BACTERIN INTERNATIONAL, INC.
BACTERIN INTERNATIONAL HOLDINGS, INC.

BRIDGE BANK, NATIONAL ASSOCIATION

LOAN AND SECURITY AGREEMENT

 

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This Loan And Security Agreement is entered into as of January 14, 2011, by and
between Bridge Bank, National Association (“Bank”) and Bacterin International,
Inc.  and Bacterin International Holdings, Inc. (collectively, “Borrower”).
 
Recitals
 
Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower.  This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower 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
Borrower 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 Borrower, 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 Borrower and Borrower’s Books relating
to any of the foregoing.
 
“Advance” or “Advances” means a cash advance or cash advances under the
Revolving Facility.
 
“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.
 
“Asset Coverage Ratio” means the ratio of (a) Borrower’s unrestricted cash and
cash equivalents maintained with Bank plus Eligible Accounts to (b) all
Obligations owed to Bank.
 
“Bank Expenses” means all:  reasonable costs or expenses (including reasonable
attorneys’ fees and expenses) 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
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’s Books” means all of Borrower’s books and records
including:  ledgers; records concerning 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.
 
“Borrowing Base” means an amount equal to eighty percent (80%) of Eligible
Accounts, as determined by Bank with reference to the most recent Borrowing Base
Certificate delivered by Borrower.
 
“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.
 
“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 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 Borrower, who did not
have such power before such transaction.

 
1.

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“Closing Date” means the date of this Agreement.
 
“Code” means the California Uniform Commercial Code.
 
“Collateral” means the property described on Exhibit A attached hereto.
 
“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;
(ii) any obligations with respect to undrawn letters of credit, corporate credit
cards, or merchant services issued or provided for the account of that Person;
and (iii) all obligations arising under any agreement or arrangement designed to
protect such 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 Bank 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.
 
“Copyrights” means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof.
 
“Credit Extension” means each Advance or any other extension of credit by Bank
for the benefit of Borrower hereunder.
 
“Daily Balance” means the amount of the Obligations owed at the end of a given
day.
 
“Disclosure Letter” means that certain Disclosure Letter, dated as of the date
hereof, delivered by Borrower to Bank.
 
“Eligible Accounts” means those Accounts (net of pre-paid deposits, offsets, and
contras) that arise in the ordinary course of Borrower’s business that comply
with all of Borrower’s representations and warranties to Bank set forth in
Section 5.4; provided, that standards of eligibility may be fixed and revised
from time to time by Bank in Bank’s reasonable judgment and upon notification
thereof to Borrower in accordance with the provisions hereof.  Unless otherwise
agreed to by Bank, Eligible Accounts shall not include the following:
 
(a)           Accounts that the account debtor has failed to pay within ninety
(90) days of invoice date;
 
(b)           Accounts with respect to an account debtor, thirty percent (30%)
of whose Accounts the account debtor has failed to pay within ninety (90) days
of invoice date;
 
(c)           Accounts with respect to which the account debtor is an officer,
employee, or agent of Borrower;
 
(d)           Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the account debtor may be conditional;
 
(e)           Accounts with respect to which the account debtor is an Affiliate
of Borrower;
 
(f)           Accounts with respect to which the account debtor does not have
its principal place of business in the United States or Canada, except for
Eligible Foreign Accounts;

 
2.

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(g)          Accounts with respect to which the account debtor is the United
States or any department, agency, or instrumentality of the United States;
 
(h)          Accounts with respect to which Borrower is liable to the account
debtor for goods sold or services rendered by the account debtor to Borrower or
for deposits or other property of the account debtor held by Borrower, but only
to the extent of any amounts owing to the account debtor against amounts owed to
Borrower;
 
(i)           Accounts with respect to an account debtor, including Subsidiaries
and Affiliates, whose total obligations to Borrower exceed thirty percent (30%)
of all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank;
 
(j)           Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its reasonable discretion, that there may be a basis for dispute (but only to
the extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
 
(k)          Prebillings, prepaid deposits, retention billings, or progress
billings;
 
(l)           Unbilled Accounts; and
 
(m)         Accounts the collection of which Bank reasonably determines to be
doubtful.
 
“Eligible Foreign Accounts” means Accounts with respect to which the account
debtor does not have its principal place of business in the United States or
Canada and that (i) are supported by one or more letters of credit in an amount
and of a tenor, and issued by a financial institution, acceptable to Bank, or
(ii) that Bank approves on a case-by-case basis; provided, however, any Eligible
Foreign Accounts without foreign credit insurance shall not exceed $500,000 in
the aggregate unless approved by Bank in its sole discretion.
 
“Equipment” means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which 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.
 
“GAAP” means generally accepted accounting principles as in effect from time to
time.
 
“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.
 
“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 Borrower’s right, title, and
interest in and to the following: Copyrights, Trademarks and Patents; all trade
secrets, all design rights, claims for damages by way of past, present and
future infringement of any of the rights included above, 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; all amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and 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.

 
3.

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“Inventory” means all inventory in which Borrower has or acquires any interest,
including work in process and finished products intended for sale or lease or to
be furnished under a contract of service, of every kind and description now or
at any time hereafter owned by or in the custody or possession, actual or
constructive, of Borrower, including such inventory as is temporarily out of its
custody or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing any
of the above, and Borrower’s Books relating to any of the foregoing.
 
“Investment” means any beneficial ownership of (including stock, partnership
interest or other securities) 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 Borrower, and any other 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, or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents or
(iii) the value or priority of Bank’s security interests in the Collateral.
 
“Negotiable Collateral” means all letters of credit of which Borrower is a
beneficiary, notes, drafts, instruments, securities, documents of title, and
chattel paper, and Borrower’s Books relating to any of the foregoing.
 
“Obligations” means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower 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 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
Borrower 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 Borrower and Bank.
 
