Exhibit 10.5

LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of March 31, 2017
(the “Effective Date”) between SILICON VALLEY BANK, a California corporation
(“Bank”), and CARDIOVASCULAR SYSTEMS, INC., a Delaware corporation (“Borrower”),
provides the terms on which Bank shall lend to Borrower and Borrower shall repay
Bank. The parties agree as follows:
1ACCOUNTING 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    LOANS 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.
2.2    Revolving Advances.
(a)    Availability. Subject to the terms and conditions of this Agreement,
receipt of the Initial Audit, and to deduction of Reserves, Bank shall make
Advances not exceeding the Availability Amount. Amounts borrowed under the
Revolving Line 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.
2.2.1    Letters of Credit.
(a)    As part of the Revolving Line, Bank shall issue or have issued Letters of
Credit denominated in Dollars or a Foreign Currency for Borrower’s account. The
aggregate Dollar Equivalent amount utilized for the issuance of Letters of
Credit shall at all times reduce the amount otherwise available for Advances
under the Revolving Line. The aggregate Dollar Equivalent of the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve) may not exceed Five Million Dollars
($5,000,000), minus (i) the sum of all amounts used for Cash Management
Services, and minus (ii) the FX Reduction Amount.
(b)    If, on the Revolving Line Maturity Date (or the effective date of any
termination of this Agreement), there are any outstanding Letters of Credit,
then on such date Borrower shall provide to Bank cash collateral in an amount
equal to at least 105% (110% for Letters of Credit denominated in a Currency
other than Dollars) of the aggregate Dollar Equivalent of the face amount of all
such Letters of Credit plus all interest, fees, and costs due or estimated by
Bank to become due in connection therewith, to secure all of the Obligations
relating to such Letters of Credit. All Letters of Credit shall be in form and
substance acceptable to Bank in its sole discretion and shall be subject to the
terms and conditions of Bank’s standard Application and Letter of Credit
Agreement (the “Letter of Credit Application”). Borrower agrees to execute any
further documentation in connection with the Letters of Credit as Bank may
reasonably request. Borrower further agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Bank and
opened for Borrower’s account or by Bank’s interpretations of any Letter of
Credit issued by Bank for Borrower’s account, and Borrower understands and
agrees that Bank shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower’s instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto, unless such error,

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negligence, or mistake is directly caused by Bank’s gross negligence or willful
misconduct, as determined by a court of competent jurisdiction in a final,
non-appealable order.
(c)    The obligation of Borrower to immediately reimburse Bank for drawings
made under Letters of Credit shall be absolute, unconditional, and irrevocable,
and shall be performed strictly in accordance with the terms of this Agreement,
such Letters of Credit, and the Letter of Credit Application.
(d)    Borrower may request that Bank issue a Letter of Credit payable in a
Foreign Currency. If a demand for payment is made under any such Letter of
Credit, Bank shall treat such demand as an Advance to Borrower of the Dollar
Equivalent of the amount thereof (plus fees and charges in connection therewith
such as wire, cable, SWIFT or similar charges).
(e)    To guard against fluctuations in currency exchange rates, upon the
issuance of any Letter of Credit payable in a Foreign Currency, Bank shall
create a reserve (the “Letter of Credit Reserve”) under the Revolving Line in an
amount equal to a percentage (which percentage shall be determined by Bank in
its reasonable discretion) of the face amount of such Letter of Credit. The
amount of the Letter of Credit Reserve may be adjusted by Bank from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Revolving Line shall be reduced by the amount of such Letter of Credit
Reserve for as long as such Letter of Credit remains outstanding.
2.2.2    Foreign Exchange Sublimit. As part of the Revolving Line, Borrower may
enter into foreign exchange contracts with Bank under which Borrower commits to
purchase from or sell to Bank a specific amount of Foreign Currency (each, a “FX
Contract”) on a specified date (the “Settlement Date”). FX Contracts shall have
a Settlement Date of at least one (1) FX Business Day after the contract date.
The aggregate FX Reduction Amount at any one time may not exceed Five Million
Dollars ($5,000,000), minus (i) the sum of all amounts used for Cash Management
Services, and minus (ii) the aggregate Dollar Equivalent of the face amount of
any outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve). The amount otherwise available for
Credit Extensions under the Revolving Line shall be reduced by the FX Reduction
Amount.  Any amounts needed to fully reimburse Bank for any amounts not paid by
Borrower in connection with FX Contracts will be treated as Advances under the
Revolving Line and will accrue interest at the interest rate applicable to
Advances.
2.2.3    Cash Management Services Sublimit. Borrower may use the Revolving Line
in an aggregate amount not to exceed Five Million Dollars ($5,000,000), minus
(i) the aggregate Dollar Equivalent of the face amount of any outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve), and minus (ii) the FX Reduction Amount, 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”). 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.
2.3    Overadvances. If, at any time, the sum of (a) the outstanding principal
amount of any Advances (including any amounts used for Cash Management
Services), plus (b) the face amount of any outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve), plus (c) the FX Reduction Amount exceeds the lesser of either the
Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in
cash the amount of such excess (such excess, the “Overadvance”). Without
limiting Borrower’s obligation to repay Bank any Overadvance, Borrower agrees to
pay Bank interest on the outstanding amount of any Overadvance, on demand, at a
per annum rate equal to the rate that is otherwise applicable to Advances plus
five percent (5.00%).
2.4    Payment of Interest on the Credit Extensions.
(a)    Interest Rate. Subject to Section 2.4(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a floating per
annum rate equal to the Prime Rate minus one-quarter of one percent (0.25%),
which interest rate shall be payable monthly in accordance with Section 2.4(d)
below.

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(b)    Default Rate. Immediately upon the occurrence and during the continuance
of an Event of Default, Loan Obligations shall bear interest at a rate per annum
which is five percentage points (5.00%) above the rate that is otherwise
applicable thereto (the “Default Rate”). Fees and expenses which are required to
be paid by Borrower pursuant to the Loan Documents (including, without
limitation, Bank Expenses) but are not paid when due shall bear interest until
paid at a rate equal to the highest rate applicable to the Obligations. Payment
or acceptance of the increased interest rate provided in this Section 2.4(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.
(d)    Payment; Interest Computation. Interest is payable monthly on each
Payment Date and shall be computed on the basis of a 360-day year for the actual
number of days elapsed. In computing interest, (i) all payments received after
12:00 noon Pacific time on any day shall be deemed received at the opening of
business on the next Business Day, and (ii) the date of the making of any Credit
Extension shall be included and the date of payment shall be excluded; provided,
however, that if any Credit Extension is repaid on the same day on which it is
made, such day shall be included in computing interest on such Credit Extension.
2.5    Fees. Borrower shall pay to Bank:
(a)    Revolving Line Commitment Fee. A fully earned, non‑refundable commitment
fee of Eighty Thousand Dollars ($80,000), payable on the Effective Date;
(b)    Termination Fee. Upon termination of this Agreement or the termination of
the Revolving Line for any reason prior to the Revolving Line Maturity Date, in
addition to the payment of any other amounts then-owing, a termination fee in an
amount equal to one percent (1.00%) of the Revolving Line; provided that no
termination fee shall be charged if the credit facility hereunder is replaced
with a new facility from Bank;
(c)    Unused Revolving Line Facility Fee. Payable quarterly in arrears on the
last day of the quarter in which the Effective Date occurs, on the last day of
each quarter occurring thereafter prior to the Revolving Line Maturity Date, and
on the Revolving Line Maturity Date, a fee (the “Unused Revolving Line Facility
Fee”) in an amount equal to thirty-five one hundredths of one percent (0.35%)
per annum of the average unused portion of the Revolving Line, as determined by
Bank, computed on the basis of a year with the applicable number of days as set
forth in Section 2.4(d). The unused portion of the Revolving Line, for purposes
of this calculation, shall be calculated on a calendar year basis and shall
equal the difference between (i) the Revolving Line, and (ii) the average for
the period of the daily closing balance of the Revolving Line outstanding;
(d)    Letter of Credit Fee. Bank’s customary fees and expenses for the issuance
or renewal of Letters of Credit, upon the issuance of such Letter of Credit,
each anniversary of the issuance during the term of such Letter of Credit, and
upon the renewal of such Letter of Credit by Bank; and
(e)    Bank Expenses. All Bank Expenses incurred through and after the Effective
Date, when due (or, if no stated due date, upon demand by Bank).
(f)    Fees Fully Earned. Unless otherwise provided in this Agreement or in a
separate writing by Bank, Borrower shall not be entitled to any credit, rebate,
or repayment of any fees earned by Bank pursuant to this Agreement
notwithstanding any termination of this Agreement or the suspension or
termination of Bank’s obligation to make loans and advances hereunder. Bank may
deduct amounts owing by Borrower under the clauses of this Section 2.5 pursuant
to the terms of Section 2.7(b). Bank shall provide Borrower written notice of
deductions made from the Designated Deposit Account pursuant to the terms of the
clauses of this Section 2.5.
2.6    Payments. All payments to be made by Borrower under any Loan Document
shall be made in immediately available funds in Dollars, without setoff or
counterclaim, before 12:00 noon Pacific time on the date when due. Payments of
principal and/or interest received after 12:00 noon Pacific time are considered
received at the

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opening of business on the next Business Day. When a payment is due on a day
that is not a Business Day, the payment shall be due the next Business Day, and
additional fees or interest, as applicable, shall continue to accrue until paid.
2.7    Application of Payments; Debit of Accounts.
(a)    Notwithstanding any provision herein to the contrary, all payments
received or collected by Bank (including proceeds for the realization of
Collateral) after the occurrence and during the continuance of an Event of
Default or after any or all of the Obligations have been accelerated pursuant to
the terms and conditions of this Agreement (so long as such acceleration has not
been rescinded) or upon the occurrence of an additional termination event (as
defined under the respective Secured Rate Contract) with Borrower as the
affected party (unless otherwise waived) or upon the designation of an early
termination date with respect to any Secured Rate Contract with Borrower as the
defaulting or affected party, shall be applied as follows:
(i)    First, to payment of costs and expenses, including Bank Expenses, of Bank
payable or reimbursable by Borrower under the Loan Documents;
(ii)    Second, to (X) the payment of all accrued unpaid interest on the
Obligations and fees owed to Bank, and (Y) the payment of any ordinary course
settlement payments (including Unpaid Amounts) then due and payable to any
Secured Swap Provider under its Secured Rate Contracts, after such ordinary
course settlement payments have been reduced by the amount of any cash
collateral that has been made available to such Secured Swap Provider to secure
the obligations under such Secured Rate Contract;
(iii)    Third, to (W) the payment of principal of the Loan Obligations
including, without limitation any reimbursement obligations in respect of
Letters of Credit that are then due and payable; (X) the payment of all
termination payments (but excluding Unpaid Amounts paid under clause “second”
above) under the Secured Rate Contracts then due and payable to any Secured Swap
Provider, after such termination payments have been reduced by the amount of any
cash collateral that has been made available to such Secured Swap Provider to
secure the obligations under such Secured Rate Contract; (Y) the cash
collateralization of 105% (110% for Letter of Credit denominated in a Currency
other than Dollars), of the Dollar Equivalent of the face amount of any
unmatured Letters of Credit to the extent not then due and payable; and (Z) the
cash collateralization of any other unmatured Secured Swap Obligations in an
amount necessary to secure the obligations of Borrower to any Secured Swap
Provider under its Secured Rate Contracts;
(iv)    Fourth, to payment of any other amounts owing constituting Obligations;
and
(v)    Fifth, any remainder shall be for the account of and paid to whomever may
be lawfully entitled thereto.
In carrying out the foregoing, (x) amounts received shall be applied in the
numerical order provided above until exhausted prior to the application to the
next succeeding category and (y) Bank, each Secured Swap Provider and each other
Persons entitled to payment shall receive an amount equal to its pro rata share
of amounts available to be applied pursuant to clauses second, third and fourth
above. 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.
(b)    Bank, for itself and as agent for the Secured Swap Providers, 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 or
any Secured Swap Provider when due. These debits shall not constitute a set-off.
2.8    Withholding. Payments received by Bank from Borrower under this Agreement
will be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, duties, deductions, withholdings, assessments,
fees or other charges imposed by any Governmental Authority (including any
interest, additions to tax or penalties applicable thereto). Specifically,
however, if at any time any Governmental Authority,

