Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

This LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of August 7, 2015
(the “Effective Date”) is by and among (a) SILICON VALLEY BANK, a California
corporation (“Bank”), and (b) (i) VIRTUALSCOPICS, INC., a Delaware corporation
(“Parent Borrower”), and (ii) VirtualScopics New York, LLC, a New York limited
liability company (“Subsidiary Borrower”) (Parent Borrower and Subsidiary
Borrower are, individually and collectively, jointly and severally, “Borrower”),
and provides the terms on which Bank shall lend to Borrower, and Borrower shall
repay Bank. The parties agree as follows:

 

1             ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP; provided that
if at any time any change in GAAP would affect the computation of any financial
ratio or requirement set forth in any Loan Document, and either Borrower or Bank
shall so request, Borrower and Bank shall negotiate in good faith to amend such
ratio or requirement to preserve the original intent thereof in light of such
change in GAAP; provided, further, that, until so amended, (a) such ratio or
requirement shall continue to be computed in accordance with GAAP prior to such
change therein and (b) Borrower shall provide Bank financial statements and
other documents required under this Agreement or as reasonably requested
hereunder setting forth a reconciliation between calculations of such ratio or
requirement made before and after giving effect to such change in GAAP. 
Notwithstanding the foregoing, all financial calculations (whether for pricing
covenants, or otherwise) shall be made with regard to Borrower only and not on a
consolidated basis. The term “financial statements” includes the notes and
schedules. Capitalized terms not otherwise defined in this Agreement shall have
the meanings set forth in Section 13 of this Agreement. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code to the extent such terms are defined therein.

 

2             LOAN AND TERMS OF PAYMENT

 

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

 

2.1.1       Financing of Accounts

 

(a)          Availability.

 

(i)          Subject to the terms of this Agreement, Borrower may request that
Bank finance Eligible Accounts on an aggregate basis (the “Aggregate Eligible
Accounts”). Bank may, in its good faith business discretion, finance Aggregate
Eligible Accounts by extending credit to Borrower in an aggregate amount
outstanding at any time of up to the Availability Amount. Bank may, in its sole
discretion, upon notice to and in consultation with Borrower, change the
percentage of the Borrowing Base on a case by case basis. Amounts advanced
pursuant to this Section 2.1.1(a) may be repaid and reborrowed at any time
without penalty or premium (other than as set forth in Section 2.1.1(f) in
connection with a termination of this Agreement) prior to the Maturity Date.

 

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(ii)         Any extension of credit made pursuant to the terms of subsection
(i) above shall hereinafter be referred to as an “Advance”, and, collectively,
the “Advances”. When Bank makes an Advance, the Aggregate Eligible Accounts each
become a separate “Financed Receivable”.

 

(b)         Maximum Advances.

 

(i)          The aggregate face amount of all Financed Receivables outstanding
at any time may not exceed the Facility Amount. In addition and notwithstanding
the foregoing, the aggregate amount of outstanding Advances may not exceed the
Availability Amount.

 

(ii)         If, at any time, amounts outstanding exceed the amounts set forth
in this Section 2.1.1(b), Borrower shall immediately pay to Bank in cash such
excess amount, and Borrower hereby irrevocably authorizes Bank to debit any of
its accounts maintained with Bank or any of Bank’s Affiliates in connection
therewith.

 

(c)          Borrowing Procedure. Borrower will deliver an Advance Request and
Invoice Transmittal in the form attached hereto as Exhibit C signed by a
Responsible Officer for each Advance it requests, accompanied by and an accounts
receivable aging and a Borrowing Base Certificate. Bank may rely on information
set forth in or provided with the Advance Request and Invoice Transmittal. In
addition, upon Bank’s request, Borrower shall deliver to Bank any contracts,
purchase orders, shipping documents or other underlying supporting documentation
with respect to any Eligible Account (including those Eligible Accounts
comprising all or any portion of the Aggregate Eligible Accounts).

 

(d)          Credit Quality; Confirmations. Bank may, at its option, conduct a
credit check of the Account Debtor for each Account requested by Borrower for
financing hereunder to approve any such Account Debtor’s credit before agreeing
to finance such Account. Bank may also verify directly with the respective
Account Debtors the validity, amount and other matters relating to the Accounts
(including confirmations of Borrower’s representations in Section 5.3 of this
Agreement) by means of mail, email, telephone or otherwise, either in the name
of Borrower or Bank from time to time in its sole discretion, provided, however,
so long as no Event of Default has occurred and is continuing, Bank will notify
Borrower prior to making direct contact with an Account Debtor.

 

(e)          Accounts Notification/Collection. Bank may notify any Account
Debtor of Bank’s security interest in Borrower’s Accounts and verify and/or
collect them, provided, however, so long as no Event of Default has occurred and
is continuing, Bank will notify Borrower prior to making direct contact with an
Account Debtor.

 

(f)          Early Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three (3) Business Days
after written notice of termination is given to Bank; or (ii) by Bank at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower for any reason,
Borrower shall pay to Bank a non refundable termination fee in an amount equal
to Twenty Thousand Dollars ($20,000.00) (the “Early Termination Fee”). The Early
Termination Fee shall be due and payable on the effective date of such
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations. Notwithstanding the foregoing, Bank
agrees to waive the Early Termination Fee if Bank closes on the refinance and
re-documentation of this Agreement under another division of Bank (in its sole
and exclusive discretion) prior to the Maturity Date.

 

(g)          Maturity. All Obligations outstanding hereunder shall be
immediately due and payable in full on the Maturity Date or the earlier
termination of this Agreement.

 

(h)          Suspension of Credit Extensions. Borrower’s ability to request that
Bank make Credit Extensions hereunder will terminate if, in Bank’s sole
discretion, there has been a material adverse change in the general affairs,
management, results of operation, condition (financial or otherwise) or the
prospect of repayment of the Obligations, or there has been any material adverse
deviation by Borrower from the most recent business plan of Borrower presented
to and accepted by Bank prior to the Effective Date.

 

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2.2         Collections, Finance Charges, Remittances and Fees. The Obligations
shall be subject to the following fees and Finance Charges. Unpaid fees and
Finance Charges may, in Bank’s discretion, accrue interest at the then highest
rate applicable to the Obligations.

 

2.3         Collections. Proceeds of the Accounts will be applied in accordance
with the terms of Section 2.8.

 

2.4         Facility Fee. A fully earned, non-refundable facility fee of Twenty
Thousand Dollars ($20,000.00) shall be fully earned, due and payable on the
Effective Date (the “Facility Fee”).

 

2.5         Finance Charges. Borrower will pay a finance charge (the “Finance
Charge”) on the Account Balance which is equal to the Applicable Rate divided by
360 multiplied by the number of days each such Financed Receivable is
outstanding multiplied by the outstanding Account Balance. The Finance Charge is
payable monthly as set forth in Section 2.10 of this Agreement. Immediately upon
the occurrence of an Event of Default, the Applicable Rate will increase an
additional three percent (3.0%) per annum. In the event that the aggregate
amount of Finance Charges earned by Bank in any Reconciliation Period is less
than the Minimum Finance Charge, Borrower shall pay to Bank an additional
Finance Charge equal to (i) the Minimum Finance Charge minus (ii) the aggregate
amount of all Finance Charges earned by Bank in such Reconciliation Period. Such
additional Finance Charge shall be payable on the first day of the next
Reconciliation Period.

 

2.6         Accounting. After each Reconciliation Period, Bank will provide
Borrower with an accounting of the transactions for that Reconciliation Period,
including the amount of all Financed Receivables, all Collections, Adjustments,
and Finance Charges. If Borrower does not object to the accounting in writing
within thirty (30) days it shall be considered accurate. All Finance Charges and
other interest and fees are calculated on the basis of a 360 day year and actual
days elapsed.

 

2.7         Deductions. Bank may deduct fees, Bank Expenses, Finance Charges,
the Early Termination Fee, the Facility Fee, Advances which become due pursuant
to Section 2.10 of this Agreement, and other amounts due pursuant to this
Agreement from any Credit Extensions made or Collections received by Bank.

 

2.8         Cash Collateral Account; Account Collection Services

 

(a)          Borrower shall direct each Account Debtor (and each depository
institution where proceeds of Accounts are on deposit) to deliver or transmit
payments to a cash collateral account that Bank controls, provided that up to
ten percent (10.0%) of payments per Reconciliation Period may be delivered or
transmitted via electronic deposit capture into a “blocked account” as specified
by Bank (collectively, the accounts referenced in this sentence are the “Cash
Collateral Account”). It will be considered an immediate Event of Default if the
Cash Collateral Account is not established and operational on the Effective Date
and at all times thereafter.

