Exhibit 10.1

 

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CARDIODYNAMICS INTERNATIONAL CORPORATION

 

SECOND AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

 

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This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as
of March 22, 2004, by and between COMERICA BANK (“Bank”) and CARDIODYNAMICS
INTERNATIONAL CORPORATION (“Borrower”).

 

RECITALS

 

Borrower and Bank are parties to that certain Credit Agreement dated as of
January 15, 1999, as amended from time to time, including but not limited to
that certain First Amendment to Credit Agreement dated as of February 14, 2000,
that certain Second Amendment to Credit Agreement dated as of September 7, 2000,
that certain Third Amendment to Credit Agreement dated as of March 29, 2001,
that certain Fourth Amendment to Credit Agreement dated as of April 14, 2001,
that certain Fifth Modification to Credit Agreement dated as of June 13, 2001,
that certain Sixth Modification to Credit Agreement dated as of June 13, 2002,
that certain Seventh Amendment to Credit Agreement dated as of September 25,
2002 and that certain Amended and Restated Loan and Security Agreement dated as
of September 14, 2003 (collectively, the “Original Agreement”).

 

Borrower and Bank wish to amend and restate the terms of the Original Agreement.
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 and its Subsidiaries determined on a consolidated basis 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 or any
of its Subsidiaries, 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 or any of its Subsidiaries and
Borrower’s or such Subsidiaries’ Books relating to any of the foregoing.

 

“Acquisition” means the acquisition by Vermed, Inc. of certain of the real and
personal property assets of Division, on terms and conditions reasonably
satisfactory to Bank.

 

“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.

 

“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.

 

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“Borrowing Base” means an amount up to eighty percent (80%) of Eligible
Accounts, as reasonably determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower, as amended from time to time.

 

“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.

 

“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,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit,
corporate credit cards, or merchant services issued or provided for the account
of that Person; and (iii) all obligations arising under any interest rate,
currency or commodity swap agreement, interest rate cap agreement, interest rate
collar agreement, or other agreement or arrangement 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 such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.

 

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

 

“Credit Extension” means each Advance, Term Loan, or any other extension of
credit by Bank for the benefit of Borrower hereunder.

 

“Current Assets” means, as of any applicable date, all amounts that should, in
accordance with GAAP, be included as current assets on the consolidated balance
sheet of Borrower and its Subsidiaries as at such date.

 

“Current Liabilities” means, as of any applicable date, all amounts that should,
in accordance with GAAP, be included as current liabilities on the consolidated
balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the
extent not already included therein, all outstanding Credit Extensions made
under this Agreement, including all Indebtedness that is payable upon demand or
within one year from the date of determination thereof unless such Indebtedness
is renewable or extendible at the option of Borrower or any Subsidiary to a date
more than one year from the date of determination.

 

“Daily Balance” means the amount of the Obligations owed at the end of a given
day.

 

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“Debt Service Coverage” means, as of any date of determination for any Person, a
ratio of (a) the sum of annualized (i) earnings after tax plus (ii) depreciation
and (iii) amortization, to (b) the sum of (i) current portion of long term debt
and capitalized leases plus (ii) annualized interest expense (without
duplication).

 

“Division” means Vermed, a division of Vermont Medical, Inc. a Vermont
corporation, the assets of which division are being acquired in the Acquisition.

 

“Eligible Accounts” means those Accounts that arise in the ordinary course of
Borrower’s or its Subsidiaries’ 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, fifty percent (50%) 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 or any Subsidiary thereof;

 

(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 or any Subsidiary thereof;

 

(f) Accounts with respect to which the account debtor does not have its
principal place of business in the United States, except for Eligible Foreign
Accounts;

 

(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 or any applicable Subsidiary thereof
is liable to the account debtor for goods sold or services rendered by the
account debtor to Borrower of such Subsidiary, unless there is an agreement
reasonably acceptable to Bank as to the prohibition of any set-off with respect
to any applicable account debtor, or for deposits or other property of the
account debtor held by Borrower or such Subsidiary, but only to the extent of
any amounts owing to the account debtor against amounts owed to Borrower or such
Subsidiary;

 

(i) Accounts with respect to an account debtor, including Subsidiaries and
Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%)
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 sole
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) Accounts of any of Borrower’s Subsidiaries as to which Bank has not
conducted an audit with results satisfactory to Bank; and

 

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(l) 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 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.