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applicable law, regulation or international agreement requires Borrower to make
any withholding or deduction from any such payment or other sum payable
hereunder to Bank, Borrower hereby covenants and agrees that the amount due from
Borrower with respect to such payment or other sum payable hereunder will be
increased to the extent necessary to ensure that, after the making of such
required withholding or deduction, Bank receives a net sum equal to the sum
which it would have received had no withholding or deduction been required, and
Borrower shall pay the full amount withheld or deducted to the relevant
Governmental Authority. Borrower will, upon request, furnish Bank with proof
reasonably satisfactory to Bank indicating that Borrower has made such
withholding payment; provided, however, that Borrower need not make any
withholding payment if the amount or validity of such withholding payment is
contested in good faith by appropriate and timely proceedings and as to which
payment in full is bonded or reserved against by Borrower. The agreements and
obligations of Borrower contained in this Section 2.8 shall survive the
termination of this Agreement. Notwithstanding anything to the contrary
contained herein, in no event shall the Borrower be required to pay or reimburse
Bank for taxes imposed on the overall net income of Bank.
3    CONDITIONS OF LOANS
3.1    Conditions Precedent to Initial Credit Extension. Unless otherwise agreed
to by Bank, Bank’s obligation to make the initial Credit Extension is subject to
the condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, such documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate, including, without
limitation:
(a)    duly executed signatures to the Loan Documents (with original signatures
to be delivered within two (2) Business Days after the Effective Date);
(b)    the Operating Documents and long-form good standing certificates of
Borrower certified by the Secretary of State (or equivalent agency) of
Borrower’s jurisdiction of organization or formation and each jurisdiction in
which Borrower is qualified to conduct business, each dated as of a date no
earlier than thirty (30) days prior to the Effective Date;
(c)    a secretary’s certificate of Borrower with respect to such Borrower’s
Operating Documents, incumbency, specimen signatures and resolutions authorizing
the execution and delivery of this Agreement and the other Loan Documents to
which it is a party;
(d)    duly executed signatures to the completed Borrowing Resolutions for
Borrower;
(e)    certified copies, dated as of a recent date, of financing statement
searches, as Bank may request, and, if requested by Bank, 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 Credit Extension, will be terminated or released;
(f)    the Perfection Certificate of Borrower, together with the duly executed
original signature thereto;
(g)    a landlord’s consent in favor of Bank for 14750 Kirby Drive, Pearland,
Texas 77047, by the landlord thereof, together with the duly executed original
signatures thereto;
(h)    a legal opinion of Borrower’s counsel dated as of the Effective Date
together with the duly executed original signature thereto;
(i)    evidence satisfactory to Bank that the insurance policies and
endorsements required by Section 6.7 hereof are in full force and effect,
together with appropriate evidence showing lender 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
2.5 hereof.

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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 conditions precedent:
(a)    timely receipt of the Credit Extension request and any materials and
documents required by Section 3.4;
(b)    the representations and warranties in this Agreement shall be true,
accurate, and complete in all material respects on the date of the proposed
Credit Extension 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
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 this Agreement remain true,
accurate, and complete 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)    Bank determines to its reasonable satisfaction that there has not been a
Material Adverse Change.
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 precedent
to any Credit Extension. Borrower expressly agrees that a Credit Extension made
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 the making of any Credit
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 (other than Advances under
Sections 2.2.1 or 2.2.3) set forth in this Agreement, to obtain an Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by electronic
mail or such other means as agreed to by Bank from time to time by 12:00 p.m.
Pacific time on the Funding Date of the Advance. Such notice shall be made by
Borrower through Bank’s online banking program, provided, however, if Borrower
is not utilizing Bank’s online banking program, then such notice shall be in a
written format acceptable to Bank that is executed by an Authorized Signer. Bank
shall have received satisfactory evidence that the Board has approved that such
Authorized Signer may provide such notices and request Advances. In connection
with any such notification, Borrower must promptly deliver to Bank by electronic
mail or through Bank’s online banking program such reports and information,
including without limitation, sales journals, cash receipts journals, accounts
receivable aging reports, as Bank may reasonably request. Bank shall credit
proceeds of an Advance to the Designated Deposit Account. Bank may make Advances
under this Agreement based on instructions from an Authorized Signer 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, for itself and
as agent for each Secured Swap Provider, to secure the payment and performance
in full of all of the Obligations, a continuing security interest in, and
pledges to Bank, for itself and as agent for each Secured Swap Provider, the
Collateral, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof.
If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until (i) the Obligations (excluding inchoate indemnity obligations) are repaid
in full in cash; and (ii) any Contingent Obligations (excluding inchoate
indemnity obligations but including unmatured Obligations arising under Letters
of Credit, FX Forward Contracts, Cash Management Services and Secured Rate
Contracts) are secured with cash collateral in an amount and on terms reasonably
satisfactory to Bank and to each Secured Swap Provider. Upon payment in full in
cash of the Obligations (other than inchoate indemnity obligations) and at such
time as Bank’s obligation to make Credit Extensions has

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terminated, Bank shall, at the sole cost and expense of Borrower, promptly
release its Liens in the Collateral and all rights therein shall revert to
Borrower.
4.2    Priority of Security Interest. 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). 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, for itself and as agent for each
Secured Swap Provider, 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.
4.3    Authorization to File Financing Statements. Borrower hereby authorizes
Bank, for itself and as agent for each Secured Swap Provider, to file
appropriate financing statements as may be required under the Code. Such
financing statements may indicate the Collateral as “all assets of the Debtor”
or words of similar effect, or as being of an equal or lesser scope, or with
greater detail, all in Bank’s discretion.
5    REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1    Due Organization, 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, licensed, or in good
standing 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” (the “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) except as stated in the Perfection Certificate,
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 (i) with respect to litigation disclosed therein,
accurate and complete in all material respects; and (ii) with respect to all
other information, 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 in any
material respect, (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 in any material respect, (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 except where the
failure to do so could not reasonably be expected to have a material adverse
effect on the Borrower’s business), or (v) in any material respect, conflict
with, contravene, constitute a default or breach under, or result in or permit
the termination or acceleration of, 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 reasonably be expected to have a
material adverse effect on Borrower’s business.

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5.2    Collateral. Borrower has good title to, 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 Collateral Accounts at or with any bank or financial institution other
than Bank or Bank’s Affiliates except for the Collateral Accounts described in
the Perfection Certificate delivered to Bank in connection herewith and which
Borrower has taken such actions as are necessary to give Bank a perfected
security interest therein, pursuant to the terms of Section 6.8(b). 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. The
Collateral shall not be maintained at locations other than as provided in the
Perfection Certificate or as permitted pursuant to Section 7.2.
All Inventory is in all material respects of good and marketable quality, free
from material defects.
Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) non-exclusive licenses granted to its customers
in the ordinary course of business, (b) over-the-counter software that is
commercially available to the public, and (c) material Intellectual Property
licensed to Borrower and noted on the Perfection Certificate. Each Patent which
it owns or purports to own and which is material to Borrower’s business is valid
and enforceable, and no part of the Intellectual Property which Borrower owns or
purports to own and which is material to Borrower’s business has been judged
invalid or unenforceable, in whole or in part. 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 would not
reasonably be expected to have a material adverse effect on Borrower’s business.
Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is it bound by, any Restricted License.
5.3    Accounts Receivable; Inventory.
(a)    For each Account with respect to which Advances are requested, on the
date each Advance is requested and made, such Account shall be an Eligible
Account.
(b)    All statements made and all unpaid balances appearing in all invoices,
instruments and other documents evidencing the Eligible Accounts are and shall
be true and correct in all material respects and all such invoices, instruments
and other documents, and all of Borrower's Books are genuine and in all material
respects what they purport to be. 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 Eligible Accounts in any Borrowing Base Report. 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.
(c)    For any item of Inventory consisting of Eligible Inventory in any
Borrowing Base Report, such Inventory (i) consists of finished goods, in good,
new, and salable condition, which is not perishable, returned, consigned,
obsolete, not sellable, damaged, or defective, and is not comprised of raw
materials, demonstrative or custom inventory, works in progress, packaging or
shipping materials, or supplies; (ii) meets all applicable governmental
standards in all material respects; (iii) has been manufactured in material
compliance with the Fair Labor Standards Act; (iv) is not subject to any Liens,
except the first priority Liens granted or in favor of Bank under this Agreement
or any of the other Loan Documents; and (v) is located in the United States at
the locations identified by Borrower in the Perfection Certificate where it
maintains Inventory (or at any location permitted under Section 7.2).
5.4    Litigation. Except as previously disclosed to Bank in writing, there are
no actions or proceedings pending or, to the knowledge of any Responsible
Officer, threatened in writing by or against Borrower or any of its Subsidiaries
involving more than, individually or in the aggregate, Two Hundred Fifty
Thousand Dollars ($250,000).

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5.5    Financial Statements; Financial Condition. 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 consolidated assets
(including goodwill minus disposition costs) exceeds the fair value of
Borrower’s 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 become due.
5.7    Regulatory Compliance. Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended. Borrower is not engaged as one of its important activities
in extending credit for margin stock (under Regulations X, T and U of the
Federal Reserve Board of Governors). Borrower (a) has complied in all material
respects with all Requirements of Law, and (b) has not violated any Requirements
of Law 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 in material
compliance with applicable law. Borrower and each of its Subsidiaries have
obtained all material consents, material approvals and material authorizations
of, made all material declarations or material filings with, and given all
material notices to, all Governmental Authorities that are necessary to continue
their respective businesses as currently conducted.
5.8    Subsidiaries; Investments. Borrower does not own any stock, partnership,
or other ownership 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 and contributions
owed by Borrower except to the extent such taxes are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted,
so long as such reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor.
To the extent Borrower defers payment of any contested taxes, Borrower shall
(i) notify Bank in writing of the commencement of, and any material development
in, the proceedings, and (ii) post bonds or take 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 and 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).

