Exhibit 10.2

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective
Date between SILICON VALLEY BANK, a California corporation, with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at 380 Interlocken Crescent, Suite 600,
Broomfield, Colorado 80021 (“Bank”) and ATRICURE, INC., a Delaware corporation
with its chief executive office located at 6217 Centre Park Drive, West Chester,
Ohio 45069 (“Borrower”), provides the terms on which Bank shall lend to Borrower
and Borrower shall repay Bank. This Agreement amends and restates in its
entirety that certain Loan and Security Agreement, by and between Borrower and
Bank, dated as of May 1, 2009, as amended by that certain Consent, Waiver and
First Loan Modification Agreement, dated as of November 4, 2009, and as further
amended by that certain Waiver and Second Loan Modification Agreement, dated as
of March 26, 2010 (as amended, collectively, the “Prior Loan Agreement”). The
parties agree as follows:

1 ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP unless
provided otherwise herein. Capitalized terms not otherwise defined in this
Agreement shall have the meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning
provided by the Code to the extent such terms are defined therein.

2 LOAN AND TERMS OF PAYMENT

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

2.1.1 Revolving Advances.

(a) Availability. Subject to the terms and conditions of this Agreement and to
deduction of Reserves, Bank shall make Advances not exceeding the Availability
Amount. Amounts borrowed under the Revolving Line may be repaid, and prior to
the Revolving Line Maturity Date, reborrowed, subject to the applicable terms
and conditions precedent herein.

(b) Streamline Period. During certain periods of time (each, a “Streamline
Period”), provided that the Streamline Requirements are all met, Borrower’s
reporting requirements shall be reduced, and certain proceeds shall be deposited
in Borrower’s operating account instead of being applied to the Advances, as set
forth in other provisions of this Agreement. If at any time during any
Streamline Period the Streamline Requirements are not met, the Streamline Period
shall immediately cease to be effective, and any terms or conditions of this
Agreement that are dependent upon the existence of a Streamline Period will
immediately revert to the respective terms and conditions that are to be in
force when a Streamline Period is not in effect, without the need for any
further action on the part of Bank or Borrower. Further, if following the
cessation of a Streamline Period the Streamline Requirements are thereafter
satisfied for ninety (90) consecutive days, Borrower may elect to again put a
Streamline Period into effect pursuant to the terms hereof by giving Bank at
least ten (10) days prior written notice, specifying the date the Streamline
Period is to begin. Thus, it is the intention of the parties that Borrower shall
have the opportunity for successive Streamline Periods to apply when and to the
extent the conditions thereto are satisfied.

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

2.1.2 Letters of Credit Sublimit.

(a) As part of the Revolving Line, Bank shall issue or have issued Letters of
Credit denominated in Dollars or a Foreign Currency for Borrower’s account. The
aggregate Dollar Equivalent amount utilized for the issuance of Letters of
Credit shall at all times reduce the amount otherwise available for Advances
under the Revolving Line (as specified in the definition of Availability
Amount). The aggregate Dollar Equivalent of the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) may not
exceed the lesser of (A) One Million Dollars ($1,000,000), minus the sum of all
amounts used for Cash Management Services, or (B) the lesser of Revolving Line
or the Borrowing Base, minus the sum of all outstanding principal amounts of any
Advances (including any amounts used for Cash Management Services).

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(b) If, on the Revolving Line Maturity Date (or the effective date of any
termination of this Agreement), there are any outstanding Letters of Credit,
then on such date Borrower shall provide to Bank cash collateral in an amount
equal to 105% of the Dollar Equivalent of the face amount of all such Letters of
Credit to secure all of the Obligations relating to such Letters of Credit. 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 standard
Application and Letter of Credit Agreement (the “Letter of Credit Application”).
Borrower agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request. Borrower further agrees to be
bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Bank and opened for Borrower’s account or by Bank’s
interpretations of any Letter of Credit issued by Bank for Borrower’s account,
and Borrower understands and agrees that Bank shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following, in good
faith, Borrower’s instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto.

(c) The obligation of Borrower to immediately reimburse Bank for drawings made
under Letters of Credit shall be absolute, unconditional, and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.

(d) Borrower may request that Bank issue a Letter of Credit payable in a Foreign
Currency. If a demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the Dollar Equivalent of
the amount thereof (plus fees and charges in connection therewith such as wire,
cable, SWIFT or similar charges).

2.1.3 [Reserved].

2.1.4 Cash Management Services Sublimit. Borrower may use the Revolving Line for
Bank’s cash management services, which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified
in Bank’s various cash management services agreements (collectively, the “Cash
Management Services”), in an aggregate amount not to exceed the lesser of
(A) One Million Dollars ($1,000,000), minus the aggregate Dollar Equivalent of
the face amount of any outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), or (B) the lesser of Revolving Line or the
Borrowing Base, minus (i) the sum of all outstanding principal amounts of any
Advances, and minus (ii) the Dollar Equivalent of the face amount of any
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit). Any amounts Bank pays on behalf of Borrower for any Cash Management
Services will be treated as Advances under the Revolving Line and will accrue
interest at the interest rate applicable to Advances.

2.1.5 Term Loan.

(a) Payments. Borrower is obligated to the Bank for the Term Loan (as defined in
the Prior Loan Agreement and defined herein as the “Term Loan”), made by Bank to
Borrower pursuant to the Prior Loan Agreement. Borrower acknowledges that, as of
the Effective Date, the outstanding principal amount of the Term Loan is
approximately $3,972,200. Borrower acknowledges there is no additional
availability under the Term Loan, and no other advances in respect of the Term
Loan will be made hereunder. Borrower shall continue to pay, on the first day of
each month, the Term Loan in equal monthly installments of principal of
$180,555.56, plus accrued interest, and with a final payment of all remaining
principal amounts outstanding under the Term Loan and accrued interest thereon
on or before April 30, 2012 (the “Term Loan Maturity Date”). The Term Loan, when
repaid, may not be reborrowed.

(b) Mandatory Prepayment Upon an Acceleration. If the Term Loan is accelerated
following the occurrence of an Event of Default, Borrower shall immediately pay
to Bank an amount equal to the sum of (i) all outstanding principal plus accrued
and unpaid interest on the Term Loan and (ii) all other sums, if any, that shall
have become due and payable, including interest at the Default Rate with respect
to any past due amounts.

(c) Prepayment. All, but not less than all, of the Term Loan may be prepaid by
the Borrower prior to the Term Loan Maturity Date, effective five (5) Business
Days after written notice of such prepayment is given to Bank. Notwithstanding
any such prepayment, Bank’s lien and security interest in the Collateral and all
of Bank’s rights and remedies under this Agreement shall continue until
terminated in accordance with Section 12.1. If

 

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such prepayment is at Borrower’s election or at Bank’s election due to the
occurrence and continuance of an Event of Default or if any of the Obligations
become due and payable as a result of an Event of Default (including without
limitation becoming due and payable as a result of an Insolvency Proceeding),
Borrower shall pay to Bank, in addition to the payment of any other expenses or
fees then-owing, a prepayment fee in an amount equal to the Make Whole Premium;
provided that no Make Whole Premium fee shall be charged if the credit facility
hereunder is replaced with a new facility from the Bank. Upon payment in full of
the Obligations which are then due and payable and at such time as Bank’s
obligation to make Credit Extensions has terminated, Bank shall release its
liens and security interests in the Collateral and all rights therein shall
revert to Borrower.

2.2 Overadvances. If, at any time, the sum of (a) the outstanding principal
amount of any Advances (including any amounts used for Cash Management
Services); plus (b) the face amount of any outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) exceeds the lesser of
either the Revolving Line or the Borrowing Base (such excess amount being an
“Overadvance”), Borrower shall immediately pay to Bank in cash such Overadvance.
Without limiting Borrower’s obligation to repay Bank any amount of the
Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of
any Overadvance, on demand, at the Default Rate.

2.3 Payment of Interest on the Credit Extensions.

(a) Interest Rate.

(i) Advances. Subject to Section 2.3(b), the principal amount of Advances
outstanding under the Revolving Line shall accrue interest at a floating per
annum rate based on Borrower’s Adjusted Quick Ratio (and the existence or
non-existence of an Event of Default) as set forth below, which interest shall
be payable monthly, in arrears, in accordance with Section 2.3(f) below.

 

Adjusted Quick Ratio as of the end of a

month and Event of Default status

  

Interest Rate

Greater than or equal to 2.00:1.00, and no Event of Default has occurred and is
continuing    One percentage point (1.00%) above the Base Rate (the “First Tier
Rate”) Greater than or equal to 1.50:1.00, but less than 2.00:1.00, and no Event
of Default has occurred and is continuing    One and one-half percentage points
(1.50%) above the Base Rate (the “Second Tier Rate”) Less than 1.50:1.00, or an
Event of Default has occurred and is continuing    Two percentage points (2.00%)
above the Base Rate (the “Regular Rate”)

The rate in effect as of the Effective Date is the Second Tier Rate. Changes in
the interest rate based on the Borrower’s Adjusted Quick Ratio as provided above
shall go into effect as of the first day of the month following the month in
which Borrower’s financial statements are received by Bank. If, based on the
Adjusted Quick Ratio as shown in Borrower’s financial statements, there is to be
an increase in the interest rate, the interest rate increase may be put into
effect by Bank as of the first day of the month following the month in which
Borrower’s financial statements were due, even if the delivery of the financial
statements is delayed. The Regular Rate shall go into effect immediately upon
the occurrence and during the continuance of an Event of Default unless Bank
otherwise elects from time to time in its sole discretion to delay its effect or
impose a smaller increase.

(ii) Term Loan. Subject to Section 2.3(b), the principal amount outstanding
under the Term Loan shall accrue interest at a per annum rate equal to ten
percent (10.00%), which interest shall be payable monthly in accordance with
Section 2.3(f) below.

(b) Default Rate. Immediately upon the occurrence and during the continuance of
an Event of Default, Obligations shall bear interest at a rate per annum which
is three percentage points (3.00%) above the rate that is otherwise applicable
thereto (the “Default Rate”) unless Bank otherwise elects from time to time in
its sole discretion to impose a smaller increase. Fees and expenses which are
required to be paid by Borrower pursuant to the Loan Documents (including,
without limitation, Bank Expenses) but are not paid when due shall bear interest
until paid at a rate equal to the highest rate applicable to the Obligations.
Payment or acceptance of the increased interest rate provided in this
Section 2.3(b) is not a permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of Bank.

 

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(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit
Extension based on changes to the Prime Rate shall be effective on the effective
date of any change to the Prime Rate and to the extent of any such change.

(d) Computation; 360-Day Year. In computing interest, the date of the making of
any Credit Extension shall be included and the date of payment shall be
excluded; provided, however, that if any Credit Extension is repaid on the same
day on which it is made, such day shall be included in computing interest on
such Credit Extension. Interest shall be computed on the basis of a 360-day year
for the actual number of days elapsed.

(e) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts,
including the Designated Deposit Account, for principal and interest payments or
any other amounts Borrower owes Bank when due. These debits shall not constitute
a set-off.

(f) Payment; Interest Computation; Float Charge. Interest is payable monthly on
the last calendar day of each month. In computing interest on the Obligations,
all Payments received on or before 12:00 p.m. Pacific time on any Business Day
shall be deemed received on such Business Day and all payments received after
12:00 noon Pacific time on any day shall be deemed received on the next Business
Day. In addition, so long as any principal or interest with respect to any
Advance is outstanding, Bank shall be entitled to charge Borrower a “float”
charge in an amount equal to two (2) Business Days interest, at the interest
rate applicable to the Advances, on all Payments received by Bank other than
Payments in the form of electronic wire or ACH transfers in immediately
available funds. The float charge for each month shall be payable on the last
day of the month. Bank shall not, however, be required to credit Borrower’s
account for the amount of any item of payment which is unsatisfactory to Bank in
its good faith business judgment, and Bank may charge Borrower’s Designated
Deposit Account for the amount of any item of payment which is returned to Bank
unpaid.

2.4 Fees. Borrower shall pay to Bank:

(a) EXIM Loan Agreement Commitment Fee. A fully earned, non refundable EXIM Loan
Agreement commitment fee of Sixteen Thousand Three Hundred Fifty Dollars
($16,350), payable on the Effective Date;

(b) Anniversary Fee. A fully-earned, non-refundable anniversary fee of Fifty
Thousand Dollars ($50,000), payable on the second anniversary of the Prior
Effective Date;

(c) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, upon the issuance of such Letter of Credit, each
anniversary of the issuance during the term of such Letter of Credit, and upon
the renewal of such Letter of Credit by Bank;

(d) Termination Fee. Subject to the terms of Section 2.1.5(c) with respect to
the Term Loan and Section 12.1 with respect to the Revolving Line, a termination
fee;

(e) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line
Facility Fee”), payable monthly, in arrears, on a calendar year basis, in an
amount equal to three-eighths of one percent (0.375%) per annum of the average
unused portion of the Revolving Line. The unused portion of the Revolving Line,
for purposes of this calculation, shall equal the difference between (x) the
Revolving Line amount (as it may be reduced from time to time) and (y) the
average for the period of the daily closing balance of the Revolving Line
outstanding plus the sum of the aggregate amount of outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) plus all amounts
outstanding with respect to Cash Management Services. Borrower shall not be
entitled to any credit, rebate or repayment of any Unused Revolving Line
Facility Fee previously earned by Bank pursuant to this Section notwithstanding
any termination of the Agreement or the suspension or termination of Bank’s
obligation to make loans and advances hereunder;

(f) Collateral Monitoring Fee. A collateral monitoring fee of One Thousand
Dollars ($1,000) for each month during which the Streamline Period is not in
effect for the entire month and of Five Hundred Dollars ($500) for each month
during which the Streamline Period is in effect for the entire month, payable in
arrears on the last day of each month (prorated for any partial month at the
beginning and upon termination of this Agreement); and

 

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(g) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses for documentation and negotiation of this Agreement) incurred through
and after the Effective Date, when due.

