Exhibit 10.1

 

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Loan and Security Agreement

 

Borrower:    Biolase, Inc. Address:    4 Cromwell    Irvine, California 92618
Date:    October 28, 2019

THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
PACIFIC MERCANTILE BANK (“Lender”), whose address is 949 South Coast Drive, 3rd
Floor, Costa Mesa, CA 92626, and the borrower(s) named above (jointly and
severally, the “Borrower”), whose chief executive office is located at the above
address (“Borrower’s Address”). The Schedule to this Agreement (the “Schedule”)
shall for all purposes be deemed to be a part of this Agreement, and the same is
an integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 8 below.)

 

1.

LOANS.

1.1 Loans. Lender will make loans to Borrower (the “Loans”), in amounts not to
exceed the limits shown on the Schedule (the “Credit Limit”), subject to the
provisions of this Agreement and subject to deduction of such Reserves as Lender
deems proper from time to time in its Good Faith Business Judgment.

1.2 Interest. All Loans and all other monetary Obligations shall bear interest
at the interest rate shown on the Schedule. Accrued interest shall be payable
monthly for each month on the first day of the following month, and shall be
debited to Borrower’s Deposit Account maintained with the Lender designated by
Borrower (or as selected by Lender in the absence of such a designation).
Borrower shall at all times maintain sufficient funds in said Deposit Account to
enable payment of all interest and other sums to be so paid to Lender by such
debit.

1.3 Overadvances. If at any time or for any reason the total of all outstanding
Loans and all other monetary Obligations exceeds the Credit Limit (an
“Overadvance”), Borrower shall immediately pay the amount of the excess to
Lender, without notice or demand. Without limiting Borrower’s obligation to
repay to Lender the amount of any Overadvance, Borrower agrees to pay Lender
interest on the outstanding amount of any Overadvance, on demand, at the Default
Rate.

1.4 Fees. Borrower shall pay Lender the fees shown on the Schedule, which are in
addition to all interest and other sums payable to Lender and are not
refundable.

1.5 Loan Requests. To obtain a Loan, Borrower shall make a request to Lender by
facsimile or telephone. Loan requests received after 10:30 AM Pacific Time will
be deemed made on the next Business Day. Lender may rely on any telephone
request for a Loan given by a person whom Lender believes is an authorized
representative of Borrower, and Borrower will indemnify Lender for any loss
Lender suffers as a result of that reliance.

1.6 Conditions. The making of the first disbursement of any Loan is subject to
the satisfaction of the following conditions precedent, which Borrower agrees to
satisfy within two Business Days after the date hereof unless Lender otherwise
waives or consents in writing: (i) all filings have been completed that are
necessary or advisable to perfect the security interest of Lender in the
Collateral, including without limitation filings in the United States Copyright
Office and United States Patent and Trademark Office, (ii) all documents
relating to this Agreement have been executed and delivered, (iii) Lender has
confirmed to its satisfaction that there has been no Material Adverse Change
since the date of the last financial statements provided to Lender prior to the
date hereof, (iv) UCC and other searches deemed necessary by Lender have been
completed and the results thereof are satisfactory to Lender, (v) no Default or
Event of Default has occurred and is continuing, and (vi) all other matters
relating to the Loan have been completed to Lender’s satisfaction (including,
without limitation, any conditions precedent set forth in Section 8 of the
Schedule).

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

1.7 Exim Guarantee. To facilitate the financing of Eligible Accounts hereunder,
Borrower and Lender are seeking to have the Exim Bank agree to guarantee the
Loans made under this Agreement, pursuant to a Master Guarantee Agreement, Loan
Authorization Agreement and (to the extent applicable) Delegated Authority
Letter Agreement (collectively, the “Exim Guarantee”). If, at any time after the
Exim Guarantee has been entered into by Lender, for any reason other than due to
any action or inaction of Borrower under the Exim Guarantee, (a) the Exim
Guarantee shall cease to be in full force and effect, or (b) if the Exim Bank
declares the Exim Guarantee void or revokes any obligations thereunder or denies
liability thereunder, and any Overadvance results from either of the foregoing,
Lender shall provide notice of such Overadvance to Borrower, and Borrower shall
immediately pay the amount of the excess to Lender. If, at any time after the
Exim Guarantee has been entered into by Lender, for any reason other than the
one described in the foregoing sentence, (x) the Exim Guarantee shall cease to
be in full force and effect, or (y) the Exim Bank declares the Exim Guarantee
void or revokes any obligations thereunder or denies liability thereunder, any
such event shall constitute an Event of Default under this Agreement. Nothing in
any confidentiality agreement in this Agreement or in any other agreement shall
restrict Lender’s right to make disclosures and provide information to the Exim
Bank as required in connection with the Exim Guarantee.

1.8 Exim Borrower Agreement. Borrower shall execute and deliver a Borrower
Agreement, in the form specified by the Exim Bank, in favor of Lender and the
Exim Bank, together with an amendment thereto, if applicable, as approved by the
Exim Bank to conform certain terms of such Borrower Agreement to the terms of
this Agreement (as amended, the “Exim Borrower Agreement”). When the Exim
Borrower Agreement is entered into by Borrower and the Exim Bank and delivered
to Lender, this Agreement shall be subject to all of the terms and conditions of
the Exim Borrower Agreement, all of which are hereby incorporated herein by this
reference. From and after the time Borrower and the Exim Bank have entered into
the Exim Borrower Agreement and delivered the same to Lender, Borrower expressly
agrees to perform all of the obligations and comply with all of the affirmative
and negative covenants and all other terms and conditions set forth in the Exim
Borrower Agreement as though the same were expressly set forth herein. In the
event of any conflict between the terms of the Exim Borrower Agreement (if then
in effect) and the other terms of this Agreement, whichever terms are more
restrictive shall apply. Borrower acknowledges and agrees that it has received a
form of the Loan Authorization Agreement which is referred to in the Exim
Borrower Agreement. If the Exim Borrower Agreement is entered into by Borrower
and the Exim Bank and delivered to Lender, Borrower agrees to be bound by the
terms of the Loan Authorization Agreement, including, without limitation, by any
additions or revisions made prior to its execution on behalf of Exim Bank. Upon
the execution of the Loan Authorization Agreement by Exim Bank and Lender, it
shall become an attachment to the Exim Borrower Agreement. Borrower shall
reimburse Lender for all fees and all out of pocket expenses incurred by Lender
with respect to the Exim Guarantee and the Exim Borrower Agreement, including
without limitation all facility fees and usage fees, and Lender is authorized to
debit any of Borrower’s deposit accounts with Lender for such fees, costs and
expenses when paid by Lender.

2. SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Lender a security interest in
all of the following (collectively, the “Collateral”): all right, title and
interest of Borrower in and to all of the following, whether now owned or
hereafter arising or acquired and wherever located: all Accounts; all Inventory;
all Equipment; all Deposit Accounts; all General Intangibles (including without
limitation all Intellectual Property); all Investment Property; all Other
Property; and any and all claims, rights and interests in any of the above, and
all guaranties and security for any of the above, and all substitutions and
replacements for, additions, accessions, attachments, accessories, and
improvements to, and proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties) of, any and all of the
above, and all Borrower’s books relating to any and all of the above.

 

3.

REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.

In order to induce Lender to enter into this Agreement and to make Loans,
Borrower represents and warrants to Lender as follows, and Borrower covenants
that the following representations will continue to be true (except to the
extent that such representation or warranty relates to a particular date), and
that Borrower will at all times comply with all of the following covenants,
throughout the term of this Agreement and until all Obligations (other than
inchoate indemnification obligations to the extent no claim giving rise thereto
has been asserted) have been paid and performed in full, unless Lender otherwise
consents in writing:

3.1 Corporate Existence and Authority. Borrower is, and will continue to be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization. Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would reasonably be expected to result in liability on the part
of Borrower in excess of $10,000. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (i) have
been duly and validly authorized, (ii) are not subject to

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

any consents, which have not been obtained, (iii) are enforceable against
Borrower in accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors’ rights generally), and (iv) do not
violate Borrower’s articles or certificate of incorporation, or Borrower’s
by-laws, or any law or any material agreement or instrument, which is binding
upon Borrower or its property, and (v) do not constitute grounds for
acceleration of any indebtedness or obligations in excess of $50,000 in the
aggregate, under any agreement or instrument which is binding upon Borrower or
its property.

3.2 Name; Trade Names and Styles. As of the date hereof, the name of Borrower
set forth in the heading to this Agreement is its correct name. Listed in the
Representations are all prior names of Borrower and all of Borrower’s present
and prior trade names, as of the date hereof. Borrower shall give Lender 30
days’ prior written notice before changing its name or doing business under any
other name. Borrower has complied, and will in the future comply, in all
material respects, with all laws relating to the conduct of business under a
fictitious business name.

3.3 Place of Business; Location of Collateral. As of the date hereof, the
address set forth in the heading to this Agreement is Borrower’s chief executive
office. In addition, as of the date hereof, Borrower has places of business and
Collateral is located only at the locations set forth in the Representations.
Borrower will give Lender at least 30 days prior written notice before opening
any additional place of business, changing its chief executive office, or moving
any of the Collateral to a location other than Borrower’s Address or one of the
locations set forth in the Representations, except that Borrower may maintain
sales offices in the ordinary course of business at which not more than a total
of $50,000 fair market value of Equipment and Inventory is located.

3.4 Title to Collateral; Perfection; Permitted Liens.

(a) Borrower is now, and will at all times in the future be, the sole owner of
all the Collateral, except for items of Equipment which are leased to Borrower,
and except for non-exclusive licenses granted by Borrower to its customers in
the ordinary course of business. The Collateral now is and will remain free and
clear of any and all Liens and adverse claims, except for Permitted Liens.
Lender now has, and will continue to have, a first-priority perfected and
enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and Borrower will at all times defend Lender and the Collateral
against all claims of others.

(b) Borrower has set forth in the Representations all of Borrower’s Deposit
Accounts as of the date hereof, and Borrower will give Lender five Business Days
advance written notice before establishing any new Deposit Accounts and will
cause the institution where any such new Deposit Account is maintained to
execute and deliver to Lender a control agreement in form sufficient to perfect
Lender’s security interest in the Deposit Account and otherwise satisfactory to
Lender in its Good Faith Business Judgment. Nothing herein limits any
requirements which may be set forth in the Schedule as to where Deposit Accounts
will be maintained.

(c) In the event that Borrower shall at any time after the date hereof have any
commercial tort claims against others, which it is asserting or intends to
assert, and in which the potential recovery exceeds $100,000, Borrower shall
promptly notify Lender thereof in writing and provide Lender with such
information regarding the same as Lender shall request. Such notification to
Lender shall constitute a grant of a security interest in the commercial tort
claim and all proceeds thereof to Lender, and Borrower shall execute and deliver
all such documents and take all such actions as Lender shall request in
connection therewith.

(d) None of the Collateral now is or will be affixed to any real property in
such a manner, or with such intent, as to become a fixture. Borrower is not and
will not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower’s
right to remove any Collateral from the leased premises. Whenever any Collateral
is located upon premises as to which Borrower is a tenant or in which any third
party has an interest, Borrower shall, whenever requested by Lender, use
commercially reasonable efforts to cause the landlord or such third party to
execute and deliver to Lender, in form acceptable to Lender, such waivers and
subordinations as Lender shall specify in its Good Faith Business Judgment.
Borrower will keep in full force and effect, and will comply with all material
terms of, any lease of real property where any of the Collateral now or in the
future may be located.

(e) Except as disclosed in the Representations, Borrower is not a party to, nor
is it bound by, any license or other agreement that is important for the conduct
of Borrower’s business and that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower’s interest in such license or agreement
or any other property important for the conduct of Borrower’s business.

