Exhibit 10.1

 

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DIVERSA CORPORATION

 

LOAN AND SECURITY AGREEMENT

 

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This LOAN AND SECURITY AGREEMENT is entered into as of September 30, 2005, by
and between COMERICA BANK (“Bank”) and DIVERSA CORPORATION (“Borrower”).

 

RECITALS

 

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

 

AGREEMENT

 

The parties agree as follows:

 

  1. DEFINITIONS AND CONSTRUCTION.

 

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

 

“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
(whether generated in-house or by outside counsel) incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of
appeal), incurred before, during and after an Insolvency Proceeding, whether or
not suit is brought.

 

“Borrower State” means Delaware, the state under whose laws Borrower is
organized.

 

“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.

 

“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.

 

“Cash” means unrestricted cash, cash equivalents and investments in short- or
long-term marketable securities.

 

“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.

 

“Chief Executive Office State” means California, where Borrower’s chief
executive office is located.

 

“Closing Date” means the date of this Agreement.

 

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

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“Collateral” means the property described on Exhibit A attached hereto.

 

“Collateral Location” means the state or states where the Collateral is located,
which are California and Mexico City, Mexico.

 

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

 

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

 

“Domestic Equipment” means Equipment financed with the proceeds of Equipment
Advances located within the United States.

 

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

 

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

 

“Equipment Advance(s)” means a cash advance or cash advances under the Equipment
Line.

 

“Equipment Line” means a Credit Extension of up to Fourteen Million Six Hundred
Thousand Dollars ($14,600,000).

 

“Equipment Maturity Date” means September 30, 2010.

 

“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.

 

“Foreign Equipment” means Equipment financed with the proceeds of Equipment
Advances held or maintained with Fermic, S.A. de C.V. (or its successors or
assigns) in Mexico.

 

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

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety

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bonds and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, excluding unsecured indebtedness which is
convertible into equity of Borrower, (c) all capital lease obligations, (d) all
Contingent Obligations, and (e) all obligations arising under the Letter of
Credit Sublimit.

 

“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.

 

“Investment” means any beneficial ownership of (including stock, partnership or
limited liability company interest 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.

 

“Letter of Credit” means a commercial or standby letter of credit or similar
undertaking issued by Bank at Borrower’s request in accordance with
Section 2.1(b)(v).

 

“Letter of Credit Sublimit” means a sublimit for Letters of Credit under the
Equipment Line not to exceed Four Million Six Hundred Thousand Dollars
($4,600,000).

 

“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 document, instrument or agreement entered into in
connection with this Agreement, all as amended or extended from time to time.

 

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

 

“Negotiable Collateral” means all of Borrower’s present and future instruments
(including promissory notes) and documents of title relating to the Collateral
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.

 

“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;

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(c) Indebtedness not to exceed Twenty Million Dollars ($20,000,000) in the
aggregate during the term of this Agreement secured by a lien described in
clause (c) of the defined term “Permitted Liens;” provided such Indebtedness
does not exceed the lesser of the cost or fair market value of the equipment
financed with such Indebtedness; provided further, however, that such amount of
Permitted Indebtedness shall be reduced by the aggregate amount of Indebtedness
of Borrower outstanding under clause (b) of the defined term “Permitted
Indebtedness,” if any;

 

(d) Subordinated Debt;

 

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

 

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

 

“Permitted Investment” means:

 

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

 

(b) Investments made pursuant to Borrower’s investment policy which has been
previously provided to Bank;

 

(c) Repurchases of stock from former employees or directors of Borrower under
the terms of applicable repurchase agreements (i) in an aggregate amount not to
exceed One Million Dollars ($1,000,000) in any fiscal year, provided that no
Event of Default has occurred, is continuing or would exist after giving effect
to the repurchases, or (ii) in any amount where the consideration for the
repurchase is the cancellation of indebtedness owed by such former employees to
Borrower regardless of whether an Event of Default exists;

 

(d) Investments accepted in connection with Permitted Transfers;

 

(e) Investments of Subsidiaries in or to other Subsidiaries or Borrower and
Investments by Borrower in Subsidiaries not to exceed Ten Million Dollars
($10,000,000) in the aggregate in any fiscal year;

 

(f) Investments not to exceed Five Hundred Thousand Dollars ($500,000) in the
aggregate in any fiscal year consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plan agreements approved by Borrower’s Board of
Directors;

 

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

 

(h) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not Affiliates, in
the ordinary course of business, provided that this subparagraph (h) shall not
apply to Investments of Borrower in any Subsidiary; and

 

(i) Joint ventures or strategic alliances in the ordinary course of Borrower’s
business consisting of the non-exclusive licensing of technology, the
development of technology or the providing of technical support.

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“Permitted Liens” means the following:

 

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

 

(b) Liens for taxes, fees, assessments or other governmental charges or levies,
either not delinquent or being contested in good faith by appropriate
proceedings and for which Borrower maintains adequate reserves, provided the
same have no priority over any of Bank’s security interests;

 

(c) Liens not to exceed Twenty Million Dollars ($20,000,000) in the aggregate
(i) upon or in any Equipment (other than Equipment financed by an Equipment
Advance) 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 or lease of such Equipment, or (ii) existing on
such Equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the
proceeds of such Equipment; provided however that such amount of Permitted Liens
shall be reduced by the aggregate amount of outstanding Liens of Borrower at any
time which was existing on the Closing Date and disclosed in the Schedule in
connection with equipment financings of the type described in this section.

 

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

 

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

 

(f) Liens in favor of other financial institutions arising in connection with
Borrower’s deposit accounts held at such institutions to secured standard fees
for deposit services charged by, but not financing made available by such
institutions, provided that Bank has a perfected security interest in the
amounts held in such deposit accounts.

 

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

 

(a) inventory in the ordinary course of business;

 

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

 

(c) worn-out or obsolete Equipment not financed with the proceeds of Equipment
Advances; or

 

(d) other assets of Borrower or its Subsidiaries that do not in the aggregate
exceed Five Million Dollars ($5,000,000) during any fiscal year.

 

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

 

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

 

“Responsible Officer” means each of the Chief Executive Officer, the Executive
Vice-President, Internal Development, the Chief Financial Officer and the Chief
Accounting Officer of Borrower.

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

 

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

 

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

 

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

 

“Tranche A” has the meaning assigned in Section 2.1(b)(i).

 

“Tranche A Availability End Date” means December 31, 2005.