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5.12    Definition of “Knowledge.” For purposes of the Loan Documents, whenever
a representation or warranty is made to Borrower’s knowledge or awareness, to
the “best of” Borrower’s knowledge, or with a similar qualification, knowledge
or awareness means the actual knowledge, after reasonable investigation actually
made, of any Responsible Officer.
5.13    Designation of Indebtedness under this Agreement as Senior Indebtedness.
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 and
under the Secured Rate Contracts shall constitute “Designated Senior
Indebtedness” under the terms of any Subordinated Debt documents.
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, in all material
respects, with all laws, ordinances and regulations to which it is subject.
(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, for itself and as agent for each
Secured Swap Provider, in all of the Collateral. Borrower shall, upon request
from Bank, promptly provide copies of any such obtained Governmental Approvals
to Bank.
6.2    Financial Statements, Reports, Certificates. Provide Bank with the
following:
(a)    Borrowing Base Reports. For any month in which Obligations were
outstanding under the Revolving Line, a Borrowing Base Report (and any schedules
related thereto and including any other information requested by Bank with
respect to Borrower’s Accounts) within thirty (30) days after the end of such
month;
(b)    Account Receivable/Accounts Payable Reports. For any month in which
Obligations were outstanding under the Revolving Line, within thirty (30) days
after the end of such month, (A) monthly accounts receivable agings, aged by
invoice date, (B) monthly accounts payable agings, aged by invoice date, and
outstanding or held check registers, if any, (C) monthly reconciliations of
accounts receivable agings (aged by invoice date), transaction reports, Deferred
Revenue report, and general ledger, and (D) monthly perpetual inventory reports
for Inventory valued on a first-in, first-out basis at the lower of cost or
market (in accordance with GAAP) or such other inventory reports as are
requested by Bank in its good faith business judgment;
(c)    Monthly Financial Statements. For any month in which Obligations were
outstanding under the Revolving Line, as soon as available, but no later than
thirty (30) days after the last day of each month, Borrower-prepared
consolidated balance sheet, statement of cash flows and income statement
covering Borrower’s consolidated operations for such month certified by a
Responsible Officer and in a form reasonably acceptable to Bank (the “Monthly
Financial Statements”);
(d)    Quarterly Financial Statements. As soon as available, but no later than
thirty (30) days after the last day of each quarter, Borrower-prepared
consolidated balance sheet, statement of cash flows and income statement
covering Borrower’s consolidated operations for such quarter certified by a
Responsible Officer and in a form reasonably acceptable to Bank (the “Quarterly
Financial Statements”). The delivery requirement under this Section 6.2(d) shall
be deemed satisfied to the extent applicable Quarterly Financial Statements are
included in or delivered with any reports or other materials delivered to the
Bank pursuant to Section 6.2(h), below.

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(e)    Compliance Certificates. Within thirty (30) days after the last day of
each month, a duly completed Compliance Certificate signed by a Responsible
Officer, certifying that as of the end of such month, Borrower was in full
compliance with all of the terms and conditions of this Agreement, and setting
forth calculations showing compliance with the financial covenants set forth in
this Agreement, if applicable, and such other information as Bank may reasonably
request, including, without limitation, a statement that at the end of such
month there were no held checks;
(f)    Annual Operating Budget and Financial Projections. Within thirty (30)
days following the end of each fiscal year of Borrower, and promptly following
any updates or amendments thereto, (A) annual operating budgets (including
income statements, balance sheets and cash flow statements, by month or quarter)
for the upcoming fiscal year of Borrower, and (B) annual financial projections
for the following fiscal year (on a quarterly basis), in each case as presented
to and approved by the Board, together with any related business forecasts used
in the preparation of such annual financial projections;
(g)    Annual Audited Financial Statements. As soon as available, and in any
event within one hundred twenty (120) days following the end of Borrower’s
fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm reasonably
acceptable to Bank;
(h)    SEC Filings. in the event that Borrower becomes subject to the reporting
requirements under the Exchange Act within five (5) days of filing, copies of
all periodic and other reports, proxy statements and other materials filed by
Borrower with the SEC, any Governmental Authority succeeding to any or all of
the functions of the SEC or with any national securities exchange, or
distributed to its shareholders, as the case may be. Documents required to be
delivered pursuant to the terms hereof (to the extent any such documents are
included in materials otherwise filed with the SEC) may be delivered
electronically and if so delivered, shall be deemed to have been delivered on
the date on which Borrower posts such documents, or provides a link thereto, on
Borrower’s website on the Internet at Borrower’s website address; provided,
however, Borrower shall promptly notify Bank in writing (which may be by
electronic mail) of the posting of any such documents;
(i)    Other Statements. Within five (5) days of delivery, copies of all
statements, reports and notices made available to Borrower’s security holders or
to any holders of Subordinated Debt;
(j)    Legal Action Notice. Promptly, and in any event within five (5) Business
Days of Borrower’s knowledge thereof, notice of (i)  any event or condition that
constitutes an Event of Default, including a statement of the curative action
that Borrower proposes to take with respect thereto, and (ii)  any legal actions
pending or threatened in writing against Borrower or any of its Subsidiaries
that could result in damages or costs to Borrower or any of its Subsidiaries of,
individually or in the aggregate, Two Hundred Fifty Thousand Dollars ($250,000)
or more, including a report regarding the actions that Borrower or such
Subsidiary is taking or intends to take with respect thereto; and
(k)    Other Financial Information. Other financial information reasonably
requested by Bank.
6.3    Accounts Receivable.
(a)    Schedules and Documents Relating to Accounts. Borrower shall deliver to
Bank transaction reports and schedules of collections, as provided in Section
6.2, on forms reasonably acceptable to Bank; provided, however, that Borrower’s
failure to execute and deliver the same shall not affect or limit Bank’s Lien
and other rights in all of Borrower’s Accounts, nor shall Bank’s failure to
advance or lend against a specific Account affect or limit Bank’s Lien and other
rights therein. If requested by Bank, Borrower shall furnish Bank with copies
(or, at Bank’s request, originals) of all contracts, orders, invoices, and other
similar documents, and all shipping instructions, delivery receipts, bills of
lading, and other evidence of delivery, for any goods the sale or disposition of
which gave rise to such Accounts. In addition, Borrower shall deliver to Bank,
on its request, the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Accounts, in the same form as received, with all necessary indorsements, and
copies of all credit memos.

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(b)    Disputes. Borrower shall promptly notify Bank of all disputes and/or
claims in excess of One Hundred Thousand Dollars ($100,000) relating to any
Account. Borrower may forgive (completely or partially), compromise, or settle
any Account for less than payment in full, or agree to do any of the foregoing
so long as (i) Borrower does so in good faith, in a commercially reasonable
manner, in the ordinary course of business, in arm’s-length transactions, and
reports the same to Bank in the regular reports provided to Bank; (ii) no Event
of Default has occurred and is continuing; and (iii) after taking into account
all such discounts, settlements and forgiveness, the total outstanding Advances
will not exceed the lesser of the Revolving Line or the Borrowing Base.
(c)    Collection of Accounts. Borrower shall direct Account Debtors to deliver
or transmit all proceeds of Accounts into a lockbox account, or such other
“blocked account” as specified by Bank (either such account, the “Cash
Collateral Account”). Whether or not an Event of Default has occurred and is
continuing, Borrower shall immediately deliver all payments on and proceeds of
Accounts to the Cash Collateral Account. Subject to Bank’s right to maintain a
reserve pursuant to Section 6.3(g), all amounts received in the Cash Collateral
Account shall be (i) applied to immediately reduce the Obligations when a
Streamline Period is not in effect (unless Bank, in its sole discretion, at
times when an Event of Default exists, elects not to so apply such amounts), or
(ii) transferred on a daily basis to Borrower’s operating account with Bank when
a Streamline Period is in effect. Borrower hereby authorizes Bank to transfer to
the Cash Collateral Account any amounts that Bank reasonably determines are
proceeds of the Accounts (provided that Bank is under no obligation to do so and
this allowance shall in no event relieve Borrower of its obligations hereunder).
(d)    Returns. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower, Borrower shall promptly
(i) determine the reason for such return, and (ii) if a credit memorandum is
issued to the Account Debtor, provide a copy of such credit memorandum to Bank,
upon request from Bank. In the event any attempted return occurs after the
occurrence and during the continuance of any Event of Default, Borrower shall
hold the returned Inventory in trust for Bank, and promptly notify Bank of the
return of the Inventory.
(e)    Verifications; Confirmations; Credit Quality; Notifications. Bank may,
from time to time, (i) verify and confirm directly with the respective Account
Debtors the validity, amount and other matters relating to the Accounts, either
in the name of Borrower or Bank or such other name as Bank may choose, and
notify any Account Debtor of Bank’s security interest in such Account and/or
(ii) conduct a credit check of any Account Debtor to approve any such Account
Debtor’s credit.
(f)    No Liability. Bank shall not be responsible or liable for any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or
other disposition of which gives rise to an Account, or for any error, act,
omission, or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account, or for settling any Account in
good faith for less than the full amount thereof, nor shall Bank be deemed to be
responsible for any of Borrower's obligations under any contract or agreement
giving rise to an Account. Nothing herein shall, however, relieve Bank from
liability for its own gross negligence or willful misconduct.
(g)    Reserves. Notwithstanding any terms in this Agreement to the contrary, at
times when an Event of Default exists, Bank may hold any proceeds of the
Accounts and any amounts in the Cash Collateral Account that are not applied to
the Obligations pursuant to Section 6.3(c) above (including amounts otherwise
required to be transferred to Borrower’s operating account with Bank when a
Streamline Period is in effect) as a reserve to be applied to any Obligations
regardless of whether such Obligations are then due and payable.
6.4    Remittance of Proceeds. Deliver, in kind, all proceeds arising from the
disposition of any Collateral to Bank in the original form in which received by
Borrower not later than the following Business Day after receipt by Borrower, to
be applied to the Obligations (a) prior to an Event of Default, to be applied to
reduce the outstanding Obligations under the Revolving Line, with all excess
amounts transferred to an account of Borrower maintained at Bank, and (b) after
the occurrence and during the continuance of an Event of Default, pursuant to
the terms of Section 9.4 hereof; provided that, if no Event of Default has
occurred and is continuing, Borrower shall not be obligated to remit to Bank the
proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower
in good faith in an arm’s length transaction for an aggregate purchase price of
One Hundred Thousand Dollars ($100,000) or less (for all such transactions in
any fiscal year). Borrower agrees that it will not commingle proceeds of
Collateral with any of

