” has the meaning given in Section 7.1 .

“ Financial Transaction Liability ” means (i) any overdraft on any account maintained by Borrower or any Subsidiary with Lender, (ii) liabilities owing by Borrower or any Subsidiary to Lender with respect to bank card services and (iii) liabilities incurred by Lender as a result of Automated Clearing House transactions for the account of Borrower or any Subsidiary.

“ Funded Debt ” means, for any Person, without duplication (i) all indebtedness or liability of such Person for borrowed money or for the deferred purchase price of property (other than trade payables entered into in the ordinary course of business on ordinary terms), (ii) all non-contingent reimbursement or payment obligations with respect to letters of credit, bankers acceptances, surety bonds and similar instruments, (iii) all obligations of such Person with

respect to Capital Leases that are capitalized in the balance sheet of such Person, (iv) all indebtedness or liability of such Person for the mandatory redemption of its preferred stock and (v) all indebtedness or liability for borrowed money or for the deferred purchase price of property (other than trade payables entered into in the ordinary course of business on ordinary terms) or for Capital Leases for which such Person is directly or contingently liable as obligor, guarantor, or otherwise, or in respect of which such Person otherwise assures a creditor against loss.

“ GAAP ” shall have the meaning given in Section 1.3 .

“ Government Approval ” means an approval, permit, license, authorization, certificate, or consent of any Governmental Authority.

“ Governmental Authority ” means the government of the United States or any State or any foreign country or any political subdivision of any thereof or any branch, department, agency, instrumentality, court, tribunal or regulatory authority which constitutes a part or exercises any sovereign power of any of the foregoing.

“ Hazardous Substances ” means any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous, toxic or radioactive substance, or other similar terms, by any federal, state or local environmental statute, regulation or ordinance presently in effect, including but not limited to the Environmental Laws.

“ Indebtedness ” means, for any Person, without duplication:

(a)   all indebtedness for borrowed money;

(b)   all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than indebtedness or liability for borrowed money deferred for a period of more than six months from the date of incurrence or trade payables entered into in the ordinary course of business on ordinary terms);

(c)   all non-contingent reimbursement or payment obligations with respect to letters of credit, bankers acceptances, surety bonds and similar instruments;

(d)   all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses;

(e)   the net obligations of such Person under an interest rate swap agreement or similar rate swap master agreement in an amount equal to (i) if such swap agreement has been closed out, the termination value thereof, or (ii) if such swap agreement has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in such swap agreement;

(f)   all indebtedness created or arising under any conditional sale or other title retention agreement (excluding any operating lease), or incurred as financing, in either case with respect to property acquired by such Person (even though the rights and

       remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property);

(g)   all obligations with respect to Capital Leases or Synthetic Leases;

(h)   all indebtedness referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and

(i)   all liabilities in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (h) above for which such Person is directly or contingently liable as obligor, guarantor, or otherwise, or in respect of which such Person otherwise assures a creditor against loss.

For purposes of this Agreement, the Indebtedness of any Person shall include all recourse Indebtedness of any partnership or joint venture formed as a partnership where such Person is a general partner or is otherwise liable for the Indebtedness of such partnership or joint venture, unless such Indebtedness is expressly made non-recourse to such Person and except for customary exceptions acceptable to Lender.

“ Intellectual Property ” means, as to any Person, all of the following:

(a)   all trademarks, service marks, designs, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, other source or business identifiers owned or used by such Person in its business or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations and pending applications in the United States Patent and Trademark Office, any State of the United States or any similar offices in any other country or any political subdivision thereof, and all extensions or renewals thereof;

(b)   all letters patent of the United States or any other country or any political subdivision thereof, all registrations and recordings thereof, and all applications for letters patent of the United States or the equivalent thereof in any other country owned by such Persons, including registrations, recordings and pending applications in the United States Patent and Trademark Office or the equivalent thereof in any similar offices in any other country, and all reissues, continuations, divisions, continuations-inpart, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein;

(c)   all computer programs, computer data bases, other computer software, trade secrets, trade secret rights, ideas, drawings, designs, schematics, algorithms, writings, techniques, processes and formulas owned or used by such Person in its business; and

(d)   all copyright rights of such Person in any work subject to the copyright laws of the United States, any state thereof or any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, whether as author, assignee, transferee or otherwise, and all registrations and applications for registration of any such copyright in the United States, any state thereof or any other country or any political subdivision thereof, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office or in any similar offices in any other country.