 

“Tranche A Equipment Advance” or “Tranche A Equipment Advances” means any
Equipment Advances(s) made under Tranche A.

 

“Tranche B” has the meaning assigned in Section 2.1(b)(i).

 

“Tranche B Availability End Date” means March 31, 2006.

 

“Tranche B Equipment Advance” or “Tranche B Equipment Advances” means any
Equipment Advances(s) made under Tranche B.

 

“Tranche C” has the meaning assigned in Section 2.1(b)(i).

 

“Tranche C Availability End Date” means June 30, 2006.

 

“Tranche C Equipment Advance” or “Tranche C Equipment Advances” means any
Equipment Advances(s) made under Tranche C.

 

“Tranche D” has the meaning assigned in Section 2.1(b)(i).

 

“Tranche D Availability End Date” means September 30, 2006.

 

“Tranche D Equipment Advance” or “Tranche D Equipment Advances” means any
Equipment Advances(s) made under Tranche D.

 

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

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  2. LOAN AND TERMS OF PAYMENT.

 

2.1 Credit Extensions.

 

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

 

(b) Equipment Advances.

 

(i) Subject to and upon the terms and conditions of this Agreement, Bank agrees
to make Equipment Advances to Borrower in four (4) tranches: Tranche A, Tranche
B, Tranche C and Tranche D. Borrower may request Equipment Advances as follows:

 

Tranche A:    at any time from the date hereof through the Tranche A
Availability End Date. Tranche B:    at any time from the first Business Day
after the Tranche A Availability End Date through the Tranche B Availability End
Date. Tranche C:    at any time from the first Business Day after the Tranche B
Availability End Date through the Tranche C Availability End Date. Tranche D:   
at any time from the first Business Day after the Tranche C Availability End
Date through the Tranche D Availability End Date.

 

The aggregate outstanding amount of Tranche A Equipment Advances, Tranche B
Equipment Advances, Tranche C Equipment Advances and Tranche D Equipment
Advances shall not exceed Ten Million Dollars ($10,000,000). Each Equipment
Advance shall not exceed one hundred percent (100%) of the invoice amount of
equipment and software approved by Bank from time to time (which Borrower shall,
in any case, have purchased within 90 days of the date of the corresponding
Equipment Advance). At no time shall the aggregate amount of Equipment Advances
used to finance Foreign Equipment exceed Three Million Five Hundred Thousand
Dollars ($3,500,000). Equipment Advances for Foreign Equipment may be requested
and shall be made, subject to the terms and conditions hereof, no more
frequently than quarterly following the Closing Date. Up to twenty percent
(20%) of the aggregate amount of Equipment Advances may be used for soft costs
consisting of leasehold improvements, software licenses, or custom-designed
hardware, acceptable to Bank.

 

(ii) Interest shall accrue from the date of each Equipment Advance at the rate
specified in Section 2.3(a), and shall be payable in accordance with
Section 2.3(c).

 

Any Tranche A Equipment Advances used to purchase Foreign Equipment that are
outstanding under Tranche A on the Tranche A Availability End Date shall be
payable in thirty-six (36) equal monthly installments of principal, plus all
accrued interest, beginning on January 31, 2006 and continuing on the last day
of each month thereafter until paid in full. Any Equipment Advances used to
finance Domestic Equipment that are outstanding under Tranche A on the Tranche A
Availability End Date shall be payable in forty-eight (48) equal monthly
installments of principal, plus all accrued interest, beginning on January 31,
2006, and continuing on the last day of each month thereafter until paid in
full.

 

Any Tranche B Equipment Advances used to purchase Foreign Equipment that are
outstanding under Tranche B on the Tranche B Availability End Date shall be
payable in thirty-six (36) equal monthly installments of principal, plus all
accrued interest, beginning on April 30, 2006 and continuing on the last day of
each month thereafter until paid in full. Any Equipment Advances used to finance
Domestic Equipment that are outstanding under Tranche B on the Tranche B
Availability End Date shall be payable in forty-eight (48) equal monthly
installments of principal, plus all accrued interest, beginning on April 30,
2006, and continuing on the last day of each month thereafter until paid in
full.

 

Any Tranche C Equipment Advances used to purchase Foreign Equipment that are
outstanding under Tranche C on the Tranche C Availability End Date shall be
payable in thirty-six (36) equal monthly installments of principal, plus all
accrued interest, beginning on July 31, 2006 and continuing on the last

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day of each month thereafter until paid in full. Any Equipment Advances used to
finance Domestic Equipment that are outstanding under Tranche C on the Tranche C
Availability End Date shall be payable in forty-eight (48) equal monthly
installments of principal, plus all accrued interest, beginning on July 31,
2006, and continuing on the last day of each month thereafter until paid in
full.

 

Any Tranche D Equipment Advances used to purchase Foreign Equipment that are
outstanding under Tranche D on the Tranche D Availability End Date shall be
payable in thirty-six (36) equal monthly installments of principal, plus all
accrued interest, beginning on October 31, 2006 and continuing on the last day
of each month thereafter until paid in full. Any Equipment Advances used to
finance Domestic Equipment that are outstanding under Tranche D on the Tranche D
Availability End Date shall be payable in forty-eight (48) equal monthly
installments of principal, plus all accrued interest, beginning on October 31,
2006, and continuing on the last day of each month thereafter through the
Equipment Maturity Date at which time all amounts due in connection with
Equipment Advances made under this Section 2.1(b) shall be due and payable.

 

(iii) Borrower may prepay any Equipment Advances without penalty or premium.

 

(iv) When Borrower desires to obtain an Equipment Advance, Borrower shall notify
Bank (which notice shall be irrevocable) by facsimile transmission to be
received no later than 3:00 p.m. Pacific time three (3) Business Days before the
day on which the Equipment Advance 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 and include a copy of the invoice for any
Equipment to be financed.

 

(v) Letter of Credit Sublimit. In reliance on the representations and warranties
of Borrower set forth herein, at any time and from time to time from the date
hereof through the Business Day immediately prior to the Equipment Maturity
Date, Bank shall issue for the account of Borrower such Letters of Credit as
Borrower may request by delivering to Bank a duly executed letter of credit
application on Bank’s standard form; provided, however, that the outstanding and
undrawn amounts under all such Letters of Credit shall not at any time exceed
the Letter of Credit Sublimit. Any drawn but unreimbursed amounts under any
Letters of Credit shall be charged as Equipment Advances against the Equipment
Line. All Letters of Credit shall be in form and substance acceptable to Bank in
its sole discretion and shall be subject to the terms and conditions of Bank’s
form application and letter of credit agreement. Borrower will pay any standard
issuance and other fees that Bank notifies Borrower it will charge for issuing
and processing Letters of Credit.