 

“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 (other than trade accounts payable
arising in the ordinary course of business), 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:

 

(a) Copyrights, Trademarks and Patents;

 

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

 

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

 

(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;

 

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

 

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

 

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

 

“Inventory” means all present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now

 

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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, condition (financial or otherwise) or prospects 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 of Borrower’s present and future letters of
credit of which it 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 $100,000 in the aggregate at any
given time; and

 

(d) Subordinated Debt.

 

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“Permitted Investment” means:

 

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

 

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

 

(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) suppliers, mechanics, carriers, materialmen, workmen or similar liens
imposed by law or created in the ordinary course of business for amounts not yet
due;

 

(e) zoning restrictions, easements, licenses, reservations, covenants, rights of
way, utility easements, building restrictions and other similar charges or
encumbrances on the use of the Real Property; and

 

(f) Liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by Liens of the type described in clauses (a) through
(e) 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.

 

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

 

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

 

“Real Property” means the real property located at 9 Lovell Drive, Rockingham,
Vermont 05101.

 

“Responsible Officer” means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer and the Controller 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 Five Million Dollars
($5,000,000).

 

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“Revolving Maturity Date” means September 14, 2004.

 

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

 

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

 

“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.

 

“Tangible Net Worth” means at any date as of which the amount thereof shall be
determined, the sum of the capital stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of Borrower and its
Subsidiaries minus intangible assets, plus Subordinated Debt, on a consolidated
basis determined in accordance with GAAP.

 

“Term Loan” has the meaning set forth in Section 2.1(b).

 

“Term Loan Maturity Date” means March 22, 2008.

 

“Total Liabilities” means at any date as of which the amount thereof shall be
determined, all obligations that should, in accordance with GAAP be classified
as liabilities on the consolidated balance sheet of Borrower, including in any
event all Indebtedness.

 

“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.

 

“Vermed, Inc.” means Vermed, Inc., a Delaware corporation and wholly owned
subsidiary of Borrower, formed to acquire the Division assets and operate the
business associated therewith.

 

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.

 

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.

 

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(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. Notwithstanding the
foregoing, Borrower may request Advances not to exceed (x) the Borrowing Base
minus One Million Dollars ($1,000,000), when Borrower’s unrestricted cash
(determined upon review of Borrower’s monthly financial statements delivered to
Bank hereunder) is less than Four Million Dollars ($4,000,000); and (y) Two
Million Dollars ($2,000,000), until (1) Bank has conducted and reviewed an
updated accounts receivable audit, which shall be conducted within thirty (30)
days of the Closing Date, and which shall have results satisfactory to Bank; (2)
Bank has received an updated appraisal and Phase 2 environmental report (and/or
review of the same by Bank) with respect to the Real Property, which shall be
delivered to Bank within thirty (30) days of the Closing Date, which
environmental report shall be satisfactory to Bank and which appraisal shall
reflect a net value for the Real Property of at least One Million Five Hundred
Seventy Thousand Dollars ($1,570,000); and (3) there has been recorded against
the Real Property in favor of Bank a Deed of Trust, Security Agreement and
Fixture Filing (with Assignment of Rents and Leases) in form and content
reasonably acceptable to Bank. 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 11:00 a.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.

 

(b) Term Loan.

 

(i) Subject to and upon the terms and conditions of this Agreement, Borrower may
request one term loan (the “Term Loan”) in an aggregate amount not to exceed
Seven Million Dollars ($7,000,000), which amount shall be used to finance the
Acquisition.

 

(ii) Interest shall accrue from the date the Term Loan is made at the rate
specified in Section 2.3. The Term Loan shall be repaid in forty eight (48)
equal monthly installments of principal plus accrued but unpaid interest,
beginning on the first Business Day of the first full month after the Term Loan
is made, and continuing on the same day of each month thereafter through the
Term Loan Maturity Date, at which time all amounts owing under this Section
2.1(b) shall be immediately due and payable. The Term Loan, once repaid, may not
be reborrowed. Borrower may prepay the Term Loan without penalty or premium.

 

(iii) When Borrower desires to obtain the Term Loan, Borrower shall notify Bank
(which notice shall be irrevocable) by facsimile transmission to be received no
later than 11:00 a.m. Pacific time three (3) Business Days before the day on
which the Term Loan is to be made. Such notice shall be substantially in the
form of Exhibit B. The notice shall be signed by a Responsible Officer or its
designee.

