EXHIBIT 10.1

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective
Date between SILICON VALLEY BANK, a California corporation (“Bank”), and
CIMETRIX INCORPORATED, a Nevada corporation (“Borrower”), provides the terms on
which Bank shall lend to Borrower and Borrower shall repay Bank.  The parties
agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following GAAP.  Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13.  All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.

 

2                                         LOAN AND TERMS OF PAYMENT

 

2.1                               PROMISE TO PAY.  BORROWER HEREBY
UNCONDITIONALLY PROMISES TO PAY BANK THE OUTSTANDING PRINCIPAL AMOUNT OF ALL
CREDIT EXTENSIONS AND ACCRUED AND UNPAID INTEREST THEREON AS AND WHEN DUE IN
ACCORDANCE WITH THIS AGREEMENT.

 

2.1.1                     REVOLVING ADVANCES.

 

(A)                                  AVAILABILITY.  SUBJECT TO THE TERMS AND
CONDITIONS OF THIS AGREEMENT, BANK SHALL MAKE ADVANCES NOT EXCEEDING THE
AVAILABILITY AMOUNT.  AMOUNTS BORROWED HEREUNDER MAY BE REPAID AND, PRIOR TO THE
REVOLVING LINE MATURITY DATE, REBORROWED, SUBJECT TO THE APPLICABLE TERMS AND
CONDITIONS PRECEDENT HEREIN.

 

(B)                                 TERMINATION; REPAYMENT.  THE REVOLVING LINE
TERMINATES ON THE REVOLVING LINE MATURITY DATE, WHEN THE PRINCIPAL AMOUNT OF ALL
ADVANCES, THE UNPAID INTEREST THEREON, AND ALL OTHER OBLIGATIONS RELATING TO THE
REVOLVING LINE SHALL BE IMMEDIATELY DUE AND PAYABLE.

 

2.1.2                     CASH MANAGEMENT SERVICES SUBLIMIT.  BORROWER MAY USE
UP TO ONE HUNDRED THOUSAND DOLLARS ($100,000.00) OF THE REVOLVING LINE FOR
BANK’S CASH MANAGEMENT SERVICES WHICH MAY INCLUDE MERCHANT SERVICES, DIRECT
DEPOSIT OF PAYROLL, BUSINESS CREDIT CARD, AND CHECK CASHING SERVICES IDENTIFIED
IN BANK’S VARIOUS CASH MANAGEMENT SERVICES AGREEMENTS (COLLECTIVELY, THE “CASH
MANAGEMENT SERVICES”).  THE DOLLAR AMOUNT OF ANY CASH MANAGEMENT SERVICES
PROVIDED UNDER THIS SUBLIMIT WILL REDUCE THE AMOUNT OTHERWISE AVAILABLE UNDER
THE REVOLVING LINE.  ANY AMOUNTS BANK PAYS ON BEHALF OF BORROWER FOR ANY CASH
MANAGEMENT SERVICES WILL BE TREATED AS ADVANCES UNDER THE REVOLVING LINE AND
WILL ACCRUE INTEREST AT THE INTEREST RATE APPLICABLE TO ADVANCES.

 

2.2                               OVERADVANCES.  IF, AT ANY TIME, THE CREDIT
EXTENSIONS UNDER SECTIONS 2.1.1 AND 2.1.2 EXCEED THE LESSER OF EITHER (A) THE
REVOLVING LINE OR (B) THE BORROWING BASE, BORROWER SHALL IMMEDIATELY PAY TO BANK
IN CASH SUCH EXCESS.

 

2.3                               PAYMENT OF INTEREST ON THE CREDIT EXTENSIONS.

 

(A)                                  INTEREST RATE.  SUBJECT TO SECTION 2.3(B),
THE PRINCIPAL AMOUNT OUTSTANDING UNDER THE REVOLVING LINE SHALL ACCRUE INTEREST
AT A FLOATING PER ANNUM RATE EQUAL TO ONE (1.00) PERCENTAGE POINT ABOVE THE
PRIME RATE, WHICH INTEREST SHALL BE PAYABLE MONTHLY IN ACCORDANCE WITH
SECTION 2.3(F) BELOW.

 

(B)                                 DEFAULT RATE.  IMMEDIATELY UPON THE
OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, OBLIGATIONS SHALL
BEAR INTEREST AT A RATE PER ANNUM WHICH IS FIVE PERCENTAGE POINTS ABOVE THE RATE
THAT IS OTHERWISE APPLICABLE THERETO (THE “DEFAULT RATE”).  PAYMENT OR
ACCEPTANCE OF THE INCREASED INTEREST RATE PROVIDED IN THIS SECTION 2.3(B) IS NOT
A PERMITTED ALTERNATIVE TO TIMELY PAYMENT AND SHALL NOT CONSTITUTE A WAIVER OF
ANY EVENT OF DEFAULT OR OTHERWISE PREJUDICE OR LIMIT ANY RIGHTS OR REMEDIES OF
BANK.

 

(C)                                  ADJUSTMENT TO INTEREST RATE.  CHANGES TO
THE INTEREST RATE OF ANY CREDIT EXTENSION BASED ON CHANGES TO THE PRIME RATE
SHALL BE EFFECTIVE ON THE EFFECTIVE DATE OF ANY CHANGE TO THE PRIME RATE AND TO
THE EXTENT OF ANY SUCH CHANGE.

 

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(D)                                 360-DAY YEAR.  INTEREST SHALL BE COMPUTED ON
THE BASIS OF A 360-DAY YEAR FOR THE ACTUAL NUMBER OF DAYS ELAPSED.

 

(E)                                  DEBIT OF ACCOUNTS.  BANK MAY DEBIT ANY OF
BORROWER’S DEPOSIT ACCOUNTS, INCLUDING THE DESIGNATED DEPOSIT ACCOUNT, FOR
PRINCIPAL AND INTEREST PAYMENTS OR ANY OTHER AMOUNTS BORROWER OWES BANK WHEN
DUE.  THESE DEBITS SHALL NOT CONSTITUTE A SET-OFF.

 

(F)                                    PAYMENTS.  UNLESS OTHERWISE PROVIDED,
INTEREST IS PAYABLE MONTHLY ON THE LAST CALENDAR DAY OF EACH MONTH.  PAYMENTS OF
PRINCIPAL AND/OR INTEREST RECEIVED AFTER 12:00 P.M. PACIFIC TIME ARE CONSIDERED
RECEIVED AT THE OPENING OF BUSINESS ON THE NEXT BUSINESS DAY.  WHEN A PAYMENT IS
DUE ON A DAY THAT IS NOT A BUSINESS DAY, THE PAYMENT IS DUE THE NEXT BUSINESS
DAY AND ADDITIONAL FEES OR INTEREST, AS APPLICABLE, SHALL CONTINUE TO ACCRUE.

 

2.4                               FEES.  BORROWER SHALL PAY TO BANK:

 

(A)                                  COMMITMENT FEE.  A FULLY EARNED,
NON-REFUNDABLE COMMITMENT FEE OF $7,500.00 EQUAL TO THREE-QUARTERS PERCENT
(0.75%) OF THE REVOLVING LINE, ON THE EFFECTIVE DATE; AND

 

(B)                                 BANK EXPENSES.  ALL BANK EXPENSES (INCLUDING
REASONABLE ATTORNEYS’ FEES AND EXPENSES, PLUS EXPENSES, FOR DOCUMENTATION AND
NEGOTIATION OF THIS AGREEMENT) INCURRED THROUGH AND AFTER THE EFFECTIVE DATE,
WHEN DUE.

 

3                                         CONDITIONS OF LOANS

 

3.1                               CONDITIONS PRECEDENT TO INITIAL ADVANCE. 
BANK’S OBLIGATION TO MAKE THE INITIAL ADVANCE IS SUBJECT TO THE CONDITION
PRECEDENT THAT BORROWER SHALL CONSENT TO OR HAVE DELIVERED, IN FORM AND
SUBSTANCE SATISFACTORY TO BANK, SUCH DOCUMENTS, AND COMPLETION OF SUCH OTHER
MATTERS, AS BANK MAY REASONABLY DEEM NECESSARY OR APPROPRIATE, INCLUDING,
WITHOUT LIMITATION:

 

(A)                                  DULY EXECUTED ORIGINAL SIGNATURES TO THE
LOAN DOCUMENTS TO WHICH IT IS A PARTY;

 

(B)                                 ITS OPERATING DOCUMENTS AND A GOOD STANDING
CERTIFICATE OF BORROWER CERTIFIED BY THE SECRETARY OF STATE OF THE STATE OF
NEVADA AS OF A DATE NO EARLIER THAN THIRTY (30) DAYS PRIOR TO THE EFFECTIVE
DATE;

 

(C)                                  DULY EXECUTED ORIGINAL SIGNATURES TO THE
COMPLETED BORROWING RESOLUTIONS FOR BORROWER;

 

(D)                                 THE SUBORDINATION AGREEMENTS DULY EXECUTED
BY CERTAIN PERSONS IN FAVOR OF BANK;

 

(E)                                  CERTIFIED COPIES, DATED AS OF A RECENT
DATE, OF FINANCING STATEMENT SEARCHES, AS BANK SHALL REQUEST, ACCOMPANIED BY
WRITTEN EVIDENCE (INCLUDING ANY UCC TERMINATION STATEMENTS) THAT THE LIENS
INDICATED IN ANY SUCH FINANCING STATEMENTS EITHER CONSTITUTE PERMITTED LIENS OR
HAVE BEEN OR, IN CONNECTION WITH THE INITIAL ADVANCE, WILL BE TERMINATED OR
RELEASED;

 

(F)                                    THE PERFECTION CERTIFICATE EXECUTED BY
BORROWER;

 

(G)                                 A LANDLORD’S CONSENT FOR BORROWER’S LOCATION
AT 6979 SOUTH HIGH TECH DRIVE, SALT LAKE CITY, UTAH 84047 EXECUTED BY THE
LANDLORD IN FAVOR OF BANK;

 

(H)                                 A LEGAL OPINION OF BORROWER’S COUNSEL DATED
AS OF THE EFFECTIVE DATE TOGETHER WITH THE DULY EXECUTED ORIGINAL SIGNATURES
THERETO;

 

(I)                                     EVIDENCE SATISFACTORY TO BANK THAT THE
INSURANCE POLICIES REQUIRED BY SECTION 6.5 HEREOF ARE IN FULL FORCE AND EFFECT,
TOGETHER WITH APPROPRIATE EVIDENCE SHOWING LOSS PAYABLE AND/OR ADDITIONAL
INSURED CLAUSES OR ENDORSEMENTS IN FAVOR OF BANK; AND

 

(J)                                     PAYMENT OF THE FEES AND BANK EXPENSES
THEN DUE AS SPECIFIED IN SECTION 2.4 HEREOF.

 

3.2                               CONDITIONS PRECEDENT TO ALL CREDIT
EXTENSIONS.  BANK’S OBLIGATIONS TO MAKE EACH CREDIT EXTENSION, INCLUDING THE
INITIAL CREDIT EXTENSION, IS SUBJECT TO THE FOLLOWING:

 

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(A)                                  EXCEPT AS OTHERWISE PROVIDED IN
SECTION 3.4(A), TIMELY RECEIPT OF AN EXECUTED PAYMENT/ADVANCE FORM;

 

(B)                                 THE REPRESENTATIONS AND WARRANTIES IN
SECTION 5 SHALL BE TRUE IN ALL MATERIAL RESPECTS ON THE DATE OF THE
PAYMENT/ADVANCE FORM AND ON THE FUNDING DATE OF EACH CREDIT EXTENSION; PROVIDED,
HOWEVER, THAT SUCH MATERIALITY QUALIFIER SHALL NOT BE APPLICABLE TO ANY
REPRESENTATIONS AND WARRANTIES THAT ALREADY ARE QUALIFIED OR MODIFIED BY
MATERIALITY IN THE TEXT THEREOF; AND PROVIDED, FURTHER THAT THOSE
REPRESENTATIONS AND WARRANTIES EXPRESSLY REFERRING TO A SPECIFIC DATE SHALL BE
TRUE, ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS AS OF SUCH DATE, AND NO
DEFAULT OR EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING OR RESULT FROM
THE CREDIT EXTENSION.  EACH CREDIT EXTENSION IS BORROWER’S REPRESENTATION AND
WARRANTY ON THAT DATE THAT THE REPRESENTATIONS AND WARRANTIES IN SECTION 5
REMAIN TRUE IN ALL MATERIAL RESPECTS; PROVIDED, HOWEVER, THAT SUCH MATERIALITY
QUALIFIER SHALL NOT BE APPLICABLE TO ANY REPRESENTATIONS AND WARRANTIES THAT
ALREADY ARE QUALIFIED OR MODIFIED BY MATERIALITY IN THE TEXT THEREOF; AND
PROVIDED, FURTHER THAT THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY REFERRING
TO A SPECIFIC DATE SHALL BE TRUE, ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS
AS OF SUCH DATE; AND

 

(C)                                  IN BANK’S SOLE DISCRETION, THERE HAS NOT
BEEN ANY MATERIAL IMPAIRMENT IN THE GENERAL AFFAIRS, MANAGEMENT, RESULTS OF
OPERATION, FINANCIAL CONDITION OR THE PROSPECT OF REPAYMENT OF THE OBLIGATIONS,
OR THERE HAS NOT BEEN ANY MATERIAL ADVERSE DEVIATION BY BORROWER FROM THE MOST
RECENT BUSINESS PLAN OF BORROWER PRESENTED TO AND ACCEPTED BY BANK.

 

3.3                               COVENANT TO DELIVER.

 

Borrower agrees to deliver to Bank each item required to be delivered to Bank
under this Agreement as a condition to any Credit Extension.  Borrower expressly
agrees that the extension of a Credit Extension prior to the receipt by Bank of
any such item shall not constitute a waiver by Bank of Borrower’s obligation to
deliver such item, and any such extension in the absence of a required item
shall be in Bank’s sole discretion.

 

3.4                               PROCEDURES FOR BORROWING.

 

SUBJECT TO THE PRIOR SATISFACTION OF ALL OTHER APPLICABLE CONDITIONS TO THE
MAKING OF AN ADVANCE SET FORTH IN THIS AGREEMENT, TO OBTAIN AN ADVANCE (OTHER
THAN ADVANCES UNDER SECTION 2.1.2), BORROWER SHALL NOTIFY BANK (WHICH NOTICE
SHALL BE IRREVOCABLE) BY ELECTRONIC MAIL, FACSIMILE, OR TELEPHONE BY 12:00 P.M.
PACIFIC TIME ON THE FUNDING DATE OF THE ADVANCE.  TOGETHER WITH ANY SUCH
ELECTRONIC OR FACSIMILE NOTIFICATION, BORROWER SHALL DELIVER TO BANK BY
ELECTRONIC MAIL OR FACSIMILE A COMPLETED PAYMENT/ADVANCE FORM EXECUTED BY A
RESPONSIBLE OFFICER OR HIS OR HER DESIGNEE.  BANK MAY RELY ON ANY TELEPHONE
NOTICE GIVEN BY A PERSON WHOM BANK BELIEVES IS A RESPONSIBLE OFFICER OR
DESIGNEE.  BANK SHALL CREDIT ADVANCES TO THE DESIGNATED DEPOSIT ACCOUNT.  BANK
MAY MAKE ADVANCES UNDER THIS AGREEMENT BASED ON INSTRUCTIONS FROM A RESPONSIBLE
OFFICER OR HIS OR HER DESIGNEE OR WITHOUT INSTRUCTIONS IF THE ADVANCES ARE
NECESSARY TO MEET OBLIGATIONS WHICH HAVE BECOME DUE.