 

(b)          Upon receipt by Borrower of any proceeds of Accounts, Borrower
shall immediately transfer and deliver same to Bank, along with a detailed cash
receipts journal.

 

(c)          Provided no Event of Default exists or an event that with notice or
lapse of time will be an Event of Default, within one (1) Business Day of
receipt of any proceeds of the Accounts by Bank (whether received by Bank in the
Cash Collateral Account, directly from Borrower, or otherwise), Bank will turn
over to Borrower such proceeds; provided, however, (i) on any day that Borrower
is not Streamline Facility Eligible, all of the proceeds of the Accounts
(whether received in the Cash Collateral Account, directly from Borrower, or
otherwise, and whether or not in respect of Financed Receivables) shall be
applied to reduce the Obligations, in any manner and order chosen by Bank in its
sole discretion and (ii) Bank may hold any proceeds of the Accounts (whether
received by Bank in the Cash Collateral Account, directly from Borrower, or
otherwise and whether or not in respect of Financed Receivables) as a reserve
until the end of the applicable Reconciliation Period if Bank, in its
discretion, determines that other Financed Receivable(s) may no longer qualify
as Aggregate Eligible Accounts, at any time prior to the end of the subject
Reconciliation Period.

 

(d)          This Section 2.8 does not impose any affirmative duty on Bank to
perform any act other than as specifically set forth herein. All Accounts and
the proceeds thereof are Collateral, and if an Event of Default occurs, Bank
may, without notice, apply the proceeds of such Accounts to the Obligations.

 

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2.9         Bank Expenses. Borrower shall pay all Bank Expenses (including
reasonable attorneys’ fees and expenses, plus expenses, for documentation and
negotiation of this Agreement) incurred through and after the Effective Date,
when due.

 

2.10       Repayment of Obligations; Adjustments

 

2.10.1    Repayment. With respect to each Advance made based upon Aggregate
Eligible Accounts:

 

(a)          Borrower shall pay to Bank, on the first day of each Reconciliation
Period, all Finance Charges accrued thereon; and

 

(b)          Borrower will pay the principal amount of such Advances on the
earliest of: (i) the date on which the aggregate amount of outstanding Advances
made based upon Aggregate Eligible Accounts exceeds the Availability Amount (but
only up to the amount exceeding the Availability Amount) or (ii) the Maturity
Date (including any early termination). Any payment pursuant to (i) or (ii)
above shall also include all accrued Finance Charges with respect to the
Advances based upon Aggregate Eligible Accounts and all other amounts then due
and payable hereunder.

 

2.10.2    Repayment on Event of Default. When there is an Event of Default,
Borrower will, if Bank demands (or, upon the occurrence of an Event of Default
under Section 8.5 of this Agreement, immediately without notice or demand from
Bank) repay all of the Obligations. The demand may, at Bank’s option, include
all Credit Extensions then outstanding and all accrued Finance Charges, the
Early Termination Fee, attorneys’ and professional fees, court costs and
expenses, Bank Expenses and any other Obligations.

 

2.10.3    Debit of Accounts. Bank may debit any of Borrower’s deposit accounts
for payments or any amounts Borrower owes Bank hereunder. These debits shall not
constitute a set-off.

 

2.11       Power of Attorney. Borrower irrevocably appoints Bank and its
successors and assigns as attorney-in-fact and authorizes Bank and its
successors and assigns, to: (a) following the occurrence of an Event of Default,
(i) sell, assign, transfer, pledge, compromise, or discharge all or any part of
the Financed Receivables; (ii) demand, collect, sue, and give releases to any
Account Debtor for monies due and compromise, prosecute, or defend any action,
claim, case or proceeding about the Financed Receivables, including filing a
claim or voting a claim in any bankruptcy case in Bank’s or Borrower’s name, as
Bank chooses; and (iii) prepare, file and sign Borrower’s name on any notice,
claim, assignment, demand, draft, or notice of or satisfaction of lien or
mechanics’ lien or similar document; and (b) regardless of whether an Event of
Default has occurred and is continuing, (i) notify all Account Debtors to pay
Bank directly, provided, however, so long as no Event of Default has occurred
and is continuing, Bank will notify Borrower prior to making direct contact with
an Account Debtor; (ii) receive, open, and dispose of mail addressed to
Borrower; (iii) endorse Borrower’s name on checks or other instruments (to the
extent necessary to pay amounts owed pursuant to any of the Loan Documents); and
(iv) execute on Borrower’s behalf any instruments, documents, financing
statements to perfect Bank’s interests in the Financed Receivables and
Collateral and do all acts and things necessary or prudent, as determined solely
and exclusively by Bank, to protect or preserve Bank’s rights and remedies under
the Loan Documents, as directed by Bank.

 

3            CONDITIONS OF LOANS

 

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

 

(a)          the Loan Documents;

 

(b)          the SVB Control Agreement;

 

(c)          Operating Documents of each Borrower;

 

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(d)          a long form good standing certificate of Parent Borrower certified
by the Secretary of State of the State of Delaware as of a date no earlier than
thirty (30) days prior to the Effective Date;

 

(e)          a long form good standing certificate of Subsidiary Borrower
certified by the Secretary of State of the State of New York as of a date no
earlier than thirty (30) days prior to the Effective Date;

 

(f)           the completed and executed Borrowing Resolutions for each
Borrower;

 

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

 

(h)          an acknowledgment copy (from the Delaware Department of State) of
either (i) an amendment to UCC filing no. 20150652775 amending the collateral
description to refer only to specific financed equipment or (ii) a filed
termination of UCC filing no. 20150652775;

 

(i)           the Perfection Certificate of each Borrower, together with the
duly executed original signature thereto;

 

(j)           landlord’s consents in favor of Bank for each of 500 Linden Oaks,
2nd Floor, Rochester, New York 14625 and 220 Union Square Drive, Suite 220, New
Hope, Pennsylvania 18938, by the respective landlords thereof;

 

(k)          evidence satisfactory to Bank that the insurance policies required
by Section 6.4 of this Agreement are in full force and effect, together with
appropriate evidence showing lender loss payable and additional insured clauses
and cancellation notice to Bank (including certificates on Acord 25 and Acord 28
forms and endorsements to the policies reflecting the same);

 

(l)           the completion of an initial audit of the Accounts, Borrower’s
Books and the other Collateral with results satisfactory to Bank in its sole and
absolute discretion;

 

(m)         payment of the fees and Bank Expenses then due as specified in
Section 2.9 of this Agreement; and

 

(n)          Certificates of Good Standing/Foreign Qualification for (i) Parent
Borrower (from the State of New York and the Commonwealth of Pennsylvania) and
(ii) Subsidiary Borrower (from each state in which Subsidiary Borrower is
qualified to transact business).

 

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

 

(a)          receipt of the Advance Request and Invoice Transmittal and the
documents required by Section 2.1.1(c) of this Agreement;

 

(b)          Bank shall have (at its option) conducted the confirmations and
verifications as described in Section 2.1.1(d) of this Agreement; and

 

(c)          each of the representations and warranties in this Agreement shall
be true, accurate, and complete on the date of the Advance Request and Invoice
Transmittal and on the effective date of each Credit Extension and no Event of
Default shall have occurred and be continuing, or result from the Credit
Extension. Each Credit Extension is Borrower’s representation and warranty on
that date that the representations and warranties in this Agreement remain true,
accurate, and complete.

 

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

 

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4              CREATION OF SECURITY INTEREST

 

4.1           Grant of Security Interest. Borrower hereby grants Bank, to secure
the payment and performance in full of all of the Obligations, a continuing
security interest in, and pledges to Bank, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof. Borrower represents, warrants, and covenants that the security
interest granted herein shall be and shall at all times continue to be a first
priority perfected security interest in the Collateral subject only to Permitted
Liens that are permitted to have priority over Bank’s Liens hereunder. If
Borrower shall at any time acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the general details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Bank.

 

Borrower acknowledges that it may have previously entered, and/or may in the
future enter, into Bank Services with Bank.  Regardless of the terms of any Bank
Services Agreement, Borrower agrees that any amounts Borrower owes Bank
thereunder shall be deemed to be Obligations hereunder and that it is the intent
of Borrower and Bank to have all such Obligations secured by the first priority
security interest granted herein.