“Permitted Indebtedness” means:
 
(a)           Indebtedness of Borrower 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 secured by a lien described in clause (c) of the
defined term “Permitted Liens,” provided (i) such Indebtedness does not exceed
the lesser of the cost or fair market value of the equipment financed with such
Indebtedness and (ii) such Indebtedness does not exceed $200,000 in the
aggregate at any given time; and
 
(d)           Subordinated Debt.
 
 
4.

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“Permitted Investment” means:
 
(a)           Investments existing on the Closing Date disclosed in the
Schedule;
 
(b)           Accounts receivable in the ordinary course of Borrower’s business;
 
(c)           Temporary advances to cover incidental expenses to be incurred in
the ordinary course of business;
 
(d)           Investments in wholly-owned Subsidiaries of Borrower; and
 
(e)           (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) certificates
of deposit maturing no more than one (1) year from the date of investment
therein and (iv) money market accounts.
 
“Permitted Liens” means the following:
 
(a)           Any Liens existing on the Closing Date and disclosed in the
Schedule 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, provided the same have no priority over any of Bank’s security
interests (other than Liens for property taxes on real estate);
 
(c)           Liens (i) upon or in any equipment which was not financed by Bank
acquired or held by 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 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)           Liens incurred pursuant to the WTI Loan Agreement;
 
(f)           Bankers’ Liens, rights of setoff and similar Liens incurred on
deposits made in the ordinary course of business, so long as an account control
agreement (or equivalent) for each account in which such deposits are held in a
form acceptable to Bank has been executed and delivered to Lender;
 
(g)           Materialmen’s, mechanic’s, repairmen’s, employee’s or other like
Liens arising in the ordinary course of business and which are not delinquent or
are being contested in good faith by appropriate proceedings;
 
(h)           Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Sections 8.4 or 8.7;
 
(i)           Licenses or sublicenses of Intellectual Property in accordance
with Section 7.1; and
 
(j)           Involuntary Liens which, in the aggregate, would not have a
Material Adverse Effect and which in any event do not secure obligations
exceeding $100,000.

 
5.

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“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 greater of (i) 4.0% per annum or (ii) 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 and the Chief
Financial Officer of Borrower.
 
“Revolving Facility” means the facility under which Borrower may request Bank to
issue Advances, as specified in Section 2.1(a) hereof.
 
“Revolving Line” means a credit extension of up to Three Million Dollars
($3,000,000); provided upon (i) Borrower, on a consolidated basis, reaching two
consecutive quarters of profitability of at least $4,000,000 in the aggregate,
(ii) Borrower’s certification that it reasonably believes that it will achieve
continued profitability on a consolidated basis, and (iii) consent by Western
Technology Investment of the increase of the Revolving Line provided by Bank to
$5,000,000; “Revolving Line” shall mean a credit extension of up to Five Million
Dollars ($5,000,000).
 
“Revolving Maturity Date” means the second anniversary of the Closing Date.
 
“Schedule” means the schedule of exceptions attached to the Disclosure Letter
and approved by Bank, if any.
 
“Subordinated Debt” means any debt incurred by Borrower that is subordinated to
the debt owing by Borrower to Bank on terms acceptable to Bank (and identified
as being such by Borrower and Bank).
 
“Subsidiary” means any corporation, company or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock or other units
of ownership 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 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 Borrower connected with
and symbolized by such trademarks.
 
“WTI Loan Agreement” means that certain Loan and Security Agreement, dated as of
November 17, 2010, by and among Borrower, Venture Lending & Leasing V, Inc. and
Venture Lending & Leasing VI, Inc., as may be amended, restated, modified or
otherwise supplemented.
 
1.2           Accounting Terms.  All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP.  When used herein, the terms
“financial statements” shall include the notes and schedules thereto.

 
6.

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2.           Loan and Terms Of Payment.
 
2.1         Credit Extensions.
 
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, the aggregate unpaid principal amount of all Credit
Extensions made by Bank to Borrower hereunder.  Borrower shall also pay interest
on the unpaid principal amount of such Credit Extensions at rates in accordance
with the terms hereof.
 
(a)         Revolving Advances.
 
(i)           Subject to and upon the terms and conditions of this Agreement,
Borrower may request Advances in an aggregate outstanding amount not to exceed
the lesser of (i) the Revolving Line or (ii) the Borrowing Base.  Subject to the
terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving
Maturity Date, at which time all Advances under this Section 2.1(a) shall be
immediately due and payable.  Borrower may prepay any Advances without penalty
or premium.
 
(ii)          Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Pacific time, 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 Borrower 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(a) to Borrower’s deposit account.
 
2.2         Overadvances.  If the aggregate amount of the outstanding Advances
exceeds the lesser of the Revolving Line or the Borrowing Base at any time,
Borrower shall immediately pay to Bank, in cash, the amount of such excess.
 
2.3         Interest Rates, Payments, and Calculations.
 
(a)         Interest Rates.
 
(i)           Advances.  Except as set forth in Section 2.3(b), the Advances
shall bear interest, on the outstanding Daily Balance thereof, at a rate equal
to two and one quarter of one percent (2.25%) above the Prime Rate.
 
(b)         Late Fee; Default Rate.  If any payment is not made within ten (10)
days after the date such payment is due, Borrower 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, not in
any case to be less than $25.00.  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 tenth
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 Borrower’s deposit accounts via auto-debit or against the Revolving Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder.  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.  All payments shall be free and
clear of any taxes, withholdings, duties, impositions or other charges, to the
end that Bank will receive the entire amount of any Obligations payable
hereunder, regardless of source of payment.

 
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(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 Borrower specifies.  After the occurrence
and during the continuance of an Event of Default, the receipt by Bank of any
wire transfer of funds, check, or other item of payment shall be immediately
applied to conditionally reduce Obligations, but 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.  Borrower shall pay to Bank the following:
 
(a)           Facility Fee.  On each of the Closing Date and on the first
anniversary of the Closing Date, a Facility Fee equal to $50,000, which shall be
nonrefundable and
 
(b)           Bank Expenses.  On the Closing Date, all Bank Expenses incurred
through the Closing Date, including reasonable attorneys’ fees and expenses and,
after the Closing Date, all Bank Expenses, including reasonable attorneys’ fees
and expenses, as and when they are incurred by Bank.
 