 

4                                         CREATION OF SECURITY INTEREST

 

4.1                               GRANT OF SECURITY INTEREST.  BORROWER HEREBY
GRANTS BANK, TO SECURE THE PAYMENT AND PERFORMANCE IN FULL OF ALL OF THE
OBLIGATIONS, A CONTINUING SECURITY INTEREST IN, AND PLEDGES TO BANK, THE
COLLATERAL, WHEREVER LOCATED, WHETHER NOW OWNED OR HEREAFTER ACQUIRED OR
ARISING, AND ALL PROCEEDS AND PRODUCTS THEREOF.  BORROWER REPRESENTS, WARRANTS,
AND COVENANTS THAT THE SECURITY INTEREST GRANTED HEREIN IS AND SHALL AT ALL
TIMES CONTINUE TO BE A FIRST PRIORITY PERFECTED SECURITY INTEREST IN THE
COLLATERAL (SUBJECT ONLY TO PERMITTED LIENS THAT MAY HAVE SUPERIOR PRIORITY TO
BANK’S LIEN UNDER THIS AGREEMENT).  IF BORROWER SHALL ACQUIRE A COMMERCIAL TORT
CLAIM, BORROWER SHALL PROMPTLY NOTIFY BANK IN A WRITING SIGNED BY BORROWER OF
THE GENERAL DETAILS THEREOF AND GRANT TO BANK IN SUCH WRITING A SECURITY
INTEREST THEREIN AND IN THE PROCEEDS THEREOF, ALL UPON THE TERMS OF THIS
AGREEMENT, WITH SUCH WRITING TO BE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO BANK.

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash.  Upon payment in full in cash of the Obligations and at such time
as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at
Borrower’s sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower.

 

4.2                               AUTHORIZATION TO FILE FINANCING STATEMENTS. 
BORROWER HEREBY AUTHORIZES BANK TO FILE FINANCING STATEMENTS, WITHOUT NOTICE TO
BORROWER, WITH ALL APPROPRIATE JURISDICTIONS TO PERFECT OR PROTECT BANK’S
INTEREST OR

 

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RIGHTS HEREUNDER, INCLUDING A NOTICE THAT ANY DISPOSITION OF THE COLLATERAL, BY
EITHER BORROWER OR ANY OTHER PERSON, SHALL BE DEEMED TO VIOLATE THE RIGHTS OF
BANK UNDER THE CODE.

 

5                                         REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1                               DUE ORGANIZATION, AUTHORIZATION; POWER AND
AUTHORITY.  BORROWER IS DULY EXISTING AND IN GOOD STANDING AS A REGISTERED
ORGANIZATION IN ITS JURISDICTION OF FORMATION AND IS QUALIFIED AND LICENSED TO
DO BUSINESS AND IS IN GOOD STANDING IN ANY JURISDICTION IN WHICH THE CONDUCT OF
ITS BUSINESS OR ITS OWNERSHIP OF PROPERTY REQUIRES THAT IT BE QUALIFIED EXCEPT
WHERE THE FAILURE TO DO SO COULD NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL
ADVERSE EFFECT ON BORROWER’S BUSINESS.  IN CONNECTION WITH THIS AGREEMENT,
BORROWER HAS DELIVERED TO BANK A COMPLETED CERTIFICATE SIGNED BY BORROWER,
ENTITLED “PERFECTION CERTIFICATE”.  BORROWER REPRESENTS AND WARRANTS TO BANK
THAT (A) BORROWER’S EXACT LEGAL NAME IS THAT INDICATED ON THE PERFECTION
CERTIFICATE AND ON THE SIGNATURE PAGE HEREOF; (B) BORROWER IS AN ORGANIZATION OF
THE TYPE AND IS ORGANIZED IN THE JURISDICTION SET FORTH IN THE PERFECTION
CERTIFICATE; (C) THE PERFECTION CERTIFICATE ACCURATELY SETS FORTH BORROWER’S
ORGANIZATIONAL IDENTIFICATION NUMBER OR ACCURATELY STATES THAT BORROWER HAS
NONE; (D) THE PERFECTION CERTIFICATE ACCURATELY SETS FORTH BORROWER’S PLACE OF
BUSINESS, OR, IF MORE THAN ONE, ITS CHIEF EXECUTIVE OFFICE AS WELL AS BORROWER’S
MAILING ADDRESS (IF DIFFERENT THAN ITS CHIEF EXECUTIVE OFFICE); (E) BORROWER
(AND EACH OF ITS PREDECESSORS) HAS NOT, IN THE PAST FIVE (5) YEARS, CHANGED ITS
JURISDICTION OF FORMATION, ORGANIZATIONAL STRUCTURE OR TYPE, OR ANY
ORGANIZATIONAL NUMBER ASSIGNED BY ITS JURISDICTION; AND (F) ALL OTHER
INFORMATION SET FORTH ON THE PERFECTION CERTIFICATE PERTAINING TO BORROWER AND
EACH OF ITS SUBSIDIARIES IS ACCURATE AND COMPLETE (IT BEING UNDERSTOOD AND
AGREED THAT BORROWER MAY FROM TIME TO TIME UPDATE CERTAIN INFORMATION IN THE
PERFECTION CERTIFICATE AFTER THE EFFECTIVE DATE TO THE EXTENT PERMITTED BY ONE
OR MORE SPECIFIC PROVISIONS IN THIS AGREEMENT).  IF BORROWER IS NOT NOW A
REGISTERED ORGANIZATION BUT LATER BECOMES ONE, BORROWER SHALL PROMPTLY NOTIFY
BANK OF SUCH OCCURRENCE AND PROVIDE BANK WITH BORROWER’S ORGANIZATIONAL
IDENTIFICATION NUMBER.

 

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may
be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect or (v) constitute an event of default under any material
agreement by which Borrower is bound.  Borrower is not in default under any
agreement to which it is a party or by which it is bound in which the default
could have a material adverse effect on Borrower’s business.

 

5.2                               COLLATERAL.  BORROWER HAS GOOD TITLE TO, HAS
RIGHTS IN, AND THE POWER TO TRANSFER EACH ITEM OF THE COLLATERAL UPON WHICH IT
PURPORTS TO GRANT A LIEN HEREUNDER, FREE AND CLEAR OF ANY AND ALL LIENS EXCEPT
PERMITTED LIENS.  BORROWER HAS NO DEPOSIT ACCOUNTS OTHER THAN THE DEPOSIT
ACCOUNTS WITH BANK, THE DEPOSIT ACCOUNTS, IF ANY, DESCRIBED IN THE PERFECTION
CERTIFICATE DELIVERED TO BANK IN CONNECTION HEREWITH, OR OF WHICH BORROWER HAS
GIVEN BANK NOTICE AND TAKEN SUCH ACTIONS AS ARE NECESSARY TO GIVE BANK A
PERFECTED SECURITY INTEREST THEREIN.  THE ACCOUNTS ARE BONA FIDE, EXISTING
OBLIGATIONS OF THE ACCOUNT DEBTORS.

 

THE COLLATERAL IS NOT IN THE POSSESSION OF ANY THIRD PARTY BAILEE (SUCH AS A
WAREHOUSE) EXCEPT AS OTHERWISE PROVIDED IN THE PERFECTION CERTIFICATE.  NONE OF
THE COMPONENTS OF THE COLLATERAL SHALL BE MAINTAINED AT LOCATIONS OTHER THAN AS
PROVIDED IN THE PERFECTION CERTIFICATE, UNLESS BORROWER HAS GIVEN BANK WRITTEN
NOTICE OF SUCH OTHER LOCATIONS.  IN THE EVENT THAT BORROWER, AFTER THE DATE
HEREOF, INTENDS TO STORE OR OTHERWISE DELIVER ANY PORTION OF THE COLLATERAL TO A
BAILEE, THEN BORROWER WILL FIRST RECEIVE THE WRITTEN CONSENT OF BANK AND SUCH
BAILEE MUST EXECUTE AND DELIVER A BAILEE AGREEMENT IN FORM AND SUBSTANCE
SATISFACTORY TO BANK IN ITS SOLE DISCRETION.

 

ALL INVENTORY IS IN ALL MATERIAL RESPECTS OF GOOD AND MARKETABLE QUALITY, FREE
FROM MATERIAL DEFECTS.

 

BORROWER IS THE SOLE OWNER OF ITS INTELLECTUAL PROPERTY, EXCEPT FOR
NON-EXCLUSIVE LICENSES GRANTED TO ITS CUSTOMERS IN THE ORDINARY COURSE OF
BUSINESS.  EACH PATENT IS VALID AND ENFORCEABLE, AND NO PART OF THE INTELLECTUAL
PROPERTY HAS BEEN JUDGED INVALID OR UNENFORCEABLE, IN WHOLE OR IN PART, AND TO
THE BEST OF BORROWER’S KNOWLEDGE, NO CLAIM HAS BEEN MADE THAT ANY PART OF THE
INTELLECTUAL PROPERTY VIOLATES THE RIGHTS OF ANY THIRD PARTY EXCEPT TO THE
EXTENT SUCH CLAIM COULD NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE
EFFECT ON BORROWER’S BUSINESS. 

 

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EXCEPT AS NOTED ON THE PERFECTION CERTIFICATE, BORROWER IS NOT A PARTY TO, NOR
IS BOUND BY, ANY MATERIAL LICENSE OR OTHER AGREEMENT WITH RESPECT TO WHICH
BORROWER IS THE LICENSEE (A) THAT PROHIBITS OR OTHERWISE RESTRICTS BORROWER FROM
GRANTING A SECURITY INTEREST IN BORROWER’S INTEREST IN SUCH LICENSE OR AGREEMENT
OR ANY OTHER PROPERTY, OR (B) FOR WHICH A DEFAULT UNDER OR TERMINATION OF COULD
INTERFERE WITH THE BANK’S RIGHT TO SELL ANY COLLATERAL.  BORROWER SHALL PROVIDE
WRITTEN NOTICE TO BANK WITHIN TEN (10) DAYS OF ENTERING OR BECOMING BOUND BY ANY
SUCH LICENSE OR AGREEMENT (OTHER THAN OVER-THE-COUNTER SOFTWARE THAT IS
COMMERCIALLY AVAILABLE TO THE PUBLIC).  BORROWER SHALL TAKE SUCH STEPS AS BANK
REQUESTS TO OBTAIN THE CONSENT OF, OR WAIVER BY, ANY PERSON WHOSE CONSENT OR
WAIVER IS NECESSARY FOR (X) ALL SUCH LICENSES OR AGREEMENTS TO BE DEEMED
“COLLATERAL” AND FOR BANK TO HAVE A SECURITY INTEREST IN IT THAT MIGHT OTHERWISE
BE RESTRICTED OR PROHIBITED BY LAW OR BY THE TERMS OF ANY SUCH LICENSE OR
AGREEMENT, WHETHER NOW EXISTING OR ENTERED INTO IN THE FUTURE, AND (Y) BANK TO
HAVE THE ABILITY IN THE EVENT OF A LIQUIDATION OF ANY COLLATERAL TO DISPOSE OF
SUCH COLLATERAL IN ACCORDANCE WITH BANK’S RIGHTS AND REMEDIES UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

5.3                               ACCOUNTS RECEIVABLE.  FOR ANY ELIGIBLE ACCOUNT
IN ANY BORROWING BASE CERTIFICATE, ALL STATEMENTS MADE AND ALL UNPAID BALANCES
APPEARING IN ALL INVOICES, INSTRUMENTS AND OTHER DOCUMENTS EVIDENCING SUCH
ELIGIBLE ACCOUNTS ARE AND SHALL BE TRUE AND CORRECT AND ALL SUCH INVOICES,
INSTRUMENTS AND OTHER DOCUMENTS, AND ALL OF BORROWER’S BOOKS ARE GENUINE AND IN
ALL RESPECTS WHAT THEY PURPORT TO BE.  [WHETHER OR NOT AN EVENT OF DEFAULT HAS
OCCURRED AND IS CONTINUING, BANK MAY NOTIFY ANY ACCOUNT DEBTOR OWING BORROWER
MONEY OF BANK’S SECURITY INTEREST IN SUCH FUNDS AND VERIFY THE AMOUNT OF SUCH
ELIGIBLE ACCOUNT.]  ALL SALES AND OTHER TRANSACTIONS UNDERLYING OR GIVING RISE
TO EACH ELIGIBLE ACCOUNT SHALL COMPLY IN ALL MATERIAL RESPECTS WITH ALL
APPLICABLE LAWS AND GOVERNMENTAL RULES AND REGULATIONS.  BORROWER HAS NO
KNOWLEDGE OF ANY ACTUAL OR IMMINENT INSOLVENCY PROCEEDING OF ANY ACCOUNT DEBTOR
WHOSE ACCOUNTS ARE AN ELIGIBLE ACCOUNT IN ANY BORROWING BASE CERTIFICATE.  TO
THE BEST OF BORROWER’S KNOWLEDGE, ALL SIGNATURES AND ENDORSEMENTS ON ALL
DOCUMENTS, INSTRUMENTS, AND AGREEMENTS RELATING TO ALL ELIGIBLE ACCOUNTS ARE
GENUINE, AND ALL SUCH DOCUMENTS, INSTRUMENTS AND AGREEMENTS ARE LEGALLY
ENFORCEABLE IN ACCORDANCE WITH THEIR TERMS.

 

5.4                               LITIGATION.  THERE ARE NO ACTIONS OR
PROCEEDINGS PENDING OR, TO THE KNOWLEDGE OF THE RESPONSIBLE OFFICERS, THREATENED
IN WRITING BY OR AGAINST BORROWER OR ANY OF ITS SUBSIDIARIES INVOLVING MORE THAN
FIFTY THOUSAND DOLLARS ($50,000.00).

 

5.5                               NO MATERIAL DEVIATION IN FINANCIAL
STATEMENTS.  ALL CONSOLIDATED FINANCIAL STATEMENTS FOR BORROWER AND ANY OF ITS
SUBSIDIARIES DELIVERED TO BANK FAIRLY PRESENT IN ALL MATERIAL RESPECTS
BORROWER’S CONSOLIDATED FINANCIAL CONDITION AND BORROWER’S CONSOLIDATED RESULTS
OF OPERATIONS.  THERE HAS NOT BEEN ANY MATERIAL DETERIORATION IN BORROWER’S
CONSOLIDATED FINANCIAL CONDITION SINCE THE DATE OF THE MOST RECENT FINANCIAL
STATEMENTS SUBMITTED TO BANK.