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Borrower’s other funds or property, but will hold such proceeds separate and
apart from such other funds and property and in an express trust for Bank.
Nothing in this Section limits the restrictions on disposition of Collateral set
forth elsewhere in this Agreement.
6.5    Taxes; Pensions. Timely file, and require each of its Subsidiaries to
timely file, all required tax returns and reports and timely pay, and require
each of its Subsidiaries to timely pay, all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower and each of its
Subsidiaries, except for deferred payment of any taxes contested 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.
6.6    Access to Collateral; Books and Records. In addition to the Initial
Audit, at reasonable times, on five (5) Business Days’ notice (provided no
notice is required if an Event of Default has occurred and is continuing), Bank,
or its agents, shall have the right to inspect the Collateral and the right to
audit and copy Borrower’s Books. The foregoing inspections and audits shall be
conducted at Borrower’s expense and no more often than once every twelve (12)
months (or more frequently as Bank in its sole discretion determines that
conditions warrant) unless an Event of Default has occurred and is continuing in
which case such inspections and audits shall occur as often as Bank shall
determine is necessary. The foregoing inspections and audits shall be conducted
at Borrower’s expense and the charge therefor shall be One Thousand Dollars
($1,000) per person per day (or such higher amount as shall represent Bank’s
then-current standard charge for the same), plus reasonable out-of-pocket
expenses. In the event Borrower and Bank schedule an audit more than ten (10)
days in advance, and Borrower cancels or reschedules the audit with less than
ten (10) days written notice to Bank, then (without limiting any of Bank’s
rights or remedies) Borrower shall pay Bank a fee of One Thousand Dollars
($1,000) plus any out-of-pocket expenses incurred by Bank to compensate Bank for
the anticipated costs and expenses of the cancellation or rescheduling. Borrower
and Bank acknowledge and agree that the Initial Audit shall be completed prior
to the date that is ninety (90) days after the Effective Date.
6.7    Insurance.
(a)    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 financially
sound and reputable insurance companies that are not Affiliates of Borrower, and
in amounts that are reasonably satisfactory to Bank. All property policies shall
have a lender’s loss payable endorsement showing Bank as an additional loss
payee. All liability policies shall show, or have endorsements showing, Bank as
an additional insured. Bank shall be named as lender loss payee and/or
additional insured with respect to any such insurance providing coverage in
respect of any Collateral. For the avoidance of doubt, the foregoing shall only
apply to Borrower’s personal property, and in no event shall Bank have an
insurable interest with respect to real property of Borrower or be entitled to
any proceeds payable under any insurance policy covering real property.
(b)    Ensure that proceeds payable under any property policy with respect to
personal property are, at Bank’s option, payable to Bank on account of the
Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default
has occurred and is continuing, Borrower shall have the option of applying the
proceeds of any casualty policy up to Fifty Thousand Dollars ($50,000) with
respect to any loss, but not exceeding One Hundred Thousand Dollars ($100,000)
in the aggregate for all losses under all casualty policies in any one year,
toward the replacement or repair of destroyed or damaged property; provided that
any such replaced or repaired property (i) shall be of equal or like value as
the replaced or repaired Collateral and (ii) shall be deemed Collateral in which
Bank has been granted a first priority security interest, and (b) after the
occurrence and during the continuance of an Event of Default, all proceeds
payable under such casualty policy shall, at the option of Bank, be payable to
Bank on account of the Obligations.
(c)    At Bank’s request, Borrower shall deliver copies of insurance policies
and evidence of all premium payments. Each provider of any such insurance
required under this Section 6.7 shall agree, by endorsement upon the policy or
policies issued by it or by independent instruments furnished to Bank, that it
will give Bank thirty (30) days prior written notice before any such policy or
policies shall be canceled. If Borrower fails to obtain insurance as required
under this Section 6.7 or to pay any amount or furnish any required proof of
payment to third persons and

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Bank, Bank may make all or part of such payment or obtain such insurance
policies required in this Section 6.7, and take any action under the policies
Bank deems prudent.
6.8    Operating Accounts.
(a)    Maintain all of its operating and other deposit accounts with Bank and
Bank’s Affiliates, with not less than seventy-five percent (75%) of Borrower’s
excess cash and its investment and securities accounts at 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 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 which Control Agreement may not
be terminated without the prior written consent of Bank. 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.
6.9    Financial Covenants. At all times while there are Obligations
outstanding, Borrower shall demonstrate to Bank that it is in compliance with
one (1) of the following financial covenants. In addition, prior to the making
of each Advance, Borrower shall demonstrate to Bank that Borrower is in
compliance with one (1) of the following financial covenants:
(a)    Minimum Liquidity. Borrower shall maintain Liquidity (assuming that a
Streamline Period is not in effect for purposes of calculating the Availability
Amount) at all times, to be certified to Bank as of the last day of each month
(or, if being measured in connection with the making of an Advance, calculated
immediately prior to the making of such Advance) of at least Ten Million Dollars
($10,000,000).
OR
(b)    Minimum Adjusted EBITDA. Borrower shall achieve, measured on a trailing
three (3) month basis as of the last day of each month (or, if being measured in
connection with the making of an Advance, calculated as of the last day of the
month immediately preceding the request for such Advance), Adjusted EBITDA of at
least One Million Dollars ($1,000,000).
6.10    Protection of Intellectual Property Rights.
(a)    (i) Protect, defend and maintain the validity and enforceability of
Intellectual Property material to the operation of Borrower’s business;
(ii) promptly advise Bank in writing of material infringements or any other
event that could reasonably be expected to materially and adversely affect the
value of such Intellectual Property; and (iii) not allow any Intellectual
Property material to Borrower’s business to be abandoned, forfeited or dedicated
to the public without Bank’s written consent.
(b)    Provide written notice to Bank within ten (10) days of entering or
becoming bound by any Restricted License (other than over-the-counter software
that is commercially available to the public). Borrower shall take such steps as
Bank reasonably requests to obtain the consent of, or waiver by, any person
whose consent or waiver is necessary for (i) any Restricted License 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 Restricted
License, whether now existing or entered into in the future, and (ii) 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.
6.11    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

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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;
provided, that in no event shall Borrower be required to make available to Bank
any books, records, documents, communications or other information subject to
attorney-client privilege.
6.12    Formation or Acquisition of Subsidiaries. Notwithstanding and without
limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the
time that Borrower forms any direct or indirect Subsidiary or acquires any
direct or indirect Subsidiary after the Effective Date, Borrower shall (a) cause
such new Subsidiary to provide to Bank a joinder to this Agreement to cause such
Subsidiary to become a co-borrower hereunder together with such appropriate
financing statements and/or Control Agreements, all in form and substance
reasonably satisfactory to Bank (including being sufficient to grant Bank, for
itself and as agent for each Secured Swap Provider, a first priority Lien
(subject to Permitted Liens) in and to the assets of such newly formed or
acquired Subsidiary), (b) provide to Bank appropriate certificates and powers
and financing statements, pledging all of the direct or beneficial ownership
interest in such new Subsidiary, in form and substance reasonably satisfactory
to Bank; and (c) provide to Bank all other documentation in form and substance
satisfactory to Bank, including one or more opinions of counsel satisfactory to
Bank, which in its opinion is appropriate with respect to the execution and
delivery of the applicable documentation referred to above. Any document,
agreement, or instrument executed or issued pursuant to this Section 6.12 shall
be a Loan Document and shall secure or guaranty (as applicable) all of the
Obligations owing to Bank and any Secured Swap Provider.
6.13    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. Deliver to Bank, within
five (5) days after the same are sent or received, copies of all correspondence,
reports, documents and other filings with any Governmental Authority regarding
compliance with or maintenance of Governmental Approvals or Requirements of Law
or that could reasonably be expected to have a material adverse effect on any of
the Governmental Approvals or otherwise on the operations of Borrower or any of
its Subsidiaries.
6.14    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, termination payments and other amounts accrued or due under this
Agreement and under any Secured Rate Contract 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 and any
Secured Swap Providers the same or similar rights as granted to Bank and such
Secured Swap Providers as a holder of “Designated Senior Indebtedness” under the
Subordinated Debt documents.
6.15    Online Banking. Utilize Bank’s online banking platform for all matters
requested by Bank which shall include, without limitation (and without request
by Bank for the following matters), uploading information pertaining to Accounts
and Account Debtors, requesting approval for exceptions, requesting Credit
Extensions, and uploading financial statements and other reports required to be
delivered by this Agreement (including, without limitation, those described in
Section 6.2 of this Agreement).
7    NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank’s prior written consent:
7.1    Dispositions. Convey, sell, lease, transfer, assign, 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 that is, in the reasonable judgment of Borrower, no longer
economically practicable to maintain or useful in the ordinary course of
business of Borrower; (c) consisting of Permitted Liens and Permitted
Investments; (d) consisting of the sale or issuance of any stock of Borrower
permitted under Section 7.2 of this Agreement; (e) consisting of Borrower’s use
or transfer of money or Cash Equivalents in a manner that is not prohibited by
the terms of this Agreement or the other Loan Documents; (f) of non-

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exclusive licenses for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; and (g) relating to the Permitted Sale and
Leaseback Transaction.
7.2    Changes in Business, Management Control, or Business Locations. (a)
Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower and such Subsidiary, as
applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c)
fail to provide notice to Bank of any Key Person departing from or ceasing to be
employed by Borrower within five (5) Business Days after such Key Person’s
departure from Borrower; or (d) permit or suffer any Change in Control.
Borrower shall not, without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Fifty Thousand
Dollars ($50,000) in Borrower’s assets or property) or deliver any portion of
the Collateral valued, individually or in the aggregate, in excess of Fifty
Thousand Dollars ($50,000) to a bailee at a location other than to a bailee and
at a location already disclosed in the Perfection Certificate, (2) change its
jurisdiction of organization, (3) change its organizational structure or type,
(4) change its legal name, or (5) change any organizational number (if any)
assigned by its jurisdiction of organization. If Borrower intends to deliver any
portion of the Collateral valued, individually or in the aggregate, in excess of
Fifty Thousand Dollars ($50,000) to a bailee, and Bank and such bailee are not
already parties to a bailee agreement governing both the Collateral and the
location to which Borrower intends to deliver the Collateral, then Borrower will
first receive the written consent of Bank (which consent shall not be
unreasonably withheld), and such bailee shall execute and deliver a bailee
agreement in form and substance reasonably satisfactory to Bank.
7.3    Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person (including, without limitation, by
the formation of any Subsidiary), except for Permitted Acquisitions. A
Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
7.4    Indebtedness. Create, incur, assume, or be liable for any Indebtedness,
or permit any Subsidiary to do so, other than Permitted Indebtedness.
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 or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s
Intellectual Property, except as is otherwise permitted in Section 7.1 hereof
and the definition of “Permitted Liens” herein.
7.6    Maintenance of Collateral Accounts. Maintain any Collateral Account
except pursuant to the terms of Section 6.8(b) hereof.
7.7    Distributions; Investments. (a) Pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock;
provided that (i) Borrower may convert any of its convertible securities into
other securities pursuant to the terms of such convertible securities or
otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common
stock; and (iii) Borrower may repurchase the stock of former or current
employees or consultants pursuant to stock repurchase agreements and stock
incentive compensation programs, so long as an Event of Default does not exist
at the time of such repurchase and would not exist after giving effect to such
repurchase, provided that the aggregate amount of all such repurchases does not
exceed One Hundred Thousand Dollars ($100,000) per fiscal year; or (b) directly
or indirectly make any Investment (including, without limitation, by the
formation of any Subsidiary) 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 (i)
the Permitted Sale and Leaseback Transaction, upon fair and

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reasonable terms that are no less favorable to Borrower than would be obtained
in an arm’s length transaction with a non-affiliated Person; and (ii)
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, provide for earlier or greater principal, interest, or other
payments thereon, 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, as amended, 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 to the same extent; 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.
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 when due, or (b) pay any other Loan Obligations
within three (3) Business Days after such Obligations are due and payable (which
three (3) Business Day cure period shall not apply to payments due on the
Revolving Line Maturity Date). During the cure period, the failure to make or
pay any payment specified under clause (b) hereunder 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,
6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10(b), 6.12, 6.13, 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). Cure periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in clause (a) above;
8.3    Material Adverse Change. A Material Adverse Change occurs;

