Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

 

Dated as of June 6, 2012

 

 

between

 

 

MERU NETWORKS, INC.,

a Delaware corporation,

 

as “Borrower”,

 

 

and

 

 

VENTURE LENDING & LEASING VI, INC.,

a Maryland corporation,

 

as “Lender”

 

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LOAN AND SECURITY AGREEMENT

 

Borrower and Lender have entered or anticipate entering into one or more
transactions pursuant to which Lender agrees to make available to Borrower a
loan facility governed by the terms and conditions set forth in this document
and one or more Supplements executed by Borrower and Lender which incorporate
this document by reference.  Each Supplement constitutes a supplement to and
forms part of this document, and will be read and construed as one with this
document, so that this document and the Supplement constitute a single agreement
between the parties (collectively referred to as this “Agreement”).

 

Accordingly, the parties agree as follows:

 

ARTICLE 1 - INTERPRETATION

 

1.1       Definitions.  The terms defined in Article 10 and in the Supplement
will have the meanings therein specified for purposes of this Agreement.

 

1.2       Inconsistency.  In the event of any inconsistency between the
provisions of any Supplement and this document, the provisions of the Supplement
will be controlling for the purpose of all relevant transactions.

 

ARTICLE 2 - THE COMMITMENT AND LOANS

 

2.1       The Commitment.  Subject to the terms and conditions of this
Agreement, Lender agrees to make term loans to Borrower from time to time from
the Closing Date and to, but not including, the Termination Date in an aggregate
principal amount not exceeding the Commitment.  The Commitment is not a
revolving credit commitment, and Borrower does not have the right to repay and
reborrow hereunder, except as otherwise provided in this Agreement or in the
Supplement.  Each Loan requested by Borrower to be made on a single Business Day
shall be for a minimum principal amount set forth in the Supplement, except to
the extent the remaining Commitment is a lesser amount.

 

2.2       Notes Evidencing Loans; Repayment.  Each Loan shall be evidenced by a
separate Note payable to the order of Lender, in the total principal amount of
the Loan.  Principal and interest of each Loan shall be payable at the times and
in the manner set forth in the Note and regularly scheduled payments thereof
shall be effected by automatic debit of the appropriate funds from Borrower’s
Primary Operating Account as specified in the Supplement hereto.

 

2.3       Procedures for Borrowing.

 

(a)         At least five (5) Business Days’ prior to a proposed Borrowing Date,
Lender shall have received from the Borrower a written request for a borrowing
hereunder (a “Borrowing Request”).  Each Borrowing Request shall be in
substantially the form of Exhibit “B” to the Supplement, shall be executed by a
responsible executive or financial officer of Borrower, and shall state how much
is requested, and shall be accompanied by such other information and
documentation as Lender may reasonably request, including the original executed
Note(s) for the Loan(s) covered by the Borrowing Request.

 

(b)         No later than 1:00 p.m. Pacific Standard Time on the Borrowing Date,
if Borrower has satisfied the conditions precedent in Article 4 by 9:00 a.m.
Pacific Standard Time on such Borrowing Date, Lender shall make the Loan
available to Borrower in immediately available funds.

 

2.4       Interest.  Except as otherwise specified in the applicable Note and/or
Supplement, Basic Interest on the outstanding principal balance of each Loan
shall accrue daily at the Designated Rate from the Borrowing Date.  If the
outstanding principal balance of such Loan is not paid at maturity, interest
shall accrue at the Default Rate until paid in full, as further set forth
herein.

 

2.5       Intentionally Omitted.

 

2.6       Interest Rate Calculation.  Basic Interest, along with charges and
fees under this Agreement and any Loan Document, shall be calculated for actual
days elapsed on the basis of a 360-day year, which results in higher interest,
charge or fee payments than if a 365-day year were used.  In no event shall
Borrower be obligated to pay Lender interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in
effect.

 

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2.7       Default Interest.  Any unpaid payments in respect of the Obligations
shall bear interest from their respective maturities, whether scheduled or
accelerated, at the Default Rate.  Borrower shall pay such interest on demand.

 

2.8       Late Charges. If Borrower is late in making any payment in respect of
the Obligations by more than five (5) Business Days, then Borrower agrees to pay
a late charge of five percent (5%) of the payment due, but not less than fifty
dollars ($50.00) for any one such delinquent payment. This late charge may be
charged by Lender for the purpose of defraying the expenses incidental to the
handling of such delinquent amounts.  Borrower acknowledges that such late
charge represents a reasonable sum considering all of the circumstances existing
on the date of this Agreement and represents a fair and reasonable estimate of
the costs that will be sustained by Lender due to the failure of Borrower to
make timely payments.  Borrower further agrees that proof of actual damages
would be costly and inconvenient.  Such late charge shall be paid without
prejudice to the right of Lender to collect any other amounts provided to be
paid or to declare a default under this Agreement or any of the other Loan
Documents or from exercising any other rights and remedies of Lender.

 

2.9       Lender’s Records.  Principal, Basic Interest and all other sums owed
under any Loan Document shall be evidenced by entries in records maintained by
Lender for such purpose.  Each payment on and any other credits with respect to
principal, Basic Interest and all other sums outstanding under any Loan Document
shall be evidenced by entries in such records.  Absent manifest error, Lender’s
records shall be conclusive evidence thereof.

 

2.10                   Grant of Security Interests; Filing of Financing
Statements.

 

(a) To secure the timely payment and performance of all of Borrower’s
Obligations, Borrower hereby grants to Lender continuing security interests in
all of the Collateral.  In connection with the foregoing, Borrower authorizes
Lender to prepare and file any financing statements describing the Collateral
without otherwise obtaining the Borrower’s signature or consent with respect to
the filing of such financing statements.

 

(b) In furtherance of the Borrower’s grant of the security interests in the
Collateral pursuant to Section 2.10(a) above, Borrower hereby pledges and grants
to the Lender a security interest in all the Shares, together with all proceeds
and substitutions thereof, all cash, stock and other moneys and property paid
thereon, all rights to subscribe for securities declared or granted in
connection therewith, and all other cash and noncash proceeds of the foregoing,
as security for the performance of the Obligations.  On the Closing Date or at
any time thereafter following Lender’s request, the certificate or certificates
for the Shares will be delivered to Lender, accompanied by an instrument of
assignment duly executed in blank by Borrower, unless such Shares have not been
certificated.  To the extent required by the terms and conditions governing the
Shares, Borrower shall cause the books of each entity whose Shares are part of
the Collateral and any transfer agent to reflect the pledge of the Shares.  Upon
the occurrence and during the continuance of an Event of Default hereunder,
Lender may effect the transfer of any securities included in the Collateral
(including but not limited to the Shares) into the name of Lender and cause new
certificates representing such securities to be issued in the name of Lender or
its transferee(s).  Borrower will execute and deliver such documents, and take
or cause to be taken such actions, as Lender may reasonably request to perfect
or continue the perfection of Lender’s security interest in the Shares.  Unless
an Event of Default shall have occurred and be continuing, Borrower shall be
entitled to exercise any voting rights with respect to the Shares and to give
consents, waivers and ratifications in respect thereof, provided that no vote
shall be cast or consent, waiver or ratification given or action taken which
would be inconsistent with any of the terms of this Agreement or which would
constitute or create any violation of any of such terms.  All such rights to
vote and give consents, waivers and ratifications shall terminate upon the
occurrence and continuance of an Event of Default.

 

(c) Borrower is and shall remain absolutely and unconditionally liable for the
performance of its obligations under the Loan Documents, including, without
limitation, any deficiency by reason of the failure of the Collateral to satisfy
all amounts due Lender under any of the Loan Documents.

 

(d) All Collateral pledged by Borrower under this Agreement and any Supplement
shall secure the timely payment and performance of all Obligations under this
Agreement, the Notes and the other Loan Documents.  Except as expressly provided
in this Agreement, no Collateral pledged under this Agreement or any Supplement
shall be released until such time as all Obligations under this Agreement and

 

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the other Loan Documents have been satisfied and paid in full.

 

ARTICLE 3 - REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants that, except as set forth in the Supplement or
the Schedule of Exceptions hereto, if any, as of the Closing Date and each
Borrowing Date:

 

3.1       Due Organization.  Borrower is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good standing
in each other jurisdiction in which its business is conducted or its properties
are located, except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.

 

3.2       Authorization, Validity and Enforceability.  The execution, delivery
and performance of all Loan Documents executed by Borrower are within Borrower’s
powers, have been duly authorized, and are not in conflict with Borrower’s
certificate of incorporation or by-laws, or the terms of any charter or other
organizational document of Borrower, as amended from time to time; and all such
Loan Documents constitute valid and binding obligations of Borrower, enforceable
in accordance with their terms (except as may be limited by bankruptcy,
insolvency and similar laws affecting the enforcement of creditors’ rights in
general, and subject to general principles of equity).

 

3.3       Compliance with Applicable Laws.  Borrower has complied with all
licensing, permit and fictitious name requirements necessary to lawfully conduct
the business in which it is engaged, and to any sales, leases or the furnishing
of services by Borrower, including without limitation those requiring consumer
or other disclosures, the noncompliance with which would have a Material Adverse
Effect.

 

3.4       No Conflict.  The execution, delivery, and performance by Borrower of
all Loan Documents are not in conflict with any law, rule, regulation, order or
directive, or any indenture, agreement, or undertaking to which Borrower is a
party or by which Borrower may be bound or affected (provided that no
representation is made hereunder with respect to the SVB Credit Facility for so
long as no loans are outstanding thereunder).  Without limiting the generality
of the foregoing, the issuance of the Warrant to Lender (or its designee) and
the grant of registration rights in connection therewith do not violate any
agreement or instrument by which Borrower is bound or require the consent of any
holders of Borrower’s securities other than consents which have been obtained
prior to the Closing Date.

 

3.5       No Litigation, Claims or Proceedings.  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
Two Hundred Fifty Thousand Dollars ($250,000).