 

5.6                               SOLVENCY.  THE FAIR SALABLE VALUE OF
BORROWER’S ASSETS (INCLUDING GOODWILL MINUS DISPOSITION COSTS) EXCEEDS THE FAIR
VALUE OF ITS LIABILITIES; BORROWER IS NOT LEFT WITH UNREASONABLY SMALL CAPITAL
AFTER THE TRANSACTIONS IN THIS AGREEMENT; AND BORROWER IS ABLE TO PAY ITS DEBTS
(INCLUDING TRADE DEBTS) AS THEY MATURE.

 

5.7                               REGULATORY COMPLIANCE.  BORROWER IS NOT AN
“INVESTMENT COMPANY” OR A COMPANY “CONTROLLED” BY AN “INVESTMENT COMPANY” UNDER
THE INVESTMENT COMPANY ACT.  BORROWER IS NOT ENGAGED AS ONE OF ITS IMPORTANT
ACTIVITIES IN EXTENDING CREDIT FOR MARGIN STOCK (UNDER REGULATIONS T AND U OF
THE FEDERAL RESERVE BOARD OF GOVERNORS).  BORROWER HAS COMPLIED IN ALL MATERIAL
RESPECTS WITH THE FEDERAL FAIR LABOR STANDARDS ACT.  NEITHER BORROWER NOR ANY OF
ITS SUBSIDIARIES IS A “HOLDING COMPANY” OR AN “AFFILIATE” OF A “HOLDING COMPANY”
OR A “SUBSIDIARY COMPANY” OF A “HOLDING COMPANY” AS EACH TERM IS DEFINED AND
USED IN THE PUBLIC UTILITY HOLDING COMPANY ACT OF 2005.  BORROWER HAS NOT
VIOLATED ANY LAWS, ORDINANCES OR RULES, THE VIOLATION OF WHICH COULD REASONABLY
BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS.  NONE OF
BORROWER’S OR ANY OF ITS SUBSIDIARIES’ PROPERTIES OR ASSETS HAS BEEN USED BY
BORROWER OR ANY SUBSIDIARY OR, TO THE BEST OF BORROWER’S KNOWLEDGE, BY PREVIOUS
PERSONS, IN DISPOSING, PRODUCING, STORING, TREATING, OR TRANSPORTING ANY
HAZARDOUS SUBSTANCE OTHER THAN LEGALLY.  BORROWER AND EACH OF ITS SUBSIDIARIES
HAVE OBTAINED ALL CONSENTS, APPROVALS AND AUTHORIZATIONS OF, MADE ALL
DECLARATIONS OR FILINGS WITH, AND GIVEN ALL NOTICES TO, ALL GOVERNMENT
AUTHORITIES THAT ARE NECESSARY TO CONTINUE THEIR RESPECTIVE BUSINESSES AS
CURRENTLY CONDUCTED.

 

5.8                               SUBSIDIARIES; INVESTMENTS.  BORROWER DOES NOT
OWN ANY STOCK, PARTNERSHIP INTEREST OR OTHER EQUITY SECURITIES EXCEPT FOR
PERMITTED INVESTMENTS.

 

5.9                               TAX RETURNS AND PAYMENTS; PENSION
CONTRIBUTIONS.  BORROWER HAS TIMELY FILED ALL REQUIRED TAX RETURNS AND REPORTS,
AND BORROWER HAS TIMELY PAID ALL FOREIGN, FEDERAL, STATE AND LOCAL TAXES,
ASSESSMENTS, DEPOSITS

 

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AND CONTRIBUTIONS OWED BY BORROWER.  BORROWER MAY DEFER PAYMENT OF ANY CONTESTED
TAXES, PROVIDED THAT BORROWER (A) IN GOOD FAITH CONTESTS ITS OBLIGATION TO PAY
THE TAXES BY APPROPRIATE PROCEEDINGS PROMPTLY AND DILIGENTLY INSTITUTED AND
CONDUCTED, (B) NOTIFIES BANK IN WRITING OF THE COMMENCEMENT OF, AND ANY MATERIAL
DEVELOPMENT IN, THE PROCEEDINGS, (C) POSTS BONDS OR TAKES ANY OTHER STEPS
REQUIRED TO PREVENT THE GOVERNMENTAL AUTHORITY LEVYING SUCH CONTESTED TAXES FROM
OBTAINING A LIEN UPON ANY OF THE COLLATERAL THAT IS OTHER THAN A “PERMITTED
LIEN”.  BORROWER IS UNAWARE OF ANY CLAIMS OR ADJUSTMENTS PROPOSED FOR ANY OF
BORROWER’S PRIOR TAX YEARS WHICH COULD RESULT IN ADDITIONAL TAXES BECOMING DUE
AND PAYABLE BY BORROWER.  BORROWER HAS PAID ALL AMOUNTS NECESSARY TO FUND ALL
PRESENT PENSION, PROFIT SHARING AND DEFERRED COMPENSATION PLANS IN ACCORDANCE
WITH THEIR TERMS, AND BORROWER HAS NOT WITHDRAWN FROM PARTICIPATION IN, AND HAS
NOT PERMITTED PARTIAL OR COMPLETE TERMINATION OF, OR PERMITTED THE OCCURRENCE OF
ANY OTHER EVENT WITH RESPECT TO, ANY SUCH PLAN WHICH COULD REASONABLY BE
EXPECTED TO RESULT IN ANY LIABILITY OF BORROWER, INCLUDING ANY LIABILITY TO THE
PENSION BENEFIT GUARANTY CORPORATION OR ITS SUCCESSORS OR ANY OTHER GOVERNMENTAL
AGENCY.

 

5.10                        USE OF PROCEEDS.  BORROWER SHALL USE THE PROCEEDS OF
THE CREDIT EXTENSIONS SOLELY AS WORKING CAPITAL, TO FUND ITS GENERAL BUSINESS
REQUIREMENTS AND NOT FOR PERSONAL, FAMILY, HOUSEHOLD OR AGRICULTURAL PURPOSES.

 

5.11                        FULL DISCLOSURE.  NO WRITTEN REPRESENTATION,
WARRANTY OR OTHER STATEMENT OF BORROWER IN ANY CERTIFICATE OR WRITTEN STATEMENT
GIVEN TO BANK, AS OF THE DATE SUCH REPRESENTATION, WARRANTY, OR OTHER STATEMENT
WAS MADE, TAKEN TOGETHER WITH ALL SUCH WRITTEN CERTIFICATES AND WRITTEN
STATEMENTS GIVEN TO BANK, CONTAINS ANY UNTRUE STATEMENT OF A MATERIAL FACT OR
OMITS TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS CONTAINED IN THE
CERTIFICATES OR STATEMENTS NOT MISLEADING (IT BEING RECOGNIZED BY BANK THAT THE
PROJECTIONS AND FORECASTS PROVIDED BY BORROWER IN GOOD FAITH AND BASED UPON
REASONABLE ASSUMPTIONS ARE NOT VIEWED AS FACTS AND THAT ACTUAL RESULTS DURING
THE PERIOD OR PERIODS COVERED BY SUCH PROJECTIONS AND FORECASTS MAY DIFFER FROM
THE PROJECTED OR FORECASTED RESULTS).

 

6                                         AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1                               GOVERNMENT COMPLIANCE.

 

(A)                                  MAINTAIN ITS AND ALL ITS SUBSIDIARIES’
LEGAL EXISTENCE AND GOOD STANDING IN THEIR RESPECTIVE JURISDICTIONS OF FORMATION
AND MAINTAIN QUALIFICATION IN EACH JURISDICTION IN WHICH THE FAILURE TO SO
QUALIFY WOULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON
BORROWER’S BUSINESS OR OPERATIONS.  BORROWER SHALL COMPLY, AND HAVE EACH
SUBSIDIARY COMPLY, WITH ALL LAWS, ORDINANCES AND REGULATIONS TO WHICH IT IS
SUBJECT, NONCOMPLIANCE WITH WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON
BORROWER’S BUSINESS.

 

(B)                                 OBTAIN ALL OF THE GOVERNMENTAL APPROVALS
NECESSARY FOR THE PERFORMANCE BY BORROWER OF ITS OBLIGATIONS UNDER THE LOAN
DOCUMENTS TO WHICH IT IS A PARTY AND THE GRANT OF A SECURITY INTEREST TO BANK IN
ALL OF ITS PROPERTY.  BORROWER SHALL PROMPTLY PROVIDE COPIES OF ANY SUCH
OBTAINED GOVERNMENTAL APPROVALS TO BANK.

 

6.2                               FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

 

(A)                                  DELIVER TO BANK:  (I) AS SOON AS AVAILABLE,
BUT NO LATER THAN FIVE (5) DAYS AFTER FILING WITH THE SECURITIES EXCHANGE
COMMISSION, BORROWER’S 10K AND 10Q REPORTS; (II) A COMPLIANCE CERTIFICATE
TOGETHER WITH DELIVERY OF THE 10K AND 10Q REPORTS; (III) A PROMPT REPORT OF ANY
LEGAL ACTIONS PENDING OR THREATENED AGAINST BORROWER OR ANY SUBSIDIARY THAT
COULD RESULT IN DAMAGES OR COSTS TO BORROWER OR ANY SUBSIDIARY OF $50,000.00 OR
MORE; AND (IV) BUDGETS, SALES PROJECTIONS, OPERATING PLANS OR OTHER FINANCIAL
INFORMATION BANK REASONABLY REQUESTS.

 

Borrower’s 10K and 10Q reports required to be delivered pursuant to
Section 6.2(a)(i) shall be deemed to have been delivered on the date on which
Borrower posts such report or provides a link thereto on Borrower’s or another
website on the Internet; provided, that Borrower shall provide paper copies to
Bank of the Compliance Certificates required by Section 6.2(a)(ii).

 

(B)                                 WITHIN THIRTY (30) DAYS AFTER THE LAST DAY
OF EACH MONTH, DELIVER TO BANK A DULY COMPLETED BORROWING BASE CERTIFICATE
SIGNED BY A RESPONSIBLE OFFICER, WITH (I) AGED LISTINGS OF ACCOUNTS RECEIVABLE
AND ACCOUNTS PAYABLE (BY INVOICE DATE) AND (II) A SCHEDULE OF DEFERRED REVENUE
BY CUSTOMER.

 

6

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(C)                                  WITHIN THIRTY (30) DAYS AFTER THE LAST DAY
OF EACH MONTH, DELIVER TO BANK ITS MONTHLY FINANCIAL STATEMENTS TOGETHER WITH A
DULY COMPLETED COMPLIANCE CERTIFICATE SIGNED BY A RESPONSIBLE OFFICER SETTING
FORTH CALCULATIONS SHOWING COMPLIANCE WITH THE FINANCIAL COVENANTS SET FORTH IN
THIS AGREEMENT.

 

(D)                                 ALLOW BANK TO AUDIT BORROWER’S COLLATERAL AT
BORROWER’S EXPENSE.  SUCH AUDITS SHALL BE CONDUCTED NO MORE OFTEN THAN ONCE
EVERY TWELVE (12) MONTHS UNLESS A DEFAULT OR AN EVENT OF DEFAULT HAS OCCURRED
AND IS CONTINUING.

 

6.3                               INVENTORY; RETURNS.  KEEP ALL INVENTORY IN
GOOD AND MARKETABLE CONDITION, FREE FROM MATERIAL DEFECTS.  RETURNS AND
ALLOWANCES BETWEEN BORROWER AND ITS ACCOUNT DEBTORS SHALL FOLLOW BORROWER’S
CUSTOMARY PRACTICES AS THEY EXIST AT THE EFFECTIVE DATE.  BORROWER MUST PROMPTLY
NOTIFY BANK OF ALL RETURNS, RECOVERIES, DISPUTES AND CLAIMS THAT INVOLVE MORE
THAN FIFTY THOUSAND DOLLARS ($50,000.00).

 

6.4                               TAXES; PENSIONS.  MAKE, AND CAUSE EACH OF ITS
SUBSIDIARIES TO MAKE, TIMELY PAYMENT OF ALL FOREIGN, FEDERAL, STATE, AND LOCAL
TAXES OR ASSESSMENTS (OTHER THAN TAXES AND ASSESSMENTS WHICH BORROWER IS
CONTESTING PURSUANT TO THE TERMS OF SECTION 5.9 HEREOF) AND SHALL DELIVER TO
BANK, ON DEMAND, APPROPRIATE CERTIFICATES ATTESTING TO SUCH PAYMENTS, AND PAY
ALL AMOUNTS NECESSARY TO FUND ALL PRESENT PENSION, PROFIT SHARING AND DEFERRED
COMPENSATION PLANS IN ACCORDANCE WITH THEIR TERMS.

 

6.5                               INSURANCE.  KEEP ITS BUSINESS AND THE
COLLATERAL INSURED FOR RISKS AND IN AMOUNTS STANDARD FOR COMPANIES IN BORROWER’S
INDUSTRY AND LOCATION AND AS BANK MAY REASONABLY REQUEST.  INSURANCE POLICIES
SHALL BE IN A FORM, WITH COMPANIES, AND IN AMOUNTS THAT ARE SATISFACTORY TO
BANK.  ALL PROPERTY POLICIES SHALL HAVE A LENDER’S LOSS PAYABLE ENDORSEMENT
SHOWING BANK AS THE SOLE LENDER LOSS PAYEE AND WAIVE SUBROGATION AGAINST BANK,
AND ALL LIABILITY POLICIES SHALL SHOW, OR HAVE ENDORSEMENTS SHOWING, BANK AS AN
ADDITIONAL INSURED.  ALL POLICIES (OR THE LOSS PAYABLE AND ADDITIONAL INSURED
ENDORSEMENTS) SHALL PROVIDE THAT THE INSURER SHALL ENDEAVOR TO GIVE BANK AT
LEAST TWENTY (20) DAYS NOTICE BEFORE CANCELING, AMENDING, OR DECLINING TO RENEW
ITS POLICY.  AT BANK’S REQUEST, BORROWER SHALL DELIVER CERTIFIED COPIES OF
POLICIES AND EVIDENCE OF ALL PREMIUM PAYMENTS.  PROCEEDS PAYABLE UNDER ANY
POLICY SHALL, AT BANK’S OPTION, BE PAYABLE TO BANK ON ACCOUNT OF THE
OBLIGATIONS.  IF BORROWER FAILS TO OBTAIN INSURANCE AS REQUIRED UNDER THIS
SECTION 6.5 OR TO PAY ANY AMOUNT OR FURNISH ANY REQUIRED PROOF OF PAYMENT TO
THIRD PERSONS AND BANK, BANK MAY MAKE ALL OR PART OF SUCH PAYMENT OR OBTAIN SUCH
INSURANCE POLICIES REQUIRED IN THIS SECTION 6.5, AND TAKE ANY ACTION UNDER THE
POLICIES BANK DEEMS PRUDENT.