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8.4    Attachment; Levy; Restraint on Business.
(a)    (i) The service of process seeking to attach, by trustee or similar
process, any funds of Borrower or of any entity under the control of Borrower
(including a Subsidiary), or (ii) a notice of lien or levy is filed against any
of Borrower’s assets by any Governmental Authority, and the same under
subclauses (i) and (ii) 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; or
(b)     (i) any material portion of Borrower’s assets is attached, seized,
levied on, or comes into possession of a trustee or receiver, or (ii) any court
order enjoins, restrains, or prevents Borrower from conducting all or any
material part of its business;
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 is not dismissed or stayed within thirty (30) days (but no Credit Extensions
shall be made while any of the conditions described in clause (a) exist and/or
until any Insolvency Proceeding is dismissed);
8.6    Other Agreements. There is, under any agreement to which Borrower or any
guarantor is a party with a third party or parties, (a) any default resulting in
a right by such third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount individually or in the aggregate
in excess of Two Hundred Thousand Dollars ($200,000); or (b) any breach or
default by Borrower or guarantor, the result of which could have a material
adverse effect on Borrower’s or any guarantor’s business; provided, however,
that the Event of Default under this Section 8.6 caused by the occurrence of a
breach or default under such other agreement shall be cured or waived for
purposes of this Agreement upon Bank receiving written notice from the party
asserting such breach or default of such cure or waiver of the breach or default
under such other agreement, if at the time of such cure or waiver under such
other agreement (x) Bank has not declared an Event of Default under this
Agreement and/or exercised any rights with respect thereto; (y) any such cure or
waiver does not result in an Event of Default under any other provision of this
Agreement or any Loan Document; and (z) in connection with any such cure or
waiver under such other agreement, the terms of any agreement with such third
party are not modified or amended in any manner which could in the good faith
business judgment of Bank be materially less advantageous to Borrower or any
guarantor;
8.7    Judgments; Penalties. One or more fines, penalties or final judgments,
orders or decrees for the payment of money in an amount, individually or in the
aggregate, of at least Two Hundred Thousand Dollars ($200,000) (in each case not
covered by independent third-party insurance as to which liability has been
accepted by such insurance carrier) shall be rendered against Borrower by any
Governmental Authority, and the same are not, within ten (10) days after the
entry, assessment or issuance thereof, discharged, satisfied, or paid (unless
the terms thereof provide a later date for satisfaction or payment, in which
case, the same shall not be satisfied or paid on or before such later date), or
after execution thereof, stayed or bonded pending appeal, or such judgments are
not discharged prior to the expiration of any such stay (provided that no Credit
Extensions will be made prior to the satisfaction, payment, discharge, stay, or
bonding of such fine, penalty, 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;
8.9    Subordinated Debt. Any document, instrument, or agreement evidencing any
Subordinated Debt shall for any reason be revoked or invalidated or otherwise
cease to be in full force and effect, any Person shall be in breach thereof or
contest in any manner the validity or enforceability thereof or deny that it has
any further liability or obligation thereunder, or the Obligations shall for any
reason be subordinated or shall not have the priority contemplated by this
Agreement or any such subordination, intercreditor, or other similar agreement;
8.10    Governmental Approvals. Any Governmental Approval shall have been
(a) revoked, rescinded, suspended, modified in an adverse manner or not renewed
in the ordinary course for a full term or (b) subject to any

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decision by a Governmental Authority that designates a hearing with respect to
any applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) cause, or could reasonably be expected to cause,
a Material Adverse Change, or (ii) adversely affects the legal qualifications of
Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension,
modification or non-renewal could reasonably be expected to materially affect
the status of or legal qualifications of Borrower or any of its Subsidiaries to
hold any required Governmental Approval in any other jurisdiction; or
8.11    Secured Rate Contracts. A default or an event of default occurs under
any Secured Rate Contract and is continuing.
9    BANK’S RIGHTS AND REMEDIES
9.1    Rights and Remedies. Upon the occurrence and during the continuance of an
Event of Default, Bank, for itself and as agent for each Secured Swap Provider,
may, without notice or demand, do any or all of the following:
(a)    declare all Loan 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) deposit cash with Bank in an amount equal to
105% (110% for Letters of Credit denominated in a Currency other than Dollars),
of the Dollar Equivalent of the aggregate face amount of all Letters of Credit
remaining undrawn (plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business
judgment)), to secure all of the Loan Obligations relating to such Letters of
Credit, as collateral security for the repayment of any future drawings under
such Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, (ii) pay in advance all letter of credit fees scheduled to be paid or
payable over the remaining term of any Letters of Credit, and (iii) deposit with
Bank, to hold as agent for the Secured Swap Providers, cash collateral in an
amount determined by Bank and/or the Secured Swap Providers to be necessary to
secure the unmatured obligations of Borrower under the Secured Rate Contracts,
and Borrower shall forthwith deposit and pay such amounts;
(d)    terminate any FX Contracts;
(e)    verify the amount of, demand payment of and performance under, and
collect any Accounts and General Intangibles, settle or adjust disputes and
claims directly with Account Debtors for amounts on terms and in any order that
Bank considers advisable, and notify any Person owing Borrower money of Bank’s
security interest in such funds. Borrower shall collect all payments in trust
for Bank and, if requested by Bank, immediately deliver the payments to Bank in
the form received from the Account Debtor, with proper endorsements for deposit;
(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;

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(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, 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, payment instruments, 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) demand, collect, sue, and give releases to any
Account Debtor for monies due, settle and adjust disputes and claims about the
Accounts directly with Account Debtors, and compromise, prosecute , or defend
any action, claim, case, or proceeding about any Collateral (including filing a
claim or voting a claim in any bankruptcy case in Bank’s or Borrower’s name, as
Bank chooses); (d) make, settle, and adjust all claims under Borrower’s
insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance,
security interest, or other 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 the
Loan Documents have been terminated. 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
the Loan Documents have been terminated.
9.3    Protective Payments. If Borrower fails to obtain the insurance called for
by Section 6.7 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 or which may be required to preserve the Collateral, 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
rate applicable to the Loan Obligations, 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. If an Event of Default has occurred
and is continuing, Bank shall have the right to 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 the order specified in Section
2.7(a). Bank shall pay any surplus to Borrower by credit to the Designated
Deposit Account or to other Persons legally entitled thereto; Borrower shall
remain liable to Bank and to any Secured Swap Provider for any deficiency. If
Bank, 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 to

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Borrower or any Secured Swap Provider 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, except to the extent such loss, damage or
destruction is the direct result of Bank’s gross negligence or willful
misconduct.
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 the party granting the
waiver 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 shall not preclude Bank from exercising any other remedy under this
Agreement or other remedy available at law or in equity, 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, to the extent permitted by applicable
law, 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 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 number, or email address indicated
below. Bank or Borrower may change its mailing or electronic mail address or
facsimile number by giving the other party written notice thereof in accordance
with the terms of this Section 10.
If to Borrower:        Cardiovascular Systems, Inc.
            1225 Old Highway 8 NW
            Saint Paul, Minnesota 55112
            Attn: Chief Financial Officer
            Fax: (651) 259-1696
            Email: LBetterley@csi360.com
with a copy to:        Fredrikson & Byron P.A.
            200 South Sixth Street, Suite 4000
            Minneapolis, Minnesota 55402
            Attn: Levi J. Smith
            Fax: (612) 492-7077
            Email: lsmith@fredlaw.com
If to Bank:        Silicon Valley Bank
275 Grove Street, Suite 2-200    
Newton, MA 02466
Attn: Sam Subilia
    Fax:
    Email: ssubilia@svb.com

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with a copy to:        Riemer & Braunstein LLP
            Three Center Plaza
            Boston, Massachusetts 02108
            Attn: Charles W. Stavros, Esquire
            Fax: (617) 880-3456
            Email: cstavros@riemerlaw.com
11    CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Except as otherwise expressly provided in any of the Loan Documents, New York
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 New York; 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) Business 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.
This Section 11 shall survive the termination of this Agreement.
12    GENERAL PROVISIONS
12.1    Termination Prior to Maturity Date; Survival. All covenants,
representations and warranties made in this Agreement shall continue in full
force until this Agreement has terminated pursuant to its terms and all
Obligations have been satisfied. So long as Borrower has satisfied the
Obligations (other than inchoate indemnity obligations, and any other
obligations which, by their terms, are to survive the termination of this
Agreement, and any Obligations that are cash collateralized in accordance with
Section 4.1 of this Agreement), this Agreement may be terminated prior to the
Revolving Line Maturity Date by Borrower, effective three (3) Business Days
after written notice of termination is given to Bank. Those obligations that are
expressly specified in this Agreement as surviving this Agreement’s termination
shall continue to survive notwithstanding this Agreement’s termination.
12.2    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, assign,
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.
12.3    Indemnification. Borrower agrees to indemnify, defend and hold Bank, any
Secured Swap Provider and its respective directors, officers, employees, agents,
attorneys, or any other Person affiliated with or representing Bank (each, an
“Indemnified Person”) harmless against: (a) all obligations, demands, claims,
and liabilities (collectively, “Claims”) claimed or asserted by any other party
in connection with the transactions contemplated by the Loan Documents or any
Secured Rate Contract; and (b) all losses or expenses (including Bank Expenses)
in any

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way suffered, incurred, or paid by such Indemnified Person as a result of,
following from, consequential to, or arising from transactions between Bank or
Secured Swap Provider and Borrower contemplated by the Loan Documents or any
Secured Rate Contract (including reasonable attorneys’ fees and expenses),
except for Claims and/or losses directly caused by such Indemnified Person’s
gross negligence or willful misconduct.
This Section 12.3 shall survive until all statutes of limitation with respect to
the Claims, losses, and expenses for which indemnity is given shall have run.
12.4    Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement, the other Loan Documents and the Secured Rate
Contracts.
12.5    Severability of Provisions. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
12.6    Correction of Loan Documents. Bank may correct patent errors and fill in
any blanks in the Loan Documents consistent with the agreement of the parties,
provided that Bank promptly notifies Borrower of any such action.
12.7    Amendments in Writing; Waiver; Integration. No purported amendment or
modification of any Loan Document, or waiver, discharge or termination of any
obligation under any Loan Document, shall be enforceable or admissible unless,
and only to the extent, expressly set forth in a writing signed by the party
against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action,
inaction, delay, failure to require performance or course of conduct shall
operate as, or evidence, an amendment, supplement or waiver or have any other
effect on any Loan Document. Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver. 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 the Loan Documents merge into the Loan Documents.
Notwithstanding anything to the contrary contained in this Agreement, no
amendment, waiver or consent of this Agreement or any Loan Document alternating
the ratable treatment of the Secured Swap Obligations and resulting in such
Secured Swap Obligations being junior in right of payment to principal on the
Loan Obligations owing to Bank, or resulting in Secured Swap Obligations owing
to any Secured Swap Provider becoming unsecured (other than releases and
modifications of Liens permitted in accordance with the terms hereof), in each
manner adverse to any Secured Swap Provider, shall be effective without the
written consent of such Secured Swap Provider.
12.8    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, is an original, and all taken together, constitute
one Agreement.
12.9    Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with
Bank, collectively, “Bank Entities”); (b) to prospective transferees or
purchasers of any interest in the Credit Extensions (provided, however, Bank
shall use commercially reasonable efforts to obtain any 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; (e) as Bank
considers appropriate in exercising remedies under the Loan Documents; and (f)
to third-party service providers of Bank so long as such service providers have
executed a confidentiality agreement with Bank with terms no less restrictive
than those contained herein. Confidential information does not include
information that is either: (i) in the public domain or in Bank’s possession
when disclosed to Bank, or becomes part of the public domain (other than as a
result of its disclosure by Bank in violation of this Agreement) after
disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not
know that the third party is prohibited from disclosing the information.

