Exhibit 10.(d)(xi)

 

LOAN AND SECURITY AGREEMENT

 

This LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of August 11, 2003,
between SILICON VALLEY BANK, a California chartered bank, with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at One Newton Executive Park, Suite 200, 2221
Washington Street, Newton, Massachusetts 02462, doing business under the name
“Silicon Valley East” (“Bank”) and AMERICAN SCIENCE AND ENGINEERING, INC., a
Massachusetts corporation with offices at 829 Middlesex Turnpike, Billerica,
Massachusetts 01821 (“Borrower”), provides the terms on which Bank shall lend to
Borrower and  Borrower shall repay Bank. The parties agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following GAAP.  The term
“financial statements” includes the notes and schedules. The  terms “including”
and “includes” always mean “including (or includes) without limitation,” in this
or any Loan  Document. Capitalized terms in this Agreement shall have the
meanings set forth in Section 13.

 

2                                         LOAN AND TERMS OF PAYMENT

 

2.1                               Promise to Pay.  Borrower hereby
unconditionally promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions
as and when due in accordance with this Agreement.

 

2.1.1                     Revolving Advances.

 

(a)                                  Availability.  Bank shall make Advances not
exceeding (i) the lesser of (A) the Revolving Line or (B) the Borrowing Base
minus (ii) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), minus (iii) the FX Reserve, and minus (iv) the
aggregate outstanding Advances hereunder (including any Cash Management
Services). Amounts borrowed under this Section may be repaid and reborrowed
during the term of this Agreement.

 

(b)                                 Borrowing Procedure.  To obtain an Advance,
Borrower must notify Bank by facsimile or telephone by 3:00 p.m. Eastern time on
the Business Day the Advance is to be made. If such notification is by
telephone,  Borrower must promptly confirm the notification by delivering to
Bank a completed Payment/Advance Form in the form  attached as Exhibit B. Bank
shall credit Advances to Borrower’s deposit account. Bank may make Advances
under this  Agreement based on instructions from a Responsible Officer or his or
her designee or without instructions if the  Advances are necessary to meet
Obligations which have become due. Bank may rely on any telephone notice given
by a person whom Bank believes is a Responsible Officer or designee. Borrower
shall indemnify Bank for any loss Bank suffers due to such reliance.

 

(c)                                  Termination; Repayment.  The Revolving Line
terminates on the Revolving Maturity Date, when the principal amount of all
Advances and the unpaid interest thereon, shall be immediately due and payable.

 

2.1.2                     Letters of Credit Sublimit.

 

(a)                                  Bank shall issue or have issued Letters of
Credit for Borrower’s account not exceeding (i) the lesser of the Revolving Line
or the Borrowing Base minus (ii) the outstanding principal balance of any
Advances (including any Cash Management Services), minus (iii) the amount of all
Letters of Credit (including drawn but unreimbursed Letters of Credit), plus an
amount equal to any Letter of Credit Reserves. The face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) may not exceed $5,000,000.00. Each Letter of Credit
shall have an expiry date no later than 180 days after the Revolving Maturity
Date provided Borrower’s Letter of Credit reimbursement obligation shall be
secured by cash on terms acceptable to Bank on and after (i) the Revolving
Maturity Date of the Revolving Line if the Revolving Maturity Date of the
Revolving Line is not extended by Bank, or (ii) the occurrence of an Event of
Default hereunder. All Letters of Credit shall be, in form

 

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and substance, acceptable to Bank in its sole discretion and shall be subject to
the terms and conditions of Bank’s form of standard Application and Letter of
Credit Agreement. Borrower agrees to execute any further documentation in
connection with the Letters of Credit as Bank may reasonably request.

 

(b)                                 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 and such Letters of Credit, under all
circumstances whatsoever.  Borrower shall indemnify, defend, protect, and hold
Bank harmless from any loss, cost, expense or liability, including, without
limitation, reasonable attorneys’ fees, arising out of or in connection with any
Letters of Credit, except to the extent resulting from Bank’s gross  negligence
or willful misconduct.

 

(c)                                  Borrower may request that Bank issue a
Letter of Credit payable in a currency other than United States Dollars. 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 equivalent of the amount thereof
(plus cable charges) in United States currency at the then prevailing rate of
exchange in San Francisco, California, for sales of that other currency for
cable transfer to the country of which it is the currency.

 

(d)                                 Upon the issuance of any letter of credit
payable in a currency other than United States Dollars, Bank shall create a
reserve (the “Letter of Credit Reserve”) under the Revolving Line for letters of
credit against fluctuations in currency exchange rates, in an amount equal to
ten percent (10%) of the face amount of such letter of credit. The amount of
such reserve may be amended 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 reserve for so long as such letter
of credit remains outstanding.

 

2.1.3                     Foreign Exchange Sublimit.  If there is availability
under the Revolving Line and the Borrowing Base, then Borrower may enter in
foreign exchange forward contracts with the Bank under which Borrower commits to
purchase from or sell to Bank a set amount of foreign currency more than one
business day after the contract date (the“FX Forward Contract”). Bank shall
subtract 10% of each outstanding FX Forward Contract from the foreign
exchangesublimit, which sublimit is a maximum of $5,000,000.00 (the “FX
Reserve”). The total FX Forward Contracts at any one time may not exceed 10
times the amount of the FX Reserve. Bank may terminate the FX Forward Contracts
if an Event of Default occurs.

 

2.1.4                     Cash Management Services Sublimit.  Borrower may use
up to $5,000,000.00 for the Bank’s Cash Management Services, which may include
merchant services, direct deposit of payroll, business credit card, and check
cashing services identified in the various cash management services agreements
related to such Cash Management Services (the “Cash Management Services”). Such
aggregate amounts utilized under the Cash Management Services Sublimit shall at
all times reduce the amount otherwise available for Credit Extensions under the
Revolving Line. Any amounts Bank pays on behalf of Borrower or any amounts that
are not paid by 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.

 

2.1.5                     Undisbursed Credit Extensions.  The Bank’s obligation
to lend the undisbursed portion of the Obligations shall terminate if, in Bank’s
reasonable discretion, there has been a Material Adverse Change, or there
hasbeen any material adverse deviation by Borrower from the most recent business
plan of Borrower presented to andaccepted by Bank prior to the execution of this
Agreement.

 

2.2                               Overadvances.  If Borrower’s Obligations under
Section 2.1.1, 2.1.2, 2.13 and 2.1.4 exceed the lesserof either (i) the
Revolving Line or (ii) the Borrowing Base, Borrower must immediately pay in cash
to Bank the excess.

 

2.3                               Interest Rate; Payments.

 

(a)                                  Interest Rate.  The principal amounts
outstanding under hereunder shall accrue interest at aper annum rate equal to
the Prime Rate. After the occurrence and during the continuance of an Event of
Default,

 

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Obligations shall bear interest at three percent (3.0%) above the rate effective
immediately before the Event of Default. The applicable interest rate hereunder
shall increase or decrease when the Prime Rate changes. Interest is computed on
the basis of a 360 day year for the actual number of days elapsed.