“ Interest Period ” means, with respect to any LIBOR Rate Loan, the period commencing on the first day Borrower elects to have such LIBOR Rate apply to such Loan and ending one (1), two (2) or three (3) months thereafter, as specified in the Interest Rate Notice given in respect of such Loan, or as otherwise determined pursuant to Section 2.4(b) ; provided , however , that no Interest Period may be selected for any Loan if it extends beyond the Revolving Maturity Date.

“ Interest Rate Notice ” has the meaning given in Section 2.4(b) .

“ Lender ” means Banner Bank, a Washington banking corporation, and its Successors.

“ Letter of Credit ” means any standby or commercial letter of credit issued by Lender for Borrower’s account.

“ Letter of Credit Application ” means a letter of credit application in the standard form then used by Lender executed and delivered by Borrower in respect of a Letter of Credit.

“ Letter of Credit Usage ” means, as of any date of determination, the sum of (i) the aggregate face amount of all outstanding unmatured Letters of Credit plus (ii) the aggregate amount of all payments made by Lender under Letters of Credit and not yet reimbursed by Borrower.

“ LIBOR Rate ” means, for any Interest Period, the rate (expressed as a decimal) reported as the London Interbank Offered Rate as made available by the British Bankers Association (“ BBA ”) equal to the average per annum interest rate (rounded upward to the nearest 1/100th of one percent) at which U.S. dollar deposits would be offered for such Interest Period by major banks in the London interbank market. The LIBOR rate is determined by the BBA on each Business Day at approximately 11:00 a.m. (London time). If the BBA ceases reporting London Interbank Offered Rates comparable to those currently reported, the LIBOR Rate shall be another reasonably comparable rate selected by Lender.

“ LIBOR Rate Loan ” means any Revolving Loan (or portion thereof) bearing interest at the Revolving LIBOR Rate.

“ Lien ” means, for any Person, any security interest, pledge, mortgage, charge, assignment, hypothecation, encumbrance, attachment, garnishment, execution or other voluntary or involuntary lien upon or affecting the revenues of such Person or any real or personal property in which such Person has or hereafter acquires any interest.

“ Loan Documents ” means, collectively, this Agreement, the Notes, the Letter of Credit Applications and the Security Documents, as any thereof shall be amended, restated, supplemented or otherwise modified from time to time and all other certificates, instruments and other documents executed by Borrower in connection with this Agreement or the transactions contemplated hereby.

“ Loans ” means, collectively, the Revolving Loans and the Term Loan, and “ Loan ” means any Revolving Loan or the Term Loan as the case may be.

“ Note ” and “ Notes ” have the meanings given in Section 2.5(a) .

“ Notice of Borrowing ” means a request for a Loan from Borrower delivered to Lender in the manner, at the time and containing the information required under Section 2.2 .

“ Officer’s Certificate ” means a certificate executed and delivered on behalf of Borrower by a Responsible Officer.

“ PBGC ” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“ Pension Plan ” means an “employee pension benefit plan” (as such term is defined in ERISA) from time to time maintained by Borrower or a member of a Controlled Group.