 

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.

 

 

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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 one half
of one percent (0.50%) above the Prime Rate.

 

(ii) Term Loan. Except as set forth in Section 2.3(b), the Term Loan shall bear
interest, on the outstanding Daily Balance thereof, at a rate equal to one half
of one percent (0.50%) 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. All Obligations
shall bear interest, from and after the occurrence and during the continuance of
an Event of Default, at a rate equal to five (5) percentage points above the
interest rate applicable immediately prior to the occurrence of the Event of
Default.

 

(c) Payments. Interest hereunder shall be due and payable on the last calendar
day of each month during the term hereof. Bank shall, at its option, charge such
interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s
deposit accounts 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.

 

(d) Excess Cash-Flow Recapture; Mandatory Prepayment. In addition to the amounts
otherwise payable on account of the Term Loan hereunder, within thirty (30) days
of the end of each fiscal quarter beginning with the fiscal quarter ending May
31, 2004, Borrower shall pay to Bank (the “Prepayment”) an amount equal to the
lesser of (x) one hundred percent (100%) of any Excess Cash Flow for the fiscal
quarter then ended, and (y) One Hundred Forty Five Thousand Eight Hundred Thirty
Four Dollars ($145,834). Any Prepayment shall be applied to the principal amount
of the Term Loan in inverse order of maturity. As used herein, “Excess Cash
Flow” means net income plus depreciation and amortization, less principal
payments for the quarter.

 

(e) 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 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 the Closing Date, a Facility Fee on account of the Term
Loan in the amount of $50,000, which shall be nonrefundable;

 

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(b) Non-usage Fee. A fee equal to one half of one percent (0.50%) (fifty (50)
basis points) of the difference between the amount then available under the
Revolving Line and the average Daily Balance outstanding thereunder during the
term hereof, paid quarterly in arrears, which shall be nonrefundable.
Notwithstanding the foregoing, the Non-usage Fee shall be reduced by twenty five
(25) basis points for each Two Hundred Thousand Dollars ($200,000) maintained on
deposit with Bank at all times during the relevant measurement period; provided
that the maximum reduction of the Non-usage Fee shall not exceed the full fifty
(50) basis points; and

 

(c) Real Property Expenses. On the Closing Date, and/or as and when the same are
incurred by Bank, such actual fees and costs incurred by Bank in connection with
any appraisal(s), environmental report(s) and review(s) and title insurance,
each in form and substance satisfactory to Bank, with respect to the Real
Property; and

 

(d) 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 Additional Costs. In case any law, regulation, treaty or official directive
or the interpretation or application thereof by any court or any governmental
authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other governmental authority
(whether or not having the force of law):

 

(a) subjects Bank to any tax with respect to payments of principal or interest
or any other amounts payable hereunder by Borrower or otherwise with respect to
the transactions contemplated hereby (except for taxes on the overall net income
of Bank imposed by the United States of America or any political subdivision
thereof);

 

(b) imposes, modifies or deems applicable any deposit insurance, reserve,
special deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, Bank; or

 

(c) imposes upon Bank any other condition with respect to its performance under
this Agreement,

 

and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
the Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to
Bank the amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or determined,
upon presentation by Bank of a statement of the amount and setting forth Bank’s
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.

 

2.7 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. 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;

 

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

 

(c) UCC National Form Financing Statement Amendment, naming “Comerica Bank,” as
successor by merger to Comerica Bank-California, as secured party;

 

(d) an second amended and restated intellectual property security agreement
executed by Borrower;

 

(e) evidence of or authorization for termination of any Liens other than
Permitted Liens;

 

(f) the certificate(s) for the Shares, together with an instrument of assignment
with respect to the Shares, duly executed in blank by Borrower;

 

(g) a guaranty and third party security agreement executed by Vermed, Inc. in
favor of Bank;

 

(h) an intellectual property security agreement executed by Vermed, Inc.;

 

(i) a certificate of the Secretary of Vermed, Inc. with respect to incumbency
and resolutions authorizing the execution and delivery of the guaranty, third
party security agreement and intellectual property security agreement;

 

(j) UCC National Form Financing Statement naming Vermed, Inc. as debtor and Bank
as secured party;

 

(k) fully executed documents evidencing consummation of the Acquisition;

 

(l) an opinion of legal counsel to Borrower and Vermed, Inc. (as guarantor);

 

(m) agreement to provide insurance;

 

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

 

(o) current financial statements of Borrower (as of January, 2004); and

 

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

 

3.2 Conditions Precedent to all Credit Extensions. 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, and no Event of Default shall have occurred and be
continuing, or would exist after giving effect to such Credit Extension
(provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date). The making of each Credit Extension shall be deemed
to be a representation and warranty by Borrower on the date of such Credit
Extension as to the accuracy of the facts referred to in this Section 3.2.

