Exhibit 10.1

 

 

 

COMMODORE RESOURCES (NEVADA), INC.

 

LYRIS TECHNOLOGIES INC.

 

UPTILT INC.

 

LOAN AND SECURITY AGREEMENT

 

 

 

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This LOAN AND SECURITY AGREEMENT is entered into as of October 04, 2005, by and
between COMERICA BANK (“Bank”) and COMMODORE RESOURCES (NEVADA), INC., LYRIS
TECHNOLOGIES INC. and UPTILT INC.  (each a “Borrower” and collectively,
“Borrowers”).

 

RECITALS

 

Borrowers wish to obtain credit from time to time from Bank, and Bank desires to
extend credit to Borrowers.  This Agreement sets forth the terms on which Bank
will advance credit to Borrowers, and Borrowers will repay the amounts owing to
Bank.

 

AGREEMENT

 

The parties agree as follows:

 

1.             DEFINITIONS AND CONSTRUCTION.

 

1.1           Definitions.  As used in this Agreement, the following terms shall
have the following definitions:

 

“Accounts” means all presently existing and hereafter arising accounts, contract
rights, payment intangibles, and all other forms of obligations owing to
Borrowers arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrowers, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrowers and Borrowers’ Books relating
to any of the foregoing.

 

 “Advance” or “Advances” means a cash advance or cash advances under the
Revolving Line.

 

“Affiliate” means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is controlled by
or is under common control with such Person, and each of such Person’s senior
executive officers, directors, and partners.

 

“Bank Expenses” means all:  reasonable costs or expenses (including reasonable
attorneys’ fees and expenses, generated by outside counsel) incurred in
connection with the preparation, negotiation, administration, and enforcement of
the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable
attorneys’ fees and expenses (whether generated in-house or by outside counsel)
incurred in amending, enforcing or defending the Loan Documents (including fees
and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.

 

“Borrower State” means Nevada, Delaware and Delaware, the states under whose
laws COMMODORE RESOURCES (NEVADA), INC., LYRIS TECHNOLOGIES INC. and UPTILT
INC., respectively, is organized.

 

“Borrower’s Books” means all of each Borrower’s books and records including: 
ledgers; records concerning such Borrower’s assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks in the State of California are authorized or required to close.

 

“Capitalized Expenditures” means current period cash expenditures that are
amortized over a period of time in accordance with GAAP.

 

“Cash” means unrestricted cash and cash equivalents.

 

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“Change in Control” shall mean a transaction in which any “person” or “group”
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of shares of all classes of stock then outstanding of a Borrower ordinarily
entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of a Borrower, who did not
have such power before such transaction.

 

“Chief Executive Office State means Nevada, California and California, where
COMMODORE RESOURCES (NEVADA), INC.’s, LYRIS TECHNOLOGIES INC.’s and UPTILT
INC.’s, chief executive office is located, respectively.

 

“Closing Date” means the date of this Agreement.

 

“Code” means the California Uniform Commercial Code, as amended or supplemented
from time to time.

 

“Collateral” means the property described on Exhibits A-1, A-2, A-3 and A-4
attached hereto and all Negotiable Collateral and Intellectual Property
Collateral to the extent not described on Exhibits A-1, A-2, A-3 and A-4, except
to the extent any such property (i) is nonassignable by its terms without the
consent of the licensor thereof or another party (but only to the extent such
prohibition on transfer is enforceable under applicable law, including, without
limitation, Sections 9406 and 9408 of the Code), or (ii) the granting of a
security interest therein is contrary to applicable law, provided that upon the
cessation of any such restriction or prohibition, such property shall
automatically become part of the Collateral; provided that in no case shall the
definition of “Collateral” exclude any Accounts, proceeds of the disposition of
any property, or general intangibles consisting of rights to payment.

 

“Collateral State” means the state or states where the Collateral is located,
which are California, Colorado, Nevada, and Delaware.

 

“Consolidated Net Income (or Deficit)” means the consolidated net income (or
deficit) of any Person and its Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in accordance with GAAP, after
eliminating therefrom all extraordinary nonrecurring items of income.

 

“Consolidated Total Interest Expense” means with respect to any Person for any
period, the aggregate amount of interest required to be paid or accrued by a
Person and its Subsidiaries during such period on all Indebtedness of such
Person and its Subsidiaries outstanding during all or any part of such period,
whether such interest was or is required to be reflected as an item of expense
or capitalized, including payments consisting of interest in respect of any
capitalized lease or any synthetic lease, and including commitment fees, agency
fees, facility fees, balance deficiency fees and similar fees or expenses in
connection with the borrowing of money.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit,
corporate credit cards, or merchant services issued for the account of that
Person; and (iii) all obligations arising under any interest rate, currency or
commodity swap agreement, interest rate cap agreement, interest rate collar
agreement, or other agreement or arrangement designated to protect a Person
against fluctuation in interest rates, currency exchange rates or commodity
prices; provided, however, that the term “Contingent Obligation” shall not
include endorsements for collection or deposit in the ordinary course of
business.  The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.

 

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“Copyrights” means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.

 

“Credit Extension” means each Advance or any other extension of credit by Bank
to or for the benefit of Borrowers hereunder.

 

“EBITDA” means with respect to any fiscal period an amount equal to the sum of
(a) Consolidated Net Income of the Borrowers and their Subsidiaries for such
fiscal period, plus (b) in each case to the extent deducted in the calculation
of the Borrowers’ Consolidated Net Income and without duplication, (i)
depreciation and amortization for such period, plus (ii) income tax expense for
such period, plus (iii) Consolidated Total Interest Expense paid or accrued
during such period, plus (iv) up to One Million Seven Hundred Thousand Dollars
($1,700,000) in one-time cash or non-cash acquisition expenses, and minus, to
the extent added in computing Consolidated Net Income, and without duplication,
all extraordinary and non-recurring revenue and gains (including income tax
benefits) for such period, all as determined in accordance with GAAP.

 

“Environmental Laws” means all laws, rules, regulations, orders and the like
issued by any federal state, local foreign or other governmental or
quasi-governmental authority or any agency pertaining to the environment or to
any hazardous materials or wastes, toxic substances, flammable, explosive or
radioactive materials, asbestos or other similar materials.

 

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

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.

 

“Event of Default” has the meaning assigned in Article 8.

 

“Excess Cash Flow” means, as of the end of each fiscal quarter for the quarter
then ended, quarterly EBITDA, less cash taxes, capital expenditures (including
any capitalization of software), required principal and interest payments on all
Indebtedness to Bank hereunder, required principal and interest payments on
Subordinated Debt and deferred merger compensation owing in connection with the
[**] of [**] and aggregate increases in net working capital.

 

“Funded Indebtedness” means Indebtedness of Borrowers to Bank that is
outstanding hereunder at any time.

 

“GAAP” means generally accepted accounting principles, consistently applied, as
in effect from time to time.

 

“Guarantors” means J.L. Halsey Corporation, a Delaware corporation, Admiral
Management Company, a Delaware corporation and Admiral Holdings, Inc, a Delaware
corporation.

 

“Inactive Subsidiaries” means NV Holdings, Inc., a Nevada corporation and
NovaCare Management Co., a Pennsylvania corporation.

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations, and (d) all Contingent
Obligations.

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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“Insolvency Proceeding” means any proceeding commenced by or against any Person
or entity under any provision of the United States Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extension
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

“Intellectual Property Collateral” means all of a Borrower’s right, title, and
interest in and to the following:

 

(a)           Copyrights, Trademarks and Patents;

 

(b)           Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;

 

(c)           Any and all design rights which may be available to a Borrower now
or hereafter existing, created, acquired or held;

 

(d)           Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, 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;

 

(e)           All licenses or other rights to use any of the Copyrights, Patents
or Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;

 

(f)            All amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and

 

(g)           All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.

 

“Inventory” means all present and future inventory in which a Borrower has any
interest.

 

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

 

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.

 

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

 

“Loan Documents” means, collectively, this Agreement, any note or notes executed
by a Borrower, and any other document, instrument or agreement entered into in
connection with this Agreement, all as amended or extended from time to time.

 

“Material Adverse Effect” means a material adverse effect on (i) the business
operations, condition (financial or otherwise) or prospects of Guarantors,
Borrowers and their Subsidiaries taken as a whole, (ii) the ability of
Guarantors and Borrowers to repay the Obligations or otherwise perform its
obligations under the Loan Documents, or (iii) Guarantors’ and Borrowers’
interest in, or the value, perfection or priority of Bank’s security interest in
the Collateral.

 

“Negotiable Collateral” means all of a Borrower’s present and future letters of
credit of which it is a beneficiary, drafts, instruments (including promissory
notes), securities, documents of title, and chattel paper, and Borrower’s Books
relating to any of the foregoing.

 

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“Obligations” means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrowers pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from a Borrower to others that Bank may have obtained by assignment or
otherwise.

 

“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.

 

“Periodic Payments” means all installments or similar recurring payments that
Borrowers may now or hereafter become obligated to pay to Bank pursuant to the
terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrowers and Bank.

 

“Permitted Indebtedness” means:

 

(a)           Indebtedness of Borrowers or Guarantors in favor of Bank arising
under this Agreement or any other Loan Document;

 

(b)           Indebtedness existing on the Closing Date and disclosed in the
Schedule;

 

(c)           Indebtedness not to exceed Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate in any fiscal year of Borrowers or Guarantors
secured by a lien described in clause (c) of the defined term “Permitted Liens;”
provided such Indebtedness does not exceed the lesser of the cost or fair market
value of the equipment financed with such Indebtedness at the time of financing;

 

(d)           Subordinated Debt;

 

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

 

(f)            Indebtedness of a Borrower to another Borrower or a Guarantor;

 

(g)           Indebtedness not to exceed Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate with respect to credit card debt incurred in the
ordinary course of Borrowers’ business; and

 

(h)           Extensions, refinancings and renewals of any items of Permitted
Indebtedness, provided that the principal amount is not increased or the terms
modified to impose more burdensome terms upon the respective Borrower, Guarantor
or its Subsidiary, as the case may be.

