CREDIT AGREEMENT

1.1  

Certain Defined Terms :  Unless elsewhere defined in this Agreement, the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined):

1.1.1  

"Advance" :  shall mean an advance to the Borrower under the credit facility(ies) described in Section 2.

1.1.2  

"Alternate Base Rate" : shall mean, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day or, (b) the Federal Funds Rate in effect on such day plus 0.5% or (c) the Applicable Floating Rate on such date (or, if such date is not a Business Day, the immediately preceding Business Day). Any change in the Alternate Base Rate due to a change in the Prime Rate or, the Federal Funds Rate or the Applicable Floating Rate shall be effective from and including the effective date of such change in the Prime Rate or, the Federal Funds Rate or the Applicable Floating Rate, respectively.  

1.1.3  

"Alternate Base Rate Advance" : shall have the respective meaning as it is defined for each facility under Section 2, hereof.

1.1.4  

"Applicable Floating Rate" .  shall mean, as of any date, (a) the One-Month LIBOR Rate on such day multiplied by the Statutory Reserve Rate plus (b) 1.00%. “Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board of Governors of the Federal Reserve System with respect to the One-Month LIBOR Rate for Eurocurrency funding (currently referred to as “Eurocurrencies Liabilities” in Regulation D of the Board of Governors of the Federal Reserve System), including those reserve percentages imposed pursuant to Regulation D, adjusted automatically and as of the effective date of any change in any reserve percentage.

1.1.5  

"Business Day" : shall mean a day, other than a Saturday or Sunday, on which commercial banks are open for business in California.

1.1.6  

“ Close-Out Date”:   shall mean the Business Day on which the Bank closes out and liquidates an FX Transaction.

1.1.7  

 “ Closing Value”: has the meaning given to it in Section 7.5(i) hereof.

1.1.8  

“Closing Gain” and “Closing Loss” :shall mean the amount determined in accordance with Section 7.5(ii) hereof.

1.1.9  

“Credit Percentage” : shall mean 10%.

1.1.10  

"Debt" :  shall mean all liabilities of the Borrower less Subordinated Debt, if any.

1.1.11  

"Effective Tangible Net Worth" :  shall mean the Borrower's stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense, and similar intangible items including, but not limited to, investments in and all amounts due from affiliates, officers or employees).

1.1.12  

"Environmental Claims" : shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any Environmental Law or for discharge or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from property, whether or not owned by the Borrower, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.

1.1.13  

"Environmental Laws" : shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters; including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA”), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety Code.

1.1.14  

"Environmental Permits" :  shall have the meaning provided in Section 4.12 hereof.

1.1.15  

"ERISA" :  shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder.

1.1.16  

"Event of Default" :  shall have the meaning set forth in Section 6.

1.1.17  

"Expiration Date" :  shall mean April 30, 2011, or the date of termination of the Bank's commitment to lend under this Agreement pursuant to Section 7, whichever shall occur first.

1.1.18  

“Federal Funds Rate" : shall mean, for any day, the weighted average (rounded upwards, if necessary to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Bank from three Federal funds brokers of recognized standing selected by Bank.

1.1.19  

“Foreign Currency” :  shall mean any legally traded currency other than US dollars and which may be transferred by paperless wire transfer or cash and in which the Bank regularly trades.

1.1.20  

 “Foreign Exchange Sub-Facility” :  shall mean the credit facility described as such in Section 2.

1.1.21  

“FX Risk Liability” :  shall mean the product of (a) the Credit Percentage, times (b) the aggregate of the Notional Values of all FX Transactions outstanding, net of any Offsetting Transactions.

1.1.22  

“FX Limit” :  shall mean $2,000,000.00.

1.1.23  

“FX Transaction” :  shall mean any transaction between the Bank and the Borrower pursuant to which the Bank has agreed to sell to or to purchase from the Borrower a Foreign Currency of an agreed amount at an agreed price in US dollars or such other agreed upon Foreign Currency, deliverable and payable on an agreed date.

1.1.24  

"Hazardous Materials" :  shall mean all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste.

1.1.25  

"Indebtedness" :  shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which the Borrower is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss and (ii) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is liable, contingently or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss. The word “Indebtedness” also includes expenses incurred by the Bank to enforce obligations of the Borrower under this Agreement, together with interest on such amounts as provided in this Agreement, and all other obligations, debts, and liabilities of the Borrower to the Bank as well as all claims by the Bank against the Borrower that are now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated, whether the Borrower may be liable individually or jointly with others, whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations, and whether such Indebtedness may be or hereafter may become otherwise unenforceable.

1.1.26  

“Letter of Credit” : shall have the meaning given to such term in Section 2.