2.5 Payments; Application of Payments.

(a) All payments (including prepayments) to be made by Borrower under any Loan
Document shall be made in immediately available funds in U.S. Dollars, without
setoff or counterclaim, before 12:00 noon Pacific time on the date when due.
Payments of principal and/or interest received after 12:00 noon Pacific time are
considered received at the opening of business on the next Business Day. When a
payment is due on a day that is not a Business Day, the payment shall be due the
next Business Day, and additional fees or interest, as applicable, shall
continue to accrue until paid.

(b) Bank shall apply the whole or any part of collected funds against the
Revolving Line or credit such collected funds to a depository account of
Borrower with Bank (or an account maintained by an Affiliate of Bank), the order
and method of such application to be in the sole discretion of Bank. Borrower
shall have no right to specify the order or the accounts to which Bank shall
allocate or apply any payments required to be made by Borrower to Bank or
otherwise received by Bank under this Agreement when any such allocation or
application is not specified elsewhere in this Agreement.

3 CONDITIONS OF LOANS

3.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to make
the initial Credit Extension under this Agreement is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, such documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate, including, without limitation:

(a) duly executed original signatures to the Loan Documents;

(b) duly executed original signatures to the Control Agreements, if any;

(c) Borrower’s Operating Documents and a good standing certificate of Borrower
certified by the Secretary of State of the State of Delaware, together with
certificates of foreign qualification from each state in which Borrower is so
qualified, in each case dated as of a date no earlier than thirty (30) days
prior to the Effective Date;

(d) duly executed original signatures to the Secretary’s Certificate with
completed Borrowing Resolutions for Borrower;

(e) certified copies, dated as of a recent date, of financing statement
searches, as Bank shall request, accompanied by written evidence (including any
UCC termination statements) that the Liens indicated in any such financing
statements either constitute Permitted Liens or have been or, in connection with
the initial Credit Extension under this Agreement, will be terminated or
released;

(f) [Reserved];

(g) a legal opinion of Borrower’s counsel, in form and substance acceptable to
Bank, in its reasonable discretion, dated as of the Effective Date together with
the duly executed original signature thereto;

(h) evidence satisfactory to Bank that the insurance policies required by
Section 6.7 hereof are in full force and effect, together with appropriate
evidence showing lender loss payable and/or additional insured clauses or
endorsements in favor of Bank; and

(i) payment of the fees and Bank Expenses then due as specified in Section 2.4
hereof.

3.2 Conditions Precedent to all Credit Extensions. Bank’s obligations to make
each Credit Extension, including the initial Credit Extension, is subject to the
following conditions precedent:

(a) except as otherwise provided in Section 3.4, timely receipt of an executed
Transaction Report;

 

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(b) the representations and warranties in this Agreement shall be true,
accurate, and complete in all material respects on the date of the Transaction
Report and on the Funding Date of each Credit Extension; provided, however, that
such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, and no Default or Event of Default shall
have occurred and be continuing or result from the Credit Extension. Each Credit
Extension is Borrower’s representation and warranty on that date that the
representations and warranties in this Agreement remain true, accurate, and
complete in all material respects; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date; and

(c) in Bank’s reasonable discretion, there has not been a Material Adverse
Change.

3.3 Covenant to Deliver. Borrower agrees to deliver to Bank each item required
to be delivered to Bank under this Agreement as a condition precedent to any
Credit Extension. Borrower expressly agrees that a Credit Extension made prior
to the receipt by Bank of any such item shall not constitute a waiver by Bank of
Borrower’s obligation to deliver such item, and the making of any Credit
Extension in the absence of a required item shall be in Bank’s sole discretion.

3.4 Procedures for Borrowing. Advances. Subject to the prior satisfaction of all
other applicable conditions to the making of an Advance set forth in this
Agreement, to obtain an Advance other than Advances under Sections 2.1.2 or
2.1.4), Borrower shall notify Bank (which notice shall be irrevocable) by
electronic mail, facsimile, or telephone by 12:00 noon Pacific time on the
Funding Date of the Advance. Together with any such electronic or facsimile
notification, Borrower shall deliver to Bank by electronic mail or facsimile a
completed Transaction Report executed by a Responsible Officer or his or her
designee. Bank may rely on any telephone notice given by a person whom Bank
believes is a Responsible Officer or designee. Bank shall credit Advances to the
Designated Deposit Account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due.

4 CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof.

4.2 Priority of Security Interest. Borrower represents, warrants, and covenants
that the security interest granted herein is and shall at all times continue to
be a first priority perfected security interest in the Collateral (subject only
to Permitted Liens that may have superior priority to Bank’s Lien under this
Agreement), in each case, to the extent that a security interest in such
Collateral can be perfected pursuant to Article 9 or 8 of the Code. If Borrower
shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a
writing signed by Borrower of the general details thereof and grant to Bank in
such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to Bank.

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash. Upon payment in full in cash of the Obligations and at such time
as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at
Borrower’s sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower.

Notwithstanding the foregoing, it is expressly acknowledged and agreed that the
security interest created in this Agreement only with respect to Export-Related
Accounts Receivable, Export-Related Inventory and Export-Related General
Intangibles (as such terms are defined in the EXIM Loan Agreement) is subject to
and subordinate to the security interest granted to Bank in the EXIM Loan
Agreement with respect to such Export-Related Accounts Receivable,
Export-Related Inventory and Export-Related General Intangibles.

 

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4.3 Authorization to File Financing Statements. Borrower hereby authorizes Bank
to file financing statements, without notice to Borrower, with all appropriate
jurisdictions to perfect or protect Bank’s interest or rights hereunder,
including a notice that any disposition of the Collateral, which is not
otherwise permitted by the terms hereof, whether by Borrower or any other
Person, shall be deemed to violate the rights of Bank under the Code. Such
financing statements may indicate the Collateral as “all assets of the Debtor”
or words of similar effect, or as being of an equal or lesser scope, or with
greater detail, all in Bank’s discretion.

5 REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1 Due Organization; Authorization; Power and Authority. Borrower is duly
existing and in good standing as a Registered Organization in its jurisdiction
of formation and is qualified and licensed to do business and is in good
standing in any jurisdiction in which the conduct of its business or its
ownership of property requires that it be qualified except where the failure to
do so could not reasonably be expected to have a material adverse effect on
Borrower’s business. In connection with this Agreement, Borrower has, in
connection with the Prior Effective Date, delivered to Bank a completed
certificate signed by Borrower, entitled “Perfection Certificate”. Borrower
represents and warrants to Bank that (a) Borrower’s exact legal name is that
indicated on the Perfection Certificate and on the signature page hereof;
(b) Borrower is an organization of the type and is organized in the jurisdiction
set forth in the Perfection Certificate; (c) the Perfection Certificate
accurately sets forth Borrower’s organizational identification number or
accurately states that Borrower has none; (d) the Perfection Certificate
accurately sets forth Borrower’s place of business, or, if more than one, its
chief executive office as well as Borrower’s mailing address (if different than
its chief executive office); (e) Borrower (and each of its predecessors) has
not, in the past five (5) years, changed its jurisdiction of formation,
organizational structure or type, or any organizational number assigned by its
jurisdiction; and (f) all other information set forth on the Perfection
Certificate pertaining to Borrower and each of its Subsidiaries remains accurate
and complete (it being understood and agreed that Borrower may have and may
continue to, from time to time, update certain information in the Perfection
Certificate after the Effective Date to the extent permitted by one or more
specific provisions in this Agreement).

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may
be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect) and except for filing requirements expressly contemplated
by the terms hereof, including the filing of financing statements or
(v) constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which it is
a party or by which it is bound in which the default could reasonably be
expected to have a material adverse effect on Borrower’s business.

5.2 Collateral. Borrower has good title to, has rights in, and the power to
transfer each item of the Collateral upon which it purports to grant a Lien
hereunder, free and clear of any and all Liens except Permitted Liens. Borrower
has no deposit accounts other than the deposit accounts with Bank, the deposit
accounts, if any described in the Perfection Certificate delivered to Bank in
connection herewith, or of which Borrower has given Bank notice and taken such
actions as are necessary to give Bank a perfected security interest therein. The
Accounts are bona fide, existing obligations of the Account Debtors.

The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate, or as
otherwise permitted in Section 7.2. None of the components of the Collateral
shall be maintained at locations other than as provided in the Perfection
Certificate or as permitted pursuant to Section 7.2.

Except as otherwise specified in written notice from Borrower to Bank, no
material amount of Inventory is other than, in all material respects, of good
and marketable quality, free from material defects.

Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) non-exclusive licenses granted to its customers
in the ordinary course of business, (b) over-the-counter

 

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software that is commercially available to the public, and (c) material
Intellectual Property licensed to Borrower and noted on the Perfection
Certificate. Each Patent which it owns or purports to own and which is material
to Borrower’s business is valid and enforceable, and no part of the Intellectual
Property which Borrower owns or purports to own and which is material to
Borrower’s business has been judged invalid or unenforceable, in whole or in
part. To the best of Borrower’s knowledge, no claim has been made that any part
of the Intellectual Property violates the rights of any third party except to
the extent such claim would not have a material adverse effect on Borrower’s
business.

Except as noted on the Perfection Certificate and in the Compliance Certificates
provided from time to time, Borrower is not a party to, nor is it bound by, any
material Restricted License.

5.3 Accounts Receivable; Inventory. For any Eligible Account in any Borrowing
Base Certificate, all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing such Eligible Accounts are
and shall be true and correct and all such invoices, instruments and other
documents, and all of Borrower’s Books are genuine and in all respects what they
purport to be. If an Event of Default has occurred and is continuing, Bank may
notify any Account Debtor owing Borrower money of Bank’s security interest in
such funds and verify the amount of such Eligible Account. All sales and other
transactions underlying or giving rise to each Eligible Account shall comply in
all material respects with all applicable laws and governmental rules and
regulations. Borrower has no knowledge of any actual or imminent Insolvency
Proceeding of any Account Debtor whose accounts are Eligible Accounts in any
Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures
and endorsements on all documents, instruments, and agreements relating to all
Eligible Accounts are genuine, and all such documents, instruments and
agreements are legally enforceable in accordance with their terms.

For any item of Inventory consisting of “Eligible Inventory” in any Borrowing
Base Certificate, such Inventory (a) consists of finished goods, in good, new,
and salable condition, which is not perishable, returned, consigned, obsolete,
not sellable, damaged, or defective, and is not comprised of demonstrative or
custom inventory, works in progress, packaging or shipping materials, or
supplies; (b) meets all applicable governmental standards; (c) has been
manufactured in compliance with the Fair Labor Standards Act; (d) is subject to
the first priority Liens granted or in favor of Bank under this Agreement and
the other Loan Documents and is not subject to any other liens except for any
other Permitted Liens; and (e) is located at the locations identified by
Borrower in the Perfection Certificate where it maintains Inventory (or at any
location permitted under Section 7.2).

5.4 Litigation. Except as otherwise specified in the Perfection Certificate or
reported pursuant to Section 6.2(k), there are no actions or proceedings pending
or, to the knowledge of the Responsible Officers, threatened in writing by or
against Borrower or any of its Subsidiaries involving more than Fifty Thousand
Dollars ($50,000) individually or Two Hundred Fifty Thousand Dollars ($250,000)
in the aggregate at any time.

5.5 Financial Condition. All consolidated financial statements for Borrower and
any of its Subsidiaries delivered to Bank fairly present in all material
respects Borrower’s consolidated financial condition and Borrower’s consolidated
results of operations. There has not been any material deterioration in
Borrower’s consolidated financial condition since the date of the most recent
financial statements submitted to Bank.

5.6 Solvency. The fair salable value of Borrower’s assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

5.7 Regulatory Compliance. Borrower is not an “investment company” or a company
“controlled” by an “investment company” under the Investment Company Act of
1940, as amended. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations X, T and U of the Federal
Reserve Board of Governors). Borrower has complied in all material respects with
the Federal Fair Labor Standards Act. Neither Borrower nor any of its
Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or
a “subsidiary company” of a “holding company” as each term is defined and used
in the Public Utility Holding Company Act of 2005. Borrower has not violated any
laws, ordinances or rules, the violation of which could reasonably be expected
to have a material adverse effect on its business. None of Borrower’s or any of
its Subsidiaries’ properties or assets has been used by Borrower or any
Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each of its Subsidiaries have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all Government Authorities that are necessary to
continue their respective businesses as currently conducted, except to the
extent the failure to obtain or make any approval or filing could not reasonably
be expected to have a material adverse effect on Borrower’s or any Subsidiary’s
business.

 

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5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.

5.9 Tax Returns and Payments; Pension Contributions.

(a) Except as otherwise permitted by this Section 5.9, Borrower has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower. Borrower may defer payment of any contested taxes, provided that
Borrower (i) in good faith contests its obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Bank in writing of the commencement of, and any material
development in, the proceedings, (iii) posts bonds or takes any other steps
required to prevent the governmental authority levying such contested taxes from
obtaining a Lien upon any of the Collateral that is other than a “Permitted
Lien”. Borrower is unaware of any claims or adjustments proposed for any of
Borrower’s prior tax years which could result in additional taxes becoming due
and payable by Borrower.

(b) Except as otherwise described on Schedule 5.9, Borrower has paid all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, and has not permitted partial or complete termination of, or
permitted the occurrence of any other event with respect to, any such plan which
resulted or could reasonably be expected to result in any liability of Borrower
which, when aggregated with all such actual and expected liabilities (including
without duplication any liabilities described in Section 6.5(b) or 7.10(c))
other than the liability described on Schedule 5.9, exceeds Fifty Thousand
Dollars ($50,000) (including any liability to the Pension Benefit Guaranty
Corporation or its successors or any other governmental agency).