2.6         Term.  This Agreement shall become effective on the Closing Date
and, subject to Section 12.7, 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, and Borrower shall have the right to
terminate Bank’s obligation to make Credit Extensions under this Agreement upon
ten (10) days prior written notice and payment in full of all outstanding
Obligations.  Notwithstanding termination, Bank’s Lien on the Collateral shall
remain in effect for so long as any Obligations are outstanding.
 
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)           a certificate of the Secretary of each Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
 
(c)           UCC National Form Financing Statement for each Borrower;
 
(d)           an intellectual property security agreement;
 
(e)           agreement to provide insurance and insurance certificates;

 
8.

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(f)           an intercreditor agreement (Venture Lending & Leasing V, Inc. and
Venture Lending & Leasing VI, Inc.);
 
(g)          evidence satisfactory to Bank of the extension of the maturity
dates of all notes to Flathead Bank;
 
(h)           payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
 
(i)           current financial statements of Borrower;
 
(j)           an audit of the Collateral, the results of which shall be
satisfactory to Bank;
 
(k)          a landlord waiver;
 
(l)           the Disclosure Letter; and
 
(m)         such other documents, and completion of such other matters, as Bank
may reasonably deem necessary or appropriate.
 
3.2         Conditions Precedent to all Credit Extensions.  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
 
(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, except to the extent such
representation or warranty refers solely to an earlier date, and no Event of
Default shall have occurred and be continuing, or would exist after giving
effect to such Credit Extension.  The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrower 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.  Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents.  Except as set forth in the
Schedule and for Permitted Liens, such security interest constitutes a valid,
first priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof.
 
4.2         Delivery of Additional Documentation Required.  Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue the
perfection of Bank’s security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents. 
Borrower from time to time may deposit with Bank specific time deposit accounts
to secure specific Obligations. Borrower authorizes Bank to hold such balances
in pledge and to decline to honor any drafts thereon or any request by Borrower
or any other Person to pay or otherwise transfer any part of such balances for
so long as the 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 Borrower’s usual business hours but no more than twice a year (unless an
Event of Default has occurred and is continuing), to inspect Borrower’s Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower’s financial condition or the amount, condition of, or
any other matter relating to, the Collateral.

 
9.

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5.           Representations and Warranties.
 
Borrower represents and warrants as follows:
 
5.1           Due Organization and Qualification.  Borrower and each Subsidiary
is a corporation duly existing under the laws of its state of incorporation 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 failure to be so qualified would not reasonably be expected to have 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 Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound.  Borrower is not in default
under any material agreement to which it is a party or by which it is bound.
 
5.3           No Prior Encumbrances.  Borrower has good and marketable title to
its property, free and clear of Liens, except for Permitted Liens.
 
5.4           Bona Fide Eligible Accounts.  The Eligible Accounts are bona fide
existing obligations.  The property and services giving rise to such Eligible
Accounts has been delivered or rendered to the account debtor or to the account
debtor’s agent for immediate and unconditional acceptance by the account
debtor.  Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor that is included in any Borrowing Base
Certificate as an Eligible Account.
 
5.5           Merchantable Inventory.  All Inventory is in all material respects
of good and marketable quality, free from all material defects, except for
Inventory for which adequate reserves have been made.
 
5.6           Intellectual Property Collateral.  Borrower is the sole owner of
the Intellectual Property Collateral, except for non-exclusive licenses granted
by Borrower to its customers in the ordinary course of business.  Each of the
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 that any part of the Intellectual Property Collateral
violates the rights of any third party.  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.  Except as set forth in the Schedule,
Borrower is not a party to, or bound by, any material license agreement as a
licensee that restricts the grant by Borrower of a security interest in
Borrower’s rights under such agreement.
 
5.7           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.  The chief executive office of Borrower
is located at the address indicated in Section 10 hereof and in the Schedule or
at such other address disclosed in writing to Bank pursuant to Sections 7.2 or
7.10.  All Borrower’s Inventory and Equipment is located only at the location
set forth in Section 10 hereof and in the Schedule or at such other location
disclosed in writing to Bank pursuant to Sections 7.2 or 7.10.
 
5.8           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 which could reasonably be expected to have a
Material Adverse Effect.
 
5.9           No Material Adverse Change in Financial Statements.  All
consolidated and consolidating financial statements related to Borrower and any
Subsidiary that Bank has received from Borrower fairly present in all material
respects Borrower’s 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 the
consolidating financial condition of Borrower since the date of the most recent
of such financial statements submitted to Bank.

 
10.

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5.10         Solvency, Payment of Debts.  Borrower is solvent and able to pay
its debts (including trade debts) as they mature.
 
5.11         Regulatory Compliance.  Borrower and each Subsidiary have met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA, and no event has occurred resulting from Borrower’s failure to
comply with ERISA that could result in Borrower’s incurring any material
liability.  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 with all the
provisions of the Federal Fair Labor Standards Act.  Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, the violation of which
would reasonably be expected to have a Material Adverse Effect.
 
5.12         Environmental Condition.  Except as disclosed in the Schedule, none
of Borrower’s or any Subsidiary’s properties or assets has ever been used by
Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous
owners or operators, in the disposal of, or to produce, store, handle, treat,
release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; to the best of Borrower’s knowledge, none of
Borrower’s properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
 
5.13         Taxes.  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 would not reasonably be expected to have
a Material Adverse Effect.
 
5.14         Subsidiaries.  Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
 
5.15         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 failure to do so would not reasonably be expected to cause a
Material Adverse Effect.
 
5.16         Accounts.  None of Borrower’s nor any Subsidiary’s primary
operating or deposit accounts are maintained or invested with a Person other
than Bank.
 
5.17         Full Disclosure.  No representation, warranty or other statement
made by Borrower in any certificate or written statement 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, 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 actual facts during the period or
periods covered may differ from the projected or forecasted results.

 
11.