(f) Borrower is the sole owner of the Intellectual Property, except for
non-exclusive licenses granted by Borrower to its customers in the ordinary
course of business. To the best of Borrower’s knowledge, each of the Copyrights,
Trademarks and Patents is valid and enforceable, and no part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in part, and no
claim has been made to Borrower that any part of the Intellectual Property
violates the rights of any third party except to the extent such claim would not
reasonably be expected to cause a Material Adverse Change.

 

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3.5 Maintenance of Collateral. Borrower will maintain the Inventory in good and
merchantable condition and maintain all other tangible Collateral in good
working condition (ordinary wear and tear excepted), and Borrower will not use
the Collateral for any unlawful purpose. Borrower will immediately advise Lender
in writing of any loss or damage to the Collateral exceeding $50,000.

3.6 Books and Records. Borrower has maintained and will maintain at Borrower’s
Address books and records, which are complete and accurate in all material
respects, and comprise an accounting system in accordance with GAAP.

3.7 Financial Condition, Statements and Reports. All financial statements now or
in the future delivered to Lender have been, and will be, prepared in conformity
with GAAP, and now and in the future will fairly present the results of
operations and financial condition of Borrower, in accordance with GAAP, at the
times and for the periods therein stated (except for non-compliance with FAS
123R in monthly financial statements, and, in the case of interim financial
statements, for the lack of footnotes and subject to year-end adjustments).
Between the last date covered by any such statement provided to Lender and the
date hereof, there has been no Material Adverse Change.

3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely filed,
and will timely file, all required tax returns and reports, and Borrower has
timely paid, and will timely pay, all foreign, federal, state and local taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower’s obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Lender in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a Lien upon any of the
Collateral. 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, and shall continue to pay all
amounts necessary to fund all present and future pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
and will not withdraw from participation in, permit partial or complete
termination of, or permit 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. Borrower shall concurrently
execute and deliver to Lender an IRS Form 8821, Tax Information Authorization,
and Borrower shall maintain the same in full force and effect throughout the
term of this Agreement.

3.9 Compliance with Law.

(a) Borrower has, to the best of its knowledge, complied, and will in the future
comply, in all material respects, with all provisions of all foreign, federal,
state and local laws and regulations applicable to Borrower, including, but not
limited to, those relating to Borrower’s ownership of real or personal property,
the conduct and licensing of Borrower’s business, and all environmental matters,
except where the failure to do so would not reasonably be expected to result in
liability on the part of Borrower in excess of $10,000. Borrower has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower’s business as currently conducted,
except where the failure to do so would not reasonably be expected to result in
liability on the part of Borrower in excess of $10,000.

(b) Borrower is not in violation and shall not violate any of the country or
list based economic and trade sanctions administered and enforced by OFAC or as
otherwise published from time to time. Neither Borrower, nor to the knowledge of
Borrower, any director, officer, employee, agent, affiliate or representative
thereof, (i) is a Sanctioned Person or a Sanctioned Entity, (ii) has its assets
located in a Sanctioned Entity, (iii) derives revenues from investments in, or
transactions with a Sanctioned Person or a Sanctioned Entity or (iv) is owned or
controlled by a Sanctioned Entity or a Sanctioned Person.

(c) Borrower is in compliance with, and will continue to comply with, all
applicable Anti-Terrorism Laws. Borrower does not deal in, or otherwise engage
in any transaction relating to, any property or interests in property blocked
pursuant to any OFAC Sanctions Programs. Borrower is not any of the following
(each a “Blocked Person”): (i) a Person that is prohibited pursuant to any of
the OFAC Sanctions Programs, including a Person named on OFAC’s list of
Specially Designated Nationals and Blocked Persons; (ii) a Person that is owned
or controlled by, or that owns or controls any Person described in (i) above; or
(iii) a Person with which Lender is prohibited from dealing or otherwise
engaging in any transaction by any Anti-Terrorism Law. No part of the proceeds
of the Loans will be used, directly or indirectly, for any payments to any
government official or employee, political party, official of a political party,
candidate for political office, or anyone else acting in an official capacity,
in order to obtain, retain or direct business or obtain any improper advantage,
in violation of the United States Foreign Corrupt Practices Act of 1977, as
amended.

 

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(d) Borrower shall not (i) conduct any business or engage in any transaction or
dealing with any Blocked Person, including the making or receiving any
contribution of funds, goods or services to or for the benefit of any Blocked
Person, (ii) deal in, or otherwise engage in any transaction relating to, any
property or interests in property blocked pursuant to the Executive Order
No. 13224, (iii) engage in or conspire to engage in any transaction that evades
or avoids, or has the purpose of evading or avoiding, or attempts to violate,
any of the prohibitions set forth in the Executive Order No. 13224, the USA
PATRIOT Act, or any other Anti-Terrorism Law, and the Borrower shall deliver to
Lender any certification or other evidence requested from time to time by Lender
in its sole discretion, confirming Borrower’s compliance with this Section,
(iv) become (including by virtue of being owned or controlled by a Blocked
Person), own or control a Blocked Person or any Person that is the target of
sanctions imposed by the United Nations or the European Union including the
making or receiving any contribution of funds, goods or services to or for the
benefit of any Blocked Person, or (v) engage in any business or activity in
violation of the Trading with the Enemy Act.

3.10 Litigation. As of the date hereof, there is no claim, suit, litigation,
proceeding or investigation pending or, to Borrower’s knowledge, threatened
against or affecting Borrower in any court or before any governmental agency (or
any basis therefor known to Borrower) involving any claim against Borrower of
more than $50,000. Borrower will promptly inform Lender in writing of any claim,
proceeding, litigation or investigation in the future threatened or instituted
against Borrower involving any claim against Borrower of more than $50,000.

3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
Borrower’s working capital and only for purposes specified in the Exim Borrower
Agreement. Borrower is not purchasing or carrying any “margin stock” (as defined
in Regulation U of the Board of Governors of the Federal Reserve System) and no
part of the proceeds of any Loan will be used to purchase or carry any “margin
stock” or to extend credit to others for the purpose of purchasing or carrying
any “margin stock.” Borrower will not use the proceeds of the Loans for any
purpose prohibited by the Exim Borrower Agreement.