 

(vi) Collateralization of Obligations Extending Beyond Maturity. If Borrower has
not secured to Bank’s satisfaction its obligations with respect to any Letters
of Credit by the Equipment Maturity Date, then, effective as of such date, the
balance in any deposit accounts held by Bank and the certificates of deposit or
time deposit accounts issued by Bank in Borrower’s name (and any interest paid
thereon or proceeds thereof, including any amounts payable upon the maturity or
liquidation of such certificates or accounts), shall automatically secure such
obligations to the extent of the then continuing or outstanding and undrawn
Letters of Credit. Borrower authorizes Bank to hold such balances in pledge and
to decline to honor any drafts thereon or any requests by Borrower or any other
Person to pay or otherwise transfer any part of such balances for so long as the
Letters of Credit are outstanding or continue.

 

2.2 INTENTIONALLY OMITTED.

 

2.3 Interest Rates, Payments, and Calculations.

 

(a) Interest Rate for Equipment Advances. Except as set forth in Section 2.3(b),
the Equipment Advances shall bear interest, on the outstanding daily balance
thereof, at a rate equal to three-quarters of one percent (0.75%) 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

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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 Equipment 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.

 

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

 

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

 

2.5 Fees. Borrower shall pay to Bank the following:

 

(a) Commitment Fee. On or prior to the Closing Date, a fee equal to Thirty Seven
Thousand Five Hundred Dollars ($37,500) which shall be nonrefundable; and

 

(b) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the
Closing Date (provided that legal fees for outside counsel shall not exceed
Fifteen Thousand Dollars ($15,000) on the Closing Date if there are two turns or
less of the Loan Documents), and, after the Closing Date, all Bank Expenses as
and when they become due.

 

2.6 Term. This Agreement shall become effective on the Closing Date and, subject
to Section 13.7, 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.

 

  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) an officer’s certificate of Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement;

 

(c) UCC National Form Financing Statement;

 

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

 

(e) evidence that Bank has a perfected security interest in the Foreign
Equipment;

 

(f) agreement to provide insurance;

 

(g) Investment Account Control Agreement in form and substance acceptable to
Bank (for funds held at Comerica Securities);

 

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

 

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

 

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

 

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

 

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

 

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

 

(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.

 

  4. CREATION OF SECURITY INTEREST.

 

4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing
security interest in the Collateral to secure prompt repayment of any and all
Obligations and to secure prompt performance by 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 later-acquired Collateral. Notwithstanding
any termination, Bank’s Lien on the Collateral shall remain in effect for so
long as any Obligations are outstanding.

 

4.2 Perfection of Security Interest. Borrower authorizes Bank to file at any
time financing statements, continuation statements, and amendments thereto that
(i) either specifically describe the Collateral or describe the Collateral as
all assets of Borrower of the kind pledged hereunder, and (ii) contain any other

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information required by the Code for the sufficiency of filing office acceptance
of any financing statement, continuation statement, or amendment, including
whether Borrower is an organization, the type of organization and any
organizational identification number issued to Borrower, if applicable. Any such
financing statements may be signed by Bank on behalf of Borrower, as provided in
the Code, and may be filed at any time in any jurisdiction whether or not
Revised Article 9 of the Code is then in effect in that jurisdiction. Borrower
shall from time to time endorse and deliver to Bank, at the request of Bank, all
Negotiable Collateral and other documents that Bank may reasonably request, in
form satisfactory to Bank, to perfect and continue perfected Bank’s security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents. Borrower shall have
possession of the Collateral, except where expressly otherwise provided in this
Agreement or where Bank chooses to perfect its security interest by possession
in addition to the filing of a financing statement; provided, however, that
where Collateral is in possession of a third party bailee, Borrower shall take
such steps as Bank reasonably requests for Bank to obtain an acknowledgment, in
form and substance satisfactory to Bank, of the bailee that the bailee holds
such Collateral for the benefit of Bank.

 

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

 

  5. REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and warrants as follows:

 

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

 

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

 

5.3 Collateral. Borrower has rights in or the power to transfer the Collateral,
and its title to the Collateral is free and clear of Liens, adverse claims, and
restrictions on transfer or pledge except for Permitted Liens. All Collateral is
located solely in the Collateral Locations. Except as set forth in the Schedule,
none of the Collateral is maintained or invested with a Person other than Bank
or Bank’s Affiliates.

 

5.4 Intentionally Omitted.

 

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

 

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

 

5.7 No Material Adverse Change in Financial Statements. All consolidated and
consolidating financial statements related to Borrower and any Subsidiary that
are delivered by Borrower to Bank fairly present in all material respects
Borrower’s consolidated and consolidating financial condition as of the date

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

thereof and Borrower’s consolidated and consolidating results of operations for
the period then ended. There has not been a material adverse change in the
consolidated or in the consolidating financial condition of Borrower since the
date of the most recent of such financial statements submitted to Bank.

 

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

 

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

 

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

 

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

 

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

 

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

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

licenses, approvals and agreements, the loss of which or failure to comply with
which could reasonably be expected to have a Material Adverse Effect.

 

6.2 Financial Statements, Reports, Certificates. Borrower shall deliver the
following to Bank: (i) as soon as available, but in any event within thirty
(30) days after the end of each calendar quarter (or, thirty (30) days after the
end of each calendar month, when Borrower’s domestic Cash is less than Thirty
Five Million Dollars ($35,000,000), a company prepared consolidated and
consolidating balance sheet and income statement covering Borrower’s operations
during such period, in a form reasonably acceptable to Bank and certified by a
Responsible Officer; (ii) as soon as available, but in any event within the
indicated time frame, copies of all statements, reports and notices sent or made
available generally by Borrower to its security holders or to any holders of
Subordinated Debt and all reports on Forms 10-Q (within forty-five (45) days of
the end of each fiscal quarter) and 10-K (within ninety (90) days of the end of
each fiscal year) filed with the Securities and Exchange Commission;
(iii) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of One Million Dollars
($1,000,000) or more; (iv) promptly upon receipt, each management letter
prepared by Borrower’s independent certified public accounting firm regarding
Borrower’s management control systems; and (v) such budgets, sales projections,
operating plans or other financial information generally prepared by Borrower in
the ordinary course of business as Bank may reasonably request from time to
time.

