EXHIBIT 10.1
 
 
EXECUTION COPY
 
 
LOAN AND SECURITY AGREEMENT
 
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective
Date among SILICON VALLEY BANK, a California corporation with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at One Newton Executive Park, Suite 200, 2221
Washington Street, Newton, Massachusetts  02462 (“Bank”), WORLD ENERGY
SOLUTIONS, INC., a Delaware corporation with offices located at 446 Main Street,
Worcester, Massachusetts 01608, and WORLD ENERGY SECURITIES CORP., a
Massachusetts securities corporation with offices located at 446 Main Street,
Worcester, Massachusetts 01608 (individually and collectively, jointly and
severally, “Borrower”), 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.  Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13.  All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.
 
2              LOAN AND TERMS OF PAYMENT
 
2.1           Promise to Pay.  Borrower hereby unconditionally promises to pay
Bank the outstanding principal amount of all Credit Extensions and accrued and
unpaid interest thereon as and when due in accordance with this Agreement.
 
2.1.1        Revolving Advances.
 
(a) Availability.  Subject to the terms and conditions of this Agreement and to
deduction of Reserves, Bank will make Advances to Borrower up to the
Availability Amount.  Amounts borrowed under the Revolving Line may be repaid,
and prior to the Revolving Line Maturity Date, reborrowed, subject to the
applicable terms and conditions precedent herein.
 
(b) Termination; Repayment.  The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest
thereon, and all other Obligations relating to the Revolving Line shall be
immediately due and payable.
 
2.1.2        Letters of Credit Sublimit.
 
(a)            As part of the Revolving Line and subject to deduction of
Reserves, Bank shall issue or have issued Letters of Credit for Borrower’s
account.  The face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed
One Million Dollars ($1,000,000.00) inclusive of Credit Extensions relating to
Sections 2.1.3 and 2.1.4.  Such aggregate amounts utilized hereunder shall at
all times reduce the amount otherwise available for Advances under the Revolving
Line.  If, on the Revolving Line Maturity Date or after the occurrence and
during the continuance of an Event of Default there are any outstanding Letters
of Credit, then on such date Borrower shall provide to Bank cash collateral in
an amount equal to 105% of the 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 said Letters of Credit.  All Letters of Credit shall be
in form and substance acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank’s standard Application and Letter of
Credit Agreement (the “Letter of Credit Application”), provided that, to the
extent of any conflict, this Agreement shall govern.  Borrower agrees to execute
any further documentation in connection with the Letters of Credit as Bank may
reasonably request.  Borrower further agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Bank and
opened for Borrower’s account or by Bank’s interpretations of any Letter of
Credit issued by Bank for Borrower’s account, and Borrower understands and
agrees that Bank shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower’s instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto, except Bank’s gross negligence or willful misconduct.
 

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(b)            The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional, and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, such Letters of Credit, and the Letter of Credit
Application.  Any amounts Bank pays on behalf of Borrower for any Letters of
Credit will be treated as Advances under the Revolving Line and will accrue
interest at the interest rate applicable to Advances.
 
(c)            Borrower may request that Bank issue a Letter of Credit payable
in a Foreign Currency.  If a demand for payment is made under any such Letter of
Credit, Bank shall treat such demand as an Advance to Borrower of the equivalent
of the amount thereof (plus fees and charges in connection therewith such as
wire, cable, SWIFT or similar charges) in Dollars at 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.
 
(d)            To guard against fluctuations in currency exchange rates, upon
the issuance of any Letter of Credit payable in a Foreign Currency, Bank shall
create a reserve (the “Letter of Credit Reserve”) under the Revolving Line in an
amount equal to ten percent (10%) of the face amount of such Letter of
Credit.  The amount of the Letter of Credit Reserve may be adjusted by Bank from
time to time to account for fluctuations in the exchange rate.  The availability
of funds under the Revolving Line shall be reduced by the amount of such Letter
of Credit Reserve for as long as such Letter of Credit remains outstanding.
 
2.1.3        Foreign Exchange Sublimit.  As part of the Revolving Line, Borrower
may enter into foreign exchange contracts with Bank under which Borrower commits
to purchase from or sell to Bank a specific amount of Foreign Currency (each, a
“FX Forward Contract”) on a specified date (the “Settlement Date”).  FX Forward
Contracts shall have a Settlement Date of at least one (1) FX Business Day after
the contract date and shall be subject to a reserve of ten percent (10%) of each
outstanding FX Forward Contract in a maximum aggregate amount equal to One
Hundred Thousand Dollars ($100,000.00) (the “FX Reserve”).  The aggregate amount
of FX Forward Contracts at any one time plus Credit Extensions made pursuant to
Sections 2.1.2 and 2.1.4 may not exceed ten (10) times the maximum amount of the
FX Reserve.  Any amounts needed to fully reimburse Bank will be treated as
Advances under the Revolving Line and will accrue interest at the interest rate
applicable to Advances.
 
2.1.4        Cash Management Services Sublimit.  Borrower may use up to One
Million Dollars ($1,000,000.00) inclusive of Credit Extensions relating to
Sections 2.1.2 and 2.1.3 (the “Cash Management Services Sublimit”) of the
Revolving Line for Bank’s cash management services which may include merchant
services, direct deposit of payroll, business credit card, and check cashing
services identified in Bank’s various cash management services agreements
(collectively, the “Cash Management Services”).  The dollar amount of any Cash
Management Services provided under this sublimit will reduce the amount
otherwise available under the Revolving Line.  Any amounts used or reserved by
Borrower for any Cash Management Services will reduce the amount otherwise
available for Credit Extensions under the Revolving Line.  Any amounts Bank pays
on behalf of Borrower for any Cash Management Services will be treated as
Advances under the Revolving Line and will accrue interest at the interest rate
applicable to Advances.
 
2.2           Overadvances.  If, at any time the sum of (a) the outstanding
amount of any Advances (including any amounts used for Cash Management Services)
plus (b) the face amount of any outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit and any Letter of Credit Reserve, plus (c)
the FX Reserve exceeds the lesser of either the Revolving Line or the Borrowing
Base (such excess amount being an “Overadvance”), Borrower shall pay to Bank in
cash such Overadvance immediately; provided, however, that if such Overadvance
results from Bank’s exercising its right to decrease the percentages of the
Borrowing Base or to adjust the criteria for Eligible Accounts, Borrower shall
have three (3) Business Days from receipt of notice from Bank of such decrease
or adjustment to repay such Overadvance.
 
2.3           Payment of Interest on the Credit Extensions.
 
(a)            Interest Rate; Advances.  Subject to Section 2.3(b), (a) the
principal amount of the Revolving Line outstanding due to Advances made in
respect of Eligible Accounts shall accrue interest at a floating per annum rate
equal to the aggregate of the Prime Rate plus one and three-quarters of one
percentage point (1.75%), provided, however, during a Streamline Period, the
principal amount of the Revolving Line outstanding due to Advances made in
respect of Eligible Accounts shall accrue interest at a floating per annum rate
equal to the aggregate of the Prime Rate plus three-quarters of one percentage
point (0.75%); and (b) the principal amount of the Revolving Line outstanding
due to Advances made in respect of Eligible Retail Backlog Accounts shall accrue
interest at a floating per annum rate equal to the aggregate of the Prime Rate
plus two and one-quarter of one
 
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percentage point (2.25%), provided, however, during a Streamline Period, the
principal amount of the Revolving Line outstanding due to Advances made in
respect of Eligible Retail Backlog Accounts shall accrue interest at a floating
per annum rate equal to the aggregate of the Prime Rate plus one and one-half of
one percentage point (1.50%).  Interest on any Credit Extension shall be payable
monthly.
 
(b)            Default Rate. Immediately upon the occurrence and during the
continuance of an Event of Default, Obligations shall bear interest at a rate
per annum which is four percentage points (4.00%) above the rate effective
immediately before the occurrence of the Event of Default (the “Default
Rate”).  Payment or acceptance of the increased interest rate provided in this
Section 2.3(b) is not a permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of Bank.
 
(c)            Adjustment to Interest Rate.  Changes to the interest rate of any
Credit Extension based on changes to the Prime Rate shall be effective on the
effective date of any change to the Prime Rate and to the extent of any such
change.
 
(d)            360-Day Year.  Interest shall be computed on the basis of a
360-day year for the actual number of days elapsed.
 
(e)            Debit of Accounts.  Bank may debit any of Borrower’s deposit
accounts, including the Designated Deposit Account, for principal and interest
payments or any other amounts Borrower owes Bank when due.  These debits shall
not constitute a set-off.
 