 

(b)                                 Payments.  Interest is payable on first day
of each month. Payments received after 12:00 noon Eastern time are considered
received at the opening of business on the next Business Day. When a payment is
due on a day that is not a Business Day, the payment is due the next Business
Day and additional fees or interest, as applicable,  shall continue to accrue.

 

(c)                                  Debit of Accounts.  Bank may debit any of
Borrower’s deposit accounts including Account Number                for
principal and interest payments or any amounts Borrower owes Bank. Bank shall
promptly notify Borrower when it debits Borrower’s accounts. These debits are
not a set-off.

 

2.4                               Fees.  Borrower shall pay to Bank:

 

(a)                                  Facility Fee.  A fully earned,
non-refundable facility fee of $25,000.00 has been earned by Bank as of the date
hereof and is due and payable on the Closing Date.

 

(b)                                 Unused Line Fee.  In the event, in any
calendar quarter, the average daily principal balance of the Credit Extensions
outstanding during the quarter is less than $5,000,000.00, Borrower shall pay
Bank an unused  line fee in an amount equal to 0.50% per annum on the difference
between $5,000,000.00 and the average daily principal  balance of the Credit
Extensions outstanding during the quarter, which unused line fee shall be
computed and paid quarterly, in arrears, on the first day of the following
quarter.

 

(c)                                  Letter of Credit Fee.  The Borrower shall
pay the Bank’s customary fees and expenses for the issuance of Letters of
Credit, including, without limitation, a Letter of Credit Fee of .85% per annum
of the face  amount of each Letter of Credit issued, upon the issuance or
renewal of such Letter of Credit by the Bank; and

 

(d)                                 Bank Expenses.  All Bank Expenses (including
reasonable attorneys’ fees and expenses incurred through and after the Closing
Date) when due.

 

3                                         CONDITIONS OF LOANS

 

3.1                               Conditions Precedent to Initial Credit
Extension. The 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, the following:

 

(a)                                  this Agreement;

 

(b)                                 the Exim Agreement, along all documents
referenced therein or related thereto;

 

(c)                                  a certificate of the Secretary of Borrower
with respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;

 

(d)                                 an Intellectual Property Security Agreement;

 

(e)                                  subordination agreements by certain
Persons;

 

(f)                                    Perfection Certificate(s) by Borrower and
Guarantor;

 

(g)                                 landlord’s waiver;

 

(h)                                 a legal opinion of Borrower’s counsel, in
form and substance acceptable to Bank;

 

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(i)                                     guaranties and security agreements by
the Guarantor(s);

 

(j)                                     financing statements (Forms UCC-1);

 

(k)                                  Account Control Agreement/ Investment
Account Control Agreement

 

(l)                                     insurance certificate;

 

(m)                               payment of the fees and Bank Expenses then due
specified in Section 2.4 hereof;

 

(n)                                 Certificate of Foreign Qualification (if
applicable);

 

(o)                                 Certificate of Good Standing/Legal
Existence; and

 

(p)                                 such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.

 

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:

 

(a)                                  timely receipt of any Payment/Advance Form;
and

 

(b)                                 the representations and warranties in
Section 5 shall be materially true on the date of the Payment/Advance Form and
on the effective date of each Credit Extension 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 Section 5 remain true.

 

4                                         CREATION OF SECURITY INTEREST

 

4.1                               Grant of Security Interest.  Borrower hereby
grants Bank, to secure the payment and performance in full of all of the
Obligations and the performance of each of Borrower’s duties under the Loan
Documents, a continuing security interest in, and pledges and assigns to the
Bank, the Collateral, wherever located, whether now ownedor hereafter acquired
or arising, and all proceeds and products thereof. Borrower warrants and
represents that thesecurity interest granted herein shall be a first priority
security interest in the Collateral. The Collateral is also subject to Permitted
Liens. Upon the occurrence and during the continuance of an Event of Default,
Bank may place a “hold” on any deposit account pledged as Collateral.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is bound by, any material license or other agreement with respect to which the
Borrower is the licensee that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower’s interest in such license or agreement
or any other property. Without prior consent from Bank, Borrower shall not enter
into, or become bound by, any such license or agreement which is reasonably
likely to have a material impact on Borrower’s business or financial condition.
Borrower shall take such steps as Bank resaonably requests to obtain the consent
of, or waiver by, any person whose consent or waiver is necessary for all such
licenses or contract rights to be deemed “Collateral” and for Bank to have a
security interest in it that might otherwise be restricted or prohibited by law
or by the terms of any such license or agreement, whether now existing or
entered into in the future.

 

Notwithstanding the foregoing, it is expressly acknowledged and agreed that the
security interest created in this Agreement only with respect to Foreign
Accounts, Foreign Inventory, Retainage Accounts Receivable, any cash at Bank
specifically pledged to Bank to secure any Warranty Letters of Credit (as such
terms are defined in the Exim Agreement), and Intellectual Property is subject
to and subordinate to the security interest granted to the Bank in the Exim
Agreement with respect to such Foreign Accounts, Foreign Inventory, Retainage
Accounts Receivable, any cash at Bank specifically

 

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pledged to Bank to secure any Warranty Letters of Credit (as such terms are
defined in the Exim Agreement), and Intellectual Property.

 

If the Agreement is terminated, Bank’s lien and security interest in the
Collateral shall continue until Borrower fully satisfies its Obligations. If
Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance  satisfactory to Bank.

 

4.2                               Authorization to File Financing Statements. 
Borrower hereby authorizes Bank to file financing statements, without notice to
Borrower, with all appropriate jurisdictions in order to perfect or protect
Bank’s interest  or rights hereunder, including a notice that any disposition of
the Collateral, by either the Borrower or any other Person,shall be deemed to
violate the rights of the Bank under the Code.

 

5                                         REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1                               Due Organization and Authorization.  Borrower
and each Subsidiary is duly existing and in good standing in its state of
formation and qualified and licensed to do business in, and in good standing in,
any state in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change. In connection with
this Agreement, the Borrower delivered to the Bank a certificate signed by the
Borrower and entitled “Perfection Certificate”. The Borrower represents  and
warrants to the Bank that: (a) the Borrower’s exact legal name is that indicated
on the Perfection Certificate and on the signature page hereof; and (b) the
Borrower is an organization of the type, and is organized in the jurisdiction,
set forth in the Perfection Certificate; and (c) the Perfection Certificate
accurately sets forth the Borrower’s organizationalidentification number or
accurately states that the Borrower has none; and (d) the Perfection Certificate
accurately sets forth the Borrower’s place of business, or, if more than one,
its chief executive office as well as the Borrower’s mailing  address if
different, and (e) all other information set forth on the Perfection Certificate
pertaining to the Borrower is accurate and complete. If the Borrower does not
now have an organizational identification number, but later obtains one,
Borrower shall forthwith notify the Bank of such organizational identification
number.

 

The execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s organizational documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could reasonably be expected to cause a Material
Adverse Change.