5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions
solely as working capital to fund its general business requirements and not for
personal, family, household or agricultural purposes.

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

5.12 Definition of “Knowledge.” For purposes of the Loan Documents, whenever a
representation or warranty is made to Borrower’s knowledge or awareness, to the
“best of” Borrower’s knowledge, or with a similar qualification, knowledge or
awareness means the actual knowledge, after reasonable investigation, of the
Responsible Officers.

6 AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

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

(b) Obtain all of the Governmental Approvals necessary for the performance by
Borrower of its obligations under the Loan Documents to which it is a party and
the grant of a security interest to Bank in all of its property. Borrower shall
promptly provide copies of any such obtained Governmental Approvals to Bank than
Bank shall request.

 

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6.2 Financial Statements, Reports, Certificates.

(a) a Transaction Report (and any schedules related thereto) (y) weekly and at
the time of each request for an Advance if a Streamline Period is not in effect
or an Event of Default has occurred and is continuing and (z) within fifteen
(15) days after the end of each month if a Streamline Period is in effect and no
Event of Default has occurred and is continuing;

(b) within fifteen (15) days after the end of each month, (A) monthly accounts
receivable agings (including, without limitation, accounts receivable agings for
accounts receivable used in determining EXIM Loans), aged by invoice date,
(B) monthly accounts payable agings, aged by invoice date, and outstanding or
held check registers, if any, (C) monthly reconciliations of accounts receivable
agings (aged by invoice date), transaction reports and general ledger, and
(D) monthly perpetual inventory reports for Inventory valued on a first-in,
first-out basis at the lower of cost or market (in accordance with GAAP) or such
other inventory reports as are requested by Bank in its good faith business
judgment;

(c) as soon as available, but no later than thirty (30) days after the last day
of each month, a company prepared consolidated and consolidating balance sheet
and income statement covering Borrower’s and each of its Subsidiary’s operations
for such month certified by a Responsible Officer and in a form acceptable to
Bank (the “Monthly Financial Statements”);

(d) within thirty (30) days after the last day of each month and together with
the Monthly Financial Statements, a duly completed Compliance Certificate signed
by a Responsible Officer, certifying that as of the end of such month Borrower
was in full compliance with all of the terms and conditions of this Agreement
(subject to any existing Defaults or Events of Default, which Borrower shall
describe in the Compliance Certificate), and setting forth calculations showing
compliance with the financial covenants set forth in this Agreement and such
other information as Bank shall reasonably request, including, without
limitation, a statement that at the end of such month there were no held checks;

(e) (vi) within fifteen (15) days after the end of each fiscal quarter of the
Borrower, (i) copies of actual invoices of at least ten percent (10%) of the
quarter-end accounts receivable aging balance; and (ii) copies of at least ten
percent (10%) of the previous quarter’s export orders (if any);

(f) prior to the end of each fiscal year of Borrower, (A) annual operating
budgets (including income statements, balance sheets and cash flow statements,
by month) for the upcoming fiscal year of Borrower, and (B) annual financial
projections for the following fiscal year (on a quarterly basis) as approved by
Borrower’s board of directors, together with any related business forecasts used
in the preparation of such annual financial projections; and

(g) as soon as available, and in any event within one hundred twenty (120) days
following the end of Borrower’s fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank in its reasonable discretion.

(h) [Reserved];

(i) within five (5) days of delivery, copies of all statements, reports and
notices made available to Borrower’s security holders or to any holders of
Subordinated Debt, except to the extent that the foregoing have been filed with
the SEC and are publicly available within such time frame;

(j) prompt written notice of (i) any material change in the composition of the
Intellectual Property, (ii) the registration of any copyright, including any
subsequent ownership right of Borrower in or to any copyright, patent or
trademark not shown in the IP Security Agreement, and (iii) Borrower’s knowledge
of an event that could reasonably be expected to materially and adversely affect
the value of the Intellectual Property;

(k) prompt report of any legal action pending or threatened in writing against
Borrower or any of its Subsidiaries that could result in damages or costs to
Borrower or any of its Subsidiaries of more than Fifty Thousand Dollars
($50,000), individually, or more than Two Hundred Fifty Thousand Dollars
($250,000) when aggregated with all other legal actions pending or threatened in
writing against Borrower or any of its Subsidiaries that have not previously
been disclosed to Bank pursuant to the Perfection Certificate or other written
report; and

(l) other financial information reasonably requested by Bank.

 

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6.3 Accounts Receivable.

(a) Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank
transaction reports and schedules of collections, as provided in Section 6.2, on
Bank’s standard forms; provided, however, that Borrower’s failure to execute and
deliver the same shall not affect or limit Bank’s Lien and other rights in all
of Borrower’s Accounts, nor shall Bank’s failure to advance or lend against a
specific Account affect or limit Bank’s Lien and other rights therein. If
requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s
request, originals) of all contracts, orders, invoices, and other similar
documents, and all shipping instructions, delivery receipts, bills of lading,
and other evidence of delivery, for any goods the sale or disposition of which
gave rise to such Accounts. In addition, Borrower shall deliver to Bank, on its
request, the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any Accounts,
in the same form as received, with all necessary endorsements, and copies of all
credit memos.

(b) Disputes. Borrower shall promptly notify Bank of all disputes or claims
involving $50,000 or more relating to Accounts. Borrower may forgive (completely
or partially), compromise, or settle any Account for less than payment in full,
or agree to do any of the foregoing so long as (i) Borrower does so in good
faith, in a commercially reasonable manner, in the ordinary course of business,
in arm’s-length transactions, and reports the same to Bank in the regular
reports provided to Bank; (ii) no Event of Default has occurred and is
continuing; and (iii) after taking into account all such discounts, settlements
and forgiveness, the total outstanding Advances will not exceed the Availability
Amount.

(c) Collection of Accounts. Borrower shall have the right to collect all
Accounts, unless and until a Default or an Event of Default has occurred and is
continuing. All payments on, and proceeds of, Accounts shall be deposited
directly by the applicable Account Debtor into a lockbox account, or such other
“blocked account” as Bank may specify, pursuant to a blocked account agreement
in form and substance satisfactory to Bank in its sole discretion. Whether or
not an Event of Default has occurred and is continuing, Borrower shall
immediately deliver all payments on and proceeds of Accounts to an account
maintained with Bank to be applied (i) prior to an Event of Default, to the
Revolving Line pursuant to the terms of Section 2.5(b) hereof, and (ii) after
the occurrence and during the continuance of an Event of Default, pursuant to
the terms of Section 9.4 hereof; provided, however, during a Streamline Period,
provided no Event of Default has occurred and is continuing, such payments and
proceeds shall be transferred to an account of Borrower maintained at Bank.

(d) Returns. Provided no Event of Default has occurred and is continuing, if any
Account Debtor returns any Inventory to Borrower, Borrower shall promptly
(i) determine the reason for such return, (ii) issue a credit memorandum to the
Account Debtor in the appropriate amount, and (iii) provide a copy of such
credit memorandum to Bank, upon request from Bank. In the event any attempted
return occurs after the occurrence and during the continuance of any Event of
Default, Borrower shall promptly notify Bank of the return of the Inventory.

(e) Verification. Bank may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Accounts, either in the name of Bank or Bank’s agent.

(f) No Liability. Bank shall not be responsible or liable for any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or
other disposition of which gives rise to an Account, or for any error, act,
omission, or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account, or for settling any Account in
good faith for less than the full amount thereof, nor shall Bank be deemed to be
responsible for any of Borrower’s obligations under any contract or agreement
giving rise to an Account. Nothing herein shall, however, relieve Bank from
liability for its own gross negligence or willful misconduct.

6.4 Remittance of Proceeds. Except as otherwise provided in Section 6.3(c),
deliver, in kind, all proceeds arising from the disposition of any Collateral to
Bank in the original form in which received by Borrower not later than the
following Business Day after receipt by Borrower, to be applied to the
Obligations (1) prior to an Event of Default, pursuant to the terms of
Section 2.5(b) hereof, and (2) after the occurrence and during the continuance
of an Event of Default, pursuant to the terms of Section 9.4 hereof; provided
that, if no Event of Default has occurred and is continuing, Borrower shall not
be obligated to remit to Bank the proceeds of the sale of surplus, worn out or
obsolete Equipment disposed of by Borrower in good faith in an arm’s length
transaction for an aggregate purchase price of Twenty Five Thousand Dollars
($25,000) or less (for all such transactions in any fiscal year). Borrower
agrees that it will maintain all proceeds of Collateral in an account maintained
with Bank. Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.

 

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6.5 Taxes; Pensions; Withholding. (a) Timely file, and require each of its
Subsidiaries to timely file, all required tax returns and reports and timely
pay, and require each of its Subsidiaries to timely pay, all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower
and each of its Subsidiaries, except for deferred payment of any taxes contested
pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on
demand, appropriate certificates attesting to such payments, and (b) except as
otherwise described on Schedule 5.9, pay all amounts necessary to fund all
present pension, profit sharing and deferred compensation plans in accordance
with their terms, except to the extent that any failure to pay any such amount
results in or is reasonably likely to result in any liability of Borrower which,
when aggregated with all such actual and expected liabilities (including without
duplication any liabilities described in Section 5.9(b) or 7.10(c)) other than
the liability described on Schedule 5.9, does not exceed Fifty Thousand Dollars
($50,000).

6.6 Access to Collateral; Books and Records. At reasonable times, on three
(3) Business Day’s notice (provided no notice is required if an Event of Default
has occurred and is continuing), Bank, or its agents, shall have the right to
inspect the Collateral and the right to audit and copy Borrower’s Books. Such
inspections or audits shall be conducted no more often than twice in each
12-month period unless an Event of Default has occurred and is continuing. The
foregoing inspections and audits shall be at Borrower’s expense, and the charge
therefor shall be $850 per person per day (or such higher amount as shall
represent Bank’s then-current standard charge for the same), plus reasonable
out-of-pocket expenses. In the event Borrower and Bank schedule an audit more
than ten (10) days in advance, and Borrower cancels or seeks to reschedule the
audit with less than ten (10) days written notice to Bank, then (without
limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of
$1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for
the anticipated costs and expenses of the cancellation or rescheduling.

6.7 Insurance. Keep its business and the Collateral insured for risks and in
amounts standard for companies in Borrower’s industry and location and as Bank
may reasonably request. Insurance policies shall be in a form, with companies,
and in amounts that are satisfactory to Bank. All property policies shall have a
lender’s loss payable endorsement showing Bank as the sole lender loss payee and
waive subrogation against Bank. All liability policies shall show, or have
endorsements showing, Bank as an additional insured. All policies (or the loss
payable and additional insured endorsements) shall provide that the insurer
shall give Bank at least twenty (20) days notice before canceling, amending, or
declining to renew its policy. At Bank’s request, Borrower shall deliver
certified copies of policies and evidence of all premium payments. Proceeds
payable under any policy shall, at Bank’s option, be payable to Bank on account
of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of
Default has occurred and is continuing, Borrower shall have the option of
applying the proceeds of any casualty policy up to Fifty Thousand Dollars
($50,000) with respect to any loss, but not exceeding One Hundred Thousand
Dollars ($100,000) in the aggregate for all losses under all casualty policies
in any one year, toward the replacement or repair of destroyed or damaged
property; provided that any such replaced or repaired property (i) shall be of
equal or like value as the replaced or repaired Collateral and (ii) shall be
deemed Collateral in which Bank has been granted a first priority security
interest, and (b) after the occurrence and during the continuance of an Event of
Default, all proceeds payable under such casualty policy shall, at the option of
Bank, be payable to Bank on account of the Obligations. If Borrower fails to
obtain insurance as required under this Section 6.7 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section 6.7, and take any action under the policies Bank deems prudent.

6.8 Operating Accounts.

(a) Maintain all of its and all of its Subsidiaries’, if any, depository,
operating accounts and securities accounts which are maintained in the United
States (including, without limitation, any such account which is maintained with
a United States branch of a foreign institution) with Bank and Bank’s affiliates
with all excess funds maintained at or invested through Bank or an affiliate of
Bank.

(b) Provide Bank five (5) days prior-written notice before establishing any
Collateral Account at or with any bank or financial institution other than Bank
or Bank’s Affiliates. For each Collateral Account that Borrower at any time
maintains within the United States (including, without limitation, any such
account which is maintained with a United States branch of a foreign
institution), Borrower shall cause the applicable bank or financial institution
(other than Bank) at or with which any Collateral Account is maintained to

 

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execute and deliver a Control Agreement or other appropriate instrument with
respect to such Collateral Account to perfect Bank’s Lien in such Collateral
Account in accordance with the terms hereunder which Control Agreement may not
be terminated without the prior written consent of Bank. The provisions of the
previous sentence shall not apply to deposit accounts exclusively used for
payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of Borrower’s employees and identified to Bank by Borrower as such.

6.9 Financial Covenants.

Maintain at all times, to be tested as of the last day of each month, unless
otherwise noted, on a consolidated basis with respect to Borrower and its
Subsidiaries:

(a) Minimum Adjusted Quick Ratio. An Adjusted Quick Ratio of at least 1.1 to 1.0
at all times, it being understood that Quarter-end Advances shall be excluded
from the foregoing calculation; provided, however, that the foregoing Adjusted
Quick Ratio covenant will no longer be tested (other than to determine the
interest rate applicable to the Revolving Line as described in Section 2.3(a)),
for any period commencing on the date that Borrower provides Bank evidence
satisfactory to Bank, in its reasonable discretion, that Borrower has achieved a
Fixed Charge Coverage Ratio, measured on a trailing twelve month basis, as of
the last day of each of the immediately preceding four consecutive fiscal
quarters of greater than 1.50:1.00 (the “FCCR Triggering Event”).