(f)             Payment; Interest Computation; Float Charge.  Interest is
payable monthly on the last Business Day of each month.  In computing interest
on the Obligations, all Payments received after 3:00 p.m. local Boston time on
any day shall be deemed received on the next Business Day.  Bank shall be
entitled to charge Borrower a “float” charge in an amount equal to two (2)
Business Days interest, at the interest rate applicable to the Advances, on all
Payments received by Bank.  Said float charge is not applicable during a
Streamline Period, and is not included in interest for purposes of computing
Minimum Monthly Interest (if any) under this Agreement.  The float charge for
each month shall be payable on the last day of the month.  Bank shall not,
however, be required to credit Borrower’s account for the amount of any item of
payment which is unsatisfactory to Bank in its good faith business judgment, and
Bank may charge Borrower’s Designated Deposit Account for the amount of any item
of payment which is returned to Bank unpaid.
 
2.4           Fees.  Borrower shall pay to Bank:
 
(a)            Commitment Fee.  A fully earned, non-refundable commitment fee of
Twenty Thousand Dollars ($20,000.00), on the Effective Date;
 
(b)            Letter of Credit Fee.  Bank’s customary fees and expenses for the
issuance or renewal of Letters of Credit, upon the issuance or renewal of such
Letter of Credit by Bank;
 
(c)            Termination Fee.  Subject to the terms of Section 12.1, a
termination fee;
 
(d)            Unused Revolving Line Facility Fee.  A fee (the “Unused Revolving
Line Facility Fee”), which fee shall be paid monthly, in arrears, on the last
Business Day of each month, in an amount equal to one-half of one percent
(0.50%) per annum of the average unused portion of the Revolving Line, as
determined by Bank.  Borrower shall not be entitled to any credit, rebate or
repayment of any Unused Revolving Line Facility Fee previously earned by Bank
pursuant to this Section notwithstanding any termination of the within
Agreement, or suspension or termination of Bank’s obligation to make loans and
advances hereunder; and
 
 (f)            Bank Expenses.  All Bank Expenses (including reasonable
attorneys’ fees and expenses for documentation and negotiation of this
Agreement) which are the subject of an invoice delivered to Borrower, incurred
through and after the Effective Date, when due.
 
3              CONDITIONS OF LOANS
 
3.1           Conditions Precedent to Initial Advance.  Bank’s obligation to
make the initial Advance is subject to the condition precedent that Bank shall
have received, in form and substance satisfactory to Bank, such
 
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documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate, including, without limitation:
 
(a)            Borrower shall have delivered duly executed original signatures
to the Loan Documents to which it is a party;
 
(b)            Other than accounts described in Section 6.8(a)(i), Borrower
shall have delivered duly executed original signatures to the Control
Agreement(s);
 
(c)            Borrower shall have delivered its Operating Documents and a good
standing certificate of Borrower certified by the Secretary of State of the
applicable state of incorporation or organization of Borrower, dated as of a
date no earlier than thirty (30) days prior to the Effective Date;
 
(d)            Borrower shall have delivered duly executed original signatures
to the completed Borrowing Resolutions for Borrower;
 
(e)            Borrower shall have delivered the Subordination Agreement duly
executed by any holder of Subordinated Debt as required by Bank, in favor of
Bank;
 
(f)             Bank shall have received 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;
 
(g)            Borrower shall have delivered the Perfection Certificate(s)
executed by Borrower;
 
(h)            Borrower shall have delivered a bailee’s/warehouseman’s waiver
executed by each bailee, if any, of Borrower as required by Bank, in favor of
Bank;
 
(i)             Borrower shall have delivered a legal opinion of Borrower’s
counsel as to authority and enforceability, dated as of the Effective Date
together with the duly executed original signatures thereto;
 
(j)             Borrower shall have delivered evidence satisfactory to Bank that
the insurance policies required by Section 6.7 hereof are in full force and
effect, together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements in favor of Bank;
 
(k)            the completion of the Initial Audit with results satisfactory to
Bank in its sole and absolute discretion; and
 
(l)             Borrower shall have paid the fees and Bank Expenses then due as
specified in Section 2.4 hereof.
 
3.2           Conditions Precedent to all Credit Extensions.  Bank’s obligations
to make each Credit Extension, including the initial Credit Extension, is
subject to the following:
 
(a)            Subject to Section 6.2(a), timely receipt of an executed
Transaction Report;
 
(b)            the representations and warranties in Section 5 shall be true in
all material respects on the date of the Transaction Report and on the Funding
Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, and no Default or Event of Default shall have occurred and be
continuing or result from the Credit Extension.  The Borrower’s acceptance of
each Credit Extension is Borrower’s representation and warranty on that date
that the representations and warranties in Section 5 remain true in all material
respects; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date; and
 
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(c)            in Bank’s good faith business judgment, there has not been any
material impairment in the general affairs, management, results of operation,
financial condition or the prospect of repayment of the Obligations, and that
Borrower is in general compliance with its most recent business plan presented
to and accepted by Bank.
 
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 to any Credit Extension.  Borrower expressly
agrees that the extension of a Credit Extension 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 any such extension in the absence of a required item
shall be in Bank’s sole discretion.
 
3.4           Procedures for Borrowing.  Subject to the prior satisfaction of
all other applicable conditions to the making of an Advance set forth in this
Agreement, to obtain an Advance (other than Advances under Sections 2.1.2, 2.1.3
or 2.1.4), Borrower shall notify Bank (which notice shall be irrevocable) by
electronic mail, facsimile, or telephone by 3:00 p.m. local Boston time on the
Funding Date of the Advance.  Together with such notification, Borrower must
promptly deliver to Bank by electronic mail or facsimile a completed Transaction
Report executed by a Responsible Officer or his or her designee.  Bank shall
credit Advances to the Designated Deposit Account.  Bank may make Advances under
this Agreement based on instructions from a Responsible Officer or his or her
designee or without instructions if the Advances are necessary to meet
Obligations which have become due.  Bank may rely on any telephone notice given
by a person whom Bank believes in its good faith business judgment, to be  a
Responsible Officer or designee.
 
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 is and shall at all times continue to be a
first priority perfected security interest in the Collateral (except for
Permitted Liens that may have superior priority to Bank’s Lien under this
Agreement).  If Borrower shall acquire any commercial tort claims in an
aggregate amount in excess of Seventy Five Thousand Dollars ($75,000.00),
Borrower shall promptly notify Bank in a writing signed by Borrower of the
general details thereof and grant to Bank in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance reasonably satisfactory to Bank.
 
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.   Without limiting the foregoing, Borrower hereby authorizes
Bank to file financing statements which describe the collateral as “all assets”
and/or “all personal property” of Borrower or words of similar import.
 
5              REPRESENTATIONS AND WARRANTIES
 
Borrower represents and warrants as follows:
 
5.1           Due Organization and Authorization.  Borrower and each of its
Subsidiaries, if any, 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 jurisdiction in
which the conduct of their business or their 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 substantially in the form provided by Bank, 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
 
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office); (e) Borrower (and each of its predecessors) has not, in the past five
(5) years, changed its jurisdiction of formation, organizational structure or
type, or any organizational number assigned by its jurisdiction; and (f) all
other information set forth on the Perfection Certificate pertaining to Borrower
and each of its Subsidiaries is accurate and complete in all material respects
(it being understood and agreed that Borrower may from time to time update
certain information in the Perfection Certificate after the Effective Date in
connection with actions permitted by this Agreement).  If Borrower is not a
Registered Organization as of the Effective Date but later becomes one, Borrower
shall promptly notify Bank of such occurrence and provide Bank with Borrower’s
organizational identification number.
 
The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party 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 it is a party or by which it is bound in which the
default could reasonably be expected to have a material adverse effect on
Borrower’s business.
 
5.2           Collateral.  Borrower has good title to, has rights in, and the
power to transfer each item of Collateral upon which it purports to grant a Lien
hereunder, free and clear of any and all Liens except Permitted Liens.  Other
than as described in Section 6.8(a), Borrower has no deposit accounts other than
the deposit accounts with Bank and deposit accounts 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 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 shall be maintained at locations other than as
provided in the Perfection Certificate or as permitted pursuant to Section
7.2.  In the event that Borrower, after the date hereof, intends to store or
otherwise deliver any portion of the Collateral to a bailee, then Borrower will
first receive the written consent of Bank and such bailee must execute and
deliver a bailee agreement in form and substance satisfactory to Bank in its
sole discretion.
 
All Inventory is in all material respects of good and marketable quality, free
from material defects.
 
Borrower is the sole owner of its intellectual property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business.  To the best of Borrower’s actual knowledge, each patent is valid and
enforceable and no part of the intellectual property has been judged invalid or
unenforceable, in whole or in part, and to the best of Borrower’s knowledge, no
claim has been made that any part of the Intellectual Property violates the
rights of any third party.
 
Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is bound by, any material license or other agreement with respect to which
Borrower is the licensee that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower’s interest in such license or agreement
or any other property.  Borrower shall provide written notice to Bank within ten
(10) days of entering or becoming bound by any such license or agreement (other
than over-the-counter software that is commercially available to the public)
which is reasonably likely to have a material impact on Borrower’s business or
financial condition.  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 all such licenses or contract rights 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 license or agreement (such consent
or authorization may include a licensor’s agreement to a contingent assignment
of the license to Bank if Bank determines that is necessary in its good faith
judgment), whether now existing or entered into in the future.
 
5.3           Accounts Receivable.
 
(a)            For each Account with respect to which Advances are requested, on
the date each Advance is requested and made, such Account shall meet the Minimum
Eligibility Requirements set forth in Section 13 below.
 
(b)           All statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing the Accounts are and shall
be true and correct to the best of Borrower’s actual knowledge, and all such
invoices, instruments and other documents, and all of Borrower’s Books are
genuine and in all respects what they purport to be.  All sales and other
transactions underlying or giving rise to each Account shall comply in all
material respects with all applicable laws and governmental rules and
regulations.  Borrower has no
 
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actual knowledge of any actual or imminent Insolvency Proceeding of any Account
Debtor whose accounts are an Eligible Account in any Borrowing Base
Certificate.  To the best of Borrower’s actual knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Accounts are genuine, and all such documents, instruments and agreements are
legally enforceable in accordance with their terms.
 
5.4           Litigation.  Except as disclosed to the Bank in writing pursuant
to Section 6.2 or as listed in the Perfection Certificate, there are no actions
or proceedings pending or, to the knowledge of the Responsible Officers,
threatened in writing by or against Borrower or any of its Subsidiaries
involving more than Fifty Thousand Dollars ($50,000.00).
 
5.5           No Material Deviation in Financial Statements.  All consolidated
financial statements for Borrower and any of its Subsidiaries delivered to Bank
fairly present in all material respects Borrower’s consolidated financial
condition and Borrower’s consolidated results of operations in accordance with
GAAP.  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.  Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations 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 have a material
adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower’s knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally which use
could reasonably be expected to cause a Material Adverse Change.  Borrower and
each of its Subsidiaries have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted.
 
5.8           Subsidiaries; Investments.  Borrower does not own any stock,
partnership interest or other equity securities except for Permitted
Investments.
 
5.9           Tax Returns and Payments; Pension Contributions.  Borrower has
timely filed all required tax returns and reports (except such returns or
reports related to taxes as may be due or owing in an amount not to exceed
Twenty Five Thousand Dollars ($25,000.00) in the aggregate), and Borrower and
its Subsidiaries, if any, have timely paid all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower (except such
returns or reports related to taxes as may be due or owing in an amount not to
exceed Twenty Five Thousand Dollars ($25,000.00) in the aggregate).  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, (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         Use of Proceeds.  Borrower shall use the proceeds of the Credit
Extensions solely as working capital and to fund its general business
requirements, and not for personal, family, household or agricultural purposes.
 
5.11         Full Disclosure.  No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank, as
of the date such representations, warranties, or other statements were made,
taken together with all such written certificates and written statements given
to Bank, contains any
 
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untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not
viewed as facts and that actual results during the period or periods covered by
such projections and forecasts may differ from the projected or forecasted
results).
 
6              AFFIRMATIVE COVENANTS
 
Borrower shall do all of the following:
 
6.1           Government Compliance.  Maintain its and all its Subsidiaries’
legal existence and good standing in their respective jurisdictions of formation
and maintain qualification in each jurisdiction in which the failure to so
qualify would reasonably be expected to have a material adverse effect on
Borrower’s business or operations.  Borrower shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, the noncompliance with which could have a material adverse effect on
Borrower’s business.
 
6.2           Financial Statements, Reports, Certificates.
 
(a)           Borrower shall provide Bank with the following:
 
(i)          weekly, whenever there are any outstanding Credit Extensions, and
upon each request for a Credit Extension, a Transaction Report;
 
(ii)         whenever there are any outstanding Credit Extensions, within twenty
(20) days after the end of each month, (A) monthly accounts receivable agings,
aged by invoice date, (B) monthly accounts payable agings, aged by invoice date,
and outstanding or held check registers, if any, (C) monthly unbilled accounts
receivable agings (aged by revenue date), Deferred Revenue report and general
ledger, and (D) a schedule of expected collections;
 
(iii)        as soon as available, and in any event within thirty (30) days
after the end of each month, monthly unaudited financial statements, unless
Borrower has filed financial information with the Securities and Exchange
Commission on form 10-Q or 10-K within any given month, in which case Borrower’s
compliance with Section 6.2(b) of this Agreement shall satisfy this subsection
(iii);
 
(iv)       within thirty (30) days after the end of each month a monthly
Compliance Certificate signed by a Responsible Officer, certifying that as of
the end of such month, Borrower was in full compliance with all of the terms and
conditions of this Agreement, and setting forth calculations showing compliance
with the financial covenants set forth in this Agreement and such other
information as Bank shall reasonably request, including, without limitation, a
statement that at the end of such month there were no held checks;
 
(v)        within thirty (30) days after approval by Borrower’s board of
directors, (A) annual operating budgets (including income statements, balance
sheets and cash flow statements, by month) for the upcoming fiscal year of
Borrower, and (B) annual financial projections for the following fiscal year (on
a quarterly basis), together with any related business forecasts delivered to
Borrower’s board of directors in the preparation of such annual financial
projections; and
 
(vi)        as soon as available, and in any event within one hundred fifty
(150) days following the end of Borrower’s fiscal year, annual financial
statements certified by, and with an unqualified opinion of, independent
certified public accountants acceptable to Bank.
 
Notwithstanding the foregoing, during a Streamline Period, provided no Event of
Default has occurred and is continuing, Borrower shall not be required to
provide Bank with the Transaction Report required pursuant to clause (a)(i)
above; provided, however, that during such Streamline Period, Borrower shall
provide Bank, within twenty (20) days after the end of each month in which there
were any outstanding Credit Extensions, a duly completed Borrowing Base
Certificate signed by a Responsible Officer.
 
(b)           In the event that Borrower is or becomes subject to the reporting
requirements under the Securities Exchange Act of 1934, as amended, within five
(5) days after filing, all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission or a link thereto on Borrower’s or another
website on the Internet.
 
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(c)           Prompt written notice of (i) any material change in the
composition of the intellectual property, (ii) the registration of any
copyright, including any subsequent ownership right of Borrower in or to any
copyright, patent or trademark not previously disclosed to Bank, or
(iii) Borrower’s knowledge of an event that has an actual material adverse
effect on the value of the intellectual property.
 
6.3           Accounts Receivable.
 
(a)            Schedules and Documents Relating to Accounts. Borrower shall
deliver to Bank transaction reports and schedules of collections, as provided in
Section 6.2, on Bank’s standard forms; provided, however, that Borrower’s
failure to execute and deliver the same shall not affect or limit Bank’s Lien
and other rights in all of Borrower’s Accounts, nor shall Bank’s failure to
advance or lend against a specific Account affect or limit Bank’s Lien and other
rights therein.  If requested by Bank, and to the extent commercially
reasonable, Borrower shall furnish Bank with copies (or, at Bank’s request,
originals) of all contracts, orders, invoices, and other similar documents, and
all shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Accounts.  In addition, Borrower shall deliver to Bank, on its
reasonable request and to the extent commercially reasonable, the originals of
all instruments, chattel paper, security agreements, guarantees and other
documents and property evidencing or securing any Accounts, in the same form as
received, with all necessary endorsements, and copies of all credit memos.
 
(b)            Disputes.  Borrower shall promptly notify Bank of all material
disputes or claims relating to Accounts in an aggregate amount in excess of
Fifty Thousand Dollars ($50,000.00) at any time.  Borrower may forgive
(completely or partially), compromise, or settle any Account for less than
payment in full, or agree to do any of the foregoing so long as (i) Borrower
does so in good faith, in a commercially reasonable manner, in the ordinary
course of business, in arm’s-length transactions, and reports the same to Bank
in the regular reports provided to Bank; (ii) no Default or Event of Default has
occurred and is continuing; and (iii) after taking into account all such
discounts, settlements and forgiveness, the total outstanding Advances will not
exceed the Availability Amount.  
 
(c)            Collection of Accounts.  Borrower shall have the right to collect
all Accounts, unless and until a Default or an Event of Default has occurred and
is continuing.  All payments on, and proceeds of, Accounts shall be deposited
directly by the applicable Account Debtor into a lockbox account, or such other
“blocked account” as Bank may specify, pursuant to a blocked account agreement
in form and substance satisfactory to Bank in its sole discretion.  Whether or
not an Event of Default has occurred and is continuing, Borrower shall hold all
payments on, and proceeds of, Accounts in trust for Bank, and Borrower shall
promptly deliver all such payments and proceeds to Bank in their original form,
duly endorsed, to be applied to the Obligations pursuant to the terms of Section
9.4 hereof; provided, however, during a Streamline Period, such payments shall
be deposited in Borrower’s Designated Deposit Account.
 