 

WARNING

 

Unless Borrower (“you” or “your”) provides Bank (“us”, “we” or “our”) with
evidence of the insurance coverage as required by our contract or loan
agreement, we may purchase insurance at your expense to protect our interest. 
This insurance may, but need not, also protect your interest.  If the collateral
becomes damaged, the coverage we purchase may not pay any claim you make or any
claim made against you.  You may later cancel this coverage by providing
evidence that you have obtained property coverage elsewhere.

 

You are responsible for the cost of any insurance purchased by us.  The cost of
this insurance may be added to your contract or loan balance.  If the cost is
added to your contract or loan balance, the interest rate on the underlying
contract or loan will apply to this added amount.  The effective date of
coverage may be the date your prior coverage lapsed or the date you failed to
provide proof of coverage.

 

This coverage we purchased may be considerably more expensive than insurance you
can obtain on your own and may not satisfy any need for property damage coverage
or any mandatory liability insurance requirements imposed by applicable law.

 

6.6                               OPERATING ACCOUNTS.

 

(A)                          MAINTAIN ITS PRIMARY OPERATING AND OTHER DEPOSIT
ACCOUNTS AND SECURITIES ACCOUNTS WITH BANK AND BANK’S AFFILIATES.

 

(B)                                 PROVIDE BANK FIVE (5) DAYS PRIOR WRITTEN
NOTICE BEFORE ESTABLISHING ANY COLLATERAL ACCOUNT AT OR WITH ANY BANK OR
FINANCIAL INSTITUTION OTHER THAN BANK OR BANK’S AFFILIATES.  FOR EACH COLLATERAL
ACCOUNT THAT BORROWER AT ANY TIME MAINTAINS, BORROWER SHALL CAUSE THE APPLICABLE
BANK OR FINANCIAL INSTITUTION (OTHER

 

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THAN BANK) AT OR WITH WHICH ANY COLLATERAL ACCOUNT IS MAINTAINED TO EXECUTE AND
DELIVER A CONTROL AGREEMENT OR OTHER APPROPRIATE INSTRUMENT WITH RESPECT TO SUCH
COLLATERAL ACCOUNT TO PERFECT BANK’S LIEN IN SUCH COLLATERAL ACCOUNT IN
ACCORDANCE WITH THE TERMS HEREUNDER.  THE PROVISIONS OF THE PREVIOUS SENTENCE
SHALL NOT APPLY TO DEPOSIT ACCOUNTS EXCLUSIVELY USED FOR PAYROLL, PAYROLL TAXES
AND OTHER EMPLOYEE WAGE AND BENEFIT PAYMENTS TO OR FOR THE BENEFIT OF BORROWER’S
EMPLOYEES AND IDENTIFIED TO BANK BY BORROWER AS SUCH.

 

6.7                               FINANCIAL COVENANTS.

 

Borrower shall maintain at all times, to be tested as of the last day of each
month, unless otherwise noted, on a consolidated basis with respect to Borrower
and its Subsidiaries:

 

(a)                                  Quick Ratio.  A ratio of Quick Assets to
Current Liabilities of at least: (i) 1.15 to 1.00 from the Effective Date
through May 31, 2008 and (ii) 1.35 to 1.00 from and after June 1, 2008.

 

(b)                                 Maximum Losses.  Borrower shall not suffer
any loss, calculated on a rolling three-month period, in excess of: 
(i) $650,000.00 from the Effective Date through December 31, 2007;
(ii) $625,000.00 from January 1, 2008 through March 31, 2008; (iii) $385,000.00
from April 1, 2008 through June 30, 2008; (iv) $200,000.00 from July 1, 2008
through September 30, 2008; and (v)  $0 from and after October 1, 2008.

 

6.8                               PROTECTION AND REGISTRATION OF INTELLECTUAL
PROPERTY RIGHTS.  BORROWER SHALL:  (A) PROTECT, DEFEND AND MAINTAIN THE VALIDITY
AND ENFORCEABILITY OF ITS INTELLECTUAL PROPERTY; (B) PROMPTLY ADVISE BANK IN
WRITING OF MATERIAL INFRINGEMENTS OF ITS INTELLECTUAL PROPERTY; AND (C) NOT
ALLOW ANY INTELLECTUAL PROPERTY MATERIAL TO BORROWER’S BUSINESS TO BE ABANDONED,
FORFEITED OR DEDICATED TO THE PUBLIC WITHOUT BANK’S WRITTEN CONSENT.  [IF
BORROWER (I) OBTAINS ANY PATENT, REGISTERED TRADEMARK OR SERVICEMARK, REGISTERED
COPYRIGHT, REGISTERED MASK WORK, OR ANY PENDING APPLICATION FOR ANY OF THE
FOREGOING, WHETHER AS OWNER, LICENSEE OR OTHERWISE, OR (II) APPLIES FOR ANY
PATENT OR THE REGISTRATION OF ANY TRADEMARK OR SERVICEMARK, THEN BORROWER SHALL
IMMEDIATELY PROVIDE WRITTEN NOTICE THEREOF TO BANK AND SHALL EXECUTE SUCH
INTELLECTUAL PROPERTY SECURITY AGREEMENTS AND OTHER DOCUMENTS AND TAKE SUCH
OTHER ACTIONS AS BANK SHALL REQUEST IN ITS GOOD FAITH BUSINESS JUDGMENT TO
PERFECT AND MAINTAIN A FIRST PRIORITY PERFECTED SECURITY INTEREST IN FAVOR OF
BANK IN SUCH PROPERTY.  IF BORROWER DECIDES TO REGISTER ANY COPYRIGHTS OR MASK
WORKS IN THE UNITED STATES COPYRIGHT OFFICE, BORROWER SHALL: (X) PROVIDE BANK
WITH AT LEAST FIFTEEN (15) DAYS PRIOR WRITTEN NOTICE OF BORROWER’S INTENT TO
REGISTER SUCH COPYRIGHTS OR MASK WORKS TOGETHER WITH A COPY OF THE APPLICATION
IT INTENDS TO FILE WITH THE UNITED STATES COPYRIGHT OFFICE (EXCLUDING EXHIBITS
THERETO); (Y) EXECUTE AN INTELLECTUAL PROPERTY SECURITY AGREEMENT AND SUCH OTHER
DOCUMENTS AND TAKE SUCH OTHER ACTIONS AS BANK MAY REQUEST IN ITS GOOD FAITH
BUSINESS JUDGMENT TO PERFECT AND MAINTAIN A FIRST PRIORITY PERFECTED SECURITY
INTEREST IN FAVOR OF BANK IN THE COPYRIGHTS OR MASK WORKS INTENDED TO BE
REGISTERED WITH THE UNITED STATES COPYRIGHT OFFICE; AND (Z) RECORD SUCH
INTELLECTUAL PROPERTY SECURITY AGREEMENT WITH THE UNITED STATES COPYRIGHT OFFICE
CONTEMPORANEOUSLY WITH FILING THE COPYRIGHT OR MASK WORK APPLICATION(S) WITH THE
UNITED STATES COPYRIGHT OFFICE.  BORROWER SHALL PROMPTLY PROVIDE TO BANK COPIES
OF ALL APPLICATIONS THAT IT FILES FOR PATENTS OR FOR THE REGISTRATION OF
TRADEMARKS, SERVICEMARKS, COPYRIGHTS OR MASK WORKS, TOGETHER WITH EVIDENCE OF
THE RECORDING OF THE INTELLECTUAL PROPERTY SECURITY AGREEMENT NECESSARY FOR BANK
TO PERFECT AND MAINTAIN A FIRST PRIORITY PERFECTED SECURITY INTEREST IN SUCH
PROPERTY.

 

6.9                               LITIGATION COOPERATION.  FROM THE DATE HEREOF
AND CONTINUING THROUGH THE TERMINATION OF THIS AGREEMENT, MAKE AVAILABLE TO
BANK, WITHOUT EXPENSE TO BANK, BORROWER AND ITS OFFICERS, EMPLOYEES AND AGENTS
AND BORROWER’S BOOKS AND RECORDS, TO THE EXTENT THAT BANK MAY DEEM THEM
REASONABLY NECESSARY TO PROSECUTE OR DEFEND ANY THIRD-PARTY SUIT OR PROCEEDING
INSTITUTED BY OR AGAINST BANK WITH RESPECT TO ANY COLLATERAL OR RELATING TO
BORROWER.

 

6.10                        DESIGNATED SENIOR INDEBTEDNESS.  BORROWER SHALL
DESIGNATE ALL PRINCIPAL OF, INTEREST (INCLUDING ALL INTEREST ACCRUING AFTER THE
COMMENCEMENT OF ANY BANKRUPTCY OR SIMILAR PROCEEDING, WHETHER OR NOT A CLAIM FOR
POST-PETITION INTEREST IS ALLOWABLE AS A CLAIM IN ANY SUCH PROCEEDING), AND ALL
FEES, COSTS, EXPENSES AND OTHER AMOUNTS ACCRUED OR DUE UNDER THIS AGREEMENT AS
“DESIGNATED SENIOR INDEBTEDNESS”, OR SUCH SIMILAR TERM, IN ANY FUTURE
SUBORDINATED DEBT INCURRED BY BORROWER AFTER THE DATE HEREOF, IF SUCH
SUBORDINATED DEBT CONTAINS SUCH TERM OR SIMILAR TERM AND IF THE EFFECT OF SUCH
DESIGNATION IS TO GRANT TO BANK THE SAME OR SIMILAR RIGHTS AS GRANTED TO BANK AS
A HOLDER OF “DESIGNATED SENIOR INDEBTEDNESS” UNDER THE INDENTURE.

 

6.11                        FURTHER ASSURANCES.  EXECUTE ANY FURTHER INSTRUMENTS
AND TAKE FURTHER ACTION AS BANK REASONABLY REQUESTS TO PERFECT OR CONTINUE
BANK’S LIEN IN THE COLLATERAL OR TO EFFECT THE PURPOSES OF THIS AGREEMENT.

 

8

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7                                         NEGATIVE COVENANTS

 

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

 

7.1                               DISPOSITIONS.  CONVEY, SELL, LEASE, TRANSFER
OR OTHERWISE DISPOSE OF (COLLECTIVELY, “TRANSFER”), OR PERMIT ANY OF ITS
SUBSIDIARIES TO TRANSFER, ALL OR ANY PART OF ITS BUSINESS OR PROPERTY, EXCEPT
FOR TRANSFERS (A) OF INVENTORY IN THE ORDINARY COURSE OF BUSINESS; (B) OF
WORN-OUT OR OBSOLETE EQUIPMENT; AND (C) IN CONNECTION WITH PERMITTED LIENS AND
PERMITTED INVESTMENTS.

 

7.2                               CHANGES IN BUSINESS; CHANGE IN CONTROL;
JURISDICTION OF FORMATION.  ENGAGE IN ANY MATERIAL LINE OF BUSINESS OTHER THAN
THOSE LINES OF BUSINESS CONDUCTED BY BORROWER AND ITS SUBSIDIARIES ON THE DATE
HEREOF AND ANY BUSINESSES REASONABLY RELATED, COMPLEMENTARY OR INCIDENTAL
THERETO OR REASONABLE EXTENSIONS THEREOF; PERMIT OR SUFFER ANY CHANGE IN
CONTROL.  BORROWER WILL NOT, WITHOUT PRIOR WRITTEN NOTICE, CHANGE ITS
JURISDICTION OF FORMATION.

 

7.3                               MERGERS OR ACQUISITIONS.  MERGE OR
CONSOLIDATE, OR PERMIT ANY OF ITS SUBSIDIARIES TO MERGE OR CONSOLIDATE, WITH ANY
PERSON OTHER THAN WITH BORROWER OR ANY SUBSIDIARY, OR ACQUIRE, OR PERMIT ANY OF
ITS SUBSIDIARIES TO ACQUIRE, ALL OR SUBSTANTIALLY ALL OF THE CAPITAL STOCK OR
PROPERTY OF A PERSON OTHER THAN BORROWER OR ANY SUBSIDIARY, EXCEPT WHERE NO
EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING OR WOULD RESULT FROM SUCH ACTION
DURING THE TERM OF THIS AGREEMENT, AND (A) BORROWER IS THE SURVIVING ENTITY OR
(B) SUCH MERGER OR CONSOLIDATION IS A TRANSFER OTHERWISE PERMITTED PURSUANT TO
SECTION 7.1 HEREOF.

 

7.4                               INDEBTEDNESS.  CREATE, INCUR, ASSUME, OR BE
LIABLE FOR ANY INDEBTEDNESS, OR PERMIT ANY SUBSIDIARY TO DO SO, OTHER THAN
PERMITTED INDEBTEDNESS.

 

7.5                               ENCUMBRANCE.  CREATE, INCUR, ALLOW, OR SUFFER
ANY LIEN ON ANY OF ITS PROPERTY, OR ASSIGN OR CONVEY ANY RIGHT TO RECEIVE
INCOME, INCLUDING THE SALE OF ANY ACCOUNTS, OR PERMIT ANY OF ITS SUBSIDIARIES TO
DO SO, EXCEPT FOR PERMITTED LIENS, PERMIT ANY COLLATERAL NOT TO BE SUBJECT TO
THE FIRST PRIORITY SECURITY INTEREST GRANTED HEREIN, OR ENTER INTO ANY
AGREEMENT, DOCUMENT, INSTRUMENT OR OTHER ARRANGEMENT (EXCEPT WITH OR IN FAVOR OF
BANK) WITH ANY PERSON WHICH DIRECTLY OR INDIRECTLY PROHIBITS OR HAS THE EFFECT
OF PROHIBITING BORROWER FROM ASSIGNING, MORTGAGING, PLEDGING, GRANTING A
SECURITY INTEREST IN OR UPON, OR ENCUMBERING ANY OF BORROWER’S INTELLECTUAL
PROPERTY, EXCEPT AS IS OTHERWISE PERMITTED IN SECTION 7.1 HEREOF AND THE
DEFINITION OF “PERMITTED LIEN” HEREIN.

 

7.6                               MAINTENANCE OF COLLATERAL ACCOUNTS.  MAINTAIN
ANY COLLATERAL ACCOUNT EXCEPT PURSUANT TO THE TERMS OF SECTION 6.6.(B) HEREOF.

 

7.7                               DISTRIBUTIONS; INVESTMENTS.  (A) PAY ANY
DIVIDENDS OR MAKE ANY DISTRIBUTION OR PAYMENT OR REDEEM, RETIRE OR PURCHASE ANY
CAPITAL STOCK; OR (B) DIRECTLY OR INDIRECTLY MAKE ANY INVESTMENT, OTHER THAN
PERMITTED INVESTMENTS, OR PERMIT ANY OF ITS SUBSIDIARIES TO DO SO.

 

7.8                               TRANSACTIONS WITH AFFILIATES.  DIRECTLY OR
INDIRECTLY ENTER INTO OR PERMIT TO EXIST ANY MATERIAL TRANSACTION WITH ANY
AFFILIATE OF BORROWER, EXCEPT FOR TRANSACTIONS THAT ARE IN THE ORDINARY COURSE
OF BORROWER’S BUSINESS, UPON FAIR AND REASONABLE TERMS THAT ARE NO LESS
FAVORABLE TO BORROWER THAN WOULD BE OBTAINED IN AN ARM’S LENGTH TRANSACTION WITH
A NON-AFFILIATED PERSON.