1.1.27  

“Letter of Credit Sub-Facility” :  shall mean the credit facility described as such in Section 2.

1.1.28  

"LIBOR Advance" : shall have the respective meaning as it is defined for each facility under Section 2, hereof.

1.1.29  

"LIBOR Interest Period" : shall have the respective meaning as it is defined for each facility under Section 2, hereof.

1.1.30  

"LIBOR Rate" : shall have the respective meaning as it is defined for each facility under Section 2, hereof.

1.1.31  

"Line Account" :  shall have the meaning provided in Section 2.5 hereof.

1.1.32  

"Line of Credit" :  shall mean the credit facility described as such in Section 2.

1.1.33  

“Notional Value” :  shall mean the US Dollar equivalent of the price at which the Bank agreed to purchase or sell to the Borrower a Foreign Currency in an aggregate amount not to exceed $20,000,000.00.

1.1.34  

"Obligations" :  shall mean all amounts owing by the Borrower to the Bank pursuant to this Agreement including, but not limited to, the unpaid principal amount of any loans or advances.

1.1.35  

“Offsetting Transaction” : shall mean a FX Transaction to purchase a Foreign Currency and a FX Transaction to sell the same Foreign Currency , each with the same Settlement Date and designated as an Offsetting Transaction at the time of entering into the FX Transaction.

1.1.36  

"One-Month LIBOR Rate" : shall mean, for any day, the rate of interest per annum that is equal to the one month LIBOR rate appearing on the REUTERS BBA Libor Rates Page 3750 (or on any successor or substitute page of such page) at approximately 11:00 a.m. London time on such day.

1.1.37  

"Ordinary Course of Business" :  shall mean, with respect to any transaction involving the Borrower or any of its subsidiaries or affiliates, the ordinary course of the Borrower's business, as conducted by the Borrower in accordance with past practice and undertaken by the Borrower in good faith and not for the purpose of evading any covenant or restriction in this Agreement or in any other document, instrument or agreement executed in connection herewith.

1.1.38  

"Permitted Liens" :  shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessments or similar charges not yet due; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other like liens arising in the Ordinary Course of Business and securing obligations which are not yet delinquent; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the Ordinary Course of Business to secure Indebtedness outstanding on the date hereof or permitted to be incurred herein; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by the Bank in writing; (vi) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of the Borrower's assets; and (vii) liens securing capital leases entered into in the Ordinary Course of Business.

1.1.39  

"Prime Rate" :  shall mean an index for a variable interest rate which is quoted, published or announced by Bank as its prime rate and as to which loans may be made by Bank at, above or below such rate.

1.1.40  

“Prior Agreement” : shall mean that certain credit agreement dated April 20, 2007 and upon execution of this Agreement, the Prior Agreement is hereby cancelled and terminated. Any outstanding Advances under the Prior Agreement shall be deemed to have been made under this Agreement.  The Interest Period in connection with any outstanding Advances under the Prior Agreement shall continue under this Agreement and no penalties, breakage costs or other like fees will be charged in connection with the entry into this Agreement.From and after the date of this Agreement, no new Advances will be made under the Prior Agreement.

1.1.41  

“Settlement Date” :  shall mean the Business Day on which the Borrower has agreed to (a) deliver the required amount of Foreign Currency, or (b) pay in US dollars the agreed upon purchase price of the Foreign Currency.

1.1.42  

"Subordinated Debt" :  shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner acceptable to the Bank.

1.1.43  

"Term Line of Credit" :  shall mean the credit facility described as such in Section 2.

1.2  

Accounting Terms :  All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles.

1.3  

Other Terms :  Other terms not otherwise defined shall have the meanings as applicable attributed to such terms in the Uniform Commercial Code as in effect on July 1, 2001 and from time to time thereafter in the State of California.

2.1  

THE LINE OF CREDIT

2.1.1  

The Line of Credit :  On terms and conditions as set forth herein, the Bank agrees to make Advances to the Borrower from time to time from the date hereof to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed $5,000,000.00 (the “Line of Credit”).  Within the foregoing limits, the Borrower may borrow, partially or wholly prepay, and reborrow under this Section 2.1.  Proceeds of the Line of Credit shall be used to assist with the working capital needs of the Borrower's operations.

2.1.2  

Making Line Advances :  Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of the Borrower (i) when credited to any deposit account of the Borrower maintained with the Bank or (ii) when paid in accordance with the Borrower's written instructions.  Subject to the requirements of Section 4 and provided such request is made in a timely manner as provided in Section 2.1.5 below, Advances shall be made by the Bank under the Line of Credit.

2.1.3  

Repayment :  On the Expiration Date, the Borrower hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal amount of all Advances then outstanding, together with all accrued and unpaid interest thereon.