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

3.13 Borrower Agreement. Borrower will comply with all terms of the Exim
Borrower Agreement. If any provision of the Exim Borrower Agreement conflicts
with any provision contained in this Agreement, the more strict provision, with
respect to the Borrower, will control.

3.14 Terms of Sale. Borrower will, if required by Exim Bank or Lender, cause all
sales of products on which the Loans are based to be supported by one or more
irrevocable letters of credit in an amount and of matter, naming a beneficiary
and issued by a financial institution acceptable to Lender.

 

4.

ACCOUNTS.

4.1 Representations Relating to Accounts. Borrower represents and warrants to
Lender as follows: Each Account with respect to which Loans are requested by
Borrower shall, on the date each Loan is requested and made, (i) represent an
undisputed bona fide existing unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods or the rendition of
services, or the non-exclusive licensing of Intellectual Property, in the
ordinary course of Borrower’s business, and (ii) meet the Minimum Eligibility
Requirements set forth in Section 8 below.

4.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Lender as follows: 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 in all material respects, and all
such invoices, instruments and other documents and all of Borrower’s books and
records are and shall be 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. To the best of Borrower’s knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Accounts are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.

4.3 Schedules and Documents relating to Accounts. Borrower shall deliver to
Lender transaction reports and schedules of collections, as provided in the
Schedule, on Lender’s standard forms; provided, however, that Borrower’s failure
to execute and deliver the same shall not affect or limit Lender’s security
interest and other rights in all of Borrower’s Accounts, nor shall Lender’s
failure to advance or lend against a specific Account affect or limit Lender’s
security interest and other rights therein. If requested by Lender, Borrower
shall furnish Lender with copies (or, at Lender’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, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Lender an aged accounts receivable trial balance
as provided in the Schedule. In addition, Borrower shall deliver to Lender, on
its request, the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Accounts, in the same form as received, with all necessary endorsements, and
copies of all credit memos.

 

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4.4 Lockbox. Except as otherwise set forth below, Borrower shall, prior to
disbursement of any Loans, and at all times thereafter, immediately deposit any
funds received by Borrower from any source (including without limitation all
proceeds of Accounts and all other Collateral) into a cash collateral account at
Lender in Borrower’s name (the “Cash Collateral Account”), over which Lender
shall have exclusive and unrestricted access. Borrower shall, prior to
disbursement of any Loans, and at all times thereafter, direct its Account
Debtors to mail or deliver all checks or other forms of payment for amounts
owing to Borrower to a post office box designated by Lender (the “Lockbox”),
over which Lender shall have exclusive and unrestricted access. Prior to
disbursement of any Loans, Borrower shall establish the Lockbox, and thereafter
Borrower shall at all times maintain the Lockbox with Lender in accordance with
the terms hereof. Except for funds deposited into the Cash Collateral Account,
all funds received by Borrower from any source shall immediately be directed to
the Lockbox. Lender shall collect the mail delivered to the Lockbox, open such
mail, and endorse and credit all items to the Lockbox. All funds flowing through
the Lockbox shall automatically be transferred to the Cash Collateral Account.
Borrower shall direct all customers or other persons owing money to Borrower who
make payments by electronic transfer of funds to wire such funds directly to the
Cash Collateral Account. Borrower shall hold in trust for Lender all amounts
that Borrower receives despite the directions to make payments to the Cash
Collateral Account, and immediately deliver such payments to Lender in their
original form as received from the payor, with proper endorsements for deposit
into the Cash Collateral Account. Borrower irrevocably authorizes Lender to
transfer to the Cash Collateral Account any funds that have been deposited into
any other accounts or that Lender has received by wire transfer, check, cash, or
otherwise. Lender shall have all right, title and interest in all of the items
from time to time held in the Cash Collateral Account and their proceeds.
Neither Borrower nor any person claiming through Borrower shall have any right
or control over the use of, or any right to withdraw any amount from, the Cash
Collateral Account, which shall be under the sole control of Lender. Lender may
apply amounts held in the Cash Collateral Account to the outstanding balance of
the Obligations on a daily basis. Lender may from time to time in its discretion
make Loans to Borrower to cover checks or other items or charges that Borrower
has drawn or made against its operating account (the “Operating Account”) or to
cause payment of amounts due under the Loan Documents. Borrower authorizes
Lender to make such Loans from time to time by means of appropriate entries of
credits to the Operating Account sufficient to cover any such charges then
presented, such Loans to be subject to the terms of this Agreement as though
made pursuant to a request from Borrower.

4.5. Exceptions. Notwithstanding the provisions of Section 4.4, if no Default or
Event of Default has occurred and is continuing, Borrower shall not be obligated
to remit to Lender 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 $25,000 or less (for all such transactions in any
fiscal year).

4.6 Disputes. Borrower shall notify Lender promptly of all disputes or claims in
excess of $5,000 individually, which relate to any Accounts. Borrower shall not
forgive (completely or partially), compromise or settle any Account for less
than payment in full, or agree to do any of the foregoing, except that Borrower
may do so, provided that: (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm’s length
transactions, which are reported to Lender on the regular reports provided to
Lender; (ii) no Default or Event of Default has occurred and is continuing; and
(iii) taking into account all such discounts, settlements and forgiveness, the
total outstanding Loans will not exceed the Credit Limit.

4.7 Returns. Provided no Event of Default has occurred and is continuing, if any
Account Debtor returns any Inventory to Borrower, Borrower shall promptly
determine the reason for such return and promptly issue a credit memorandum to
the Account Debtor in the appropriate amount. 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 Lender, and immediately
notify Lender of the return of the Inventory.

4.8 Verification. Lender may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Accounts, by means of mail, telephone or otherwise, either in the name of
Borrower or Lender or such other name as Lender may choose, and Lender or its
designee may, at any time, notify Account Debtors that it has a security
interest in the Accounts.