 

“Permitted Investment” means:

 

(a)           Investments existing on the Closing Date disclosed in the
Schedule; and

 

(b)           (i) Marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having rating of at least A-2 or P-2 from either Standard
& Poor’s Corporation or Moody’s Investors Service, (iii) Bank’s certificates of
deposit maturing no more than one (1) year from the date of investment therein
and (iv) Bank’s money market accounts;

 

(c)           Repurchases of stock from former employees or directors of a
Guarantor or Borrower under the terms of applicable repurchase agreements (i) in
an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000)
in any fiscal year, provided that no Event of Default has occurred, is
continuing or would exist after giving effect to the repurchases, or (ii) in any
amount where the consideration for the repurchase is the cancellation of
indebtedness owed by such former employees to such Borrower regardless of
whether an Event of Default exists;

 

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(d)           Investments accepted in connection with Permitted Transfers;

 

(e)           Investments of a Guarantor in a Borrower or another Guarantor and
Investments by a Borrower in another Borrower;

 

(f)            Investments not to exceed Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate in any fiscal year 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 a Guarantor or a Borrower or
its Subsidiaries pursuant to employee stock purchase plan agreements approved by
such Guarantor’s or such Borrower’s Board of Directors;

 

(g)           Investments (including debt obligations) received in connection
with the bankruptcy, reorganization or other compromise of customers or
suppliers and in settlement of delinquent obligations of, and other disputes
with, customers or suppliers arising in the ordinary course of a Guarantor’s or
a Borrower’s business;

 

(h)           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 subparagraph
(h) shall not apply to Investments of a Guarantor or a Borrower in any
Subsidiary; and

 

(i)            Joint ventures or strategic alliances in the ordinary course of a
Guarantor’s or a Borrower’s business consisting of the non-exclusive licensing
of technology, the development of technology or the providing of technical
support, provided that any cash Investments by Guarantors or Borrowers do not
exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any
fiscal year.

 

“Permitted Liens” means the following:

 

(a)           Any Liens existing on the Closing Date and disclosed in the
Schedule (excluding Liens to be satisfied with the proceeds of the Advances) or
arising under this Agreement or the other Loan Documents;

 

(b)           Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings and for which the relevant Borrower or Guarantor maintains adequate
reserves;

 

(c)           Liens not to exceed Two Hundred Fifty Thousand Dollars ($250,000)
in the aggregate (i) upon or in any Equipment (other than Equipment financed by
an Equipment Advance) acquired or held by a Guarantor, a Borrower or any of its
Subsidiaries to secure the purchase price of such Equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
Equipment, or (ii) existing on such Equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such Equipment;

 

(d)           Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase;

 

(e)           Licenses between Borrowers and Guarantors for the use of property
in the ordinary course of business;

 

(f)            Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Sections 8.5 or 8.9;
and

 

(g)           Liens in favor of other financial institutions arising in
connection with Guarantor’s Borrower’s deposit accounts held at such
institutions to secured standard fees for deposit services

 

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charged by, but not financing made available by such institutions, provided that
Bank has a perfected security interest in the amounts held in such deposit
accounts.

 

“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition
by a Guarantor, a Borrower or any Subsidiary of:

 

(a)           Inventory in the ordinary course of business;

 

(b)           licenses and similar arrangements for the use of the property of a
Guarantor or a Borrower or its Subsidiaries in the ordinary course of business;

 

(c)           cash to any Guarantor to satisfy mandatory tax payments with
respect to a Borrower:

 

(d)           beginning on January 1, 2008, cash or other assets to Guarantors
not to exceed One Million Dollars ($1,000,000) in the aggregate;

 

(e)           any property to a Borrower;

 

(f)            worn-out or obsolete Equipment; or

 

(g)           other assets of Borrowers and their Subsidiaries that do not in
the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000) during any
fiscal year.

 

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

 

“Prime Rate” means the variable rate of interest, per annum, most recently
announced by Bank, as its “prime rate,” whether or not such announced rate is
the lowest rate available from Bank.

 

“Responsible Officer” means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer, and the Controller of a
Borrower.

 

“Revolving Line” means a Credit Extension of up to Eighteen Million Five Hundred
Thousand Dollars ($18,500,000) on the Closing Date.  Availability under the
Revolving Line shall be reduced on the last day of each month by: (i) Two
Hundred Fifty Thousand Dollars ($250,000) per month from October 31, 2005
through September 30, 2007; (ii) Three Hundred Forty Seven Thousand Two Hundred
Twenty Two and 22/100 Dollars ($347,222.22) per month from October 31, 2007
through September 30, 2009; and (iii) Three Hundred Forty Seven Thousand Two
Hundred Twenty Two and 23/100 Dollars ($347,222.23) per month from October 31,
2009 through the Revolving Maturity Date.   By way of example, on October 31,
2005, the Revolving Line shall be reduced to Eighteen Million Two Hundred Fifty
Thousand Dollars ($18,250,000); on November 30, 2005, the Revolving Line shall
be reduced to Eighteen Million Dollars ($18,000,000) and so forth.

 

“Revolving Maturity Date” means October 04, 2010.

 

“Schedule” means the schedule of exceptions attached hereto and approved by
Bank, if any.

 

“Shares” means (i) sixty five percent (65%) of the issued and outstanding
capital stock, membership units or other securities owned or held of record by a
Guarantor or a Borrower in any Subsidiary of such Guarantor or Borrower which is
not an entity organized under the laws of the United States or any territory
thereof, and (ii) one hundred percent (100%) of the issued and outstanding
capital stock, membership units or other securities owned or held of record by a
Guarantor or Borrower in any Subsidiary of such Guarantor or Borrower which is
an entity organized under the laws of the United States or any territory
thereof.

 

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“SOS Reports” means the official reports from the Secretaries of State of each
Collateral State, Chief Executive Office State and Borrower State and other
applicable federal, state or local government offices identifying all current
security interests filed in the Collateral and Liens of record as of the date of
such report.

 

“Subordinated Debt” means any debt or deferred payments incurred or owing by a
Borrower that is subordinated in writing to the debt owing by such Borrower to
Bank on terms reasonably acceptable to Bank (and identified as being such by
such Borrower and Bank).

 

“Subsidiary” means any corporation, partnership or limited liability company or
joint venture in which (i) any general partnership interest or (ii) more than
fifty percent (50%) of the stock, limited liability company interest or joint
venture of which by the terms thereof has the ordinary voting power to elect the
Board of Directors, managers or trustees of the entity, at the time as of which
any determination is being made, is owned by a Borrower, either directly or
through an Affiliate.

 

 “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 a Borrower connected
with and symbolized by such trademarks.

 

1.2           Accounting Terms.  Any accounting term not specifically defined
herein shall be construed in accordance with GAAP and all calculations shall be
made in accordance with GAAP.  The term “financial statements” shall include the
accompanying notes and schedules.

 

2.             LOAN AND TERMS OF PAYMENT.

 

2.1           Credit Extensions.

 

(a)           Promise to Pay.  Borrowers promise to pay to Bank, in lawful money
of the United States of America, the aggregate unpaid principal amount of all
Credit Extensions made by Bank to Borrowers, together with interest on the
unpaid principal amount of such Credit Extensions at rates in accordance with
the terms hereof.

 

(b)           Advances Under Revolving Line.

 

(i)            Amount.  Subject to and upon the terms and conditions of this
Agreement (1) Borrowers may request one or more Advances in an aggregate
outstanding amount not to exceed the Revolving Line and (2) amounts borrowed
pursuant to this Section 2.1(b) may be repaid and reborrowed at any time prior
to the Revolving Maturity Date, at which time all Advances under this Section
2.1(b) shall be immediately due and payable.  Borrowers may prepay and reborrow
any Advances without penalty or premium.

 

(ii)           Excess Cash Flow Recapture.  Within three (3) Business days of
receipt of quarterly financial statements for each fiscal quarter during which
Advances are outstanding, Borrowers shall pay to Bank an amount equal to seventy
five percent (75%) of their Excess Cash Flow for the immediately preceding
fiscal quarter.  This Excess Cash Flow payment will be allocated to reduce the
amount of outstanding Advances.

 

(iii)          Form of Request.  Whenever Borrowers desires an Advance,
Borrowers will notify Bank by email or facsimile transmission or telephone no
later than 3:00 p.m. Pacific time (1:00 p.m. Pacific time for wire transfers),
on the Business Day that the Advance is to be made.  Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit B hereto.  Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank’s discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid.  Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrowers shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance.  Bank will credit the amount
of Advances made under this Section 2.1(b) to Borrowers’ deposit account.

 

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2.2           Overadvances.  If the aggregate amount of the outstanding Advances
exceeds the Revolving Line at any time, Borrowers shall immediately pay to Bank,
in cash, the amount of such excess.

 

2.3           Interest Rates, Payments, and Calculations.

 

(a)           Interest Rates for Advances.  Except as set forth in Section
2.3(b), the Advances shall bear interest, on the outstanding daily balance
thereof, as set forth in the LIBOR Addendum to Loan & Security Agreement
attached as Exhibit D.