 

7.9                               SUBORDINATED DEBT.  (A) MAKE OR PERMIT ANY
PAYMENT ON ANY SUBORDINATED DEBT, EXCEPT UNDER THE TERMS OF THE SUBORDINATION,
INTERCREDITOR, OR OTHER SIMILAR AGREEMENT TO WHICH SUCH SUBORDINATED DEBT IS
SUBJECT, OR (B) AMEND ANY PROVISION IN ANY DOCUMENT RELATING TO THE SUBORDINATED
DEBT WHICH WOULD INCREASE THE AMOUNT THEREOF OR ADVERSELY AFFECT THE
SUBORDINATION THEREOF TO OBLIGATIONS OWED TO BANK.

 

7.10                        COMPLIANCE.  BECOME AN “INVESTMENT COMPANY” OR A
COMPANY CONTROLLED BY AN “INVESTMENT COMPANY”, UNDER THE INVESTMENT COMPANY ACT
OF 1940 OR UNDERTAKE AS ONE OF ITS IMPORTANT ACTIVITIES EXTENDING CREDIT TO
PURCHASE OR CARRY MARGIN STOCK (AS DEFINED IN REGULATION U OF THE BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM), OR USE THE PROCEEDS OF ANY CREDIT
EXTENSION FOR THAT PURPOSE; FAIL TO MEET THE MINIMUM FUNDING REQUIREMENTS OF
ERISA, PERMIT A REPORTABLE EVENT OR PROHIBITED TRANSACTION, AS DEFINED IN ERISA,
TO OCCUR; FAIL TO COMPLY WITH THE FEDERAL FAIR LABOR STANDARDS ACT OR VIOLATE
ANY OTHER LAW OR REGULATION, IF THE VIOLATION COULD REASONABLY BE EXPECTED TO
HAVE A MATERIAL ADVERSE EFFECT ON BORROWER’S BUSINESS, OR PERMIT ANY OF ITS
SUBSIDIARIES TO DO SO; WITHDRAW OR PERMIT ANY SUBSIDIARY TO WITHDRAW FROM
PARTICIPATION IN, PERMIT PARTIAL OR COMPLETE TERMINATION OF, OR PERMIT THE
OCCURRENCE OF ANY OTHER EVENT WITH RESPECT TO, ANY PRESENT PENSION, PROFIT
SHARING AND DEFERRED COMPENSATION PLAN WHICH COULD REASONABLY BE EXPECTED TO
RESULT IN ANY LIABILITY OF BORROWER, INCLUDING ANY LIABILITY TO THE PENSION
BENEFIT GUARANTY CORPORATION OR ITS SUCCESSORS OR ANY OTHER GOVERNMENTAL AGENCY.

 

9

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8                                         EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

 

8.1                               PAYMENT DEFAULT.  BORROWER FAILS TO (A) MAKE
ANY PAYMENT OF PRINCIPAL OR INTEREST ON ANY CREDIT EXTENSION ON ITS DUE DATE, OR
(B) PAY ANY OTHER OBLIGATIONS WITHIN THREE (3) BUSINESS DAYS AFTER SUCH
OBLIGATIONS ARE DUE AND PAYABLE (WHICH THREE (3) DAY GRACE PERIOD SHALL NOT
APPLY TO PAYMENTS DUE ON THE REVOLVING LINE MATURITY DATE).  DURING THE CURE
PERIOD, THE FAILURE TO CURE THE PAYMENT DEFAULT IS NOT AN EVENT OF DEFAULT (BUT
NO CREDIT EXTENSION WILL BE MADE DURING THE CURE PERIOD);

 

8.2                               COVENANT DEFAULT.

 

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5,
6.6, or 6.7, or violates any covenant in Section 7; or

 

(B) BORROWER FAILS OR NEGLECTS TO PERFORM, KEEP, OR OBSERVE ANY OTHER TERM,
PROVISION, CONDITION, COVENANT OR AGREEMENT CONTAINED IN THIS AGREEMENT OR ANY
LOAN DOCUMENTS, AND AS TO ANY DEFAULT (OTHER THAN THOSE SPECIFIED IN THIS
SECTION 8) UNDER SUCH OTHER TERM, PROVISION, CONDITION, COVENANT OR AGREEMENT
THAT CAN BE CURED, HAS FAILED TO CURE THE DEFAULT WITHIN TEN (10) DAYS AFTER THE
OCCURRENCE THEREOF; PROVIDED, HOWEVER, THAT IF THE DEFAULT CANNOT BY ITS NATURE
BE CURED WITHIN THE TEN (10) DAY PERIOD OR CANNOT AFTER DILIGENT ATTEMPTS BY
BORROWER BE CURED WITHIN SUCH TEN (10) DAY PERIOD, AND SUCH DEFAULT IS LIKELY TO
BE CURED WITHIN A REASONABLE TIME, THEN BORROWER SHALL HAVE AN ADDITIONAL PERIOD
(WHICH SHALL NOT IN ANY CASE EXCEED THIRTY (30) DAYS) TO ATTEMPT TO CURE SUCH
DEFAULT, AND WITHIN SUCH REASONABLE TIME PERIOD THE FAILURE TO CURE THE DEFAULT
SHALL NOT BE DEEMED AN EVENT OF DEFAULT (BUT NO CREDIT EXTENSIONS SHALL BE MADE
DURING SUCH CURE PERIOD).  GRACE PERIODS PROVIDED UNDER THIS SECTION SHALL NOT
APPLY, AMONG OTHER THINGS, TO FINANCIAL COVENANTS OR ANY OTHER COVENANTS SET
FORTH IN SUBSECTION (A) ABOVE;

 

8.3                               MATERIAL ADVERSE CHANGE.  A MATERIAL ADVERSE
CHANGE OCCURS;

 

8.4                               ATTACHMENT.  (A) ANY MATERIAL PORTION OF
BORROWER’S ASSETS IS SEIZED, LEVIED ON, OR COMES INTO POSSESSION OF A TRUSTEE OR
RECEIVER; (B) THE SERVICE OF PROCESS SEEKING TO ATTACH, BY TRUSTEE OR SIMILAR
PROCESS, ANY FUNDS OF BORROWER OR OF ANY ENTITY UNDER CONTROL OF BORROWER
(INCLUDING A SUBSIDIARY) ON DEPOSIT WITH BANK OR ANY BANK AFFILIATE;
(C) BORROWER IS ENJOINED, RESTRAINED, OR PREVENTED BY COURT ORDER FROM
CONDUCTING ANY PART OF ITS BUSINESS; OR (D) A NOTICE OF LIEN, LEVY, OR
ASSESSMENT IS FILED AGAINST ANY OF BORROWER’S ASSETS BY ANY GOVERNMENT AGENCY,
AND THE SAME UNDER CLAUSES (A) THROUGH (D) HEREOF ARE NOT, WITHIN TEN (10) DAYS
AFTER THE OCCURRENCE THEREOF, DISCHARGED OR STAYED (WHETHER THROUGH THE POSTING
OF A BOND OR OTHERWISE); PROVIDED, HOWEVER, NO CREDIT EXTENSIONS SHALL BE MADE
DURING ANY TEN (10) DAY CURE PERIOD;

 

8.5                               INSOLVENCY  (A) BORROWER IS UNABLE TO PAY ITS
DEBTS (INCLUDING TRADE DEBTS) AS THEY BECOME DUE OR OTHERWISE BECOMES INSOLVENT;
(B) BORROWER BEGINS AN INSOLVENCY PROCEEDING; OR (C) AN INSOLVENCY PROCEEDING IS
BEGUN AGAINST BORROWER AND NOT DISMISSED OR STAYED WITHIN THIRTY (30) DAYS (BUT
NO CREDIT EXTENSIONS SHALL BE MADE WHILE OF ANY OF THE CONDITIONS DESCRIBED IN
CLAUSE (A) EXIST AND/OR UNTIL ANY INSOLVENCY PROCEEDING IS DISMISSED);

 

8.6                               OTHER AGREEMENTS.  THERE IS A DEFAULT IN ANY
AGREEMENT TO WHICH BORROWER OR ANY GUARANTOR IS A PARTY WITH A THIRD PARTY OR
PARTIES RESULTING IN A RIGHT BY SUCH THIRD PARTY OR PARTIES, WHETHER OR NOT
EXERCISED, TO ACCELERATE THE MATURITY OF ANY INDEBTEDNESS IN AN AMOUNT IN EXCESS
OF FIFTY THOUSAND DOLLARS ($50,000.00) OR THAT COULD HAVE A MATERIAL ADVERSE
EFFECT ON BORROWER’S OR ANY GUARANTOR’S BUSINESS;

 

8.7                               JUDGMENTS.  ONE OR MORE JUDGMENTS, ORDERS, OR
DECREES FOR THE PAYMENT OF MONEY IN AN AMOUNT, INDIVIDUALLY OR IN THE AGGREGATE,
OF AT LEAST FIFTY THOUSAND DOLLARS ($50,000.00) (NOT COVERED BY INDEPENDENT
THIRD-PARTY INSURANCE AS TO WHICH LIABILITY HAS BEEN ACCEPTED BY SUCH INSURANCE
CARRIER) SHALL BE RENDERED AGAINST BORROWER AND SHALL REMAIN UNSATISFIED,
UNVACATED, OR UNSTAYED FOR A PERIOD OF TEN (10) DAYS AFTER THE ENTRY THEREOF
(PROVIDED THAT NO CREDIT EXTENSIONS WILL BE MADE PRIOR TO THE SATISFACTION,
VACATION, OR STAY OF SUCH JUDGMENT, ORDER, OR DECREE);

 

8.8                               MISREPRESENTATIONS.  BORROWER OR ANY PERSON
ACTING FOR BORROWER MAKES ANY REPRESENTATION, WARRANTY, OR OTHER STATEMENT NOW
OR LATER IN THIS AGREEMENT, ANY LOAN DOCUMENT OR IN ANY WRITING DELIVERED TO
BANK OR TO INDUCE BANK TO ENTER THIS AGREEMENT OR ANY LOAN DOCUMENT, AND SUCH
REPRESENTATION, WARRANTY, OR OTHER STATEMENT IS INCORRECT IN ANY MATERIAL
RESPECT WHEN MADE;

 

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8.9                               SUBORDINATED DEBT.  A DEFAULT OR BREACH OCCURS
UNDER ANY AGREEMENT BETWEEN BORROWER AND ANY CREDITOR OF BORROWER THAT SIGNED A
SUBORDINATION, INTERCREDITOR, OR OTHER SIMILAR AGREEMENT WITH BANK, OR ANY
CREDITOR THAT HAS SIGNED SUCH AN AGREEMENT WITH BANK BREACHES ANY TERMS OF SUCH
AGREEMENT; OR

 

9                                         BANK’S RIGHTS AND REMEDIES

 

9.1                               RIGHTS AND REMEDIES.  WHILE AN EVENT OF
DEFAULT OCCURS AND CONTINUES BANK MAY, WITHOUT NOTICE OR DEMAND, DO ANY OR ALL
OF THE FOLLOWING:

 

(A)                                  DECLARE ALL OBLIGATIONS IMMEDIATELY DUE AND
PAYABLE (BUT IF AN EVENT OF DEFAULT DESCRIBED IN SECTION 8.5 OCCURS ALL
OBLIGATIONS ARE IMMEDIATELY DUE AND PAYABLE WITHOUT ANY ACTION BY BANK);

 

(B)                                 STOP ADVANCING MONEY OR EXTENDING CREDIT FOR
BORROWER’S BENEFIT UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT BETWEEN
BORROWER AND BANK;

 

(C)                                  DEMAND THAT BORROWER (I) DEPOSITS CASH WITH
BANK IN AN AMOUNT EQUAL TO THE AGGREGATE AMOUNT OF ANY LETTERS OF CREDIT
REMAINING UNDRAWN, AS COLLATERAL SECURITY FOR THE REPAYMENT OF ANY FUTURE
DRAWINGS UNDER SUCH LETTERS OF CREDIT, AND BORROWER SHALL FORTHWITH DEPOSIT AND
PAY SUCH AMOUNTS, AND (II) PAY IN ADVANCE ALL LETTER OF CREDIT FEES SCHEDULED TO
BE PAID OR PAYABLE OVER THE REMAINING TERM OF ANY LETTERS OF CREDIT;

 

(D)                                 TERMINATE ANY FX FORWARD CONTRACTS;

 

(E)                                  SETTLE OR ADJUST DISPUTES AND CLAIMS
DIRECTLY WITH ACCOUNT DEBTORS FOR AMOUNTS ON TERMS AND IN ANY ORDER THAT BANK
CONSIDERS ADVISABLE, NOTIFY ANY PERSON OWING BORROWER MONEY OF BANK’S SECURITY
INTEREST IN SUCH FUNDS, AND VERIFY THE AMOUNT OF SUCH ACCOUNT;

 

(F)                                    MAKE ANY PAYMENTS AND DO ANY ACTS IT
CONSIDERS NECESSARY OR REASONABLE TO PROTECT THE COLLATERAL AND/OR ITS SECURITY
INTEREST IN THE COLLATERAL.  BORROWER SHALL ASSEMBLE THE COLLATERAL IF BANK
REQUESTS AND MAKE IT AVAILABLE AS BANK DESIGNATES.  BANK MAY ENTER PREMISES
WHERE THE COLLATERAL IS LOCATED, TAKE AND MAINTAIN POSSESSION OF ANY PART OF THE
COLLATERAL, AND PAY, PURCHASE, CONTEST, OR COMPROMISE ANY LIEN WHICH APPEARS TO
BE PRIOR OR SUPERIOR TO ITS SECURITY INTEREST AND PAY ALL EXPENSES INCURRED.
BORROWER GRANTS BANK A LICENSE TO ENTER AND OCCUPY ANY OF ITS PREMISES, WITHOUT
CHARGE, TO EXERCISE ANY OF BANK’S RIGHTS OR REMEDIES;

 

(G)                                 APPLY TO THE OBLIGATIONS ANY (I) BALANCES
AND DEPOSITS OF BORROWER IT HOLDS, OR (II) ANY AMOUNT HELD BY BANK OWING TO OR
FOR THE CREDIT OR THE ACCOUNT OF BORROWER;

 

(H)                                 SHIP, RECLAIM, RECOVER, STORE, FINISH,
MAINTAIN, REPAIR, PREPARE FOR SALE, ADVERTISE FOR SALE, AND SELL THE
COLLATERAL.  BANK IS HEREBY GRANTED A NON-EXCLUSIVE, ROYALTY-FREE LICENSE OR
OTHER RIGHT TO USE WITHOUT CHARGE, BORROWER’S LABELS, PATENTS, COPYRIGHTS, MASK
WORKS, RIGHTS OF USE OF ANY NAME, TRADE SECRETS, TRADE NAMES, TRADEMARKS,
SERVICE MARKS, AND ADVERTISING MATTER, OR ANY SIMILAR PROPERTY AS IT PERTAINS TO
THE COLLATERAL, IN COMPLETING PRODUCTION OF, ADVERTISING FOR SALE, AND SELLING
ANY COLLATERAL AND, IN CONNECTION WITH BANK’S EXERCISE OF ITS RIGHTS UNDER THIS
SECTION, BORROWER’S RIGHTS UNDER ALL LICENSES AND ALL FRANCHISE AGREEMENTS INURE
TO BANK’S BENEFIT;

 

(I)                                     PLACE A “HOLD” ON ANY ACCOUNT MAINTAINED
WITH BANK AND/OR DELIVER A NOTICE OF EXCLUSIVE CONTROL, ANY ENTITLEMENT ORDER,
OR OTHER DIRECTIONS OR INSTRUCTIONS PURSUANT TO ANY CONTROL AGREEMENT OR SIMILAR
AGREEMENTS PROVIDING CONTROL OF ANY COLLATERAL;

 

(J)                                     DEMAND AND RECEIVE POSSESSION OF
BORROWER’S BOOKS; AND

 

(K)                                  EXERCISE ALL RIGHTS AND REMEDIES AVAILABLE
TO BANK UNDER THE LOAN DOCUMENTS OR AT LAW OR EQUITY, INCLUDING ALL REMEDIES
PROVIDED UNDER THE CODE (INCLUDING DISPOSAL OF THE COLLATERAL PURSUANT TO THE
TERMS THEREOF).