4.9 No Liability. Lender 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 Lender be deemed to
be responsible for any of Borrower’s obligations under any contract or agreement
giving rise to an Account.

 

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5. ADDITIONAL DUTIES OF BORROWER.

5.1 Financial and Other Covenants. Borrower shall at all times comply with the
financial and other covenants set forth in the Schedule.

5.2 Insurance.

5.2.1 Non-Exim. Borrower shall, at all times insure all of the tangible personal
property Collateral and carry such other business insurance, with insurers
reasonably acceptable to Lender, in such form and amounts as Lender may
reasonably require and that are customary and in accordance with standard
practices for Borrower’s industry and locations, and Borrower shall provide
evidence of such insurance to Lender. All such insurance policies shall name
Lender as an additional loss payee, and shall contain a lenders loss payee
endorsement in form reasonably acceptable to Lender and shall name Lender as
additional insured with regard to liability coverage. Upon receipt of the
proceeds of any such insurance, Lender shall apply such proceeds in reduction of
the Obligations as Lender shall determine in its sole discretion, except that,
provided no Default or Event of Default has occurred and is continuing, Lender
shall release to Borrower insurance proceeds with respect to Equipment totaling
less than $50,000, which shall be utilized by Borrower for the replacement of
the Equipment with respect to which the insurance proceeds were paid. Lender may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Lender may, but is
not obligated to, obtain the same at Borrower’s expense. Borrower shall promptly
deliver to Lender copies of all material reports made to insurance companies.

5.2.2 Exim. If required by Lender, Borrower will obtain, and pay when due all
premiums with respect to, and maintain uninterrupted foreign credit insurance.
In addition, Borrower will execute in favor of Lender an assignment of proceeds
of any insurance policy obtained by Borrower and issued by Exim Bank insuring
against comprehensive commercial and political risk (the “Exim Bank Policy”).
The insurance proceeds from the Exim Bank Policy assigned or paid to Lender will
be applied to the then balance outstanding under this Agreement. Borrower will
immediately notify Lender and Exim Bank in writing upon submission of any claim
under the Exim Bank Policy. Then Lender will not be obligated to make any
further Loans to Borrower without prior approval from Exim Bank.

5.3 Reports. Borrower, at its expense, shall provide Lender with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower as Lender shall from time to time specify in its Good Faith Business
Judgment.

5.4 Access to Collateral, Books and Records. At reasonable times, and on two
Business Days’ notice, Lender, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower’s books and records.
The foregoing inspections and audits shall be at Borrower’s expense and no more
often than twice in any calendar year unless an Event of Default has occurred
and is continuing in which case such inspections and audits shall occur, at
Borrower’s expense, as often as Lender shall deem necessary. All such foregoing
inspections and audits shall be at Borrower’s expense and the charge therefor
shall be Lender’s then current standard charge for the same, plus reasonable
out-of-pocket expenses (including without limitation any additional costs and
expenses of outside auditors retained by Lender). Absent an Event of Default
having occurred and continuing, Lender may conduct more frequent inspections and
audits, but not at Borrower’s expense.

5.5 Negative Covenants. Except as may be permitted in the Schedule, Borrower
shall not, without Lender’s prior written consent (which shall be a matter of
its Good Faith Business Judgment), do any of the following:

(i) merge or consolidate with another corporation or entity, except that a
Borrower may merge into another Borrower with ten Business Days prior written
notice to Lender;

(ii) acquire any assets, except in the ordinary course of business;

(iii) enter into any other transaction outside the ordinary course of business;

(iv) sell or transfer any Collateral (including by means of a division of a
legal entity into two or more separate entities, including as contemplated under
Section 18-217 of the Delaware Limited Liability Act for limited liability
companies formed under Delaware law, or any analogous action taken pursuant to
any other applicable law), except for (A) the sale of finished Inventory in the
ordinary course of Borrower’s business, (B) the sale of obsolete or unneeded
Equipment in the ordinary course of business, in an amount not more than $25,000
in any fiscal year, and (C) non-exclusive licenses of Intellectual Property in
the ordinary course of business;

(v) store any Inventory or other Collateral with any warehouseman or other third
party, unless there is in place an agreement by such warehouseman or other third
party in favor of Lender in such form as Lender shall specify in its Good Faith
Business Judgment;

(vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or
other contingent basis;

 

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(vii) make any loans of any money or other assets or any other Investments,
other than Permitted Investments;

(viii) create, incur, assume or permit to be outstanding any Indebtedness other
than Permitted Indebtedness;

(ix) guarantee or otherwise become liable with respect to the obligations of
another party or entity;

(x) pay or declare any dividends on Borrower’s stock (except for dividends
payable solely in stock of Borrower), or make any distributions of money or
other assets with respect to membership interests in Borrower or with respect to
any equity or ownership interests in Borrower;

(xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any
of Borrower’s stock or other equity securities;

(xii) engage, directly or indirectly, in any business other than the businesses
currently engaged in by Borrower or reasonably related thereto, or become an
“investment company” within the meaning of the Investment Company Act of 1940;

(xiii) 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, and are on 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; or

(xiv) reincorporate in another state;

(xv) change its fiscal year;

(xvi) create a Subsidiary;

(xvii) dissolve or elect to dissolve, except that a Borrower which is a
wholly-owned Subsidiary of another Borrower may dissolve, with ten Business Day
prior written notice to the Lender, if all of its assets are distributed to the
Borrower which owns 100% of its stock;

(xviii) violate or fail to comply with any provision of the Exim Borrower
Agreement or take an action, or permit any action to be taken, that cause, or
could be expected to cause, the Exim Guarantee to not be in full force and
effect; or

(xix) agree to do any of the foregoing, unless such agreement provides that it
is subject to the prior written consent of Lender.

Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default has occurred and is continuing, or
would occur as a result of such transaction.

5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Lender, make available Borrower and
its officers, employees and agents and Borrower’s books and records, to the
extent that Lender may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.