 

5.2                               Collateral.  Borrower has good title to the
Collateral, free of Liens except Permitted Liens. Borrower has no deposit
account, other than the deposit accounts with Bank and deposit accounts
described in the Perfection Certificate delivered to the Bank in connection
herewith. The Accounts are bona fide, existing obligations, and theservice or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to andunconditional acceptance by the account debtor. The
Collateral is not in the possession of any third party bailee (such  as a
warehouse). Except as hereafter disclosed to the Bank in writing by Borrower,
none of the components of the  Collateral, in excess of Fifty Thousand Dollars
($50,000.00) shall be maintained at locations other than as provided in  the
Perfection Certificate. In the event that Borrower, after the date hereof,
intends to store or otherwise deliver any  portion of the Collateral, in excess
of Fifty Thousand Dollars ($50,000.00) to a bailee, then Borrower will first
receive the written consent of Bank and such bailee must acknowledge in writing
that the bailee is holding such Collateral for the benefit of Bank. Borrower has
no knowledge of any actual or imminent Insolvency Proceeding of any account
debtor whose accounts are an Eligible Account in any Borrowing Base Certificate.
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,
except for non-exclusive licenses granted to its customers in the ordinary
course of business. Each Patent is valid and enforceable and no part of the
Intellectual Property has been judged invalid or unenforceable, in whole or in
part, and

 

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no claim has been made that any part of the Intellectual Property violates the
rights of any third party, except to the extent such claim could not reasonably
be expected to cause a Material Adverse Change.

 

5.3                               Litigation.  Except as shown in the Perfection
Certificate, there are no actions or proceedings pendingor, to the knowledge of
Borrower’s Responsible Officers or legal counsel, threatened by or against
Borrower or anySubsidiary in which an adverse decision could reasonably be
expected to cause a Material Adverse Change.

 

5.4                               No Material Deviation in Financial
Statements.  All consolidated financial statements for Borrower and any
Subsidiary 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.

 

5.5                               Solvency.  Borrower is able to pay its debts
(including trade debts) as they mature.

 

5.6                               Regulatory Compliance.  Borrower is not an
“investment company” or a company “controlled” by an “investment company” under
the Investment Company Act. Borrower is not engaged as one of its important
activities in extending credit for margin stock (under Regulations T and U of
the Federal Reserve Board of Governors). Borrowerhas complied in all material
respects with the Federal Fair Labor Standards Act. Borrower has not violated
any laws,ordinances or rules, the violation of which could reasonably be
expected to cause a Material Adverse Change. None of  Borrower’s or any
Subsidiary’s properties or assets has been used by Borrower or any Subsidiary
or, to the best of Borrower’s knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other than
legally. Borrower and each Subsidiary has timely filed all required tax returns
and paid, or made adequate provision to pay, all material taxes, except those
being contested in good faith with adequate reserves under  GAAP. Borrower and
each Subsidiary has obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted
except where the failure to make such declarations, notices or filings would not
reasonably be expected to  cause a Material Adverse Change.

 

5.7                               Subsidiaries.  Borrower does not own any
stock, partnership interest or other equity securities exceptfor Permitted
Investments.

 

5.8                               Full Disclosure.  No written representation,
warranty or other statement of Borrower in any certificateor written statement
given to Bank contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained in the certificates
or statements not misleading (it being recognized by Bank that the projections
and forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ  from the projected
or forecasted results).

 

6                                         AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1                               Government Compliance.  Borrower shall
maintain its and all Subsidiaries’ legal existence and good standing in its
jurisdiction of formation and maintain qualification in each jurisdiction in
which the failure to so qualify would reasonably be expected to have a material
adverse effect on Borrower’s business or operations. Borrower shall comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower’s business or operations or would reasonably be expected to cause a
Material Adverse Change.

 

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6.2                               Financial Statements, Reports, Certificates.

 

(a)                                  Borrower shall deliver to Bank: (i) as soon
as available, but no later than thirty (30) days after the last day of each
month, a company prepared consolidated balance sheet and income statement
covering Borrower’s consolidated operations during the period certified by a
Responsible Officer and in a form acceptable to Bank; (ii) assoon as available,
but no later than ninety (90) days after the last day of Borrower’s fiscal year,
audited consolidated  financial statements prepared under GAAP, consistently
applied, together with an unqualified opinion on the financialstatements from an
independent certified public accounting firm reasonably acceptable to Bank;
(iii) within five (5) days of filing, copies of all statements, reports and
notices made available to Borrower’s security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission; (iv) a prompt report of any legal actions
pending or threatened against Borrower or any Subsidiary that is reasonably
likely to result in damages or costs to Borrower or any Subsidiary of One
Hundred Thousand Dollars ($100,000.00) or more; (v) prompt notice of any
material change in the composition of the Intellectual Property, or the
registration of any copyright, including any subsequent ownership right of
Borrower in or to any Copyright, Patent or Trademark not shown in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially  adversely affects the value of the Intellectual
Property; and (vi) budgets, sales projections, operating plans or other
financial information reasonably requested by Bank.

 

(b)                                 Within thirty (30) days after the last day
of each month, Borrower shall deliver to Bank a Borrowing Base Certificate
signed by a Responsible Officer in the form of Exhibit C, with aged listings of
accounts receivable (by invoice date).

 

(c)                                  Within thirty (30) days after the last day
of each month, Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in the form
of Exhibit D.

 

(d)                                 Within thirty (30) days after the last day
of each month, Borrower shall deliver to Bank Deferred Revenue Schedules.

 

(e)                                  Allow Bank to audit Borrower’s Collateral
at Borrower’s expense. Such audits shall be conducted no more often than once
every six (6) months unless an Event of Default has occurred and is continuing.
Notwithstanding the foregoing, no Credit Extensions shall be made prior to the
completion of the initial audit (the “Initial Audit”).

 

Notwithstanding the above financial reporting requirements, in the event that
Borrower has no Advances or Credit Extensions in an amount equal to or greater
than Five Hundred Thousand Dollars ($500,000.00) outstanding during any month,
the monthly financial reporting requirements set forth in subsections (a), (b),
(c) and (d) above shall be delivered on a quarterly basis, within forty five
(45) days after the end of each fiscal quarter of Borrower.

 

6.3                               Inventory; Returns.  Borrower shall keep all
Inventory in good and marketable condition, free from material defects. Returns
and allowances between Borrower and its account debtors shall follow Borrower’s
customarypractices as they exist at the Closing Date. Borrower must promptly
notify Bank of all returns, recoveries, disputes and claims that involve more
than One Hundred Thousand Dollars ($100,000.00).

 

6.4                               Taxes.  Borrower shall make, and cause each
Subsidiary to make, timely payment of all material federal, state, and local
taxes or assessments (other than taxes and assessments which Borrower is
contesting in good faith, with adequate reserves maintained in accordance with
GAAP) and will deliver to Bank, on demand, appropriate certificates attesting to
such payments.