 

9.2                               POWER OF ATTORNEY.  BORROWER HEREBY
IRREVOCABLY APPOINTS BANK AS ITS LAWFUL ATTORNEY-IN-FACT, EXERCISABLE UPON THE
OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, TO:  (A) ENDORSE
BORROWER’S NAME ON ANY CHECKS OR OTHER FORMS OF PAYMENT OR SECURITY; (B) SIGN
BORROWER’S NAME ON ANY INVOICE OR BILL OF LADING FOR ANY ACCOUNT OR DRAFTS
AGAINST ACCOUNT DEBTORS; (C) SETTLE AND ADJUST DISPUTES AND CLAIMS ABOUT THE
ACCOUNTS DIRECTLY WITH ACCOUNT DEBTORS, FOR AMOUNTS AND ON TERMS BANK DETERMINES
REASONABLE; (D) MAKE, SETTLE, AND ADJUST

 

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ALL CLAIMS UNDER BORROWER’S INSURANCE POLICIES; (E) PAY, CONTEST OR SETTLE ANY
LIEN, CHARGE, ENCUMBRANCE, SECURITY INTEREST, AND ADVERSE CLAIM IN OR TO THE
COLLATERAL, OR ANY JUDGMENT BASED THEREON, OR OTHERWISE TAKE ANY ACTION TO
TERMINATE OR DISCHARGE THE SAME; AND (F) TRANSFER THE COLLATERAL INTO THE NAME
OF BANK OR A THIRD PARTY AS THE CODE PERMITS.  BORROWER HEREBY APPOINTS BANK AS
ITS LAWFUL ATTORNEY-IN-FACT TO SIGN BORROWER’S NAME ON ANY DOCUMENTS NECESSARY
TO PERFECT OR CONTINUE THE PERFECTION OF BANK’S SECURITY INTEREST IN THE
COLLATERAL REGARDLESS OF WHETHER AN EVENT OF DEFAULT HAS OCCURRED UNTIL ALL
OBLIGATIONS HAVE BEEN SATISFIED IN FULL AND BANK IS UNDER NO FURTHER OBLIGATION
TO MAKE CREDIT EXTENSIONS HEREUNDER.  BANK’S FOREGOING APPOINTMENT AS BORROWER’S
ATTORNEY IN FACT, AND ALL OF BANK’S RIGHTS AND POWERS, COUPLED WITH AN INTEREST,
ARE IRREVOCABLE UNTIL ALL OBLIGATIONS HAVE BEEN FULLY REPAID AND PERFORMED AND
BANK’S OBLIGATION TO PROVIDE CREDIT EXTENSIONS TERMINATES.

 

9.3                               PROTECTIVE PAYMENTS.  IF BORROWER FAILS TO
OBTAIN THE INSURANCE CALLED FOR BY SECTION 6.5 OR FAILS TO PAY ANY PREMIUM
THEREON OR FAILS TO PAY ANY OTHER AMOUNT WHICH BORROWER IS OBLIGATED TO PAY
UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, BANK MAY OBTAIN SUCH INSURANCE
OR MAKE SUCH PAYMENT, AND ALL AMOUNTS SO PAID BY BANK ARE BANK EXPENSES AND
IMMEDIATELY DUE AND PAYABLE, BEARING INTEREST AT THE THEN HIGHEST APPLICABLE
RATE, AND SECURED BY THE COLLATERAL.  BANK WILL MAKE REASONABLE EFFORTS TO
PROVIDE BORROWER WITH NOTICE OF BANK OBTAINING SUCH INSURANCE AT THE TIME IT IS
OBTAINED OR WITHIN A REASONABLE TIME THEREAFTER.  NO PAYMENTS BY BANK ARE DEEMED
AN AGREEMENT TO MAKE SIMILAR PAYMENTS IN THE FUTURE OR BANK’S WAIVER OF ANY
EVENT OF DEFAULT.

 

9.4                               APPLICATION OF PAYMENTS AND PROCEEDS. 
BORROWER SHALL HAVE NO RIGHT TO SPECIFY THE ORDER OR THE ACCOUNTS TO WHICH BANK
SHALL ALLOCATE OR APPLY ANY PAYMENTS REQUIRED TO BE MADE BY BORROWER TO BANK OR
OTHERWISE RECEIVED BY BANK UNDER THIS AGREEMENT WHEN ANY SUCH ALLOCATION OR
APPLICATION IS NOT SPECIFIED ELSEWHERE IN THIS AGREEMENT.  IF AN EVENT OF
DEFAULT HAS OCCURRED AND IS CONTINUING, BANK MAY APPLY ANY FUNDS IN ITS
POSSESSION, WHETHER FROM BORROWER ACCOUNT BALANCES, PAYMENTS, PROCEEDS REALIZED
AS THE RESULT OF ANY COLLECTION OF ACCOUNTS OR OTHER DISPOSITION OF THE
COLLATERAL, OR OTHERWISE, TO THE OBLIGATIONS IN SUCH ORDER AS BANK SHALL
DETERMINE IN ITS SOLE DISCRETION.  ANY SURPLUS SHALL BE PAID TO BORROWER OR
OTHER PERSONS LEGALLY ENTITLED THERETO; BORROWER SHALL REMAIN LIABLE TO BANK FOR
ANY DEFICIENCY.  IF BANK, IN ITS GOOD FAITH BUSINESS JUDGMENT, DIRECTLY OR
INDIRECTLY ENTERS INTO A DEFERRED PAYMENT OR OTHER CREDIT TRANSACTION WITH ANY
PURCHASER AT ANY SALE OF COLLATERAL, BANK SHALL HAVE THE OPTION, EXERCISABLE AT
ANY TIME, OF EITHER REDUCING THE OBLIGATIONS BY THE PRINCIPAL AMOUNT OF THE
PURCHASE PRICE OR DEFERRING THE REDUCTION OF THE OBLIGATIONS UNTIL THE ACTUAL
RECEIPT BY BANK OF CASH THEREFOR.

 

9.5                               BANK’S LIABILITY FOR COLLATERAL.  SO LONG AS
BANK COMPLIES WITH REASONABLE BANKING PRACTICES REGARDING THE SAFEKEEPING OF THE
COLLATERAL IN THE POSSESSION OR UNDER THE CONTROL OF BANK, BANK SHALL NOT BE
LIABLE OR RESPONSIBLE FOR: (A) THE SAFEKEEPING OF THE COLLATERAL; (B) ANY LOSS
OR DAMAGE TO THE COLLATERAL; (C) ANY DIMINUTION IN THE VALUE OF THE COLLATERAL;
OR (D) ANY ACT OR DEFAULT OF ANY CARRIER, WAREHOUSEMAN, BAILEE, OR OTHER
PERSON.  BORROWER BEARS ALL RISK OF LOSS, DAMAGE OR DESTRUCTION OF THE
COLLATERAL.

 

9.6                               NO WAIVER; REMEDIES CUMULATIVE.  BANK’S
FAILURE, AT ANY TIME OR TIMES, TO REQUIRE STRICT PERFORMANCE BY BORROWER OF ANY
PROVISION OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL NOT WAIVE, AFFECT,
OR DIMINISH ANY RIGHT OF BANK THEREAFTER TO DEMAND STRICT PERFORMANCE AND
COMPLIANCE HEREWITH OR THEREWITH.  NO WAIVER HEREUNDER SHALL BE EFFECTIVE UNLESS
SIGNED BY BANK AND THEN IS ONLY EFFECTIVE FOR THE SPECIFIC INSTANCE AND PURPOSE
FOR WHICH IT IS GIVEN.  BANK’S RIGHTS AND REMEDIES UNDER THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS ARE CUMULATIVE.  BANK HAS ALL RIGHTS AND REMEDIES PROVIDED
UNDER THE CODE, BY LAW, OR IN EQUITY.  BANK’S EXERCISE OF ONE RIGHT OR REMEDY IS
NOT AN ELECTION, AND BANK’S WAIVER OF ANY EVENT OF DEFAULT IS NOT A CONTINUING
WAIVER.  BANK’S DELAY IN EXERCISING ANY REMEDY IS NOT A WAIVER, ELECTION, OR
ACQUIESCENCE.

 

9.7                               DEMAND WAIVER.  BORROWER WAIVES DEMAND, NOTICE
OF DEFAULT OR DISHONOR, NOTICE OF PAYMENT AND NONPAYMENT, NOTICE OF ANY DEFAULT,
NONPAYMENT AT MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION, OR RENEWAL
OF ACCOUNTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND GUARANTEES HELD BY BANK
ON WHICH BORROWER IS LIABLE.

 

10                                  NOTICES

 

All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”) by any party to this Agreement or any other Loan
Document must be in writing and shall be deemed to have been validly served,
given, or delivered: (a) upon the earlier of actual receipt and three
(3) Business Days after deposit in the U.S. mail, first class, registered or
certified mail return receipt requested, with proper postage prepaid; (b) upon
transmission, when sent by electronic mail or facsimile transmission; (c) one
(1) Business Day after deposit with a reputable overnight courier with all
charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of
which shall be addressed to the party to be notified and sent to the address,
facsimile

 

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number, or email address indicated below.  Bank or Borrower may change its
address or facsimile number by giving the other party written notice thereof in
accordance with the terms of this Section 10.

 

If to Borrower:

Cimetrix Incorporated

 

 

6979 S. High Tech Drive

 

 

Salt Lake City, Utah 84047

 

 

Attn: Robert Reback

 

 

Fax: 801.256.6510

 

 

Email:  bob.reback@cimetrix.com

 

 

 

 

If to Bank:

Silicon Valley Bank

 

 

8705 SW Nimbus, Suite 240

 

 

Beaverton, OR 97008

 

 

Attn: Ron Sherman

 

 

Fax: 503.526.0818

 

 

Email: rsherman@svb.com

 

 

11                                  CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND
JUDICIAL REFERENCE

 

Oregon law governs the Loan Documents without regard to principles of conflicts
of law.  Borrower and Bank each submit to the exclusive jurisdiction of the
State and Federal courts in Multnomah County, Oregon; provided, however, that
nothing in this Agreement shall be deemed to operate to preclude Bank from
bringing suit or taking other legal action in any other jurisdiction to realize
on the Collateral or any other security for the Obligations, or to enforce a
judgment or other court order in favor of Bank.  Borrower expressly submits and
consents in advance to such jurisdiction in any action or suit commenced in any
such court, and Borrower hereby waives any objection that it may have based upon
lack of personal jurisdiction, improper venue, or forum non conveniens and
hereby consents to the granting of such legal or equitable relief as is deemed
appropriate by such court.  Borrower hereby waives personal service of the
summons, complaints, and other process issued in such action or suit and agrees
that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in
Section 10 of this Agreement and that service so made shall be deemed completed
upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid.

 

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE
THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12                                  GENERAL PROVISIONS

 

12.1                        SUCCESSORS AND ASSIGNS.  THIS AGREEMENT BINDS AND IS
FOR THE BENEFIT OF THE SUCCESSORS AND PERMITTED ASSIGNS OF EACH PARTY.  BORROWER
MAY NOT ASSIGN THIS AGREEMENT OR ANY RIGHTS OR OBLIGATIONS UNDER IT WITHOUT
BANK’S PRIOR WRITTEN CONSENT (WHICH MAY BE GRANTED OR WITHHELD IN BANK’S
DISCRETION).  BANK HAS THE RIGHT, WITHOUT THE CONSENT OF OR NOTICE TO BORROWER,
TO SELL, TRANSFER, NEGOTIATE, OR GRANT PARTICIPATION IN ALL OR ANY PART OF, OR
ANY INTEREST IN, BANK’S OBLIGATIONS, RIGHTS, AND BENEFITS UNDER THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.

 

12.2                        INDEMNIFICATION.  BORROWER AGREES TO INDEMNIFY,
DEFEND AND HOLD BANK AND ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS,
OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING BANK HARMLESS AGAINST: 
(A) ALL OBLIGATIONS, DEMANDS, CLAIMS, AND LIABILITIES (COLLECTIVELY, “CLAIMS”)
ASSERTED BY ANY OTHER PARTY IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY
THE LOAN DOCUMENTS; AND (B) ALL LOSSES OR BANK EXPENSES INCURRED, OR PAID BY
BANK FROM, FOLLOWING, OR ARISING FROM TRANSACTIONS BETWEEN BANK AND BORROWER
(INCLUDING REASONABLE ATTORNEYS’ FEES AND EXPENSES), EXCEPT FOR CLAIMS AND/OR
LOSSES DIRECTLY CAUSED BY BANK’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

12.3                        TIME OF ESSENCE.  TIME IS OF THE ESSENCE FOR THE
PERFORMANCE OF ALL OBLIGATIONS IN THIS AGREEMENT.

 

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12.4                        SEVERABILITY OF PROVISIONS.  EACH PROVISION OF THIS
AGREEMENT IS SEVERABLE FROM EVERY OTHER PROVISION IN DETERMINING THE
ENFORCEABILITY OF ANY PROVISION.

 

12.5                        AMENDMENTS IN WRITING; INTEGRATION.  ALL AMENDMENTS
TO THIS AGREEMENT MUST BE IN WRITING AND SIGNED BY BOTH BANK AND BORROWER.  THIS
AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE ENTIRE AGREEMENT ABOUT THIS
SUBJECT MATTER AND SUPERSEDE PRIOR NEGOTIATIONS OR AGREEMENTS.  ALL PRIOR
AGREEMENTS, UNDERSTANDINGS, REPRESENTATIONS, WARRANTIES, AND NEGOTIATIONS
BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF THIS AGREEMENT AND THE LOAN
DOCUMENTS MERGE INTO THIS AGREEMENT AND THE LOAN DOCUMENTS.