 

3.6       Correctness of Financial Statements.  All consolidated financial
statements for Borrower and any of its Subsidiaries delivered to Lender fairly
present in all material respects Borrower’s consolidated financial condition and
Borrower’s consolidated results of operations as of the dates specified in the
financial statements.

 

3.7       No Subsidiaries.  Borrower is not a majority owner of or in a control
relationship with any other business entity.

 

3.8       Environmental Matters.  To the best of Borrower’s knowledge, none of
Borrower’s or any of its Subsidiaries’ properties or assets has been used by
Borrower or any Subsidiary in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally, except to the extent a
failure to be in such compliance could not reasonably be expected to have a
Material Adverse Effect.

 

3.9       No Event of Default.  No Default or Event of Default has occurred and
is continuing.

 

3.10                   Full Disclosure.  No written representation, warranty or
other statement of Borrower in any certificate or written statement given to
Lender, as of the date such representation, warranty, or other statement was
made, taken together with all such written certificates and written statements
given to Lender, 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 Lender 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

 

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forecasts may differ from the projected or forecasted results).

 

3.11                   Specific Representations Regarding Collateral.

 

(a)         Title.  Except for the security interests created by this Agreement
and Permitted Liens, (i) Borrower is and will be the unconditional legal and
beneficial owner of the Collateral, and (ii) the Collateral is genuine and
subject to no Liens, rights or defenses of others.  There exist no prior
assignments or encumbrances of record with the U.S. Patent and Trademark Office
or U.S. Copyright Office affecting any Collateral in favor of any third party,
other than Permitted Liens.

 

(b)         Rights to Payment.  The names of the obligors, amount owing to
Borrower, due dates and all other information with respect to the Rights to
Payment are and will be correctly stated in all material respects in all Records
relating to the Rights to Payment.  Borrower further represents and warrants, to
its knowledge, that each Person appearing to be obligated on a Right to Payment
has authority and capacity to contract and is bound as it appears to be.

 

(c)          Location of Collateral.  Borrower’s chief executive
office, Inventory, Records, Equipment, and any other offices or places of
business are located at the address(es) shown on the Supplement.

 

(d)         Business Names.  Other than its full corporate name, Borrower has
not conducted business using any trade names or fictitious business names except
as shown on the Supplement.

 

3.12                   Copyrights, Patents, Trademarks and Licenses.

 

(a)         To Borrower’s knowledge, Borrower owns or is licensed or otherwise
has the right to use all of the patents, trademarks, service marks, trade names,
copyrights, contractual franchises, authorizations and other similar rights that
are reasonably necessary for the operation of its business, without conflict
with the rights of any other Person.

 

(b)         To Borrower’s knowledge, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or now
contemplated to be employed, by Borrower infringes upon any rights held by any
other Person.

 

(c)          No claim or litigation referred to in paragraphs (a) and
(b) immediately above is pending or, to Borrower’s knowledge, threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or proposed which, in either case, could
reasonably be expected to have a Material Adverse Effect.

 

3.13                   Regulatory Compliance. Borrower has met the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA.  No event has occurred resulting from Borrower’s failure to comply
with ERISA that is reasonably likely to result in Borrower’s incurring any
liability that could have a Material Adverse Effect.  Borrower is not an
“investment company” or a company “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940.  Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T and U of the Board of Governors of the Federal Reserve
System).  Borrower has complied with all the provisions of the Federal Fair
Labor Standards Act.

 

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

 

3.15                   Survival. The representations and warranties of Borrower
as set forth in this Agreement survive the execution and delivery of this
Agreement.

 

ARTICLE 4 - CONDITIONS PRECEDENT

 

4.1       Conditions to First Loan.  The obligation of Lender to make its first
Loan hereunder is, in addition to the conditions precedent specified in
Section 4.2 and in any Supplement, subject to the fulfillment of the

 

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following conditions and to the receipt by Lender of the documents described
below, duly executed and in form and substance satisfactory to Lender and its
counsel:

 

(a)         Resolutions.  A certified copy of the resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.

 

(b)         Incumbency and Signatures.  A certificate of the secretary of
Borrower certifying the names of the officer or officers of Borrower authorized
to sign the Loan Documents, together with a sample of the true signature of each
such officer.

 

(c)          Legal Opinion.  The opinion of legal counsel for Borrower as to
such matters as Lender may reasonably request, substantially in the form
attached as Exhibit “F” to the Supplement.

 

(d)         Certificate and Bylaws.  Certified copies of the Certificate of
Incorporation and Bylaws of Borrower, as amended through the Closing Date.

 

(e)          This Agreement.  Original counterparts of this Agreement and the
initial Supplement, with all schedules completed and attached thereto, and
disclosing such information as is acceptable to Lender.

 

(f)           Financing Statements.  Filing copies (or other evidence of filing
satisfactory to Lender and its counsel) of such UCC financing statements,
collateral assignments, account control agreements, and termination statements,
with respect to the Collateral as Lender shall request.

 

(g)         Intellectual Property Security Agreement.  An Intellectual Property
Security Agreement executed by Borrower substantially in the form attached as
Exhibit “G” to the Supplement.

 

(h)         Lien Searches. UCC lien, judgment, bankruptcy and tax lien searches
of Borrower from such jurisdictions or offices as Lender may reasonably request,
all as of a date reasonably satisfactory to Lender and its counsel.

 

(i)            Good Standing Certificate.  A certificate of status or good
standing of Borrower as of a date acceptable to Lender from Delaware and
California.

 

(j)            Warrant(s).  An original warrant issued by Borrower to Lender (or
its designee) exercisable for such number, type and class of shares of
Borrower’s capital stock, and for an initial exercise price as is specified in
the Supplement.

 

(k)         Insurance Certificates. Insurance certificates showing Lender as
loss payee or additional insured.

 

(l)            Intercreditor Agreement.  Lender and SVB shall have entered into
a written intercreditor agreement acceptable to Lender with respect to Lender’s
and SVB’s respective rights and priorities of Liens in the Collateral as
security for Borrower’s Indebtedness to SVB under the SVB Credit Facility.

 

(m)     Other Documents. An Insurance Authorization Letter, substantially in the
form attached as Exhibit “H” to the Supplement, and a Certificate Concerning
Capitalization, substantially in the form attached as Exhibit “I” to the
Supplement.

 

4.2       Conditions to All Loans.  The obligation of Lender to make its initial
Loan and each subsequent Loan is subject to the following further conditions
precedent that:

 

(a)         No Default.  No Default or Event of Default has occurred and is
continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement and Part 3 of the Supplement are true and correct as of the Borrowing
Date of such Loan.

 

(b)         No Material Adverse Change.  No event has occurred that has had or
could reasonably be expected to have a Material Adverse Change.

 

(c)          Borrowing Request.  Borrower shall have delivered to Lender a
Borrowing Request for such Loan.

 

(d)         Note.  Borrower shall have delivered an original executed Note
evidencing such Loan, substantially in the form attached to the Supplement as an
exhibit.

 

(e)          Supplemental Lien Filings.  Borrower shall have executed and
delivered such amendments or supplements to this Agreement and additional
Security Documents, financing statements and third party waivers as Lender may
reasonably request in connection with the proposed Loan, in order to create,
protect or perfect or to maintain the perfection of Lender’s Liens on the
Collateral.

 

(f)           Intentionally Omitted.

 

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(g)         Financial Projections.  Borrower shall have delivered to Lender
Borrower’s business plan and/or financial projections or forecasts as most
recently approved by Borrower’s Board of Directors.

 

ARTICLE 5 - AFFIRMATIVE COVENANTS

 

During the term of this Agreement and until its performance of all Obligations,
Borrower will:

 

5.1       Notice to Lender.  Promptly give written notice to Lender of:

 

(a)         A prompt report of any legal actions pending or threatened against
Borrower or any of its Subsidiaries that could result in damages or costs to
Borrower or any of its Subsidiaries of Two Hundred Fifty Thousand Dollars
($250,000) or more; prompt notice of any event that materially and adversely
affects the value of the Intellectual Property of Borrower where the granting of
the relief requested could have a Material Adverse Effect; or of the acquisition
by Borrower of any commercial tort claim, including brief details of such claim
and for commercial tort claims, such other information as Lender may reasonably
request to enable Lender to better perfect its Lien in such commercial tort
claim as Collateral.

 

(b)         Any substantial dispute which may exist between Borrower and any
governmental or regulatory authority.

 

(c)          The occurrence of any Default or any Event of Default.

 

(d)         Any change in the location of any of Borrower’s places of business
or Collateral at least thirty (30) days in advance of such change, or of the
establishment of any new, or the discontinuance of any existing, place of
business.

 

(e)          Any dispute or default by Borrower or any other party under any
joint venture, partnering, distribution, cross-licensing, strategic alliance,
collaborative research or manufacturing, license or similar agreement which
would reasonably be expected to have a Material Adverse Effect.

 

In addition to the notices described in Sections 5.1(a) through 5.1(e) above,
Borrower agrees that Borrower will use its commercially reasonable efforts to
give Lender notice of any other matter which has resulted or would reasonably be
expected to result in a Material Adverse Change.

 

5.2       Financial Statements.  Deliver to Lender or cause to be delivered to
Lender, in form and detail satisfactory to Lender the following financial and
other information, which Borrower warrants shall be accurate and complete in all
material respects:

 

(a)         Monthly Financial Statements.  As soon as available but no later
than thirty (30) days after the end of each month, Borrower’s balance sheet as
of the end of such period, and Borrower’s income statement for such period and
for that portion of Borrower’s financial reporting year ending with such period,
prepared in accordance with GAAP and attested by a responsible financial officer
of Borrower as being complete and correct and fairly presenting Borrower’s
financial condition and the results of Borrower’s operations.

 

(b)         Year-End Financial Statements.  As soon as available but no later
than one hundred eighty (180) days after and as of the end of each financial
reporting year, a complete copy of Borrower’s audit report, which shall include
balance sheet, income statement, statement of changes in equity and statement of
cash flows for such year, prepared in accordance with GAAP and certified by an
independent certified public accountant selected by Borrower and satisfactory to
Lender (the “Accountant”).  The Accountant’s certification shall not be
qualified or limited due to a restricted or limited examination by the
Accountant of any material portion of Borrower’s records or otherwise, provided
that such certification may contain a “going concern” qualification.