5.7 Notification of Changes. Borrower will give Lender written notice of any
change in its executive officers within ten days after the date of such change.

5.8 Registration of Intellectual Property Rights.

(a) Borrower shall promptly give Lender written notice of any applications or
registrations it files or obtains with respect to Intellectual Property filed
with the United States Patent and Trademark Office or the United States
Copyright Office, including the date of any such filing and the registration or
application numbers, if any, and shall execute and deliver such documents and
take such actions as are reasonably necessary or advisable in Lender’s Good
Faith Business Judgment to perfect or reflect of record Lender’s security
interest in the same, and to file the same in the United States Patent and
Trademark Office or the United States Copyright Office, as the case may be.

(b) Borrower shall use commercially reasonable efforts to (i) protect, defend
and maintain the validity and enforceability of the Intellectual Property that
is material to Borrower, (ii) detect infringements of any material Intellectual
Property, and (iii) not allow any material Intellectual Property to be
abandoned, forfeited or dedicated to the public without the written consent of
Lender, which shall not be unreasonably withheld.

(c) Lender shall have the right, but not the obligation, to take, at Borrower’s
sole expense, any actions that Borrower is required under this Section 5.8 to
take but which Borrower fails to take, after fifteen days’ notice to Borrower.
Borrower shall reimburse and indemnify Lender for all reasonable costs and
reasonable expenses incurred in the reasonable exercise of its rights under this
Section.

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

5.9 Consent of Inbound Licensors. Prior to entering into or becoming bound by
any material inbound license or agreement in the future, Borrower shall:
(i) provide written notice to Lender of the material terms of such license or
agreement with a description of its likely impact on Borrower’s business or
financial condition; and (ii) in good faith use commercially reasonable efforts
to obtain the consent of, or waiver by, any person whose consent or waiver is
necessary for Borrower’s interest in such licenses or contract rights to be
deemed Collateral and for Lender to have a security interest therein, provided,
however, that the failure to obtain any such consent or waiver shall not
constitute a default under this Agreement.

5.10 Further Assurances. Borrower agrees, at its expense, on request by Lender,
to execute all documents and take all actions, as Lender, may, in its Good Faith
Business Judgment, deem necessary or useful in order to perfect and maintain
Lender’s perfected first-priority security interest in the Collateral (subject
only to Permitted Liens), and in order to fully consummate the transactions
contemplated by this Agreement.

6. TERM.

6.1 Maturity Date. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the “Maturity Date”), subject to Sections 6.2
and 6.3 below.

6.2 Early Termination. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective 20 days after written notice of
termination is given to Lender; or (ii) by Lender at any time after the
occurrence and during the continuance of an Event of Default, without notice,
effective immediately. If this Agreement is terminated by Borrower or by Lender
under this Section 6.2, or if all Obligations are automatically accelerated and
become due and payable upon the commencement of any Insolvency Proceeding by
Borrower or any Event of Default under Section 7.1(m) (each an “Automatic
Acceleration”), then, in any such event, Borrower shall pay to Lender the
termination fees with respect to the Loans set forth in Section 3 of the
Schedule, all of which shall be due and payable on the effective date of
termination or on any Automatic Acceleration (as the case may be), and the same
shall thereafter shall bear interest at a rate equal to the highest rate
applicable to any of the Obligations.

6.3 Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Notwithstanding
any termination of this Agreement, all of Lender’s security interests in all of
the Collateral and all of the terms and provisions of this Agreement shall
continue in full force and effect until all Obligations have been paid and
performed in full; provided that Lender may, in its sole discretion, refuse to
make any further Loans after termination. No termination shall in any way affect
or impair any right or remedy of Lender, nor shall any such termination relieve
Borrower of any Obligation to Lender, until all of the Obligations have been
paid and performed in full. Lender shall, at Borrower’s expense, release or
terminate all financing statements and other filings in favor of Lender as may
be required to fully terminate Lender’s security interests, provided that there
are no suits, actions, proceedings or claims pending or threatened against any
Person indemnified by Borrower under this Agreement with respect to which
indemnity has been or may be sought, upon Lender’s receipt of the following, in
form and content satisfactory to Lender: (i) cash payment in full of all of the
Obligations and performance by Borrower of all non-monetary Obligations under
this Agreement, (ii) written confirmation by Borrower that the commitment of
Lender to make Loans under this Agreement has terminated, (iii) a general
release of all claims against Lender, its officers, directors, agents, attorneys
and Affiliates by Borrower relating to Lender’s performance and obligations
under the Loan Documents, on Lender’s standard form, and (iv) an agreement by
Borrower, and any new lender to Borrower to indemnify Lender for any payments
received by Lender that are applied to the Obligations that may subsequently be
returned or otherwise not paid for any reason.

7. EVENTS OF DEFAULT AND REMEDIES.

7.1 Events of Default. The occurrence of any of the following events shall
constitute an “Event of Default” under this Agreement, and Borrower shall give
Lender immediate written notice thereof:

(a) Any warranty, representation, statement, report or certificate made or
delivered to Lender by Borrower or any of Borrower’s officers, employees or
agents, now or in the future, shall be untrue or misleading in a material
respect when made or deemed to be made; or

(b) Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation; or

(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or

(d) Borrower shall fail to comply with any non-monetary Obligation which by its
nature cannot be cured, or shall fail to comply with the provisions of
Section 3.8 (titled “Tax Returns and Payments; Pension Contributions”),
Section 4.4 (titled “Lockbox”), Section 5.2 (titled “Insurance”), Section 5.4
(titled “Access to Collateral, Books and Records”), Section 5.5 (titled
“Negative Covenants”), Section 5 of the Schedule (titled “Financial Covenants”),
Section 6 of the Schedule (titled “Reporting”), or Section 8 of the Schedule
(titled “Additional Provisions”); or

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

(e) Borrower shall fail to perform any other non-monetary Obligation, which
failure is not cured within five Business Days after the date due; or

(f) any Collateral becomes subject to any Lien (other than a Permitted Lien)
which is not cured within five Business Days after the occurrence of the same;
or

(g) any Collateral is attached, seized, subjected to a writ or distress warrant,
or is levied upon, and such attachment, seizure, writ or distress warrant or
levy has not been removed, discharged or rescinded within five Business Days, or
if Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a Lien on any of the Collateral, or if a notice
of lien, levy, or assessment is filed of record with respect to any of the
Collateral by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency;

(h) any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien; or

(i) a default or event of default shall occur under any documents or agreements
evidencing or relating to any Permitted Indebtedness which is not cured within
any applicable cure period.