 

 

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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, 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 when Advances are
outstanding (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.

 

4.4 Shares. Borrower hereby pledges, assigns and grants to Bank a security
interest in all the Shares, together with all proceeds and substitutions
thereof, all cash, stock and other moneys and property paid thereon, all rights
to subscribe for securities declared or granted in connection therewith, and all
other cash and noncash proceeds of the foregoing, as security for the
performance of the Obligations. The certificate or certificates for the Shares,
as relevant, will be delivered to Bank upon the Closing Date, accompanied by an
instrument of assignment duly executed in blank by Borrower. To the extent
required by the terms and conditions governing the Shares, Borrower shall cause
the books of each entity whose Shares are part of the Collateral and any
transfer agent to reflect the pledge of the Shares. Upon the occurrence and
during the continuance of an Event of Default hereunder, Bank may effect the
transfer of any securities included in the Collateral into the name of Bank and
cause new certificates representing such securities to be issued in the name of
Bank or its transferee. Borrower will execute and deliver such documents, and
take or cause to be taken such actions, as Bank may reasonably request to
perfect or continue the perfection of Bank’s security interest in the
Collateral. Unless an Event of Default shall have occurred and be continuing,
Borrower shall be entitled to exercise any voting rights with respect to the
Shares and to give consents, waivers and ratifications in respect thereof,
provided that no vote shall be cast or consent, waiver or ratification given or
action taken which would be inconsistent with any of the terms of this Agreement
or which would constitute or create any violation of any of such terms. All such
rights to vote and give consents, waivers and ratifications shall terminate upon
the occurrence and continuance of an Event of Default.

 

5. REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and warrants, as of the date hereof and any other date which
such representations and warranties shall be deemed to be made, 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.

 

5.2 Due Authorization; No Conflict. The execution, delivery, and performance of
the Loan Documents are within Borrower’s powers, have been duly authorized, and
are not in conflict with nor constitute a breach of any provision contained in
Borrower’s Articles 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.

 

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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. Neither
Borrower nor any Subsidiary has 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 agreement 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. All Borrower’s
Inventory and Equipment is located only at the location set forth in Section 10
hereof.

 

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 in which an adverse decision could have a Material Adverse
Effect, or a material adverse effect on Borrower’s interest or Bank’s security
interest in the Collateral.

 

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.

 

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, violation of which
could 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

 

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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.

 

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, the
failure to obtain which could have a Material Adverse Effect.

 

5.16 Accounts. Except as set forth in the Schedule, and subject to Section 6.7
hereof, none of Borrower’s nor any Subsidiary’s primary depository, operating,
or investment accounts is maintained or invested with a Person other than Bank.

 

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

 

5.18 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.

 

6. AFFIRMATIVE COVENANTS.

 

Borrower covenants and agrees that, until payment in full of all outstanding
Obligations, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, 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, the
loss of which could 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 have a
Material Adverse Effect.

 

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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, and cash flow statement covering Borrower’s consolidated
operations during such period, prepared in accordance with GAAP, consistently
applied, in a form acceptable to Bank and certified by a Responsible Officer;
(b) as soon as available, but in any event within ninety (90) days after the end
of Borrower’s fiscal year, audited consolidated financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (c) 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, if applicable,
all reports on Form 10-K, as soon as possible, but in any event within ninety
(90) days after the end of Borrower’s fiscal year, and all reports on Form 10-Q
as soon as available, but in any event within forty-five (45) days after the end
of each fiscal quarter, 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 Fifty Thousand Dollars ($50,000) or more;
(e) such budgets, sales projections, operating plans or other financial
information as Bank may reasonably request from time to time; and (f) within
thirty (30) days of the last day of each fiscal quarter, a report signed by
Borrower, in form reasonably acceptable to Bank, listing any applications or
registrations that Borrower has made or filed in respect of any Patents,
Copyrights or Trademarks and the status of any outstanding applications or
registrations, as well as any material change in Borrower’s intellectual
property, including but not limited to any subsequent ownership right of
Borrower in or to any Trademark, Patent or Copyright not specified in Exhibits
A, B, and C of the Intellectual Property Security Agreement delivered to Bank by
Borrower in connection with this Agreement.