(d)            Returns.  Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower, Borrower
shall promptly (i) determine the reason for such return, (ii) issue a credit
memorandum to the Account Debtor in the appropriate amount, and (iii) provide a
copy of such credit memorandum to Bank, upon request from Bank.  In the event
any attempted return occurs after the occurrence and during the continuance of
any Event of Default, Borrower shall hold the returned Inventory in trust for
Bank, and immediately notify Bank of the return of the Inventory.  
 
(e)            Verification.  Bank may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Accounts, either in the name of Borrower or Bank or such other name as
Bank may choose.
 
(f)            No Liability.  Bank shall not be responsible or liable for any
shortage or discrepancy in, damage to, or loss or destruction of, any goods, the
sale or other disposition of which gives rise to an Account, or for any error,
act, omission, or delay of any kind occurring in the settlement, failure to
settle, collection or failure to collect any Account, or for settling any
Account in good faith for less than the full amount thereof, nor shall Bank be
deemed to be responsible for any of Borrower’s obligations under any contract or
agreement giving rise to an Account.  Nothing herein shall, however, relieve
Bank from liability for its own gross negligence or willful misconduct.
 
6.4           Remittance of Proceeds.  Except as otherwise provided in Section
6.3(c), deliver, in kind, all proceeds arising from the disposition of any
Collateral to Bank in the original form in which received by Borrower not later
than the following Business Day after receipt by Borrower, to be applied to the
Obligations pursuant to the terms of Section 9.4 hereof; provided that, if no
Default or Event of Default has occurred and is continuing,
 
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Borrower shall not be obligated to remit to Bank the proceeds of the sale of
worn out or obsolete Equipment disposed of by Borrower in good faith in an arm’s
length transaction for an aggregate purchase price of Fifty Thousand Dollars
($50,000.00) or less (for all such transactions in any fiscal year).  Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower’s
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Bank.  Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
 
6.5           Taxes; Pensions.  Make, and cause each of its Subsidiaries, if
any, to make, timely payment of all foreign, federal, state and local taxes or
assessments (other than taxes and assessment which Borrower or its Subsidiaries
are contesting pursuant to the terms of Section 5.9 hereof), and shall deliver
to Bank, on demand, appropriate certificates attesting to such payments, and pay
all amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms.
 
6.6           Access to Collateral; Books and Records.  At reasonable times, on
one (1) Business Day’s notice (provided no notice is required if an Event of
Default has occurred and is continuing), Bank, or its agents, shall have the
right on a semi-annual basis (or more frequently if an Event of Default has
occurred and is continuing), to inspect the Collateral and the right to audit
and copy Borrower’s Books.  The foregoing inspections and audits shall be at
Borrower’s expense, and the charge therefor shall be $750 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 reschedules the audit with less than ten (10) days written notice to
Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall
pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to
compensate Bank for the anticipated costs and expenses of the cancellation or
rescheduling.
 
6.7           Insurance.  Keep its business and the Collateral insured for risks
and in amounts standard for companies in Borrower’s industry and location and as
Bank may reasonably request.  Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to Bank.  All property policies
shall have a lender’s loss payable endorsement showing Bank as the sole lender
loss payee and waive subrogation against Bank, and all liability policies shall
show, or have endorsements showing, Bank as an additional insured.  All property
and liability policies (other than directors and officers liability policies)
(or the loss payable and additional insured endorsements) shall provide that the
insurer must give Bank at least thirty (30) days notice before canceling, or
declining to renew its policy.  At Bank’s request, Borrower shall deliver
certified copies of policies and evidence of all premium payments.  Proceeds
payable under any policy shall, at Bank’s option, be payable to Bank on account
of the Obligations.  Notwithstanding the foregoing, (a) so long as no Event of
Default has occurred and is continuing, Borrower shall have the option of
applying the proceeds of any casualty policy up to Fifty Thousand Dollars
($50,000.00), 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 6.7 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section 6.7, and take any action under the policies Bank deems prudent.
 
6.8           Operating Accounts.
 
(a)            Subject to the following, maintain its and its Subsidiaries’, if
any, primary depository, operating accounts and securities accounts with Bank
and Bank’s affiliates with all excess funds maintained at or invested through
Bank or an affiliate of Bank:
 
(i)           Borrower is permitted to maintain accounts nos. 000000708266184
and 000002330740974 (collectively, the “JP Morgan Chase Bank Accounts”),
provided that, whenever the aggregate balance in the JP Morgan Chase Bank
Accounts exceeds Fifty Thousand Dollars ($50,000), such excess amounts in such
JP Morgan Chase Bank Accounts shall promptly be transferred to Bank for deposit
into such account as Bank shall specify.
 
(b)            Provide Bank five (5) days prior-written notice before
establishing any Collateral Account at or with any bank or financial institution
other than Bank or its Affiliates.  In addition, for each Collateral Account
that Borrower at any time maintains, other than the JP Morgan Chase Bank
Accounts, Borrower shall cause
 
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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.  The provisions of the previous sentence shall not apply to deposit
accounts exclusively used for payroll, payroll taxes and other employee wage and
benefit payments to or for the benefit of Borrower’s employees and identified to
Bank by Borrower as such.
 
6.9           Financial Covenants.
 
Borrower shall maintain at all times, to be tested as of the last day of each
month, unless otherwise noted, on a consolidated basis with respect to Borrower
and its Subsidiaries:
 
(a)           Tangible Net Worth.  A Tangible Net Worth of at least Five Hundred
Thousand Dollars ($500,000.00).
 
6.10         Protection of Intellectual Property Rights.  Borrower shall use
commercially reasonable efforts to: (a) protect, defend and maintain the
validity and enforceability of its intellectual property; (b) promptly advise
Bank in writing of material infringements of its intellectual property; and (c)
not allow any intellectual property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without Bank’s written consent.
 
6.11         Litigation Cooperation.  From the date hereof and continuing
through the termination of this Agreement, make available to Bank, at reasonable
times and intervals, without expense to Bank, Borrower and its officers,
employees and agents and Borrower’s Books and records, to the extent that Bank
may deem them reasonably necessary to prosecute or defend any third-party (for
clarity, other than Borrower or its Affiliates) suit or proceeding instituted by
or against Bank with respect to any Collateral or relating to Borrower.
 
6.12         Further Assurances.  Borrower shall 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 or otherwise dispose
of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, except for Transfers of (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, and licenses that could not
result in a legal transfer of title of the licensed property but that may be
exclusive in respects other than territory and that may be exclusive as to
territory only as to discreet geographical areas outside of the United
States.  Borrower shall not enter into an agreement with any Person other than
Bank which restricts the subsequent granting of a security interest in
Borrower’s intellectual property.
 
7.2           Changes in Business, Management, Ownership, Control, or Business
Locations.  (a) Engage in or permit any of its Subsidiaries, if any, 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) have a change in any member of the Senior Management Group
or (ii) enter into any transaction or series of related transactions in which
the stockholders of Borrower who were not stockholders immediately prior to the
first such transaction own more than forty-nine percent (49.00%) of the voting
stock of Borrower immediately after giving effect to such transaction or related
series of such transactions (other than by the sale of 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).  Borrower shall not, without at least thirty (30) days
prior written notice to Bank: (1) add any new offices or business locations,
including warehouses (unless such new offices or business locations contain less
than Ten Thousand Dollars ($10,000.00) in Borrower’s assets or property), (2)
change its jurisdiction of organization, (3) change its organizational structure
or type, (4) change its legal name, or (5) change any organizational number (if
any) assigned by its jurisdiction of organization.
 
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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, or allow 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, permit any Collateral not to be subject to the first priority security
interest granted herein, or enter into any agreement, document, instrument or
other arrangement (except with or in favor of Bank) with any Person which
directly or indirectly prohibits or has the effect of prohibiting Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s
intellectual property, except as is otherwise permitted in Section 7.1 hereof
and the definition of “Permitted Lien” herein.
 
7.6           Maintenance of Collateral Accounts.  Maintain any Collateral
Account except pursuant to the terms of Section 6.8(b) hereof.
 
7.7           Investments; Distributions.  (a) Directly or indirectly make any
Investment 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 provided that (i) Borrower may
convert any of its convertible securities into other securities pursuant to the
terms of such convertible securities or otherwise in exchange thereof,
(ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may
repurchase the stock of existing and former employees or consultants pursuant to
board approved stock repurchase agreements so long as (X) an Event of Default
does not exist at the time of such repurchase and would not exist after giving
effect to such repurchase, and (Y) such repurchase does not exceed Two Hundred
Fifty Thousand Dollars ($250,000.00) in the aggregate in any fiscal year.
 