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Bank Entities may use confidential information for the development of databases,
reporting purposes, and market analysis so long as such confidential information
is aggregated and anonymized prior to distribution unless otherwise expressly
permitted by Borrower.  The provisions of the immediately preceding sentence
shall survive the termination of this Agreement.
12.10    Reserved.
12.11    Electronic Execution of Documents. The words “execution,” “signed,”
“signature” and words of like import in any Loan Document shall be deemed to
include electronic signatures or the keeping of records in electronic form, each
of which shall be of the same legal effect, validity and enforceability as a
manually executed signature or the use of a paper-based recordkeeping systems,
as the case may be, to the extent and as provided for in any applicable law,
including, without limitation, any state law based on the Uniform Electronic
Transactions Act.
12.12    Captions. The headings used in this Agreement are for convenience only
and shall not affect the interpretation of this Agreement.
12.13    Construction of Agreement. The parties mutually acknowledge that they
and their attorneys have participated in the preparation and negotiation of this
Agreement and the other Loan Documents. In cases of uncertainty this Agreement
and the other Loan Documents shall be construed without regard to which of the
parties caused the uncertainty to exist.
12.14    Relationship. The relationship of the parties to this Agreement and the
other Loan Documents is determined solely by the provisions hereof and thereof.
The parties do not intend to create any agency, partnership, joint venture,
trust, fiduciary or other relationship with duties or incidents different from
those of parties to an arm’s-length contract.
12.15    Third Parties. Nothing in this Agreement, whether express or implied,
is intended to: (a) confer any benefits, rights or remedies under or by reason
of this Agreement on any persons other than the express parties to it and their
respective permitted successors and assigns (except for any benefits, rights or
remedies expressly granted herein to Secured Swap Providers); (b) relieve or
discharge the obligation or liability of any person not an express party to this
Agreement; or (c) give any person not an express party to this Agreement any
right of subrogation or action against any party to this Agreement.
13    DEFINITIONS
13.1    Definitions. As used in the Loan Documents, the word “shall” is
mandatory, the word “may” is permissive, the word “or” is not exclusive, the
words “includes” and “including” are not limiting, the singular includes the
plural, and numbers denoting amount that are set off in brackets are negative.
As used in this Agreement, the following capitalized 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.
“Acquisition” means the purchase or other acquisition (whether by merger,
consolidation or otherwise) by Borrower of all or substantially all of the
assets, stock or other equity interests of a Person.
“Adjusted EBITDA” means, for any measurement period, the sum of (a) EBITDA,
minus (b) Unfinanced Capital Expenditures.
“Adjusted Quick Ratio” means, for any measurement period, the quotient of (a)
Quick Assets, divided by (b) the sum of (i) Current Liabilities minus (ii) the
current portion of Deferred Revenue.

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“Advance” or “Advances” means a revolving credit loan (or revolving credit
loans) under the Revolving Line.
“Affiliate” is, with respect to any Person, each other 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.
“Authorized Signer” is any individual listed in Borrower’s Borrowing Resolution
(specifically or generally) who is authorized to execute the Loan Documents,
including making (and executing, if applicable) any Credit Extension request, on
behalf of Borrower.
“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
amount available under the Borrowing Base; minus (b) the aggregate Dollar
Equivalent amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit plus an amount equal to the Letter of Credit
Reserve); minus (c) the FX Reduction Amount; minus (d) any amounts used for Cash
Management Services; and minus (e) the outstanding principal balance of any
Advances.
“Bank” is defined in the preamble hereof.
“Bank Entities” is defined in Section 12.9.
“Bank Expenses” are all audit fees and expenses, costs, and expenses (including
reasonable and documented 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.
“Board” is Borrower’s board of directors.
“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” is eighty-five percent (85%) of Eligible Accounts; provided,
however, during a Streamline Period, the Borrowing Base shall also include (A)
the lesser of (i) fifty percent (50%) of the value of Borrower’s Eligible
Inventory (valued at the lower of cost or wholesale fair market value) or (ii)
Five Million Dollars ($5,000,000) (provided, that in any event Advances based on
Eligible Inventory shall not at any time exceed twenty-five percent (25%) of the
total outstanding Advances at any time), plus (B) Ten Million Dollars
($10,000,000), in each case as determined by Bank from Borrower’s most recent
Borrowing Base Report (and as may subsequently be updated by Bank in Bank’s sole
discretion based upon information received by Bank including, without
limitation, Accounts that are paid and/or billed following the date of the
Borrowing Base Report); provided, however, that Bank has the right to decrease
the foregoing amount and/or percentages in its good faith business judgment to
mitigate the impact of events, conditions, contingencies, or risks which may
adversely affect the Collateral or its value.
“Borrowing Base Report” is that certain report of the value of certain
Collateral in the form attached hereto as Exhibit C.
“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s board of directors (and, if required under the terms of
such Person’s Operating Documents, stockholders) and delivered by such Person to
Bank approving the Loan Documents to which such Person is a party and the
transactions contemplated

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thereby, together with a certificate executed by its secretary on behalf of such
Person certifying (a) such Person has the authority to execute, deliver, and
perform its obligations under each of the Loan Documents and the Secured Rate
Contracts to which it is a party, (b) that set forth as a part of or attached as
an exhibit 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 and
the Secured Rate Contracts to which it is a party, (c) the name(s) of the
Person(s) authorized to execute the Loan Documents and the Secured Rate
Contracts, including making (and executing, if applicable) any Credit Extension
request, 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, except that if any determination of a “Business Day” shall relate to
an FX Contract, the term “Business Day” shall mean a day on which dealings are
carried on in the country of settlement of the Foreign Currency.
“Capital Expenditures” means, with respect to any Person for any period, the sum
of (a) the aggregate of all expenditures by such Person and its Subsidiaries
during such period that are capital expenditures as determined in accordance
with GAAP, whether such expenditures are paid in cash or financed, plus (b) to
the extent not covered by clause (a), the aggregate of all expenditures by such
Person and its Subsidiaries during such period to acquire by purchase or
otherwise the business or capitalized assets or the capital stock of any other
Person.
“Cash Collateral Account” is defined in Section 6.3(c).
“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 2.2.3.
“Change in Control” means (a) at any time, any “person” or “group” (as such
terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), shall become, or obtain rights (whether
by means or warrants, options or otherwise) to become, the “beneficial owner”
(as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of twenty five percent (25%) or more of the ordinary voting power
for the election of directors of Borrower (determined on a fully diluted basis)
other than by the sale of Borrower’s equity securities in a public offering or
to venture capital or private equity investors so long as Borrower identifies to
Bank the venture capital or private equity investors at least seven (7) Business
Days prior to the closing of the transaction and provides to Bank a description
of the material terms of the transaction; (b) during any period of twelve (12)
consecutive months, a majority of the members of the Board or other equivalent
governing body of Borrower cease to be composed of individuals (i) who were
members of that board or equivalent governing body on the first day of such
period, (ii) whose election or nomination to that board or equivalent governing
body was approved by individuals referred to in clause (i) above constituting at
the time of such election or nomination at least a majority of that board or
equivalent governing body or (iii) whose election or nomination to that board or
other equivalent governing body was approved by individuals referred to in
clauses (i) and (ii) above constituting at the time of such election or
nomination at least a majority of that board or equivalent governing body; or
(c) at any time, Borrower shall cease to own and control, of record and
beneficially, directly or indirectly, one hundred percent (100%) of each class
of outstanding capital stock of each Subsidiary of Borrower free and clear of
all Liens (except Liens created by this Agreement); provided, that Borrower may
own less than one hundred percent (100%) of each class of outstanding capital
stock of any Subsidiary to the extent necessary for such Subsidiary to comply
with applicable ownership laws of its jurisdiction of formation and/or
operation.
“Claims” is defined in Section 12.3.

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“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of New York; 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 New York, the term
“Code” shall mean the Uniform Commercial Code as enacted and in effect in such
other jurisdiction solely for purposes of 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.
“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit B.
“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, in each
case, 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 under any Rate Contract, 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.
“Copyrights” are any and all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret.
“Credit Extension” is any Advance, any Overadvance, Letter of Credit, FX
Contract, amount utilized for Cash Management Services, or any other extension
of credit by Bank for Borrower’s benefit.
“Currency” is coined money and such other banknotes or other paper money as are
authorized by law and circulate as a medium of exchange.
“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 Rate” is defined in Section 2.4(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.

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“Designated Deposit Account” is the account number ending (last three digits)
________, maintained by Borrower with Bank (provided, however, if no such
account number is included, then the Designated Deposit Account shall be any
deposit account of Borrower maintained with Bank as chosen by Bank).
“Dollars,” “dollars” or use of the sign “$” means only lawful money of the
United States and not any other currency, regardless of whether that currency
uses the “$” sign to denote its currency or may be readily converted into lawful
money of the United States.
“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated
in Dollars, such amount, and (b) with respect to any amount denominated in a
Foreign Currency, the equivalent amount therefor in Dollars as determined by
Bank at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.
“EBITDA” means, with respect to Borrower for any period, (a) the sum, without
duplication, of the amounts for such period of (i)  Net Income, plus (ii)
Interest Expense, plus (iii) provisions for taxes based on income, plus
(iv) total depreciation expense, plus (v) total amortization expense, plus
(vi) non‑cash stock compensation expense.
“Effective Date” is defined in the preamble 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, that have been, at the option of Bank, confirmed in accordance with
Section 6.3(e) of this Agreement, and are due and owing from Account Debtors
deemed creditworthy by Bank in its good faith business judgment. 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.
Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:
(a)    Accounts for which the Account Debtor is Borrower’s Affiliate, officer,
employee, or agent, and Accounts that are intercompany Accounts;
(b)    Accounts that the Account Debtor has not paid within ninety (90) days of
invoice date regardless of invoice payment period terms;
(c)    Accounts with credit balances over ninety (90) days from invoice date;
(d)    Accounts owing from an Account Debtor if fifty percent (50%) or more of
the Accounts owing from such Account Debtor have not been paid within ninety
(90) days of invoice date;
(e)    Accounts owing from an Account Debtor which does not have its principal
place of business in the United States;
(f)    Accounts billed from and/or payable to Borrower outside of the United
States unless Bank has a first priority, perfected security interest or other
enforceable Lien in such Accounts under all applicable laws, including foreign
laws (sometimes called foreign invoiced accounts);
(g)    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);
(h)    Accounts owing from an Account Debtor which is a United States government
entity or any department, agency, or instrumentality thereof unless 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;

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(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”, or other terms if Account Debtor’s payment may be conditional;
(j)    Accounts owing from an Account Debtor where goods or services have not
yet been rendered to the Account Debtor (sometimes called memo billings or
pre-billings);
(k)    Accounts subject to contractual arrangements between Borrower and an
Account Debtor where payments shall be scheduled or due according to completion
or fulfillment requirements where the Account Debtor has a right of offset for
damages suffered as a result of Borrower’s failure to perform in accordance with
the contract (sometimes called contracts accounts receivable, progress billings,
milestone billings, or fulfillment contracts);
(l)    Accounts owing from an Account Debtor the amount of which may be subject
to withholding based on the Account Debtor’s satisfaction of Borrower’s complete
performance (but only to the extent of the amount withheld; sometimes called
retainage billings);
(m)    Accounts subject to trust provisions, subrogation rights of a bonding
company, or a statutory trust;
(n)    Accounts owing from an Account Debtor that has been invoiced for goods
that have not been shipped to the Account Debtor unless Bank, Borrower, and the
Account Debtor have entered into an agreement acceptable to Bank wherein the
Account Debtor acknowledges that (i) it has title to and has ownership of the
goods wherever located, (ii) a bona fide sale of the goods has occurred, and
(iii) it owes payment for such goods in accordance with invoices from Borrower
(sometimes called “bill and hold” accounts);
(o)    Accounts for which the Account Debtor has not been invoiced;
(p)    Accounts that represent non-trade receivables or that are derived by
means other than in the ordinary course of Borrower’s business;
(q)    Accounts for which Borrower has permitted Account Debtor’s payment to
extend beyond ninety (90) days (including Accounts with a due date that is more
than ninety (90) days from invoice date);
(r)    Accounts arising from chargebacks, debit memos or other payment
deductions taken by an Account Debtor;
(s)    Accounts arising from product returns and/or exchanges (sometimes called
“warranty” or “RMA” accounts);
(t)    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;
(u)    Accounts owing from an Account Debtor with respect to which Borrower has
received Deferred Revenue (but only to the extent of such Deferred Revenue);
(v)    Accounts owing from an Account Debtor, whose total obligations to
Borrower exceed twenty-five percent (25%) of all Accounts, for the amounts that
exceed that percentage, unless Bank approves in writing; and
(w)    Accounts for which Bank in its good faith business judgment determines
collection to be doubtful, including, without limitation, accounts represented
by “refreshed” or “recycled” invoices.