 

(c)          Compliance Certificates.  Simultaneously with the delivery of each
set of financial statements referred to in paragraphs (a) and (b) above, a
certificate of the chief financial officer of Borrower (or other executive
officer) substantially in the form of Exhibit “C” to the Supplement certifying,
among other things, whether any Default or Event of Default exists on the date
of such certificate, and if so, setting forth the details thereof and the action
which Borrower is taking or proposes to take with respect thereto.

 

(d)         Government Required Reports; Press Releases.  Promptly after
sending, issuing, making available, or filing, copies of all statements released
to any news media for publication, all reports, proxy statements, and financial
statements that Borrower sends or makes available to its stockholders, and, not
later than five (5) days after actual filing or the date

 

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such filing was first due, all registration statements and reports that Borrower
files or is required to file with the Securities and Exchange Commission
(including all reports on Form 10-K, 10-Q and 8-K), or any other governmental or
regulatory authority or a link thereto on Borrower’s or another website on the
Internet.

 

(e)          Other Information.  Such other statements, lists of property and
accounts, budgets (as updated), sales projections, forecasts, reports, operating
plans, financial exhibits, capitalization tables (as updated) and information
relating to equity and debt financings consummated after the Closing Date
(including post-closing capitalization table(s)), or other information, in each
case, as Lender may from time to time reasonably request.

 

5.3       Intentionally Omitted.

 

5.4       Existence.  Maintain and preserve Borrower’s existence, present form
of business, and all rights and privileges necessary or desirable in the normal
course of its business; and keep all Borrower’s property in good working order
and condition, ordinary wear and tear excepted.

 

5.5       Insurance.  Obtain and keep in force insurance in such amounts and
types as is usual in the type of business conducted by Borrower, with insurance
carriers having a policyholder rating of not less than “A” and financial
category rating of Class VII in “Best’s Insurance Guide,” unless otherwise
approved by Lender.  Such insurance policies must be in form and substance
satisfactory to Lender, and shall list Lender as an additional insured or loss
payee, as applicable, on endorsement(s) in form reasonably acceptable to
Lender.  Borrower shall furnish to Lender such endorsements, and upon Lender’s
request, copies of any or all such policies.

 

5.6       Accounting Records.  Maintain adequate books, accounts and records,
and prepare all financial statements in accordance with GAAP, and in compliance
with the regulations of any governmental or regulatory authority having
jurisdiction over Borrower or Borrower’s business; and upon not less than
fifteen (15) days’ prior written notice, permit employees or agents of Lender at
such reasonable times as Borrower may agree, to inspect Borrower’s properties,
and to examine, and make copies and memoranda of Borrower’s books, accounts and
records.

 

5.7       Compliance With Laws.  Comply with all applicable laws (including
Environmental Laws), rules, regulations, and all orders and directives of any
governmental or regulatory authority having jurisdiction over, Borrower or
Borrower’s business, and with all material agreements to which Borrower is a
party, except where the failure to so comply would not have a Material Adverse
Effect.

 

5.8       Taxes and Other Liabilities.  Pay all Borrower’s Indebtedness when
due; pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be contested
in good faith by the appropriate procedures and for which Borrower shall
maintain appropriate reserves; and timely file all required tax returns.

 

5.9       Special Collateral Covenants.

 

(a)         Maintenance of Collateral; Inspection.  Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good working
order and salable condition, ordinary wear and tear excepted, deal with the
Collateral in all ways as are considered good practice by owners of like
property, and use the Collateral lawfully and, to the extent applicable, only as
permitted by Borrower’s insurance policies.  Maintain, or cause to be
maintained, complete and accurate Records relating to the Collateral.  Upon
reasonable prior notice at reasonable times during normal business hours,
Borrower hereby authorizes Lender’s officers, employees, representatives and
agents to inspect the Collateral and to discuss the Collateral and the Records
relating thereto with Borrower’s officers and employees, and, in the case of any
Right to Payment, with any Person which is or may be obligated thereon.

 

(b)         Documents of Title.  Not sign or authorize the signing of any
financing statement or other document naming Borrower as debtor or obligor, or
acquiesce or cooperate in the issuance of any bill of lading, warehouse receipt
or other document or instrument of title with respect to any Collateral, except
those negotiated to Lender, or those naming Lender as secured party, or if
solely to create, perfect or maintain a Permitted Lien.

 

(c)          Change in Location or Name.  Without at least 30 days’ prior
written notice to Lender:  (a) not relocate any Collateral or Records, its chief
executive office, or establish a place of business at a location other than as
specified in the Supplement; and (b) not change its name, mailing address,
location of Collateral, jurisdiction of incorporation or its legal structure.

 

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(d)  Decals, Markings.  At the request of Lender if an Event of Default has
occurred and is then continuing, firmly affix a decal, stencil or other marking
to designated items of Equipment, indicating thereon the security interest of
Lender.

 

(e)  Agreement With Persons in Possession of Collateral. Obtain and maintain
such acknowledgments, consents, waivers and agreements (each a “Waiver”) from
the owner, operator, lienholder, mortgagee, landlord or any Person in possession
of tangible Collateral in excess of $50,000 per location (other than the
Borrower’s facility in Sunnyvale, CA existing on the Closing Date) as Lender may
require, all in form and substance satisfactory to Lender.  Lender and Borrower
acknowledge and agree that Borrower shall use commercially reasonable efforts to
deliver a Waiver for the Collateral located at Borrower’s Sunnyvale, CA place of
business on or before the date which is 60 days after the Closing Date

 

(f)  Certain Agreements on Rights to Payment.  Other than in the ordinary course
of business, not make any material discount, credit, rebate or other reduction
in the original amount owing on a Right to Payment or accept in satisfaction of
a Right to Payment less than the original amount thereof.

 

5.10   Authorization for Automated Clearinghouse Funds Transfer.  (i) Authorize
Lender to initiate debit entries to Borrower’s Primary Operating Account,
specified in the Supplement hereto, through Automated Clearinghouse (“ACH”)
transfers, in order to satisfy the regularly scheduled payments of principal and
interest; (ii) provide Lender at least thirty (30) days notice of any change in
Borrower’s Primary Operating Account; and (iii) grant Lender any additional
authorizations necessary to begin ACH debits from a new account which becomes
the Primary Operating Account.

 

ARTICLE 6 - NEGATIVE COVENANTS

 

During the term of this Agreement and until the performance of all Obligations,
Borrower will not:

 

6.1       Indebtedness.  Be indebted for borrowed money, the deferred purchase
price of property, or leases which would be capitalized in accordance with GAAP;
or become liable as a surety, guarantor, accommodation party or otherwise for or
upon the obligation of any other Person, except:

 

(a)         Indebtedness incurred for the acquisition of supplies or inventory
on normal trade credit;

 

(b)         Indebtedness incurred pursuant to one or more transactions permitted
under Section 6.4;

 

(c)          Indebtedness of Borrower under this Agreement;

 

(d)         Subordinated Debt;

 

(e)          subject to Section 3 of Part 2 to the Supplement, and provided that
the SVB Amendment has been executed by Borrower and SVB, Indebtedness of
Borrower to SVB under the SVB Credit Facility not to exceed in aggregate amount
outstanding at any time the difference between Twenty Million Dollars
($20,000,000) and the outstanding principal balance of the Growth Capital Loan
advanced to Borrower by Lender;

 

(f)           Indebtedness of Borrower incurred in Borrower’s ordinary course of
business and consistent with Borrower’s prior practice not to exceed Two Hundred
Fifty Thousand Dollars ($250,000) in aggregate amount outstanding at any time,
so long as such Indebtedness (i) is incurred in connection with any combination
of capital leases of general office Equipment or operating leases of general
office Equipment and (ii) if secured, is secured solely by security interests
covered by clause (c) of the definition of Permitted Lien;

 

(g)         any Indebtedness approved by Lender prior to the Closing Date as
shown on Schedule 6.1.

 

6.2       Liens.  Create, incur, assume or permit to exist any Lien, or grant
any other Person a negative pledge, on any of Borrower’s property, except
Permitted Liens.  Borrower and Lender agree that this covenant is not intended
to constitute a lien, deed of trust, equitable mortgage, or security interest of
any kind on any of Borrower’s real property, and this Agreement shall not be
recorded or recordable.  Notwithstanding the foregoing, however, violation of
this covenant by Borrower shall constitute an Event of Default.

 

6.3       Dividends.  Pay any dividends or purchase, redeem or otherwise acquire
or make any other distribution with respect to any of Borrower’s capital stock,
except (a) dividends or other distributions solely of capital stock of Borrower,
and (b) so long as no Event of Default has occurred and is continuing,

 

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repurchases of stock from employees upon termination of employment under reverse
vesting or similar repurchase plans not to exceed $100,000 in any calendar year.

 

6.4       Changes/Mergers.  Liquidate or dissolve, or enter into any
consolidation, merger or other combination with any other Person in which the
stockholders of Borrower immediately prior to the first such transaction own
less than 50% of the voting stock of Borrower immediately after giving effect to
such transaction or related series of such transactions (each such transaction,
a “Change of Control”), or permit any of Borrower’s Subsidiaries to enter into
any Change of Control, or acquire, or permit any of Borrower’s Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person; provided that a Subsidiary may merge or consolidate into another
Subsidiary.

 

6.5       Sales of Assets. Sell, transfer, lease, license or otherwise dispose
of (a “Transfer”) any of Borrower’s assets, except:  (i) non-exclusive licenses
of Intellectual Property in the ordinary course of business consistent with
industry practice, and with the consent of Borrower’s Board of Directors;
(ii) Transfers of worn-out, obsolete or surplus property (each as determined by
the Borrower in its reasonable judgment); (iii) Transfers of Inventory in the
ordinary course of business; (iv) Transfers constituting Permitted Liens; (v)
Transfers permitted in Section 6.6 hereunder; and (vi) Transfers of Collateral
(other than Intellectual Property) for fair consideration and in the ordinary
course of its business.