 

(b)           Late Fee; Default Rate.  If any payment is not made within ten
(10) days after the date such payment is due, Borrowers shall pay Bank a late
fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid
amount or (ii) the maximum amount permitted to be charged under applicable law. 
All Obligations shall bear interest, from and after the occurrence and during
the continuance of an Event of Default, at a rate equal to five (5) percentage
points above the interest rate applicable immediately prior to the occurrence of
the Event of Default.

 

(c)           Payments.  Interest hereunder shall be due and payable on the last
calendar day of each month during the term hereof.  Bank shall, at its option,
charge such interest, all Bank Expenses, and all Periodic Payments against any
of either Borrower’s deposit accounts or against the Revolving Line, in which
case those amounts shall thereafter accrue interest at the rate then applicable
hereunder until repaid.  Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.

 

(d)           Computation.  In the event the Prime Rate is changed from time to
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased, effective as of the day the Prime Rate is changed, by an amount equal
to such change in the Prime Rate.  All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.

 

2.4           Crediting Payments.  Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrowers specifies.  After the
occurrence of an Event of Default, Bank shall have the right, in its sole
discretion, to immediately apply any wire transfer of funds, check, or other
item of payment Bank may receive to conditionally reduce Obligations, but such
applications of funds shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when presented for payment.  Notwithstanding
anything to the contrary contained herein, any wire transfer or payment received
by Bank after 12:00 noon Pacific time shall be deemed to have been received by
Bank as of the opening of business on the immediately following Business Day. 
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such
extension.

 

2.5           Fees.  Borrowers shall pay to Bank the following:

 

(a)           Facility Fee.  On the Closing Date, a fee equal to $92,500, which
shall be nonrefundable; and

 

(b)           Bank Expenses.  On the Closing Date, all Bank Expenses incurred
through the Closing Date, and, after the Closing Date, all Bank Expenses as and
when they become due.

 

2.6           Term.  This Agreement shall become effective on the Closing Date
and, subject to Section 14.7, shall continue in full force and effect for so
long as any Obligations remain outstanding or Bank has any obligation to make
Credit Extensions under this Agreement.  Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.

 

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3.             CONDITIONS OF LOANS.

 

3.1           Conditions Precedent to Initial Credit Extension.  The obligation
of Bank 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)           an officer’s certificate of each Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;

 

(c)           UCC National Form Financing Statements for each Borrower;

 

(d)           an intellectual property security agreement from each Borrower and
from each Guarantor;

 

(e)           a third party security agreement from each Guarantor

 

(f)            an unconditional guaranty from each Guarantor.

 

(g)           the certificate(s) for the Shares, together with Assignment(s)
Separate from Certificate, duly executed by in blank;

 

(h)           fully executed copies of the documents evidencing the acquisition
of Uptilt Inc  by Commodore Resources (Nevada), Inc.;

 

(i)            current SOS Reports indicating that except for Permitted Liens,
there are no other security interests or Liens of record in the Collateral;

 

(j)            control agreements with respect to any accounts permitted
hereunder to be maintained outside Bank (except with respect to accounts at
Cupertino Bank);

 

(k)           agreement to provide insurance;

 

(l)            payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;

 

(m)          current financial statements, including audited statements for J.L.
Halsey Corporation’s most recently ended fiscal year, together with an
unqualified opinion, company prepared consolidated and consolidating balance
sheets and income statements for the most recently ended month in accordance
with Section 6.2, and such other updated financial information as Bank may
reasonably request;

 

(n)           Burr, Pilger and Mayer review of Uptilt Inc.’s financial
statements;

 

(o)           current Compliance Certificate in accordance with Section 6.2; and

 

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

 

3.2           Conditions Precedent to all Credit Extensions.  The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:

 

(a)           timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1; and

 

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(b)           the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would exist after giving effect to such Credit
Extension (provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date).  The making of each Credit Extension shall
be deemed to be a representation and warranty by Borrowers on the date of such
Credit Extension as to the accuracy of the facts referred to in this Section
3.2.

 

4.             CREATION OF SECURITY INTEREST.

 

4.1           Grant of Security Interest.  Each Borrower grants and pledges to
Bank a continuing security interest in the Collateral to secure prompt repayment
of any and all Obligations and to secure prompt performance by Borrowers of each
of its covenants and duties under the Loan Documents.  Except as set forth in
the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral (except for leasehold
interests in real estate), and will constitute a valid, first priority security
interest in later-acquired Collateral.  Notwithstanding any termination, Bank’s
Lien on the Collateral shall remain in effect for so long as any Obligations are
outstanding.

 

4.2           Perfection of Security Interest.  Each Borrower authorizes Bank to
file at any time financing statements, continuation statements, and amendments
thereto that (i) either specifically describe the Collateral or describe the
Collateral as all assets of such Borrower of the kind pledged hereunder, and
(ii) contain any other information required by the Code for the sufficiency of
filing office acceptance of any financing statement, continuation statement, or
amendment, including whether such Borrower is an organization, the type of
organization and any organizational identification number issued to such
Borrower, if applicable.  Any such financing statements may be signed by Bank on
behalf of Borrowers, as provided in the Code, and may be filed at any time in
any jurisdiction whether or not Revised Article 9 of the Code is then in effect
in that jurisdiction.  Each Borrower shall from time to time endorse and deliver
to Bank, at the request of Bank, all Negotiable Collateral and other documents
that Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank’s security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents. 
Each Borrower shall have possession of the Collateral, except where expressly
otherwise provided in this Agreement or where Bank chooses to perfect its
security interest by possession in addition to the filing of a financing
statement.  Where Collateral is in possession of a third party bailee, each
Borrower shall take such commercially reasonable steps as Bank reasonably
requests for Bank to (i) obtain an acknowledgment, in form and substance
satisfactory to Bank, of the bailee that the bailee holds such Collateral for
the benefit of Bank and (ii) obtain “control” of any Collateral consisting of
investment property, deposit accounts, letter-of-credit rights or electronic
chattel paper (as such items and the term “control” are defined in Revised
Article 9 of the Code) by causing the securities intermediary or depositary
institution or issuing bank to execute a control agreement in form and substance
satisfactory to Bank.  No Borrower will create any chattel paper without placing
a legend on the chattel paper acceptable to Bank indicating that Bank has a
security interest in the chattel paper.  Each Borrower from time to time may
deposit with Bank specific cash collateral to secure specific Obligations; each
Borrower authorizes Bank to hold such specific balances in pledge and to decline
to honor any drafts thereon or any request by a Borrower or any other Person to
pay or otherwise transfer any part of such balances for so long as the specific
Obligations are outstanding.

 

4.3           Right to Inspect.  Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during a Borrower’s usual business hours but no more than twice a year (unless
an Event of Default has occurred and is continuing), to inspect such Borrower’s
Books and to make copies thereof and to check, test, and appraise the Collateral
in order to verify such Borrower’s financial condition or the amount, condition
of, or any other matter relating to, the Collateral.

 

4.4           Pledge of Collateral.  Each Borrower hereby pledges, assigns and
grants to Bank a security interest in all the Shares, together with all proceeds
and substitutions thereof, all cash, stock and other moneys and property paid
thereon, all rights to subscribe for securities declared or granted in
connection therewith, and all other cash and noncash proceeds of the foregoing,
as security for the performance of the Obligations.  On the Closing Date, the
certificate or certificates for the Shares will be delivered to Bank,
accompanied by an instrument of assignment duly executed in blank by the
appropriate Borrower.  To the extent required by the terms and

 

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conditions governing the Shares, the relevant Borrower shall cause the books of
each entity whose Shares are part of the Collateral and any transfer agent to
reflect the pledge of the Shares.  Upon the occurrence and during the
continuance of an Event of Default hereunder, Bank may effect the transfer of
any securities included in the Collateral (including but not limited to the
Shares) into the name of Bank and cause new certificates representing such
securities to be issued in the name of Bank or its transferee.  Each Borrower
will execute and deliver such documents, and take or cause to be taken such
actions, as Bank may reasonably request to perfect or continue the perfection of
Bank’s security interest in the Shares.  Unless an Event of Default shall have
occurred and be continuing, each Borrower shall be entitled to exercise any
voting rights with respect to the relevant Shares and to give consents, waivers
and ratifications in respect thereof, provided that no vote shall be cast or
consent, waiver or ratification given or action taken which would be
inconsistent with any of the terms of this Agreement or which would constitute
or create any violation of any of such terms.  All such rights to vote and give
consents, waivers and ratifications shall terminate upon the occurrence and
continuance of an Event of Default.

 

5.             REPRESENTATIONS AND WARRANTIES.

 

Each Borrower represents and warrants as follows with respect to such Borrower:

 

5.1           Due Organization and Qualification.  Borrower and each Subsidiary
is duly existing under the laws of the state in which it is organized and
qualified and licensed to do business in any state in which the conduct of its
business or its ownership of property requires that it be so qualified, except
where the failure to do so could not reasonably be expected to cause a Material
Adverse Effect.

 

5.2           Due Authorization; No Conflict.  The execution, delivery, and
performance of the Loan Documents are within Borrower’s powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower’s Articles or Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement by which Borrower is bound.  Borrower is not in default under any
agreement by which it is bound, except to the extent such default could not
reasonably be expected to cause a Material Adverse Effect.

 

5.3           Collateral.  Borrower has rights in or the power to transfer the
Collateral, and its title to the Collateral is free and clear of Liens, adverse
claims, and restrictions on transfer or pledge except for Permitted Liens.  All
Collateral is located solely in the Collateral States.  All Inventory is in all
material respects of good and merchantable quality, free from all material
defects, except for Inventory for which adequate reserves have been made. 
Except as set forth in the Schedule, none of the Collateral is maintained or
invested with a Person other than Bank or Bank’s Affiliates.