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“Eligible Inventory” means Inventory that meets all of Borrower’s
representations and warranties in Section 5.3(c) and is otherwise acceptable to
Bank in all respects.
“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.
“Exchange Act” is the Securities Exchange Act of 1934, as amended.
“Foreign Currency” means lawful money of a country other than the United States.
“Funding Date” is any date on which a Credit Extension is made to or for the
account of Borrower which shall be a Business Day.
“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is
conducting its normal business and (b) the Foreign Currency being purchased or
sold by Borrower is available to Bank from the entity from which Bank shall buy
or sell such Foreign Currency.
“FX Contract” is defined in Section 2.2.2.
“FX Reduction Amount” means, with respect to a given FX Contract, the notional
amount thereof multiplied by the currency exchange risk factor for the
currencies involved in the FX Contract, multiplied by the current foreign
exchange spot rates, in each instance as determined and calculated by Bank in
its reasonable discretion.
“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 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 Intellectual Property, claims, income
and other tax refunds, security and other deposits, payment intangibles,
contract rights, 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.
“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.

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“Indemnified Person” is defined in Section 12.3.
“Initial Audit” is Bank’s inspection of Borrower’s Accounts, the Collateral, and
Borrower’s Books, with results satisfactory to Bank in its sole and absolute
discretion.
“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.
“Intellectual Property” means, with respect to any Person, all of such Person’s
right, title, and interest in and to the following:
(a)    its Copyrights, Trademarks and Patents;
(b)    any and all trade secrets and trade secret rights, including, without
limitation, any rights to unpatented inventions, know-how and operating manuals;
(c)    any and all source code;
(d)    any and all design rights which may be available to such Person;
(e)    any and all claims for damages by way of past, present and future
infringement of any of the foregoing, with the right, but not the obligation, to
sue for and collect such damages for said use or infringement of the
Intellectual Property rights identified above; and
(f)    all amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents.
“Interest Expense” means for any fiscal period, interest expense (whether cash
or non-cash) determined in accordance with GAAP for the relevant period ending
on such date, including, in any event, interest expense with respect to any
Credit Extension and other Indebtedness of Borrower and its Subsidiaries,
including, without limitation or duplication, the interest component of the
Permitted Sale and Leaseback Transaction, all commissions, discounts, or related
amortization and other fees and charges with respect to letters of credit and
bankers’ acceptance financing and the net costs associated with interest rate
swap, cap, and similar arrangements, and the interest portion of any deferred
payment obligation (including leases of all types).
“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.
“ISDA Master Agreement” means, as modified or supplemented from time to time,
the 1992 or 2002 ISDA Master Agreement and related schedule thereto, as
published by the International Swaps and Derivatives Association, Inc., as
supplemented by any credit support annex and confirmation confirming any
transaction thereunder.
“Key Person” is each of Borrower’s (a) Chief Executive Officer, who is Scott R.
Ward as of the Effective Date, and (b) Chief Financial Officer, who is Laurence
L. Betterley as of the Effective Date.
“Letter of Credit” means a standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Bank as set forth in Section 2.2.1.

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“Letter of Credit Application” is defined in Section 2.2.1(b).
“Letter of Credit Reserve” has the meaning set forth in Section 2.2.1(e).
“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.
“Liquidity” is, as of any date of measurement, the sum of (i) Borrower’s
unrestricted cash and Cash Equivalents maintained at Bank and/or Bank’s
Affiliates, plus (ii) the Availability Amount.
“Loan Documents” are, collectively, this Agreement and any schedules, exhibits,
certificates, notices, and any other documents related to this Agreement, any
subordination agreement, any note, or notes or guaranties executed by Borrower
or any guarantor, and any other present or future agreement by Borrower and/or
any guarantor with or for the benefit of Bank in connection with this Agreement,
all as amended, restated, or otherwise modified.
“Loan Obligations” are Borrower’s obligations to pay when due any debts,
principal, interest, Bank Expenses, the Termination Fee, the Unused Revolving
Line Facility Fee, 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 any and all Letters of Credit (including
reimbursement obligations for drawn and undrawn Letters of Credit), Cash
Management Services and FX Forward Contracts, and including interest accruing
after Insolvency Proceedings begin and all debts, liabilities, or obligations of
Borrower assigned to Bank, and to perform Borrower’s duties under the Loan
Documents; provided, however, that the Loan Obligations shall not include the
Secured Swap Obligations.
“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 is a
reasonable likelihood that Borrower shall fail to comply with one or more of the
financial covenants in Section 6.9 during the next succeeding financial
reporting period.
“Monthly Financial Statements” is defined in Section 6.2(c).
“Net Income” means, as calculated on a consolidated basis for Borrower for any
period as at any date of determination, the net profit (or loss), after
provision for taxes, of Borrower for such period taken as a single accounting
period.
“Obligations” mean the Loan Obligations and the Secured Swap Obligations.
“Operating Documents” are, for any Person, such Person’s formation documents, as
certified by the Secretary of State (or equivalent agency) of such Person’s
jurisdiction of organization on a date that is no earlier than thirty (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.
“Overadvance” is defined in Section 2.3.
“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.
“Payment Date” is, with respect to Advances, the last calendar day of each
month.
“Perfection Certificate” is defined in Section 5.1.

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“Permitted Acquisition” or “Permitted Acquisitions” is any Acquisition by
Borrower disclosed to Bank, provided that each of the following shall be
applicable to each such Acquisition:
(a)    no Event of Default shall have occurred and be continuing or would result
from the consummation of the proposed Acquisition;
(b)    the entity or assets acquired in such Acquisition are in the same or
similar line of business as Borrower is in as of the Effective Date or
reasonably related thereto;
(c)    the target of such Acquisition, if such acquisition is a stock
acquisition, shall be an entity organized under the laws of any State in the
United States and shall have a principal place in the United States;
(d)    if the Acquisition includes a merger of Borrower, Borrower shall remain a
surviving entity after giving effect to such Acquisition;
(e)    Borrower shall provide Bank with written notice of the proposed
Acquisition at least ten (10) Business Days prior to the anticipated closing
date of the proposed Acquisition, and not less than five (5) Business Days prior
to the anticipated closing date of the proposed Acquisition, copies of the
acquisition agreement and all other material documents relative to the proposed
Acquisition (or if such acquisition agreement and other material documents are
not in final form, drafts of such acquisition agreement and other material
documents; provided, that Borrower shall deliver final forms of such acquisition
agreement and other material documents promptly upon completion);
(f)    the total consideration, including cash and the value of any non-cash
consideration for all such Acquisitions, does not exceed Twenty Million Dollars
($20,000,000) in the aggregate;
(g)    Immediately prior to, and after giving effect to, on a pro forma basis,
the consummation of any such Acquisition, Borrower is in compliance with one (1)
of the financial covenants set forth in Section 6.9;
(h)    the Acquisition shall not constitute an Unfriendly Acquisition; and
(i)    the entity or assets acquired in such Acquisition shall not be subject to
any Lien other than (x) the first-priority Liens granted in favor of Bank, if
applicable and (y) Permitted Liens.
“Permitted Indebtedness” is:
(a)    Borrower’s Indebtedness to Bank under this Agreement and the other Loan
Documents;
(b)    Indebtedness existing on the Effective Date which is shown on the
Perfection Certificate;
(c)    Subordinated Debt;
(d)    Indebtedness under Secured Rate Contracts;
(e)    unsecured Indebtedness to trade creditors incurred in the ordinary course
of business;
(f)    Indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of business;
(g)    Indebtedness secured by Liens permitted under clauses (a) and (c) of the
definition of “Permitted Liens” hereunder;
(h)    extensions, refinancings, modifications, amendments and restatements of
any items of Permitted Indebtedness (a) through (g) 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; and

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(i)    Indebtedness relating to the Permitted Sale and Leaseback Transaction.
“Permitted Investments” are:
(a)    Investments (including, without limitation, Subsidiaries) existing on the
Effective Date which is shown on the Perfection Certificate;
(b)    Investments consisting of Cash Equivalents;
(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 Secured Rate Contracts;
(e)    Investments consisting of Collateral Accounts (but only to the extent
that Borrower is permitted to maintain such accounts pursuant to Section 6.8 of
this Agreement) in which Bank has a first priority perfected security interest;
(f)    Investments accepted in connection with Transfers permitted by Section
7.1;
(g)    Investments in an aggregate amount not to exceed One Hundred Thousand
Dollars ($100,000) at any time 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 the Board;
(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;
(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;
(j)    Investments held at Bank or Bank’s Affiliates; and
(k)    Investments related to Borrower’s deferred compensation plan(s).
“Permitted Liens” are:
(a)    Liens existing on the Effective Date which are 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 (i) not due and payable or (ii) 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 securing no more than One Hundred Thousand Dollars
($100,000) in the aggregate amount outstanding (i) on Equipment acquired or held
by Borrower incurred for financing the acquisition of the Equipment, or (ii)
existing on Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment;

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(d)    Liens consisting of pledges of cash, Cash Equivalents or government
securities to secure Secured Rate Contracts permitted under Section 6.15;
(e)    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 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;
(f)    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);
(g)    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;
(h)    leases or subleases of real property granted in the ordinary course of
Borrower’s business (or, if referring to another Person, in the ordinary course
of such Person’s business), and leases, subleases, non-exclusive licenses or
sublicenses of personal property (other than Intellectual Property) granted in
the ordinary course of Borrower’s business (or, if referring to another Person,
in the ordinary course of such Person’s business), if the leases, subleases,
licenses and sublicenses do not prohibit granting Bank a security interest
therein;
(i)    non-exclusive license of Intellectual Property granted to third parties
in the ordinary course of business;
(j)    Liens arising from attachments or judgments, orders, or decrees in
circumstances not constituting an Event of Default under Sections 8.4 and 8.7;
(k)    Liens in favor of other financial institutions arising in connection with
Borrower’s deposit and/or securities accounts held at such institutions,
provided that (i) Bank has a first priority perfected security interest in the
amounts held in such deposit and/or securities accounts, and (ii) such accounts
are permitted to be maintained pursuant to Section 6.8 of this Agreement; and
(l)    Liens relating to the Permitted Sale and Leaseback Transaction.
“Permitted Sale and Leaseback Transaction” is any transaction pursuant to which
Borrower sells the Real Property and enters into a related lease transaction
whereby Borrower leases all or a portion of the Real Property.
“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
“Prime Rate” is the rate of interest per annum from time to time published in
the money rates section of The Wall Street Journal or any successor publication
thereto as the “prime rate” then in effect; provided that, in the event such
rate of interest is less than zero, such rate shall be deemed to be zero for
purposes of this Agreement; and provided, further, that if such rate of
interest, as set forth from time to time in the money rates section of The Wall
Street Journal, becomes unavailable for any reason as determined by Bank, the
“Prime Rate” shall mean the rate of interest per annum announced by Bank as its
prime rate in effect at its principal office in the State of California (such
Bank announced Prime Rate not being intended to be the lowest rate of interest
charged by Bank in connection with extensions of credit to debtors); provided
that, in the event such rate of interest is less than zero, such rate shall be
deemed to be zero for purposes of this Agreement.
“Quarterly Financial Statements” is defined in Section 6.2(d).