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are satisfied
in full, and at such time, Bank’s Lien in the Collateral shall automatically
terminate and all rights therein shall revert to Borrower. In the event (a) all
Obligations (other than inchoate indemnity obligations), except for Bank
Services, are satisfied in full, and (b) this Agreement is terminated, Bank’s
Lien in the Collateral shall automatically terminate upon Borrower providing
cash collateral acceptable to Bank in its good faith business judgment for such
Bank Services. In the event such Bank Services consist of outstanding Letters of
Credit, Borrower shall provide to Bank cash collateral in an amount equal to one
hundred five percent (105.0%) for Letters of Credit denominated in Dollars and
one hundred ten percent (110.0%) for Letters of Credit denominated in a currency
other than Dollars, in each case of the Dollar Equivalent of the face amount of
all such Letters of Credit plus all interest, fees, and costs due or to become
due in connection therewith (as estimated by Bank in its good faith business
judgment), to secure all of the Obligations relating to such Letters of Credit.

 

4.2           Authorization to File Financing Statements. Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions to perfect or protect Bank’s interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code. Any such financing statements may indicate the Collateral in a
manner consistent with Exhibit A to this Agreement, or as being of an equal or
lesser scope, or with greater detail, all in Bank’s discretion.

 

5              REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

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

 

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

 

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

 

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

 

Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) non-exclusive licenses granted to its customers
in the ordinary course of business, (b) over-the-counter software that is
commercially available to the public, and (c) material Intellectual Property
licensed to Borrower and noted on the Perfection Certificate. Each Patent which
it owns or purports to own and which is material to Borrower’s business is valid
and enforceable, and no part of the Intellectual Property which Borrower owns or
purports to own and which is material to Borrower’s business has been judged
invalid or unenforceable, in whole or in part. To Borrower’s knowledge, no claim
has been made that any part of the Intellectual Property violates the rights of
any third party except to the extent such claim would not reasonably be expected
to have a material adverse effect on Borrower’s business. Except as noted on the
Perfection Certificate, Borrower is not a party to, nor is it bound by, any
Restricted License.

 

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5.3         Financed Receivables. Borrower represents and warrants for each
Financed Receivable:

 

(a)          Such Financed Receivable is an Eligible Account;

 

(b)          Borrower is the owner of and has the legal right to sell, transfer,
assign and encumber such Financed Receivable;

 

(c)          The correct gross amount of each Financed Receivable is set forth
on the Advance Request and Invoice Transmittal and is not disputed;

 

(d)          Payment is not contingent on any obligation or contract and
Borrower has fulfilled all its obligations as of the Advance Request and Invoice
Transmittal date;

 

(e)          Such Financed Receivable is based on an actual sale and delivery of
goods and/or services rendered, is due to Borrower, is not past due or in
default, has not been previously sold, assigned, transferred, or pledged and is
free of any liens, security interests and encumbrances other than Permitted
Liens;

 

(f)          There are no defenses, offsets, counterclaims or agreements for
which the Account Debtor may claim any deduction or discount;

 

(g)          Borrower reasonably believes (i) the fair salable value of each
Account Debtor’s assets (including goodwill minus disposition costs) exceeds the
fair value of its liabilities, (ii) each Account Debtor is able to pay its debts
(including trade debts) as they mature and (iii) no Account Debtor is subject to
any Insolvency Proceedings;

 

(h)          Borrower has not filed or had filed against it Insolvency
Proceedings and does not anticipate any filing;

 

(i)          Bank has the right to endorse and/ or require Borrower to endorse
all payments received on Financed Receivables and all proceeds of Collateral;
and

 

(j)          No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statement contained in the certificates or statement not misleading.

 

5.4         Litigation. There are no actions or proceedings pending or, to the
knowledge of Borrower’s Responsible Officers, threatened in writing by or
against Borrower or any Subsidiary in which an adverse decision could reasonably
be expected to cause a Material Adverse Change.

 

5.5         No Material Deviation in Financial Statements and Deterioration in
Financial Condition. All consolidated financial statements for Borrower and any
Subsidiary delivered to Bank fairly present in all material respects Borrower’s
consolidated financial condition and Borrower’s consolidated results of
operations as of the dates and for the periods set forth therein. There has not
been any material deterioration in Borrower’s consolidated financial condition
since the date of the most recent financial statements submitted to Bank.

 

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

 

5.7         Regulatory Compliance. Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended. Borrower is not engaged as one of its important activities
in extending credit for margin stock (under Regulations X, T and U of the
Federal Reserve Board of Governors). Borrower has complied in all material
respects with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could reasonably be
expected to cause a Material Adverse Change. None of Borrower’s or any
Subsidiary’s properties or assets have been used by Borrower or any Subsidiary
or, to the best of Borrower’s knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other than
legally. Borrower and each of its Subsidiaries have obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all Governmental Authorities that are necessary to
continue their respective businesses as currently conducted.

 

8 

 

 

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

 

5.9         Tax Returns and Payments; Pension Contributions. Borrower and each
Subsidiary have timely filed all required tax returns and reports, and Borrower
and each Subsidiary have timely paid all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower and each
Subsidiary. Borrower may defer payment of any contested taxes, provided that
Borrower (a) in good faith contests its obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (b)
notifies Bank in writing of the commencement of, and any material development
in, the proceedings and (c) posts bonds or takes any other steps required to
prevent the Governmental Authority levying such contested taxes from obtaining a
Lien upon any of the Collateral that is other than a “Permitted Lien”. Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid all amounts necessary to fund all present pension,
profit sharing and deferred compensation plans in accordance with their terms,
and Borrower has not withdrawn from participation in, and has not permitted
partial or complete termination of, or permitted the occurrence of any other
event with respect to, any such plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

 

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

 

6            AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1         Government Compliance

 

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

 

(b)          Deliver to Bank, within five (5) days after the same are sent or
received, copies of all correspondence, reports, documents and other filings
with any Governmental Authority regarding compliance with or maintenance of
Governmental Approvals or Requirements of Law or that could reasonably be
expected to have a material adverse effect on any of the Governmental Approvals
or otherwise on the operations of Borrower or any of its Subsidiaries.

 

6.2         Financial Statements, Reports, Certificates

 

(a)          Deliver to Bank: (i) as soon as available, but no later than thirty
(30) days after the last day of each Reconciliation Period, a company prepared
consolidated balance sheet and income statement covering Borrower’s consolidated
operations during the period certified by a Responsible Officer and in a form
acceptable to Bank; (ii) as soon as available, but no later than ninety (90)
days after the last day of Borrower’s fiscal year, audited consolidated
financial statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm reasonably acceptable to Bank; (iii) within the earlier
of (A) five (5) days after filing or (B) five (5) days after the due date as
required by the SEC, copies of all statements, reports and notices made
available to Borrower’s security holders or to any holders of Subordinated Debt
and all reports on Form 8-K filed with the SEC; (iv) within ninety (90) days
after the last day of Borrower’s fiscal year, a copy of Borrower’s report on
Form 10-K filed with the SEC with respect to such fiscal year; (v) within
forty-five (45) days after the last day of each of Borrower’s fiscal quarters, a
copy of Borrower’s report on Form 10-Q filed with the SEC with respect to such
fiscal quarter; (vi) a prompt report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000.00) or
more; (vii) at least annually, as soon as available, but no later than thirty
(30) days prior to the last day of Borrower’s fiscal year, and contemporaneously
with any updates or amendments thereto, annual financial projections for the
following fiscal year approved by Borrower’s board of directors (or the limited
liability company equivalent thereof), together with any related business
forecasts used in the preparation of such annual financial plans and
projections; and (viii) budgets, sales projections, operating plans or other
financial information reasonably requested by Bank.

 

9 

 

 

(b)          Within thirty (30) days after the last day of each Reconciliation
Period, deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in the form of Exhibit B.