2.1.4  

Interest on Advances :  Interest shall accrue from the date of each Advance under the Line of Credit at one of the following rates, as quoted by the Bank and as elected by the Borrower below:

(i)  

Alternate Base Rate Advances : At the Alternate Base Rate plus 1.00%. Interest shall be adjusted concurrently with any change in the Alternate Base Rate. An Advance based upon the Alternate Base Rate is hereinafter referred to as an "Alternate Base Rate Advance".

(ii)  

Applicable Floating Rate Advances : At the Applicable Floating Rate plus 1.25%.  Interest shall be adjusted concurrently with any change in the Applicable Floating Rate.  An Advance based upon the Applicable Floating Rate is herein referred to as an “Applicable Floating Rate Advance”.

(iii)  

LIBOR Advances :  A fixed rate quoted by the Bank for 1, 2, 3 or 6 months or for such other period of time that the Bank may quote and offer (provided that any such period of time does not extend beyond Expiration Date) (the "LIBOR Interest Period") for Advances in the minimum amount of $100,000.00.  Such interest rate shall be a percentage approximately equivalent to 2.25% in excess of the Bank's LIBOR Rate which is that rate of interest per annum that is equal to the 1, 2, 3 or 6 months or such other period appearing on the Reuters BBA Libor Rates Page 3750 (or any successor or substitute page) at approximately 11:00 AM London time on such day (adjusted for any and all assessments, surcharges and reserve requirements) (the "LIBOR Rate").  An Advance based upon the LIBOR Rate is hereinafter referred to as a "LIBOR Advance".

2.1.5  

Notice of Borrowing :  Upon written or telephonic notice which shall be received by the Bank at or before 2:00 p.m. (Pacific time) on a Business Day, the Borrower may borrow under the Line of Credit Facility by requesting:

(i)  

An Alternate Base Rate Advance may be made on the day notice is received by the Bank, provided however, that if the Bank shall not have received notice at or before 2:00 p.m. on the day such Advance is requested to be made, such Alternate Base Rate Advance may, at the Bank's option, be made on the next Business Day.

(ii)  

Applicable Floating Rate Advances.  An Applicable Floating Rate Advance may be made on the day notice is received by the Bank; provided, however, that if the Bank shall not have received notice at or before 2:00 p.m.  on the day such Advance is requested to be made, such Applicable Floating Rate Advances may, at the Bank's option, be made on the next Business Day.

(iii)  

A LIBOR Advance.  Notice of any LIBOR Advance shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests such LIBOR Advance to be made.

2.1.6  

Notice of Election to Adjust Interest Rate :  The Borrower may elect:

(i)  

That interest on an Alternate Base Rate Advance shall be adjusted to accrue at the LIBOR Rate or Applicable Floating Rate Advance; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrowers request that interest be adjusted to accrue at the LIBOR Rate or One Month LIBOR Rate.

(ii)  

That interest on an Applicable Floating Rate Advance shall be adjusted to accrue at the LIBOR Rate or Alternate Base Rate; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests that interest be adjusted to accrue at the LIBOR Rate or Alternate Base Rate.

(iii)  

That interest on a LIBOR Advance shall continue to accrue at a newly quoted LIBOR Rate or shall be adjusted to commence to accrue at the Alternate Base Rate or Applicable Floating Rate; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the last day of the LIBOR Interest Period pertaining to such LIBOR Advance.  If the Bank shall not have received notice (as prescribed herein) of the Borrowers’ election that interest on any LIBOR Advance shall continue to accrue at the newly quoted LIBOR Rate for such new interest period, the Borrowers shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Alternate Base Rate upon the expiration of the then existing LIBOR Interest Period pertaining to such LIBOR Advance.

2.1.7  

Prepayment :  The Borrower may prepay any Advance in whole or in part, at any time and without penalty, provided, however, that:  (i) any partial prepayment shall first be applied, at the Bank's option, to accrued and unpaid interest and next to the outstanding principal balance; and (ii) during any period of time in which interest is accruing on any Advance on the basis of the LIBOR Rate, no prepayment, unless otherwise permitted, shall be made except on a day which is the last day of the LIBOR Interest Period pertaining thereto.  If the whole or any part of any LIBOR Advance is prepaid by reason of acceleration or otherwise, the Borrower shall, upon the Bank's request, promptly pay to and indemnify the Bank for all costs, expenses and any loss actually incurred by the Bank and any loss (including loss of profit resulting from the re-employment of funds) deemed sustained by the Bank as a consequence of such prepayment.