 

5.4           Intellectual Property Collateral.  Borrower is the sole owner or
the valid licensee of the Intellectual Property Collateral, except for licenses
granted by Borrower to its customers in the ordinary course of business.  To the
best of Borrower’s knowledge, each of the Copyrights, Trademarks and Patents is
valid and enforceable, and no part of the Intellectual Property Collateral has
been judged invalid or unenforceable, in whole or in part, and no claim has been
made to Borrower that any part of the Intellectual Property Collateral violates
the rights of any third party except to the extent such claim could not
reasonably be expected to cause a Material Adverse Effect.  Except as set forth
in the Schedule, Borrower’s rights as a licensee of intellectual property do not
give rise to more than five percent (5%) of its gross revenue in any given
month, including without limitation revenue derived from the sale, licensing,
rendering or disposition of any product or service.

 

5.5           Name; Location of Chief Executive Office.  Except as disclosed in
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof, and its exact legal name is as set forth
in the first paragraph of this Agreement.  The chief executive office of
Borrower is located in the Chief Executive Office State at the address indicated
in Section 10 hereof.

 

5.6           Litigation.  Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which a likely adverse decision could
reasonably be expected to have a Material Adverse Effect.

 

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5.7                                 No Material Adverse Change in Financial
Statements.  All consolidated and consolidating financial statements related to
Borrower and any Subsidiary that are delivered by Borrower to Bank fairly
present in all material respects Borrower’s consolidated and consolidating
financial condition as of the date thereof and Borrower’s consolidated and
consolidating results of operations for the period then ended.  There has not
been a material adverse change in the consolidated or in the consolidating
financial condition of Borrowers (taken as a whole) since the date of the most
recent of such financial statements submitted to Bank.

 

5.8                                 Solvency, Payment of Debts.  Borrower is
able to pay its debts (including trade debts) as they mature; the fair saleable
value of Borrower’s assets (including goodwill minus disposition costs) exceeds
the fair value of its liabilities; and Borrower is not left with unreasonably
small capital after the transactions contemplated by this Agreement.

 

5.9                                 Compliance with Laws and Regulations. 
Borrower and each Subsidiary have met the minimum funding requirements of ERISA
with respect to any employee benefit plans subject to ERISA.  No event has
occurred resulting from Borrower’s failure to comply with ERISA that is
reasonably likely to result in Borrower’s incurring any liability that could
have a Material Adverse Effect.  Borrower is not an “investment company” or a
company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940.  Borrower is not engaged principally, or as one
of the important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulations T and
U of the Board of Governors of the Federal Reserve System).  Borrower has
complied in all material respects with all the provisions of the Federal Fair
Labor Standards Act.  Borrower is in compliance with all environmental laws,
regulations and ordinances except where the failure to comply is not reasonably
likely to have a Material Adverse Effect.  Borrower has not violated any
statutes, laws, ordinances or rules applicable to it, the violation of which
could reasonably be expected to have a Material Adverse Effect.  Borrower and
each Subsidiary have filed or caused to be filed all tax returns required to be
filed, and have paid, or have made adequate provision for the payment of, all
taxes reflected therein except those being contested in good faith with adequate
reserves under GAAP or where the failure to file such returns or pay such taxes
could not reasonably be expected to have a Material Adverse Effect.

 

5.10                           Subsidiaries.  Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.

 

5.11                           Government Consents.  Borrower and each
Subsidiary have obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all governmental
authorities that are necessary for the continued operation of Borrower’s
business as currently conducted, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Effect.

 

5.12                           Inbound Licenses.  Except as disclosed on the
Schedule, Borrower is not a party to, nor is bound by, any license as licensee
or other material agreement that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower’s interest in such license or agreement
or any other property.

 

5.13                           Shares.  Borrower has full power and authority to
create a first lien on the Shares and no disability or contractual obligation
exists that would prohibit Borrower from pledging the Shares pursuant to this
Agreement.  To Borrower’s knowledge, there are no subscriptions, warrants,
rights of first refusal or other restrictions on transfer relative to, or
options exercisable with respect to the Shares.  The Shares have been and will
be duly authorized and validly issued, and are fully paid and non-assessable. 
To Borrower’s knowledge, the Shares are not the subject of any present or
threatened suit, action, arbitration, administrative or other proceeding, and
Borrower knows of no reasonable grounds for the institution of any such
proceedings.

 

5.14                           Full Disclosure.  No representation, warranty or
other statement made by Borrower in any certificate or written statement
furnished to Bank taken together with all such certificates and written
statements furnished to Bank contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained in such certificates or statements not misleading as of the date made
or provided, it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not
to be viewed as facts and that actual results during the period or periods
covered by any such projections and forecasts may differ from the projected or
forecasted results.

 

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5.15                           Inactive Subsidiaries.  The Inactive Subsidiaries
currently do not conduct any business and do not own any material assets.

 

6.                                       AFFIRMATIVE COVENANTS.

 

Each Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, such Borrower (except as otherwise indicated)
shall do all of the following:

 

6.1                                 Good Standing and Government Compliance. 
Borrower shall maintain its and each of its Subsidiaries’ corporate existence
and good standing in the Borrower State, shall maintain qualification and good
standing in each other jurisdiction in which the failure to so qualify could
have a Material Adverse Effect, and shall furnish to Bank the organizational
identification number issued to Borrower by the authorities of the state in
which Borrower is organized, if applicable.  Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA.  Borrower shall comply
in all material respects with all applicable Environmental Laws, and maintain
all material permits, licenses and approvals required thereunder where the
failure to do so could have a Material Adverse Effect.  Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, and shall maintain,
and shall cause each of its Subsidiaries to maintain, in force all licenses,
approvals and agreements, the loss of which or failure to comply with which
could reasonably be expected to have a Material Adverse Effect.

 

6.2                                 Financial Statements, Reports,
Certificates.  Borrowers shall deliver the following to Bank: i) as soon as
available, but in any event within thirty (30) days after the end of each
calendar month, a company prepared consolidated and consolidating balance sheet
and income statement covering Borrowers’ operations during such period, in a
form reasonably acceptable to Bank and certified by a Responsible Officer;
(ii) as soon as available, but in any event within the indicated time frame,
copies of all statements, reports and notices sent or made available generally
by Borrowers to its security holders or to any holders of Subordinated Debt and
all reports on Forms 10-Q (within forty-five (45) days of the end of each fiscal
quarter) and 10-K (within ninety (90) days of the end of each fiscal year) filed
with the Securities and Exchange Commission; (iv) no later than seventy five
(75) days after the Closing Date, unqualified audited financial statements of
Uptilt Inc. for its 2004 fiscal year with no changes from the draft financial
statements previously provided to Bank which could reasonably be expected to
have a Material Adverse Effect; (v) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against a Borrower or any
Subsidiary that could result in damages or costs to a Borrower or any Subsidiary
of Two Hundred Fifty Thousand Dollars ($250,000) or more; (vi) promptly upon
receipt, each management letter prepared by a Borrower’s independent certified
public accounting firm regarding such Borrower’s management control systems;
(vii) such budgets, sales projections, operating plans or other financial
information generally prepared by a Borrower in the ordinary course of business
as Bank may reasonably request from time to time; and (viii) within forty five
(45) days of the last day of each fiscal quarter, a report signed by Borrowers,
in form reasonably acceptable to Bank, listing any applications or registrations
that a Borrower has made or filed in respect of any Patents, Copyrights or
Trademarks and the status of any outstanding applications or registrations, as
well as any material change in a Borrower’s Intellectual Property Collateral,
including but not limited to any subsequent ownership right of such Borrower in
or to any Trademark, Patent or Copyright not specified in Exhibits A, B, and C
of any Intellectual Property Security Agreement delivered to Bank by such
Borrower in connection with this Agreement.

 

(a)                                  Within thirty (30) days after the last day
of each month, Borrowers shall deliver to Bank aged listings by invoice date of
accounts receivable and accounts payable.

 

(b)                                 Within thirty (30) days after the last day
of each month, Borrowers shall deliver to Bank with the monthly financial
statements, a Compliance Certificate certified as of the last day of the
applicable month and signed by a Responsible Officer in substantially the form
of Exhibit D hereto.

 

(c)                                  As soon as possible and in any event within
three (3) calendar days after becoming aware of the occurrence or existence of
an Event of Default hereunder, a written statement of a

 

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Responsible Officer of Borrowers setting forth details of the Event of Default,
and the action which Borrowers and the relevant Borrower (if other than
Borrowers) has taken or proposes to take with respect thereto.

 

(d)                                 Bank shall have a right from time to time
hereafter to audit each Borrower’s Accounts and appraise Collateral at
Borrowers’ expense and shall conduct such an audit no later than forty five (45)
days after the closing date, provided that such audits will be conducted no more
often than every twelve (12) months unless an Event of Default has occurred and
is continuing.

 

Borrowers may deliver to Bank on an electronic basis any certificates, reports
or information required pursuant to this Section 6.2, and Bank shall be entitled
to rely on the information contained in the electronic files, provided that Bank
in good faith believes that the files were delivered by a Responsible Officer. 
If Borrowers deliver this information electronically, it shall also deliver to
Bank by U.S. Mail, reputable overnight courier service, hand delivery, facsimile
or .pdf file within five (5) Business Days of submission of the unsigned
electronic copy the certification of monthly financial statements, the
intellectual property report, the Borrowing Base Certificate and the Compliance
Certificate, each bearing the physical signature of the Responsible Officer.

 

6.3                                 Inventory; Returns.  Borrower shall keep all
Inventory in good and merchantable condition, free from all material defects
except for Inventory for which adequate reserves have been made.  Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist on the Closing Date.  Borrower shall promptly notify Bank of all
returns and recoveries and of all disputes and claims involving more than Two
Hundred Fifty Thousand Dollars ($250,000).