 

(a) Within thirty (30) days after the last day of each quarter or, thirty
(30) days after the end of each calendar month, when Borrower’s domestic Cash is
less than Thirty Five Million Dollars ($35,000,000), Borrower shall deliver to
Bank with the quarterly (or, monthly, as applicable) financial statements, a
Compliance Certificate certified as of the last day of the applicable quarter
(or, month) and signed by a Responsible Officer in substantially the form of
Exhibit C hereto.

 

(b) As soon as possible and in any event within three (3) calendar days after
becoming aware of the occurrence or existence of an Event of Default hereunder,
a written statement of a Responsible Officer setting forth details of the Event
of Default, and the action which Borrower has taken or proposes to take with
respect thereto.

 

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

 

6.3 Intentionally Omitted.

 

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

 

6.5 Insurance.

 

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

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(b) All such policies of insurance shall be in such form, with such companies,
and in such amounts as reasonably satisfactory to Bank. All policies of property
insurance shall contain a lender’s loss payable endorsement, in a form
satisfactory to Bank, showing Bank as an additional loss payee, and all
liability insurance policies shall show Bank as an additional insured and
specify that the insurer must give at least 20 days notice to Bank before
canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver
to Bank certified copies of the policies of insurance and evidence of all
premium payments. If no Event of Default has occurred and is continuing,
proceeds payable under any casualty policy will, at Borrower’s option, be
payable to Borrower to replace the property subject to the claim, provided that
any such replacement property shall be deemed Collateral in which Bank has been
granted a first priority security interest. If an Event of Default has occurred
and is continuing, all proceeds payable under any such policy shall, at Bank’s
option, be payable to Bank to be applied on account of the Obligations.

 

6.6 Bank Accounts. Borrower shall maintain all its depository and operating
accounts with Bank.

 

6.7 Financial Covenants. Borrower shall at all times maintain (i) a balance of
domestic Cash of not less than Twenty Five Million Dollars ($25,000,000)
including (ii) a balance of Cash at Bank and Cash at Bank’s Affiliates covered
by a control agreement of not less than (a) Seven Million Five Hundred Thousand
Dollars ($7,500,000) from and after the Closing Date; (b) Twelve Million Five
Hundred Thousand Dollars ($12,500,000) from and after October 15, 2005; and
(c) Fifteen Million Dollars ($15,000,000) from and after October 31, 2005. If at
any time, Borrower’s total domestic Cash is less than Twenty Five Million
Dollars ($25,000,000), (i) Borrower shall pledge an amount of Cash to Bank equal
to any issued and outstanding Letters of Credit and the aggregate outstanding
amount of Equipment Advances and shall execute such documents as Bank may
request to effect such pledge; and (ii) thereafter, no further Equipment
Advances will be made unless such Equipment Advances are cash secured as
described in subsection (i) above.

 

6.8 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 the outstanding Obligations are paid in full or for so long
as Bank may have any commitment to make any Credit Extensions, Borrower will not
do any of the following without Bank’s prior written consent, which shall not be
unreasonably withheld:

 

7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of
(collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Permitted Transfers.

 

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

 

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization (other than mergers or consolidations of a Subsidiary into another
Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person except where (i) such transactions do not in the aggregate exceed Ten
Million Dollars ($10,000,000) in cash consideration during any fiscal year,
(ii) no Event of Default has occurred, is continuing or would exist after giving
effect to such transactions, (iii) such transactions do not result in a Change
in Control, and (iv) Borrower is the surviving entity.

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

 

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

 

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

 

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

 

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

 

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 affecting
Bank’s rights contained in any documentation relating to the Subordinated Debt
without Bank’s prior written consent.

 

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

 

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

 

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 any of the Obligations when due;

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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 (10) 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 (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default but no Credit Extensions
will be made;

 

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

 

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

 

8.5 Attachment. If any material portion of 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 made during such cure period);

 

8.6 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);

 

8.7 Other Agreements. If there is a default or other failure to perform in any
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of One
Million Dollars ($1,000,000) or that could have a Material Adverse Effect;

 

8.8 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;

 

8.9 Judgments. If a final, non-appealable judgment or judgments for the payment
of money in an amount, individually or in the aggregate, of at least Two Million
Five Hundred Thousand Dollars ($2,500,000) in excess of any amount(s) not
covered by insurance 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

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

 

  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 8.6, all
Obligations shall become immediately due and payable without any action by
Bank);

 

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

 

(c) 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;

 

(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, and (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Bank;

 

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

 

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

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

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

 

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

 

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

 

Bank may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.

 

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) dispose of any Collateral; (b) make, settle, and adjust
all claims under and decisions with respect to Borrower’s policies of insurance
related to the Collateral; (c) settle and adjust disputes and claims respecting
the accounts directly with account debtors related to the Collateral, for
amounts and upon terms which Bank determines to be reasonable; and (d) to file,
in its sole discretion, one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the signature of
Borrower where permitted by law; provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
clause (d) above, regardless of whether an Event of Default has occurred. 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 Intentionally Omitted.

 

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 the Equipment Line as Bank deems necessary to protect Bank
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.5 of this Agreement, and take any
action with respect to such policies as Bank deems prudent. Any amounts so paid
or deposited by Bank shall constitute Bank Expenses, shall be immediately due
and payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement.

 

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

 

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

 

9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the
Loan Documents, and all other agreements shall be cumulative. Bank shall have
all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by Bank of one right or remedy shall be
deemed an election, and no waiver by Bank of any Event of Default on 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. Borrower
expressly agrees that this Section may not be waived or modified by Bank by
course of performance, conduct, estoppel or otherwise.

 

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

 

  10. NOTICES.

 

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

 

If to Borrower:   

DIVERSA CORPORATION

4955 Director’s Place

San Diego, CA 92121

Attn: Anthony E. Altig, CFO

FAX: (858) 526-5890

If to Bank:   

Comerica Bank

2321 Rosecrans Ave., Suite 5000

El Segundo, CA 90245

Attn: Manager

FAX: (310) 297-2290

with a copy to:   

Comerica Bank

11512 El Camino Real, Suite 350

San Diego, CA 92130

Attn: Steve Stuckey – Senior Vice President

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 San Diego,
State of California. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL
BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH OF THEM, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT
BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR
BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.