 

6.5                               Insurance.  Borrower shall keep its business
and the Collateral insured for risks and in amounts, andas Bank may reasonably
request. Insurance policies shall be in a form, with companies, and in amounts
that arereasonably satisfactory to Bank. All property policies shall have a
lender’s loss payable endorsement showing Bank as an additional loss payee and
all liability policies shall show the Bank as an additional insured and all
policies shall  provide that the insurer must give Bank at least twenty (20)
days notice before canceling its policy. At Bank’s request,

 

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Borrower shall deliver certified copies of policies and evidence of all premium
payments. Proceeds payable under any policy shall, at Bank’s option, be payable
to Bank on account of the Obligations. Notwithstanding the foregoing, 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 $100,000.00, in the
aggregate, toward the replacement or repair of destroyed or damaged property;
provided that (i) any such replaced or repaired property (a) shall be of equal
or like value as the replaced or repaired Collateral and (b) shall be deemed
Collateral in which Bank has been granted a first priority security interest and
(ii) after the occurrence and during the continuation of an Event of Default all
proceeds payable under such casualty policy shall, at the option of the Bank, be
payable to Bank on account of the Obligations. If Borrower fails to obtain
insurance as required under Section 6.5 or to pay any amount or furnish any
required proof of payment to third persons and the Bank, Bank may make all or
part of such payment or obtain such insurance policies required in Section 6.5,
and take any action under the policies Bank deems prudent.

 

6.6                               Accounts.  In order to permit the Bank to
monitor the Borrower’s financial performance and condition,Borrower, and all
Borrower’s Subsidiaries, shall maintain all of Borrower’s, and such
Subsidiaries’, depository, operating accounts and securities accounts with Bank.
Borrower may maintain up to Three Hundred Thousand Dollars ($300,000.00) in the
aggregate, at any time, in a non-United States account with another financial
institution, for use in  the ordinary course of Borrower’s business. The
Borrower may also maintain a payroll account at Fleet Bank for the Borrower’s
current payroll requirements.

 

6.7                               Financial Covenants.

 

Borrower shall maintain at all times, to be tested as of the last day of each
month, unless otherwise noted:

 

(a)  Adjusted Quick Ratio.  A ratio of Quick Assets to Current Liabilities minus
Deferred Revenue and customer deposits of at least 2.0 to 1.0.

 

(b)  Minimum EBIT.  Borrower shall have minimum quarterly EBIT of:

 

(i)                                     ($1,000,000) for the quarter ended June
30, 2003

(ii)                                  ($500,000) for the quarter ending
September 30, 2003

(iii)                               ($500,000) for the quarter ending December
31, 2003

(iv)                              $1.00 for the quarter ending March 31, 2004
and each quarter thereafter

 

6.8                               Further Assurances.  Borrower shall execute
any further instruments and take further action as Bank reasonably requests to
perfect or continue Bank’s security interest in the Collateral or to effect the
purposes of thisAgreement.

 

7                                         NEGATIVE COVENANTS

 

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

 

7.1                               Dispositions.  Convey, sell, lease, transfer
or otherwise dispose of (collectively a “Transfer”), or permitany of its
Subsidiaries to Transfer, all or any part of its business or property, except
for Transfers (i) of Inventory in the ordinary course of business; (ii) of
non-exclusive licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business; (iii) of
worn-out or obsolete Equipment, or (iv) other assets not exceeding One Hundred
Thousand Dollars ($100,000.00), in the aggregate, during any fiscal year.

 

7.2                               Changes in Business, Ownership, Management or
Business Locations.  Engage in or permit any of its Subsidiaries to engage in
any business other than the businesses currently engaged in by Borrower or
reasonably  related thereto, or have a material change in its ownership (other
than by the sale of Borrower’s equity securities in apublic offering or to
venture capital investors so long as Borrower identifies to Bank the venture
capital investors prior to the closing of the investment), or management.
Borrower shall not, without at least thirty (30) days prior written notice

 

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to Bank: (i) relocate its chief executive office, or add any new offices or
business locations, including warehouses (unless such new offices or business
locations contain less than Five Thousand Dollars ($5,000.00) in Borrower’s
assets or property), or (ii) change its jurisdiction of organization, or (iii)
change its organizational structure or type, or (iv) change its legal name, or
(v) change any organizational number (if any) assigned by its jurisdiction of
organization.

 

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. A
Subsidiary may merge or consolidate into another Subsidiary or into the
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, or allow 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 PermittedLiens, or permit any Collateral not to be subject to the
first priority security interest granted herein. The Collateral may also be
subject to Permitted Liens.

 

7.6                               Distributions; Investments.  (i) Directly or
indirectly acquire or own any Person, or make any Investment in any Person,
other than Permitted Investments, or permit any of its Subsidiaries to do so; or
(ii) pay anydividends or make any distribution or payment or redeem, retire or
purchase any capital stock, except for repurchasesof stock from former employees
or directors of Borrower under the terms of applicable repurchase agreements in
anaggregate amount not to exceed One Hundred Thousand Dollars ($100,000.00) in
the aggregate in any fiscal year,provided that no Event of Default has occurred,
is continuing or would exist after giving effect to the repurchases.

 

7.7                               Transactions with Affiliates.  Directly or
indirectly enter into or permit to exist any material transaction with any
Affiliate of Borrower, except for transactions that are in the ordinary course
of Borrower’s business,upon fair and reasonable terms that are no less favorable
to Borrower than would be obtained in an arm’s length transaction with a
non-affiliated Person.

 

7.8                               Subordinated Debt.  Make or permit any payment
on any Subordinated Debt, except under the terms of the Subordinated Debt, or
amend any provision in any document relating to the Subordinated Debt, without
Bank’sprior written consent.

 

7.9                               Compliance.  Become an “investment company” or
a company controlled by an “investment company”, under the Investment Company
Act of 1940 or undertake as one of its important activities extending credit to
purchase or carry margin stock, or use the proceeds of any Credit Extension for
that purpose; fail to meet the minimumfunding 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 operations or would reasonably be
expected to cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.

 

8                                         EVENTS OF DEFAULT

 

Any one of the following is an Event of Default:

 

8.1                               Payment Default.  Borrower fails to pay any of
the Obligations within three (3) days after their due date. During such three
(3) day period the failure to cure the default shall not constitute an Event of
Default (but noCredit Extension shall be made during such period);

 

8.2                               Covenant Default.  Borrower fails or neglects
to perform any obligation in Section 6 or violates any  covenant in Section 7 or
fails or neglects to perform, keep, or observe any other material term,
provision, condition,covenant or agreement contained in this Agreement, any Loan
Documents, or in any present or future agreement between

 

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Borrower and Bank and as to any default under such other material term,
provision, condition, covenant or agreement that can be cured, has failed to
cure the default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional period (which shall not in any case
exceed thirty (30) days) to attempt to cure such default, and within such
reasonable time period the failure to cure the default shall not be deemed an
Event of Default (but no Credit Extensions shall be made during such cure
period). Grace periods provided under this section shall not apply, to financial
covenants or any other covenants that are required to be satisfied, completed or
tested by a date certain.