(b) Maximum Capital Expenditures. Not contract for, purchase or make any
expenditure or commitments for Capital Expenditures in an aggregate amount in
excess of Three Million Seven Hundred Ninety Thousand Dollars ($3,790,000) for
Borrower’s fiscal year ending December 31, 2010, and an amount for each of
Borrower’s fiscal years ending thereafter as Borrower and Bank shall agree;
provided that if Borrower and Bank fail to agree on the amount with respect to
any such year, such amount shall be deemed to be Three Million Seven Hundred
Ninety Thousand Dollars ($3,790,000) for such year; provided, further, that for
each fiscal year, any Capital Expenditure amount not used by the last day of the
respective fiscal year shall be added to the permitted Capital Expenditure
amount for the next succeeding fiscal year.

(c) Minimum Fixed Charge Coverage Ratio. Achieve, measured on a trailing twelve
month basis, as of the last day of each monthly period, a Fixed Charge Coverage
Ratio of not less than 1.50:1.00; provided, however, that until the occurrence
of the FCCR Triggering Event described in Section 6.9(a) above, the Fixed Charge
Coverage Ratio shall be measured solely to determine whether the FCCR Triggering
Event has occurred and shall not be deemed a covenant; provided further, that
upon the occurrence of the FCCR Triggering Event, the Adjusted Quick Ratio
covenant contained in Section 6.9(a) shall no longer be tested (other than to
determine the interest rate applicable to the Revolving Line as described in
Section 2.3(a)), and achievement of the Fixed Charge Coverage Ratio of not less
than 1.50:1.00 (tested monthly, on a trailing twelve month basis as of the last
day of each monthly period), shall thereafter be required.

(d) Minimum EBITDA. Achieve, measured as of the end of each month, for the
trailing six-month period ending as of the end of such month, EBITDA of at least
the following minimum amounts for the months ending during the following periods
(amounts in parentheses below represent negative numbers):

 

Period    Minimum EBITDA March 1, 2010 through and including December 31, 2010
   ($2,500,000) January 1, 2011 and thereafter    An amount as Borrower and Bank
may agree

; provided, however, that in the event Bank and Borrower have not agreed upon
such amounts for 2011 and thereafter on or before January 31, 2011, the minimum
EBITDA covenant shall remain negative Two Million Five Hundred Thousand Dollars
($2,500,000) and continue to be measured as of the end of each month for the
trailing six-month period ending as of the end of such month, until such time as
Bank and Borrower have agreed upon such amounts.

 

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6.10 Protection and Registration of Intellectual Property Rights.

(a) (i) Protect, defend and maintain the validity and enforceability of its
Intellectual Property; (ii) promptly advise Bank in writing of material
infringements of its Intellectual Property; and (iii) not allow any Intellectual
Property material to Borrower’s business to be abandoned, forfeited or dedicated
to the public without Bank’s written consent.

(b) If Borrower (i) obtains any Patent, registered Trademark, registered
Copyright, registered mask work, or any pending application for any of the
foregoing, whether as owner, licensee or otherwise, or (ii) applies for any
Patent or the registration of any Trademark, then Borrower shall provide written
notice thereof to Bank as part of the Compliance Certificate required to be
provided to Bank pursuant to Section 6.2 with respect to the last month of the
then current fiscal quarter and shall execute such intellectual property
security agreements and other documents and take such other actions as Bank
shall request in its good faith business judgment to perfect and maintain a
first priority perfected security interest in favor of Bank in such property. If
Borrower decides to register any Copyrights or mask works in the United States
Copyright Office, Borrower shall: (x) provide Bank with at least fifteen
(15) days prior written notice of Borrower’s intent to register such Copyrights
or mask works together with a copy of the application it intends to file with
the United States Copyright Office (excluding exhibits thereto); (y) execute an
amendment to the IP Agreement and such other documents and take such other
actions as Bank may request in its good faith business judgment to perfect and
maintain a first priority perfected security interest in favor of Bank in the
Copyrights or mask works intended to be registered with the United States
Copyright Office; and (z) record such amendment to IP Agreement with the United
States Copyright Office contemporaneously with filing the Copyright or mask work
application(s) with the United States Copyright Office. As part of the
Compliance Certificate required to be provided to Bank pursuant to Section 6.2
with respect to the last month of the current fiscal quarter, Borrower shall
promptly provide to Bank copies of all applications that it files for Patents or
for the registration of Trademarks, Copyrights or mask works.

(c) Provide written notice to Bank in each Compliance Certificate of any
material Restrictive License that Borrower has entered into or become bound by
since the period covered by the last Compliance Certificate (other than
over-the-counter software that is commercially available to the public).
Borrower shall take such steps as are commercially reasonable to obtain the
consent of, or waiver by, any person whose consent or waiver is necessary for
(i) any Restricted License to be deemed “Collateral” and for Bank to have a
security interest in it that might otherwise be restricted or prohibited by law
or by the terms of any such Restricted License, whether now existing or entered
into in the future, and (ii) Bank to have the ability in the event of a
liquidation of any Collateral to dispose of such Collateral in accordance with
Bank’s rights and remedies under this Agreement and the other Loan Documents,
provided, however, that the failure to obtain any such consent after taking such
commercially reasonable steps shall not limit the ability of Borrower to enter
into such license.

6.11 Litigation Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and its officers, employees and agents and Borrower’s books and records
(subject to (i) any written agreement binding upon Borrower prohibiting Borrower
from disclosing any information of third parties and (ii) attorney-client
privilege of Borrower) to the extent that Bank may deem them reasonably
necessary to prosecute or defend any third-party suit or proceeding instituted
by or against Bank with respect to any Collateral or relating to Borrower.

6.12 Pledge of Stock of AtriCure Europe B.V. At the request of Bank, in its sole
discretion, Borrower shall enter into a pledge agreement with Bank, in form and
substance acceptable to Bank, pledging to Bank shares evidencing ownership of
65% of the outstanding stock of AtriCure Europe B.V. and cause such pledge
agreement to be notarized and enforceable in accordance with the laws of the
Netherlands.

6.13 Creation/Acquisition of Subsidiaries. Notwithstanding and without limiting
the negative covenant contained in Section 7.3 hereof, in the event Borrower or
any Subsidiary creates or acquires any Subsidiary, Borrower and such Subsidiary
shall promptly notify Bank of the creation or acquisition of such new Subsidiary
and, at Bank’s request, in its sole discretion, take all such action as may be
reasonably required by Bank to cause each such Subsidiary to either (a) other
than in the case of a Foreign Subsidiary, in Bank’s sole discretion, become a
co-Borrower or guarantor under the Loan Documents and grant a continuing pledge
and security interest in and to the assets of such Subsidiary (substantially as
described on Exhibit A hereto); or (b) subject to the Collateral limitations
with respect to Foreign Subsidiaries, Borrower shall grant and pledge to Bank a
perfected security interest in up to 65% of the stock, units or other evidence
of ownership of each Subsidiary.

6.14 Further Assurances. Execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral
or to effect the purposes of this Agreement.

 

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7 NEGATIVE COVENANTS

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

7.1 Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of
(collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, except for Transfers (a) of Inventory
(including generators/capital equipment pursuant to leases by Borrower as
lessor) in the ordinary course of business, provided that Borrower shall not
lease (as lessor) more than One Hundred Thousand Dollars ($100,000) book value
of Inventory (including generators/capital equipment) per fiscal year and shall
not lease any Inventory (including generators/capital equipment that is leased
by Borrower as lessor) which is subject to a Lien other than that of Bank or is
leased by Borrower as lessee; (b) of worn-out or obsolete Equipment or
Intellectual Property that is no longer useful or economically practicable to
maintain, provided in each case that no Event of Default has occurred and is
continuing; and (c) consisting of Permitted Liens and Permitted Investments.

7.2 Changes in Business, Management, Ownership or Business Locations. (a) Engage
in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower and such Subsidiary, as applicable,
or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) permit the
existing Chief Executive Officer or Chief Financial Officer of the Borrower to
cease to hold such position unless replaced within thirty (30) days with a
person reasonably acceptable to Bank; or (ii) permit or suffer any Change in
Control.

Borrower shall not, without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Ten Thousand
Dollars ($10,000) in Borrower’s assets or property), (2) change its jurisdiction
of organization, (3) change its organizational structure or type, (4) change its
legal name, (5) change any organizational number (if any) assigned by its
jurisdiction of organization, or (6) maintain any of the Collateral other than
at a location of Borrower, pursuant to leases allowed by Section 7.1, or as set
forth below in this Section 7.2.

Borrower shall not deliver to any bailee any portion of the Collateral, except
that Borrower may deliver (x) Inventory to a bailee for sterilization in an
aggregate amount outstanding at any one time for such bailee not exceeding Five
Hundred Thousand Dollars ($500,000) (gross book value), (y) molds to bailees who
use the molds to fabricate Inventory for Borrower in an aggregate amount
outstanding at any one time for all such bailees not exceeding Two Hundred Fifty
Thousand Dollars ($250,000) (gross book value), and (z) other Inventory or
Equipment to bailees in an aggregate amount outstanding at any one time for all
such bailees not exceeding Three Hundred Fifty Thousand Dollars ($350,000)
(gross book value). If Borrower intends to deliver any portion of the Collateral
to a bailee in an amount in excess of what is allowed pursuant to the foregoing
sentence, Borrower will first receive the written consent of Bank, and such
bailee shall execute and deliver a bailee agreement in form and substance
reasonably satisfactory to Bank. Borrower may maintain small amounts of “trunk
stock” with Borrower’s sales representatives and may maintain with any customer
of Borrower (y) up to One Hundred Fifty Thousand Dollars ($150,000) (valued at
Borrower’s then current standard cost) per customer, at any one time, of
Borrower’s generators/capital equipment and (z) up to Fifty Thousand Dollars
($50,000) (valued at Borrower’s then current standard cost) per customer, at any
one time, of Borrower’s disposable products on consignment to such customer.

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower.

7.4 Indebtedness. Create, incur, assume, or be liable for (a) any Indebtedness,
or permit any Subsidiary to do so, other than Permitted Indebtedness, or (b) any
Indebtedness to any officer, director or shareholder of Borrower unless such
officer, director or shareholder subordinates such Indebtedness to all of
Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and such officer, director or shareholder), on
terms acceptable to Bank; provided, however, the DOJ Obligations shall
constitute Permitted Indebtedness hereunder, and the regularly scheduled payment
thereof shall be permitted, only to the extent such DOJ Obligations remain
unsecured and free and clear of any and all Liens or encumbrances, whether
consensual, contractual, involuntary, statutory or otherwise, other than the
right of set-off retained against any amounts due and owing to the Borrower by
the Department of Justice or other agencies or instrumentalities of the United
States of America.

 

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7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of the
Collateral, or assign or convey any right to receive income, including the sale
of any Accounts, or permit any of its Subsidiaries to do so, except for
Permitted Liens, permit any Collateral not to be subject to the first priority
security interest granted herein, or enter into any agreement, document,
instrument or other arrangement (except with or in favor of Bank) with any
Person which directly or indirectly prohibits or has the effect of prohibiting
Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a
security interest in or upon, or encumbering any of Borrower’s or any
Subsidiary’s Intellectual Property, except as is otherwise permitted in
Section 7.1 hereof and the definition of “Permitted Liens” herein.

7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except
pursuant to the terms of Section 6.8(b) hereof.

7.7 Distributions; Investments. (a) Pay any dividends or make any distribution
or payment or redeem, retire or purchase any capital stock provided that
(i) Borrower may convert any of its convertible securities into other securities
pursuant to the terms of such convertible securities or otherwise in exchange
thereof, (ii) Borrower may pay dividends solely in common stock; (iii) Borrower
may repurchase the stock of former employees or consultants pursuant to stock
repurchase agreements so long as an Event of Default does not exist at the time
of such repurchase and would not exist after giving effect to such repurchase,
provided such repurchase does not exceed in the aggregate of One Hundred
Thousand Dollars ($100,000) per fiscal year; and (iv) Borrower may institute a
stock repurchase program pursuant to which it repurchases outstanding shares of
Borrower’s common stock so long as an Event of Default does not exist at the
time of any such repurchase and would not exist after giving effect to such
repurchase and provided that the aggregate of all such repurchases does not
exceed $500,000; or (b) directly or indirectly make any Investment other than
Permitted Investments, or permit any of its Subsidiaries to do so.

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. (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof or adversely affect the subordination thereof to Obligations owed
to Bank.

7.10 Compliance. Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940, as amended, or
undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or non-exempt Prohibited Transaction, as defined in ERISA, to
occur; fail to comply with the Federal Fair Labor Standards Act or violate any
other law or regulation, if the violation could reasonably be expected to have a
material adverse effect on Borrower’s business, or permit any of its
Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or (except as has
already occurred and is described on Schedule 5.9 hereto) permit the occurrence
of any other event with respect to, any present pension, profit sharing and
deferred compensation plan which results or could reasonably be expected to
result in any liability of Borrower which, when aggregated with all such actual
and expected liabilities (including without duplication any liabilities
described in Section 5.9(b) or 6.5(b)) other than the liability described on
Schedule 5.9, exceeds $50,000, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.

8 EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

8.1 Payment Default. Borrower fails to (a) make any payment of principal or
interest on any Credit Extension on its due date, or (b) pay any other
Obligations within three (3) Business Days after such Obligations are due and
payable (which three (3) Business Day cure period shall not apply to payments
due on the Revolving Line Maturity Date and/or the Term Loan Maturity Date, as
applicable). During the cure period, the failure to make or pay any payment
specified under clause (a) or (b) hereunder is not an Event of Default (but no
Credit Extension will be made during the cure period);

 

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8.2 Covenant Default.