(j) Borrower breaches any material contract or obligation, which has resulted or
may reasonably be expected to result in a Material Adverse Change; or

(k) a final, judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least $100,000 shall be rendered against
Borrower, and the same remain unsatisfied and unstayed for a period of 10
Business Days or more; provided, however, if any action to enforce such
judgment(s) is commenced against Borrower or Borrower’s assets, the same shall
constitute an immediate Event of Default hereunder; or

(l) Dissolution, termination of existence, temporary or permanent suspension of
business, insolvency or business failure of Borrower; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
Insolvency Proceeding by Borrower; or

(m) the commencement of any Insolvency Proceeding against Borrower or any
Guarantor, which is not cured by the dismissal thereof within 45 days after the
date commenced; or

(n) revocation or termination of, or limitation or denial of liability upon, or
default under, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of any Insolvency Proceeding by any Guarantor, or
death of any Guarantor; or

(o) revocation or termination of, or limitation or denial of liability upon, or
default under, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
any Insolvency Proceeding by or against any such third party; or

(p) Borrower makes any payment on account of any Subordinated Debt, other than
as permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
its subordination agreement; or

(q) a Change in Control shall occur; or

(r) there shall be a change in the President, Chief Executive Officer, or Chief
Financial Officer of the Borrower, and such person is not replaced with another
person acceptable to Lender in its Good Faith Business Judgment within 20 days
thereafter, or two or more members of the Board of Directors of Borrower resign
or are removed within any period of 90 days and are not replaced with other
persons acceptable to Lender in its Good Faith Business Judgment within 20 days
thereafter; or

(s) Borrower shall generally not pay its debts as they become due, or Borrower
shall conceal, remove or transfer any part of its property, with intent to
hinder, delay or defraud its creditors, or make or suffer any transfer of any of
its property which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law; or

(t) Any director, officer, or owner of 20% or more of the issued and outstanding
common stock of Borrower is indicted for a felony offense under state or federal
law, or Borrower hires an officer or has a director who has been convicted of
any such felony offense, or a Person becomes an owner of at least 20% of the
issued and outstanding common stock of Borrower who has been convicted of any
such felony offense; or

(u) Borrower violates any covenant in the Exim Borrower Agreement which is not
cured within five Business Days after the occurrence thereof; or

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

(v) the Exim Guarantee ceases for any reason to be in full force and effect, or
if the Exim Bank declares the Exim Guarantee void or revokes any obligations
under the Exim Guarantee; or

(w) a Material Adverse Change shall occur.

Lender may cease making any Loans hereunder during any of the above cure
periods, and thereafter if an Event of Default has occurred and is continuing.

7.2 Remedies. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, Lender, at its option, and without notice
or demand of any kind (all of which are hereby expressly waived by Borrower),
may do any one or more of the following: (a) Cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other Loan Document;
(b) Accelerate and declare all or any part of the Obligations to be immediately
due, payable, and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation
(except that all Obligations shall be automatically accelerated and due and
payable upon the commencement of any Insolvency Proceeding by Borrower or any
Event of Default under Section 7.1(m)); (c) Take possession of any or all of the
Collateral wherever it may be found, and for that purpose Borrower hereby
authorizes Lender without judicial process to enter onto any of Borrower’s
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as Lender deems it necessary, in its Good Faith Business Judgment, in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Lender seek to take possession of any
of the Collateral by court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Lender retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Lender at places designated by Lender which are reasonably convenient to Lender
and Borrower, and to remove the Collateral to such locations as Lender may deem
advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Lender shall have the right to use Borrower’s premises,
vehicles, hoists, lifts, cranes, and other Equipment and all other property
without charge; (f) Sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Lender obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Lender shall have the right to
conduct such disposition on Borrower’s premises without charge, for such time or
times as Lender deems reasonable, or on Lender’s premises, or elsewhere and the
Collateral need not be located at the place of disposition. Lender may directly
or through any Affiliate purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) demand payment
of, and collect any Accounts and General Intangibles comprising Collateral and,
in connection therewith, Borrower irrevocably authorizes Lender to endorse or
sign Borrower’s name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Lender’s Good Faith Business Judgment, to grant extensions of
time to pay, compromise claims and settle Accounts and the like for less than
face value; (h) demand and receive possession of any of Borrower’s federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto; and (i) set off any of the Obligations against any
general, special or other Deposit Accounts of Borrower maintained with Lender.
All reasonable attorneys’ fees, expenses, costs, liabilities and obligations
incurred by Lender with respect to the foregoing shall be added to and become
part of the Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.
Without limiting any of Lender’s rights and remedies, from and after the
occurrence and during the continuance of any Event of Default, the interest rate
applicable to the Obligations shall be increased by an additional five percent
per annum (the “Default Rate”).

7.3 Standards for Determining Commercial Reasonableness. Borrower and Lender
agree that a sale or other disposition (collectively, “Sale”) of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) notice of the Sale is given to Borrower at least
ten days prior to the Sale, and, in the case of a public Sale, notice of the
Sale is published at least five days before the date of the Sale in a newspaper
of general circulation in the county where the Sale is to be conducted;
(ii) notice of the Sale describes the Collateral in general, non-specific terms;
(iii) the Sale is conducted at a place designated by Lender, with or without the
Collateral being present; (iv) the Sale commences at any time between 8:00 a.m.
and 6:00 p.m; (v) payment of the purchase price in cash or by cashier’s check or
wire transfer is required; (vi) with respect to any Sale of any of the
Collateral, Lender may (but is not obligated to) direct any prospective
purchaser to ascertain directly from Borrower any and all information concerning
the same. Lender shall be free to employ other methods of noticing and selling
the Collateral, in its discretion, if they are commercially reasonable.