 

8.3                               Material Adverse Change.  A Material Adverse
Change occurs;

 

8.4                               Attachment.  (i) Any material portion of
Borrower’s assets is attached, seized, levied on, or comesinto possession of a
trustee or receiver and the attachment, seizure or levy is not removed in ten
(10) days; (ii) the service of process upon the Borrower seeking to attach, by
trustee or similar process, any funds of the Borrower on deposit with the Bank,
or any entity under control of Bank (including a subsidiary); (iii) Borrower is
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (iv) a judgment or other claim becomes a Lien on a
material portion of Borrower’s assets; or (v) a notice of lien, levy, or
assessment is filed against any of Borrower’s assets by any government agency
and not paid within ten (10) days after Borrower receives notice. These are not
Events of Default if stayed or if a bond is posted pending contest by Borrower
(but no Credit Extensions shall be made during the  cure period);

 

8.5                               Insolvency.  (i) Borrower becomes insolvent;
(ii) Borrower begins an Insolvency Proceeding; or (iii)an Insolvency Proceeding
is begun against Borrower and not dismissed or stayed within thirty (30) days
(but no Credit Extensions shall be made before any Insolvency Proceeding is
dismissed);

 

8.6                               Other Agreements.  If there is a default in
any agreement to which Borrower is a party with a third party or parties
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity ofany Indebtedness in an amount in excess of One
Hundred Thousand Dollars ($100,000) or that could result in a MaterialAdverse
Change;

 

8.7                               Judgments.  If a judgment or judgments for the
payment of money in an amount, individually or inthe aggregate, of at least Two
Hundred Thousand Dollars ($200,000) shall be rendered against Borrower and shall
 remain unsatisfied and unstayed for a period of thirty (30) days (provided that
no Credit Extensions will be made prior to the satisfaction or stay of such
judgment);

 

8.8                               Misrepresentations.  If Borrower or any Person
acting for Borrower makes any material misrepresentation or material
misstatement now or later in any warranty or representation in this Agreement or
in any writing delivered to Bank or to induce Bank to enter this Agreement or
any Loan Document.

 

8.9                               Guaranty.  (i) Any guaranty of any Obligations
terminates or ceases for any reason to be in full force; or (ii) any Guarantor
does not perform any obligation under any guaranty of the Obligations; or (iii)
any material misrepresentation or material misstatement exists now or later in
any warranty or representation in any guaranty of the Obligations or in any
certificate delivered to Bank in connection with the guaranty; or (iv) any
circumstance described  in Section 7, or Sections 8.4, 8.5 or 8.7 occurs to any
Guarantor, or (v) the liquidation, winding up, termination of  existence, or
insolvency of any Guarantor.

 

8.10                        Exim Agreement.  The occurrence of any default or
Event of Default under the Exim Agreement or any other agreement or instrument
executed in connection therewith.

 

9                                         BANK’S RIGHTS AND REMEDIES

 

9.1                               Rights and Remedies.  When an Event of Default
occurs and continues Bank may, without notice or demand, do any or all of the
following:

 

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(a)                                  Declare all Obligations immediately due and
payable (but if an Event of Default described in Section 8.5 occurs all
Obligations are immediately due and payable without any action by Bank);

 

(b)                                 Stop advancing money or extending credit for
Borrower’s benefit under this Agreement or under any other agreement between
Borrower and Bank;

 

(c)                                  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 and verify the amount of such account. 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;

 

(d)                                 Make any payments and do any acts it
considers necessary or reasonable to protect 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;

 

(e)                                  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;

 

(f)                                    Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.
Bank is hereby granted a non-exclusive, royalty-free license or other right to
use, without charge, Borrower’s labels, patents, copyrights, mask works, rights
of use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any similar property as it pertains to the Collateral,
 in completing production of, advertising for sale, and selling any Collateral
and, in connection with Bank’s exercise of its rights under this Section. 
Borrower’s rights under all licenses and all franchise agreements inure to
Bank’s benefit;

 

(g)                                 Dispose of the Collateral according to the
Code; and

 

(h)                                 Provide a Notice of Exclusive Control, as
set forth in the Securities Account Control Agreement, of even date herewith.

 

9.2                               Power of Attorney.  Borrower hereby
irrevocably appoints Bank as its lawful attorney-in-fact, to be effective upon
the occurrence and during the continuance of an Event of Default, to: (i)
endorse Borrower’s name on any checks or other forms of payment or security;
(ii) sign Borrower’s name on any invoice or bill of lading for anyAccount or
drafts against account debtors; (iii) settle and adjust disputes and claims
about the Accounts directly with account debtors, for amounts and on terms Bank
determines reasonable; (iv) make, settle, and adjust all claims under Borrower’s
insurance policies; and (v) 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 any security interest regardless of whether an
Event of Default has occurred until  all Obligations have been satisfied in full
and Bank is under no further obligation to make Credit Extensions hereunder.
Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s
rights and powers, coupled with an interest, are irrevocable until all
Obligations have been fully repaid and performed and Bank’s obligation to
provide Credit Extensions terminates.

 

9.3                               Accounts Notification/Collection.  In the
event that an Event of Default occurs and is continuing, Bank may notify any
Person owing Borrower money of Bank’s security interest in the funds and verify
and/or collect the amount of the Account. After the occurrence and during the
continuance of an Event of Default, any amounts received

 

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by Borrower shall be held in trust by Borrower for Bank, and, if requested by
Bank, Borrower shall immediately deliver such receipts to Bank in the form
received from the account debtor, with proper endorsements for deposit.

 

9.4                               Bank Expenses.  Any amounts paid by Bank as
provided herein are Bank Expenses and are immediately due and payable, and shall
bear interest at the then applicable rate and be secured by the Collateral.
Nopayments by Bank shall be deemed an agreement to make similar payments in the
future or Bank’s waiver of any Eventof Default.

 

9.5                               Bank’s Liability for Collateral.  So long as
the Bank complies with reasonable banking practices regarding the safekeeping of
collateral, the Bank shall not be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution
in the value of the Collateral; or (d) any act or default of any carrier,
warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage
or destruction of the Collateral.

 

9.6                               Remedies Cumulative.  Bank’s rights and
remedies under this Agreement, the Loan Documents, and  all other agreements are
cumulative. Bank has all rights and remedies provided under the Code, by law, or
in equity.  Bank’s exercise of one right or remedy is not an election, and
Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay
is not a waiver, election, or acquiescence. No waiver hereunder shall be
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.

 

9.7                               Demand Waiver.  Borrower waives demand, notice
of default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees held by Bank
on which Borrower is liable.

 

10                                  NOTICES

 

All notices or demands by any party to this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile at the addresses listed below. Either Bank or Borrower may
change its notice address by giving the other party written notice.

 

If to Borrower:

American Science and Engineering, Inc.

 

829 Middlesex Turnpike
Billerica, Massachusetts 01821

 

Attn: Chief Financial Officer

 

FAX: (978) 262-8804

 

 

If to Bank:

Silicon Valley Bank

 

One Newton Executive Park, Suite 200
2221 Washington Street
Newton, Massachusetts 02462

 

Attn: Mr. Mark Gallagher

 

Fax: (617) 969-4395

 

 

with a copy to:

Riemer & Braunstein LLP

 

Three Center Plaza
Boston, Massachusetts 02108

 

Attn: David A. Ephraim, Esquire

 

FAX: (617) 880-3456

 

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11                                  CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

 

Massachusetts 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 Massachusetts; provided, however, that if for
any reason Bank cannot avail itself of such courts in the Commonwealth of
Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa
Clara County, California. NOTWITHSTANDING THE FOREGOING, THE BANK SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION WHICH THE BANK DEEMS NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE THE
BANK’S RIGHTS AGAINST THE BORROWER OR ITS PROPERTY.