7.8           Transactions with Affiliates.  Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower,
except for transactions that are in the ordinary course of Borrower’s business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm’s length transaction with a non-affiliated Person.
 
7.9           Subordinated Debt.  (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination, intercreditor,
or other similar agreement to which such Subordinated Debt is subject, or
(b) amend any provision in any document relating to the Subordinated Debt which
would increase the amount thereof or adversely affect the subordination thereof
to Obligations owed to Bank.
 
7.10         Compliance.  Become an “investment company” or a company controlled
by an “investment company”, under the Investment Company Act of 1940 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, 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.
 
8               EVENTS OF DEFAULT
 
Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:
 
8.1           Payment Default.  Borrower fails to (a) make any payment of
principal or interest on any Credit Extension on its due date, or (b) pay any
other Obligations within three (3) Business Days after such Obligations are
 
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due and payable.  During the cure period, the failure to cure the payment
default is not an Event of Default (but no Credit Extension will be made during
the cure period);
 
8.2           Covenant Default.
 
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4,
6.5, 6.6, 6.7, 6.8, 6.9, 6.10, or 6.11, or violates any covenant in Section 7;
or
 
(b) Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement, any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to cure the default
shall not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period).  Grace periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in subsection (a) above;
 
8.3           Material Adverse Change.  A Material Adverse Change occurs;
 
8.4           Attachment.  (a) Any material portion of Borrower’s assets is
attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in ten (10) days; (b) the
service of process upon Bank (or Bank’s Affiliate) seeking to attach, by trustee
or similar process, any funds of Borrower, or of any entity under control of
Borrower (including a Subsidiary) on deposit with Bank (or bank’s Affiliate) in
an aggregate amount in excess of Fifty Thousand Dollars ($50,000.00); (c)
Borrower is enjoined, restrained, or prevented by court order from conducting a
material part of its business; (d) a judgment or other claim in excess of Fifty
Thousand Dollars ($50,000.00) becomes a Lien on any of Borrower’s assets and is
not stayed or satisfied within ten (10) days; or (e) a notice of lien, levy, or
assessment is filed against any of Borrower’s assets in an aggregate amount in
excess of Fifty Thousand Dollars ($50,000.00) at any time by any government
agency and not paid, discharged or stayed within ten (10) days after Borrower
receives notice.  These are not Events of Default if stayed or if a bond is
posted pending contest by Borrower (but no Credit Extensions shall be made
during the cure period);
 
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 of any of the conditions described in
clause (a) exist and/or until any Insolvency Proceeding is dismissed);
 
8.6           Other Agreements.  There is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000.00)
or that could have a material adverse effect on Borrower’s business;
 
8.7           Judgments.  A judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000.00) (not covered by independent third-party insurance) shall be
rendered against Borrower and shall remain unsatisfied, unvacated and unstayed
for a period of ten (10) days after the entry thereof (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);
 
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 into this Agreement or any Loan Document, and such representation,
warranty, or other statement is incorrect in any material respect when made; or
 
8.9           Subordinated Debt.  A default or breach occurs under any agreement
between Borrower and any creditor of Borrower that signed a Subordination
Agreement, intercreditor, or other similar agreement with Bank, or any creditor
that has signed such an agreement with Bank breaches any terms of such
agreement.
 
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9              BANK’S RIGHTS AND REMEDIES
 
9.1           Rights and Remedies.  While an Event of Default occurs and
continues Bank may, without notice or demand, do any or all of the following:
 
(a)            declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
 
(b)            stop advancing money or extending credit for Borrower’s benefit
under this Agreement or under any other agreement between Borrower and Bank;
 
(c)            demand that Borrower (i) deposits cash with Bank in an amount
equal to the aggregate amount of any Letters of Credit remaining undrawn, 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)            terminate any FX Forward Contracts;
 
(e)            settle or adjust disputes and claims directly with Account
Debtors for amounts on terms and in any order that Bank considers advisable,
notify any Person owing Borrower money of Bank’s security interest in such
funds, and verify the amount of such account;
 
(f)             make any payments and do any acts it considers necessary or
reasonable to protect the Collateral and/or its security interest in the
Collateral.  Borrower shall assemble the Collateral if Bank requests and make it
available as Bank designates.  Bank may enter premises where the Collateral is
located, take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or superior
to its security interest and pay all expenses incurred. Borrower grants Bank a
license to enter and occupy any of its premises, without charge, to exercise any
of Bank’s rights or remedies;
 
(g)            apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;
 
(h)            ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral.  Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank’s exercise of its rights under this Section, Borrower’s
rights under all licenses and all franchise agreements inure to Bank’s benefit;
 
(i)             place a “hold” on any account maintained with Bank and/or
deliver a notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any Control Agreement or similar
agreements providing control of any Collateral;
 
(j)             demand and receive possession of Borrower’s Books; and
 
(k)            exercise all rights and remedies available to Bank under the Loan
Documents or at law or equity, including all remedies provided under the Code
(including disposal of the Collateral pursuant to the terms thereof).
 
9.2           Power of Attorney.  Borrower hereby irrevocably appoints Bank as
its lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to:  (a) endorse Borrower’s name on any
checks or other forms of payment or security; (b) sign Borrower’s name on any
invoice or bill of lading for any Account or drafts against Account Debtors; (c)
settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle,
and adjust all claims under Borrower’s insurance policies; (e) pay, contest or
settle any Lien, charge, encumbrance, security interest, and adverse claim in or
to the Collateral, or any judgment based thereon, or otherwise take any action
to terminate or discharge the same; and (f) transfer the Collateral into the
name of Bank or a third party as the Code permits.  Borrower hereby appoints
Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents
 
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necessary to perfect or continue the perfection of any security interest in the
Collateral regardless of whether an Event of Default has occurred until all
Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder.  Bank’s foregoing appointment as Borrower’s
attorney in fact, and all of Bank’s rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions terminates.
 
9.3           Protective Payments.  If Borrower fails to obtain the insurance
called for by Section 6.7 or fails to pay any premium thereon or fails to pay
any other amount which Borrower is obligated to pay under this Agreement or any
other Loan Document, Bank may obtain such insurance or make such payment, and
all amounts so paid by Bank are Bank Expenses and immediately due and payable,
bearing interest at the then highest applicable rate charged by Bank, and
secured by the Collateral.  Bank will make reasonable efforts to provide
Borrower with notice of Bank obtaining such insurance at the time it is obtained
or within a reasonable time thereafter.  No payments by Bank are deemed an
agreement to make similar payments in the future or Bank’s waiver of any Event
of Default.
 
9.4           Application of Payments and Proceeds.  Unless an Event of Default
has occurred and is continuing, Bank shall apply any funds in its possession,
whether from Borrower account balances, payments, or proceeds realized as the
result of any collection of Accounts or other disposition of the
Collateral, first, to Bank Expenses, including without limitation, the
reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Bank in the exercise of its rights under this Agreement; second, to
the interest due upon any of the Obligations; and third, to the principal of the
Obligations and any applicable fees and other charges, in such order as Bank
shall determine in its sole discretion.  Any surplus shall be paid to Borrower
or other Persons legally entitled thereto; Borrower shall remain liable to Bank
for any deficiency.  If an Event of Default has occurred and is continuing, Bank
may apply any funds in its possession, whether from Borrower account balances,
payments, proceeds realized as the result of any collection of Accounts or other
disposition of the Collateral, or otherwise, to the Obligations in such order as
Bank shall determine in its sole discretion.  Any surplus shall be paid to
Borrower or to other Persons legally entitled thereto; Borrower shall remain
liable to Bank for any deficiency.  If Bank, in its good faith business
judgment, directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the
option, exercisable at any time, of either reducing the Obligations by the
principal amount of the purchase price or deferring the reduction of the
Obligations until the actual receipt by Bank of cash therefor.
 
9.5           Bank’s Liability for Collateral.  So long as Bank complies with
reasonable banking practices regarding the safekeeping of the Collateral in the
possession or under the control of Bank, Bank shall not be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other Person.  Borrower bears
all risk of loss, damage or destruction of the Collateral.
 
9.6           No Waiver; Remedies Cumulative.  Bank’s failure, at any time or
times, to require strict performance by Borrower of any provision of this
Agreement or any other Loan Document shall not waive, affect, or diminish any
right of Bank thereafter to demand strict performance and compliance herewith or
therewith.  No waiver hereunder shall be effective unless signed by Bank 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 Bank’s waiver of any Event of Default is not a continuing
waiver.  Bank’s delay in exercising any remedy is not a waiver, election, or
acquiescence.
 
9.7           Demand Waiver.  Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees held by Bank on which
Borrower is liable.
 