 

(c)          Allow Bank to inspect the Collateral and audit and copy Borrower’s
Books, including, but not limited to, Borrower’s Accounts, upon reasonable
notice to Borrower. Such inspections or audits shall be conducted no more often
than once every twelve (12) months unless an Event of Default has occurred and
is continuing. The foregoing inspections and audits shall be at Borrower’s
expense, and the charge therefor shall be Eight Hundred Fifty Dollars ($850.00)
per person per day (or such higher amount as shall represent Bank’s then-current
standard charge for the same), plus reasonable out-of-pocket expenses. In the
event Borrower and Bank schedule an audit more than ten (10) days in advance,
and Borrower cancels or seeks to reschedule the audit with less than ten (10)
days written notice to Bank, then (without limiting any of Bank’s rights or
remedies), Borrower shall pay Bank a fee of One Thousand Dollars ($1,000.00)
plus any out-of-pocket expenses incurred by Bank to compensate Bank for the
anticipated costs and expenses of the cancellation or rescheduling. Borrower
hereby acknowledges that the first such audit will be conducted within thirty
(30) days after the Effective Date. After the occurrence of an Event of Default,
Bank may audit Borrower’s Collateral at Borrower’s expense, including, but not
limited to, Borrower’s Accounts as frequently as Bank deems necessary at
Borrower’s expense and at Bank’s sole and exclusive discretion, without
notification to and authorization from Borrower.

 

(d)          Upon Bank’s request, provide a written report on any Financed
Receivable, where payment of such Financed Receivable does not occur within
thirty (30) days of its due date and include the reasons for the delay.

 

(e)          Provide Bank with, as soon as available, but no later than thirty
(30) days following each Reconciliation Period, an aged listing of accounts
receivable and accounts payable by invoice date, in form and detail acceptable
to Bank.

 

(f)          Provide Bank with, as soon as available, but no later than thirty
(30) days following each Reconciliation Period, and together with any request
for an Advance, a duly completed Borrowing Base Certificate signed by a
Responsible Officer, in form and detail acceptable to Bank.

 

(g)          Provide Bank with, as soon as available, but no later than thirty
(30) days following each Reconciliation Period, a Deferred Revenue report, in
form and detail acceptable to Bank.

 

6.3         Taxes. Make, and cause each Subsidiary to make, timely payment of
all foreign, federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP) and will deliver to Bank, on
demand, appropriate certificates attesting to such payments.

 

10 

 

 

6.4         Insurance. Keep its business and the Collateral insured for risks
and in amounts standard for companies in Borrower’s industry and location, and
as Bank may reasonably request. Insurance policies shall be in a form, with
companies, and in amounts that are reasonably satisfactory to Bank (it being
acknowledged that the insurance maintained by Borrower as of the Effective Date
is satisfactory to Bank as of the Effective Date). All property policies shall
have a lender’s loss payable endorsement showing Bank as the sole lender loss
payee and waive subrogation against Bank, and all liability policies shall show,
or have endorsements showing, Bank as an additional insured. All policies (or
the lender loss payable and additional insured endorsements) shall provide that
the insurer must give Bank at least twenty (20) days notice before canceling,
amending, or declining to renew its policy. At Bank’s request, Borrower shall
deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on
account of the Obligations. Notwithstanding the foregoing, (a) so long as no
Event of Default has occurred and is continuing, Borrower shall have the option
of applying the proceeds of any casualty policy up to Two Hundred Fifty Thousand
Dollars ($250,000.00), in the aggregate, toward the replacement or repair of
destroyed or damaged property; provided that any such replaced or repaired
property (i) shall be of equal or like value as the replaced or repaired
Collateral and (ii) shall be deemed Collateral in which Bank has been granted a
first priority security interest and (b) after the occurrence and during the
continuance of an Event of Default, all proceeds payable under such casualty
policy shall, at the option of Bank, be payable to Bank on account of the
Obligations. If Borrower fails to obtain insurance as required under this
Section 6.4 or to pay any amount or furnish any required proof of payment to
third persons and Bank, Bank may make all or part of such payment or obtain such
insurance policies required in this Section 6.4, and take any action under the
policies Bank deems prudent.

 

6.5         Accounts

 

(a)          At all times on and after the date that is sixty (60) days from the
Effective Date, to permit Bank to monitor Borrower’s financial performance and
condition, maintain all of Borrower’s and its Subsidiaries’ depository,
operating and securities/investment accounts with Bank and Bank’s Affiliates;
provided, however, Borrower may maintain its existing account no. [____________]
with JPMorgan containing an aggregate amount of funds not to exceed Twenty
Thousand Dollars ($20,000.00) at any time (the “Permitted Account). Any
Guarantor shall maintain all depository and operating accounts with Bank, and,
with respect to securities accounts, with an affiliate of Bank.

 

(b)          For any Collateral Account that Bank in its sole discretion permits
Borrower to open or maintain, Borrower shall cause the applicable bank or
financial institution (other than Bank) at or with which any Collateral Account
is maintained to execute and deliver a Control Agreement or other appropriate
instrument with respect to such Collateral Account to perfect Bank’s Lien in
such Collateral Account in accordance with the terms hereunder which Control
Agreement may not be terminated without the prior written consent of Bank. The
provisions of the previous sentence shall not apply to (a) the Permitted Account
or (b) deposit accounts exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of Borrower’s employees
and identified to Bank by Borrower as such.

 

6.6         Inventory; Returns; Notices of Adjustments. Keep all Inventory in
good and marketable condition, free from material defects. Returns and
allowances between Borrower and its Account Debtors shall follow Borrower’s
customary practices as they exist at the Effective Date. If, at any time during
the term of this Agreement, any Account Debtor asserts an Adjustment in excess
of One Hundred Thousand Dollars ($100,000.00), Borrower issues a credit
memorandum, or any representation, warranty or covenant set forth in this
Agreement or the other Loan Documents is no longer true in all material
respects, Borrower will promptly advise Bank.

 

6.7         Financial Covenant - Adjusted EBITDA. Maintain at all times, to be
tested as of the last day of each month, Adjusted EBITDA for the three (3) month
period ending on such date of at least (a) ($750,000.00) for the three (3) month
periods ending June 30, 2015, July 31, 2015, and August 31, 2015, (b)
($500,000.00) for the three (3) month periods ending September 30, 2015, October
31, 2015, and November 30, 2015, (c) ($300,000.00) for the three (3) month
periods ending December 31, 2015, January 31, 2016, and February 29, 2016, and
(d) One Dollar ($1.00) for the three (3) month period ending March 31, 2016 and
for each three (3) month period ending on the last day of each month thereafter.

 

6.8         Protection of Intellectual Property Rights

 

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

 

11 

 

 

(b)          Provide written notice to Bank within thirty (30) days of entering
or becoming bound by any Restricted License (other than over-the-counter
software that is commercially available to the public). Borrower shall take such
steps as Bank requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for (i) any Restricted License to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such Restricted
License, whether now existing or entered into in the future, and (ii) Bank to
have the ability in the event of a liquidation of any Collateral to dispose of
such Collateral in accordance with Bank’s rights and remedies under this
Agreement and the other Loan Documents.

 

6.9         Litigation Cooperation. From the Effective Date and continuing
through the termination of this Agreement, make available to Bank, without
expense to Bank, Borrower and its officers, employees and agents and Borrower’s
Books, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.

 

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

 

7            NEGATIVE COVENANTS

 

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

 

7.1         Dispositions. Convey, sell, lease, transfer, assign, or otherwise
dispose of (collectively a “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, except for Transfers (a)
of Inventory in the ordinary course of business; (b) of worn-out or obsolete
Equipment; (c) in connection with Permitted Liens and Permitted Investments; and
(d) of non-exclusive licenses for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business.

 

7.2         Changes in Business, Management, Ownership, or Business Locations.
(a) Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower and such Subsidiary, as
applicable, or reasonably related thereto; (b) liquidate or dissolve; or
(c) (i)  fail to provide notice to Bank of any Key Person departing from or
ceasing to be employed by Borrower within five (5) days after such Key Person’s
departure from Borrower or (ii) enter into any transaction or series of related
transactions (A) which result in Parent Borrower owning less than one hundred
percent (100.0%) of the equity interests in Subsidiary Borrower, or (B) in which
the stockholders of Parent Borrower who were not stockholders immediately prior
to the first such transaction own more than forty percent (40.0%) of the voting
stock of Parent Borrower immediately after giving effect to such transaction or
related series of such transactions (other than by the sale of Parent Borrower’s
equity securities in a public offering or to venture capital investors so long
as Borrower identifies to Bank the venture capital investors prior to the
closing of the transaction and provides to Bank a description of the material
terms of the transaction).

 

Borrower shall not, without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Five Thousand
Dollars ($5,000.00) in Borrower’s assets or property), (2) change its
jurisdiction of organization, (3) change its organizational structure or type,
(4) change its legal name, (5) change any organizational number (if any)
assigned by its jurisdiction of organization, or (6) deliver any portion of the
Collateral to a bailee, unless (i) such bailee location contains less than Five
Thousand Dollars ($5,000.00) in Borrower’s assets or property and (ii) Bank and
such bailee are parties to a bailee agreement governing both the Collateral and
the location to which Borrower intends to deliver the Collateral.