“ Permitted Liens ” means: (i) Liens securing Taxes which are not delinquent or which remain payable without penalty (excluding any Liens imposed pursuant to any of the provisions of ERISA) or the validity or amount of which is being contested in good faith by appropriate proceedings, so long as (A) adequate reserves or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefor, and (B) in the case of a Lien against any of the Collateral, such contest proceedings operate to stay the sale of any portion of the Collateral to satisfy such Taxes; (ii) Liens imposed by law (such as mechanics’, processor’s, materialmen’s, carriers’, warehousemen’s and landlord’s liens) incurred in good faith in the ordinary course of business which are not delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings, so long as (A) adequate reserves or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefor, and (B) in the case of a Lien against any of the Collateral, such contest proceedings operate to stay the sale of any portion of the Collateral to satisfy the obligation secured by such Lien; (iii) Liens arising in connection with worker’s compensation, unemployment insurance, old age pensions and social security benefits which are not delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings, so long as (A) adequate reserves or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefor, and (B) in the case of a Lien against any of the Collateral, such contest proceedings operate to stay the sale of any portion of the Collateral to satisfy the obligation secured by such Lien; (iv) Liens incurred or deposits made in the ordinary course of business to secure the performance of bids, tenders, statutory obligations, fee and expense arrangements with trustees and fiscal agents (exclusive of obligations incurred in connection with the borrowing of money) and customary deposits granted in the ordinary course of business under operating leases;

 (iv) Liens securing surety, indemnity, performance, appeal and release bonds; (v) customary rights of set off, revocation, refund or chargeback under deposit agreements or under the UCC in favor of banks or other financial institutions where Borrower or any Subsidiary maintains deposits in the ordinary course of business; (vi) Liens constituting encumbrances in the nature of zoning restrictions, condemnations, easements, encroachments, covenants, rights of way, minor defects, irregularities and rights or restrictions of record on the title or use of real property, which, in the reasonable judgment of Lender, do not materially detract from the value of such property or materially impair the use thereof in the business of Borrower or any Subsidiary; and (vii) judgment Liens that have been bonded or execution thereon stayed pending appeal.

“ Person ” shall mean any natural person, corporation, unincorporated organization, trust, joint stock company, joint venture, association, company, limited liability company, partnership or government, or any agency or political subdivision of any government.

“ Plan ” means, at any time, an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by Borrower or any member of a Controlled Group for employees of Borrower or any member of a Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which Borrower or any member of a Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions.

“ Prime Rate ” means, on any day, the prime rate as published in The Wall Street Journal in its “Money Rates” section (or if The Wall Street Journal shall cease to be published or to publish such rates, in such other nationally recognized publication as Lender may, from time to time, specify) on such day, or if The Wall Street Journal is not published on such day, on the last day before such day on which The Wall Street Journal is published, whether or not such rate is actually ever charged or paid by any Person. Any change in the Prime Rate shall take effect on the day such change is published in The Wall Street Journal .

“ Prime Rate Loan ” means any Revolving Loan (or portion thereof) bearing interest at the Revolving Prime Rate and the Term Loan.

“ Purchase Money Lien ” means a Lien securing Indebtedness incurred in connection with the acquisition of fixed or capital assets acquired after the date of this Agreement so long as (i) such Lien shall attach only to the property to be acquired, (ii) a description shall have been furnished to Lender for any item or group of items acquired in a single transaction or in a series of related transactions for which the purchase price is greater than Two Hundred Fifty Thousand Dollars ($250,000), and (iii) the Indebtedness incurred shall not exceed the purchase price of the item or items of fixed or capital assets purchased.

“ Responsible Officer ” means any of the President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of Borrower.

“ Revolving Commitment Amount ” means Ten Million Dollars ($10,000,000).

“ Revolving Commitment Period ” has the meaning given in Section 2.1(a) .

“ Revolving Interest Rate ” means for each Revolving Loan (or portion of thereof) (i) the Prime Rate minus one and one half percent (1.50%) or (ii) the LIBOR Rate plus one and one tenth percent (1.10%), in each case as designated by Borrower in an Interest Rate Notice given with respect to such Revolving Loan (or portion thereof) or as otherwise determined pursuant to Section 2.4(b) .

“ Revolving LIBOR Rate ” has the meaning given in Section 2.4(b) .

“ Revolving Loans ” has the meaning given in Section 2.1(a) .