 

Within twenty (20) days after the last day of each month, 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 of
accounts receivable and accounts payable. Notwithstanding the foregoing, when
Borrower’s unrestricted cash, as reported in Borrower’s monthly financial
statements delivered to Bank, is less than Three Million Five Hundred Thousand
Dollars ($3,500,000), Borrower shall deliver to Bank Borrowing Base Certificates
every two (2) weeks.

 

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.

 

Bank shall have a right from time to time hereafter 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 when Advances are outstanding
(unless an Event of Default has occurred and is continuing).

 

6.4 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).

 

6.5 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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6.6 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, at the option of Bank, be payable to Bank to be applied
on account of the Obligations.

 

6.7 Accounts. Except as set forth in the Schedule, Borrower shall maintain and
shall cause each of its Subsidiaries to maintain its primary depository,
operating, and investment accounts with Bank and/or Comerica Securities, Inc.
Within thirty (30) days of the Closing Date, any such accounts not so maintained
with Bank and/or Comerica Securities, Inc. shall be subject to deposit and/or
securities account control agreements (as applicable) in form and content
reasonably satisfactory to Bank.

 

6.8 Total Liabilities-Tangible Net Worth. Borrower shall maintain at all times,
measured as of the last day of each calendar month, on a consolidated basis, a
ratio of Total Liabilities to Tangible Net Worth of not more than (a) 1.25 to
1.00 for the months ending March 31, 2004 through July 31, 2004; (b) 1.00:1.00
for the months ending August 31, 2004 through October 31, 2004; and (c)
0.75:1.00 for the months ending November 30, 2004 and thereafter.

 

6.9 Debt Service Coverage. Borrower shall maintain at all times, measured as of
the last day of each fiscal quarter, on a consolidated basis, a Debt Service
Coverage of at least (a) 1.25 to 1.00 for the quarter ending May 31, 2004; (b)
1.50 to 1.00 for the quarter ending August 31, 2004; and 1.75:1.00 for the
quarter ending November 30, 2004 and thereafter. As calculated hereunder, Debt
Service Coverage shall be annualized for (i) the three (3) months ending May 31,
2004; (ii) the six (6) months ending August 31, 2004; and, (iii) the nine (9)
months ending November 30, 2004; thereafter, Debt Service Coverage shall be
calculated on a rolling twelve (12) month basis for each quarter of
determination.

 

6.10 Tangible Net Worth. Borrower shall maintain at all times, measured as of
the last day of each calendar month, on a consolidated basis, a Tangible Net
Worth of not less than Thirteen Million Dollars ($13,000,000).

 

6.11 Liquidity. Borrower shall maintain at all times, measured as of the last
day of each calendar month, on a consolidated basis, a balance of unrestricted
cash and cash equivalents on deposit with Bank of at least Two Million Dollars
($2,000,000).

 

6.12 Intellectual Property Rights.

 

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

 

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

 

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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.

 

(c) Borrower shall execute and deliver such additional instruments and documents
from time to time as Bank shall reasonably request to perfect and maintain the
priority of Bank’s security interest in the Intellectual Property Collateral.
Borrower shall (i) protect, defend and maintain the validity and enforceability
of the trade secrets, Trademarks, Patents and Copyrights, (ii) use commercially
reasonable efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Bank in writing of material infringements
detected and (iii) not allow any material Trademarks, Patents or Copyrights to
be abandoned, forfeited or dedicated to the public without the written consent
of Bank, which shall not be unreasonably withheld.

 

(d) 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.