 

Borrower hereby agrees upon Borrower adding any new office or business location,
including any warehouse, Borrower will cause its landlord to enter into a
landlord consent in favor of Bank prior to such new office or business location
containing Five Thousand Dollars ($5,000.00) of Collateral.

 

12 

 

 

Borrower hereby agrees that prior to Borrower delivering any Collateral to a
bailee, Borrower shall cause such bailee to execute and deliver a bailee
agreement in form and substance satisfactory to Bank.

 

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

 

7.4         Indebtedness. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.

 

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

 

7.6         Maintenance of Collateral Accounts. Maintain any Collateral Account
except pursuant to the terms of Section 6.5 of this Agreement.

 

7.7         Distributions; Investments. (a) Directly or indirectly acquire or
own any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (b) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock or equity interests; provided, however, that, prior to the
occurrence of an Event of Default, Parent Borrower may pay up to Forty Two
Thousand Dollars ($42,000.00) in cash dividends to its shareholders in each
calendar quarter during the term of this Agreement.

 

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

 

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

 

7.10       Compliance. Become an “investment company” or a company controlled by
an “investment company”, under the Investment Company Act of 1940, as amended,
or undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, each as defined in ERISA, to occur;
fail to comply with the Federal Fair Labor Standards Act or violate any other
law or regulation, if the violation could reasonably be expected to have a
material adverse effect on Borrower’s business, or permit any of its
Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

 

13 

 

 

8             EVENTS OF DEFAULT

 

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

 

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

 

8.2         Covenant Default. Borrower fails or neglects to perform any
obligation in Section 2.8 or Section 6 of this Agreement or violates any
covenant in Section 7 of this Agreement or fails or neglects to perform, keep,
or observe any other term, provision, condition, covenant or agreement contained
in this Agreement, any Loan Documents and as to any default under such other
term, provision, condition, covenant or agreement that can be cured, has failed
to cure the default within ten (10) days after the occurrence thereof; provided,
however, grace and cure periods provided under this Section 8.2 shall not apply
to financial covenants or any other covenants that are required to be satisfied,
completed or tested by a date certain;

 

8.3         Material Adverse Change. A Material Adverse Change occurs;

 

8.4         Attachment; Levy; Restraint on Business

 

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

 

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

 

8.5         Insolvency. (a) Borrower is unable to pay its debts (including trade
debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an
Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower
and not dismissed or stayed within thirty (30) days (but no Credit Extensions
shall be made while any of the conditions described in clause (a) exist and/or
until any Insolvency Proceeding is dismissed);

 

8.6         Other Agreements. There is, under any agreement to which Borrower or
any Guarantor is a party with a third party or parties, (a) any default
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity of any Indebtedness in an amount individually or in
the aggregate in excess of One Hundred Thousand Dollars ($100,000.00); or
(b) any default by Borrower or Guarantor, the result of which could result in a
Material Adverse Change to Borrower’s or any Guarantor’s business;

 

8.7         Judgments. One or more final judgments, orders, or decrees for the
payment of money in an amount, individually or in the aggregate, of at least One
Hundred Thousand Dollars ($100,000.00) (not covered by independent third-party
insurance as to which liability has been accepted by such insurance carrier)
shall be rendered against Borrower and the same are not, within ten (10) days
after the entry thereof, discharged or execution thereof stayed or bonded
pending appeal, or such judgments are not discharged prior to the expiration of
any such stay (provided that no Credit Extensions will be made prior to the
discharge, stay, or bonding of such judgment, order, or decree);

 

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

 

14 

 

 

8.9         Subordinated Debt. Any document, instrument, or agreement evidencing
any Subordinated Debt shall for any reason be revoked or invalidated or
otherwise cease to be in full force and effect, any Person shall be in breach
thereof or contest in any manner the validity or enforceability thereof or deny
that it has any further liability or obligation thereunder, or the Obligations
shall for any reason be subordinated or shall not have the priority contemplated
by this Agreement or the applicable subordination agreement;

 

8.10       Guaranty. (a) Any guaranty of any Obligations terminates or ceases
for any reason to be in full force and effect; (b) any Guarantor does not
perform any obligation or covenant under any guaranty of the Obligations; (c)
any circumstance described in Sections 8.3, 8.4, 8.5, 8.6, 8.7, or 8.8 of this
Agreement occurs with respect to any Guarantor; (d) the death, liquidation,
winding up, or termination of existence of any Guarantor; or (e) (i) a material
impairment in the perfection or priority of Bank’s Lien in the collateral
provided by Guarantor or in the value of such collateral or (ii) a material
adverse change in the general affairs, management, results of operation,
condition (financial or otherwise) or the prospect of repayment of the
Obligations occurs with respect to any Guarantor; or

 

8.11       Governmental Approvals. Any Governmental Approval shall have been
(a) revoked, rescinded, suspended, modified in an adverse manner or not renewed
in the ordinary course for a full term or (b) subject to any decision by a
Governmental Authority that designates a hearing with respect to any
applications for renewal of any such Governmental Approval or that could result
in the Governmental Authority taking any of the actions described in clause (a)
above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) has, or could reasonably be expected to have, a
Material Adverse Change, or (ii) adversely affects the legal qualifications of
Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension,
modification or non-renewal could reasonably be expected to affect the status of
or legal qualifications of Borrower or any of its Subsidiaries to hold any
Governmental Approval in any other jurisdiction.

 

9            BANK’S RIGHTS AND REMEDIES

 

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

 

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

 

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

 

(c)          demand that Borrower (i) deposit cash with Bank in an amount equal
to one hundred five percent (105.0%) for Letters of Credit denominated in
Dollars and one hundred ten percent (110.0%) for Letters of Credit denominated
in a currency other than Dollars, in each case of the Dollar Equivalent of the
aggregate face amount of all Letters of Credit remaining undrawn (plus all
interest, fees, and costs due or to become due in connection therewith (as
estimated by Bank in its good faith business judgment)), to secure all of the
Obligations relating to such Letters of Credit, as collateral security for the
repayment of any future drawings under such Letters of Credit, and Borrower
shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter
of credit fees scheduled to be paid or payable over the remaining term of any
Letters of Credit;

 

(d)          settle or adjust disputes and claims directly with Account Debtors
for amounts, on terms and in any order that Bank considers advisable and notify
any Person owing Borrower money of Bank’s security interest in such funds and
verify the amount of such account. Borrower shall collect all payments in trust
for Bank and, if requested by Bank, immediately deliver the payments to Bank in
the form received from the Account Debtor, with proper endorsements for deposit;

 

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

 

15 

 

 

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

 

(g)          ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name,
trade secrets, trade names, Trademarks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section 9.1, Borrower’s rights under all
licenses and all franchise agreements inure to Bank’s benefit;

 

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

 

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

 

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

 

9.2         Protective Payments. If Borrower fails to obtain the insurance
called for by Section 6.4 of this Agreement or fails to pay any premium thereon
or fails to pay any other amount which Borrower is obligated to pay under this
Agreement or any other Loan Document, Bank may obtain such insurance or make
such payment, and all amounts so paid by Bank are Bank Expenses and immediately
due and payable, bearing interest at the then highest rate applicable to the
Obligations, and secured by the Collateral. Bank will make reasonable efforts to
provide Borrower with notice of Bank obtaining such insurance at the time it is
obtained or within a reasonable time thereafter. No payments by Bank are deemed
an agreement to make similar payments in the future or Bank’s waiver of any
Event of Default.

 

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

 

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

 

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

 

9.6         Borrower Liability. Either Borrower may, acting singly, request
Credit Extensions hereunder. Each Borrower hereby appoints the other as agent
for itself for all purposes hereunder, including with respect to requesting
Credit Extensions hereunder. Each Borrower hereunder shall be jointly and
severally obligated to repay all Credit Extensions made hereunder, regardless of
which Borrower actually receives said Credit Extensions, as if each Borrower
hereunder directly received all Credit Extensions. Each Borrower waives (a) any
suretyship defenses available to it under the Code or any other applicable law,
and (b) any right to require Bank to: (i) proceed against any Borrower or any
other person; (ii) proceed against or exhaust any security; or (iii) pursue any
other remedy. Bank may exercise or not exercise any right or remedy it has
against any Borrower or any security it holds (including the right to foreclose
by judicial or non-judicial sale) without affecting any Borrower’s liability.