“ Revolving Maturity Date ” means April 10, 2006.

“ Revolving Note ” has the meaning given in Section 2.5(a) .

“ Revolving Prime Rate ” has the meaning given in Section 2.4(b) .

“ Security Agreement ” means that certain Security Agreement dated as of August 9, 2002, executed by Borrower in favor of Lender substantially in the form of Exhibit B attached hereto, as such security agreement may be amended, restated, supplemented or otherwise modified from time to time.

“ Security Documents ” means (i) the Security Agreement, (ii) all financing statements, fixture filings, landlord waivers and notices of security interests filed in connection with the Security Agreement, and (iii) all other documents and instruments executed by Borrower or any Subsidiary in connection therewith.

“ Subsidiary ” means, for any Person, any corporation directly or indirectly controlled by such Person. For the purposes of this definition, “controlled by” shall mean the possession, directly or indirectly of the power to direct or cause the direction of the management or policies of such Subsidiary, whether through the ownership of voting securities, by contract, or otherwise. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of Borrower.

“ Successor ” means, for any corporation, partnership or banking association, any successor by merger or consolidation, or by acquisition of substantially all of the assets of the predecessor, or by conversion to another type of legal entity, or by continuation after and the occurrence of an event that would otherwise result in termination under applicable law but for such continuation.

“ Synthetic Lease ” means (i) a so-called synthetic, off-balance sheet or tax retention lease, or (ii) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment).

“ Tangible Net Worth ” means, for any Person, the excess of total assets of such Person over total liabilities of such Person, excluding, however, from the determination of total assets (i) all assets which should be classified as intangible assets, (ii) treasury stock, (iii) cash held in a

sinking or other similar fund established for the purpose of redemption or other retirement of capital stock, (iv) to the extent not already deducted from total assets, reserves for depreciation, depletion, obsolescence or amortization of properties and other reserves or appropriations of retained earnings which have been or should be established in connection with the business conducted by such Person, and (v) any re-evaluation or other write-up in book value of assets subsequent to the fiscal year of such Person ending immediately prior to the date hereof.

“ Tax ” means, for any Person, any tax, assessment, duty, levy, impost or other charge imposed by any Governmental Authority on such Person or on any property, revenue, income, or franchise of such Person and any interest or penalty with respect to any of the foregoing.

“ Term Loan ” has the meaning given in Section 2.1(b) .

“ Term Loan Maturity Date ” means July 31, 2007.

“ Term Note ” has the meaning given in Section 2.5(a) .

“ UCC ” shall have the meaning given in Section 1.4 .

“ Unfunded Capital Expenditures ” means, for any period, for any Person, the aggregate amount of expenditures made by such Person during such period for the purchase or other acquisition of fixed or capital assets less an amount equal to the aggregate principal amount of all Indebtedness (including Capital Leases) other than Loans assumed or incurred by such Person during such period for the purpose of financing such capital expenditures.

“ Unfunded Vested Liabilities ” means, with respect to any Plan at any time, the amount (if any) by which (a) the present value of all vested non forfeitable benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of Borrower or any member of a Controlled Group to the PBGC or the Plan under Title IV of ERISA.

“ United States ” and “ U.S. ” each means the United States of America.

Section 1.2      General Principles Applicable to Definitions.  Definitions given herein shall be equally applicable to both singular and plural forms of the terms therein defined and references herein to “he” or “it” shall be applicable to Persons whether masculine, feminine or neuter. References herein to any document including, but without limitation, this Agreement shall be deemed a reference to such document as it now exists, and as, from time to time hereafter, the same may be amended. References herein to any section, subsection, Schedule or Exhibit shall, unless otherwise indicated, be deemed a reference to sections and subsections within, and Schedules and Exhibits to, this Agreement.

Section 1.3      Accounting Terms.  Except as otherwise provided herein, accounting terms not specifically defined shall be construed, and all accounting procedures shall be performed, in accordance with generally accepted United States accounting principles consistently applied from and after the date hereof (“ GAAP ”) and as in effect on the date of application.