 

  12. REFERENCE PROVISION.

 

If and only if the jury trial waiver set forth in Section 11 of this Agreement
is invalidated for any reason by a court of law, statute or otherwise, the
reference provisions set forth below shall be substituted in place of the jury
trial waiver. So long as the jury trial waiver remains valid, the reference
provisions set forth in this Section shall be inapplicable.

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

12.1 Mechanics.

 

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

 

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

 

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

 

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

 

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

 

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

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

laws, a written statement of decision, and the right to move for a new trial or
a different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.

 

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

 

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

 

  13. GENERAL PROVISIONS.

 

13.1 Successors and Assigns. This Agreement shall bind and inure to the benefit
of the respective successors and permitted assigns of each of the parties and
shall bind all Persons who become bound as a debtor to this Agreement; provided,
however, that neither this Agreement nor any rights hereunder may be assigned by
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.

 

13.2 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, its officers, employees
and agents 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.

 

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

 

13.4 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.

 

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

 

13.6 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.

 

13.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding or Bank has any obligation to make any Credit Extension to
Borrower. The obligations of Borrower to indemnify Bank with respect to the
expenses,

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

damages, losses, costs and liabilities described in Section 13.2 shall survive
until all applicable statute of limitations periods with respect to actions that
may be brought against Bank have run.

 

13.8 Confidentiality. In handling any confidential information, Bank and all
employees and agents of Bank shall exercise the same degree of care that Bank
exercises with respect to its own proprietary information of the same types to
maintain the confidentiality of any non-public information thereby received or
received pursuant to this Agreement except that disclosure of such information
may be made (i) to the subsidiaries or Affiliates of Bank in connection with
their present or prospective business relations with Borrower, (ii) to
prospective transferees or purchasers of any interest in the Loans, provided
that they have entered into a comparable confidentiality agreement in favor of
Borrower and have delivered a copy to Borrower, (iii) as required by law,
regulations, rule or order, subpoena, judicial order or similar order, (iv) as
may be required in connection with the examination, audit or similar
investigation of Bank and (v) as Bank may determine in connection with the
enforcement of any remedies hereunder. Confidential information hereunder shall
not include information that either: (a) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information.

 

[Balance of Page Intentionally Left Blank]

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

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

 

DIVERSA CORPORATION

By:

 

/s/ Edward T. Shonsey

Title:

 

Executive Vice President, Internal Development

COMERICA BANK

By:

 

/s/ Steve Stuckey

Title:

 

Senior Vice President

 

[Signature Page to Loan and Security Agreement]

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

DEBTOR    DIVERSA CORPORATION SECURED PARTY:    COMERICA BANK

 

EXHIBIT A

 

COLLATERAL DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT

 

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

 

All equipment, software or other personal property of Borrower (herein referred
to as “Borrower” or “Debtor”) financed by Bank pursuant to that certain Loan and
Security Agreement, dated as of September 30, 2005, as amended or replaced from
time to time (the “Loan Agreement”), including, without limitation as listed on
Annex A to each Loan Supplement executed by Borrower in connection with the Loan
Agreement, whether now owned or hereafter acquired, wherever located, together
with all substitutions, renewals or replacements of and additions, improvements,
and accessions to any and all of the foregoing, and all proceeds from sales,
renewals, releases or other dispositions thereof.

 

All terms above have the meanings given to them in the California Uniform
Commercial Code, as amended or supplemented from time to time, including revised
Division 9 of the Uniform Commercial Code-Secured Transactions, added by Stats.
1999, c.991(S.B.45), Section 35, operative July 1, 2001.

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

Loan Supplement

 

This LOAN SUPPLEMENT, dated September 30, 2005 (“Supplement”), supplements the
Loan and Security Agreement (the “Loan Agreement”) by and between the
undersigned (“Borrower”) and Comerica Bank (“Bank”) of even date herewith.
Capitalized terms used herein but not otherwise defined herein are used with the
respective meanings given to such terms in the Loan Agreement.

 

To secure the prompt payment by Borrower of all Obligations (as defined in the
Loan Agreement), and the performance by Borrower of all the terms contained in
the Loan Agreement, Borrower grants Bank, a first priority security interest in
each item of equipment and other property described in Annex A attached hereto,
which equipment and other property shall be deemed to be additional Collateral.
The Loan Agreement is hereby incorporated by reference herein and is hereby
ratified, approved and confirmed. Annex A is attached hereto. This Supplement
may be executed by Borrower and Bank in separate counterparts, each of which
when so executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument.

 

This Supplement is delivered as of this day and year first above written.

 

COMERICA BANK

     

DIVERSA CORPORATION.

By:

 

/s/ Steve Stuckey

     

By:

 

/s/ Edward T. Shonsey

Name:

 

Steve Stuckey

     

Name:

 

Edward T. Shonsey

Title:

 

Senior Vice-President

     

Title:

 

Executive Vice President, Internal Development

 

Annex A – Description of additional Collateral

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

Annex A

 

The Equipment being financed with the Equipment Advance is listed below. Upon
the funding of such Equipment Advance, the equipment identified on this schedule
automatically shall be deemed to be a part of the Collateral.

 

Description of Equipment:    Make    Model    Serial #    Invoice #

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

EXHIBIT B

 

TECHNOLOGY & LIFE SCIENCES DIVISION

 

LOAN ANALYSIS

 

LOAN ADVANCE/PAYDOWN REQUEST FORM

 

DEADLINE FOR SAME DAY PROCESSING IS [3:00* P.M., Pacific Time/ 3:30 P.M. Eastern
Time]

 

DEADLINE FOR EQUIPMENT ADVANCES IS [3:00 P.M., Pacific Time/ 3:30 P.M. Eastern
Time ]**

 

DEADLINE FOR WIRE TRANSFERS IS [1:30 P.M., Pacific Time/ 3:30 P.M. Eastern Time]

 

[*At month end and the day before a holiday, the cut off time is 1:30 P.M.,
Pacific Time]

 

**Subject to 3 day advance notice.

 

To: Loan Analysis

FAX #: (650) 846-6840

   DATE: September 30, 2005        TIME: ___________

FROM:   DIVERSA CORPORATION       TELEPHONE REQUEST (For Bank Use Only):    
Borrower’s Name         FROM:   EDWARD T. SHONSEY       The following person is
authorized to request the loan payment     Authorized Signer’s Name      
transfer/loan advance on the designated account and is known to me. FROM:  
ANTHONY E. ALTIG       __________________________________________     Authorized
Signer’s Name       Authorized Request & Phone # PHONE #:   (858) 526-5437      
__________________________________________             Received by (Bank) &
Phone # FROM ACCOUNT#:         (please include Note number, if applicable)
TO ACCOUNT #:   18922947399       Authorized Signature (Bank) (please include
Note number, if applicable)