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5,
6.6, 6.7, 6.8, 6.9, 6.10(c) or violates any covenant in Section 7; or

(b) Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement or any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to cure the default
shall not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period). Cure periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in clause (a) above;

8.3 Material Adverse Change. A Material Adverse Change occurs;

8.4 Attachment; Levy; Restraint on Business.

(a) (i) The service of process seeking to attach, by trustee or similar process,
any funds of Borrower or of any entity under the control of Borrower (including
a Subsidiary) on deposit or otherwise maintained with Bank or any Bank
Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s
assets by any government agency, and the same under subclauses (i) and
(ii) hereof are not, within ten (10) days after the occurrence thereof,
discharged or stayed (whether through the posting of a bond or otherwise);
provided, however, no Credit Extensions shall be made during any ten (10) day
cure period; or

(b) (i) any material portion of Borrower’s assets is attached, seized, levied
on, or comes into possession of a trustee or receiver, or (ii) any court order
enjoins, restrains, or prevents Borrower from conducting any material part of
its business;

8.5 Insolvency. (a) Borrower is unable to pay its debts (including trade debts)
as they become due or otherwise becomes insolvent; (b) Borrower begins an
Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower
and not dismissed or stayed within forty-five (45) days (but no Credit
Extensions shall be made while of any of the conditions described in clause
(a) exist and/or until any Insolvency Proceeding is dismissed);

8.6 Other Agreements. There is, under any agreement to which Borrower or any
Guarantor is a party with a third party or parties, (a) any default resulting in
a right by such third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount individually or in the aggregate
in excess of One Hundred Thousand Dollars ($100,000); (b) any default by
Borrower or Guarantor which (without limitation on the generality of
Section 8.3) constitutes a Material Adverse ‘Change; or (c) any default by
Guarantor, the result of which could have a material adverse effect on such
Guarantor’s business;

8.7 Judgments. One or more final judgments, orders, or decrees for the payment
of money in an amount, individually or in the aggregate, of at least One Hundred
Thousand Dollars ($100,000) (not covered by independent third-party insurance as
to which liability has been accepted by such insurance carrier) shall be
rendered against Borrower and the same are not, within ten (10) days after the
entry thereof, discharged or execution thereof stayed or bonded pending appeal,
or such judgments are not discharged prior to the expiration of any such stay
(provided that no Credit Extensions will be made prior to the discharge, stay,
or bonding of such judgment, order, or decree);

8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in any writing delivered to Bank or to induce Bank to enter
this Agreement or any Loan Document, and such representation, warranty, or other
statement is incorrect in any material respect when made; or

 

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8.9 Subordinated Debt. Any document, instrument, or agreement evidencing any
Subordinated Debt shall for any reason be revoked or invalidated or otherwise
cease to be in full force and effect; any Person shall be in breach thereof or
contest in any manner the validity or enforceability thereof or deny that it has
any further liability or obligation thereunder; a default or breach occurs under
any agreement between Borrower and any creditor of Borrower that signed a
subordination, intercreditor, or other similar agreement with Bank, or any
creditor that has signed such an agreement with Bank breaches any terms of such
agreement; or the Obligations shall for any reason be subordinated or shall not
have the priority contemplated by this Agreement or any such subordination,
intercreditor, or other similar agreement;

8.10 Exim Default. After the effective date of the EXIM Loan Agreement, the
occurrence of an Event of Default under the EXIM Agreement.

9 BANK’S RIGHTS AND REMEDIES

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

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

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

(c) demand that Borrower (i) deposit cash with Bank in an amount equal to 105%
of the Dollar Equivalent of the aggregate face amount of all Letters of Credit
remaining undrawn plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business judgment),
to secure all of the Obligations relating to such Letters of Credit, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and
(ii) pay in advance all letter of credit fees scheduled to be paid or payable
over the remaining term of any Letters of Credit; provided, however, if an Event
of Default described in Section 8.5 occurs, the obligation of Borrower to cash
collateralize all Letters of Credit remaining undrawn shall automatically become
effective without any action by Bank;

(d) [Reserved];

(e) settle or adjust disputes and claims directly with Account Debtors for
amounts on terms and in any order that Bank considers advisable, notify any
Person owing Borrower money of Bank’s security interest in such funds, and
verify the amount of such account;

(f) make any payments and do any acts it considers necessary or reasonable to
protect the Collateral and/or its security interest in the Collateral. Borrower
shall assemble the Collateral if Bank requests and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank’s rights
or remedies;

(g) apply to the Obligations any (i) balances and deposits of Borrower it holds,
or (ii) any amount held by Bank owing to or for the credit or the account of
Borrower;

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

(i) place a “hold” on any account maintained with Bank and/or deliver a notice
of exclusive control, any entitlement order, or other directions or instructions
pursuant to any Control Agreement or similar agreements providing control of any
Collateral;

 

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(j) demand and receive possession of Borrower’s Books; and

(k) exercise all rights and remedies available to Bank under the Loan Documents
or at law or equity, including all remedies provided under the Code (including
disposal of the Collateral pursuant to the terms thereof).

9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of
an Event of Default, to: (a) endorse Borrower’s name on any checks or other
forms of payment or security; (b) sign Borrower’s name on any invoice or bill of
lading for any Account or drafts against Account Debtors; (c) settle and adjust
disputes and claims about the Accounts directly with Account Debtors, for
amounts and on terms Bank determines reasonable; (d) make, settle, and adjust
all claims under Borrower’s insurance policies; (e) pay, contest or settle any
Lien, charge, encumbrance, security interest, and adverse claim in or to the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; and (f) transfer the Collateral into the name
of Bank or a third party as the Code permits. Borrower hereby appoints Bank as
its lawful attorney-in-fact to sign Borrower’s name on any documents necessary
to perfect or continue the perfection of Bank’s security interest in the
Collateral regardless of whether an Event of Default has occurred until all
Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s
attorney in fact, and all of Bank’s rights and powers, being coupled with an
interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank’s obligation to provide Credit Extensions terminates.

9.3 Protective Payments. If Borrower fails to obtain the insurance called for by
Section 6.7 or fails to pay any premium thereon or fails to pay any other amount
which Borrower is obligated to pay under this Agreement or any other Loan
Document, Bank may obtain such insurance or make such payment, and all amounts
so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest rate applicable to the Obligations, and secured by
the Collateral. Bank will make reasonable efforts to provide Borrower with
notice of Bank obtaining such insurance at the time it is obtained or within a
reasonable time thereafter. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank’s waiver of any Event of Default.

9.4 Application of Payments and Proceeds. Unless an Event of Default has
occurred and is continuing, Bank shall apply any funds in its possession,
whether from Borrower account balances, payments, or proceeds realized as the
result of any collection of Accounts or other disposition of the Collateral,
first, to Bank Expenses, including without limitation, the reasonable costs,
expenses, liabilities, obligations and attorneys’ fees incurred by Bank in the
exercise of its rights under this Agreement; second, to the interest due upon
any of the Obligations; and third, to the principal of the Obligations and any
applicable fees and other charges, in such order as Bank shall determine in its
sole discretion. Any surplus shall be paid to Borrower or other Persons legally
entitled thereto; Borrower shall remain liable to Bank for any deficiency. If an
Event of Default has occurred and is continuing, Bank may apply any funds in its
possession, whether from Borrower account balances, payments, proceeds realized
as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations in such order as Bank shall
determine in its sole discretion. Any surplus shall be paid to Borrower or to
other Persons legally entitled thereto; Borrower shall remain liable to Bank for
any deficiency. If Bank, in its good faith business judgment, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Bank shall have the option, exercisable at
any time, of either reducing the Obligations by the principal amount of the
purchase price or deferring the reduction of the Obligations until the actual
receipt by Bank of cash therefor.

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

9.6 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement or any
other Loan Document shall not waive, affect, or diminish any right of Bank
thereafter to demand strict performance and compliance herewith or therewith. No
waiver hereunder shall be effective unless signed by the party granting the
waiver and then is only effective for the specific instance and purpose for
which it is given. Bank’s rights and remedies under this Agreement and the other
Loan Documents are cumulative. Bank has all rights and remedies provided under
the Code, by law, or in equity.

 

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Bank’s exercise of one right or remedy is not an election and shall not preclude
Bank from exercising any other remedy under this Agreement or other remedy
available at law or in equity, and Bank’s waiver of any Event of Default is not
a continuing waiver. Bank’s delay in exercising any remedy is not a waiver,
election, or acquiescence.

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

10 NOTICES

All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”), other than Advance requests made pursuant to
Section 3.4, by any party to this Agreement or any other Loan Document must be
in writing and be delivered or sent by facsimile at the addresses or facsimile
numbers listed below. Bank or Borrower may change its notice address by giving
the other party written notice thereof. Each such Communication shall be deemed
to have been validly served, given, or delivered: (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the U.S. mail, registered
or certified mail, return receipt requested, with proper postage prepaid;
(b) upon transmission, when sent by facsimile transmission; (c) one (1) Business
Day after deposit with a reputable overnight courier with all charges prepaid;
or (d) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated below. Bank or Borrower may change its address, facsimile
number, or electronic mail address by giving the other party written notice
thereof in accordance with the terms of this Section 10.

 

If to Borrower    AtriCure, Inc.    6217 Centre Park Drive    West Chester, Ohio
45069    Attn: Julie A. Piton    Fax: (513) 644-1315    Email:
jpiton@atricure.com If to Bank:    Silicon Valley Bank    380 Interlocken
Crescent, Suite 600    Broomfield, Colorado 80021    Attn: Adam Glick    Fax:
(303) 469-9088    Email: aglick@svb.com: with a copy to:    Riemer & Braunstein
LLP    Three Center Plaza    Boston, Massachusetts 02108    Attn: Charles W.
Stavros, Esquire    Fax: (617) 880-3456    Email: cstavros@riemerlaw.com

11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in California; provided, however, that nothing in
this Agreement shall be deemed to operate to preclude Bank from bringing suit or
taking other legal action in any other jurisdiction to realize on the Collateral
or any other security for the Obligations, or to enforce a judgment or other
court order in favor of Bank. Borrower expressly submits and consents in advance
to such jurisdiction in any action or suit commenced in any such court, and
Borrower hereby waives any objection that it may have based upon lack of
personal jurisdiction, improper venue, or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is deemed
appropriate by such court. Borrower hereby waives personal service of the
summons, complaints, and other process issued in such action or suit and agrees
that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in
Section 10 of this Agreement and that service so made shall be deemed completed
upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper

 

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postage prepaid. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE,
BANK SHALL SPECIFICALLY HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK
DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO
OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS PROPERTY.

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

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in
this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclose against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.

12 GENERAL PROVISIONS

12.1 Termination Prior to Maturity Date. This Agreement may be terminated prior
to the Revolving Line Maturity Date by Borrower, effective three (3) Business
Days after written notice of termination is given to Bank or if Bank’s
obligation to fund Credit Extensions terminates pursuant to the terms of
Section 2.1.1(c). Notwithstanding any such termination, Bank’s lien and security
interest in the Collateral shall continue until terminated in accordance with
this Section 12.1. If such termination is at Borrower’s election or at Bank’s
election due to the occurrence and continuance of an Event of Default or if any
of the Obligations become due and payable as a result of an Event of Default
(including without limitation becoming due and payable as a result of an
Insolvency Proceeding), Borrower shall pay to Bank, in addition to the payment
of any other expenses or fees then-owing, (i) a termination fee in an amount
equal to three percent (3.00%) of the Revolving Line (i.e. Three Hundred
Thousand Dollars ($300,000)); if termination occurs on or before the first
anniversary of the Prior Effective Date; (ii) two percent (2.00%) of the
Revolving Line (i.e. Two Hundred Thousand Dollars ($200,000)) if termination
occurs after the first anniversary of the Prior Effective Date and on or before
the second anniversary of the Prior Effective Date; and (iii) one percent
(1.00%) of the Revolving Line (i.e. One Hundred Thousand Dollars ($100,000) if
termination occurs after the second anniversary of the Prior Effective Date and
before the Revolving Line Maturity Date; provided that no termination fee shall
be charged if the credit facility hereunder is replaced with a new facility from
another division of the Bank. Upon payment in full of the Obligations which are
then due and payable and at such time as Bank’s obligation to make Credit
Extensions has terminated, Bank shall release its liens and security interests
in the Collateral and all rights therein shall revert to Borrower.

 

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12.2 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or obligations under it without Bank’s prior written
consent (which may be granted or withheld in Bank’s discretion). Bank has the
right, without the consent of or notice to Borrower, to sell, transfer, assign,
negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and the other Loan
Documents. Notwithstanding the foregoing, prior the occurrence of an Event of
Default, Bank shall not assign any interest in the Loan Documents to an
operating company which is a direct competitor of Borrower.

12.3 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its
directors, officers, employees, agents, attorneys, or any other Person
affiliated with or representing Bank (each, an “Indemnified Person”) harmless
against: (a) all obligations, demands, claims, and liabilities (collectively,
“Claims”) claimed or asserted by any other party in connection with the
transactions contemplated by the Loan Documents; and (b) all losses or expenses
(including Bank Expenses) in any way suffered, incurred, or paid by such
Indemnified Person as a result of, following from, consequential to, or arising
from transactions between Bank and Borrower contemplated by the Loan Documents
(including reasonable attorneys’ fees and expenses), except for Claims and/or
losses directly caused by such Indemnified Person’s gross negligence or willful
misconduct.

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

12.5 Correction of Loan Documents. Bank may correct patent errors and fill in
any blanks in the Loan Documents consistent with the agreement of the parties so
long as Bank provides Borrower with written notice of such correction and allows
Borrower at least ten (10) days to object to such correction. In the event of
such objection, such correction shall not be made except by an amendment signed
by both Bank and Borrower.