 

6.4                                 Taxes.  Borrower shall make, and cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
including, but not limited to, those laws concerning income taxes, F.I.C.A.,
F.U.T.A. and state disability, and will execute and deliver to Bank, on demand,
proof satisfactory to Bank indicating that Borrower or a Subsidiary has made
such payments or deposits and any appropriate certificates attesting to the
payment or deposit thereof; provided that Borrower or a Subsidiary need not make
any payment if the amount or validity of such payment is contested in good faith
by appropriate proceedings and is reserved against (to the extent required by
GAAP) by Borrower.

 

6.5                                 Insurance.

 

(a)                                  Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses conducted in the locations where
Borrower’s business is conducted on the date hereof.  Borrower shall also
maintain liability and other insurance in amounts and of a type that are
customary to businesses similar to Borrower’s.

 

(b)                                 All such policies of insurance shall be in
such form, with such companies, and in such amounts as reasonably satisfactory
to Bank.  All policies of property insurance shall contain a lender’s loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee, and all liability insurance policies shall show Bank as
an additional insured and specify that the insurer must give at least 10 days
notice to Bank before canceling its policy for any reason.  Upon Bank’s request,
Borrower shall deliver to Bank certified copies of the policies of insurance and
evidence of all premium payments.  If no Event of Default has occurred and is
continuing, proceeds payable under any casualty policy will, at Borrower’s
option, be payable to Borrower to replace the property subject to the claim,
provided that any such replacement property shall be deemed Collateral in which
Bank has been granted a first priority security interest.  If an Event of
Default has occurred and is continuing, all proceeds payable under any such
policy shall, at Bank’s option, be payable to Bank to be applied on account of
the Obligations.

 

6.6                                 Accounts.  Borrower shall maintain its
primary depository and operating accounts with Bank, and its primary investment
accounts with Bank or Bank’s Affiliates.

 

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6.7                                 Financial Covenants.  Borrower shall at all
times maintain the following financial ratios and covenants:

 

(a)                                  Fixed Charge Coverage.  Measured on a
monthly basis, a ratio of trailing twelve-months EBITDA plus excess borrowing
availability under the Revolving Line at a Funded Indebtedness  to EBITDA ratio
of 1.50:1.00, to the sum of Capitalized Expenditures, interest expense, income
tax expense, the required reductions to the Revolving Line (to the extent
funded) and Subordinated Debt payments in the preceding 12-month period of at
least 1.25 to 1.00; notwithstanding the foregoing, trailing 12-month EBITDA
shall be calculated on a year-to-date annualized basis for the month-end
reporting periods ended August 31, 2005 through November 31, 2005.

 

(b)                                 EBITDA.  Measured monthly on a rolling
three-month basis, an EBITDA of not less than (i) One Million Five Hundred
Thousand Dollars ($1,500,000) from the Closing Date through the measuring period
ending August 31, 2006, (ii) Two Million Dollars ($2,000,000) for the measuring
period ending September 30, 2006 through the measuring period ending
February 28, 2007, and (iii) Two Million Five Hundred Thousand Dollars
($2,500,000) at all times thereafter.

 

(c)                                  Senior Debt to EBITDA.  Measured on a
monthly basis, a ratio of Funded Indebtedness, minus Cash held at Bank and Bank
Affiliates to EBITDA calculated on a trailing twelve-month basis of not greater
than: (i) 2.50 to 1.00 from the Closing Date through the measuring period ending
November 30, 2006, (ii) 2.00 to 1.00 for the measuring period ending
December 31, 2006 though the measuring period ending November 30, 2007 and
(iii) 1.50 to 1.00 at all times thereafter.

 

6.8                                 Intellectual Property Rights.

 

(a)                                  Borrower shall register or cause to be
registered on an expedited basis (to the extent not already registered) with the
United States Patent and Trademark Office or the United States Copyright Office,
as the case may be, those registerable intellectual property rights now owned or
hereafter developed or acquired by Borrower, to the extent that Borrower, in its
reasonable business judgment, deems it appropriate to so protect such
intellectual property rights.

 

(b)                                 Borrower shall promptly give Bank written
notice of any applications or registrations of intellectual property rights
filed with the United States Patent and Trademark Office, including the date of
such filing and the registration or application numbers, if any.

 

(c)                                  Borrower shall (i) give Bank not less than
thirty (30) days prior written notice of the filing of any applications or
registrations with the United States Copyright Office, including the title of
such intellectual property rights to be registered, as such title will appear on
such applications or registrations, and the date such applications or
registrations will be filed; (ii) prior to the filing of any such applications
or registrations, execute such documents as Bank may reasonably request for Bank
to maintain its perfection in such intellectual property rights to be registered
by Borrower; (iii) upon the request of Bank, either deliver to Bank or file such
documents simultaneously with the filing of any such applications or
registrations; (iv) upon filing any such applications or registrations, promptly
provide Bank with a copy of such applications or registrations together with any
exhibits, evidence of the filing of any documents requested by Bank to be filed
for Bank to maintain the perfection and priority of its security interest in
such intellectual property rights, and the date of such filing.

 

(d)                                 Borrower shall execute and deliver such
additional instruments and documents from time to time as Bank shall reasonably
request to perfect and maintain the perfection and priority of Bank’s security
interest in the Intellectual Property Collateral.

 

(e)                                  Borrower shall (i) protect, defend and
maintain the validity and enforceability of the trade secrets, Trademarks,
Patents and Copyrights, (ii) use commercially reasonable efforts to detect
infringements of the Trademarks, Patents and Copyrights and promptly advise Bank
in writing of material infringements detected and (iii) not allow any material
Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the
public without the written consent of Bank, which shall not be unreasonably
withheld.

 

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(f)                                    Bank may audit Borrower’s Intellectual
Property Collateral to confirm compliance with this Section, provided such audit
may not occur more often than twice per year, unless an Event of Default has
occurred and is continuing.  Bank shall have the right, but not the obligation,
to take, at Borrower’s sole expense, any actions that Borrower is required under
this Section to take but which Borrower fails to take, after fifteen (15) days’
notice to Borrower.  Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section.

 

6.9                                 Consent of Inbound Licensors.  Prior to
entering into or becoming bound by any material license or agreement, Borrower
shall:  (i) provide written notice to Bank of the material terms of such license
or agreement with a description of its likely impact on Borrower’s business or
financial condition; and (ii) in good faith use commercially reasonable efforts
to obtain the consent of, or waiver by, any person whose consent or waiver is
necessary for Borrower’s interest in such licenses or contract rights to be
deemed Collateral and for Bank to have a security interest in it that might
otherwise be restricted by the terms of the applicable license or agreement,
whether now existing or entered into in the future, provided, however, that the
failure to obtain any such consent or waiver shall not constitute a default
under this Agreement.

 

6.10                           Creation/Acquisition of Subsidiaries.  In the
event Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower
and such Subsidiary shall promptly notify Bank of the creation or acquisition of
such new Subsidiary and take all such action as may be reasonably required by
Bank to cause such Subsidiary to become a co-Borrower hereunder and Borrower
shall grant and pledge to Bank a perfected security interest in the stock, units
or other evidence of ownership of such Subsidiary.

 

6.11                           Inactive Subsidiaries.  Borrower shall cause the
Inactive Subsidiaries to be dissolved as soon after the Closing Date as is
feasible.

 

6.12                           Further Assurances.  At any time and from time to
time Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.

 

7.                                       NEGATIVE COVENANTS.

 

Each Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until the outstanding Obligations are paid in full or for so
long as Bank may have any commitment to make any Credit Extensions, such
Borrower will not do any of the following without Bank’s prior written consent,
which shall not be unreasonably withheld:

 

7.1                                 Dispositions.  Convey, sell, lease, license,
transfer or otherwise dispose of (collectively, to “Transfer”), or permit any of
its Subsidiaries to Transfer, all or any part of its business or property, or
move cash balances on deposit with Bank to accounts opened at another financial
institution, other than Permitted Transfers.

 

7.2                                 Change in Name, Location, Executive Office,
or Executive Management; Change in Business; Change in Fiscal Year; Change in
Control.  Change its name or the Borrower State or relocate its chief executive
office without thirty (30) days prior written notification to Bank; replace its
chief executive officer or chief financial officer without subsequent
notification to Bank within three (3) days; engage in any business, or permit
any of its Subsidiaries to engage in any business, other than or reasonably
related or incidental to the businesses currently engaged in by Borrower; change
its fiscal year end; suffer or permit a Change in Control.

 

7.3                                 Mergers or Acquisitions.  Merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with or
into any other business organization (other than mergers or consolidations of a
Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any
of its Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person except where (i) such transactions do not in the
aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000) during any fiscal
year, (ii) no Event of Default has occurred, is continuing or would exist after
giving effect to such transactions, (iii) such transactions do not result in a
Change in Control, and (iv) Borrower is the surviving entity.  Notwithstanding
the foregoing, Borrower

 

17

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Commodore Resources (Nevada), Inc. shall be permitted to [**] for [**], subject
to [**], provided that concurrent with [**] Borrower shall execute such
documents as Bank may request [**].

 

7.4                                 Indebtedness.  Create, incur, assume,
guarantee or be or remain liable with respect to any Indebtedness, or permit any
Subsidiary so to do, other than Permitted Indebtedness, or prepay any
Indebtedness or take any actions which impose on Borrower an obligation to
prepay any Indebtedness, except Indebtedness to Bank.

 

7.5                                 Encumbrances.  Create, incur, assume or
allow any Lien with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant
to any other Person that Borrower in the future will refrain from creating,
incurring, assuming or allowing any Lien with respect to any of Borrower’s
property.