 

6.6       Loans/Investments.  Make or suffer to exist any loans, guaranties,
advances, or investments, except:

 

(a)         accounts receivable in the ordinary course of Borrower’s business;

 

(b)         investments in domestic certificates of deposit issued by, and other
domestic investments with, financial institutions organized under the laws of
the United States or a state thereof, having at least One Hundred Million
Dollars ($100,000,000) in capital and a rating of at least “investment grade” or
“A” by Moody’s or any successor rating agency;

 

(c)          investments in marketable obligations of the United States of
America and in open market commercial paper given the highest credit rating by a
national credit agency and maturing not more than one year from the creation
thereof;

 

(d)         temporary advances to cover incidental expenses to be incurred in
the ordinary course of business;

 

(e)          investments in joint ventures, strategic alliances, licensing and
similar arrangements customary in Borrower’s industry and which do not require
Borrower to assume or otherwise become liable for the obligations of any third
party not directly related to or arising out of such arrangement or, without the
prior written consent of Lender, require Borrower to transfer ownership of
non-cash assets to such joint venture or other entity; and

 

(f)           investments of cash in wholly-owned Subsidiaries of Borrower in
existence as of the Closing Date.

 

6.7       Transactions With Related Persons.  Directly or indirectly enter into
or permit to exist any material transaction with any Related Person, 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.

 

6.8       Other Business.  Engage in any material line of business, other than
the business Borrower conducts as of the Closing Date or any other business
reasonably related thereto.

 

6.9       Financing Statements and Other Actions.  Fail to execute and deliver
to Lender all financing statements, notices and other documents (including,
without limitation, any filings with the United States Patent and Trademark
Office and the United States Copyright Office) from time to time reasonably
requested by Lender to maintain a perfected first priority security interest in
the Collateral in favor of Lender, subject to Permitted Liens; perform such
other acts, and execute and deliver to Lender such additional conveyances,
assignments, agreements and instruments, as Lender may at any time request in
connection with the administration and enforcement of this Agreement or Lender’s
rights, powers and remedies hereunder.

 

6.10 Compliance.  Become an “investment company” or controlled by an “investment
company,” within the meaning of the Investment Company Act of 1940, or become
principally engaged in, or undertake

 

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as one of its important activities, the business of extending credit for the
purpose of purchasing or carrying margin stock, or use the proceeds of any Loan
for such purpose.  Fail to meet the minimum funding requirements of ERISA,
permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to
occur, fail to comply with the Federal Fair Labor Standards Act or violate any
law or regulation, which violation could have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Lender’s Lien on
the Collateral, or permit any of its subsidiaries to do any of the foregoing.

 

6.11  Other Deposit and Securities Accounts.  Maintain any Deposit Accounts or
accounts holding securities owned by Borrower except (i) Deposit Accounts and
investment/securities accounts as set forth in the Supplement, and (ii) other
Deposit Accounts and securities/investment accounts, in each case, with respect
to which Borrower and Lender shall have taken such action as Lender reasonably
deems necessary to obtain a perfected first priority security interest therein,
subject to Permitted Liens.  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
or to accounts held outside of the United States in the ordinary course of
business and consistent with past practice.

 

6.12                        Prepayment of Indebtedness. Prepay, redeem or
otherwise satisfy in any manner prior to the scheduled repayment thereof any
Indebtedness (other than the Loans or loans under the SVB Credit Facility). 
Notwithstanding the foregoing, Lender agrees that the conversion or exchange
into Borrower’s equity securities of any Indebtedness (other than the Loans or
loans under the SVB Credit Facility) shall not be prohibited by this
Section 6.12.

 

6.13                        Repayment of Subordinated Debt. Repay, prepay,
redeem or otherwise satisfy in any manner any Subordinated Debt, except in
accordance with the terms of any subordination agreement among Borrower, Lender
and the holder(s) of such Subordinated Debt.  Notwithstanding the foregoing,
Lender agrees that the conversion or exchange into Borrower’s equity securities
of any Subordinated Debt and the payment of cash in lieu of fractional shares
shall not be prohibited by this Section 6.13.

 

6.14                        Subsidiaries.

 

(a)         Sell, transfer, encumber or otherwise dispose of Borrower’s
ownership interest in any Subsidiary other than Permitted Liens.

 

(b)         Cause or permit a Subsidiary to do any of the following:  (i) grant
Liens on such Subsidiary’s assets, except for Liens that would constitute
Permitted Liens if incurred by Borrower and Liens on any property held or
acquired by such Subsidiary in the ordinary course of its business securing
Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such property; provided, that such Lien attaches solely to
the property acquired with such Indebtedness and that the principal amount of
such Indebtedness does not exceed one hundred percent (100%) of the cost of such
property; and (ii) issue any additional Shares.

 

6.15                        Leases. Except as set forth in Section 6.1(f),
create, incur, assume, or suffer to exist any obligation as lessee for the
rental or hire of any personal property.

 

ARTICLE 7 - EVENTS OF DEFAULT

 

7.1       Events of Default; Acceleration.  Upon the occurrence and during the
continuation of any Default, the obligation of Lender to make any additional
Loan shall be suspended.  The occurrence of any of the following (each, an
“Event of Default”) shall terminate any obligation of Lender to make any
additional Loan; and shall, at the option of Lender (1) make all sums of Basic
Interest, principal and any Obligations and other amounts owing under any Loan
Documents immediately due and payable without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor or any other
notices or demands, and (2) give Lender the right to exercise any other right or
remedy provided by contract or applicable law:

 

(a)         Borrower shall fail to pay any principal or interest under this
Agreement or any Note, or fail to pay any fees or other charges when due under
any Loan Document, and such failure continues for five (5) Business Days or more
after the same first becomes due; or an Event of Default as defined in any other
Loan Document shall have occurred.

 

(b)         Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower to Lender or to induce
Lender to enter this Agreement under any Loan Document shall prove to have been
false or misleading in any material respect when made.

 

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(c)          (i) Borrower shall fail to pay its debts generally as they become
due; or (ii) Borrower shall commence any Insolvency Proceeding with respect to
itself, an involuntary Insolvency Proceeding shall be filed against Borrower, or
a custodian, receiver, trustee, assignee for the benefit of creditors, or other
similar official, shall be appointed to take possession, custody or control of
the properties of Borrower, and such involuntary Insolvency Proceeding, petition
or appointment is acquiesced to by Borrower or is not dismissed within forty
five (45) days; or the dissolution, winding up, or termination of the business
or cessation of operations of Borrower (including any transaction or series of
related transactions deemed to be a liquidation, dissolution or winding up of
Borrower pursuant to the provisions of Borrower’s charter documents); or
Borrower shall take any corporate action for the purpose of effecting,
approving, or consenting to any of the foregoing.

 

(d)         Borrower shall be in default beyond any applicable period of grace
or cure under any other agreement involving the borrowing of money, the purchase
of property, the advance of credit or any other monetary liability of any kind
to Lender or to any Person which results in the acceleration of payment of such
obligation in an amount in excess of the Threshold Amount.

 

(e)          Any governmental or regulatory authority shall take any judicial or
administrative action, or any defined benefit pension plan maintained by
Borrower shall have any unfunded liabilities, any of which, would reasonably be
expected to have a Material Adverse Effect.

 

(f)           Any sale, transfer or other disposition of all or a substantial or
material part of the assets of Borrower, including without limitation to any
trust or similar entity, shall occur.

 

(g)         Any judgment(s) singly or in the aggregate in excess of $250,000
(not covered by independent third-party insurance as to which liability has been
accepted by such insurance carrier) shall be entered against Borrower which
remain unsatisfied, unvacated or unstayed pending appeal for ten (10) or more
days after entry thereof.

 

(h)         Intentionally Omitted.

 

(i)            Borrower shall fail to perform or observe any covenant contained
in Article 6 of this Agreement.

 

(j)            Borrower shall fail to perform or observe any covenant contained
in Article 5 or elsewhere in this Agreement or any other Loan Document (other
than a covenant which is dealt with specifically elsewhere in this Article 7)
and, if capable of being cured, the breach of such covenant is not cured within
30 days after the sooner to occur of Borrower’s receipt of notice of such breach
from Lender or the date on which such breach first becomes known to any officer
of Borrower; provided, however that if such breach is not capable of being cured
within such 30-day period and Borrower timely notifies Lender of such fact and
Borrower diligently pursues such cure, then the cure period shall be extended to
the date requested in Borrower’s notice but in no event more than 90 days from
the initial breach; provided, further, that such additional 60-day opportunity
to cure shall not apply in the case of any failure to perform or observe any
covenant which has been the subject of a prior failure within the preceding 180
days or which is a willful and knowing breach by Borrower.

 

(k)         The occurrence of any default or event of default (howsoever
defined) under the SVB Credit Facility; provided, however, that if (i) there is
no Indebtedness outstanding under the SVB Credit Facility and (ii) SVB has not
previously accelerated the loans SVB advanced to Borrower thereunder then a
breach of a covenant applicable to the SVB Credit Facility shall not be deemed
to constitute an Event of Default under this Section 7.1(k).

 

7.2       Remedies upon Default.  Upon the occurrence and during the continuance
of an Event of Default, Lender shall be entitled to, at its option, exercise any
or all of the rights and remedies available to a secured party under the UCC or
any other applicable law, and exercise any or all of its rights and remedies
provided for in this Agreement and in any other Loan Document.  The obligations
of Borrower under this Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any Obligations is
rescinded or must otherwise be returned by Lender upon, on account of, or in
connection with, the insolvency, bankruptcy or reorganization of Borrower or
otherwise, all as though such payment had not been made.