 

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

 

12                                  GENERAL PROVISIONS

 

12.1                        Successors and Assigns.  This Agreement binds and is
for the benefit of the successors and permitted assigns of each party. Borrower
may not assign this Agreement or any rights or Obligations under it without
Bank’s priorwritten consent which may be granted or withheld in Bank’s
discretion. Bank has the right, without the consent of ornotice to Borrower, to
sell, transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank’s obligations, rights and benefits under this Agreement, the
Loan Documents or any related agreement.

 

12.2                        Indemnification.  Borrower hereby indemnifies,
defends and holds the Bank and its officers, employees and agents harmless
against: (a) all obligations, demands, claims, and liabilities asserted by any
other partyin connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from,
following, or consequential to transactions between Bank and Borrower (including
reasonable attorneys’ fees and expenses), except for losses caused by Bank’s
gross negligence or willful misconduct.

 

12.3                        Right of Set-Off.  Borrower and any guarantor hereby
grant to Bank, a lien, security interest and right of setoff as security for all
Obligations to Bank, whether now existing or hereafter arising upon and against
all deposits,credits, collateral and property, now or hereafter in the
possession, custody, safekeeping or control of Bank or any entity under the
control of the Bank (including a Bank subsidiary) or in transit to any of them.
At any time after the occurrence and during the continuance of an Event of
Default, without demand or notice, Bank may set off the same or any part thereof
and apply the same to any liability or obligation of Borrower and any guarantor
even though unmatured and regardless of the adequacy of any other collateral
securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS
RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH  SECURES THE
OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO
SUCHDEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

12.4                        Time of Essence.  Time is of the essence for the
performance of all Obligations in this Agreement.

 

12.5                        Severability of Provision.  Each provision of this
Agreement is severable from every other provision in determining the
enforceability of any provision.

 

12.6                        Amendments in Writing; Integration.  All amendments
to this Agreement must be in writing signed by both Bank and Borrower. This
Agreement and the Loan Documents represent the entire agreement about this
subject matter, and supersede prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement and the Loan
Documents merge into this Agreement and the Loan Documents.

 

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12.7                        Counterparts.  This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, are an original, and all taken
together,constitute one Agreement.

 

12.8                        Survival.  All covenants, representations and
warranties made in this Agreement continue in full forcewhile any Obligations
remain outstanding. The obligation of Borrower in Section 12.2 to indemnify Bank
shall survive until the statute of limitations with respect to such claim or
cause of action shall have run.

 

12.9                        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: (i)
to Bank’s subsidiaries or affiliates in connection with their business with
Borrower; (ii) to prospective transferees or purchasers of any interest in the
Credit Extensions (provided, however, Bank shall use commercially reasonable
efforts in obtaining such prospective transferee’s or purchaser’s agreement to
the terms of this provision); (iii) as required by law, regulation, subpoena, or
other order, (iv) as required in connection with Bank’s examination or audit;
(v) as Bank considers appropriate in exercising remedies under this Agreement;
and (vi) consistent with federal securities laws as to any taxrelated matters.
Confidential information does not include information that either: (a) is in the
public domain or in Bank’s possession when disclosed to Bank, or becomes part of
the public domain after disclosure to Bank; or (b) is disclosed to Bank by a
third party, if Bank does not know that the third party is prohibited from
disclosing the information.

 

13                                  DEFINITIONS

 

13.1                        Definitions.  In this Agreement:

 

“Accounts” are all existing and later arising accounts, contract rights, and
other obligations owed Borrower in connection with its sale or lease of goods
(including licensing software and other technology) or provision of services,
 all credit insurance, guaranties, other security and all merchandise returned
or reclaimed by Borrower and Borrower’s  Books relating to any of the foregoing,
as such definition may be amended from time to time according to the Code.

 

“Advance” or “Advances” is a loan advance (or advances) under the Revolving
Line.

 

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

 

“Bank Expenses” are all audit fees and expenses and reasonable costs or expenses
(including reasonableattorneys’ fees and expenses) for preparing, negotiating,
administering, defending and enforcing the Loan Documents (including appeals or
Insolvency Proceedings).

 

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

 

“Borrowing Base” is (i) 80.0% (the “Accounts Advance Rate”) of Eligible
Accounts, which, at Bank’s discretion and upon written notice by Bank shall be
net of any Deferred Revenue plus (ii) the lesser of (A) 10.0% (the “Inventory
Advance Rate”) of the value of Borrower’s Eligible Inventory (valued at the
lower of cost or wholesale fair market value) or (B) $750,000.00 (the “Inventory
Cap”), all as determined by Bank from Borrower’s most recent Borrowing Base
Certificate; provided, however, after performing an audit of Borrower’s
Collateral, Bank may, in its sole discretion, (i) lower the Inventory Advance
Rate, lower the Inventory Cap or lower the Accounts Advance Rate if the results
are unsatisfactory to Bank or (ii) increase the Accounts Advance Rate to 85.0%
if the results are satisfactory to Bank.

 

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

 

“Closing Date” is the date of this Agreement.

 

“Code” is the Uniform Commercial Code as adopted in Massachusetts, as amended
and as may be amended and in effect from time to time.

 

“Collateral” is any and all properties, rights and assets of the Borrower
granted by the Borrower to Bank or arising under the Code, now, or in the
future, in which the Borrower obtains an interest, or the power to transfer
rights,  including, without limitation, the property described on Exhibit A.

 

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

 

“Copyrights” are all copyright rights, applications or registrations and like
protections in each work orauthorship or derivative work, whether published or
not (whether or not it is a trade secret) now or later existing, created,
acquired or held.

 

“Credit Extension” is each Advance, Letter of Credit, F/X Forward Contract, or
any other extension of credit  by Bank for Borrower’s benefit.

 

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

 

“Deferred Revenue” is all amounts received in advance of performance under
contracts and not yet recognizedas revenue.

 

“Eligible Accounts” are billed Accounts in the ordinary course of Borrower’s
business that meet all Borrower’s  representations and warranties in Section
5.2; but Bank may change eligibility standards by giving Borrower notice. Unless
Bank agrees otherwise in writing, Eligible Accounts shall not include:

 

(a)                                  Accounts that the account debtor has not
paid within one hundred twenty (120) days of invoice date;

 

(b)                                 Accounts for an account debtor, fifty
percent (50%) or more of whose Accounts have not been paid within one hundred
twenty (120) days of invoice date;

 

(c)                                  Credit balances over one hundred twenty
(120) days from invoice date;

 

(d)                                 Accounts for an account debtor, including
Affiliates, whose total obligations to Borrower exceed thirty-five (35%) of all
Accounts, for the amounts that exceed that percentage, unless Bank approves in
writing;

 

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(e)                                  Accounts for which the account debtor does
not have its principal place of business in the United States;

 

(f)                                    Accounts for which the account debtor is
a federal, state or local government entity or any department, agency, or
instrumentality thereof except for Accounts of the United States if the payee
has assigned its payment rights to Bank and the assignment has been acknowledged
under the Assignment of Claims Act of 1940 (31 U.S.C. 3727);

 

(g)                                 Accounts for which Borrower owes the account
debtor, but only up to the amount owed (sometimes called “contra” accounts,
accounts payable, customer deposits or credit accounts);

 

(h)                                 Accounts for demonstration or promotional
equipment, or in which goods are consigned, sales guaranteed, sale or return,
sale on approval, bill and hold, or other terms if account debtor’s payment may
be conditional;

 

(i)                                     Accounts for which the account debtor is
Borrower’s Affiliate, officer, employee, or agent;

 

(j)                                     Accounts in which the account debtor
disputes liability or makes any claim and Bank believes there may be a basis for
dispute (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;

 

(k)                                  Accounts for which Bank reasonably
determines collection to be doubtful.