 

12.6                        COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN ANY
NUMBER OF COUNTERPARTS AND BY DIFFERENT PARTIES ON SEPARATE COUNTERPARTS, EACH
OF WHICH, WHEN EXECUTED AND DELIVERED, ARE AN ORIGINAL, AND ALL TAKEN TOGETHER,
CONSTITUTE ONE AGREEMENT.

 

12.7                        SURVIVAL.  ALL COVENANTS, REPRESENTATIONS AND
WARRANTIES MADE IN THIS AGREEMENT CONTINUE IN FULL FORCE UNTIL THIS AGREEMENT
HAS TERMINATED PURSUANT TO ITS TERMS AND ALL OBLIGATIONS (OTHER THAN INCHOATE
INDEMNITY OBLIGATIONS AND ANY OTHER OBLIGATIONS WHICH, BY THEIR TERMS, ARE TO
SURVIVE THE TERMINATION OF THIS AGREEMENT) HAVE BEEN SATISFIED.  THE OBLIGATION
OF BORROWER IN SECTION 12.2 TO INDEMNIFY BANK SHALL SURVIVE UNTIL THE STATUTE OF
LIMITATIONS WITH RESPECT TO SUCH CLAIM OR CAUSE OF ACTION SHALL HAVE RUN.

 

12.8                        CONFIDENTIALITY.  IN HANDLING ANY CONFIDENTIAL
INFORMATION, BANK SHALL EXERCISE THE SAME DEGREE OF CARE THAT IT EXERCISES FOR
ITS OWN PROPRIETARY INFORMATION, BUT DISCLOSURE OF INFORMATION MAY BE MADE:
(A) TO BANK’S SUBSIDIARIES OR AFFILIATES; (B) TO PROSPECTIVE TRANSFEREES OR
PURCHASERS OF ANY INTEREST IN THE CREDIT EXTENSIONS (PROVIDED, HOWEVER, BANK
SHALL USE COMMERCIALLY REASONABLE EFFORTS TO OBTAIN SUCH PROSPECTIVE
TRANSFEREE’S OR PURCHASER’S AGREEMENT TO THE TERMS OF THIS PROVISION); (C) AS
REQUIRED BY LAW, REGULATION, SUBPOENA, OR OTHER ORDER; (D) TO BANK’S REGULATORS
OR AS OTHERWISE REQUIRED IN CONNECTION WITH BANK’S EXAMINATION OR AUDIT; AND
(E) AS BANK CONSIDERS APPROPRIATE IN EXERCISING REMEDIES UNDER THIS AGREEMENT. 
CONFIDENTIAL INFORMATION DOES NOT INCLUDE INFORMATION THAT EITHER: (I) IS IN THE
PUBLIC DOMAIN OR IN BANK’S POSSESSION WHEN DISCLOSED TO BANK, OR BECOMES PART OF
THE PUBLIC DOMAIN AFTER DISCLOSURE TO BANK; OR (II) IS DISCLOSED TO BANK BY A
THIRD PARTY, IF BANK DOES NOT KNOW THAT THE THIRD PARTY IS PROHIBITED FROM
DISCLOSING THE INFORMATION.

 

12.9                        ATTORNEYS’ FEES, COSTS AND EXPENSES.  IN ANY ACTION
OR PROCEEDING BETWEEN BORROWER AND BANK ARISING OUT OF OR RELATING TO THE LOAN
DOCUMENTS, THE PREVAILING PARTY SHALL BE ENTITLED TO RECOVER ITS REASONABLE
ATTORNEYS’ FEES AND OTHER COSTS AND EXPENSES INCURRED, IN ADDITION TO ANY OTHER
RELIEF TO WHICH IT MAY BE ENTITLED, INCLUDING WITHOUT LIMITATION ITS REASONABLE
ATTORNEYS’ FEES AND OTHER COSTS AND EXPENSES INCURRED AT TRIAL, ON APPEAL AND IN
ANY ARBITRATION OR BANKRUPTCY PROCEEDING.

 

13                                  DEFINITIONS

 

13.1                        DEFINITIONS.  AS USED IN THIS AGREEMENT, THE
FOLLOWING TERMS HAVE THE FOLLOWING MEANINGS:

 

“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.

 

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

 

“Affiliate” of any Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person’s senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person’s managers and members.

 

“Agreement” is defined in the preamble hereof.

 

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
Borrowing Base minus (b) any amounts used for Cash Management Services, and
minus (c) the outstanding principal balance of any Advances.

 

“Bank” is defined in the preamble hereof.

 

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“Bank Expenses” are all audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses) for preparing, amending, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings)
or otherwise incurred with respect to Borrower.

 

“Borrower” is defined in the preamble hereof.

 

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

 

“Borrowing Base” means 80% of Eligible Accounts as determined by Bank from
Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank
may decrease the foregoing percentage in its good faith business judgment based
on events, conditions, contingencies, or risks which, as determined by Bank, may
adversely affect Collateral.

 

“Borrowing Base Certificate” is that certain certificate in the form attached
hereto as Exhibit C.

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions
substantially in the form attached hereto as Exhibit D and delivered by such
Person to Bank approving the Loan Documents to which such Person is a party and
the transactions contemplated thereby, together with a certificate executed by
its secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) that attached as Exhibit A to such
certificate is a true, correct, and complete copy of the resolutions then in
full force and effect authorizing and ratifying the execution, delivery, and
performance by such Person of the Loan Documents to which it is a party, (c) the
name(s) of the Person(s) authorized to execute the Loan Documents on behalf of
such Person, together with a sample of the true signature(s) of such Person(s),
and (d) that Bank may conclusively rely on such certificate unless and until
such Person shall have delivered to Bank a further certificate canceling or
amending such prior certificate.

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.

 

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

 

“Cash Management Services” is defined in Section 2.1.2.

 

“Change in Control” means any event, transaction, or occurrence as a result of
which (a) any “person” (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange
Act”)), other than a trustee or other fiduciary holding securities under an
employee benefit plan of Borrower, is or becomes a beneficial owner (within the
meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly,
of securities of Borrower, representing twenty-five percent (25%) or more of the
combined voting power of Borrower’s then outstanding securities; or (b) during
any period of twelve consecutive calendar months, individuals who at the
beginning of such period constituted the Board of Directors of Borrower
(together with any new directors whose election by the Board of Directors of
Borrower was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such period  or
whose election or nomination for election was previously so approved) cease for
any reason other than death or disability to constitute a majority of the
directors then in office.

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of Oregon; provided, that, to the extent that
the Code is used to define any term herein or in any Loan Document and such term
is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of Oregon, the term “Code”
shall mean the Uniform Commercial Code as enacted and in effect in such other

 

15

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jurisdiction solely for purposes on the provisions thereof relating to such
attachment, perfection, priority, or remedies and for purposes of definitions
relating to such provisions.

 

“Collateral” is any and all properties, rights and assets of Borrower described
on Exhibit A.

 

“Collateral Account” is any Deposit Account, Securities Account, or Commodity
Account.

 

“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Communication” is defined in Section 10.

 

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit E.

 

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

 

“Control Agreement” is any control agreement entered into among the depository
institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities
Account or a Commodity Account, Borrower, and Bank pursuant to which Bank
obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.

 

“Credit Extension” is any Advance, amount utilized for Cash Management Services,
or any other extension of credit by Bank for Borrower’s benefit.

 

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

 

“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.

 

“Default Rate” is defined in Section 2.3(b).

 

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

 

“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Designated Deposit Account” is Borrower’s deposit account, account number
3300570396, maintained with Bank.

 

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

 

“Effective Date” is the date Bank executes this Agreement as indicated on the
signature page hereof.

 

“Eligible Accounts” means Accounts which arise in the ordinary course of
Borrower’s business that meet all Borrower’s representations and warranties in
Section 5.3.  Bank reserves the right at any time after the Effective Date to
adjust any of the criteria set forth below and to establish new criteria in its
good faith business judgment.  Eligible Accounts shall not include:

 

16

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(a)                                  Accounts for which the Account Debtor has
not been invoiced;

 

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

 

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

 

(d)                                 Accounts with credit balances over ninety
(90) days from invoice date;

 

(e)                                  Accounts owing from an Account Debtor,
including Affiliates, whose total obligations to Borrower exceed twenty-five
(25%) of all Accounts, for the amounts that exceed that percentage, unless Bank
approves in writing;

 

(f)                                    Accounts owing from an Account Debtor
which does not have its principal place of business in the United States except
for Eligible Foreign Accounts;

 

(g)                                 Accounts owing from an Account Debtor which
is a federal, state or local government entity or any department, agency, or
instrumentality thereof except for Accounts of the United States if Borrower has
assigned its payment rights to Bank and the assignment has been acknowledged
under the Federal Assignment of Claims Act of 1940, as amended;

 

(h)                                 Accounts owing from an Account Debtor to the
extent that Borrower is indebted or obligated in any manner to the Account
Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra”
accounts, accounts payable, customer deposits or credit accounts), with the
exception of customary credits, adjustments and/or discounts given to an Account
Debtor by Borrower in the ordinary course of its business;

 

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

 

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

 

(k)                                  Accounts in which the Account Debtor
disputes liability or makes any claim (but only up to the disputed or claimed
amount), or if the Account Debtor is subject to an Insolvency Proceeding, or
becomes insolvent, or goes out of business;

 

(l)                                     Accounts owing from an Account Debtor
with respect to which Borrower has received Deferred Revenue (but only to the
extent of such Deferred Revenue); and

 

(m)                               Accounts for which Bank in its good faith
business judgment determines collection to be doubtful.

 

“Eligible Foreign Accounts” are Accounts for which the Account Debtor does not
have its principal place of business in the United States but are otherwise
Eligible Accounts that are (a) if required by Bank, covered by credit insurance
satisfactory to Bank, less any deductible; (b) supported by letter(s) of credit
acceptable to Bank; (c) that Bank approves in writing in its sole discretion;
and (d) do not exceed 20% of Eligible Accounts.

 

“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.

 

“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.

 

“Event of Default” is defined in Section 8.

 

“Funding Date” is any date on which a Credit Extension is made to or on account
of Borrower which shall be a Business Day.

 

“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and

 

17

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pronouncements of the Financial Accounting Standards Board or in such other
statements by such other Person as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.

 

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights,
including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other
tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.

 

“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

 

“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.

 

“Guarantor” is any present or future guarantor of the Obligations.

 

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

 

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.

 

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

 

“IP Agreement” is that certain Intellectual Property Security Agreement executed
and delivered by Borrower to Bank dated as of December     , 2007.

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest or other encumbrance of any kind, whether voluntarily incurred or
arising by operation of law or otherwise against any property.

 

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

 

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower; (c) a material impairment of the prospect
of repayment of any portion of the Obligations or (d) Bank determines, based
upon information available to it and in its reasonable judgment, that there

 

18

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is a reasonable likelihood that Borrower shall fail to comply with one or more
of the financial covenants in Section 6 during the next succeeding financial
reporting period.

 

“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later,
whether under this Agreement, the Loan Documents, or otherwise, including,
without limitation, all obligations relating to letters of credit (including
reimbursement obligations for drawn and undrawn letters of credit), cash
management services, and foreign exchange contracts, if any, and including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank, and the performance of Borrower’s
duties under the Loan Documents.

 

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified with the Secretary of State of such Person’s state of formation on a
date that is no earlier than 30 days prior to the Effective Date, and, (a) if
such Person is a corporation, its bylaws in current form, (b) if such Person is
a limited liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership agreement
(or similar agreement), each of the foregoing with all current amendments or
modifications thereto.

 

“Payment/Advance Form” is that certain form attached hereto as Exhibit B.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

(a)                                  Borrower’s Indebtedness to Bank under this
Agreement and the other Loan Documents;

 

(b)                                 Indebtedness existing on the Effective Date
and shown on the Perfection Certificate;

 

(c)                                  Subordinated Debt;

 

(d)                                 unsecured Indebtedness to trade creditors
incurred in the ordinary course of business;

 

(e)                                  Indebtedness incurred as a result of
endorsing negotiable instruments received in the ordinary course of business;

 

(f)                                    Indebtedness in an aggregate principal
amount not to exceed $50,000.00 secured by Permitted Liens; and

 

(g)                                 extensions, refinancings, modifications,
amendments and restatements of any items of Permitted Indebtedness (a) through
(f) above, provided that the principal amount thereof is not increased or the
terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.

 

“Permitted Investments” are:

 

(a)                                  Investments shown on the Perfection
Certificate and existing on the Effective Date;

 

(b)                                 (i) Cash Equivalents, and (ii) any
Investments permitted by Borrower’s investment policy, as amended from time to
time, provided that such investment policy (and any such amendment thereto) has
been approved by Bank;

 

(c)                                  Investments consisting of the endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of Borrower;

 

(d)                                 Investments consisting of deposit accounts
in which Bank has a perfected security interest;

 

(e)                                  Investments accepted in connection with
Transfers permitted by Section 7.1;

 

(f)                                    Investments of Subsidiaries in or to
other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not
to exceed $50,000.00 in the aggregate in any fiscal year;

 

19

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(g)                                 Investments consisting of (i) travel
advances and employee relocation loans and other employee loans and advances in
the ordinary course of business, and (ii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower or its
Subsidiaries pursuant to employee stock purchase plans or agreements approved by
Borrower’s Board of Directors;

 

(h)                                 Investments (including debt obligations)
received in connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other disputes
with, customers or suppliers arising in the ordinary course of business; and

 

(i)                                     Investments consisting of notes
receivable of, or prepaid royalties and other credit extensions, to customers
and suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (i) shall not apply to Investments of Borrower in
any Subsidiary.

 

“Permitted Liens” are:

 

(a)                                  Liens existing on the Effective Date and
shown on the Perfection Certificate or arising under this Agreement and the
other Loan Documents;

 

(b)                                 Liens for taxes, fees, assessments or other
government charges or levies, either not delinquent or being contested in good
faith and for which Borrower maintains adequate reserves on its Books, provided
that no notice of any such Lien has been filed or recorded under the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations adopted
thereunder;

 

(c)                                  purchase money Liens (i) on Equipment
acquired or held by Borrower incurred for financing the acquisition of the
Equipment securing no more than $50,000.00 in the aggregate amount outstanding,
or (ii) existing on Equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the Equipment;

 

(d)                                 Liens of carriers, warehousemen, suppliers,
or other Persons that are possessory in nature arising in the ordinary course of
business so long as such Liens attach only to Inventory, securing liabilities in
the aggregate amount not to exceed $10,000.00 and which are not delinquent or
remain payable without penalty or which are being contested in good faith and by
appropriate proceedings which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;

 

(e)                                  Liens to secure payment of workers’
compensation, employment insurance, old-age pensions, social security and other
like obligations incurred in the ordinary course of business (other than Liens
imposed by ERISA);

 

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

 

(g)                                 leases or subleases of real property granted
in the ordinary course of business, and leases, subleases, non-exclusive
licenses or sublicenses of property (other than real property or intellectual
property) granted in the ordinary course of Borrower’s business, if the leases,
subleases, licenses and sublicenses do not prohibit granting Bank a security
interest;

 

(h)                                 non-exclusive license of intellectual
property granted to third parties in the ordinary course of business;

 

(i)                                     Liens arising from attachments or
judgments, orders, or decrees in circumstances not constituting an Event of
Default under Sections 8.4 and 8.7; and

 

(j)                                     Liens in favor of other financial
institutions arising in connection with Borrower’s deposit and/or securities
accounts held at such institutions, provided that Bank has a perfected security
interest in the amounts held in such deposit and/or securities accounts.