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

12.7 Amendments in Writing; Waiver; Integration. No purported amendment or
modification of any Loan Document, or waiver, discharge or termination of any
obligation under any Loan Document, shall be enforceable or admissible unless,
and only to the extent, expressly set forth in a writing signed by the party
against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action,
inaction, delay, failure to require performance or course of conduct shall
operate as, or evidence, an amendment, supplement or waiver or have any other
effect on any Loan Document. Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver. The Loan Documents
represent the entire agreement about this subject matter and supersede prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of the Loan Documents merge into the Loan Documents.

12.8 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, is an original, and all taken together, constitute one Agreement.

12.9 Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than inchoate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been paid in full and satisfied. The obligation of Borrower in
Section 12.3 to indemnify Bank shall survive until the statute of limitations
with respect to such claim or cause of action shall have run.

12.10 Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with
Bank, collectively, “Bank Entities”); (b) to prospective transferees or
purchasers of any interest in the Credit Extensions (provided, however, Bank
shall use its best efforts to obtain any prospective transferee’s or purchaser’s
agreement to the terms of this provision); (c) as required by law, regulation,
subpoena, or other order; (d) to Bank’s regulators or as otherwise required in
connection with Bank’s examination or audit; (e) as Bank considers appropriate
in exercising remedies under the Loan Documents; and (f) to third-party service
providers of Bank so long as such service providers have executed a
confidentiality agreement with Bank with terms no less restrictive than those
contained herein. Confidential

 

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information does not include information that is either: (i) in the public
domain (other than as a result of a disclosure by the Bank) or in Bank’s
possession when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank; or (ii) disclosed to Bank by a third party if Bank does not
know that the third party is prohibited from disclosing the information.

Bank Entities may use the confidential information for reporting purposes and
the development and distribution of databases and market analyses so long as
such confidential information is aggregated and anonymized prior to
distribution, unless otherwise expressly permitted by Borrower. The provisions
of the immediately preceding sentence shall survive the termination of this
Agreement.

12.11 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between
Borrower and Bank arising out of or relating to the Loan Documents, the
prevailing party shall be entitled to recover its reasonable attorneys’ fees and
other costs and expenses incurred, in addition to any other relief to which it
may be entitled.

12.12 Right of Set Off. Borrower hereby grants to Bank, a lien, security
interest and right of set off as security for all Obligations to Bank, whether
now existing or hereafter arising upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of Bank
(including a Bank subsidiary) or in transit to any of them. At any time after
the occurrence and during the continuance of an Event of Default, without demand
or notice, Bank may set off the same or any part thereof and apply the same to
any liability or obligation of Borrower even though unmatured and regardless of
the adequacy of any other collateral securing the Obligations in accordance with
Section 9.4. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR
REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS,
PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS
OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
WAIVED.

12.13 Electronic Execution of Documents. The words “execution,” “signed,”
“signature” and words of like import in any Loan Document shall be deemed to
include electronic signatures or the keeping of records in electronic form, each
of which shall be of the same legal effect, validity and enforceability as a
manually executed signature or the use of a paper-based recordkeeping systems,
as the case may be, to the extent and as provided for in any applicable law,
including, without limitation, any state law based on the Uniform Electronic
Transactions Act.

12.14 Captions. The headings used in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.

12.15 Construction of Agreement. The parties mutually acknowledge that they and
their attorneys have participated in the preparation and negotiation of this
Agreement. In cases of uncertainty this Agreement shall be construed without
regard to which of the parties caused the uncertainty to exist.

12.16 Relationship. The relationship of the parties to this Agreement is
determined solely by the provisions of this Agreement. The parties do not intend
to create any agency, partnership, joint venture, trust, fiduciary or other
relationship with duties or incidents different from those of parties to an
arm’s-length contract.

12.17 Third Parties. Nothing in this Agreement, whether express or implied, is
intended to: (a) confer any benefits, rights or remedies under or by reason of
this Agreement on any persons other than the express parties to it and their
respective permitted successors and assigns; (b) relieve or discharge the
obligation or liability of any person not an express party to this Agreement; or
(c) give any person not an express party to this Agreement any right of
subrogation or action against any party to this Agreement.

12.18 Borrower Agreement; Cross-Collateralization; Cross-Default; Conflicts.
Both this Agreement and the Borrower Agreement shall continue in full force and
effect, and all rights and remedies under this Agreement and the Borrower
Agreement are cumulative. The term “Obligations” as used in this Agreement and
in the Borrower Agreement shall include without limitation the obligation to pay
when due all loans made pursuant to the Borrower Agreement (the “Exim Loans”)
and all interest thereon and the obligation to pay when due all Advances made
pursuant to the terms of this Agreement and all interest thereon. Without
limiting the generality of the foregoing, the security interest granted herein
covering all “Collateral” as defined in this Agreement and as defined in the
Borrower Agreement shall secure all Exim Loans and all Advances and all interest
thereon, and all other Obligations. Any Event of Default under this Agreement
shall also constitute a default under the Borrower Agreement, and any default
under the Borrower Agreement shall also constitute an Event of Default under
this

 

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Agreement. In the event Bank assigns its rights under this Agreement and/or
under any note evidencing Exim Loans and/or its rights under the Borrower
Agreement and/or under any note evidencing Advances, to any third party,
including, without limitation, the Exim Bank, whether before or after the
occurrence of any Event of Default, Bank shall have the right (but not any
obligation), in its sole discretion, to allocate and apportion Collateral to the
Borrower Agreement and/or note assigned and to specify the priorities of the
respective security interests in such Collateral between itself and the
assignee, all without notice to or consent of the Borrower.

13 DEFINITIONS

13.1 Definitions. As used in the Loan Documents, the word “shall” is mandatory,
the word “may” is permissive, the word “or” is not exclusive, the words
“includes” and “including” are not limiting, the singular includes the plural,
and numbers denoting amounts that are set off in brackets are negative. As used
in this Agreement, the following capitalized terms have the following meanings:

“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

“Adjusted Quick Ratio” is the ratio of (a) Borrower’s unrestricted cash and
unrestricted Cash Equivalents held with Bank and Bank’s Affiliates plus
Borrower’s Eligible Accounts, divided by (b) Borrower’s Current Liabilities
(including any amounts used for Cash Management Services and the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) and excluding any Quarter-end Advances) minus the current portion of
Deferred Revenue (for purposes of clarity, the parties acknowledge that
(i) Borrower’s cash or Cash Equivalents shall not be considered to be restricted
by reason of the fact that they are subject to Bank’s Lien; (ii) any account
receivable established with respect to expected insurance proceeds in an amount
of up to Two Million Dollars ($2,000,000) associated with the settlement of a
class action lawsuit by purchasers of Borrower’s common stock related to alleged
securities law violations shall not be considered an “Eligible Account”;
(iii) commencing June 1, 2010, any additional account receivable established
with respect to expected insurance proceeds in an amount of up to Two Million
Seven Hundred Fifty Thousand Dollars ($2,750,000) associated with the settlement
of a subsequent class action lawsuit (exclusive of the lawsuit described in
clause (ii) above) by purchasers of Borrower’s common stock related to alleged
securities law violations shall not be considered an “Eligible Account”; and
(iv) principal payments and interest on the DOJ Obligations shall be excluded
from the calculation of the Adjusted Quick Ratio).

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

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

“Agreement” is defined in the preamble hereof.

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
amount available under the Borrowing Base minus without duplication (b) the
Dollar Equivalent amount of all outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit), minus (c) any amounts used for Cash
Management Services, and minus (d) the outstanding principal balance of any
Advances. The aggregate amount of all Advances (including, without limitation,
the Dollar Equivalent amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit and any amounts used for Cash
Management Services) under this Agreement outstanding at any time together with
all Credit Extensions made pursuant to the EXIM Loan Agreement outstanding at
any time shall not exceed Ten Million Dollars ($10,000,000).

“Bank” is defined in the preamble hereof.

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses) for preparing, amending, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings)
or otherwise incurred with respect to Borrower.

 

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“Base Rate” is the greater of the Prime Rate or 4.0% per annum.

“Borrower” is defined in the preamble hereof.

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

“Borrower Agreement” is defined in Section 2.7 of the EXIM Loan Agreement.

“Borrowing Base” is (a) eighty percent (80%) of Eligible Accounts plus (b) the
lesser of forty percent (40%) of the value of Borrower’s Eligible Inventory
(valued at the lower of cost or wholesale fair market value) or Two Million
Dollars ($2,000,000), as determined by Bank from Borrower’s most recent
Borrowing Base Certificate; provided, however, that Bank may decrease the
foregoing amount and/or percentages in its good faith business judgment based on
events, conditions, contingencies, or risks which, as determined by Bank, may
adversely affect the Collateral.

“Borrowing Base Certificate” is that certain certificate included within each
Transaction Report.

“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors or other appropriate body and
delivered by such Person to Bank approving the Loan Documents to which such
Person is a party and the transactions contemplated thereby, together with a
certificate executed by its secretary on behalf of such Person certifying that
(a) such Person has the authority to execute, deliver, and perform its
obligations under each of the Loan Documents to which it is a party, (b) that
attached as Exhibit A to such certificate is a true, correct, and complete copy
of the resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to
which it is a party, (c) the name(s) of the Person(s) authorized to execute the
Loan Documents on behalf of such Person, together with a sample of the true
signature(s) of such Person(s), and (d) that Bank may conclusively rely on such
certificate unless and until such Person shall have delivered to Bank a further
certificate canceling or amending such prior certificate.

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

“Capital Expenditures” means, with respect to any Person for any period, the sum
of (a) the aggregate of all expenditures by such Person and its Subsidiaries
during such period that are capital expenditures as determined in accordance
with GAAP, whether such expenditures are paid in cash or financed, plus (b) to
the extent not covered by clause (a), the aggregate of all expenditures by such
Person and its Subsidiaries during such period to acquire by purchase or
otherwise the business or capitalized assets or the capital stock of any other
Person.

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc., (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

“Cash Management Services” is defined in Section 2.1.4.

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of California; provided, that, to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of California, the term
“Code” shall mean the Uniform Commercial Code as enacted and in effect in such
other jurisdiction solely for purposes of the provisions thereof relating to
such attachment, perfection, priority, or remedies and for purposes of
definitions relating to such provisions.

 

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“Collateral” is any and all properties, rights and assets of Borrower described
on Exhibit A.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity
Account.

“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

“Communication” is defined in Section 10.

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit B.

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

“Control Agreement” is any control agreement entered into among the depository
institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities
Account or a Commodity Account, Borrower, and Bank pursuant to which Bank
obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.

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

“Credit Extension” is any Advance, Letter of Credit, EXIM Loan, Term Loan, FX
Forward Contract, amount utilized for Cash Management Services, or any other
extension of credit by Bank for Borrower’s benefit.

“Current Liabilities” are the aggregate amount of Borrower’s Total Liabilities
that mature within one (1) year; provided, however, Current Liabilities shall
not include (a) principal or interest on the DOJ Obligations to the extent such
amounts would otherwise constitute Current Liabilities or (b) up to Two Million
Dollars ($2,000,000) of liability associated with the settlement of a class
action lawsuit by purchasers of Borrower’s common stock related to alleged
securities law violations, but only to the extent that Borrower maintains an
account receivable in respect of insurance proceeds relating to such settlement
in the same amount or (c) up to Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000) of liability associated with the settlement of a class action
lawsuit by purchasers of Borrower’s common stock related to alleged securities
law violations, but only to the extent that Borrower maintains an account
receivable in respect of insurance proceeds relating to such settlement in the
same amount.

“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.

“Default Rate” is defined in Section 2.3(b).

“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue.

 

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“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

“Designated Deposit Account” is Borrower’s deposit account, account number
3300640389, maintained with Bank.

“DOJ Obligations” is unsecured payment obligations that may be incurred by
Borrower, which may become due and payable pursuant to a settlement agreement by
and between the Department of Justice and the Borrower, payable in accordance
with the scheduled terms of and in a maximum amount of principal and interest
not to exceed the proposed payment schedule previously provided by Borrower to
Bank.

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the
United States and not any other currency, regardless of whether that currency
uses the “$” sign to denote its currency or may be readily converted into lawful
money of the United States.

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated
in Dollars, such amount, and (b) with respect to any amount denominated in a
Foreign Currency, the equivalent amount therefor in Dollars as determined by
Bank at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United
States or any state or territory thereof or the District of Columbia.

“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the
extent deducted in the calculation of Net Income, depreciation expense and
amortization expense, plus (d) to the extent deducted in the calculation of Net
Income, income tax expense, plus (e) to the extent deducted in the calculation
of Net Income, non-cash charges including non-cash equity compensation plus
(f) to the extent deducted from the calculation of Net Income, principal and
interest on the DOJ Obligations.

“Effective Date” is the date Bank executes this Agreement and as indicated on
the signature page hereof.