 

6.13 Post-Closing Matters. Within thirty (30) days of the Closing Date, (a)
Borrower shall deliver to Bank the following: (1) a Deed of Trust (or Mortgage),
Security Agreement and Fixture Filing (with Assignment of Rents and Leases),
naming Vermed, Inc. as Trustor (or mortgagor) and Bank as beneficiary (or
mortgagee), and recorded against the Real Property; (2) a Title Policy with
respect to the Real Property, among other things, reflecting Bank with a first
in priority Deed of Trust (or Mortgage), with exclusions and exceptions (and
otherwise in form and content and issued by a title insurer) reasonably
acceptable to Bank; (3) an updated appraisal of and Phase 2 environmental report
(and/or review of the same by Bank) with respect to the Real Property, with
results satisfactory to Bank, including but not limited to the Real Property
having a net appraised value of at least One Million Five Hundred Seventy
Thousand Dollars ($1,570,000); and (4) the deposit and/or securities account
control agreements referenced in Section 6.7, above; and (b) Bank shall have
conducted an audit of the Collateral, the results of which shall be satisfactory
to Bank.

 

6.14 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 covenants and agrees that, so long as any credit hereunder shall be
available and until payment in full of the outstanding Obligations or for so
long as Bank may have any commitment to make any Credit Extensions, Borrower
will not do any of the following:

 

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; or (iii) Transfers of worn-out or obsolete
Equipment which was not financed by Bank.

 

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 business in the

 

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manner conducted by Borrower as of the Closing Date; or suffer or permit a
Change in Control; 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.

 

7.4 Indebtedness. Create, incur, 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. 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.

 

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 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 property 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 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.

 

7.10 Inventory and Equipment. Store the Inventory or the Equipment 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.

 

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

 

8. EVENTS OF DEFAULT.

 

Any one or more of the following events shall constitute an Event of Default by
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 Article 6 or violates any
of the covenants contained in Article 7 of this Agreement; or

 

(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 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 ten (10) 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 ten (10) days
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 becomes insolvent, 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 thirty (30) 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 Fifty Thousand Dollars
($50,000) or which could have a Material Adverse Effect;

 

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

 

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8.8 Judgments. If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000)
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

 

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

 

8.10 Guaranty. If any guaranty of all or a portion of the Obligations (a
“Guaranty”) ceases for any reason to be in full force and effect, or any
guarantor fails to perform any obligation under any Guaranty or a security
agreement securing any Guaranty (collectively, the “Guaranty Documents”), or any
event of default occurs under any Guaranty Document or any guarantor revokes or
purports to revoke a Guaranty, or any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
in any Guaranty Document or in any certificate delivered to Bank in connection
with any Guaranty Document, or if any of the circumstances described in Sections
8.3 through 8.8 occur with respect to any guarantor or any guarantor dies or
becomes subject to any criminal prosecution, or any circumstances arise causing
Bank, in good faith, to become insecure as to the satisfaction of any of any
guarantor’s obligations under the Guaranty Documents.

 

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);

 

(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

 

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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; (g)
to file, in its sole discretion, one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral; and (h) to
transfer the Intellectual Property Collateral into the name of Bank or a third
party to the extent permitted under the California Uniform Commercial Code;
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred, including without limitation to modify, in its sole
discretion, any intellectual property security agreement entered into between
Borrower and Bank without first obtaining Borrower’s approval of or signature to
such modification by amending Exhibits A, B, and C, thereof, as appropriate, to
include reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Borrower after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Borrower no longer has or claims to have any right, title or
interest. 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.

 

9.3 Accounts Collection. At any time during the term of this Agreement, 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 6.6 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.

 

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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:

 

CARDIODYNAMICS INTERNATIONAL CORPORATION

6175 Nancy Ridge Drive, Suite 300

San Diego, CA 92121

Attn: Chief Financial Officer

FAX: (858) 535-0055

If to Bank:

 

Comerica Bank

9920 S. La Cienega Blvd., Suite 1401

Inglewood, CA 90301

Attn: Manager

FAX: (310) 338-6110

with a copy to:

 

Comerica Bank

11512 El Camino Real, Suite 350

San Diego, CA 92130

Attn: Manager

FAX: (858) 509-2365

 

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

 

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

 

This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law. Each of 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

 

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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.

 

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 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.

 

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 Effect of Amendment and Restatement. Except as otherwise set forth herein,
this Agreement is intended to and does completely amend and restate, without
novation, the Original Agreement. All security interests granted under the
Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement.

 

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[Balance of Page Intentionally Left Blank]

 

 

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

 

CARDIODYNAMICS INTERNATIONAL

CORPORATION

By:

 

/s/ Michael K. Perry

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

Title:

 

Chief Executive Officer

COMERICA BANK

By:

 

/s/ Peter Drees

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

Title:

 

Vice President Technology Life Sciences