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6.           Affirmative Covenants.
 
Borrower shall do all of the following:
 
6.1           Good Standing.  Borrower shall maintain its and each of its
Subsidiaries’ corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which it is
required under applicable law.  Borrower shall maintain, and shall cause each of
its Subsidiaries to maintain, in force all licenses, approvals and agreements
required under applicable law, except where the failure to maintain the same
could reasonably be expected to have a Material Adverse Effect.
 
6.2           Government Compliance.  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, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be expected to have a Material Adverse Effect.
 
6.3           Financial Statements, Reports, Certificates.  Borrower shall
deliver the following to Bank:  (a) as soon as available, but in any event
within thirty (30) days after the end of each calendar month, a company prepared
consolidated balance sheet, income statement, and cash flow statement covering
Borrower’s consolidated operations during such period, prepared in accordance
with GAAP, consistently applied, subject to year-end adjustments and the absence
of footnotes, in a form acceptable to Bank and certified by a Responsible
Officer;  (b) as soon as available, but in any event within thirty (30) days
after each fiscal quarter, company prepared consolidating balance sheet, income
statement, and cash flow statement covering Borrower’s consolidated operations
during such period, prepared in accordance with GAAP, consistently applied,
subject to year-end adjustments and the absence of footnotes, in a form
acceptable to Bank and certified by a Responsible Officer; (c) within ten (10)
days of filing, copies of all statements, reports and notices sent or made
available generally by Borrower to its security holders or to any holders of
Subordinated Debt and, all reports on Forms 8-K, 10-K and 10-Q filed with the
Securities and Exchange Commission; (d) promptly upon receipt of notice thereof,
a report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of One Hundred Thousand Dollars ($100,000) or more; (e)  an operating budget for
the following fiscal year within thirty (30) days prior to the end of Borrower’s
fiscal year; and (f) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
 
Prior to an Advance request and within thirty (30) days after the last day of
each month when any Advances are outstanding, Borrower shall deliver to Bank a
Borrowing Base Certificate signed by a Responsible Officer in substantially the
form of Exhibit C hereto, together with aged listings by invoice date of
accounts receivable and accounts payable.
 
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
 
6.4           Audits.  Bank shall have a right from time to time hereafter, upon
reasonable notice and during Borrower’s usual business hours, to audit
Borrower’s Accounts and appraise Collateral at Borrower’s expense, provided that
such audits will be conducted no more often than every six (6) months unless an
Event of Default has occurred and is continuing.
 
6.5           Inventory; Returns.  Borrower shall keep all Inventory in good and
marketable 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 at the
time of the execution and delivery of this Agreement.  Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Fifty Thousand Dollars
($50,000).
 
6.6           Taxes.  Borrower shall make, and shall 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, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; 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.

 
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6.7         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
insurance relating to Borrower’s business, ownership and use of the Collateral
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 are reasonably satisfactory to Bank.  All such
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 thereof, and all liability insurance policies shall show the Bank as an
additional insured and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason.  Upon
Bank’s request, Borrower shall deliver to Bank certified copies of such policies
of insurance and evidence of the payments of all premiums therefor.  All
proceeds payable under any such policy shall, be payable to Borrower, to replace
the property subject to the claim, provided that such replacement property shall
be deemed Collateral in which Bank has been granted a first priority security
interest (subject to Permitted Liens), unless an Event of Default has occurred
and is continuing, in which case such proceeds shall (provided such proceeds are
subject to the first priority security interest of Bank), at the option of Bank,
be payable to Bank to be applied on account of the Obligations.
 
6.8         Accounts.  Borrower shall maintain and shall cause each of its
Subsidiaries to maintain its primary depository, operating, and investment
accounts with Bank.
 
6.9         Asset Coverage Ratio.  Borrower shall maintain at all times,
measured monthly, an Asset Coverage Ratio of at least 1.75 to 1.00.
 
6.10       Intellectual Property Rights.
 
(a)           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.  Borrower shall (i) give Bank
not less than 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, and (ii) prior to the filing of any such
applications or registrations, shall execute such documents as Bank may
reasonably request for Bank to maintain its perfection in such intellectual
property rights to be registered by Borrower, and upon the request of Bank,
shall file such documents simultaneously with the filing of any such
applications or registrations.  Upon filing any such applications or
registrations with the United States Copyright Office, Borrower shall promptly
provide Bank with (i) a copy of such applications or registrations, without the
exhibits, if any, thereto, (ii) 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 (iii) the
date of such filing.
 
(b)           Upon reasonable prior notice and during Borrower’s usual business
hours, 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 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.

 
13.

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6.11         Formation or Acquisition of Subsidiaries.  At the time that
Borrower forms any direct or indirect Subsidiary or acquires any direct or
indirect Subsidiary after the Effective Date, Borrower shall (a) cause such new
Subsidiary to provide to Bank a joinder to the Loan Agreement to cause such
Subsidiary to become a co-borrower hereunder, together with such appropriate
financing statements and/or Control Agreements, all in form and substance
satisfactory to Bank (including being sufficient to grant Bank a first priority
Lien (subject to Permitted Liens) in and to the assets of such newly formed or
acquired Subsidiary), (b) provide to Bank appropriate certificates and powers
and financing statements, pledging all of the direct or beneficial ownership
interest in such new Subsidiary, in form and substance satisfactory to Bank, and
(c) provide to Bank all other documentation in form and substance satisfactory
to Bank, which in its opinion is appropriate with respect to the execution and
delivery of the applicable documentation referred to above.  Any document,
agreement, or instrument executed or issued pursuant to this Section 6.11 shall
be a Loan Document.
 
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.
 
Borrower will not do any of the following without Bank’s prior written consent:
 
7.1           Dispositions.  Convey, sell, lease, transfer or otherwise dispose
of (collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than:  (i) Transfers of
Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; (iii) Transfers of worn-out or
obsolete property; (iv) Transfers constituting Permitted Liens and Permitted
Investments; or (v) Transfers of Collateral (other than Intellectual Property)
for fair consideration and in the ordinary course of business in the aggregate
amount of $25,000 in any fiscal year.
 