10            NOTICES
 
All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”), other than Advance requests made pursuant to
Section 3.4, by any party to this Agreement or any other Loan Document must be
in writing and be delivered or sent by facsimile at the addresses or facsimile
numbers listed below.  Bank or Borrower may change its notice address by giving
the other party written notice thereof.  Each such Communication shall be deemed
to have been validly served, given, or delivered: (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the U.S. mail, registered
or certified mail, return
 
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receipt requested, with proper postage prepaid; (b) upon transmission, when sent
by facsimile transmission (with such facsimile promptly confirmed by delivery of
a copy by personal delivery or United States mail as otherwise provided in this
Section 10); (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid; or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated below.  Advance requests made
pursuant to Section 3.4 must be in writing and may be in the form of electronic
mail, delivered to Bank by Borrower at the e-mail address of Bank provided below
and shall be deemed to have been validly served, given, or delivered when sent
(with such electronic mail promptly confirmed by delivery of a copy by personal
delivery or United States mail as otherwise provided in this Section 10).  Bank
or Borrower may change its address, facsimile number, or electronic mail address
by giving the other party written notice thereof in accordance with the terms of
this Section 10.

 

 
If to Borrower: 
World Energy Solutions, Inc.
World Energy Securities Corp.
c/o World Energy Solutions, Inc.
446 Main Street
Worcester, Massachusetts 01608
Attn:  Jim Parslow, CFO
Fax:  (508) 459-8101
Email:   jparslow@worldenergy.com 
       
with a copy to:  
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts
Attn:   Mr. Mitchel Appelbaum
Fax:   (617) 526-5000
Email:   mitchel.appelbaum@wilmerhale.com 
       
If to Bank: 
Silicon Valley Bank
One Newton Executive Park, Suite 200
2221 Washington Street, Newton, MA 02462
Attn:   Mr. David Rodriguez
Fax:   (617) 969-4395
Email:   drodriguez@svb.com 
       
with a copy to: 
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attn:   Charles W. Stavros, Esquire
Fax:   (617) 880-3456
Email:   cstavros@riemerlaw.com 

 
11            CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
 
Massachusetts 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 Massachusetts; provided, however, that
nothing in this Agreement shall be deemed to operate to preclude Bank from
bringing suit or taking other legal action in any other jurisdiction to realize
on the Collateral or any other security for the Obligations, or to enforce a
judgment or other court order in favor of Bank.  Borrower expressly submits and
consents in advance to such jurisdiction in any action or suit commenced in any
such court, and Borrower hereby waives any objection that it may have based upon
lack of personal jurisdiction, improper venue, or forum non conveniens and
hereby consents to the granting of such legal or equitable relief as is deemed
appropriate by such court.  Borrower hereby waives personal service of the
summons, complaints, and other process issued in such action or suit and agrees
that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in
Section 10 of this Agreement and that service so made shall be deemed completed
upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid. NOTWITHSTANDING
ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE,
 
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BANK SHALL SPECIFICALLY HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK
DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO
OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS PROPERTY.
 
TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
 
12            GENERAL PROVISIONS
 
12.1         Termination Prior to Maturity Date.  This Agreement may be
terminated prior to the Revolving Line Maturity Date by Borrower, effective
three (3) Business Days after written notice of termination is received by Bank
or if Bank’s obligation to fund Credit Extensions terminates pursuant to the
terms of Section 2.1.1(b).  Notwithstanding any such termination, Bank’s lien
and security interest in the Collateral shall continue until Borrower fully
satisfies its Obligations.  If such termination is at Borrower’s election or at
Bank’s election due to the occurrence and continuance of an Event of Default,
Borrower shall pay to Bank, in addition to the payment of any other expenses or
fees then-owing, a termination fee in an amount equal to Fifteen Thousand
Dollars ($15,000.00) provided that no termination fee shall be charged if the
credit facility hereunder is replaced with a new facility from another division
of Silicon Valley Bank.  Upon payment in full of the Obligations and at such
time as Bank’s obligation to make Credit Extensions has terminated, Bank shall
release its liens and security interests in the Collateral and all rights
therein shall revert to Borrower.
 
12.2         Successors and Assigns.  This Agreement binds and is for the
benefit of the successors and permitted assigns of each party.  Borrower may not
assign this Agreement or any rights or obligations under it without Bank’s prior
written consent (which may be granted or withheld in Bank’s discretion).  Bank
has the right, without the consent of or notice to Borrower, to sell, transfer,
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.
 
12.3         Indemnification.  Borrower agrees to indemnify, defend and hold
Bank and its directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Bank harmless against:  (a) all
obligations, demands, claims, and liabilities (collectively, “Claims”) asserted
by any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from,
following, or arising from transactions between Bank and Borrower (including
reasonable attorneys’ fees and expenses), except for Claims and/or losses
directly caused by Bank’s gross negligence or willful misconduct.
 
12.4         Time of Essence.  Time is of the essence for the performance of all
Obligations in this Agreement.
 
12.5         Severability of Provisions.  Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
 
12.6         Amendments in Writing; Integration.  All amendments to this
Agreement must be in writing signed by both Bank and Borrower.  This Agreement
and 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 this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.
 
12.7         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, are an original, and all taken together, constitute
one Agreement.
 
12.8         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
 
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been satisfied.  The obligation of Borrower in Section 12.3 to indemnify Bank
shall survive until the statute of limitations with respect to such claim or
cause of action shall have run.
 
12.9         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; (b) to prospective transferees or purchasers of any
interest in the Credit Extensions (provided, however, Bank shall use
commercially reasonable efforts to obtain such prospective transferee’s or
purchaser’s agreement to the terms of this provision); (c) as required by law,
regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise
required in connection with Bank’s examination or audit; and (e) as Bank
considers appropriate in exercising remedies under this Agreement.  Confidential
information does not include information that either: (i) is in the public
domain or in Bank’s possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (ii) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.
 
12.10      Attorneys’ Fees, Costs and Expenses.  In any action or proceeding
between Borrower and Bank arising out of or relating to the Loan Documents, Bank
shall be entitled to recover its reasonable attorneys’ fees and other costs and
expenses incurred, in addition to any other relief to which it may be entitled.
 
12.11      Borrower Liability. Either Borrower may, acting singly, request
Credit Extensions hereunder.  Each Borrower hereby appoints the other as agent
for the other for all purposes hereunder, including with respect to requesting
Credit Extensions hereunder. Each Borrower hereunder, jointly and severally,
shall be obligated to repay all Credit Extensions made hereunder, regardless of
which Borrower actually receives said Advance, as if each Borrower hereunder
directly received all Credit Extensions.  Each Borrower waives any suretyship
defenses available to it under the Code or any other applicable law.  Each
Borrower waives 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.  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 shall be
null and void.  If any payment is made to a Borrower in contravention of this
Section, 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.
 
12.12      Right of Set Off.   Borrower hereby grants to Bank, a lien, security
interest and right of set off as security for all Obligations to Bank, whether
now existing or hereafter arising upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of Bank
(including a Bank subsidiary) or in transit to any of them.  At any time after
the occurrence and during the continuance of an Event of Default, without demand
or notice, Bank may set off the same or any part thereof and apply the same to
any liability or obligation of Borrower even though unmatured and regardless of
the adequacy of any other collateral securing the Obligations.  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.
 
13            DEFINITIONS
 
13.1         Definitions.  As used in this Agreement, the following 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.
 
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“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.
 
“Advance” or “Advances” means an advance (or advances) under the Revolving Line.
 
“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.
 
“Agreement” is defined in the preamble hereof.
 
“Adjusted Quick Ratio” is, on any date of determination, the ratio of (a) (i)
Borrower’s unrestricted cash at Bank, plus (ii) Eligible Accounts, to (b) (i)
all Indebtedness of Borrower owed to Bank, plus (ii) without duplication, the
aggregate amount of Borrower’s Total Liabilities that mature within one (1)
year, minus (ii) Deferred Revenue.
 
“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
Borrowing Base minus (b) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit plus an amount equal to the
Letter of Credit Reserves), minus (c) the FX Reserve, and minus (d) the
outstanding principal balance of any Advances (including any amounts used for
Cash Management Services).
 
“Bank” is defined in the preamble hereof.
 
“Bank Expenses” are all audit fees and reasonable expenses, costs, and expenses
(including reasonable attorneys’ fees and expenses) for preparing, 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.
 
“Borrower” is defined in the preamble hereof.
 
“Borrower’s Books” are all Borrower’s books and records including ledgers,
federal and state tax returns, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.
 
“Borrowing Base” is (a) eighty percent (80.0%) of Eligible Accounts, plus (b)
twenty-five percent (25%) of Eligible Retail Backlog Accounts, capped at an
amount not to exceed twenty-five percent (25%) of clause (a) plus clause (b), in
each case as determined by Bank from Borrower’s most recent Borrowing Base
Certificate; provided, however, that Bank may decrease the foregoing
percentages in its good faith business judgment based on events, conditions,
contingencies, or risks which, as determined by Bank, may adversely affect the
value of the Collateral.
 