REQUESTED TRANSACTION TYPE

  

REQUESTED DOLLAR AMOUNT

   For Bank Use Only

PRINCIPAL INCREASE* (ADVANCE)

  

$620,024.71

   Date Rec’d:

PRINCIPAL PAYMENT (ONLY)

  

$__________________________

   Time:           Comp. Status:        YES        NO

OTHER INSTRUCTIONS:

        Status Date:      Time:      Approval:

 

All representations and warranties of Borrower stated in the Loan Agreement are
true, correct and complete in all material respects as of the date of the
telephone request for and advance confirmed by this Borrowing Certificate,
including without limitation the representation that Borrower has paid for and
owns the equipment financed by the Bank; provided, however, that those
representations and warranties the date expressly referring to another date
shall be true, correct and complete in all material respects as of such date.

 

*IS THERE A WIRE REQUEST TIED TO THIS LOAN ADVANCE? (PLEASE CIRCLE ONE
            YES             NO If YES, the Outgoing Wire Transfer Instructions
must be completed below.

OUTGOING WIRE TRANSFER INSTRUCTIONS    Fed Reference Number    Bank Transfer
Number

The items marked with an asterisk (*) are required to be completed.

*Beneficiary Name

    

*Beneficiary Account Number

    

*Beneficiary Address

    

Currency Type

   US DOLLARS ONLY

*ABA Routing Number (9 Digits)

    

*Receiving Institution Name

    

*Receiving Institution Address

    

*Wire Account

  

$

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

EXHIBIT C

COMPLIANCE CERTIFICATE

 

TO:    COMERICA BANK FROM:    DIVERSA CORPORATION

 

The undersigned authorized officer of DIVERSA CORPORATION hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and are consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.

 

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

 

Reporting Covenant

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

  

Required

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

   Complies

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

Quarterly/Monthly (as applicable*) financial statements    Quarterly (Monthly*)
within 30 days    Yes    No Annual (CPA Audited)    FYE within 90 days    Yes   
No 10Q    Within 45 days of fiscal quarter end    Yes    No 10K    Within 90
days of fiscal year end    Yes    No Compliance Cert.    Quarterly (Monthly*)
within 30 days    Yes    No * when Borrower’s domestic Cash falls below
$35,000,000               

Financial Covenant

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

  

Required

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

  

Actual

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

   Complies

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

At all times:

                   

Minimum Cash

   Amount: $25,000,000    Amount: $________    Yes    No

Minimum Cash at Bank and Affiliates:

   Amount: $15,000,000    Amount: $________    Yes    No

Comments Regarding Exceptions: See Attached.

     BANK USE ONLY        Received by:    

                                                                               
           

Sincerely,           AUTHORIZED SIGNER       
Date:                                     
                                                                  

                                                                               
                

     Verified:                                     
                                                             SIGNATURE          
AUTHORIZED SIGNER                                       
                                                              
Date:                                     
                                                                    TITLE     

 

Compliance Status                                        
Yes                    No

                                                                               
                             DATE            

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

SCHEDULE OF EXCEPTIONS

 

Permitted Indebtedness (Section 1.1)

      

GE Capital Corporation

   $ 9,409,202

Oxford Finance Corporation

   $ 4,163,672

Indebtedness under the following corporate credit card programs:

      

American Express Corporate Travel Program

      

VISA Corporate Procurement Card Program

      

Permitted Investments (Section 1.1)

      

Employee Travel Advances

   $ 25,000

Employee Loans

   $ 625,000

Permitted Liens (Section 1.1)

       GE Capital Corporation       

Equipment Schedules 4122396: -007, -004, -005, -009, -010, -011, -012, -013,
-014, -015, -016

      

Equipment Schedule 1015417-002

       Oxford Finance Corporation       

Equipment Schedules #1, #2, #3, #4

      

Prior Names (Section 5.5)

      

Recombinant BioCatalysis, Inc.

      

Industrial BioCatalysis, Inc.

      

Industrial Genome Sciences, Inc.

      

Litigation (Section 5.6)

      

Diversa Corp Initial Public Offering Sec. Litigation Case No. 02-CV-9699

(US District Court for Southern District of New York)

      

From Borrower’s most recently filed 10-Q:

      

 

In December 2002, we and certain of our officers and directors were named as
defendants in a class action shareholder complaint filed in the United States
District Court for the Southern District of New York, now captioned In re
Diversa Corp. Initial Public Offering Sec. Litig., Case No. 02-CV-9699. In the
amended complaint, the plaintiffs allege that we and certain of our officers and
directors, and the underwriters (the “Underwriters”) of our initial public
offering (“the IPO”), violated Sections 11 and 15 of the Securities Act of 1933,
as amended, based on allegations that our registration statement and prospectus
prepared in connection with our IPO failed to disclose material facts regarding
the compensation to be received by, and the stock allocation practices of, the
Underwriters. The complaint also contains claims for violation of Sections 10(b)
and 20 of the Exchange Act based on allegations

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that this omission constituted a deceit on investors. The plaintiffs seek
unspecified monetary damages and other relief. This action is related to In re
Initial Public Offering Sec. Litig., Case No. 21 MC 92, in which similar
complaints were filed by plaintiffs (the “Plaintiffs”) against hundreds of other
public companies (collectively, the “Issuers”) that conducted IPOs of their
common stock in the late 1990s and 2000 (collectively, the “IPO Cases”). On
January 7, 2003, the IPO Case against us was assigned to United States Judge
Shira Scheindlin of the Southern District of New York, before whom the IPO Cases
have been consolidated for pretrial purposes.

 

In February 2003, the Court issued a decision denying the motion to dismiss the
Sections 11 and 15 claims against us and our officers and directors, and
granting the motion to dismiss the Section 10(b) claim against us without leave
to amend. The Court similarly dismissed the Sections 10(b) and 20 claims against
two of our officers and directors without leave to amend, but denied the motion
to dismiss these claims against one officer/director.