 

16 

 

 

Notwithstanding any other provision of this Agreement or other related document,
each Borrower irrevocably waives all rights that it may have at law or in equity
(including, without limitation, any law subrogating Borrower to the rights of
Bank under this Agreement) to seek contribution, indemnification or any other
form of reimbursement from any other Borrower, or any other Person now or
hereafter primarily or secondarily liable for any of the Obligations, for any
payment made by Borrower with respect to the Obligations in connection with this
Agreement or otherwise and all rights that it might have to benefit from, or to
participate in, any security for the Obligations as a result of any payment made
by Borrower with respect to the Obligations in connection with this Agreement or
otherwise. Any agreement providing for indemnification, reimbursement or any
other arrangement prohibited under this Section 9.6 shall be null and void. If
any payment is made to a Borrower in contravention of this Section 9.6, such
Borrower shall hold such payment in trust for Bank and such payment shall be
promptly delivered to Bank for application to the Obligations, whether matured
or unmatured.

 

10           NOTICES

 

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

 

  If to Borrower: VirtualScopics, Inc.     VirtualScopics New York, LLC     500
Linden Oaks, 2nd Floor     Rochester, New York 14625     Attn: James Groff    
Fax: (585) 218-7350     Email: jim_groff@virtualscopics.com           With a
copy to: Woods Oviatt Gilman, LLP     700 Crossroads Building     2 State Street
    Rochester, New York 14614     Attn: Gregory W. Gribben, Esq     Fax: (585)
987-2975     Email: ggribben@woodsoviatt.com           If to Bank: Silicon
Valley Bank     275 Grove Street, Suite 2-200     Newton, Massachusetts 02466  
  Attn: Mr. Michael McMahon     Fax: (617) 527-0177     Email:  
MMcMahon@svb.com

 

 

17 

 

 

  with a copy to: Riemer & Braunstein LLP     Three Center Plaza     Boston,
Massachusetts  02108     Attn: David A. Ephraim, Esquire     Fax: (617) 880-3456
    Email: DEphraim@riemerlaw.com

 

11          CHOICE OF LAW, VENUE, AND JURY TRIAL WAIVER

 

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

 

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

 

12          GENERAL PROVISIONS

 

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

 

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

 

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

 

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

 

12.5       Correction of Loan Documents. Bank may correct patent errors and fill
in any blanks in the Loan Documents consistent with the agreement of the
parties.

 

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

 

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

 

12.8       Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, is an original, and all taken together, constitute
one Agreement.

 

12.9       Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than inchoate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been paid in full and satisfied. Without limiting the foregoing,
except as otherwise provided in Section 4.1, the grant of a security interest by
Borrower in Section 4.1 shall survive until the termination of this Agreement
and all Bank Services Agreements. The obligation of Borrower in Section 12.2 of
this Agreement to indemnify Bank shall survive until the statute of limitations
with respect to such claim or cause of action shall have run.

 

12.10      Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with
Bank, each a “Bank Entity” and collectively, the “Bank Entities”); (b) to
prospective transferees or purchasers of any interest in the Credit Extensions
(provided, however, Bank shall use its best efforts to obtain any prospective
transferee’s or purchaser’s agreement to the terms of this Section 12.10);
(c) as required by law, regulation, subpoena, or other order; (d) to Bank’s
regulators or as otherwise required in connection with Bank’s examination or
audit; (e) as Bank considers appropriate in exercising remedies under the Loan
Documents; and (f) to third-party service providers of Bank in the ordinary
course of Bank’s operations so long as such service providers have executed a
confidentiality agreement with Bank with terms no less restrictive than those
contained herein. For the purposes of this Agreement, “confidential information”
means all information delivered to Bank by or on behalf of Borrower pursuant to
this Agreement or any other Loan Document and all information of Borrower to
which Bank has access pursuant to this Agreement, whether such information is in
written, visual, oral or electronic format; provided, however, that
“confidential information” does not include information that is: (i) either in
the public domain other than as a result of Bank’s breach of this Section 12.10
or is in Bank’s possession when disclosed to Bank; or (ii) disclosed to Bank by
a third party on a nonconfidential basis if Bank does not know that the third
party is prohibited from disclosing the information.

 

19 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

13          DEFINITIONS

 

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

 

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

 

“Account Balance” is, on any date, the aggregate outstanding amount of all
Advances made based upon Aggregate Eligible Accounts.

 

“Account Debtor” is as defined in the Code and shall include, without
limitation, any person liable on any Financed Receivable, such as, a guarantor
of the Financed Receivable and any issuer of a letter of credit or banker’s
acceptance.

 

20 

 

 

“Adjusted EBITDA” shall mean, for any period of determination, (a) earnings
before interest, taxes, depreciation and amortization and non-cash stock
compensation minus (b) unfinanced capital expenditures.

 

“Adjusted Quick Ratio” is the ratio of (a) Quick Assets to (b) Current
Liabilities minus the current portion of Deferred Revenue.

 

“Adjustments” are all discounts allowances, returns, recoveries, disputes,
claims of any kind (including, without limitation, counterclaims or warranty
claims), offsets, defenses, rights of recoupment, rights of return, or short
payments, asserted by or on behalf of any Account Debtor for any Financed
Receivable.

 

“Advance” is defined in Section 2.1.1 of this Agreement.

 

“Advance Request and Invoice Transmittal” shows Aggregate Eligible Accounts,
which Bank may finance, and includes (i) the Account Debtor’s name, address,
invoice amount, invoice date and invoice number, (ii) the current outstanding
amount of Advances made based upon Aggregate Eligible Accounts and (iii) the
Availability Amount.

 

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

 

“Aggregate Eligible Accounts” is defined in Section 2.1.1.

 

“Agreement” is defined in the preamble of this Agreement.

 

“Applicable Rate” is a floating per annum rate equal to (a) at all times when
Borrower is Streamline Facility Eligible, the Prime Rate plus one percent
(1.0%), and (b) at all times when Borrower is not Streamline Facility Eligible,
the Prime Rate plus one and one-quarter of one percent (1.25%).

 

“Availability Amount” is the lesser of (a) the Maximum Availability Amount and
(b) the Borrowing Base.

 

“Bank” is defined in the preamble of this Agreement.

 

“Bank Entities” is defined in Section 12.10.

 

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

 

“Bank Services” are any products, credit services, and/or financial
accommodations previously, now, or hereafter provided to Borrower or any of its
Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any
letters of credit, cash management services (including, without limitation,
merchant services, direct deposit of payroll, business credit cards, and check
cashing services), interest rate swap arrangements, and foreign exchange
services as any such products or services may be identified in Bank’s various
agreements related thereto (each, a “Bank Services Agreement”).

 

21 

 

 

“Bank Services Agreement” is defined in the definition of Bank Services.

 

“Borrower” is defined in the preamble of this Agreement.

 

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

 

“Borrowing Base” is eighty percent (80.0%) (or such other percentage as Bank
establishes under Section 2.1.1) multiplied by Borrower’s Aggregate Eligible
Accounts (net of any offsets related to each specific Account Debtor, including,
without limitation, Deferred Revenue).

 

“Borrowing Base Certificate” is that certain certificate in the form attached
hereto as Exhibit D.

 

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

 

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

 

“Cash Collateral Account” is defined in Section 2.8 of this Agreement.

 

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc.; and (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue.

 

22 

 

 

“Claims” is defined in Section 12.2 of this Agreement.

 

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

 

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

 

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

 

“Collections” are all funds received by Bank from or on behalf of an Account
Debtor for Financed Receivables.

 

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

 

“Compliance Certificate” is attached as Exhibit B.

 

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

 

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

 

23 

 

 

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

 

“Credit Extension” is any Advance or any other extension of credit by Bank for
Borrower’s benefit.

 

“Current Liabilities” are all obligations and liabilities of Borrower to Bank,
plus, without duplication, the aggregate amount of Borrower’s Total Liabilities
that mature within one (1) year.

 

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

 

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

 

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

 

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

 

“Early Termination Fee” is defined in Section 2.1.1(f) of this Agreement.

 

“Effective Date” is defined in the preamble hereof.