7.2           Change in Business; Change in Control or Executive Office.  Engage
in any business, or permit any of its Subsidiaries to engage in any business,
other than the businesses currently engaged in by Borrower and any business
substantially similar or related thereto (or incidental thereto); or cease to
conduct any material portion of business in the manner conducted by Borrower as
of the Closing Date; or suffer or permit a Change in Control; experience a
change in Borrower’s chief executive officer or chief financial officer without
prompt written notice to Bank; or without thirty (30) days prior written
notification to Bank, relocate its chief executive office or state of
incorporation or change its legal name; or without Bank’s prior written consent,
change the date on which its fiscal year ends.
 
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, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person, provided
that a Subsidiary may merge into Borrower or another Subsidiary of Borrower.
 
7.4           Indebtedness.  Create, incur, guarantee, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
 
7.5           Encumbrances.  Create, incur, assume or suffer to exist 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 agree with any Person
other than Bank not to grant a security interest in, or otherwise encumber, any
of its property, or permit any Subsidiary to do so other than (i) with respect
to property that is the subject of a Lien described in clause (c) of the
definition Permitted Lien so long as the restriction applies only to the
specific equipment acquired; (ii) with respect to licenses where Borrower is the
licensee; (iii) pursuant to merger agreements where the Obligations hereunder
will be repaid in full upon the closing of such merger agreement; and (iv)
pursuant to the WTI Loan Agreement.

 
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7.6         Distributions.  Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, or permit any of its Subsidiaries to do so, except that Borrower may (i)
pay dividends or other distributions solely in capital stock of Borrower; or
(ii) 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.
 
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 deposit or
investment accounts with a Person other than Bank or permit any of its
[Subsidiaries] to do so unless such Person has entered into an account 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 (other than
this Agreement and the WTI Loan 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.
 
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, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank’s
prior written consent.  Notwithstanding the foregoing, Bank agrees that the
conversion or exchange into Borrower’s equity securities of any Subordinated
Debt and the payment of cash in lieu of the issuance of fractional shares shall
not be prohibited by this Section 7.9.
 
7.10       Inventory and Equipment. Store the Inventory or the Equipment in
excess of $10,000 per location with a bailee, warehouseman, or other 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 pledge
possession of the warehouse receipt, where negotiable, covering such Inventory
or Equipment. Store or maintain any Equipment or Inventory at a location other
than the location set forth in Section 10 of this Agreement.
 
7.11       Compliance.  Become an “investment company” 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.  Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect, or a material
adverse effect on the Collateral or the priority of Bank’s Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
 
8.           Events of Default.
 
Any one or more of the following events shall constitute an Event of Default by
Borrower under this Agreement:
 
8.1        Payment Default.  If Borrower fails to pay, when due, any of the
Obligations;
 
8.2        Covenant Default.
 
(a)           If Borrower fails to perform any obligation under Sections 6.3,
6.7, 6.8 or 6.9 or violates any of the covenants contained in Article 7 of this
Agreement; or

 
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(b)           If 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
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 days after Borrower receives notice thereof or any officer of Borrower
becomes aware thereof; provided, however, that if the default cannot by its
nature be cured within the ten day period or cannot after diligent attempts by
Borrower be cured within such ten day period, and such default is likely to be
cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed 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         Material Adverse Effect.  If there occurs any circumstance or
circumstances that could have a Material Adverse Effect;
 
8.4         Attachment.  If any material portion of 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 forty-five (45) days, or if
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 Borrower’s assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of 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 forty-five
(45) after 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 Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
 
8.5         Insolvency.  If Borrower shall fail to pay its debts generally as
they become due, or if an Insolvency Proceeding is commenced by Borrower, or if
an Insolvency Proceeding is commenced against Borrower and is not dismissed or
stayed within forty-five (45) days (provided that no Credit Extensions will be
made prior to the dismissal of such Insolvency Proceeding);
 
8.6         Other Agreements.  If there is a default or other failure to perform
in any agreement to which Borrower is a party or by which it is bound resulting
in a right by a third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or which could have a Material Adverse Effect;
 
8.7         Judgments.  If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against 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
 
8.8         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.
 
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 Borrower:
 
(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 8.5, all Obligations shall become immediately due and payable without
any action by Bank);
 
 
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(b)           Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower and
Bank;
 
(c)           Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably considers
advisable;
 
(d)           Make such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral.  Borrower agrees
to assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate.  Borrower authorizes 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 Borrower’s owned premises,
Borrower hereby grants 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;
 
(e)           Set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or
for the credit or the account of Borrower held by Bank;
 
(f)           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, Borrower’s 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, Borrower’s rights under all
licenses and all franchise agreements shall inure to Bank’s benefit;
 
(g)           Dispose of the Collateral by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower’s premises) as Bank determines is commercially reasonable, and apply
any proceeds to the Obligations in whatever manner or order Bank deems
appropriate;
 
(h)           Bank may credit bid and purchase at any public sale; and
 
(i)           Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
 
9.2         Power of Attorney.  Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank’s designated officers, or employees) as 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
Borrower’s name on any checks or other forms of payment or security that may
come into Bank’s possession; (c) sign 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 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; and
(g) to file, in its sole discretion, one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral.  The
appointment of Bank as 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.

 
17.

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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 Borrower of Bank’s security interest in such funds and verify the amount of
such Account.  Borrower shall collect all amounts owing to Borrower for Bank,
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 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 Borrower:  (a) make payment of the same or any part
thereof; (b) set up such reserves under a loan facility in Section 2.1 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 6.7
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.  So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for:  (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever.  All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.
 
9.6           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 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.
 
9.7           Demand; Protest.  Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
 
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 Borrower or to Bank, as the case may be, at its addresses set
forth below:
 
If to Borrower:
BACTERIN INTERNATIONAL, INC.

 
BACTERIN INTERNATIONAL HOLDINGS, INC.