 

7.3       Sale of Collateral.  Upon the occurrence and during the continuance of
an Event of Default, Lender may sell all or any part of the Collateral, at
public or private sales, to itself, a wholesaler, retailer or investor, for
cash, upon credit or for future delivery, and at such price or prices as Lender
may deem commercially reasonable.  To the extent permitted by law, Borrower

 

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hereby specifically waives all rights of redemption and any rights of stay or
appraisal which it has or may have under any applicable law in effect from time
to time.  Any such public or private sales shall be held at such times and at
such place(s) as Lender may determine.  In case of the sale of all or any part
of the Collateral on credit or for future delivery, the Collateral so sold may
be retained by Lender until the selling price is paid by the purchaser, but
Lender shall not incur any liability in case of the failure of such purchaser to
pay for the Collateral and, in case of any such failure, such Collateral may be
resold.  Lender may, instead of exercising its power of sale, proceed to enforce
its security interest in the Collateral by seeking a judgment or decree of a
court of competent jurisdiction.  Without limiting the generality of the
foregoing, if an Event of Default is in effect,

 

(1)         Subject to the rights of any third parties, Lender may license, or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any Copyrights, Patents or Trademarks included in the
Collateral throughout the world for such term or terms, on such conditions and
in such manner as Lender shall in its sole discretion determine;

 

(2)         Lender may (without assuming any obligations or liability
thereunder), at any time and from time to time, enforce (and shall have the
exclusive right to enforce) against any licensee or sublicensee all rights and
remedies of Borrower in, to and under any Copyright Licenses, Patent Licenses or
Trademark Licenses and take or refrain from taking any action under any thereof,
and Borrower hereby releases Lender from, and agrees to hold Lender free and
harmless from and against any claims arising out of, any lawful action so taken
or omitted to be taken with respect thereto other than claims arising out of
Lender’s gross negligence or willful misconduct; and

 

(3)         Upon request by Lender, Borrower will execute and deliver to Lender
a power of attorney, in form and substance reasonably satisfactory to Lender for
the implementation of any lease, assignment, license, sublicense, grant of
option, sale or other disposition of a Copyright, Patent or Trademark.  In the
event of any such disposition pursuant to this clause 3, Borrower shall supply
its know-how and expertise relating to the products or services made or rendered
in connection with Patents, the manufacture and sale of the products bearing
Trademarks, and its customer lists and other records relating to such
Copyrights, Patents or Trademarks and to the distribution of said products, to
Lender.

 

(4)         If, at any time when Lender shall determine to exercise its right to
sell the whole or any part of the Shares hereunder, such Shares or the part
thereof to be sold shall not, for any reason whatsoever, be effectively
registered under the Securities Act (or any similar statute), then Lender may,
in its discretion (subject only to applicable requirements of law), sell such
Shares or part thereof by private sale in such manner and under such
circumstances as Lender may deem necessary or advisable, but subject to the
other requirements of this Article 7, and shall not be required to effect such
registration or to cause the same to be effected.  Without limiting the
generality of the foregoing, in any such event, Lender in its discretion may
(i) in accordance with applicable securities laws proceed to make such private
sale notwithstanding that a registration statement for the purpose of
registering such Shares or part thereof could be or shall have been filed under
the Securities Act (or similar statute), (ii) approach and negotiate with a
single possible purchaser to effect such sale, and (iii) restrict such sale to a
purchaser who is an accredited investor under the Securities Act and who will
represent and agree that such purchaser is purchasing for its own account, for
investment and not with a view to the distribution or sale of such Shares or any
part thereof.  In addition to a private sale as provided above in this
Article 7, if any of the Shares shall not be freely distributable to the public
without registration under the Securities Act (or similar statute) at the time
of any proposed sale pursuant to this Article 7, then Lender shall not be
required to effect such registration or cause the same to be effected but, in
its discretion (subject only to applicable requirements of law), may require
that any sale hereunder (including a sale at auction) be conducted subject to
restrictions:

 

(A)                               as to the financial sophistication and ability
of any Person permitted to bid or purchase at any such sale;

 

(B)                               as to the content of legends to be placed upon
any certificates representing the Shares sold in such sale, including
restrictions on future transfer thereof;

 

(C)                               as to the representations required to be made
by each Person bidding or purchasing at such sale relating to such Person’s
access to financial information about Borrower or any of its Subsidiaries and
such Person’s intentions as to the holding of the Shares so sold for investment

 

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for its own account and not with a view to the distribution thereof; and

 

(D)                               as to such other matters as Lender may, in its
discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in compliance with
the Bankruptcy Code and other laws affecting the enforcement of creditors’
rights and the Securities Act and all applicable state securities laws.

 

(5)         Borrower recognizes that Lender may be unable to effect a public
sale of any or all the Shares and may be compelled to resort to one or more
private sales thereof in accordance with clause (4) above.  Borrower also
acknowledges that any such private sale may result in prices and other terms
less favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall not
be deemed to have been made in a commercially unreasonable manner solely by
virtue of such sale being private.  Lender shall be under no obligation to delay
a sale of any of the Shares for the period of time necessary to permit the
applicable Subsidiary to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if Borrower
and/or the Subsidiary would agree to do so.

 

7.4       Borrower’s Obligations Upon Default.  Upon the request of Lender after
the occurrence and during the continuance of an Event of Default, Borrower will:

 

(a)         Assemble and make available to Lender the Collateral at such
place(s) as Lender shall reasonably designate, segregating all Collateral so
that each item is capable of identification; and

 

(b)         Subject to the rights of any lessor, permit Lender, by Lender’s
officers, employees, agents and representatives, to enter any premises where any
Collateral is located, to take possession of the Collateral, to complete the
processing, manufacture or repair of any Collateral, and to remove the
Collateral, or to conduct any public or private sale of the Collateral, all
without any liability of Lender for rent or other compensation for the use of
Borrower’s premises.

 

ARTICLE 8 - SPECIAL COLLATERAL PROVISIONS

 

8.1       Compromise and Collection.  Borrower and Lender recognize that
setoffs, counterclaims, defenses and other claims may be asserted by obligors
with respect to certain of the Rights to Payment; that certain of the Rights to
Payment may be or become uncollectible in whole or in part; and that the expense
and probability of success of litigating a disputed Right to Payment may exceed
the amount that reasonably may be expected to be recovered with respect to such
Right to Payment.  Borrower hereby authorizes Lender, after and during the
continuance of an Event of Default, to compromise with the obligor, accept in
full payment of any Right to Payment such amount as Lender shall negotiate with
the obligor, or abandon any Right to Payment.  Any such action by Lender shall
be considered commercially reasonable so long as Lender acts in good faith based
on information known to it at the time it takes any such action.

 

8.2       Performance of Borrower’s Obligations.  Without having any obligation
to do so, upon reasonable prior notice to Borrower, Lender may perform or pay
any obligation which Borrower has agreed to perform or pay under this Agreement,
including, without limitation, the payment or discharge of taxes or Liens levied
or placed on or threatened against the Collateral.  In so performing or paying,
Lender shall determine the action to be taken and the amount necessary to
discharge such obligations.  Borrower shall reimburse Lender on demand for any
amounts paid by Lender pursuant to this Section, which amounts shall constitute
Obligations secured by the Collateral and shall bear interest from the date of
demand at the Default Rate.

 

8.3       Power of Attorney.  For the purpose of protecting and preserving the
Collateral and Lender’s rights under this Agreement, Borrower hereby irrevocably
appoints Lender, with full power of substitution, as its attorney-in-fact with
full power and authority, after the occurrence and during the continuance of an
Event of Default, to do any act which Borrower is obligated to do hereunder; to
exercise such rights with respect to the Collateral as Borrower might exercise;
to use such Inventory, Equipment, Fixtures or other property as Borrower might
use; to enter Borrower’s premises; to give notice of Lender’s security interest
in, and to collect the Collateral; and before or after Default, to execute and
file in Borrower’s name any financing statements, amendments and continuation
statements, account control agreements or other Security Documents necessary or
desirable to create, maintain, perfect or continue the perfection of Lender’s
security interests in

 

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the Collateral.  Borrower hereby ratifies all that Lender shall lawfully do or
cause to be done by virtue of this appointment.

 

8.4       Authorization for Lender to Take Certain Action.  The power of
attorney created in Section 8.3 is a power coupled with an interest and shall be
irrevocable.  The powers conferred on Lender hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon Lender to
exercise such powers.  Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and in no event
shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Borrower for any act or failure to act, except
for gross negligence or willful misconduct.  After the occurrence and during the
continuance of an Event of Default, Lender may exercise this power of attorney
without notice to or assent of Borrower, in the name of Borrower, or in Lender’s
own name, from time to time in Lender’s sole discretion and at Borrower’s
expense.  To further carry out the terms of this Agreement, after the occurrence
and during the continuance of an Event of Default, Lender may:

 

(a)         Execute any statements or documents or take possession of, and
endorse and collect and receive delivery or payment of, any checks, drafts,
notes, acceptances or other instruments and documents constituting Collateral,
or constituting the payment of amounts due and to become due or any performance
to be rendered with respect to the Collateral.

 

(b)         Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements under
any commercial or standby letter of credit relating to Collateral; assignments,
verifications and notices in connection with Accounts; or any other documents
relating to the Collateral, including without limitation the Records.

 

(c)          Use or operate Collateral or any other property of Borrower for the
purpose of preserving or liquidating Collateral.

 

(d)         File any claim or take any other action or proceeding in any court
of law or equity or as otherwise deemed appropriate by Lender for the purpose of
collecting any and all monies due or securing any performance to be rendered
with respect to the Collateral.

 

(e)          Commence, prosecute or defend any suits, actions or proceedings or
as otherwise deemed appropriate by Lender for the purpose of protecting or
collecting the Collateral.  In furtherance of this right, upon the occurrence
and during the continuance of an Event of Default, Lender may apply for the
appointment of a receiver or similar official to operate Borrower’s business.

 

(f)           Prepare, adjust, execute, deliver and receive payment under
insurance claims, and collect and receive payment of and endorse any instrument
in payment of loss or returned premiums or any other insurance refund or return,
and apply such amounts at Lender’s sole discretion, toward repayment of the
Obligations or replacement of the Collateral.

 

8.5       Application of Proceeds.  Any Proceeds and other monies or property
received by Lender pursuant to the terms of this Agreement or any Loan Document
may be applied by Lender first to the payment of expenses of collection,
including without limitation reasonable attorneys’ fees, and then to the payment
of the Obligations in such order of application as Lender may elect.