 

“Eligible Accounts” are billed Accounts of Parent Borrower in the ordinary
course of Borrower’s business that meet all Borrower’s representations and
warranties in Section 5.3 of this Agreement, have been, at the option of Bank,
confirmed in accordance with Section 2.1.1(d) of this Agreement, and are due and
owing from Account Debtors deemed creditworthy by Bank in its good faith
business judgment. Without limiting the fact that the determination of which
Accounts are eligible hereunder is a matter of Bank discretion in each instance,
Eligible Accounts shall not include the following Accounts (which listing may be
amended or changed in Bank’s discretion with notice to Borrower):

 

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

 

(b)          Accounts that the Account Debtor has not paid within one hundred
twenty (120) days of invoice date regardless of invoice payment period terms;

 

(c)          Accounts with credit balances over one hundred twenty (120) days
from invoice date;

 

(d)          Accounts owing from an Account Debtor which does not have its
principal place of business in the United States or Canada, except for (i)
Accounts for which the Account Debtor is Roche, Novartis AG, PPD, AstraZeneca,
Merck, and GSK and (ii) other Accounts otherwise approved by Bank in writing on
a case-by-case basis in its sole discretion;

 

24 

 

 

(e)          Accounts billed and/or payable outside of the United States, unless
otherwise approved by Bank in writing on a case-by-case basis in its sole
discretion;

 

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

 

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

 

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

 

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

 

(j)          Accounts subject to contractual arrangements between Borrower and
an Account Debtor where payments shall be scheduled or due according to
completion or fulfillment requirements (sometimes called contracts accounts
receivable, progress billings, milestone billings, or fulfillment contracts);

 

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

 

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

 

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

 

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

 

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

 

25 

 

 

(p)          Accounts with a due date that is more than one hundred twenty (120)
days from invoice date;

 

(q)          Accounts subject to chargebacks, debit memos, or other payment
deductions taken by an Account Debtor;

 

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

 

(s)          Accounts in which the Account Debtor disputes liability or makes
any claim (but only up to the disputed or claimed amount), or (i) if the Account
Debtor is subject to an Insolvency Proceeding, (i) the fair salable value of the
Account Debtor’s assets (including goodwill minus disposition costs) is less
than the fair value of its liabilities, (iii) the Account Debtor is unable to
pay its debts (including trade debts) as they mature, or (iv) the Account Debtor
goes out of business;

 

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

 

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

 

(v)         Accounts owing from an Account Debtor, fifty percent (50.0%) or more
of whose Accounts are then outstanding have not been paid within one hundred
twenty (120) days of invoice date;

 

(w)         Accounts owing from an Account Debtor, including its Affiliates,
whose total obligations to Borrower exceed thirty-five percent (35.0%) of all
Accounts, for the amounts that exceed that percentage, unless Bank otherwise
approves in writing; and

 

(x)          Accounts of Subsidiary Borrower.

 

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

 

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

 

“Events of Default” are set forth in Section 8 of this Agreement.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

“Facility Amount” is Two Million Five Hundred Thousand Dollars ($2,500,000.00).

 

“Facility Fee” is defined in Section 2.4 of this Agreement.

 

“Finance Charges” is defined in Section 2.5 of this Agreement.

 

26 

 

 

“Financed Receivables” are all those Aggregate Eligible Accounts, including
their proceeds which Bank finances and makes an Advance, as set forth in Section
2.1.1 of this Agreement. A Financed Receivable stops being a Financed Receivable
(but remains Collateral) when the Advance made for the Financed Receivable has
been fully paid.

 

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

 

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

 

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

 

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

 

“Guarantor” is any present or future guarantor of the Obligations.

 

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

 

“Indemnified Person” is defined in Section 12.2 of this Agreement.

 

“Initial Audit” is Bank’s inspection of Borrower’s Accounts, the Collateral, and
Borrower’s Books, with results satisfactory to Bank in its sole and absolute
discretion.

 

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

 

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

 

(a)          its Copyrights, Trademarks and Patents;

 

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

 

(c)          any and all source code;

 

27 

 

 

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

 

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

 

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

 

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

 

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

 

“Key Person” is each of Parent Borrower’s Chief Executive Officer and Chief
Financial Officer.

 

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

 

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

 

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate,
any subordination agreements, the SVB Control Agreement, any Bank Services
Agreement, the Borrowing Resolutions, any note, or notes or guaranties executed
by Borrower and/or any Guarantor, and any other present or future agreement
between Borrower and/or any Guarantor and/or for the benefit of Bank, all as
amended, restated, or otherwise modified.

 

“Material Adverse Change” is: (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower; (c) a material impairment of the prospect
of repayment of any portion of the Obligations; or (d) Bank determines, based
upon information available to it and in its reasonable judgment, that there is a
reasonable likelihood that Borrower shall fail to comply with one or more of the
financial covenants in Section 6 of this Agreement during the next succeeding
financial reporting period.

 

“Maturity Date” is 364 days from the Effective Date.

 

“Maximum Availability Amount” is Two Million Dollars ($2,000,000.00).

 

“Minimum Finance Charge” is Two Thousand Dollars ($2,000.00).

 

28 

 

 

“Obligations” are Borrower’s obligations to pay when due any debts, principal,
interest, the Early Termination Fee, Bank Expenses and other amounts Borrower
owes Bank now or later, whether under this Agreement, or the Loan Documents,
including, without limitation, any interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank, and to perform Borrower’s duties under the Loan Documents.

 

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

 

“Parent Borrower” is defined in the preamble of this Agreement.

 

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

 

“Perfection Certificate” is defined in Section 5.1 of this Agreement.

 

“Permitted Account” is defined in Section 6.5(a).

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c)          Subordinated Debt;

 

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

 

(e)          Indebtedness secured by Liens permitted under clause (c) of the
definition of “Permitted Liens” hereunder; and

 

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

 

“Permitted Investments” are:

 

(a)          Investments (including, without limitation, Subsidiaries) existing
on the Effective Date which are shown on the Perfection Certificate (but
specifically excluding any future Investments in any Subsidiaries unless
otherwise permitted hereunder);

 

(b)          Investments consisting of Cash Equivalents; and

 

(c)          Investments consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plans or agreements approved by Borrower’s board of
directors.

 

29 

 

 

“Permitted Liens” are:

 

(a)          Liens existing on the Effective Date which are shown on the
Perfection Certificate or arising under this Agreement and the other Loan
Documents;

 

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

 

(c)          purchase money Liens (i) on Equipment acquired or held by Borrower
incurred for financing the acquisition of the Equipment securing no more than
Two Hundred Five Thousand Dollars ($205,000.00) in the aggregate amount
outstanding, or (ii) existing on Equipment when acquired, if the Lien is
confined to the property and improvements and the proceeds of the Equipment; and

 

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

 

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

 

“Prime Rate” is, with respect to any day, the greater of (a) three and
one-quarter of one percent (3.25%) and (b) the “Prime Rate” as quoted in the
Wall Street Journal print edition on such day (or, if such day is not a day on
which the Wall Street Journal is published, the immediately preceding day on
which the Wall Street Journal was published).

 

“Quick Assets” is, on any date, Borrower’s unrestricted and unencumbered cash
maintained with Bank and net billed accounts receivable, determined according to
GAAP.

 

“Reconciliation Period” is each calendar month.

 

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

 

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

 

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

 

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

 

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

 

30 

 

 

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

 

“Streamline Facility Eligible” means, as of any day during any Subject Month,
Borrower has provided evidence to Bank that Borrower (a) had an Adjusted Quick
Ratio of greater than 1.50 to 1.0 at all times during the applicable Testing
Month, and (b) has an Adjusted Quick Ratio of greater than 1.50 to 1.0 on such
day.

 

“Subject Month” is the month which is two (2) calendar months after any Testing
Month.

 

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

 

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

 

“Subsidiary Borrower” is defined in the preamble of this Agreement.

 

“SVB Control Agreement” is, collectively, (a) that certain Securities Account
Control Agreement by and among SVB Securities, Apex Clearing Corporation, Parent
Borrower and Bank and (b) that certain Securities Account Control Agreement by
and among SVB Securities, Apex Clearing Corporation, Subsidiary Borrower and
Bank.

 

“Testing Month” is any month with respect to which Bank has tested Borrower’s
Adjusted Quick Ratio to determine whether Borrower is Streamline Facility
Eligible.

 

“Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower’s consolidated balance sheet, including
all Indebtedness.

 

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

 

“Transfer” is defined in Section 7.1 of this Agreement.

 

[Signature page follows.]