 
600 Cruiser Lane

 
Belgrade, MT  59714

 
Attn:  John Gandolfo, CFO

 
FAX:  (406) 388-0422

 
 
If to Bank:
Bridge Bank, N.A.

 
55 Almaden Boulevard

 
San Jose, CA 95113

 
Attn:  Technology Division

 
FAX:  (408) 282-1681

 
18.

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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 and all Loan Documents unless otherwise specified therein 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
Borrower and Bank hereby submits to the exclusive jurisdiction of the state and
Federal courts located in the County of Santa Clara, State of California. 
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.  EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT.  EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
 
If the jury waiver set forth in this Section 11 is not enforceable, then any
dispute, controversy or claim arising out of or relating to this Agreement or
any of the transactions contemplated herein shall be settled by judicial
reference pursuant to Code of Civil Procedure Section 638 et seq. before a
referee sitting without a jury, such referee to be mutually acceptable to the
parties or, if no agreement is reached, by a referee appointed by the Presiding
Judge of the California Superior Court for Santa Clara County.  This Section
shall not restrict a party from exercising remedies under the Code or from
exercising pre-judgment remedies under applicable law.
 
12.        General Provisions.
 
12.1         Successors and Assigns.  This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by 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 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.
 
12.2         Indemnification.  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
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys’ fees and
expenses), except for losses, obligations, demands, claims, liabilities and Bank
Expenses caused by Bank’s gross negligence or willful misconduct.
 
12.3         Time of Essence.  Time is of the essence for the performance of all
obligations set forth in this Agreement.
 
12.4         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.
 
12.5         Amendments in Writing, Integration.  Neither this Agreement nor the
Loan Documents can be amended or terminated orally.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement and the Loan
Documents, if any, are merged into this Agreement and the Loan Documents.

 
19.

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12.6         Counterparts.  This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
 
12.7         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 Credit
Extensions to Borrower.  The obligations of Borrower to indemnify Bank with
respect to the expenses, damages, losses, costs and liabilities described in
Section 12.2 shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Bank have run.
 
12.8         Confidentiality.  In handling any confidential information Bank and
all employees and agents of Bank, including but not limited to accountants,
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Credit Extensions, provided that they have entered into a
comparable confidentiality agreement in favor of Borrower and have delivered a
copy to Borrower, (iii) as required by law, regulations, rule or order,
subpoena, judicial order or similar order, (iv) as may be required in connection
with the examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder. 
Confidential information hereunder shall not include information that
either:  (a) is in the public domain or in the knowledge or possession of Bank
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is prohibited
from disclosing such information.
 
12.9         Patriot Act Notice.  To help the government fight the funding of
terrorism and money laundering activities, Federal law requires all financial
institutions to obtain, verify, and record information that identifies each
person who opens an account.  WHAT THIS MEANS FOR YOU:  when you open an
account, we will ask your name, address, date of birth, and other information
that will allow us to identify you.  We may also ask to see your driver’s
license or other identifying documents.
 
13.        Co-Borrower Provisions.
 
13.1         Primary Obligation.  This Agreement is 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 all 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 Disbursement Request
Forms, Borrowing Base Certificates and Compliance Certificates.
 
13.2         Enforcement of Rights.  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.
 
13.3         Borrowers as Agents.  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 all Borrowers, to act as disbursing
agent for receipt of any Credit Extensions on behalf of each Borrower and to
apply to Bank on behalf of each Borrower for Credit Extensions, any waivers and
any consents.  This authorization cannot be revoked, and Bank need not inquire
as to any Borrower’s authority to act for or on behalf of any other Borrower.
 
 
20.

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13.4       Subrogation and Similar Rights.  Notwithstanding any other provision
of this Agreement or any other Loan Document, each Borrower irrevocably waives
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 13.4 shall
be null and void.  If any payment is made to a Borrower in contravention of this
Section 13.4, 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.
 
13.5       Waivers of Notice.  Except as otherwise provided in this Agreement,
each Borrower waives notice of acceptance hereof; notice of the existence,
creation or acquisition of any of the Obligations; notice of an Event of
Default; notice of the amount of the Obligations outstanding at any time; notice
of intent to accelerate; notice of acceleration; 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; default; and all other notices and demands
to which the Borrower would otherwise be entitled.  Each Borrower waives any
defense arising from any defense of any other Borrower (other than payment in
full of the Obligations), or by reason of the cessation from any cause
whatsoever of the liability of any other Borrower (other than payment in full of
the Obligations).  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.  Nothing contained herein shall prevent Bank from
foreclosing on the Lien of any deed of trust, mortgage or other security
instrument, or exercising any rights available thereunder, and the exercise of
any such rights shall not constitute a legal or equitable discharge of any
Borrower.  Each Borrower also waives any defense arising from any act or
omission of Bank that changes the scope of the Borrower’s risks hereunder.
 
13.6       Subrogation Defenses.  Each Borrower 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
any statutory or common law suretyship defenses (other than payment in full of
the Obligations) or marshalling rights, now and hereafter in effect.
 
13.7       Right to Settle, Release.
 
(a)           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.
 
(b)           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.
 
[remainder of this page intentionally left blank]

 
21.

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

 
Bacterin International, Inc.
     
By:
/s/ John Gandolfo
     
Title:
CFO
     
Bacterin International Holdings, Inc.
     
By:
/s/ John Gandolfo
     
Title:
CFO
     
Bridge Bank, National Association
     
By:
/s/ Derek Almeida
     
Title:
Vice President

 
22.

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DEBTOR:
BACTERIN INTERNATIONAL, INC.

BACTERIN INTERNATIONAL HOLDINGS, INC.
 