 

7.6                                 Distributions.  Except for Permitted
Transfers, Pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock, except
that Borrower may (i) repurchase the stock of former employees pursuant to stock
repurchase agreements as long as an Event of Default does not exist prior to
such repurchase or would not exist after giving effect to such repurchase, and
(ii) repurchase the stock of former employees pursuant to stock repurchase
agreements by the cancellation of indebtedness owed by such former employees to
Borrower regardless of whether an Event of Default exists.

 

7.7                                 Investments.  Directly or indirectly acquire
or own, or make any Investment in or to any Person, or permit any of its
Subsidiaries so to do, other than Permitted Investments, or maintain or invest
any of its property with a Person other than Bank or Bank’s Affiliates or permit
any Subsidiary to do so unless such Person has entered into a control agreement
with Bank, in form and substance satisfactory to Bank, or suffer or permit any
Subsidiary to be a party to, or be bound by, an agreement that restricts such
Subsidiary from paying dividends or otherwise distributing property to Borrower.

 

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

 

7.9                                 Subordinated Debt.  Make any payment in
respect of any Subordinated Debt, or permit any of its Subsidiaries to make any
such payment, except in compliance with the terms of such Subordinated Debt
(including any subordination agreement executed in favor of Bank), or amend any
provision affecting Bank’s rights contained in any documentation relating to the
Subordinated Debt without Bank’s prior written consent.

 

7.10                           Inventory and Equipment.  Store a material part
of the Inventory or the Equipment with a bailee, warehouseman, or similar third
party unless the third party has been notified of Bank’s security interest and
Bank (a) has received an acknowledgment from the third party that it is holding
or will hold the Inventory or Equipment for Bank’s benefit or (b) is in
possession of the warehouse receipt, where negotiable, covering such Inventory
or Equipment.  Except for Inventory sold in the ordinary course of business,
Inventory in transit, immaterial items of Inventory and except for such other
locations as Bank may approve in writing, Borrower shall keep the Inventory and
Equipment only at the location set forth in Section 10 and such other locations
of which Borrower gives Bank prior written notice and as to which Bank files a
financing statement, or takes other action, where needed to perfect its security
interest.

 

7.11                           No Investment Company; Margin Regulation.  Become
or be controlled by an “investment company,” within the meaning of the
Investment Company Act of 1940, or become principally engaged in, or undertake
as one of its important activities, the business of extending credit for the
purpose of purchasing or carrying margin stock, or use the proceeds of any
Credit Extension for such purpose.

 

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

[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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7.12                           Negative Pledge Agreements.  Permit the inclusion
in any contract to which it or a Subsidiary becomes a party of any provisions
that could restrict or invalidate the creation of a security interest in any of
Borrower’s or such Subsidiary’s property.

 

8.                                       EVENTS OF DEFAULT.

 

Any one or more of the following events shall constitute an Event of Default by
Borrowers under this Agreement:

 

8.1                                 Payment Default.  If a Borrower fails to
pay, when due, any of the Obligations;

 

8.2                                 Covenant Default.

 

(a)                                  If a Borrower fails to perform any
obligation under Article 6 or violates any of the covenants contained in
Article 7 of this Agreement; or

 

(b)                                 If a Borrower fails or neglects to perform
or observe any other material term, provision, condition, covenant contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between a Borrower and Bank and as to any default under such other
term, provision, condition or covenant that can be cured, has failed to cure
such default within ten (10) days after a Borrower receives notice thereof or
any officer of a Borrower becomes aware 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 Borrowers be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrowers
shall have an additional reasonable 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 have cured such default shall not be deemed an Event
of Default but no Credit Extensions will be made;

 

8.3                                 Defective Perfection.  If Bank shall receive
at any time following the Closing Date an SOS Report indicating that except for
Permitted Liens, Bank’s security interest in the Collateral is not prior to all
other security interests or Liens of record reflected in such SOS Report;

 

8.4                                 Material Adverse Effect.  If there occurs
any circumstance or circumstances that could reasonably be expected to have a
Material Adverse Effect;

 

8.5                                 Attachment.  If any material portion of a
Borrower’s assets is attached, seized, subjected to a writ or distress warrant,
or is levied upon, or comes into the possession of any trustee, receiver or
person acting in a similar capacity and such attachment, seizure, writ or
distress warrant or levy has not been removed, discharged or rescinded within
ten (10) days, or if a Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs, or if a judgment or other claim becomes a lien or encumbrance
upon any material portion of a Borrower’s assets, or if a notice of lien, levy,
or assessment is filed of record with respect to any of a Borrower’s assets by
the United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten (10) days after such Borrower receives notice
thereof, provided that none of the foregoing shall constitute an Event of
Default where such action or event is stayed or an adequate bond has been posted
pending a good faith contest by such Borrower (provided that no Credit
Extensions will be required to be made during such cure period);

 

8.6                                 Insolvency.  If a Borrower becomes
insolvent, or if an Insolvency Proceeding is commenced by a Borrower, or if an
Insolvency Proceeding is commenced against a Borrower and is not dismissed or
stayed within thirty (30) days (provided that no Credit Extensions will be made
prior to the dismissal of such Insolvency Proceeding);

 

8.7                                 Other Agreements.  If there is a default or
other failure to perform in any agreement to which a Borrower is a party with a
third party or parties resulting in a right by such third party or parties,
whether or

 

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not exercised, to accelerate the maturity of any Indebtedness in an amount in
excess of Two Hundred Fifty Thousand Dollars ($250,000) or that could have a
Material Adverse Effect;

 

8.8                                 Subordinated Debt.  If a Borrower makes any
payment on account of Subordinated Debt, except to the extent such payment is
allowed under any subordination agreement entered into with Bank;

 

8.9                                 Judgments.  If a judgment or judgments for
the payment of money in an amount, individually or in the aggregate, of at least
Two Hundred Fifty Thousand Dollars ($250,000) shall be rendered against a
Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days
(provided that no Credit Extensions will be made prior to the satisfaction or
stay of such judgment); or

 

8.10                           Misrepresentations.  If any material
misrepresentation or material misstatement exists now or hereafter in any
warranty or representation set forth herein or in any certificate delivered to
Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to
enter into this Agreement or any other Loan Document.

 

8.11                           Guaranty.  If any guaranty of all or a portion of
the Obligations ceases for any reason to be in full force and effect, or any
guarantor fails to perform any obligation under any guaranty of all or a portion
of the Obligations, or any guarantor revokes or purports to revoke any guaranty
of the Obligations, or any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth in any
guaranty of all or a portion of the Obligations or in any certificate delivered
to Bank in connection with such guaranty.

 

9.                                       BANK’S RIGHTS AND REMEDIES.

 

9.1                                 Rights and Remedies.  Upon the occurrence
and during the continuance of an Event of Default, Bank may, at its election,
without notice of its election and without demand, do any one or more of the
following, all of which are authorized by Borrowers:

 

(a)                                  Declare all Obligations, whether evidenced
by this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.6, all Obligations shall become immediately due and
payable without any action by Bank);

 

(b)                                 Demand that Borrowers  (i) deposit cash with
Bank in an amount equal to the amount of any letters of credit issued by Bank
remaining undrawn, as collateral security for the repayment of any future
drawings under such Letters of Credit, and (ii) pay in advance all letter of
credit fees scheduled to be paid or payable over the remaining term of any
letters of credit issued by Bank, and Borrowers shall promptly deposit and pay
such amounts;

 

(c)                                  Cease advancing money or extending credit
to or for the benefit of Borrowers under this Agreement or under any other
agreement between a Borrower and Bank;

 

(d)                                 Settle or adjust disputes and claims
directly with account debtors for amounts, upon terms and in whatever order that
Bank reasonably considers advisable;

 

(e)                                  Make such payments and do such acts as Bank
considers necessary or reasonable to protect its security interest in the
Collateral.  Borrowers agree to assemble the Collateral if Bank so requires, and
to make the Collateral available to Bank as Bank may designate.  Borrowers
authorize Bank to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank’s determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith.  With respect to any
of a Borrower’s owned premises, Borrowers hereby grant Bank a license to enter
into possession of such premises and to occupy the same, without charge, in
order to exercise any of Bank’s rights or remedies provided herein, at law, in
equity, or otherwise;

 

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(f)                                    Set off and apply to the Obligations any
and all (i) balances and deposits of a Borrower held by Bank, and
(ii) indebtedness at any time owing to or for the credit or the account of a
Borrower held by Bank;

 

(g)                                 Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral.  Bank is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrowers’ labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, 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 9.1, each
Borrower’s rights under all licenses and all franchise agreements shall inure to
Bank’s benefit;

 

(h)                                 Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrowers’ premises)
as Bank determines is commercially reasonable, and apply any proceeds to the
Obligations in whatever manner or order Bank deems appropriate.  Bank may sell
the Collateral without giving any warranties as to the Collateral.  Bank may
specifically disclaim any warranties of title or the like.  This procedure will
not be considered adversely to affect the commercial reasonableness of any sale
of the Collateral.  If Bank sells any of the Collateral upon credit, Borrowers
will be credited only with payments actually made by the purchaser, received by
Bank, and applied to the indebtedness of the purchaser.  If the purchaser fails
to pay for the Collateral, Bank may resell the Collateral and Borrowers shall be
credited with the proceeds of the sale;

 

(i)                                     Bank may credit bid and purchase at any
public sale;

 

(j)                                     Apply for the appointment of a receiver,
trustee, liquidator or conservator of the Collateral, without notice and without
regard to the adequacy of the security for the Obligations and without regard to
the solvency of any Borrower, any guarantor or any other Person liable for any
of the Obligations; and

 

(k)                                  Any deficiency that exists after
disposition of the Collateral as provided above will be paid immediately by
Borrowers.