“Borrowing Base Certificate” is that certain certificate included within each
Transaction Report.
 
“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors or other appropriate body and
delivered by such Person to Bank approving the Loan Documents to which such
Person is a party and the transactions contemplated thereby, together with a
certificate executed by its secretary on behalf of such Person certifying that
(a) such Person has the authority to execute, deliver, and perform its
obligations under each of the Loan Documents to which it is a party, (b) that
attached as Exhibit A to such certificate is a true, correct, and complete copy
of the resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to
which it is a party, (c) the name(s) of the Person(s) authorized to execute the
Loan Documents on behalf of such Person, together with a sample of the true
signature(s) of such Person(s), and (d) that Bank may conclusively rely on such
certificate unless and until such Person shall have delivered to Bank a further
certificate canceling or amending such prior certificate.
 
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.
 
“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
 
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from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.,
(c) Bank’s certificates of deposit issued maturing no more than one (1) year
after issue; and (d) money market funds at least ninety-five percent (95%) of
the assets of which constitute Cash Equivalents of the kinds described in
clauses (a) through (c) of this definition.
 
“Cash Management Services” is defined in Section 2.1.4.
 
“Cash Management Services Sublimit” is defined in Section 2.1.4.
 
“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the Commonwealth of  Massachusetts; 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 Commonwealth
of  Massachusetts, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes on 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.
 
“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.
 
“Communication” is defined in Section 10.
 
“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit B.
 
“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation directly
or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by
that Person, or for which that Person is directly or indirectly liable; (b) any
obligations for undrawn letters of credit for the account of that Person; and
(c) all obligations from any interest rate, currency or commodity swap
agreement, interest rate cap or collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; but “Contingent Obligation”
does not include endorsements in the ordinary course of business.  The amount of
a Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under
any guarantee or other support arrangement.
 
“Control Agreement” is any control agreement entered into among the depository
institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities
Account or a Commodity Account, Borrower, and Bank pursuant to which Bank
obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.
 
“Credit Extension” is any Advance, Letter of Credit, FX Forward Contract, amount
utilized for Cash Management Services, or any other extension of credit by Bank
for Borrower’s benefit.
 
“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.
 
“Default Rate” is defined in Section 2.3(b).
 
“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue.
 
“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.
 
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“Designated Deposit Account” is Borrower’s deposit account, account number
_____________, maintained with Bank.
 
“Dollars,” “dollars” and “$” each mean lawful money of the United States.
 
“Effective Date” is the date Bank executes this Agreement and as indicated on
the signature page hereof.
 
“Eligible Accounts” are Accounts which arise in the ordinary course of
Borrower’s business that meet all Borrower’s representations and warranties in
Section 5.3.  Bank reserves the right at any time and from time to time after
the Effective Date upon notice to Borrower, to adjust any of the criteria set
forth below and to establish new criteria in its good faith business
judgment.  Without limiting the fact that the determination of which Accounts
are eligible for borrowing is a matter of Bank’s good faith judgment, the
following (“Minimum Eligibility Requirements”) are the minimum requirements for
an Account to be an Eligible Account.  Unless Bank agrees otherwise in writing,
Eligible Accounts shall not include:
 
(a)            Accounts that the Account Debtor has not paid within ninety (90)
days of invoice date;
 
(b)            Accounts owing from an Account Debtor, fifty percent (50%) or
more of whose Accounts have not been paid within ninety (90) days of invoice
date;
 
(c)            Credit balances over ninety (90) days from invoice date;
 
(d)            Accounts owing from an Account Debtor, including Affiliates,
whose total obligations to Borrower exceed twenty-five (25%) of all Accounts,
for the amounts that exceed that percentage, unless Bank approves in writing;
 
(e)            Represent progress billings, or be due under a fulfillment or
requirements contract;
 
(f)             Accounts owing from an Account Debtor which does not have its
principal place of business in the United States or Canada;
 
(g)            Accounts owing from the United States or any department, agency,
or instrumentality thereof except for Accounts of the United States if 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 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;
 
(i)             Accounts for demonstration or promotional equipment, or in which
goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on
approval”, “bill and hold”, or other terms if Account Debtor’s payment may be
conditional;
 
(j)             Accounts for which the Account Debtor is Borrower’s Affiliate,
officer, employee, or agent;
 
(k)            Accounts in which the Account Debtor disputes liability or makes
any claim (but only up to the disputed or claimed amount), or if the Account
Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;
 
(l)             Accounts owing from an Account Debtor with respect to which
Borrower has received Deferred Revenue (but only to the extent of such Deferred
Revenue);
 
(m)           Accounts for which Bank in its good faith business judgment
determines collection to be doubtful; and
 
(n)            other Accounts Bank deems ineligible in the exercise of its good
faith business judgment.
 
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“Eligible Retail Backlog Accounts” are Accounts that (i) are otherwise Eligible
Accounts and (ii) are contractually due to be recognized as revenue within
ninety (90) days and are the result of completed auctions.
 
“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 Employment Retirement Income Security Act of 1974, and its
regulations.
 
“Event of Default” is defined in Section 8.
 
“Funding Date” is any date on which a Credit Extension is made to or on account
of Borrower which shall be a Business Day.
 
“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is
conducting its normal business and (b) the Foreign Currency being purchased or
sold by Borrower is available to Bank from the entity from which Bank shall buy
or sell such Foreign Currency.
 
“FX Forward Contract” is defined in Section 2.1.3.
 
“FX Reserve” is defined in Section 2.1.3.
 
“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
 
“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights,
including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other
tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.
 
“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.
 
“Initial Audit” is Bank’s initial inspection of the Collateral and Borrower’s
Books.
 
“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.
 
“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.
 
“Investment” is any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.
 
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“Letter of Credit” means a standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Bank as set forth in Section 2.1.2.
 
“Letter of Credit Application” is defined in Section 2.1.2(a).
 
“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).
 
“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or
other encumbrance.
 
“Loan Documents” are, collectively, this Agreement, the Perfection Certificate,
the Subordination Agreement, if any, any note, or notes or guaranties executed
by Borrower, or any other present or future agreement executed by Borrower, if
any, and/or for the benefit of Bank in connection with this Agreement, each 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 during the next succeeding financial reporting
period.
 
“Minimum Eligibility Requirements” is defined in the defined term “Eligible
Accounts”.
 
“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later,
whether under this Agreement, the Loan Documents, including, without limitation,
all obligations relating to letters of credit, cash management services, and
foreign exchange contracts, if any, and including interest accruing after
Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower
assigned to Bank, and the performance of Borrower’s duties under the Loan
Documents.
 
“Operating Documents” are, for any Person, such Person’s formation documents, as
certified with the Secretary of State of such Person’s state of formation on a
date that is no earlier than 30 days prior to the Effective Date, and, (a) if
such Person is a corporation, its bylaws in current form, (b) if such Person is
a limited liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership agreement
(or similar agreement), each of the foregoing with all current amendments or
modifications thereto.
 
“Payment” means all checks, wire transfers and other items of payment received
by Bank (including proceeds of Accounts and payment of all the Obligations in
full) for credit to Borrower’s outstanding Credit Extensions or, if the balance
of the Credit Extensions has been reduced to zero, for credit to its Deposit
Accounts.
 
“Perfection Certificate” is defined in Section 5.1.
 
“Permitted Indebtedness” is:
 
(a)            Borrower’s Indebtedness to Bank under this Agreement and the
other Loan Documents;
 
(b)            Indebtedness existing on the Effective Date and shown on the
Perfection Certificate;
 
(c)            Subordinated Debt, if any;
 
(d)            unsecured Indebtedness to trade creditors incurred in the
ordinary course of business; any
 
(e)            Indebtedness incurred as a result of endorsing negotiable
instruments received in the ordinary course of business;
 
(f)             Indebtedness secured by Permitted Liens;
 
(g)            Indebtedness not otherwise permitted by Section 7.4 in an amount
not to exceed Fifty Thousand Dollars ($50,000) in the aggregate outstanding at
any time; and
 
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(h)           extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (g) 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 shown on the Perfection Certificate and existing on
the Effective Date;
 
(b)            Cash Equivalents;
 
(c)            Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of Borrower’s business;
 
(d)            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;
 
(e)            Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business; and
 
(f)            Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph (f)
shall not apply to Investments of Borrower in any Subsidiary;
 
“Permitted Liens”, whether now existing or hereafter arising, are:
 
(a)            Liens existing on the Effective Date and 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 not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank’s Liens;
 
(c)            purchase money Liens (i) on Equipment acquired or held by
Borrower incurred for financing the acquisition of the Equipment securing no
more than One Hundred Thousand Dollars ($100,000.00) 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;
 
(d)            Liens of carriers, warehousemen, suppliers, or other Persons that
are possessory in nature arising in the ordinary course of business, so long as
such Liens attach only to Inventory, that are not delinquent, that remain
payable without penalty, or that are being contested in good faith and by
appropriate proceedings that have the effect of preventing the forfeiture or
sale of the property subject to such Liens;
 
(e)            Liens to secure payment of workers’ compensation, employment
insurance, old age pensions, social security, and other like obligations
incurred in the ordinary course of business (other than Liens imposed by ERISA);
 
(f)             Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;
 
(g)            leases or subleases of real property granted in the ordinary
course of business, and leases, subleases, non-exclusive licenses or sublicenses
of property (other than real property or intellectual property) granted in the
ordinary course of Borrower’s business, if the leases, subleases, licenses and
sublicenses do not prohibit granting Bank a security interest;
 
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(h)            non-exclusive licenses of intellectual property granted to third
parties in the ordinary course of business;
 
(i)             Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.4 or 8.7;
 
(j)             Liens securing Permitted Indebtedness;
 
(k)            Liens in favor of any landlord of Borrower solely to secure the
payment of rent by Borrower; and
 
(k)            Liens in favor of other financial institutions arising in
connection with Borrower’s deposit and/or securities accounts held at such
institutions.
 