SECURED PARTY:
BRIDGE BANK, NATIONAL ASSOCIATION

 
EXHIBIT A
 
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
 
All personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
 
(a)         all accounts (including health-care-insurance receivables), chattel
paper (including tangible and electronic chattel paper), commercial tort claims,
deposit accounts, securities accounts, documents (including negotiable
documents), equipment (including all accessions and additions thereto), general
intangibles (including payment intangibles and software), goods (including
fixtures), instruments (including promissory notes), inventory (including all
goods held for sale or lease or to be furnished under a contract of service, and
including returns and repossessions), investment property (including securities
and securities entitlements), letter of credit rights, money, and all of
Debtor’s books and records with respect to any of the foregoing, and the
computers and equipment containing said books and records;
 
(b)         any and all cash proceeds and/or noncash proceeds of any of the
foregoing, including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment.  All terms
above have the meanings given to them in the California Uniform Commercial Code,
as amended or supplemented from time to time.
 
Notwithstanding the foregoing, the Collateral shall not include more than
sixty-five percent (65%) of the issued and outstanding capital stock, membership
units or other securities entitled to vote owned or held of record by Borrower
in any Subsidiary that is a controlled foreign corporation (as defined in the
Internal Revenue Code).

 

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EXHIBIT B
 
ADVANCE REQUEST FORM
 
ADVANCE REQUEST
(To be submitted no later than 2:00 PM to be considered for same day processing)

To:
Bridge Bank, National Association
       
Fax:
(408) 282-1681
       
Date:
         
From:
Bacterin International, Inc. and Bacterin International Holdings, Inc.
   
Borrower's Name
               
Authorized Signature
               
Authorized Signer's Name (please print)
               
Phone Number
 

To Account #
   

Borrower hereby requests funding in the total amount of $___________________ in
accordance with the following (please check all that apply):

_____ Revolving Advance $______________

as defined in the Loan and Security Agreement dated January 14, 2011.

Borrower hereby authorizes Bank to rely on facsimile stamp signatures and treat
them as authorized by Borrower for the purpose of requesting the above advance.

All representations and warranties of Borrower stated in the Loan and Security
Agreement are true, correct and complete in all material respects as of the date
of this Advance Request; provided that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.

Capitalized terms used herein and not otherwise defined have the meanings set
forth in the Loan and Security Agreement.

 

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EXHIBIT C
 
BORROWING BASE CERTIFICATE
 
Borrower:  Bacterin International, Inc. and Bacterin International Holdings,
Inc.  Lender:  Bridge Bank, National Association
 
Commitment Amount:  $3,000,000*

ACCOUNTS RECEIVABLE
         
1.           Accounts Receivable Book Value as of ___
     
$___________
 
2.           Additions (please explain on reverse)
     
$___________
 
3.           TOTAL ACCOUNTS RECEIVABLE
     
$___________
             
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
         
4.           Amounts over 90 days due
 
$___________
     
5.           Balance of 30% over 90 day accounts
 
$___________
     
6.           Concentration Limits (30%)
         
7.           Foreign Accounts
 
$___________
     
8.           Governmental Accounts
 
$___________
     
9.           Contra Accounts
 
$___________
     
10.         Demo Accounts, Bill and Hold Accounts
 
$___________
     
11.         Intercompany/Employee Accounts
 
$___________
     
12.         Prebillings
 
$___________
     
13.         Other (please explain on reverse)
 
$___________
     
14.         TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
     
$___________
 
15.         Eligible Accounts (#3 minus #14)
     
$___________
 
16.         LOAN VALUE OF ACCOUNTS (80% of #15)
     
$___________
             
BALANCES
         
17.         Maximum Loan Amount
      $ 3,000,000  
18.         Total Funds Available [Lesser of #17 or #16]
     
$___________
 
19.         Present balance owing on Line of Credit
     
$___________
 
20.         Outstanding under Sublimits (Letters of Credit, if any)
     
$___________
 
21.         RESERVE POSITION (#18 minus #19 and #20)
     
$___________
 

 
*provided upon (i) Borrower reaching two consecutive quarters of increasing
profitability of at least $4,000,000 in the aggregate, (ii) Borrower’s
certification that it reasonably believes continued profitability, and (iii)
consent by Western Technology Investment of the increase of the Revolving Line
provided by Bank to $5,000,000; “Revolving Line” shall mean a credit extension
of up to Five Million Dollars ($5,000,000).

 
1

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The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Bridge Bank, National
Association.
 
BACTERIN INTERNATIONAL, INC.
   
By:
     
Authorized Signer
     
BACTERIN INTERNATIONAL HOLDINGS, INC.
   
By:
     
Authorized Signer
 

 
2

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EXHIBIT D
COMPLIANCE CERTIFICATE
 
TO:
BRIDGE BANK, NATIONAL ASSOCIATION

 
FROM:
BACTERIN INTERNATIONAL, INC.

BACTERIN INTERNATIONAL HOLDINGS, INC.
 
The undersigned authorized officer of BACTERIN INTERNATIONAL, INC. and BACTERIN
INTERNATIONAL HOLDINGS, INC (collectively, “Borrower”) hereby certifies that in
accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct as of the date hereof, except to
the extent such representations or warranties refer solely to an earlier date. 
Attached herewith are the financial statements required under the Agreement. 
The Officer further certifies that these are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) and are consistently applied
from one period to the next except as explained in an accompanying letter or
footnotes.
 
Please indicate compliance status by circling Yes/No under “Complies” column.
 

 
Reporting Covenant
 
Required
 
Complies
                 
Monthly financial statements (consolidated)
 
Monthly within 30 days
 
Yes
 
No
 
Quarterly financial statements (consolidating)
 
Quarterly within 30 days
 
Yes
 
No
 
8K, 10K and 10Q
 
within 10 days of filing
 
Yes
 
No
 
A/R & A/P Agings, Borrowing Base Cert.*
 
Monthly within 30 days
 
Yes
 
No
 
Operating Budget
 
Within 30 days prior to FYE
 
Yes
 
No
 
A/R Audit
 
Initial and Semi-Annual
 
Yes
 
No
 
IP Report
 
Quarterly within 30 days
 
Yes
 
No
 
Deposit balances with Bank
 
$______________
         
Deposit balances outside Bank
  
$______________
  
 
  
 

 

 
Financial Covenant
 
Required
 
Actual
 
Complies
                     
Minimum Asset Coverage Ratio
 
1.75:1.00
 
_____:1.00
 
Yes
 
No
                     
*prior to an Advance request and when any Advances are outstanding.
  