 

9.2                                 Power of Attorney.  Effective only upon the
occurrence and during the continuance of an Event of Default, Borrowers hereby
irrevocably appoint Bank (and any of Bank’s designated officers, or employees)
as each Borrower’s true and lawful attorney to:  (a) send requests for
verification of Accounts or notify account debtors of Bank’s security interest
in the Accounts; (b) endorse each Borrower’s name on any checks or other forms
of payment or security that may come into Bank’s possession; (c) sign each
Borrower’s name on any invoice or bill of lading relating to any Account, drafts
against account debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to account debtors; (d) dispose of any Collateral;
(e) make, settle, and adjust all claims under and decisions with respect to a
Borrower’s policies of insurance; (f) settle and adjust disputes and claims
respecting the accounts directly with account debtors, for amounts and upon
terms which Bank determines to be reasonable; (g) to modify, in its sole
discretion, any intellectual property security agreement entered into between a
Borrower and Bank without first obtaining a Borrower’s approval of or signature
to such modification by amending Exhibits A, B, and C, thereof, as appropriate,
to include reference to any right, title or interest in any Copyrights, Patents
or Trademarks acquired by a Borrower after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which a Borrower no longer has or claims to have any right, title
or interest; and (h) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Borrower where permitted by law; provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in clauses (g) and (h) above, regardless of whether an
Event of Default has occurred.  The appointment of Bank as each Borrower’s
attorney in fact, and each and every one of Bank’s rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank’s obligation to provide Credit Extensions
hereunder is terminated.

 

9.3                                 Accounts Collection.  At any time after the
occurrence and during the continuance of an Event of Default, Bank may notify
any Person owing funds to a Borrower of Bank’s security interest in such funds
and verify the amount of such Account.  Borrowers shall collect all such amounts
owing to Borrowers for Bank,

 

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receive in trust all payments as Bank’s trustee, and immediately deliver such
payments to Bank in their original form as received from the account debtor,
with proper endorsements for deposit.

 

9.4                                 Bank Expenses.  If a Borrower fails to pay
any amounts or furnish any required proof of payment due to third persons or
entities, as required under the terms of this Agreement, then Bank may do any or
all of the following after reasonable notice to Borrowers:  (a) make payment of
the same or any part thereof; (b) set up such reserves under the Revolving Line
as Bank deems necessary to protect Bank from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type discussed in
Section 6.5 of this Agreement, and take any action with respect to such policies
as Bank deems prudent.  Any amounts so paid or deposited by Bank shall
constitute Bank Expenses, shall be immediately due and payable, and shall bear
interest at the then applicable rate hereinabove provided, and shall be secured
by the Collateral.  Any payments made by Bank shall not constitute an agreement
by Bank to make similar payments in the future or a waiver by Bank of any Event
of Default under this Agreement.

 

9.5                                 Bank’s Liability for Collateral.  Bank has
no obligation to clean up or otherwise prepare the Collateral for sale.  All
risk of loss, damage or destruction of the Collateral shall be borne by
Borrowers.

 

9.6                                 No Obligation to Pursue Others.  Bank has no
obligation to attempt to satisfy the Obligations by collecting them from any
other Person liable for them and Bank may release, modify or waive any
collateral provided by any other Person to secure any of the Obligations, all
without affecting Bank’s rights against Borrowers.  Each Borrower waives any
right it may have to require Bank to pursue any other Person for any of the
Obligations.

 

9.7                                 Remedies Cumulative.  Bank’s rights and
remedies under this Agreement, the Loan Documents, and all other agreements
shall be cumulative.  Bank shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity.  No
exercise by Bank of one right or remedy shall be deemed an election, and no
waiver by Bank of any Event of Default on a Borrower’s part shall be deemed a
continuing waiver.  No delay by Bank shall constitute a waiver, election, or
acquiescence by it.  No waiver by Bank shall be effective unless made in a
written document signed on behalf of Bank and then shall be effective only in
the specific instance and for the specific purpose for which it was given.  Each
Borrower expressly agrees that this Section may not be waived or modified by
Bank by course of performance, conduct, estoppel or otherwise.

 

9.8                                 Demand; Protest.  Except as otherwise
provided in this Agreement, each Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment and any
other notices relating to the Obligations.

 

10.                                 NOTICES.

 

Unless otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by
telefacsimile to Borrowers or to Bank, as the case may be, at its addresses set
forth below:

 

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If to Borrowers:

COMMODORE RESOURCES (NEVADA), INC.
(on behalf of all Borrowers)

 

2070 Allston Way, Suite 200

 

Berkeley, CA 94704

 

Attn: President

 

FAX: (    )                      

 

 

With a copy to

Vinson & Elkins LLP

 

Trammell Crow Center

 

2001 Ross Avenue, Suite 3700

 

Dallas, TX 75201-2975

 

Attn: Michael Wortley

 

FAX: (214) 999-7732

 

 

If to Bank:

Comerica Bank

 

2321 Rosecrans Ave., Suite 5000

 

El Segundo, CA 90245

 

Attn: Manager

 

FAX: (310) 297-2290

 

 

with a copy to:

Comerica Bank

 

2 Embarcadero Center, Suite 300,

 

San Francisco 94111

 

Attn: Philip Koblis, Vice President

 

FAX: (415) 477-3260

 

The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

 

11.                                 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law.  Each of Borrowers and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California.  BANK AND BORROWERS EACH ACKNOWLEDGE THAT THE RIGHT
TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.  EACH OF
THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF
THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM.  THESE
PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR
RELINQUISHED BY BANK OR BORROWERS, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY
EACH OF THEM.

 

12.                                 REFERENCE PROVISION.

 

The parties prefer that any dispute between them be resolved in litigation
subject to a Jury Trial Waiver as set forth in Section 11 of this Agreement, but
the availability of that process is in doubt because of the opinion of the
California Court of Appeal in Grafton Partners LP v. Superior Court, 9
Cal.Rptr.3d 511.   This Reference Provision will be applicable until the
California Supreme Court completes its review of that case, and will continue to
be applicable if either that court or a California Court of Appeal publishes a
decision holding that a pre-dispute Jury Trial Waiver provision similar to that
contained in the Loan Documents is invalid or unenforceable.  Delay in
requesting appointment of a referee pending review of any such decision, or
participation in litigation pending review, will not be deemed a waiver of this
Reference Provision.

 

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12.1                           Mechanics.

 

(a)                                  Other than (i) nonjudicial foreclosure of
security interests in real or personal property, (ii) the appointment of a
receiver or (iii) the exercise of other provisional remedies (any of which may
be initiated pursuant to applicable law), any controversy, dispute or claim
(each, a “Claim”) between the parties arising out of or relating to this
Agreement or any other document, instrument or agreement between the Bank and
the undersigned (collectively in this Section, the “Loan Documents”), will be
resolved by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil Procedure
(“CCP”), or their successor sections, which shall constitute the exclusive
remedy for the resolution of any Claim, including whether the Claim is subject
to the reference proceeding.  Except as otherwise provided in the Loan
Documents, venue for the reference proceeding will be in the Superior Court or
Federal District Court in the County or District where venue is otherwise
appropriate under applicable law (the “Court”).

 

(b)                                 The referee shall be a retired Judge or
Justice selected by mutual written agreement of the parties.  If the parties do
not agree, the referee shall be selected by the Presiding Judge of the Court (or
his or her representative).  A request for appointment of a referee may be heard
on an ex parte or expedited basis, and the parties agree that irreparable harm
would result if ex parte relief is not granted.  The referee shall be appointed
to sit with all the powers provided by law.  Each party shall have one
peremptory challenge pursuant to CCP §170.6.  Pending appointment of the
referee, the Court has power to issue temporary or provisional remedies.

 

(c)                                  The parties agree that time is of the
essence in conducting the reference proceedings.  Accordingly, the referee shall
be requested to (a) set the matter for a status and trial-setting conference
within fifteen (15) days after the date of selection of the referee, (b) if
practicable, try all issues of law or fact within ninety (90) days after the
date of the conference and (c) report a statement of decision within twenty (20)
days after the matter has been submitted for decision.  Any decision rendered by
the referee will be final, binding and conclusive, and judgment shall be entered
pursuant to CCP §644.

 

(d)                                 The referee will have power to expand or
limit the amount and duration of discovery.  The referee may set or extend
discovery deadlines or cutoffs for good cause, including a party’s failure to
provide requested discovery for any reason whatsoever.  Unless otherwise
ordered, no party shall be entitled to “priority” in conducting discovery,
depositions may be taken by either party upon seven (7) days written notice, and
all other discovery shall be responded to within fifteen (15) days after
service.  All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final and
binding.

 

12.2                           Procedures.  Except as expressly set forth in
this Agreement, the referee shall determine the manner in which the reference
proceeding is conducted including the time and place of hearings, the order of
presentation of evidence, and all other questions that arise with respect to the
course of the reference proceeding.  All proceedings and hearings conducted
before the referee, except for trial, shall be conducted without a court
reporter, except that when any party so requests, a court reporter will be used
at any hearing conducted before the referee, and the referee will be provided a
courtesy copy of the transcript.  The party making such a request shall have the
obligation to arrange for and pay the court reporter.  Subject to the referee’s
power to award costs to the prevailing party, the parties will equally share the
cost of the referee and the court reporter at trial.