 

In June 2003, Issuers and Plaintiffs reached a tentative settlement agreement
and entered into a memorandum of understanding providing for, among other
things, a dismissal with prejudice and full release of the Issuers and their
officers and directors from all further liability resulting from Plaintiffs’
claims, and the assignment to Plaintiffs of certain potential claims that the
Issuers may have against the Underwriters. The tentative settlement also
provides that, in the event that Plaintiffs ultimately recover less than a
guaranteed sum of $1 billion from the Underwriters in the IPO Cases and related
litigation, Plaintiffs would be entitled to payment by each participating
Issuer’s insurer of a pro rata share of any shortfall in the Plaintiffs’
guaranteed recovery. In the event, for example, that Plaintiffs recover nothing
from the Underwriter defendants in the IPO Cases and the Issuers’ insurers
therefore become liable to the Plaintiffs for an aggregate of $1 billion
pursuant to the settlement proposal, the pro rata liability of our insurers,
with respect to us, would be approximately $4 million, assuming that 250
participate in the settlement. We are covered by a claims-made liability
insurance policy which we believe would satisfy our insurer’s pro rata liability
described in this hypothetical example.

 

In June 2004, we executed a formal settlement agreement with the plaintiffs
pursuant to the terms of the memorandum of understanding. On February 15, 2005,
the Court issued a decision certifying a class action for settlement purposes
and granting preliminary approval of the settlement subject to modification of
certain bar orders contemplated by the settlement. In addition, the settlement
is still subject to statutory notice requirements and final judicial approval

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Corporation Resolutions and Incumbency Certification

 

Authority to Procure Loans

 

I certify that I am the duly elected and qualified Secretary of Diversa
Corporation; that the following is a true and correct copy of resolutions duly
adopted by the Board of Directors of the Corporation in accordance with its
bylaws and applicable statutes.

 

Copy of Resolutions:

 

Be it Resolved, That:

 

1. Any one (1) of the following: President and CEO, Executive Vice President,
Internal Development, or Chief Financial Officer of the Corporation are/is
authorized, for, on behalf of, and in the name of the Corporation to:

 

  (a) Negotiate and procure loans, letters of credit and other credit or
financial accommodations from Comerica Bank (“Bank”), a Michigan banking
corporation, including, without limitation, that certain Loan and Security
Agreement dated as of September 30, 2005, as may subsequently be amended from
time to time.

 

  (b) Give security for any liabilities of the Corporation to the Bank by grant,
security interest, assignment or lien upon any personal property of the
Corporation financed by Bank; and

 

  (c) Execute and deliver in form and content as may be required by the Bank any
and all notes, evidences of Indebtedness, applications for letters of credit,
guaranties, subordination agreements, loan and security agreements, financing
statements, assignments, liens, trust receipts and other agreements, instruments
or documents to carry out the purposes of these Resolutions, any or all of which
may relate to any of the Corporation’s property financed by Bank.

 

2. Said Bank be and it is authorized and directed to pay the proceeds of any
such loans or discounts as directed by the persons so authorized to sign,
whether so payable to the order of any of said persons in their individual
capacities or not, and whether such proceeds are deposited to the individual
credit of any of said persons or not;

 

3. Any and all agreements, instruments and documents previously executed and
acts and things previously done to carry out the purposes of these Resolutions
are ratified, confirmed and approved as the act or acts of the Corporation.

 

4. These Resolutions shall continue in force, and the Bank may consider the
holders of said offices and their signatures to be and continue to be as set
forth in a certified copy of these Resolutions delivered to the Bank, until
notice to the contrary in writing is duly served on the Bank (such notice to
have no effect on any action previously taken by the Bank in reliance on these
Resolutions).

 

5. Any person, corporation or other legal entity dealing with the Bank may rely
upon a certificate signed by an officer of the Bank to effect that these
Resolutions and any agreement, instrument or document executed pursuant to them
are still in full force and effect and binding upon the Corporation.

 

6. The Bank may consider the holders of the offices of the Corporation and their
signatures, respectively, to be and continue to be as set forth in the
Certificate of the Secretary of the Corporation until notice to the contrary in
writing is duly served on the Bank.

 

I further certify that the above Resolutions are in full force and effect as of
the date of this Certificate; that these Resolutions and any borrowings or
financial accommodations under these Resolutions have been properly noted in the
corporate books and records, and have not been rescinded, annulled, revoked or
modified; that neither the

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

foregoing Resolutions nor any actions to be taken pursuant to them are or will
be in contravention of any provision of the articles of incorporation or bylaws
of the Corporation or of any agreement, indenture or other instrument to which
the Corporation is a party or by which it is bound; and that neither the
articles of incorporation nor bylaws of the Corporation nor any agreement,
indenture or other instrument to which the Corporation is a party or by which it
is bound require the vote or consent of shareholders of the Corporation to
authorize any act, matter or thing described in the foregoing Resolutions.

 

I further certify that the following named persons have been duly elected to the
offices set opposite their respective names, that they continue to hold these
offices at the present time, and that the signatures which appear below are the
genuine, original signatures of each respectively:

 

(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)

 

NAME (Type or Print)

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

  

TITLE

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

 

SIGNATURE

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

JAY M. SHORT    PRESIDENT and CEO  

/s/ Jay M. Short

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

EDWARD T. SHONSEY    EXECUTIVE VICE-PRESIDENT, INTERNAL DEVELOPMENT  

/s/ Edward T. Shonsey

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

ANTHONY E. ALTIG    CHIEF FINANCIAL OFFICER  

/s/ Anthony E. Altig

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

 

In Witness Whereof, I have affixed my name as Secretary and have caused the
corporate seal (where available) of said Corporation to be affixed on
September 30, 2005.

 

/s/ Anthony E. Altig

Secretary

ANTHONY E. ALTIG

 

The Above Statements are Correct.

        SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE. A SHAREHOLDER OTHER THAN
SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE.

 

Failure to complete the above when the Secretary is authorized to sign alone
shall constitute a certification by the Secretary that the Secretary is the sole
Shareholder, Director and Officer of the Corporation.

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

ATTN: DIVERSA CORPORATION

 

USA PATRIOT ACT

NOTICE

OF

CUSTOMER IDENTIFICATION

 

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT

 

To help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account.

 

WHAT THIS MEANS FOR YOU: when you open an account, we will ask your name,
address, date of birth, and other information that will allow us to identify
you. We may also ask to see your driver’s license or other identifying
documents.