Section 1.4      UCC Terms.  Except as otherwise provided herein, terms used herein that are defined in the UCC have the meanings given to them in the Uniform Commercial Code (the “ UCC ”) as the same may, from time to time, be in effect in the State of Washington.

Section 2.1      The Loans. 

(a)      Revolving Credit Line.  Subject to the terms and conditions of this Agreement, Lender agrees during the period from the date this Agreement is executed and delivered by the parties hereto until the Revolving Maturity Date (the “ Revolving Commitment Period ”) to make loans (the “ Revolving Loans ”) requested by Borrower in a Notice of Borrowing given under this Agreement; provided that, after giving effect to any such requested borrowing the Credit Utilization will not exceed the Revolving Commitment Amount. The Revolving Loans described in this Section 2.1(a) constitute a revolving credit, and up to the Revolving Commitment Amount and during the Revolving Commitment Period, Borrower may pay, prepay and reborrow.

(b)      Term Loan.   On or about August 9, 2002, Lender made a term loan to Borrower (the “ Term Loan ”) in the initial principal amount of Four Million Dollars ($4,000,000).

Section 2.2      Manner of Borrowing.   For each requested Revolving Loan, Borrower shall give Lender prior notice (a “ Notice of Borrowing ”) specifying the date of a requested borrowing (which must be a Business Day) and the amount thereof. A Notice of Borrowing may be in writing or given orally by a Responsible Officer on the same day it wishes a Revolving Loan to be made; provided that said Notice of Borrowing is received by Lender no later than 2:00 p.m. (Walla Walla time) on the date of the requested borrowing; provided, further, that, any request given orally shall be confirmed by Borrower in a writing or by e-mail delivered to Lender not later than 2:00 p.m. (Walla Walla time) on the date such oral request is made. Each Notice of Borrowing shall be irrevocable and shall be deemed to constitute a representation and warranty by Borrower that (a) as of the date of such Notice of Borrowing the statements set forth in Article 4 are true and correct in all material respects (subject to any waivers of the terms thereof then in effect in accordance with the terms of this Agreement); and (b) no Default or Event of Default shall have occurred and is continuing or will result from disbursement of the requested Revolving Loan. Each Revolving Loan requested by Borrower under this Section 2.2 shall be in an amount that is an integral multiple of Five Thousand Dollars ($5,000) and not less than Twenty-five Thousand Dollars ($25,000). Upon fulfillment to Lender’s satisfaction of the applicable conditions set forth in this Section 2.2 and in Article 3 , Lender will promptly make such funds available to Borrower by depositing them into an account maintained by Borrower at Lender’s main office, Walla Walla, Washington.

Section 2.3     Repayment of Principal.

(a)      Revolving Credit Line.  On each day that the Credit Utilization exceeds the Revolving Commitment Amount, Borrower shall repay Revolving Loans in such an amount

as is necessary to reduce the Credit Utilization to an amount equal to or less than the Revolving Commitment Amount, and, if, after repayment of all Revolving Loans, the Credit Utilization exceeds the Revolving Commitment Amount, Borrower shall deposit with or deliver to Lender and to grant to Lender, a security interest in deposit account balances held or maintained in blocked, non-interest-bearing deposit accounts at Lender to secure all advances to, and debts, liabilities, obligations, covenants and duties of Borrower arising under the Loan Agreement and each other Loan Document, including, without limitation, with respect to the Letters of Credit, pursuant to documentation in form and substance satisfactory to Lender. Borrower shall repay to Lender the outstanding principal balance of the Revolving Loans on or before the Revolving Maturity Date.

(b)      Term Loan.  Borrower shall repay to Lender the principal amount of Term Loan in consecutive quarterly installments commencing on November 1, 2002 and continuing on the first Business Day of each February, May, August and November thereafter in the amount of Two Hundred Thousand Dollars ($200,000) and shall repay the remaining principal amount of the Term Loan on the Term Loan Maturity Date.