 

12.3                           Application of Law.  The referee shall be
required to determine all issues in accordance with existing case law and the
statutory laws of the State of California.  The rules of evidence applicable to
proceedings at law in the State of California will be applicable to the
reference proceeding.  The referee shall be empowered to enter equitable as well
as legal relief, provide all temporary or provisional remedies, enter equitable
orders that will be binding on the parties and rule on any motion which would be
authorized in a trial, including without limitation motions for summary judgment
or summary adjudication .  The referee shall issue a decision at the close of
the reference proceeding which disposes of all claims of the parties that are
the subject of the reference.  The referee’s decision shall be entered by the
Court as a judgment or an order in the same manner as if the action had been
tried by the Court.  The parties reserve the right to appeal from the final
judgment or order or from any appealable decision or order entered by the
referee.  The parties reserve the right to findings of fact, conclusions of
laws, a written statement of decision, and the right to move for a new trial or
a different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.

 

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12.4                           Repeal.  If the enabling legislation which
provides for appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be determined by
reference procedure will be resolved and determined by arbitration.  The
arbitration will be conducted by a retired judge or Justice, in accordance with
the California Arbitration Act §1280 through §1294.2 of the CCP as amended from
time to time.  The limitations with respect to discovery set forth above shall
apply to any such arbitration proceeding.

 

12.5                           THE PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES
RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY
A JURY, AND THAT THEY ARE IN EFFECT WAIVING THEIR RIGHT TO TRIAL BY JURY IN
AGREEING TO THIS REFERENCE PROVISION.  AFTER CONSULTING (OR HAVING HAD THE
OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY KNOWINGLY
AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCE
PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT OF OR IS
RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS.

 

13.                                 CO-BORROWERS.

 

13.1                           Co-Borrowers.  Borrowers are jointly and
severally liable for the Obligations and Bank may proceed against one Borrower
to enforce the Obligations without waiving its right to proceed against the
other Borrower.  This Agreement and the Loan Documents are a primary and
original obligation of each Borrower and shall remain in effect notwithstanding
future changes in conditions, including any change of law or any invalidity or
irregularity in the creation or acquisition of any Obligations or in the
execution or delivery of any agreement between Bank and any Borrower.  Each
Borrower shall be liable for existing and future Obligations as fully as if all
of the Credit Extensions were advanced to such Borrower.  Bank may rely on any
certificate or representation made by any Borrower as made on behalf of, and
binding on, all Borrowers, including without limitation Advance Request Forms,
Borrowing Base Certificates and Compliance Certificates.  Borrowers are jointly
and severally liable for the Obligations and Bank may proceed against one or
more of the Borrowers to enforce the Obligations without waiving its right to
proceed against any of the other Borrowers.  Each Borrower appoints each other
Borrower as its agent with all necessary power and authority to give and receive
notices, certificates or demands for and on behalf of both Borrowers, to act as
disbursing agent for receipt of any Advances on behalf of each Borrower and to
apply to Bank on behalf of each Borrower for Advances, any waivers and any
consents.  This authorization cannot be revoked, and Bank need not inquire as to
one Borrower’s authority to act for or on behalf of another Borrower.

 

13.2                           Subrogation and Similar Rights.  Notwithstanding
any other provision of this Agreement or any other Loan Document, each Borrower
irrevocably waives, until all obligations are paid in full and Bank has no
further obligation to make Credit Extensions to Borrower, all rights that it may
have at law or in equity (including, without limitation, any law subrogating the
Borrower to the rights of Bank under the Loan Documents) to seek contribution,
indemnification, or any other form of reimbursement from any other Borrower, or
any other Person now or hereafter primarily or secondarily liable for any of the
Obligations, for any payment made by the Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise and all rights
that it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by the Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise.  Any agreement
providing for indemnification, reimbursement or any other arrangement prohibited
under this Section shall be null and void.  If any payment is made to a Borrower
in contravention of this Section, such Borrower shall hold such payment in trust
for Bank and such payment shall be promptly delivered to Bank for application to
the Obligations, whether matured or unmatured.

 

13.3                           Waivers of Notice.  Each Borrower waives, to the
extent permitted by law, notice of acceptance hereof; notice of the existence,
creation or acquisition of any of the Obligations; notice of an Event of Default
except as set forth herein; notice of the amount of the Obligations outstanding
at any time; notice of any adverse change in the financial condition of any
other Borrower or of any other fact that might increase the Borrower’s risk;
presentment for payment; demand; protest and notice thereof as to any
instrument; and all other notices and demands to which the Borrower would
otherwise be entitled by virtue of being a co-borrower or a surety.  Each
Borrower waives any defense arising from any defense of any other Borrower, or
by reason of the

 

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cessation from any cause whatsoever of the liability of any other Borrower. 
Bank’s failure at any time to require strict performance by any Borrower of any
provision of the Loan Documents shall not waive, alter or diminish any right of
Bank thereafter to demand strict compliance and performance therewith.  Each
Borrower also waives any defense arising from any act or omission of Bank that
changes the scope of the Borrower’s risks hereunder.  Each Borrower hereby
waives any right to assert against Bank any defense (legal or equitable),
setoff, counterclaim, or claims that such Borrower individually may now or
hereafter have against another Borrower or any other Person liable to Bank with
respect to the Obligations in any manner or whatsoever.

 

13.4                           Subrogation Defenses.  Until all Obligations are
paid in full and Bank has no further obligation to make Credit Extensions to
Borrower, each Borrower hereby waives any defense based on impairment or
destruction of its subrogation or other rights against any other Borrower and
waives all benefits which might otherwise be available to it under California
Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and
3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726,
as those statutory provisions are now in effect and hereafter amended, and under
any other similar statutes now and hereafter in effect.

 

13.5                           Right to Settle, Release.

 

13.5.1                  The liability of Borrowers hereunder shall not be
diminished by (i) any agreement, understanding or representation that any of the
Obligations is or was to be guaranteed by another Person or secured by other
property, or (ii) any release or unenforceability, whether partial or total, of
rights, if any, which Bank may now or hereafter have against any other Person,
including another Borrower, or property with respect to any of the Obligations.

 

13.5.2                  Without notice to any Borrower and without affecting the
liability of any Borrower hereunder, Bank may (i) compromise, settle, renew,
extend the time for payment, change the manner or terms of payment, discharge
the performance of, decline to enforce, or release all or any of the Obligations
with respect to a Borrower, (ii) grant other indulgences to a Borrower in
respect of the Obligations, (iii) modify in any manner any documents relating to
the Obligations with respect to a Borrower, (iv) release, surrender or exchange
any deposits or other property securing the Obligations, whether pledged by a
Borrower or any other Person, or (v) compromise, settle, renew, or extend the
time for payment, discharge the performance of, decline to enforce, or release
all or any obligations of any guarantor, endorser or other Person who is now or
may hereafter be liable with respect to any of the Obligations.

 

13.6                           Subordination.  All indebtedness of a Borrower
now or hereafter arising held by another Borrower is subordinated to the
Obligations and the Borrower holding the indebtedness shall take all actions
reasonably requested by Bank to effect, to enforce and to give notice of such
subordination.

 

14.                                 GENERAL PROVISIONS.

 

14.1                           Successors and Assigns.  This Agreement shall
bind and inure to the benefit of the respective successors and permitted assigns
of each of the parties and shall bind all Persons who become bound as a debtor
to this Agreement; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by a Borrower without Bank’s prior written consent,
which consent may be granted or withheld in Bank’s sole discretion.  Bank shall
have the right without the consent of or notice to a Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights and benefits hereunder.

 

14.2                           Indemnification.  Each Borrower shall defend,
indemnify and hold harmless Bank and its officers, employees, and agents
against:  (a) all obligations, demands, claims, and liabilities claimed or
asserted by any other party in connection with the transactions contemplated by
this Agreement; and (b) all losses or Bank Expenses in any way suffered,
incurred, or paid by Bank, its officers, employees and agents as a result of or
in any way arising out of, following, or consequential to transactions between
Bank and a Borrower whether under this Agreement, or otherwise (including
without limitation reasonable attorneys’ fees and expenses), except for losses
caused by Bank’s gross negligence or willful misconduct or a material breach of
Bank’s obligations under the Loan Documents.

 

14.3                           Time of Essence.  Time is of the essence for the
performance of all obligations set forth in this Agreement.

 

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14.4                           Severability of Provisions.  Each provision of
this Agreement shall be severable from every other provision of this Agreement
for the purpose of determining the legal enforceability of any specific
provision.

 

14.5                           Amendments in Writing, Integration.  All
amendments to or terminations of this Agreement or the other Loan Documents must
be in writing.  All prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement and the other Loan Documents, if any, are
merged into this Agreement and the Loan Documents.

 

14.6                           Counterparts.  This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement.

 

14.7                           Survival.  All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding or Bank has any obligation to make
any Credit Extension to a Borrower.  The obligations of Borrowers to indemnify
Bank with respect to the expenses, damages, losses, costs and liabilities
described in Section 14.2 shall survive until all applicable statute of
limitations periods with respect to actions that may be brought against Bank
have run.

 

[Balance of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

 

 

COMMODORE RESOURCES (NEVADA), INC.

 

 

 

 

By:

/s/ Richard McDonald

 

 

 

 

Title:

President

 

 

 

 

 

 

LYRIS TECHNOLOGIES, INC

 

 

 

 

By:

/s/ Luis Rivera

 

 

 

 

Title:

President

 

 

 

 

 

 

UPTILT RESOURCES, INC.

 

 

 

 

By:

/s/ Luis Rivera

 

 

 

 

Title:

President

 

 

 

 

 

 

COMERICA BANK

 

 

 

 

By:

/s/ Phil Koblis

 

 

 

 

Title:

Vice President

 

 

[Signature Page to Loan and Security Agreement]

 

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