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“Quick Assets” is, on any date, the sum of Borrower’s (a) unrestricted and
unencumbered cash and Cash Equivalents maintained with Bank or Bank’s
Affiliates, plus (b) net billed accounts receivable determined according to
GAAP.
“Rate Contracts” mean any swap agreement (as such term is defined in Section 101
of the Bankruptcy Code) and all other agreements or documents now existing or
hereafter entered into by Borrower that provide for an interest rate, credit,
commodity or equity swap, cap, floor, collar, forward foreign exchange
transaction (other than FX Forward Contracts), currency swap, cross currency
rate swap, currency option or any similar transaction, or any combination of, or
option with respect to, these or similar transactions, for the purpose of
hedging Borrower exposure to fluctuations in interest rates, currency exchange
rates, loan, credit exchange, security, or commodity prices.
“Real Property” is that certain real property of Borrower located at 1225 Old
Highway 8 NW, Saint Paul, Minnesota 55112.
“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.
“Reserves” means, as of any date of determination, such amounts as Bank may from
time to time establish and revise in its good faith business judgment, reducing
the amount of Advances and other financial accommodations which would otherwise
be available to Borrower (a) to reflect events, conditions, contingencies or
risks which, as determined by Bank in its good faith business judgment, do or
may adversely affect (i) the Collateral or any other property which is security
for the Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets, business or prospects of Borrower
or any guarantor, or (iii) the security interests and other rights of Bank in
the Collateral (including the enforceability, perfection and priority thereof);
or (b) to reflect Bank’s reasonable belief that any collateral report or
financial information furnished by or on behalf of Borrower or any guarantor to
Bank is or may have been incomplete, inaccurate or misleading in any material
respect; or (c) in respect of any state of facts which Bank determines
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.
“Responsible Officer” is any of the Chief Executive Officer, President, Chief
Financial Officer and Controller of Borrower.
“Restricted License” is any material license or other material 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 Bank’s right to sell any
Collateral.
“Revolving Line” is an aggregate principal amount equal to Forty Million Dollars
($40,000,000).
“Revolving Line Maturity Date” is March 31, 2020.
“SEC” shall mean the Securities and Exchange Commission, any successor thereto,
and any analogous Governmental Authority.
“Secured Rate Contract” means any Rate Contract entered into in writing under an
ISDA Master Agreement (a) between Borrower and a Secured Swap Provider, (b) has
been provided or arranged by Bank or its Affiliate; and (c) if the Secured Swap
Provider is not Bank or its Affiliate at the time of execution and delivery of
such Rate Contract, Bank has acknowledged in writing such Rate Contract
constitutes a “Secured Rate Contract” hereunder and Bank and such Secured Swap
Provider have entered into an agency addendum to the ISDA Master Agreement.

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“Secured Swap Obligations” are Borrower’s obligations to pay when due any and
all amounts that Borrower owes any Secured Swap Provider, now or later, under
any Secured Rate Contract, and including interest accruing after Insolvency
Proceedings begin and all debts, liabilities, or obligations of Borrower
assigned to any Secured Swap Provider, including the obligation to perform
Borrower’s duties under the Secured Rate Contracts.
“Secured Swap Provider” means (i) Bank or an Affiliate of Bank (or a Person who
was Bank or an Affiliate of Bank at the time of execution and delivery of a
Secured Rate Contract) who has entered into a Secured Rate Contract with
Borrower, or (ii) a Person with whom Borrower has entered into a Secured Rate
Contract provided or arranged by Bank or an Affiliate of Bank, and any assignee
thereof.
“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.
“Settlement Date” is defined in Section 2.2.2.
“Streamline Balance” is defined in the definition of Streamline Period.
“Streamline Period” is, on and after the Effective Date, provided no Event of
Default has occurred and is continuing, the period (a) commencing on the first
day of the month following the day that Borrower provides to Bank a written
report that Borrower has, for each consecutive day in the immediately preceding
month, as determined by Bank in its discretion, maintained an Adjusted Quick
Ratio in an amount at all times greater than or equal to 1.25 to 1.00 (the
“Streamline Balance”); and (b) terminating on the earlier to occur of (i) the
occurrence of an Event of Default, and (ii) the first day thereafter in which
Borrower fails to maintain the Streamline Balance, as determined by Bank in its
discretion. Upon the termination of a Streamline Period, Borrower must maintain
the Streamline Balance each consecutive day for one (1) calendar month, as
determined by Bank in its discretion, prior to entering into a subsequent
Streamline Period. Borrower shall give Bank prior written notice of Borrower’s
election to enter into any such Streamline Period, and each such Streamline
Period shall commence on the first day of the monthly period following the date
Bank determines, in its reasonable discretion, that the Streamline Balance has
been achieved.
“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and the other creditor), on terms acceptable to
Bank.
“Subsidiary” is, as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or both, by such Person. Unless the context otherwise requires, each reference
to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.
“Termination Fee” is the fee described in Section 2.5(b).
“Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower’s consolidated balance sheet, including
all Indebtedness, but excluding all Subordinated Debt.
“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.
“Transfer” is defined in Section 7.1.
“Unfinanced Capital Expenditures” means, with respect to any Person for any
period, the aggregate of all Capital Expenditures by such Person and its
Subsidiaries during such period that are paid in cash and are not financed

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or funded using proceeds from (a) the issuance of additional equity interests of
Borrower, (b) Credit Extensions, (c) Subordinated Debt, (d) specific equipment
financing, (e) asset sales, (f) insurance proceeds, or (g) government grants or
other incentives, and in each instance determined in accordance with GAAP.
“Unfriendly Acquisition” is any Acquisition that has not, at the time of the
first public announcement of an offer relating thereto, been approved by the
board of directors (or other legally governing body) of the Person to be
acquired.
“Unpaid Amounts” has the meaning given such term in the Secured Rate Contact.
“Unused Revolving Line Facility Fee” is defined in Section 2.5(c).
[Signature page follows.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.
BORROWER:
CARDIOVASCULAR SYSTEMS, INC.
By__/s/ Laurence L. Betterley___________________
Name:_ Laurence L. Betterley __________________
Title:_______CFO____________________________
BANK:
SILICON VALLEY BANK
By___/s/ Brian Powers__________________________
Name:__ Brian Powers_________________________
Title:___VP__________________________________

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EXHIBIT A – COLLATERAL DESCRIPTION
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 (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts, certificates of
deposit, 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.
Notwithstanding the foregoing, the Collateral does not include any Intellectual
Property; provided, however, the Collateral shall include all Accounts and all
proceeds of Intellectual Property. If a judicial authority (including a U.S.
Bankruptcy Court) would hold that a security interest in the underlying
Intellectual Property is necessary to have a security interest in such Accounts
and such property that are proceeds of Intellectual Property, then the
Collateral shall automatically, and effective as of the Effective Date, include
the Intellectual Property to the extent necessary to permit perfection of Bank’s
security interest in such Accounts and such other property of Borrower that are
proceeds of the Intellectual Property.
Pursuant to the terms of a certain negative pledge arrangement with Bank,
Borrower has agreed not to encumber any of its Intellectual Property without
Bank’s prior written consent.

2

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EXHIBIT B
COMPLIANCE CERTIFICATE
TO:    SILICON VALLEY BANK                Date:                 
FROM: CARDIOVASCULAR SYSTEMS, INC.
The undersigned authorized officer of Cardiovascular Systems, Inc. (“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, if any, 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 Covenants
Required
Complies
 
 
 
Monthly financial statements with
Compliance Certificate*
Monthly within 30 days
Yes No
Quarterly financial statements with
Compliance Certificate
Quarterly within 30 days
Yes No
Annual financial statements (CPA Audited) + CC
FYE within 120 days
Yes No
10‑Q, 10‑K and 8-K
Within 5 days after filing with SEC
Yes No N/A
A/R & A/P Agings, Deferred Revenue reports and inventory reports*
Monthly within 30 days
Yes No
Borrowing Base Reports*
Monthly within 30 days
Yes No
Board approved projections
FYE within 30 days
Yes No
 
Financial Covenants**
Required
Actual
Complies
Minimum Liquidity; or

$10,000,000
$
Yes No
Minimum Adjusted EBITDA
$1,000,000
$
   
Yes No

*For any month in which Obligations were outstanding under the Revolving Line
**Tested when there are Obligations outstanding and prior to each Advance

Streamline Period
Applies
 
 
Adjusted Quick Ratio > 1.25:1.00
Yes No

1

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

By:    
Name:    
Title:    

BANK USE ONLY

Received by: _____________________
AUTHORIZED SIGNER
Date:    _________________________

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.
I.    Minimum Liquidity (Section 6.9(a))
Required:
Borrower shall maintain Liquidity (assuming that a Streamline Period is not in
effect for purposes of calculating the Availability Amount) at all times, to be
certified to Bank as of the last day of each month (or, if being measured in
connection with the making of an Advance, calculated immediately prior to the
making of such Advance) of at least Ten Million Dollars ($10,000,000).

Actual:    
A.
Unrestricted cash and Cash Equivalents of Borrower maintained at Bank or Bank’s
Affiliates
$   

B.
Availability Amount
$   

C.
Liquidity (line A plus line B)
$   

Is line C equal to or greater than $10,000,000?

  No, not in compliance                          Yes, in compliance

3

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II.    Minimum Adjusted EBITDA (Section 6.9(b))
Required:
Borrower shall achieve, measured on a trailing three (3) month basis as of the
last day of each month (or, if being measured in connection with the making of
an Advance, calculated as of the last day of the month immediately preceding the
request for such Advance), Adjusted EBITDA of at least One Million Dollars
($1,000,000).

Actual:    

A.
Net Income
$   

B.
To the extent included in the determination of Net Income

 
1. The provision for income taxes
$   

 
2. Depreciation expense
$   

 
3. Amortization expense
$   

 
4. Interest Expense
$   

 
5. Non-cash stock compensation expense
$   

 
6. The sum of lines 1 through 5
$   

C.
Unfinanced Capital Expenditures
$   

D.
Adjusted EBITDA (line A plus line B minus line C)
$   

Is line D equal to or greater than $1,000,000?

  No, not in compliance                          Yes, in compliance

1

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FOR PURPOSES OF THE STREAMLINE PERIOD AND CALCULATING THE ADJUSTED QUICK RATIO
Adjusted Quick Ratio
Required:    1.25:1.00
Actual:

A.
Aggregate value of the unrestricted and unencumbered cash and Cash Equivalents
of Borrower maintained with Bank or Bank’s Affiliates

$   

B.
Aggregate value of the net billed accounts receivable of Borrower
$   

C.
Quick Assets (the sum of line A plus line B)
$   

D.
Aggregate value of Obligations to Bank
$   

E.
Without duplication of line D, the aggregate value of liabilities of Borrower
(including all Indebtedness) that matures within one (1) year

$   

F.
Current Liabilities (the sum of line D plus line E)
$   

G.
Aggregate value of all amounts received or invoiced by Borrower in advance of
performance under contracts and not yet recognized as revenue

$   

H.
Line F minus line G
$   

I.
Adjusted Quick Ratio (line C divided by line H)
   

Is line I equal to or greater than 1.25:1:00?

  No, Streamline Period not in effect                  Yes, Streamline Period in
effect

1

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EXHIBIT C

Borrowing Base Report

[To be provided by Bank]

1