 

8.6       Deficiency.  If the Proceeds of any disposition of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Obligations, plus all other sums required to be expended or
distributed by Lender, then Borrower shall be liable for any such deficiency.

 

8.7       Lender Transfer.  Upon the transfer of all or any part of the
Obligations, Lender may transfer all or part of the Collateral and shall be
fully discharged thereafter from all liability and responsibility with respect
to such Collateral so transferred, and the transferee shall be vested with all
the rights and powers of Lender hereunder with respect to such Collateral so
transferred, but with respect to any Collateral not so transferred, Lender shall
retain all rights and powers hereby given.

 

8.8       Lender’s Duties.

 

(a)         Lender shall use reasonable care in the custody and preservation of
any Collateral in its possession.  Without limitation on other conduct which may
be considered the exercise of reasonable care, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of such Collateral if
such Collateral is accorded treatment substantially equal to that which Lender
accords its own property, it being understood that Lender shall not have any

 

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responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, declining value, tenders or other matters
relative to any Collateral, regardless of whether Lender has or is deemed to
have knowledge of such matters; or taking any necessary steps to preserve any
rights against any Person with respect to any Collateral.  Under no
circumstances shall Lender be responsible for any injury or loss to the
Collateral, or any part thereof, arising from any cause beyond the reasonable
control of Lender.

 

(b)         Lender may at any time deliver the Collateral or any part thereof to
Borrower and the receipt of Borrower shall be a complete and full acquittance
for the Collateral so delivered, and Lender shall thereafter be discharged from
any liability or responsibility therefor.

 

(c)          Neither Lender, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Lender
shall be liable for any claims, demands, losses or damages, of any kind
whatsoever, made, claimed, incurred or suffered by Borrower or any other party
through the ordinary negligence of Lender, or any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or representing
Lender.

 

8.9       Termination of Security Interests.  Upon the payment in full of the
Obligations and satisfaction of all Borrower’s obligations under this Agreement
and the other Loan Documents, and if Lender has no further obligations under its
Commitment, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to Borrower.  Upon any such termination, the
Lender shall, at Borrower’s expense, execute and deliver to Borrower such
documents as Borrower shall reasonably request to evidence such termination.

 

ARTICLE 9 - GENERAL PROVISIONS

 

9.1       Notices.  Any notice given by any party under any Loan Document shall
be in writing and personally delivered, sent by overnight courier, or sent by
facsimile, or other authenticated message such as electronic mail, charges
prepaid, to the other party’s or parties’ addresses shown on the Supplement. 
Each party may change the address or facsimile number to which notices, requests
and other communications are to be sent by giving written notice of such change
to each other party.  Notice given by hand delivery shall be deemed received on
the date delivered; if sent by overnight courier, on the next Business Day after
delivery to the courier service; if by facsimile, on the date of transmission;
and if by electronic mail, on the date the recipient replies to the sender
confirming that the recipient received said electronic mail.

 

9.2       Binding Effect.  The Loan Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors and assigns;
provided, however, that Borrower may not assign or transfer Borrower’s rights or
obligations under any Loan Document.  Lender reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, Lender’s rights and obligations under the Loan Documents.  In
connection with any of the foregoing, Lender may disclose all documents and
information which Lender now or hereafter may have relating to the Loans,
Borrower, or its business, provided that any Person who receives such
information shall have agreed in writing in advance to maintain the
confidentiality of such information on terms no less favorable to Borrower than
are set forth in Section 9.13 hereof.

 

9.3       No Waiver.  Any waiver, consent or approval by Lender of any Event of
Default or breach of any provision, condition, or covenant of any Loan Document
must be in writing and shall be effective only to the extent set forth in
writing.  No waiver of any breach or default shall be deemed a waiver of any
later breach or default of the same or any other provision of any Loan
Document.  No failure or delay on the part of Lender in exercising any power,
right, or privilege under any Loan Document shall operate as a waiver thereof,
and no single or partial exercise of any such power, right, or privilege shall
preclude any further exercise thereof or the exercise of any other power, right
or privilege.  Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after default,
and such acceptance shall not constitute a waiver of said default or an
extension of the maturity of any Loan unless Lender agrees otherwise in writing.

 

9.4       Rights Cumulative.  All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.

 

9.5       Unenforceable Provisions.  Any provision of any Loan Document executed
by Borrower which is prohibited or unenforceable in any jurisdiction, shall be
so only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the

 

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remaining provisions of any such Loan Document shall remain valid and
enforceable.

 

9.6       Accounting Terms.  Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined and
prepared in accordance with GAAP.

 

9.7       Indemnification; Exculpation.  Borrower shall pay and protect, defend
and indemnify Lender and Lender’s employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Lender,
collectively “Agents”) against, and hold Lender and each such Agent harmless
from, all claims, actions, proceedings, liabilities, damages, losses, expenses
(including, without limitation, attorneys’ fees and costs) and other amounts
incurred by Lender and each such Agent, arising from (i) the matters
contemplated by this Agreement or any other Loan Documents, (ii) any dispute
between Borrower and a third party,  or (iii) any contention that Borrower has
failed to comply with any law, rule, regulation, order or directive applicable
to Borrower’s business; provided, however, that this indemnification shall not
apply to any of the foregoing incurred solely as the result of Lender’s or any
Agent’s gross negligence or willful misconduct.  This indemnification shall
survive the payment and satisfaction of all of Borrower’s Obligations to Lender.

 

9.8       Reimbursement.  Borrower shall reimburse Lender for all reasonable,
documented, out-of-pocket costs and expenses, including without limitation
reasonable attorneys’ fees and disbursements expended or incurred by Lender in
any arbitration, mediation, judicial reference, legal action or otherwise in
connection with (a) the preparation and negotiation of the Loan Documents, (b)
the amendment and enforcement of the Loan Documents, including without
limitation during any workout, attempted workout, and/or in connection with the
rendering of legal advice as to Lender’s rights, remedies and obligations under
the Loan Documents, (c) collecting any sum which becomes due Lender under any
Loan Document, (d) any proceeding for declaratory relief, any counterclaim to
any proceeding, or any appeal, or (e) the protection, preservation or
enforcement of any rights of Lender.  Notwithstanding the foregoing, if any
action or proceeding is brought to enforce or interpret the Loan Documents, the
prevailing party will be entitled to recover its reasonable attorneys’ fees and
costs associated with such action or proceeding and, for greater certainty, to
the extent Borrower is the prevailing party under any such action or proceeding
to which the provisions of this Section 9.8 would otherwise apply, Borrower
shall have no obligations to Lender hereunder.  For the purposes of this
section, attorneys’ fees shall include, without limitation, fees incurred in
connection with the following:  (1) contempt proceedings; (2) discovery; (3) any
motion, proceeding or other activity of any kind in connection with an
Insolvency Proceeding; (4) garnishment, levy, and debtor and third party
examinations; and (5)  postjudgment motions and proceedings of any kind,
including without limitation any activity taken to collect or enforce any
judgment.  All of the foregoing costs and expenses shall be payable upon demand
by Lender, and if not paid within forty-five (45) days of presentation of
invoices shall bear interest at the Default Rate.

 

9.9       Execution in Counterparts.  This Agreement may be executed in any
number of counterparts which, when taken together, shall constitute but one
agreement.

 

9.10                        Entire Agreement.  The Loan Documents are intended
by the parties as the final expression of their agreement and therefore contain
the entire agreement between the parties and supersede all prior understandings
or agreements concerning the subject matter hereof.  This Agreement may be
amended only in a writing signed by Borrower and Lender.

 

9.11                        Governing Law and Jurisdiction.

 

(a)         THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.

 

(b)         ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE
COURTS. EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE

 

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BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO.  BORROWER AND LENDER EACH WAIVE
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

 

9.12                        Waiver of Jury Trial.  TO THE EXTENT NOT PROHIBITED
BY APPLICABLE LAW, BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS,
OR OTHERWISE.  BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.  WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF.  THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

 

9.13                        Confidentiality.  Lender agrees to hold in
confidence all confidential information that it receives from Borrower pursuant
to the Loan Documents, except for disclosure as shall be reasonably required:
(a) to legal counsel and accountants for Lender; (b) to other professional
advisors to Lender; (c) to regulatory officials having jurisdiction over Lender
to the extent required by law; (d) to Lender’s investors and prospective
investors, and in Lender’s SEC filings; (e) as required by law or legal process
or in connection with any legal proceeding to which Lender and Borrower are
adverse parties; (f) in connection with a disposition or proposed disposition of
any or all of Lender’s rights hereunder; (g) to Lender’s subsidiaries or
Affiliates in connection with their business with Borrower (subject to the same
confidentiality obligation set forth herein); (h) as required by valid order of
a court of competent jurisdiction, administrative agency or governmental body,
or by any applicable law, rule, regulation, subpoena, or any other
administrative or legal process, or by applicable regulatory or professional
standards,  including in connection with any judicial or other proceeding
involving Lender relating to this Agreement and the transactions contemplated
hereby; and (i) as required in connection with Lender’s examination or audit. 
For purposes of this section, Lender and Borrower agree that “confidential
information” shall mean any information regarding or relating to Borrower other
than: (i) information which is or becomes generally available to the public
other than as result of a disclosure by Lender in violation of this section,
(ii) information which becomes available to Lender from any other source (other
than Borrower) which Lender does not know is bound by a confidentiality
agreement with respect to the information made available, and (iii) information
that Lender knows on a non-confidential basis prior to Borrower disclosing it to
Lender.  In addition, Borrower agrees that Lender may use Borrower’s name, logo
and/or trademark in connection with certain promotional materials that Lender
may disseminate to the public, including, but are not limited to, brochures,
internet website, press releases and any other materials relating the fact that
Lender has a financing relationship with Borrower.