Section 2.4   Interest on Loans.

(a)      General Provisions.  Borrower agrees to pay to Lender interest on the unpaid principal amount of each Loan from the date of such Loan until such Loan shall be due and payable at a per annum rate as follows: (i) for each Revolving Loan interest shall accrue at a per annum rate equal to the Revolving Interest Rate in effect from time to time with respect to such Revolving Loan (or portions thereof) and (ii) for the Term Loan interest shall accrue at a per annum rate equal to the Prime Rate (changing as such Prime Rate changes); provided , however , that after the occurrence and during the continuation of an Event of Default, Revolving Loan interest and Term Loan interest shall accrue at a per annum rate equal to three percent (3%) above the Prime Rate (changing as such Prime Rate changes). Accrued but unpaid interest on each Loan shall be paid in arrears as follows: (1) for each Revolving Loan (or portion thereof) bearing interest at the Revolving Prime Rate, on the first Business Day of each calendar month and at the Revolving Maturity Date, (2) for each Revolving Loan (or portion thereof) bearing interest at the Revolving LIBOR Rate, on the last day of the Interest Period and (3) for the Term Loan, on the first Business Day of each February, May, August and November and at the Term Loan Maturity Date. Accrued interest on any Loan shall be payable on demand after the occurrence of an Event of Default.

(b)         Selection of Alternative Rates.

(i)      Borrower may, subject to the requirements of this Section 2.4(b) , on two (2) Business Days’ prior notice, elect to have interest accrue on any Revolving Loan (or any portion thereof) at the rate of interest set forth in clause (ii) of the definition of Revolving Interest Rate (the “ Revolving LIBOR Rate ”) for an Interest Period. Such notice (herein, an “ Interest Rate Notice ”) shall be deemed delivered when received by Lender except that an Interest Rate Notice received by Lender after 11:00 a.m. (Walla Walla time) on any Business Day, shall be deemed to have been delivered or received on the immediately succeeding Business Day. All Interest Rate Notices shall be in writing. Each such Interest Rate Notice shall identify, subject to the conditions of this Section 2.4(b) , the Revolving Loan or portions thereof

to accrue interest at the Revolving LIBOR Rate and the Interest Period which Borrower selects. Each such Interest Rate Notice shall be irrevocable and shall constitute a representation and warranty by Borrower that (1) as of the date of such Interest Rate Notice, the representations and warranties set forth in Article 4 hereof are true and correct in all material respects (subject to any waivers of the terms thereof then in effect in accordance with the terms of this Agreement) as of the date of such Interest Rate Notice unless such representation and warranty is made as of a specific date, and (2) no Default or Event of Default has occurred and is continuing.

(ii)      Borrower’s right to select the Revolving LIBOR Rate to apply to a Revolving Loan (or any portion thereof) shall be subject to the following conditions: (1) the aggregate of all Revolving Loans of the same type or portions thereof to accrue interest at a particular Revolving LIBOR Rate for the same Interest Period shall be an integral multiple of Fifty Thousand Dollars ($50,000) and not less than Two Hundred Fifty Thousand Dollars ($250,000); (2) the Revolving LIBOR Rate may not be selected for any Revolving Loan (or portion thereof) which is already accruing interest at the Revolving LIBOR Rate unless such selection is only to become effective at the maturity of the Interest Period then in effect; (3) Lender shall not have given notice pursuant to Section 2.4(e) that the selected Revolving LIBOR Rate is not available; and (4) no Default or Event of Default shall have occurred and be continuing.

(iii)      In the absence of an effective request and acceptance thereof for the application of a Revolving LIBOR Rate, the Revolving Loans (or remaining portions thereof) shall accrue interest at the rate of interest set forth in clause (i) of the definition of Revolving Interest Rate (the “ Revolving Prime Rate ”). Any Interest Rate Notice which specifies a Revolving LIBOR Rate but fails to identify an Interest Period shall be deemed to be a request for the designated Revolving LIBOR Rate for an Interest Period of one (1) month.