 

31 

 

 

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

 

BORROWER   VIRTUALSCOPICS, INC.     By:     Name:     Title:        
VIRTUALSCOPICS NEW YORK, LLC     By:     Name:     Title:         BANK      
SILICON VALLEY BANK     By:     Name:     Title:    

 

32 

 

 

EXHIBIT A

 

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

 

All goods, equipment, inventory, contract rights or rights to payment of money,
leases, license agreements, franchise agreements, general intangibles (including
payment intangibles), accounts (including health-care receivables), documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, all certificates of deposit, fixtures,
letters of credit rights (whether or not the letter of credit is evidenced by a
writing), commercial tort claims, securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and any license rights and agreements and
confidential information, now owned or hereafter acquired; or any claims for
damages by way of any past, present and future infringement of any of the
foregoing; and

 

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

 

Notwithstanding the foregoing, the Collateral shall not be deemed to include any
copyrights (including computer programs, blueprints and drawings), copyright
applications, copyright registration and like protection in each work of
authorship and derivative work thereof, whether published or unpublished, now
owned or hereafter acquired; any design rights; any patents, patent applications
and like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same, trademarks, servicemarks and applications therefor, whether registered or
not, or any other Intellectual Property except that the Collateral shall include
all accounts, license and royalty fees and other revenues, proceeds, or income
arising out of or relating to any of the foregoing.

 

1 

 

 

EXHIBIT B

 

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SPECIALTY FINANCE DIVISION

 

Compliance Certificate

 

I, an authorized officer of VIRTUALSCOPICS, INC. and VIRTUALSCOPICS NEW YORK,
LLC (jointly and severally, individually and collectively, “Borrower”) certify
under the Loan and Security Agreement (as amended, the “Agreement”) between
Borrower and Silicon Valley Bank (“Bank”) as follows for the period ending
_____________________________ (all capitalized terms used herein shall have the
meaning set forth in the Agreement):

 

Borrower represents and warrants for each Financed Receivable:

 

Each Financed Receivable is an Eligible Account;

 

Borrower is the owner of and has the legal right to sell, transfer, assign and
encumber such Financed Receivable;

 

The correct gross amount of each Financed Receivable is set forth on the Advance
Request and Invoice Transmittal and is not disputed;

 

Payment is not contingent on any obligation or contract and Borrower has
fulfilled all its obligations as of the Advance Request and Invoice Transmittal
date;

 

Each Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted Liens;

 

There are no defenses, offsets, counterclaims or agreements for which the
Account Debtor may claim any deduction or discount;

 

Borrower reasonably believes (a) the fair salable value of each Account Debtor’s
assets (including goodwill minus disposition costs) exceeds the fair value of
its liabilities, (b) each Account Debtor is able to pay its debts (including
trade debts) as they mature and (c) no Account Debtor is subject to any
Insolvency Proceedings;

 

Borrower has not filed or had filed against it Insolvency Proceedings and does
not anticipate any filing;

 

Bank has the right to endorse and/ or require Borrower to endorse all payments
received on Financed Receivables and all proceeds of Collateral; and

 

No representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained in
the certificates or statement not misleading.

 

Additionally, Borrower represents and warrants as follows:

 

Borrower and each Subsidiary is duly existing and in good standing in its state
of formation and qualified and licensed to do business in, and in good standing
in, any state in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change. The execution,
delivery and performance of the Loan Documents have been duly authorized, and do
not conflict with Borrower’s organizational documents, nor constitute an event
of default under any material agreement by which Borrower is bound. Borrower is
not in default under any agreement to which or by which it is bound in which the
default could reasonably be expected to cause a Material Adverse Change.

 

 

 

 

Borrower has good title to the Collateral, free of Liens except Permitted Liens.
All inventory is in all material respects of good and marketable quality, free
from material defects.

 

Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act of 1940, as amended.
Borrower is not engaged as one of its important activities in extending credit
for margin stock (under Regulations X, T and U of the Federal Reserve Board of
Governors). Borrower has complied in all material respects with the Federal Fair
Labor Standards Act. Borrower has not violated any laws, ordinances or rules,
the violation of which could reasonably be expected to cause a Material Adverse
Change. None of Borrower’s or any Subsidiary’s properties or assets have been
used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by
previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all material taxes, except those being contested in good faith with
adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to obtain
or make such consents, declarations, notices or filings would not reasonably be
expected to cause a Material Adverse Change.

 

Borrower is in compliance with the financial covenant(s) set forth in Section
6.7 of this Agreement. Attached are the required documents supporting the
certification. The undersigned certifies that these are prepared in accordance
with GAAP consistently applied from one period to the next except as explained
in an accompanying letter or footnotes.

 

The undersigned acknowledges that no borrowings may be requested at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that compliance is determined not just at the date this
certificate is delivered.

 

Financial Covenant

 

    Required   Actual   Compliance               Adjusted EBITDA (three-month)  
> $______*   $______   Yes   No

 

*As set forth in Section 6.7 of the Agreement

 

Streamline Facility Eligibility

 

    Required   Actual   Eligible               Adjusted Quick Ratio   
> 1.50:1.0   ___:1.0   Yes   No

 

All other representations and warranties in the Agreement are true and correct
in all material respects on this date, and Borrower represents that there is no
existing Event of Default.

 

Sincerely,

 

VIRTUALSCOPICS, INC.

VIRTUALSCOPICS NEW YORK, LLC

 

    Signature       Title       Date

 

 

 

 

EXHIBIT C

[To be provided by Bank.]

 

 

 

 

EXHIBIT D

 

BORROWING BASE CERTIFICATE

 

 

Borrower: VirtualScopics, Inc. and VirtualScopics New York, LLC Lender: Silicon
Valley Bank Commitment Amount: $2,000,000.00

 

ACCOUNTS RECEIVABLE   1. Accounts Receivable (invoiced) Book Value as of
____________________ $_______________ 2. Additions (please explain on next page)
$_______________ 3. Less: Intercompany / Employee / Non-Trade Accounts
$_______________ 4. NET TRADE ACCOUNTS RECEIVABLE $_______________      
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)   5.
Affiliate/Subsidiary/Intercompany/Employee Accounts/invoices $_______________ 6.
120 Days Past Invoice Date $_______________ 7. Credit Balances over 120 days
$_______________ 8. Foreign Account Debtors (non-U.S./Canada/Exceptions: Roche,
Novartis AG, PPD, AstraZeneca, Merck, and GSK) $_______________ 9. Accounts
billed and/or payable outside the United States $_______________ 10.
Contra/Customer Deposit Accounts $_______________ 11 U.S. Government Accounts
w/o assignment of claims $_______________ 12. Promotion or Demo Accounts;
Guaranteed Sale or Consignment Sale Accounts $_______________ 13. Accounts with
Memo or Pre-Billings $_______________ 14. Contract Accounts; Accounts with
Progress/Milestone Billings $_______________ 15. Accounts for Retainage or
Retention Billings $_______________ 16. Trust / Bonded Accounts $_______________
17. Bill and Hold Accounts $_______________ 18. Unbilled Accounts
$_______________ 19. Non-Trade Accounts (if not already deducted above)
$_______________ 20. Payment Terms over 120 Days $_______________ 21.
Chargebacks Accounts / Debit Memos $_______________ 22. Product
Returns/Exchanges $_______________ 23. Disputed Accounts; Insolvent Account
Debtor Accounts $_______________ 24. Deferred Revenue $_______________ 25.
Balance of 50.0% over 120 Days Accounts (cross-age or current affected)
$_______________ 26. Concentration Limits (35.0%) $_______________ 27. Accounts
of Subsidiary Borrower $_______________ 28. Doubtful / Refreshed / Recycled
Accounts $_______________ 29. Other (please explain on next page)
$_______________ 30. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_______________ 31.
Eligible Accounts (#4 minus #30) $_______________ 32. ELIGIBLE AMOUNT OF
ACCOUNTS (80.0% of #31) $_______________       BALANCES   33. Maximum
Availability Amount $_______________ 34. Total Funds Available (lesser of #32 or
#33) $_______________ 35. Present balance of Advances $_______________ 36.
RESERVE POSITION (#34 minus #35) $_______________

 

[Continued on following page.]

 

 

 

 

Explanatory comments from above:          

 

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.

 

COMMENTS:

 

VIRTUALSCOPICS, INC.

VIRTUALSCOPICS NEW YORK, LLC

 

By: ___________________________

Authorized Signer

 

Date: _______________

BANK USE ONLY

Received by: _____________________

authorized signer

Date: __________________________

Verified: ________________________

authorized signer

Date: ___________________________

Compliance Status:          Yes    No