 
  
 
  
 
  
 

 
Comments Regarding Exceptions:  See Attached.
 
BANK USE ONLY
         
Received by: _________________________________________
Sincerely,
 
AUTHORIZED SIGNER
         
Date: ______________________________________________
         
Verified: ____________________________________________
SIGNATURE
 
AUTHORIZED SIGNER
               
Date:________________________________________________
TITLE
       
Compliance Status
Yes
No
     
DATE
   

 
1

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CORPORATE RESOLUTIONS TO BORROW
 
Borrower:                      BACTERIN INTERNATIONAL, INC.

I, the undersigned Secretary or Assistant Secretary of Bacterin International,
Inc. (the “Corporation”), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Nevada.
 
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the restated Articles of Incorporation, as amended, and the
restated Bylaws of the Corporation, as amended, each of which is in full force
and effect on the date hereof.
 
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
(the “Resolutions”) were adopted.
 
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
 
NAMES
 
POSITION
 
ACTUAL SIGNATURES
                                                                               

 
acting for and on behalf of this Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
 
Borrow Money.  To borrow from time to time from Bridge Bank, National
Association (“Bank”), on such terms as may be agreed upon between the officers,
employees, or agents of the Corporation and Bank, such sum or sums of money as
in their judgment should be borrowed, without limitation.
 
Execute Loan Documents.  To execute and deliver to Bank that certain Loan and
Security Agreement dated as of January 14, 2011 (the “Loan Agreement”) and any
other agreement entered into between Corporation and Bank in connection with the
Loan Agreement, including any amendments, all as amended or extended from time
to time (collectively, with the Loan Agreement, the “Loan Documents”), and also
to execute and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for the Loan Documents, or any
portion thereof.
 
Grant Security.  To grant a security interest to Bank in the Collateral
described in the Loan Documents, which security interest shall secure all of the
Corporation’s Obligations, as described in the Loan Documents.
 
Negotiate Items.  To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to the Corporation or in which the Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be credited
to the account of the Corporation with Bank, or to cause such other disposition
of the proceeds derived therefrom as they may deem advisable.
 
Further Acts.  In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.

 
1

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BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank.  Any such notice
shall not affect any of the Corporation’s agreements or commitments in effect at
the time notice is given.
 
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
 
IN WITNESS WHEREOF, I have hereunto set my hand on January 14, 2011 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
 

 
CERTIFIED AND ATTESTED BY:
     
X
 

 
2

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CORPORATE RESOLUTIONS TO BORROW
 
Borrower:                      BACTERIN INTERNATIONAL HOLDINGS, INC.

I, the undersigned Secretary or Assistant Secretary of Bacterin International
Holdings, Inc. (the “Corporation”), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware.
 
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation, as amended, and the Bylaws
of the Corporation, each of which is in full force and effect on the date
hereof.
 
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
(the “Resolutions”) were adopted.
 
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
 
NAMES
 
POSITION
 
ACTUAL SIGNATURES
                                                                               

 
acting for and on behalf of this Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
 
Borrow Money.  To borrow from time to time from Bridge Bank, National
Association (“Bank”), on such terms as may be agreed upon between the officers,
employees, or agents of the Corporation and Bank, such sum or sums of money as
in their judgment should be borrowed, without limitation.
 
Execute Loan Documents.  To execute and deliver to Bank that certain Loan and
Security Agreement dated as of January 14, 2011 (the “Loan Agreement”) and any
other agreement entered into between Corporation and Bank in connection with the
Loan Agreement, including any amendments, all as amended or extended from time
to time (collectively, with the Loan Agreement, the “Loan Documents”), and also
to execute and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for the Loan Documents, or any
portion thereof.
 
Grant Security.  To grant a security interest to Bank in the Collateral
described in the Loan Documents, which security interest shall secure all of the
Corporation’s Obligations, as described in the Loan Documents.
 
Negotiate Items.  To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to the Corporation or in which the Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be credited
to the account of the Corporation with Bank, or to cause such other disposition
of the proceeds derived therefrom as they may deem advisable.
 
Further Acts.  In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.

 
1

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BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank.  Any such notice
shall not affect any of the Corporation’s agreements or commitments in effect at
the time notice is given.
 
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
 
IN WITNESS WHEREOF, I have hereunto set my hand on January 14, 2011 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
 

 
CERTIFIED AND ATTESTED BY:
     
X
 

 
2

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INSURANCE AUTHORIZATION LETTER
 
In accordance with the insurance coverage requirements of the Loan and Security
Agreement dated as of January 14, 2011 (the “Agreement”) between Bridge Bank,
National Association (“Lender”), and Bacterin International, Inc. and Bacterin
International Holdings, Inc. (collectively, “Borrower”), coverage is to be
provided as set forth below:

COVERAGE:       All risk including liability and property damage.
 
INSURED:           Bacterin International, Inc. and Bacterin International
Holdings, Inc.
 
LOCATION(s) OF COLLATERAL:
 
1.
 
2.
 
3.

Insuring Agent:    _________________________

Address:               _________________________
 
_________________________
 
Phone Number:    _________________________
 
Fax Number:        _________________________
 
ADDITIONAL INSURED AND LOSS PAYEE:
 
Lender, as its interest may appear below.
 
LENDER:
 
BRIDGE BANK, NATIONAL ASSOCIATION
 
55 Almaden Blvd.
San Jose, CA 95113
Attn:  Note Dept
Fax # 408-689-8542
Phone # 408-423-8500
 
The above coverage is to be provided prior to funding the Agreement.  Borrower
hereby agrees to pay for the coverage above and by signing below acknowledges
its obligation to do so.
 
Signature:             __________________________
 
Title:                     __________________________
 
Date:                     __________________________
 
Signature:             __________________________
 
Title:                     __________________________
 
Date:                     __________________________

 

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