 

ARTICLE 10 - DEFINITIONS

 

The definitions appearing in this Agreement or any Supplement shall be
applicable to both the singular and plural forms of the defined terms:

 

“Account” means any “account,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest and, in any event, shall include, without limitation, all
accounts receivable, book debts and other forms of obligations (other than forms
of obligations evidenced by Chattel Paper, Documents or Instruments) now owned
or hereafter received or acquired by or belonging or owing to Borrower
(including, without limitation, under any trade name, style or division thereof)
whether arising out of goods sold or services rendered by Borrower or from any
other transaction, whether or not the same involves the sale of goods or
services by Borrower (including, without limitation,

 

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any such obligation that may be characterized as an account or contract right
under the UCC) and all of Borrower’s rights in, to and under all purchase orders
or receipts now owned or hereafter acquired by it for goods or services, and all
of Borrower’s rights to any goods represented by any of the foregoing
(including, without limitation, unpaid seller’s rights of rescission, replevin,
reclamation and stoppage in transit and rights to returned, reclaimed or
repossessed goods), and all monies due or to become due to Borrower under all
purchase orders and contracts for the sale of goods or the performance of
services or both by Borrower or in connection with any other transaction
(whether or not yet earned by performance on the part of Borrower), now in
existence or hereafter occurring, including, without limitation, the right to
receive the proceeds of said purchase orders and contracts, and all collateral
security and guarantees of any kind given by any Person with respect to any of
the foregoing.

 

“Affiliate” means any Person which directly or indirectly controls, is
controlled by, or is under common control with Borrower.  “Control,” “controlled
by” and “under common control with” mean direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise).

 

“Agreement” means this Loan and Security Agreement and each Supplement thereto,
as each may be amended or supplemented from time to time.

 

“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
§101, et seq.), as amended.

 

“Basic Interest” means the fixed rate of interest payable on the outstanding
balance of each Loan at the applicable Designated Rate.

 

“Borrowing Date” means the Business Day on which the proceeds of a Loan are
disbursed by Lender.

 

“Borrowing Request” means a written request from Borrower in substantially the
form of Exhibit “B” to the Supplement, requesting the funding of one or more
Loans on a particular Borrowing Date.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in New York City or San Francisco are authorized or required by
law to close.

 

“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC,
now owned or hereafter acquired by Borrower or in which Borrower now holds or
hereafter acquires any interest.

 

“Closing Date” means the date of this Agreement.

 

“Collateral” means all of Borrower’s right, title and interest in and to the
following property, whether now owned or hereafter acquired and wherever
located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all
General Intangibles; (e) all Inventory; (f) all Investment Property; (g) all
Deposit Accounts; (h) all Shares; (i) all other Goods and personal property of
Borrower, whether tangible or intangible and whether now or hereafter owned or
existing, leased, consigned by or to, or acquired by, Borrower and wherever
located; (j) all Records; and (k) all Proceeds of each of the foregoing and all
accessions to, substitutions and replacements for, and rents, profits and
products of each of the foregoing.  Notwithstanding the foregoing the term
“Collateral” shall not include more than sixty-five percent (65%) of the issued
and outstanding capital stock, membership units or other securities entitled to
vote owned or held of record by Borrower in any Subsidiary that is a controlled
foreign corporation (as defined in the Internal Revenue Code), provided that the
Collateral shall include one hundred percent (100%) of the issued and
outstanding non-voting capital stock of such Subsidiary.

 

“Commitment” means the obligation of Lender to make Loans to Borrower up to the
aggregate principal amount set forth in the Supplement.

 

“Copyright License” means any written agreement granting any right to use any
Copyright or Copyright registration now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.

 

“Copyrights” means all of the following now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest: 
(i) all copyrights, whether registered or unregistered, held pursuant to the
laws of the United States, any State thereof or of any other country; (ii) all
registrations, applications and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any State thereof or
any other country; (iii) all continuations, renewals or extensions thereof; and
(iv) any registrations to be issued under any pending applications.

 

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

 

“Default Rate” means eighteen percent (18%) per annum.

 

“Deposit Accounts” means any “deposit accounts,” as such term is defined in the
UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds
or hereafter acquires any interest.

 

“Designated Rate” means the rate of interest per annum described in the
Supplement as being applicable to an outstanding Loan from time to time.

 

“Documents” means any “documents,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.

 

“Environmental Laws” means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, in each case
relating to environmental, health, or safety matters.

 

“Equipment” means any “equipment,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest and any and all additions, substitutions and replacements
of any of the foregoing, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto.

 

“Event of Default” means any event described in Section 7.1.

 

“Fixtures” means any “fixtures,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.

 

“GAAP” means generally accepted accounting principles and practices consistent
with those principles and practices promulgated or adopted by the Financial
Accounting Standards Board and the Board of the American Institute of Certified
Public Accountants, their respective predecessors and successors.  Each
accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.

 

“General Intangibles” means any “general intangibles,” as such term is defined
in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all right, title and interest that Borrower may now or
hereafter have in or under any contract, all customer lists, Copyrights,
Trademarks, Patents, websites, domain names, and all applications therefor and
reissues, extensions, or renewals thereof, other items of, and rights to,
Intellectual Property, interests in partnerships, joint ventures and other
business associations, Licenses, permits, trade secrets, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, recipes, experience, processes, models, drawings,
materials and records, goodwill (including, without limitation, the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark License), claims in or under insurance policies, including
unearned premiums, uncertificated securities, money, cash or cash equivalents,
deposit, checking and other bank accounts, rights to sue for past, present and
future infringement of Copyrights, Trademarks and Patents, rights to receive tax
refunds and other payments and rights of indemnification.

 

“Goods” means any “goods,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.

 

“Indebtedness” of any Person means at any date, without duplication and without
regard to whether matured or unmatured, absolute or contingent:  (i) all
obligations of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments;
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (iv) all obligations of such Person as lessee under capital
leases; (v) all obligations of such Person to reimburse or prepay any bank or
other Person in respect of amounts paid under a letter of credit, banker’s
acceptance, or similar instrument, whether drawn or undrawn; (vi) all
obligations of such Person to purchase securities which arise out of or in
connection with the sale of the same or substantially similar securities;
(vii) all obligations of such Person to purchase, redeem, exchange, convert or
otherwise acquire for value any capital stock of such Person or

 

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any warrants, rights or options to acquire such capital stock, now or hereafter
outstanding, except to the extent that such obligations remain performable
solely at the option of such Person; (viii) all obligations to repurchase assets
previously sold (including any obligation to repurchase any accounts or chattel
paper under any factoring, receivables purchase, or similar arrangement); (ix)
obligations of such Person under interest rate swap, cap, collar or similar
hedging arrangements; and (x) all obligations of others of any type described in
clause (i) through clause (ix) above guaranteed by such Person.

 

“Insolvency Proceeding” means with respect to a Person (a) any case, action or
proceeding before any court or other governmental authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors with respect to such Person, or (b) any general
assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of such Person’s creditors
generally or any substantial portion of its creditors, undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code, but in each case,
excluding any avoidance or similar action against such Person commenced by an
assignee for the benefit of creditors, bankruptcy trustee, debtor in possession,
or other representative of another Person or such other Person’s estate.

 

“Instruments” means any “instrument,” as such term is defined in the UCC, now
owned or hereafter acquired by Borrower or in which Borrower now holds or
hereafter acquires any interest.

 

“Intellectual Property” means all Copyrights, Trademarks, Patents, Licenses,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
skill, expertise, experience, processes, models, drawings, materials, records
and goodwill associated with the foregoing.

 

“Intellectual Property Security Agreement” means any Intellectual Property
Security Agreement executed and delivered by Borrower in favor of Lender, as the
same may be amended, supplemented, or restated from time to time.

 

“Inventory” means any “inventory,” as such term is defined in the UCC, wherever
located, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest, and, in any event, shall include,
without limitation, all inventory, goods and other personal property that are
held by or on behalf of Borrower for sale or lease or are furnished or are to be
furnished under a contract of service or that constitute raw materials, work in
process or materials used or consumed or to be used or consumed in Borrower’s
business, or the processing, packaging, promotion, delivery or shipping of the
same, and all finished goods, whether or not the same is in transit or in the
constructive, actual or exclusive possession of Borrower or is held by others
for Borrower’s account, including, without limitation, all goods covered by
purchase orders and contracts with suppliers and all goods billed and held by
suppliers and all such property that may be in the possession or custody of any
carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or
other Persons.

 

“Investment Property” means any “investment property,” as such term is defined
in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest.

 

“Letter of Credit Rights” means any “letter of credit rights,” as such term is
defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest, including any right to
payment under any letter of credit.

 

“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest and any
renewals or extensions thereof.

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
against any property, any conditional sale or other title retention agreement,
any lease in the nature of a security interest, and the filing of any financing
statement (other than a precautionary financing statement with respect to a
lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.

 

“Loan” means an extension of credit by Lender under this Agreement.

 

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“Loan Documents” means, individually and collectively, this Loan and Security
Agreement, each Supplement, each Note, the Intellectual Property Security
Agreement, and any other security or pledge agreement(s), any Warrants issued by
Borrower to Lender (or its designee) in connection with this Agreement, and all
other contracts, instruments, addenda and documents executed in connection with
this Agreement or the extensions of credit which are the subject of this
Agreement.

 

“Material Adverse Effect” or “Material Adverse Change” means (a) a material
adverse change in, or a material adverse effect upon, the operations, business,
properties, or condition (financial or otherwise) of Borrower; (b) a material
impairment of the ability of Borrower to perform under any Loan Document; or
(c) a material adverse effect upon the legality, validity, binding effect or
enforceability against Borrower of any Loan Document.

 

“Note” means a promissory note substantially in the form attached to the
Supplement as Exhibit “A”, executed by Borrower evidencing each Loan.

 

“Obligations” means all debts, obligations and liabilities of Borrower to Lender
currently existing or now or hereafter made, incurred or created under, pursuant
to or in connection with this Agreement or any other Loan Document, whether
voluntary or involuntary and however arising or evidenced, whether direct or
acquired by Lender by assignment or succession, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, and
whether Borrower may be liable individually or jointly, or whether recovery upon
such debt may be or become barred by any statute of limitations or otherwise
unenforceable; and all renewals, extensions and modifications thereof; and all
attorneys’ fees and costs incurred by Lender in connection with the collection
and enforcement thereof as provided for in any Loan Document.