(iv)      The Interest Rate Notice may be given with and contained in any Notice of Borrowing.

(v)      If Borrower delivers an Interest Rate Notice with any Notice of Borrowing for a LIBOR Rate Loan and Borrower thereafter declines to take such LIBOR Rate Loan or a condition precedent to the making of such LIBOR Rate Loan is not satisfied or waived, then Borrower shall, upon demand by Lender, indemnify Lender for all losses and any costs which Lender may sustain as a consequence thereof. A certificate as to the amount of such losses and costs, submitted to Borrower by Lender, shall be conclusive and binding absent manifest error.

(c)      Applicable Days for Computation of Interest.  Computations of interest on Prime Rate Loans shall be made on the basis of a year of 365/366 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. All other computations of interest and all computations of fees shall be made on the basis of a year of 360 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable.

(d)      Unavailable LIBOR Rate.  Notwithstanding any election to have interest accrue on any Revolving Loan at the Revolving LIBOR Rate for an Interest Period pursuant to Section 2.4(b) , if: (i) on or prior to the determination of the Revolving LIBOR Rate for such

 Revolving Loan, Lender determines (which determination shall be conclusive and binding) that quotations of interest rates for the relevant deposits are not being provided in the relevant market in the relevant amount and Interest Period; or (ii) on or prior to the first day of an Interest Period, Lender determines (which determination shall be conclusive and binding) that, as a result of conditions in or generally affecting the relevant market, the rates of interest on the basis of which the applicable LIBOR Rate is to be computed do not accurately reflect the cost to Lender of making or maintaining such Revolving Loan at the Revolving LIBOR Rate for such Interest Period; then Lender shall give Borrower prompt notice thereof by telephone and the request by Borrower to have interest accrue on such Revolving Loan at the Revolving LIBOR Rate for such Interest Period shall not be effective, and such request shall be deemed to be a request for interest to accrue on such Revolving Loan at the Revolving Prime Rate.

(e)      Increased Costs.   If, due to either (i) the introduction after the date of this Agreement of or any change after the date of this Agreement (including any change by way of imposition or increase of reserve requirements or assessments) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request issued or made after the date of this Agreement by any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to Lender of making or maintaining LIBOR Rate Loans, then Borrower shall from time to time, upon demand by Lender, pay to Lender additional amounts sufficient to reimburse the Lender for all such increased costs. A certificate as to the amount of such increased costs, submitted to Borrower by Lender, shall be conclusive and binding absent manifest error.

(f)      Increased Capital Requirements.  If either, (i) the introduction after the date of this Agreement of, or the application after the date of this Agreement as a result of phase-in or transitional rules of, or any change after the date of this Agreement in or in the interpretation of, any law or regulation or (ii) compliance by the Lender with any guideline or request issued or made after the date of this Agreement or deemed applicable after the date hereof as a result of phase-in or transitional rules by any central bank or other governmental authority (whether or not having the force of law) affects the amount of capital required to be maintained by Lender and Lender determines that the amount of such capital is increased by or based upon the making of LIBOR Rate Loans pursuant to Section 2.4(b) , then, upon demand by Lender, Borrower shall immediately pay to Lender, from time to time as specified by Lender, additional amounts sufficient to compensate Lender for the costs of maintaining such increased capital. A certificate as to such amounts submitted to Borrower by Lender, shall be conclusive and binding absent manifest error.

(g)      Illegality.  Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful for Lender to make or maintain LIBOR Rate Loans, Lender may by notice to Borrower, suspend the right of the Borrower to elect to have interest accrue on any Revolving Loan at the Revolving LIBOR Rate and, if necessary in the reasonable opinion of Lender to comply with such law or regulation, convert all outstanding Revolving Loans bearing interest at the Revolving LIBOR Rate to Revolving Loans bearing interest at the Revolving Prime Rate, at the latest time permitted by the applicable law or regulation.