“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
 
“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not
Bank’s lowest rate.
 
“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.
 
“Reserves” means, as of any date of determination, such amounts as Bank may from
time to time establish and revise in good faith reducing the amount of Advances,
Letters of Credit and other financial accommodations which would otherwise be
available to Borrower under the lending formulas:  (a) to reflect events,
conditions, contingencies or risks which, as determined by Bank in good faith,
do or may affect (i) the Collateral or any other property which is security for
the Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets or business of Borrower or any
guarantor, or (iii) the security interests and other rights of Bank in the
Collateral (including the enforceability, perfection and priority thereof); or
(b) to reflect Bank’s good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any guarantor to Bank is or
may have been incomplete, inaccurate or misleading in any material respect; or
(c) in respect of any state of facts which Bank determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.
 
“Responsible Officer” is any of the Chief Executive Officer, President, Chief
Financial Officer and Controller of Borrower.
 
“Revolving Line” is an Advance or Advances in an aggregate amount of up to Three
Million Dollars ($3,000,000.00) outstanding at any time.
 
“Revolving Line Maturity Date” is September 7, 2009.
 
“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.
 
“Senior Management Group” is the group of individuals, exclusive of others, who,
as of the Effective Date, hold any of the following positions at Borrower: Chief
Executive Officer, Chief Operating Officer, and Chief Financial Officer.
 
“Settlement Date” is defined in Section 2.1.3.
 
“Streamline Period” is any date of measurement in which Borrower’s Adjusted
Quick Ratio is greater than or equal to 1.0 to 1.0.
 
“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.
 
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“Subordination Agreement” is any agreement, in form and substance acceptable to
Bank in its sole discretion, as required by Bank in its sole discretion,
subordinating Subordinated Debt to the Bank.
 
“Subsidiary” means, with respect to any Person, any Person of which more than
fifty percent (50%) of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by such Person or one or more Affiliates of
such Person.
 
“Tangible Net Worth” is, on any date, the consolidated total assets of Borrower
and its Subsidiaries minus (a) any amounts attributable to (i) goodwill, (ii)
intangible items including unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, (iii) notes, accounts receivable and other obligations
owing to Borrower from its officers or other Affiliates, and (iv) reserves not
already deducted from assets, minus (b) Total Liabilities plus (c) Subordinated
Debt.
 
“Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower’s consolidated balance sheet, including
all Indebtedness, and current portion of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt.
 
“Transaction Report” is the Bank’s standard reporting package provided by Bank
to Borrower.
 
“Transfer” is defined in Section 7.1.
 
“Unused Revolving Line Facility Fee” is defined in Section 2.4(d).
 

 
[Signature page follows.]
 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as a sealed instrument under the laws of the Commonwealth of Massachusetts as of
the Effective Date.
 
BORROWER:
 
WORLD ENERGY SOLUTIONS, INC.
 
By_________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 

 
WORLD ENERGY SECURITIES CORP.
 
By_________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 

 
BANK:
 
SILICON VALLEY BANK
 
By_________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 
Effective Date: September ____, 2008
 
 
 

[Signature page to Loan and Security Agreement]
 
 

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EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to
the following personal property:
 
All goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts, fixtures,
letters of credit rights (whether or not the letter of credit is evidenced by a
writing), securities, and all other investment property, supporting obligations,
and financial assets, whether now owned or hereafter acquired, wherever located;
and
 
all Borrower’s Books relating to the foregoing, and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
 
Notwithstanding the foregoing, the Collateral does not include any of the
following, whether now owned or hereafter acquired: any copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of Borrower connected with and symbolized
thereby, know-how, operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing, and any personal property in which a
purchase money creditor has or obtains a purchase money security interest, but
only (a) to the extent such purchase money creditor prohibits the Borrower from
further encumbering such personal property; and (b) for as long as such purchase
money security interest exists in such personal property; provided, however, 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.
 
Pursuant to the terms of a certain negative pledge arrangement with Bank,
Borrower has agreed not to encumber any of its copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrower connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing, without Bank’s prior written consent.
 

 

 
 

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EXHIBIT B

COMPLIANCE CERTIFICATE

 
TO:           SILICON VALLEY BANK
FROM:     WORLD ENERGY SOLUTIONS, INC.
                  AND WORLD ENERGY SECURITIES CORP. 
Date:

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The undersigned authorized officers of World Energy Solutions, Inc., and World
Energy Securities Corp. (individually and collectively, jointly and severally,
“Borrower”), solely in their capacities as officers of their respective
entities, certify that under the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the “Agreement”), (1) Borrower is in
complete compliance for the period ending _______________ with all required
covenants except as noted below, (2) there are no Events of Default, (3) all
representations and warranties in the Agreement are true and correct in all
material respects on this date except as noted below; provided, however, that
such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, (4) Borrower, and each of its
Subsidiaries, has timely filed all required tax returns and reports, and
Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except as otherwise
permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no
Liens have been levied or claims made against Borrower or any of its
Subsidiaries, if any, relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to Bank.  Attached are
the required documents supporting the certification.  The undersigned solely in
their capacities as officers of their respective entities, certify that these
are prepared in accordance with generally GAAP consistently applied from one
period to the next except as explained in an accompanying letter or
footnotes.  The undersigned solely in their capacities as officers of their
respective entities, acknowledge that no borrowings may be requested at any time
or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date
this certificate is delivered.  Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.
 
Please indicate compliance status by circling Yes/No under “Complies” column.
 
Reporting Covenant
Required
Complies
     
Monthly financial statements with Compliance Certificate
Monthly within 30 days
Yes   No
Annual financial statement (CPA Audited) + CC
FYE within 150 days
Yes   No
10-Q, 10-K and 8-K
Within 5 days after filing with SEC
Yes   No
A/R & A/P Agings, Deferred Revenue report, and schedule of expected collections
Monthly within 20 days
Yes   No
Borrowing Base Certificate
Monthly within 20 Days during Streamline Period
Yes   No
Transaction Report
Weekly when not Streamline Period
Yes   No
Board-approved projections
Within 30 days of approval
Yes   No

Financial Covenant
Required
Actual
Complies
       
Maintain, to be tested monthly:
     
Tangible Net Worth
$500,000
$________
Yes   No

 
 
 

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

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

WORLD ENERGY SOLUTIONS, INC.
 
By:_____________________________
Name:___________________________
Title:____________________________
 
WORLD ENERGY SECURITIES CORP.
 
By:_____________________________
Name:___________________________
Title:____________________________
 
 
BANK USE ONLY
 
Received by: _____________________
authorized signer
Date: __________________________
 
Verified: ________________________
authorized signer
Date: __________________________
 
Compliance Status:                    Yes        No

 
 

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Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated: ____________________

I.           Tangible Net Worth (Section 6.9(a))

Required:                      $500,000.00

Actual:
A.
Aggregate value of consolidated total assets of Borrower and its Subsidiaries
 
$
B.
1.   Aggregate value of goodwill of Borrower and its Subsidiaries
$
 
 
2.   Aggregate value of intangible assets of Borrower and its Subsidiaries
$
 
 
3.   Aggregate value of notes, accounts receivables, and other obligations owing
to Borrower from its officers or other Affiliates
 
$
 
4.   Aggregate value of any reserves not already deducted from assets
$
 
 
5.   Total Liabilities
$
 
C.
 
Net Tangible net Worth (line A minus lines B.1 through B.5)
$
 
D.
 
Subordinated Debt
$
 
E.
Tangible Net Worth (line C plus line D)
$
 

Is line E equal to or greater than $500,000.00?
 
    _________ No, not in
compliance                                                                 _________Yes,
in compliance

 

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