“Eligible Accounts” means Accounts which arise in the ordinary course of
Borrower’s business that meet all Borrower’s representations and warranties in
Section 5.3. Bank reserves the right at any time and from time to time after the
Effective Date upon notice to Borrower, to adjust any of the criteria set forth
below and to establish new criteria in its good faith business judgment. Without
limiting the fact that the determination of which Accounts are eligible for
borrowing is a matter of Bank’s good faith business judgment, the following
(“Minimum Eligibility Requirements”) are the minimum requirements for an Account
to be an Eligible Account. Unless Bank agrees otherwise in writing, Eligible
Accounts shall not include:

(a) Accounts for which the Account Debtor is Borrower’s Affiliate, officer,
employee, or agent;

(b) Accounts that the Account Debtor has not paid within ninety (90) days of
invoice date regardless of invoice payment period terms;

(c) Accounts with credit balances over ninety (90) days from invoice date;

(d) Accounts owing from an Account Debtor, in which fifty percent (50%) or more
of the Accounts have not been paid within ninety (90) days of invoice date;

(e) Accounts owing from an Account Debtor which does not have its principal
place of business in the United States or Canada;

(f) Accounts billed and/or payable outside of the United States (sometimes
called foreign invoiced accounts);

(g) Accounts owing from an Account Debtor to the extent that Borrower is
indebted or obligated in any manner to the Account Debtor (as creditor, lessor,
supplier or otherwise - sometimes called “contra” accounts, accounts payable,
customer deposits or credit accounts), with the exception of customary credits,
adjustments and/or discounts give to Account Debtors in the ordinary course of
its business ;

 

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(h) Accounts owing from an Account Debtor which is a United States government
entity or any department, agency, or instrumentality thereof unless Borrower has
assigned its payment rights to Bank and the assignment has been acknowledged
under the Federal Assignment of Claims Act of 1940, as amended;

(i) Accounts for demonstration or promotional equipment, or in which goods are
consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”,
or other terms if Account Debtor’s payment may be conditional;

(j) Accounts owing from an Account Debtor where goods or services have not yet
been rendered to the Account Debtor (sometimes called memo billings or
pre-billings);

(k) Accounts subject to contractual arrangements between Borrower and an Account
Debtor where payments shall be scheduled or due according to completion or
fulfillment requirements where the Account Debtor has a right of offset for
damages suffered as a result of Borrower’s failure to perform in accordance with
the contract (sometimes called contracts accounts receivable, progress billings,
milestone billings, or fulfillment contracts);

(l) Accounts owing from an Account Debtor the amount of which may be subject to
withholding based on the Account Debtor’s satisfaction of Borrower’s complete
performance (but only to the extent of the amount withheld; sometimes called
retainage billings);

(m) Accounts subject to trust provisions, subrogation rights of a bonding
company, or a statutory trust;

(n) Accounts owing from an Account Debtor that has been invoiced for goods that
have not been shipped to the Account Debtor unless Bank, Borrower, and the
Account Debtor have entered into an agreement acceptable to Bank in its sole
discretion wherein the Account Debtor acknowledges that (i) it has title to and
has ownership of the goods wherever located, (ii) a bona fide sale of the goods
has occurred, and (iii) it owes payment for such goods in accordance with
invoices from Borrower (sometimes called “bill and hold” accounts);

(o) Accounts for which the Account Debtor has not been invoiced;

(p) Accounts that represent non-trade receivables or that are derived by means
other than in the ordinary course of Borrower’s business;

(q) Accounts for which Borrower has permitted Account Debtor’s payment to extend
beyond 90 days;

(r) Accounts arising from chargebacks, debit memos or others payment deductions
taken by an Account Debtor, but only to the extent of such chargebacks or
deductions;

(s) Accounts arising from product returns and/or exchanges (sometimes called
“warranty” or “RMA” accounts);

(t) Accounts in which the Account Debtor disputes liability or makes any claim
(but only up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out of
business;

(u) Accounts owing from an Account Debtor with respect to which Borrower has
received Deferred Revenue (but only to the extent of such Deferred Revenue);

(v) Accounts owing from an Account Debtor, whose total obligations to Borrower
exceed twenty-five percent (25%) of all Accounts, for the amounts that exceed
that percentage, unless Bank approves in writing; and

(w) Accounts for which Bank in its good faith business judgment determines
collection to be doubtful, including, without limitation, accounts represented
by “refreshed” or “recycled” invoices.

 

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“Eligible Inventory” means, at any time, the aggregate of Borrower’s Inventory
that (a) consists of finished goods, in good, new, and salable condition, which
is not perishable, returned, consigned, obsolete, not sellable, damaged, or
defective, and is not comprised of demonstrative or custom inventory, works in
progress, packaging or shipping materials, or supplies; (b) meets all applicable
governmental standards; (c) has been manufactured in compliance with the Fair
Labor Standards Act; (d) is subject to the first priority Liens granted in favor
of Bank under this Agreement or any of the other Loan Documents and is not
subject to any other Lien other than Permitted Liens; (e) is located at
Borrower’s principal place of business (or any location permitted under
Section 5.2 and, in any event, subject to a landlord’s consent or bailee waiver,
as applicable, in form and substance acceptable to Bank, in its reasonable
discretion); and (f) is otherwise acceptable to Bank in its good faith business
judgment.

“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.

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

“Event of Default” is defined in Section 8.

“EXIM Bank” is the Export-Import Bank of the United States.

“EXIM Guaranty” is that certain EXIM Bank Working Capital Guaranty Program
Master Guaranty Agreement, by and between Bank and EXIM Bank, dated as of
November 1, 2005.

“EXIM Loan Agreement” is that certain Export-Import Bank Loan and Security
Agreement, by and between Borrower and Bank, dated as of the date hereof.

“EXIM Loan Documents is the EXIM Loan Agreement, together with related documents
executed in conjunction therewith.

“EXIM Loans” is defined in Section 12.18.

“FCCR Triggering Event” is defined in Section 6.9(a).

“First Tier Rate” is defined in Section 2.3(a).

“Fixed Charge Coverage Ratio” means a ratio of (a) EBITDA, minus cash income
taxes paid, and minus unfinanced Capital Expenditures, divided by (b) the sum of
(i) current portion of long term debt (other than DOJ Obligations, to the extent
included in the calculation of the current portion of long term debt), plus
(ii) cash Interest Expense paid (other than Interest Expense on the DOJ
Obligations, to the extent included in the calculation of Interest Expense).

“Foreign Currency” means lawful money of a country other than the United States.

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

“Funding Date” is any date on which a Credit Extension is made to or for the
account of Borrower which shall be a Business Day.

“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all Intellectual Property, claims, income
and other tax refunds, security and other deposits, payment intangibles,
contract rights, options to purchase or sell real or personal property, rights
in all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.

 

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“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and
(d) Contingent Obligations.

“Indemnified Person” is defined in Section 12.3.

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

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

(a) its Copyrights, Trademarks and Patents;

(b) any and all trade secrets and trade secret rights, including, without
limitation, any rights to unpatented inventions, know-how, operating manuals;

(c) any and all source code;

(d) any and all design rights which may be available to a Borrower;

(e) any and all claims for damages by way of past, present and future
infringement of any of the foregoing, with the right, but not the obligation, to
sue for and collect such damages for said use or infringement of the
Intellectual Property rights identified above; and

(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks
or Patents.

“Interest Expense” means for any fiscal period, interest expense (whether cash
or non-cash) determined in accordance with GAAP for the relevant period ending
on such date, including, in any event, interest expense with respect to any
Credit Extension and other Indebtedness of Borrower and its Subsidiaries, if
any, including, without limitation or duplication, all commissions, discounts,
or related amortization and other fees and charges with respect to letters of
credit and bankers’ acceptance financing and the net costs associated with
interest rate swap, cap, and similar arrangements, and the interest portion of
any deferred payment obligation (including leases of all types).

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.

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

 

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“IP Agreement” is that certain Intellectual Property Security Agreement executed
and delivered by Borrower to Bank dated as of May 1, 2009, as amended from time
to time.

“Letter of Credit” means a standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Bank as set forth in Section 2.1.2.

“Letter of Credit Application” is defined in Section 2.1.2(a).

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest or other encumbrance of any kind, whether voluntarily incurred or
arising by operation of law or otherwise against any property.

“Loan Documents” are, collectively, this Agreement, the EXIM Loan Agreement, the
Borrower Agreement, the Perfection Certificate, the IP Agreement, any
Subordination Agreement, any note, or notes or guaranties executed by Borrower,
and any other present or future agreement between Borrower and/or for the
benefit of Bank in connection with this Agreement, all as amended, restated, or
otherwise modified.

“Make Whole Event Date” shall mean (a) in the case of a voluntary Term Loan
prepayment, the date of such prepayment, and (b) in the case of all or a portion
of the Term Loan becoming due and payable according to the terms hereof because
of the occurrence and continuance of an Event of Default, the date such amount
of the Term Loan has become due and payable according to the terms hereof.

“Make Whole Premium” is an amount equal to 3% of the Term Loan Amount if the
Make Whole Event Date occurs on or before the first anniversary of the Prior
Effective Date; 2% of the Term Loan Amount if the Make Whole Event Date occurs
after the first anniversary of the Prior Effective Date but on or before the
second anniversary of the Prior Effective Date; and 1% of Term Loan Amount if
the Make Whole Event Date occurs after the second anniversary of the Prior
Effective Date but before the Term Loan Maturity Date.

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower; or (c) a material impairment of the
prospect of repayment of any portion of the Obligations.

“Minimum Eligibility Requirements” is defined in the defined term “Eligible
Accounts”.

“Net Income” means, as calculated on a consolidated basis for Borrower and its
Subsidiaries, if any, for any period as at any date of determination, the net
profit (or loss), exclusive of any extraordinary gains, after provision for
taxes, of Borrower and its Subsidiaries for such period taken as a single
accounting period.

“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later,
whether under this Agreement, the Loan Documents, or otherwise, including,
without limitation, all obligations relating to letters of credit (including
reimbursement obligations for drawn and undrawn letters of credit), cash
management services, and foreign exchange contracts, if any, and including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank, and to perform Borrower’s duties under
the Loan Documents.

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified with the Secretary of State of such Person’s state of formation on a
date that is no earlier than 30 days prior to the Effective Date, and, (a) if
such Person is a corporation, its bylaws in current form, (b) if such Person is
a limited liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership agreement
(or similar agreement), each of the foregoing with all current amendments or
modifications thereto.

“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

“Payment” means all checks, wire transfers and other items of payment received
by Bank (including proceeds of Accounts and payment of all the Obligations in
full) for credit to Borrower’s outstanding Credit Extensions or, if the balance
of the Credit Extensions has been reduced to zero, for credit to its Deposit
Accounts.

 

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“Perfection Certificate” is defined in Section 5.1.

“Permitted Indebtedness” is:

(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan
Documents;

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

(c) Subordinated Debt;

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

(e) Indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of business;

(f) Indebtedness secured by Liens permitted under clauses (a) and (c) of the
definition of “Permitted Liens” hereunder;

(g) Indebtedness of Borrower to any Subsidiary, and Contingent Obligations of
any Subsidiary with respect to obligations of Borrower (provided that the
primary obligations are not prohibited hereby), and Indebtedness of Subsidiaries
to Borrower that, when aggregated with Investments of Borrower in Subsidiaries
that are permitted pursuant to the definition of “Permitted Investments”
hereunder, does not exceed Seven Million Dollars ($7,000,000) in the aggregate
for all Subsidiaries (net of repayments by the Subsidiaries to Borrower) and
Indebtedness of any Subsidiary to any other Subsidiary, and Contingent
Obligations of any Subsidiary with respect to obligations of any other
Subsidiary (provided that the primary obligations are not prohibited hereby);

(h) Indebtedness under hedging obligations with respect to interest rates,
foreign currency exchange rates or commodity prices, in each case not entered
into for speculative purposes, and in an aggregate notational value at any time
outstanding not exceeding an amount equal to fifty percent (50%) of the then
outstanding principal balance of the Term Loan;

(i) other Indebtedness of Foreign Subsidiaries not otherwise permitted under
this definition in an aggregate amount not exceeding Two Hundred Fifty Thousand
Dollars ($250,000) at any time outstanding (for purposes of clarity, the parties
acknowledge that this is Permitted Indebtedness of Foreign Subsidiaries and not
Permitted Indebtedness of Borrower);

(j) other Indebtedness not otherwise permitted by Section 7.4 not exceeding Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate outstanding at any
time;

(k) Contingent Obligations of Borrower relating to, and not exceeding the amount
of, the Indebtedness of any Subsidiary allowed pursuant to clause (i) above;

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

(m) subject to the terms and conditions contained herein, including, without
limitation, Section 7.4 hereof, the DOJ Obligations.

“Permitted Investments” are:

(a) Investments (including, without limitation, Subsidiaries) existing on the
Effective Date and shown on the Perfection Certificate;

 

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(b) (i) Investments consisting of Cash Equivalents, and (ii) Investments
approved by Borrower’s board of directors or otherwise pursuant to a
Board-approved investment policy;

(c) Investments consisting of the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
Borrower;

(d) Investments consisting of deposit accounts in which Bank has a perfected
security interest;

(e) Investments accepted in connection with Transfers permitted by Section 7.1;

(f) Investments (i) by Borrower in Subsidiaries that, when aggregated with
Indebtedness of Subsidiaries to Borrower that is permitted pursuant to the
definition of “Permitted Indebtedness” hereunder, do not exceed Nine Million
Dollars ($9,000,000) (or the Dollar equivalent thereof) in the aggregate for all
Subsidiaries (net of repayment by the Subsidiaries to Borrower) and (ii) by
Subsidiaries in Borrower;

(g) Investments 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 plans or agreements approved by Borrower’s board of directors;

(h) 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 business;

(i) 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 paragraph (i) shall not
apply to Investments of Borrower in any Subsidiary;

(j) Investments consisting of hedging obligations permitted by clause (h) of the
definition of “Permitted Indebtedness” hereunder; and

(k) other Investments not otherwise permitted by Section 7.7 not exceeding One
Hundred Thousand Dollars ($100,000) in the aggregate outstanding at any time.