 

“EBIT” is Borrower’s earnings before interest expense and taxes for the period,
excluding any expenses or income related to the market effect of Borrower’s
issued and outstanding warrants.

 

“Eligible Inventory” is Borrower’s Inventory, including raw materials, located
at its principal place of business (or any location permitted under Section 7.2)
that complies with representations and warranties in Section 5.2, but does  not
include used, returned, obsolete, consigned, work in progress, demonstrative or
custom inventory, supplies, packing or shipping materials.

 

“Equipment” is all present and future machinery, equipment, tenant improvements,
furniture, fixtures, vehicles, tools, parts and attachments in which Borrower
has any interest.

 

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

 

“Exim Agreement” is that certain Export-Import Bank Loan and Security Agreement
of even date herewith  by and between Borrower and Bank and all documents,
instruments and agreements executed in conjunction therewith,  each as may be
amended from time to time.

 

“GAAP” is generally accepted accounting principles.

 

“Guarantor” is any present or future guarantor of the Obligations, including
AS&E Global, Inc., a  Massachusetts corporation.

 

“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.

 

“Initial Audit” is defined in Section 6.2(d).

 

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“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” is

 

(a)                                  Copyrights, Trademarks, Patents, and Mask
Works including amendments, renewals, extensions and all licenses or other
rights to use and all license fees and royalties from the use;

 

(b)                                 Any trade secrets and any Intellectual
Property rights in computer software and computer software products now or later
existing, created, acquired or held;

 

(c)                                  All design rights which may be available to
Borrower now or later created, acquired or held;

 

(d)                                 Any claims for damages (past, present or
future) for infringement of any of the rights above, with the right, but not the
obligation, to sue and collect damages for use or infringement of the
intellectual property rights above.

 

All proceeds and products of the foregoing, including all insurance, indemnity
or warranty payments.

 

“Inventory” is present and future inventory in which Borrower has any interest,
including merchandise, raw materials, parts, supplies, packing and shipping
materials, work in process and finished products intended for sale or lease or
to be furnished under a contract of service, of every kind and description now
or later owned by or in the custody or possession, actual or constructive, of
Borrower, including inventory temporarily out of its custody or possession or in
transit and including returns on any accounts or other proceeds (including
insurance proceeds) from the sale or disposition of any of the foregoing and any
documents of title.

 

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

 

“IP Agreement” is a certain Intellectual Property Security Agreement executed
and delivered by Borrower to Bank.

 

“Letter of Credit” means a letter of credit or similar undertaking issued by
Bank pursuant to Section 2.1.2.

 

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2.

 

“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or
other encumbrance.

 

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

 

“Mask Works” are all mask works or similar rights available for the protection
of semiconductor chips, now

owned or later acquired.

 

“Material Adverse Change “ is: (i) A material impairment in the perfection or
priority of Bank’s security interest in the Collateral or in the value of such
Collateral; (ii) a material adverse change in the business, operations, or
condition (financial or otherwise) of the Borrower; or (iii) a material
impairment of the prospect of repayment of any  portion of the Obligations; or
(iv) Bank determines, based upon information available to it and in its
reasonable  judgment, that there is a substanital likelihood that Borrower shall
fail to comply with one or more of the financial  covenants in Section 6 during
the next succeeding financial reporting period.

 

17

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“Obligations” are debts, principal, interest, Bank Expenses and other amounts
Borrower owes Bank now or later, under this Agreement, under the Exim Agreement,
or under any other documents, instruments and agreements between Borrower and
Bank, including letters of credit, cash management services, and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower  assigned
to Bank.

 

“Patents” are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.

 

“Permitted Indebtedness” is:

 

(a)                                  Borrower’s indebtedness to Bank under this
Agreement or the Loan Documents;

 

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

 

(c)                                  Subordinated Debt;

 

(d)                                 Indebtedness to trade creditors and with
respect to surety bonds and similar obligations incurred in the ordinary course
of business; and

 

(e)                                  Indebtedness secured by Permitted Liens;

 

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

 

“Permitted Investments” are:

 

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

 

(b)                                 (i) marketable direct obligations issued or
unconditionally guaranteed by the United States or its agency or any state
maturing within 1 year from its acquisition, (ii) commercial paper maturing no
more than 1 year after its creation and having the highest or second highest
rating from either Standard & Poor’s  Corporation or Moody’s Investors Service,
Inc., (iii) Bank’s certificates of deposit issued maturing no more than 1 year
after issue, (iv) any other investments administered through the Bank, and (v)
any Investments permitted  by Borrower’s investment policy, as amended from time
to time, provided that such investment policy (and any such amendment thereto)
has been approved by Bank.

 

“Permitted Liens” are:

 

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

 

(b)                                 Liens for taxes, fees, assessments or other
government charges or levies, either not delinquent or being contested in good
faith and for which Borrower maintains adequate reserves on its Books, if they
have no priority over any of Bank’s security interests;

 

(c)                                  Leases or subleases and non-exclusive
licenses or sublicenses granted in the ordinary course of Borrower’s business,
if the leases, subleases, licenses and sublicenses permit granting Bank a
security interest;

 

18

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(d)                                 Purchase money Liens or capital leases in an
amount not to exceed Five Hundred Thousand Dollars ($500,000.00), in the
aggregate, during any fiscal year: (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; and

 

(d)                                 Liens incurred in the extension, renewal or
refinancing of the indebtedness secured by Liens described in (a) through (d),
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.

 

“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 greater of (i) 4.00% or (ii) Bank’s most recently announced
“prime rate,” even if it is not Bank’s lowest rate.

 

“Quick Assets” is, on any date, the Borrower’s consolidated, unrestricted cash
(less customer deposits), cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.

 

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

 

“Revolving Line” is an Advance or Advances of up to Five Million Dollars
($5,000,000.00).

 

“Revolving Maturity Date” is November 30, 2004.

 

“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s debt
to Bank (pursuant to a subordination agreement entered into between the Bank,
the Borrower and the subordinated creditor), on terms acceptable to Bank.

 

“Subsidiary” is any Person, corporation, partnership, limited liability company,
joint venture, or any other business entity of which more than 50% of the voting
stock or other equity interests is owned or controlled, directly or  indirectly,
by the Person or one or more Affiliates of the Person.

 

“Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower’s consolidated balance sheet, including
all Indebtedness, and current portion of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt.