2.1.8  

Conversion from Applicable Floating Rate or LIBOR Rate :  In the event that the Bank shall at any time determine that the accrual of interest on the basis of the Applicable Floating Rate or LIBOR Rate (i) is infeasible because the Bank is unable to determine the One-Month LIBOR Rate or the LIBOR Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to relevant LIBOR Interest Period or (ii) is or has become unlawful or infeasible by reason of the Bank's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Bank shall give telephonicnotice thereof (confirmed in writing) to the Borrower, in which event any Alternate Base Rate Advance bearing interest at the Applicable Floating Rate or any LIBOR Rate Advance bearing interest at the LIBOR Rate shall thereupon immediately accrue interest at the greater of the Prime Rate or Fed Funds Rate.

2.2  

LETTER OF CREDIT SUB-FACILITY

2.2.1  

Letter of Credit Sub-Facility:   The Bank agrees to issue commercial and/or standby letters of credit (each a "Letter of Credit") on behalf of the Borrower of up to $5,000,000.00.  At no time, however, shall the total principal amount of all Advances outstanding under the Line of Credit, combined with the aggregate FX Risk Liability together with the total face amount of all Letters of Credit outstanding, less any partial draws paid by the Bank, exceed the Line of Credit.

(i)  

Upon the Bank's request, the Borrower shall promptly pay to the Bank annual issuance fees of 1.25% for standby letters of credit and standard pricing for commercial letters of credit, and such other fees, commissions, costs and any out-of-pocket expenses charged or incurred by the Bank with respect to any Letter of Credit.  Letter of Credit fees shall be paid quarterly in advance on standby letters of credit and at the time of issuance for commercial letters of credit.

(ii)  

The commitment by the Bank to issue Letters of Credit shall, unless earlier terminated in accordance with the terms of the Agreement, automatically terminate on the Expiration Date of the Line of Credit and no Letter of Credit shall expire on a date which is more than 365 days after the Expiration Date.

(iii)  

Each Letter of Credit shall be in form and substance satisfactory to the Bank and in favor of beneficiaries satisfactory to the Bank, provided that the Bank may refuse to issue a Letter of Credit due to the nature of the transaction or its terms or in connection with any transaction where the Bank, due to the beneficiary or the nationality or residence of the beneficiary, would be prohibited by any applicable law, regulation or order from issuing such Letter of Credit.

(iv)  

Prior to the issuance of each Letter of Credit, but in no event later than 10:00 a.m. (California time) on the day such Letter of Credit is to be issued (which shall be a Business Day), the Borrower shall deliver to the Bank a duly executed form of the Bank's standard form of application for issuance of a Letter of Credit with proper insertions.

(v)  

The Borrower shall, upon the Bank's request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to any Letter of Credit.

2.3  

FOREIGN EXCHANGE SUB-FACILITY

2.3.1  

Foreign Exchange Sub-Facility :  The Bank agrees to enter into FX Transactions with the Borrower, at the Borrower’s request therefor made prior to the Expiration Date, provided however, that at no time shall the aggregate FX Risk Liability of the Borrower exceed the FX Limit, and provided further, at no time shall the aggregate FX Liability combined with the total face amount of all Letters of Credit outstanding less any partial draws paid by the Bank together with the total principal amount of all outstanding Advances, exceed the Line of Credit. Each FX Transaction shall be used to hedge the Borrower’s foreign exchange exposure.

(i)  

Requests .  Each request for a FX Transaction shall be made by telephone to the Bank’s Treasury Department (“Request”), shall specify the Foreign Currency to be purchased or sold, the amount of such Foreign Currency and the Settlement Date. Each Request shall be communicated to the Bank no later than 3:00 p.m. California time on the Business Day on which the FX Transaction is requested.

(ii)  

Tenor .  No FX Transaction shall have a Settlement Date which is more than 365 days after the date of entry into such FX Transaction, and provided further, no FX Transaction shall expire on a date which is after the Expiration Date.

(iii)  

Availability .  Bank may refuse to enter into a FX Transaction with the Borrower where the Bank, at its sole discretion, determines that (1) the requested Foreign Currency is unavailable, or (2) the Bank is not then dealing in the requested Foreign Currency, or (3) the Bank would be prohibited by any applicable law, rule, regulation or order from purchasing such Foreign Currency.

(iv)  

Payment .  Payment is due on the Settlement Date of the relevant FX Transaction. The Bank is hereby authorized by the Borrower to charge the full settlement price of any FX Transaction against the depository account or accounts maintained by the Borrower with the Bank on the Settlement Date. In the event that the Borrower fails to pay the settlement price of any FX Transaction on the Settlement Date or the balances in the depository account or accounts maintained with Bank are insufficient to pay the settlement price, without limiting the rights of Bank hereunder or waiv