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

COMERICA BANK

Member FDIC

 

ITEMIZATION OF AMOUNT FINANCED

DISBURSEMENT INSTRUCTIONS

(Equipment Line)

 

Name(s): DIVERSA CORPORATION

   Date: September 30, 2005

 

    $10,000,000    credited to deposit account No. 1892-947365 when Equipment
Advances are requested by Borrower

Amounts paid to others on your behalf:

    $                      to Comerica Bank for Loan Fee     $                  
   to Comerica Bank for Document Fee     $                      to Bank counsel
fees and expenses     $                      to _______________    
$                      to _______________     $10,000,000    TOTAL (AMOUNT
FINANCED)

 

Upon consummation of this transaction, this document will also serve as the
authorization for Comerica Bank to disburse the loan proceeds as stated above.

 

/s/ Edward T. Shonsey

         Signature       Signature

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

AGREEMENT TO PROVIDE INSURANCE

 

TO:

   COMERICA BANK    Date: September 30, 2005      Attn: Deni M. Snider, MC 4770
          75 E. Trimble Road           San Jose, CA 95131    Borrower: DIVERSA
CORPORATION

 

In consideration of a loan in the amount of $10,000,000, secured by certain
equipment, furniture and software.

 

I/We agree to obtain adequate insurance coverage to remain in force during the
term of the loan.

 

I/We also agree to advise the below named agent to add Comerica Bank as lender’s
loss payable on the new or existing insurance policy, and to furnish Bank at
above address with a copy of said policy/endorsements and any subsequent renewal
policies.

 

I/We understand that the policy must contain:

 

1. Fire and extended coverage in an amount sufficient to cover:

 

  (a) The amount of the loan, OR

 

  (b) All existing encumbrances, whichever is greater,

 

But not in excess of the replacement value of the improvements on the real
property.

 

2. Lender’s “Loss Payable” Endorsement Form 438 BFU in favor of Comerica Bank,
or any other form acceptable to Bank.

 

INSURANCE INFORMATION

 

Insurance Co./Agent    BARNEY & BARNEY    Telephone No.: Agent’s Address:   

9171 Towne Center Drive #500

San Diego, CA 92122

   (800) 321-4696

 

Signature of Obligor:

 

/s/ Edward T. Shonsey

Signature of Obligor:

   

 

FOR BANK USE ONLY    

INSURANCE VERIFICATION: Date:

   

Person Spoken to:

   

Policy Number:

   

Effective From:                      To:

   

Verified by:

   

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

COMERICA BANK

Member FDIC

   AUTOMATIC DEBIT AUTHORIZATION

 

To: Comerica Bank

 

Re: Loan # ___________________________________

 

You are hereby authorized and instructed to charge account No. 1892-947365 in
the name of DIVERSA CORPORATION for principal interest and other payments due on
above referenced loan as set forth below and credit the loan referenced above.

 

  x Debit each interest payment as it becomes due according to the terms of the
Loan and Security Agreement and any renewals or amendments thereof.

 

  x Debit each principal payment as it becomes due according to the terms of the
Loan and Security Agreement and any renewals or amendments thereof.

 

  x Debit each payment for Bank Expenses as it becomes due according to the
terms of the Loan and Security Agreement and any renewals or amendments thereof.

 

This Authorization is to remain in full force and effect until revoked in
writing.

 

Borrower Signature

      

Date

/s/ Edward T. Shonsey

      

September 30, 2005

        

September 30, 2005

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

COMERICA BANK

Member FDIC

   AUTOMATIC DEBIT AUTHORIZATION

 

To: Comerica Bank

 

Re: Loan # ___________________________________

 

You are hereby authorized and instructed to charge account No. 1892-947365 in
the name of DIVERSA CORPORATION for principal and interest payments due on above
referenced loan as set forth below and credit the loan referenced above.

 

  x Debit each interest payment as it becomes due according to the terms of the
Loan and Security Agreement and any renewals or amendments thereof.

 

  x Debit each principal payment as it becomes due according to the terms of the
Loan and Security Agreement and any renewals or amendments thereof.

 

  x Debit each payment for Bank Expenses as it becomes due according to the
terms of the Loan and Security Agreement and any renewals or amendments thereof.

 

This Authorization is to remain in full force and effect until revoked in
writing.

 

Borrower Signature

      

Date

/s/ Edward T. Shonsey       

September 30, 2005

        

September 30, 2005

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

COMERICA BANK

 

COMERICA BANK

CLIENT AUTHORIZATION

 

Fax (858) 509-2365

 

General Authorization

 

I hereby authorize Comerica Bank to use my company name, logo, and information
relating to our banking relationship in its marketing and advertising campaigns
which is intended for Comerica Bank’s customers, prospects and shareholders.

 

Comerica Bank will forward any advertising or article including Borrower for
prior review and approval.

 

/s/ Anthony E. Altig

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

Signature

        

ANTHONY E. ALTIG

  

Chief Financial Officer

   

Printed Name

  

Title

   

Diversa Corporation

        

Company

        

4955 Directors Place

        

Mailing Address

        

San Diego, CA 92121

        

City, State, Zip Code

        

(858) 526-5437

        

Phone Number

        

(858) 526-5890

        

Fax Number

        

taltig@diversa.com

        

E-Mail

        

September 30, 2005

        

Date

        

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

DEBTOR:    DIVERSA CORPORATION SECURED PARTY:    COMERICA BANK

 

EXHIBIT A

 

COLLATERAL DESCRIPTION ATTACHMENT

TO UCC NATIONAL FORM FINANCING STATEMENT

 

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

 

All equipment, software or other personal property of Borrower (herein referred
to as “Borrower” or “Debtor”) financed by Bank whether now owned or hereafter
acquired, wherever located, together with all substitutions, renewals or
replacements of and additions, improvements, and accessions to any and all of
the foregoing, and all proceeds from sales, renewals, releases or other
dispositions thereof, including but not limited to the collateral listed on
Annex A attached hereto.

 

All terms above have the meanings given to them in the California Uniform
Commercial Code, as amended or supplemented from time to time, including revised
Division 9 of the Uniform Commercial Code-Secured Transactions, added by Stats.
1999, c.991(S.B.45), Section 35, operative July 1, 2001.

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

Annex A

 

The Equipment being financed with the Equipment Advance is listed below. Upon
the funding of such Equipment Advance, the equipment identified on this schedule
automatically shall be deemed to be a part of the Collateral.

 

Description of Equipment:

   Make    Model    Serial #    Invoice #