 

“Patent License” means any written agreement granting any right with respect to
any invention on which a Patent is in existence now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest.

 

“Patents” means all of the following property now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) all letters patent of, or rights corresponding thereto in, the United States
or any other country, all registrations and recordings thereof, and all
applications for letters patent of, or rights corresponding thereto in, the
United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country; (b) all reissues, continuations,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals,
and patents of addition; and (d) all patents to be issued under any such
applications.

 

“Permitted Lien” means:

 

(a)         involuntary Liens which, in the aggregate, would not have a Material
Adverse Effect and which in any event would not exceed, in the aggregate, the
Threshold Amount;

 

(b)         Liens for current taxes or other governmental or regulatory
assessments which are not delinquent, or which are contested in good faith by
the appropriate procedures and for which appropriate reserves are maintained;

 

(c)          security interests on any property held or acquired by Borrower in
the ordinary course of business securing Indebtedness incurred or assumed for
the purpose of financing all or any part of the cost of acquiring such property;
provided, that such Lien attaches solely to the property acquired with such
Indebtedness and that the principal amount of such Indebtedness does not exceed
one hundred percent (100%) of the cost of such property;

 

(d)         Liens in favor of Lender;

 

(e)          bankers’ liens, rights of setoff and similar Liens incurred on
deposits made in the ordinary course of business as long as an account control
agreement (or equivalent) for each account in which such deposits are held in a
form acceptable to Lender has been executed and delivered to Lender;

 

(f)           materialmen’s, mechanics’, repairmen’s, employees’ or other like
Liens arising in the ordinary course of business and which are not delinquent
for more than 45 days or are being contested in good faith by appropriate
proceedings;

 

(g)         any judgment, attachment or similar Lien, unless the judgment it
secures has not been discharged or execution thereof effectively stayed and
bonded against pending appeal within 30 days of the entry thereof;

 

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(h)         licenses or sublicenses of Intellectual Property in accordance with
the terms of Section 6.5 hereof;

 

(i)            Liens securing Subordinated Debt;

 

(j)            Liens granted to SVB securing Indebtedness outstanding under the
SVB Credit Facility; and

 

(j)            Liens which have been approved by Lender in writing prior to the
Closing Date, as shown on Schedule 6.2 hereto.

 

“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department thereof).

 

“Proceeds” means “proceeds,” as such term is defined in the UCC and, in any
event, shall include, without limitation, (a) any and all Accounts, Chattel
Paper, Instruments, cash or other forms of money or currency or other proceeds
payable to Borrower from time to time in respect of the Collateral, (b) any and
all proceeds of any insurance, indemnity, warranty or guaranty payable to
Borrower from time to time with respect to any of the Collateral, (c) any and
all payments (in any form whatsoever) made or due and payable to Borrower from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
authority (or any Person acting under color of governmental authority), (d) any
claim of Borrower against third parties (i) for past, present or future
infringement of any Copyright, Patent or Patent License or (ii) for past,
present or future infringement or dilution of any Trademark or Trademark License
or for injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License and (e) any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral.

 

“Receivables” means all of Borrower’s Accounts, Instruments, Documents, Chattel
Paper, Supporting Obligations, and letters of credit and Letter of Credit
Rights.

 

“Records” means all Borrower’s computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Borrower’s business.

 

“Related Person” means any Affiliate of Borrower, or any officer, employee,
director or equity security holder of Borrower or any Affiliate.

 

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

 

“Rights to Payment” means all Borrower’s accounts, instruments, contract rights,
documents, chattel paper and all other rights to payment, including, without
limitation, the Accounts, all negotiable certificates of deposit and all rights
to payment under any Patent License, any Trademark License, or any commercial or
standby letter of credit.

 

“Security Documents” means this Loan and Security Agreement, the Supplement
hereto, the Intellectual Property Security Agreement, and any and all account
control agreements, collateral assignments, chattel mortgages, financing
statements, amendments to any of the foregoing and other documents from time to
time executed or filed to create, perfect or maintain the perfection of Lender’s
Liens on the Collateral.

 

“Shares” means: (a) one hundred percent (100%) of the issued and outstanding
capital stock, membership units or other securities owned or held of record by
Borrower in any domestic Subsidiary, and (b) 65% of the issued and outstanding
capital stock, membership units or other securities entitled to vote owned or
held of record by Borrower in any Subsidiary that is a controlled foreign
corporation (as defined in the Internal Revenue Code).

 

“Subordinated Debt” means Indebtedness (i) approved by Lender; and (ii) where
the holder’s right to payment of such Indebtedness, the priority of any Lien
securing the same, and the rights of the holder thereof to enforce remedies
against Borrower following default have been made subordinate to the Liens of
Lender and to the prior payment to Lender of the Obligations, either
(A) pursuant to a written subordination agreement approved by Lender in its sole
but reasonable discretion or (B) on terms otherwise approved by Lender in its
sole but reasonable discretion.

 

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“Subsidiary” means any Person a majority of the equity ownership or voting stock
of which is at the time owned by Borrower.

 

“Supplement” means that certain supplement to the Loan and Security Agreement,
as the same may be amended or restated from time to time, and any other
supplements entered into between Borrower and Lender, as the same may be amended
or restated from time to time.

 

“Supporting Obligations” means any “supporting obligations,” as such term is
defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.

 

“SVB Amendment” means an amendment to the SVB Credit Facility consenting to the
transactions contemplated hereby and conforming the SVB Credit Facility to the
requirements of Section 3 of the Supplement to the extent required by such
Section.

 

“SVB Credit Facility” means a credit agreement under which Silicon Valley Bank
(“SVB”) has committed to makes formula-based loans to Borrower up to $20,000,000
in aggregate principal amount outstanding at any time on a revolving basis,
secured by a first priority Lien on Borrower’s, cash, accounts receivable and
proceeds traceable of such accounts receivable.

 

“Termination Date” has the meaning specified in the Supplement.

 

“Threshold Amount” has the meaning specified in the Supplement.

 

“Trademark License” means any written agreement granting any right to use any
Trademark or Trademark registration now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.

 

“Trademarks” means all of the following property now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) all trademarks, tradenames, corporate names, business names, trade styles,
service marks, logos, other source or business identifiers, prints and labels on
which any of the foregoing have appeared or appear, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and any applications in connection
therewith, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other country or
any political subdivision thereof and (b) reissues, extensions or renewals
thereof.

 

“UCC” means the Uniform Commercial Code as the same may, from time to time, be
in effect in the State of California; provided, 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, Lender’s Lien on any Collateral is
governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of California, the term “UCC” 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 related to such
provisions.  Unless otherwise defined herein, terms that are defined in the UCC
and used herein shall have the meanings given to them in the UCC.

 

[Signature page follows]

 

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[Signature page to Loan and Security Agreement]

 

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

 

BORROWER:

 

 

MERU NETWORKS, INC.

 

 

By:

/s/ Bami Bastani

 

Name:

Bami Bastani

 

Title:

President & CEO

 

 

 

 

LENDER:

 

 

VENTURE LENDING & LEASING VI, INC.

 

 

By:

/s/ Jay Cohan

 

Name:

Jay Cohan

 

Title:

Vice President

 

 

 

[Schedules to Loan and Security Agreement follow]

 

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Schedules to

Loan and Security Agreement

dated as of June 6, 2012

between

Meru Networks, Inc.

and

Venture Lending & Leasing V, Inc.

 

Schedule of Exceptions

 

Schedule 3.5 and Schedule 3.12(c)   
                                                On October 22, 2010, EON Corp.
IP Holdings, LLC (“Eon”), filed suit against the Borrower and several other
defendants in the United States District Court for the Eastern District of Texas
asserting infringement of U.S. Patent No. 5,592,491.  EON has amended its
complaint to add additional defendants and to add specificity to certain of its
claims.  The Borrower’s response to the amended complaint was filed on March 7,
2011, denying the allegations of the complaint, and asserting that the EON
patent is not infringed and is invalid. One of the co-defendants in the action
filed a motion to transfer the case to the Northern District of California, and
the Borrower joined in the motion to transfer.  On February 29, 2012, the case
was transferred to the Northern District of California.  No case schedule has
been set in the California action. The EON amended complaint seeks unspecified
monetary damages and injunctive relief.  At this time, the Borrower is unable to
determine the outcome of this matter and, accordingly, cannot estimate the
potential financial impact this action could have on its business, results of
operations, cash flows and financial position.

 

Schedule 3.7

 

Subsidiary

 

Jurisdiction

 

 

 

Meru Networks International, Inc.

 

Delaware

Meru Networks India Private Limited

 

India

Meru Networks K.K.

 

Japan

Meru Networks B.V.

 

Netherlands

Meru Networks PTY. Ltd.

 

Australia

Meru Networks Canada, Inc.

 

British Columbia

Meru Networks Singapore PTE Limited

 

Singapore

Meru Networks UK Limited

 

United Kingdom

Meru Networks Germany, GmbH

 

Munich

 

Branch, Liaison, Representative Offices and Tax Registered Locations

 

Denmark (tax registered)

Dubai — Branch Office

France — Bureau de Liaison

Italy — Branch Office

Korea — Representative Office

Norway — Branch Office

Portugal — Branch Office

Spain — Representative Office

Sweden (tax registered — entity in process)

Turkey — Liaison Office {in process}

 

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Schedules 6.6 and 6.7                         During the year ended December 31,
2011, Borrower invested $1.3 million in a company which is developing
value-added applications that are designed to allow its customers to achieve
greater benefit from wireless networks such as those offered by Borrower.  This
investee is co-founded by Dr. Vaduvur Bharghavan, a co-founder of Borrower and a
former member of Borrower’s board of directors.

 

Borrower’s investment represents approximately 16% equity ownership of the
investee Borrower does not have the ability to exercise significant influence
over the investee’s operating and financial policies.

 

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