 

“Trademarks” are trademark and service mark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.

 

19

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as a sealed instrument under the laws of the Commonwealth of Massachusetts as of
the date first above written.

 

BORROWER:

 

AMERICAN SCIENCE AND ENGINEERING, INC.

 

 

By

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

 

 

BANK:

 

 

 

SILICON VALLEY BANK, d/b/a

 

SILICON VALLEY EAST

 

 

 

 

 

By

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

 

 

SILICON VALLEY BANK

 

 

 

 

 

By

 

 

 

 

Name:

 

 

 

 

Title:

 

 

(Signed in Santa Clara County, California)

 

 

 

 

20

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EXHIBIT A

 

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

 

All goods, equipment, inventory, contract rights or rights to payment of money,
leases, license agreements, franchise agreements, general intangibles (including
payment intangibles), accounts (including health-care receivables), documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), commercial tort claims,
securities, and all other investment property, supporting obligations, and
financial assets, whether now owned  or hereafter acquired, wherever located;
and

 

Any copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, now owned or later acquired; any patents, trademarks, service marks
and applications therefor; trade styles, trade names, any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing; 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.

 

21

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EXHIBIT B

 

Loan Payment/Advance Request Form

DEADLINE FOR SAME DAY PROCESSING IS 3:00 E.S.T.

Fax To: (617) 969-5965

Date:                                    

 

LOAN PAYMENT:

Sample documents Client Name (Borrower)

 

From Account #                                                   

To Account #                                                      

(Deposit Account #)

(Loan Account #)

 

Principal $                                                               and/or
Interest $                                                            

 

All Borrower’s representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone transfer request for an advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date:

 

Authorized Signature:

 

 

Phone Number:

 

 

 

LOAN ADVANCE:

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

 

From Account #                                                   

To Account #                                                      

(Loan Account #)

(Deposit Account #)

 

Amount of Advance $                                          

 

All Borrower’s representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone transfer request for an advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date:

 

Authorized Signature:

 

 

Phone Number:

 

 

 

OUTGOING WIRE REQUEST

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

Deadline for same day processing is 3:00pm, E.S.T.

 

Beneficiary Name:                                             

Amount of Wire: $                                             

 

 

Beneficiary Bank:                                               

Account Number:                                               

 

City and Sate:                                                 

 

Beneficiary Bank Transit (ABA) #:                                         

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

 

 

 

(For International Wire Only)

 

Intermediary Bank:                                                   

Transit (ABA) #:                                                  

 

For Further Credit
to:                                                                                                                                                                  

 

Special
Instruction:                                                                                                                                                                      

 

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

 

Authorized Signature:

 

 

2nd Signature (If Required):

 

 

Print Name/Title:

 

 

Print Name/Title:

 

 

Telephone #

 

 

Telephone #

 

 

22

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EXHIBIT C

BORROWING BASE CERTIFICATE

 

 

Borrower:

Lender:

Silicon Valley Bank

 

 

 

Commitment Amount:    $5,000,000

 

 

 

 

ACCOUNTS RECEIVABLE

 

1.

 

Accounts Receivable Book Value as of                                   

$

 

2.

 

Additions (please explain on reverse)

$

 

3.

 

TOTAL ACCOUNTS RECEIVABLE

$

 

 

 

 

 

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

 

4.

 

Amounts over 120 days due

$

 

5.

 

Balance of 50% over 120 day accounts

$

 

6.

 

Credit balances over 120 days

$

 

7.

 

Concentration Limits

$

 

8.

 

Foreign Accounts

$

 

9.

 

Governmental Accounts

$

 

10.

 

Contra Accounts

$

 

11.

 

Promotion or Demo Accounts

$

 

12.

 

Intercompany/Employee Accounts

$

 

13.

 

Other (please explain on reverse)

$

 

14.

 

TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

$

 

15.

 

Eligible Accounts (#3 minus #14)

$

 

16.

 

LOAN VALUE OF ACCOUNTS (80% of #15)

$

 

 

 

 

 

INVENTORY

 

17.

 

Inventory Value as of

$

 

18.

 

LOAN VALUE OF INVENTORY (lesser of 10.0% of #17 or $750,000)

$

 

 

 

 

 

BALANCES

 

19.

 

Maximum Loan Amount

$

 

20.

 

Total Funds Available [Lesser of #19 or (#16 plus #18)]

$

 

21.

 

Present balance owing on Line of Credit

$

 

22.

 

Outstanding under Sublimits (letters of credit, FX contracts)

$

 

23.

 

RESERVE POSITION (#20 minus #21 and #22)

$

 

 

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

 

 

 

BANK USE ONLY

 

 

 

Received by:

 

 

 

 

AUTHORIZED SIGNER

 

 

 

COMMENTS:

 

Date:

 

 

 

 

 

By:

 

 

 

Verified:

 

 

Authorized Signer

 

 

AUTHORIZED SIGNER

 

 

 

 

 

Date:

 

 

 

23

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EXHIBIT D

COMPLIANCE CERTIFICATE

 

TO:

SILICON VALLEY BANK

FROM:

AMERICAN SCIENCE AND ENGINEERING, INC.

 

The undersigned authorized officer of AMERICAN SCIENCE AND ENGINEERING, INC.
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending                            with all required
covenants except as noted below and (ii) all representations and warranties in
the Agreement are true and correct in all material respects on this date. 
Attached are the required documents supporting the certification.  The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.  The Officer
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.

 

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

 

Reporting Covenant

 

Required

 

Complies

 

 

 

 

 

Monthly financial statements with CC

 

Monthly within 30 days*

 

Yes  No

Annual (CPA Audited)

 

FYE within 90 days

 

Yes  No

10-Q , 10-K and 8-K

 

Within 5 days after filing with SEC

 

Yes  No

BBC A/R Agings

 

Monthly within 30 days*

 

Yes  No

Deferred Revenue Schedule

 

Monthly within 30 days*

 

Yes  No

Audit

 

Semi-Annual

 

Yes  No

 

 

 

 

 

Notification of registration of Intellectual Property

The following Intellectual Property was registered after the Closing Date (if
blank, read “None”)

 

Financial Covenant

 

Required

 

Actual

 

Complies

 

 

 

 

 

 

 

Maintain on a Monthly Basis:

 

 

 

 

 

 

Minimum Adjusted Quick Ratio

 

2.0:1.0

 

:1.0

 

Yes  No

 

 

 

 

 

 

 

Maintain on a Quarterly Basis:

 

 

 

 

 

 

Minimum EBIT

 

**

 

$

 

 

Yes  No

 

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

* See Section 6.2 of Agreement (may be quarterly if Advances/Credit Extensions
less than $500,000.00 )

** See Section 6.7 of Agreement

 

Comments Regarding Exceptions:  See Attached.

 

Sincerely,

BANK USE ONLY

 

Received by:

 

 

 

 

 

AUTHORIZED SIGNER

SIGNATURE

Date:

 

 

 

 

 

 

Verified:

 

 

TITLE

 

AUTHORIZED SIGNER

 

Date:

 

 

 

 

 

DATE

Compliance Status:

Yes

No

 

24

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