 

20

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

 

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not
Bank’s lowest rate.

 

“Quick Assets” is, on any date, Borrower’s consolidated unrestricted cash and
Cash Equivalents maintained with Bank and net billed accounts receivable.

 

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made

 

 “Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

 

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

 

“Revolving Line” is an Advance or Advances in an amount equal to One Million
Dollars ($1,000,000.00).

 

“Revolving Line Maturity Date” is the 364th day after the Effective Date.

 

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

 

“Subordinated Debt” is (a) Indebtedness incurred by Borrower subordinated to
Borrower’s Indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form reasonably acceptable to Bank and approved by
Bank in writing and (b) to the extent the terms of subordination do not change
adversely to Bank, refinancings, refundings, renewals, amendments or extensions
of any of the foregoing.

 

“Subsidiary” means, with respect to any Person, any Person of which more than
50.0% of the voting stock or other equity interests (in the case of Persons
other than corporations) is owned or controlled directly or indirectly by such
Person or one or more of Affiliates of such Person.

 

“Transfer” is defined in Section 7.1.

 

UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER’S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE.

 

Signature page follows.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.

 

BORROWER:

 

21

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CIMETRIX INCORPORATED

 

By:

/s/ Robert H. Reback

 

Name:

Robert H. Reback

 

Title:

President & CEO

 

 

BANK:

 

SILICON VALLEY BANK

 

By

 /s/ Todd Hardy

 

Name:

Todd Hardy

 

Title:

Relationship Manager

 

Effective Date:

12/26/07

 

 

22

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EXHIBIT A

 

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

 

All goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles, commercial tort claims, documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), securities, and all
other investment property, supporting obligations, and financial assets, whether
now owned or hereafter acquired, wherever located; and all Borrower’s Books
relating to the foregoing, and any and all claims, rights and interests in any
of the above and all substitutions for, additions, attachments, accessories,
accessions and improvements to and replacements, products, proceeds and
insurance proceeds of any or all of the foregoing.

 

1

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EXHIBIT B

 

Loan Payment/Advance Request Form

 

DEADLINE FOR SAME DAY PROCESSING IS NOON P.S.T.*

 

Fax To:

 

Date:

 

 

 

LOAN PAYMENT:

 

Cimetrix Incorporated

 

From Account #

 

 

To Account #

 

 

(Deposit Account #)

(Loan Account #)

 

Principal $

 

 

and/or Interest $

 

 

 

Authorized Signature:

 

 

 

Phone Number:

 

 

Print Name/Title:

 

 

 

LOAN ADVANCE:

 

Complete Outgoing Wire Request section below if all or a portion of the funds
from this loan advance are for an outgoing wire.

 

From Account #

 

 

To Account #

 

 

(Loan Account #)

 

(Deposit Account #)

 

 

Amount of Advance $

 

 

 

All Borrower’s representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
request for an advance; provided, however, that such materiality qualifier shall
not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date:

 

Authorized Signature:

 

 

Phone Number:

 

 

Print Name/Title:

 

 

 

 

 

OUTGOING WIRE REQUEST:

Complete only if all or a portion of funds from the loan advance above is to be
wired.

Deadline for same day processing is noon, P.S.T.

 

Beneficiary Name:

 

 

 

Amount of Wire: $

 

 

Beneficiary Bank:

 

 

 

Account Number:

 

 

City and State:

 

 

 

 

 

Beneficiary Bank Transit (ABA) #:

 

 

Beneficiary Bank Code (Swift, Sort, Chip, etc.):

 

 

 

 

(For International Wire Only)

 

Intermediary Bank:

 

 

Transit (ABA) #:

 

 

For Further Credit to:

 

 

 

Special Instruction:

 

 

 

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).

 

Authorized Signature:

 

 

 

2nd Signature (if required):

 

 

Print Name/Title:

 

 

 

Print Name/Title:

 

 

Telephone #:

 

 

 

Telephone #:

 

 

 

--------------------------------------------------------------------------------

* Unless otherwise provided for an Advance bearing interest at LIBOR.

 

2

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EXHIBIT C

 

BORROWING BASE CERTIFICATE

 

Borrower: Cimetrix Incorporated
Lender:   Silicon Valley Bank
Commitment Amount:         $1,000,000.00

 

ACCOUNTS RECEIVABLE

 

 

 

1.

Accounts Receivable (invoiced) Book Value as of

 

$

 

2.

Additions (please explain on reverse)

 

$

 

3.

TOTAL ACCOUNTS RECEIVABLE

 

$

 

 

 

 

 

 

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

 

 

 

4.

Un-invoiced Accounts

 

$

 

5.

Amounts over 90 days due

 

$

 

6.

Balance of 50% over 90 day accounts

 

$

 

7.

Credit balances over 90 days

 

$

 

8.

Concentration Limits

 

$

 

9.

Foreign Accounts (* except Eligible Foreign Accounts)

 

$

 

10.

Governmental Accounts

 

$

 

11.

Contra Accounts

 

$

 

12.

Promotion or Demo Accounts

 

$

 

13.

Intercompany/Employee Accounts

 

$

 

14.

Disputed Accounts

 

$

 

15.

Deferred Revenue

 

$

 

16.

Other (please explain on reverse)

 

$

 

17.

TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

 

$

 

18.

Eligible Accounts (#3 minus #17)

 

$

 

19.

ELIGIBLE AMOUNT OF ACCOUNTS (80% of #18)

 

$

 

 

--------------------------------------------------------------------------------

* Eligible Foreign Accounts shall not exceed 20% of Eligible Accounts

 

 

 

 

 

BALANCES

 

 

 

20.

Maximum Loan Amount

 

$

 

21.

Total Funds Available (Lesser of #20 or #19)

 

$

 

22.

Present balance owing on Line of Credit

 

$

 

23.

Outstanding under Sublimits

 

$

 

24.

RESERVE POSITION (#21 minus #22 and #23)

 

$

 

 

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.

 

 

BANK USE ONLY

 

COMMENTS: 

Received by:

 

 

 

AUTHORIZED SIGNER

 

 

Date:

 

 

By:

 

 

Verified:

 

 

Authorized Signer

 

AUTHORIZED SIGNER

 

Date:

 

 

Date:

 

 

 

Compliance Status:                 Yes                No

 

 

1

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EXHIBIT D

 

BORROWING RESOLUTIONS

 

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CORPORATE BORROWING CERTIFICATE

 

BORROWER:

 

 

DATE:

 

BANK:             Silicon Valley Bank

 

I hereby certify as follows, as of the date set forth above:

 

1.  I am the Secretary, Assistant Secretary or other officer of the Borrower.  
My title is as set forth below.

 

2.  Borrower’s exact legal name is set forth above.  Borrower is a corporation
existing under the laws of the State of

                                                               .

[print name of state]

 

3.  Attached hereto are true, correct and complete copies of Borrower’s
Articles/Certificate of Incorporation (including amendments), as filed with the
Secretary of State of the state in which Borrower is incorporated as set forth
in paragraph 2 above.  Such Articles/Certificate of Incorporation have not been
amended, annulled, rescinded, revoked or supplemented, and remain in full force
and effect as of the date hereof.

 

4.  The following resolutions were duly and validly adopted by Borrower’s Board
of Directors at a duly held meeting of such directors (or pursuant to a
unanimous written consent or other authorized corporate action).  Such
resolutions are in full force and effect as of the date hereof and have not been
in any way modified, repealed, rescinded, amended or revoked, and Bank may rely
on them until Bank receives written notice of revocation from Borrower.

 

RESOLVED, that any one of the following officers or employees of Borrower, whose
names, titles and signatures are below, may act on behalf of Borrower:

 

Name

 

Title

 

Signature

 

Authorized to
Add or Remove
Signatories

 

 

 

 

 

 

 

 

 

 

 

 

 

o

 

 

 

 

 

 

o

 

 

 

 

 

 

o

 

 

 

 

 

 

o

 

RESOLVED FURTHER, that any one of the persons designated above with a checked
box beside his or her name may, from time to time, add or remove any individuals
to and from the above list of persons authorized to act on behalf of Borrower.

 

RESOLVED FURTHER, that such individuals may, on behalf of Borrower:

 

Borrow Money.  Borrow money from Silicon Valley Bank (“Bank”).

Execute Loan Documents.  Execute any loan documents Bank requires.

Grant Security.  Grant Bank a security interest in any of Borrower’s assets.

 

1

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

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

Foreign Exchange Contracts.  Execute spot or forward foreign exchange contracts.

Issue Warrants.  Issue warrants for Borrower’s capital stock.

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

 

RESOLVED FURTHER, that all acts authorized by the above resolutions and any
prior acts relating thereto are ratified.

 

5.  The persons listed above are Borrower’s officers or employees with their
titles and signatures shown next to their names.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

*** If the Secretary, Assistant Secretary or other certifying officer executing
above is designated by the resolutions set forth in paragraph 4 as one of the
authorized signing officers, this Certificate must also be signed by a second
authorized officer or director of Borrower.

 

I, the                                                      of Borrower, hereby
certify as to paragraphs 1 through 5 above, as [print title]

of the date set forth above.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

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EXHIBIT E

 

COMPLIANCE CERTIFICATE

 

TO:

SILICON VALLEY BANK

Date:

 

FROM:

CIMETRIX INCORPORATED

 

 

The undersigned authorized officer of Cimetrix Incorporated (“Borrower”)
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (1) Borrower is in complete
compliance for the period ending                                with all
required covenants except as noted below, (2) there are no Events of Default,
(3) all representations and warranties in the Agreement are true and correct in
all material respects on this date except as noted below; provided, however,
that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, (4) Borrower, and each of its
Subsidiaries, has timely filed all required tax returns and reports, and
Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except as otherwise
permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no
Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank.  Attached are the
required documents supporting the certification.  The undersigned certifies that
these are prepared in accordance with GAAP consistently applied from one period
to the next except as explained in an accompanying letter or footnotes.  The
undersigned acknowledges that no borrowings may be requested at any time or date
of determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.  Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenant

 

Required

 

Complies

 

 

 

 

 

Monthly financial statements with Compliance Certificate

 

Monthly within 30 days

 

Yes   No

10-Q, 10-K and 8-K with Compliance Certificate

 

Within 5 days after filing with SEC

 

Yes   No

Borrowing Base Certificate A/R & A/P Agings

 

Monthly within 30 days

 

Yes   No

Deferred Revenue Report

 

Monthly within 30 days

 

Yes   No

 

 

 

 

 

The following Intellectual Property was registered after the Effective Date (if
no registrations, state “None”)

 

 

Financial Covenant

 

Required

 

Actual

 

Complies

 

 

 

 

 

 

 

Maintain on a Monthly Basis:

 

 

 

 

 

 

Minimum Quick Ratio

 

1.15:1.00 through 5/31/2008; 1.35:1.00 after 6/1/2008

 

:1.0

 

Yes   No

Maximum Losses (calculated on a rolling three-month basis)

 

$650,000.00 through 12/31/2007; $625,000.00 from 1/1/2008 through 3/31/2008;
$385,000.00 from 4/1/2008 through 6/30/2008; $200,000.00 from 7/1/2008 through
9/30/2008; $0.00 after 10/1/2008

 

 

 

Yes   No

 

The following financial covenant analyses and information set forth in Schedule
1 attached hereto are true and accurate as of the date of this Certificate.

 

1

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The following are the exceptions with respect to the certification above:  (If
no exceptions exist, state “No exceptions to note.”)

 

 

 

Cimetrix Incorporated

 

BANK USE ONLY

 

 

 

 

 

Received by:

 

By:

 

 

AUTHORIZED SIGNER

Name:

 

 

Date:

 

 

 

 

 

 

Title:

 

 

Verified:

 

 

 

 

 

AUTHORIZED SIGNER

 

 

 

Date:

 

 

 

 

 

 

 

 

 

Compliance Status:

Yes

No

 

2

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Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

In the event of a conflict between this Schedule and the Loan Agreement, the
terms of the Loan Agreement shall govern.

 

Dated:

 

 

 

 

I.              Quick Ratio (Section 6.7(a))

 

Required:               (i) 1.15 to 1.00 from the Effective Date through May 31,
2008 and (ii) 1.35 to 1.00 from and after June 1, 2008.

 

Actual:

 

A.

 

Aggregate value of the unrestricted cash and cash equivalents of Borrower and
its Subsidiaries deposited with Bank

 

$

 

 

 

 

 

B.

 

Aggregate value of the net billed accounts receivable of Borrower and its
Subsidiaries

 

$

 

 

 

 

 

C.

 

Quick Assets (the sum of lines A and B)

 

$

 

 

 

 

 

D.

 

Aggregate value of Obligations to Bank

 

$

 

 

 

 

 

E.

 

Aggregate value of liabilities that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all
Indebtedness, and not otherwise reflected in line E above that matures within
one (1) year

 

$

 

 

 

 

 

F.

 

Current Liabilities (the sum of lines D and E)

 

$

 

 

 

 

 

G.

 

Quick Ratio (line C divided by line F)

 

 

 

Is line G equal to or greater than:  (i) 1.15 to 1.00 from the Effective Date
through May 31, 2008; and (ii) 1.35 to 1.00 from and after June 1, 2008?

 

No, not in compliance

 

Yes, in compliance

 

II.            Maximum Losses (Section 6.7(b))

 

Required:               No loss, calculated based on a rolling three-month
period in excess of: (i) $650,000.00 from the Effective Date through
December 31, 2007; (ii) $625,000.00 from January 1, 2008 through March 31, 2008;
(iii) $385,000.00 from April 1, 2008 through June 30, 2008; (iv) $200,000.00
from July 1, 2008 through September 30, 2008; and (v) $0 from and after
October 1, 2008.

 

Actual:

 

A.

 

Value of Borrower’s loss for the just completed month

 

$

 

 

 

 

 

A.

 

Value of Borrower’s loss for the monthly period one month prior to the just
completed month

 

$

 

 

 

 

 

A.

 

Value of Borrower’s loss for the monthly period two months prior to the just
completed month

 

$

 

 

 

 

 

D.

 

Aggregate value of Borrower’s losses for the prior three-month period (the sum
of lines A through C)

 

$

 

3

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Is line A less than or equal to:  (i) $650,000.00 from the Effective Date
through December 31, 2007; (ii) $625,000.00 from January 1, 2008 through
March 31, 2008; (iii) $385,000.00 from April 1, 2008 through June 30, 2008,
(iv) $200,000.00 from July 1, 2008 through September 30, 2008; and (v) $0 from
and after October 1, 2008?

 

No, not in compliance

 

Yes, in compliance

 

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