“Permitted Liens” are:

(a) Liens existing on the Effective Date and shown on the Perfection Certificate
or arising under this Agreement and the other Loan Documents, including Liens in
favor of the Export-Import Bank of the United States arising under the Borrower
Agreement;

(b) Liens for taxes, fees, assessments or other government charges or levies,
either (i) not due and payable or (ii) being contested in good faith and for
which Borrower maintains adequate reserves on its Books, provided that no notice
of any such Lien has been filed or recorded under the Internal Revenue Code of
1986, as amended, and the Treasury Regulations adopted thereunder;

(c) purchase money Liens or capital leases (for which Borrower is the lessee)
(i) on Equipment acquired or held by Borrower incurred for financing the
acquisition of the Equipment securing no more than Five Hundred Thousand Dollars
($500,000) in the aggregate amount outstanding, or (ii) existing on Equipment
when acquired, if the Lien is confined to the property and improvements and the
proceeds of the Equipment;

(d) Liens of carriers, warehousemen, suppliers, or other Persons that are
possessory in nature arising in the ordinary course of business so long as such
Liens attach only to Inventory, securing liabilities in the aggregate amount not
to exceed Fifty Thousand Dollars ($50,000) and which are not delinquent or
remain payable without penalty or which are being contested in good faith and by
appropriate proceedings which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;

 

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(e) Liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
ordinary course of business (other than Liens imposed by ERISA);

(f) Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a) through (c), but any extension, renewal or
replacement Lien must be limited to the property encumbered by the existing Lien
and the principal amount of the indebtedness may not increase;

(g) leases or subleases of real property granted in the ordinary course of
Borrower’s business (or, if referring to another Person, in the ordinary course
of such Person’s business), and leases, subleases, non-exclusive licenses or
sublicenses of personal property (other than Intellectual Property) granted in
the ordinary course of Borrower’s business (or, if referring to another Person,
in the ordinary course of such Person’s business), if the leases, subleases,
licenses and sublicenses do not prohibit granting Bank a security interest
therein;

(h) non-exclusive license of Intellectual Property granted to third parties in
the ordinary course of business;

(i) Liens arising from attachments or judgments, orders, or decrees in
circumstances not constituting an Event of Default under Sections 8.4 and 8.7;

(j) Liens in favor of other financial institutions arising in connection with
(i) Borrower’s foreign deposit and/or foreign securities accounts held at such
institutions outside of the United States, and (ii) any Collateral Account of
Borrower that is allowed to be maintained with such institution under the terms
of this Agreement provided that the Lien only secures Borrower’s obligations to
the institution for fees and expenses related to the maintenance of the account
or for standard banking charges to the account (e.g. for bounced checks) and
that the Bank has a perfected security interest in the amounts held in the
Collateral Account;

(k) easements, rights-of-way, restrictions (including zoning restrictions),
covenants, licenses, encroachments, protrusions and other similar charges or
encumbrances, and minor title deficiencies, on or with respect to any real
property, in each case whether now or hereafter in existence; and

(1) Liens securing Indebtedness permitted under clause (i) of the definition of
“Permitted Indebtedness” hereunder, provided that none of the property subject
to such Liens constitutes Collateral.

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

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not
Bank’s lowest rate.

“Prior Effective Date” is May 1, 2009.

“Prior Loan Agreement” is defined in the preamble.

“Quarter-end Advances” are Advances made within five (5) days of
March 31, June 30, September 30 and December 31 of each fiscal year that are
(i) used by Borrower for quarter-end purposes and (ii) repaid in full by
Borrower no later than five (5) day after the beginning of the immediately
succeeding fiscal quarter of Borrower.

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.

“Regular Rate” is defined in Section 2.3(a).

“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

 

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“Reserves” means, as of any date of determination, such amounts as Bank may from
time to time establish and revise in its good faith business judgment reducing
the amount of Advances, Letters of Credit and other financial accommodations
which would otherwise be available to Borrower under the lending formulas:
(a) to reflect events, conditions, contingencies or risks which, as determined
by Bank in its good faith business judgment, do or may affect (i) the Collateral
or any other property which is security for the Obligations or its value
(including without limitation any increase in delinquencies of Accounts),
(ii) the assets or business of Borrower or any guarantor, or (iii) the security
interests and other rights of Bank in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Bank’s good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any guarantor to Bank is or may have been incomplete,
inaccurate or misleading in any material respect; or (c) in respect of any state
of facts which Bank determines in good faith constitutes an Event of Default or
may, with notice or passage of time or both, constitute an Event of Default.

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

“Restricted License” is any material license or other agreement with respect to
which Borrower is the licensee (a) that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property, or (b) for which a default under or
termination of could interfere with the Bank’s right to sell any Collateral.

“Revolving Line” is an Advance or Advances in an amount not to exceed Ten
Million Dollars ($10,000,000).

“Revolving Line Maturity Date” is April 30, 2012.

“SEC” shall mean the Securities and Exchange Commission, any successor thereto,
and any analogous Governmental Authority

“Second Tier Rate” is defined in Section 2.3(a).

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

“Streamline Period” is defined in Section 2.1.1(b).

“Streamline Requirements” are, as of any date, all of the following: (a) no
Default or Event of Default exists; and (b) Borrower has an aggregate of
unrestricted cash and Cash Equivalents held at Bank and Bank’s Affiliates of
greater than the sum of (a) the outstanding principal amount of any Advances
(including any amounts used for Cash Management Services but excluding any
outstanding Quarter-end Advances), plus (b) the face amount of any outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit), plus
(c) the amount outstanding under the Term Loan.

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and the other creditor), on terms acceptable to
Bank.

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or both, by such Person. Unless the context otherwise requires, each reference
to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.

“Term Loan” is a loan made by Bank pursuant to the terms of Section 2.1.5
hereof.

“Term Loan Amount” is an aggregate amount equal to Six Million Five Hundred
Thousand Dollars ($6,500,000) outstanding at any time.

 

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“Term Loan Maturity Date” is defined in Section 2.1.5(a).

“Term Loan Payment” is defined in Section 2.1.5(a).

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

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.

“Transaction Report” is the Bank’s standard reporting package provided by Bank
to Borrower.

“Transfer” is defined in Section 7.1.

“Unused Revolving Line Facility Fee” is defined in Section 2.4(e).

[Signature page follows.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.

 

BORROWER:     BANK: ATRICURE, INC.     SILICON VALLEY BANK By:  

 

    By:  

 

Name:  

 

    Name:  

 

Title:  

 

    Title:  

 

Effective Date: September     , 2010

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EXHIBIT A

Collateral Description

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

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

all Borrower’s Books relating to the foregoing, and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include more than
sixty-five percent (65%) of the presently existing and hereafter arising issued
and outstanding shares of capital stock owned by Borrower of any Foreign
Subsidiary which shares entitle the holder thereof to vote for directors or any
other matter.

 

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EXHIBIT B

COMPLIANCE CERTIFICATE

 

TO:  SILICON VALLEY BANK

   Date:   

FROM: ATRICURE, INC.

The undersigned authorized officer of AtriCure, Inc. (“Borrower”) certifies that
under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the “Agreement”):

(1) Borrower is in complete compliance for the period ending
                                     with all required covenants except as noted
below; (2) there are no Events of Default; (3) all representations and
warranties in the Agreement are true and correct in all material respects on
this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of
the Agreement; and (5) no Liens have been levied or claims made against Borrower
or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Bank.

Attached are the required documents supporting the certification. The
undersigned certifies that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The undersigned acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that compliance
is determined not just at the date this certificate is delivered. Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.

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

 

  

Reporting Covenant

  

Required

  

Complies

Transaction Reports   

Non-Streamline: Weekly; Streamline:

monthly within 15 days

   Yes    No Monthly payable & receivable items, check registers, general
ledger, & reconciliations    Monthly within 15 days    Yes    No Monthly
financial statements with Compliance Certificate    Monthly within 30 days   
Yes    No Annual financial statement (CPA Audited)    FYE within 120 days   
Yes    No Annual budgets and projections    Prior to FYE    Yes    No

 

Financial Covenants

   Required    Actual    Complies

Maintain on a Monthly Basis:

        

Minimum Adjusted Quick Ratio (when required)

   1.1:1.0                  :1.0    Yes    No

Maximum Capital Expenditures

   *    $                 Yes    No

Minimum Fixed Charge Coverage Ratio (when required)

   1.5:1.0                  :1.0    Yes    No

Minimum EBITDA

   *    $                 Yes    No

 

* See Loan Agreement

 

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Performance Pricing

  

Applies

Adjusted Quick Ratio:       greater or equal to 2 to 1    First Tier Rate   
Yes    No greater or equal to 1.5 to 1, but less than 2 to 1    Second Tier Rate
   Yes    No Less than 1.5 to 1, or Event of Default exists    Regular Rate   
Yes    No     

Streamline Period

     Streamline Requirement Met?    See Loan Agreement    Yes    No

Borrower is party to, or bound by, the following material Restricted Licenses
that were not previously noted in the Perfection Certificate or a prior
Compliance Certificate:

 

    .

Borrower intends to register the following copyrights or mask works with the
United States Copyright Office that were not previously noted in a prior
Compliance Certificate:

 

    .

Borrower has (i) obtained the following Patents, registered Trademarks,
registered Copyrights, registered mask work, or any pending application for any
of the foregoing, whether as owner, licensee or otherwise, and (ii) applied for
the following Patents and the registration of the following Trademarks; in each
case, that were not previously noted in the Perfection Certificate or a prior
Compliance Certificate (to be reported on as part of the Compliance Certificate
due following the last month of each fiscal quarter):

                                                                   
                                         
                                                      .

The following financial covenant analyses and information set forth in Schedule
1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)

 

 

 

 

 

 

 

 

 

ATRICURE, INC.     BANK USE ONLY       Received by:  

 

By:  

 

    AUTHORIZED SIGNER Name:  

 

    Date:  

 

Title:  

 

            Verified:  

 

      AUTHORIZED SIGNER       Date:  

 

      Compliance Status:                 Yes        No

 

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Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the
terms of the Loan Agreement shall govern.

Dated:                                     

 

I. Minimum Adjusted Quick Ratio (Section 6.9(a))

Required: Maintain an Adjusted Quick Ratio of at least 1.1 to 1.0 at all times,
it being understood that Quarter-end Advances shall be excluded from the
foregoing calculation; provided, however, that the foregoing Adjusted Quick
Ratio covenant will no longer be tested (other than to determine the interest
rate applicable to the Revolving Line as described in Section 2.3(a)), for any
period commencing on the date that Borrower provides Bank evidence satisfactory
to Bank, in its reasonable discretion, that Borrower has achieved a Fixed Charge
Coverage Ratio, measured on a trailing twelve month basis, as of the last day of
each of the immediately preceding four consecutive fiscal quarters of greater
than 1.50:1.00 (the “FCCR Triggering Event”).

Actual:

 

A.    Borrower’s unrestricted cash (and Cash Equivalents) held with Bank and its
Affiliates    $             B.    Borrower’s Eligible Accounts (excluding any
account receivable established with respect to expected insurance proceeds in an
amount of up to Four Million Seven Hundred Fifty Thousand Dollars ($4,750,000)
associated with the settlement of two (2) class action lawsuits)   
$             C.    Line A plus line B    $             D.    Borrower’s Current
Liabilities (including any amounts used for Cash Management Services and the
face amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit), but excluding the amount of principal or interest on the DOJ
Obligations and excluding up to Four Million Seven Hundred Fifty Thousand
Dollars ($4,750,000) of liability associated with the settlement of two (2)
class action lawsuits, but only to the extent that Borrower maintains an account
receivable in respect of insurance proceeds relating to such settlement in the
same amount)    $             E.    The current portion of Deferred Revenue   
$             F.    Line D minus line E    $             G.    Adjusted Quick
Ratio (line C divided by line F)            :1.00

Is line G greater than or equal to 1.10:1.00?

 

                 No, not in compliance

                    Yes, in compliance

 

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II. Maximum Capital Expenditures (Section 6.9(b))

Required: not to exceed per fiscal year the limits provided for in
Section 6.9(b) of the Loan Agreement

Actual:

 

A.

   Capital expenditure limit provided for in Section 6.9(b) (including any
prior-year rollover amount)    $            

B.

   Capital expenditures for fiscal year    $            

C.

   Line A minus line B    $            

Is line C greater than or equal to zero?

 

                 No, not in compliance

                    Yes, in compliance

 

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III. Minimum Fixed Charge Coverage Ratio (Section 6.9(c))

Required: Achieve, measured on a trailing twelve month basis, as of the last day
of each monthly period, a Fixed Charge Coverage Ratio of not less than
1.50:1.00; provided, however, that until the occurrence of the FCCR Triggering
Event described in Section 6.9(a) above, the Fixed Charge Coverage Ratio shall
be measured solely to determine whether the FCCR Triggering Event has occurred
and shall not be deemed a covenant; provided further, that upon the occurrence
of the FCCR Triggering Event, the Adjusted Quick Ratio covenant contained in
Section 6.9(a) shall no longer be tested (other than to determine the interest
rate applicable to the Revolving Line as described in Section 2.3(a)), and
achievement of the Fixed Charge Coverage Ratio of not less than 1.50:1.00
(tested monthly, on a trailing twelve month basis as of the last day of each
monthly period), shall thereafter be required

Actual:

 

A.    EBITDA (as defined in the Loan Agreement)    $              B.    Cash
income taxes paid    $              C.    Unfinanced Capital Expenditures    $
             D.    Line A minus line B minus line C    $              E.   
Current portion of long term debt, other than DOJ Obligations to the extent
included in the calculation of the current portion of long term debt    $
             F.   

Interest Expense, other than Interest Expense on the DOJ Obligations, to the
extent included

in the calculation of Interest Expense

   $              G    Line E plus line F    $              H.    Fixed Charge
Coverage Ratio (line D divided by line G)              :1.00

Is line H greater than or equal to 1.50:1.00?

 

                 No, not in compliance

                    Yes, in compliance

 

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IV. Minimum EBITDA (Section 6.9(d))

Required: equal to or greater than the amounts set forth in Section 6.9(d) of
the Loan Agreement

Actual:

 

A.    EBITDA (as defined in the Loan Agreement)    $             B.    Minimum
required per Section 6.9(d)    $             C.    Line A minus line B   
$            

Is line C greater than or equal to zero?

 

                 No, not in compliance

                    Yes, in compliance

 

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