 

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7.4 Investment Property. If a Default or an Event of Default has occurred and is
continuing, Borrower shall hold all payments on, and proceeds of, and
distributions with respect to, Investment Property in trust for Lender, and
Borrower shall deliver all such payments, proceeds and distributions to Lender,
immediately upon receipt, in their original form, duly endorsed, to be applied
to the Obligations in such order as Lender shall determine. Borrower recognizes
that Lender may be unable to make a public sale of any or all of the Investment
Property, by reason of prohibitions contained in applicable securities laws or
otherwise, and expressly agrees that a private sale to a restricted group of
purchasers for investment and not with a view to any distribution thereof shall
be considered a commercially reasonable sale thereof.

7.5 Power of Attorney. Upon the occurrence and during the continuance of any
Event of Default, without limiting Lender’s other rights and remedies, Borrower
grants to Lender an irrevocable power of attorney coupled with an interest,
authorizing and permitting Lender (acting through any of its employees,
attorneys or agents) at any time, at its option, but without obligation, with or
without notice to Borrower, and at Borrower’s expense, to do any or all of the
following, in Borrower’s name or otherwise, but Lender agrees that if it
exercises any right hereunder, it will do so in good faith and in a commercially
reasonable manner: (a) execute on behalf of Borrower any documents that Lender
may, in its Good Faith Business Judgment, deem advisable in order to perfect and
maintain Lender’s security interest in the Collateral, or in order to exercise a
right of Borrower or Lender, or in order to fully consummate all the
transactions contemplated under this Agreement, and all other Loan Documents;
(b) execute on behalf of Borrower, any invoices relating to any Account, any
draft against any Account Debtor and any notice to any Account Debtor, any proof
of claim in bankruptcy, any Notice of Lien, claim of mechanic’s, materialman’s
or other Lien, or assignment or satisfaction of mechanic’s, materialman’s or
other Lien; (c) take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Lender’s possession; (d) endorse all checks and other forms of remittances
received by Lender; (e) pay, contest or settle any Lien and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (f) grant extensions of time to pay,
compromise claims and settle Accounts and General Intangibles for less than face
value and execute all releases and other documents in connection therewith;
(g) pay any sums required on account of Borrower’s taxes or to secure the
release of any Liens therefor, or both; (h) settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (i) instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Lender the same rights of
access and other rights with respect thereto as Lender has under this Agreement;
and (j) take any action or pay any sum required of Borrower pursuant to this
Agreement and any other Loan Documents; (k) enter into a short-form intellectual
property security agreement consistent with the terms of this Agreement for
recording purposes only or modify, in its sole discretion, any intellectual
property security agreement entered into between Borrower and Lender without
first obtaining Borrower’s approval of or signature to such modification by
amending exhibits thereto, as appropriate, to include reference to any right,
title or interest in any Copyrights, Patents or Trademarks acquired by Borrower
after the execution hereof or to delete any reference to any right, title or
interest in any Copyrights, Patents or Trademarks in which Borrower no longer
has or claims to have any right, title or interest; and (l) file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral; provided Lender may exercise such
power of attorney to sign the name of Borrower on any of the documents described
in clauses (k) and (l) above, regardless of whether an Event of Default has
occurred. Any and all reasonable sums paid and any and all reasonable costs,
expenses, liabilities, obligations and attorneys’ fees incurred by Lender with
respect to the foregoing shall be added to and become part of the Obligations,
shall be payable on demand, and shall bear interest at a rate equal to the
highest interest rate applicable to any of the Obligations. In no event shall
Lender’s rights under the foregoing power of attorney or any of Lender’s other
rights under this Agreement be deemed to indicate that Lender is in control of
the business, management or properties of Borrower.

7.6 Application of Proceeds. All proceeds realized as the result of any Sale of
the Collateral shall be applied by Lender first to the reasonable costs,
expenses, liabilities, obligations and attorneys’ fees incurred by Lender 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, in such order
as Lender shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Lender for any deficiency. If, Lender, 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, Lender shall have the
option, exercisable at any time, in its Good Faith Business Judgment, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Lender of the cash
therefor.

7.7 Remedies Cumulative. In addition to the rights and remedies set forth in
this Agreement, Lender shall have all the other rights and remedies accorded a
secured party under the Uniform Commercial Code and under all other applicable
laws, and under any other instrument or agreement now or in the future entered
into between Lender and Borrower, and all of such rights and remedies are
cumulative and none is exclusive. Exercise or partial exercise by Lender of one
or more of its rights or remedies shall not be deemed an election, nor bar
Lender from subsequent exercise or partial exercise of any other rights or
remedies. The failure or delay of Lender to exercise any rights or remedies
shall not operate as a waiver thereof, but all rights and remedies shall
continue in full force and effect until all of the Obligations have been fully
paid and performed.

 

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7.8 Exim Direction. Upon the occurrence of an Event of Default, Exim Bank shall
have right to (i) direct Lender to exercise the remedies specified in
Section 7.2 and (ii) request that Lender accelerate the maturity of any other
loans to Borrower.

7.9 Exim Notification. Lender has the right to immediately notify Exim Bank in
writing if it has knowledge of any of the following events: (1) any failure to
pay any amount due under this Agreement; (2) an Overadvance occurs; (3) any
failure to pay when due any amount payable to Lender under any Loan owing by
Borrower to Lender; (4) the filing of an action for debtor’s relief by, against
or on behalf of Borrower; (5) any threatened or pending material litigation
against Borrower, or any dispute involving Borrower. If Lender sends a notice to
Exim Bank, Lender has the right to send Exim Bank a written report on the status
of events covered by the notice every 30 days after the date of the original
notification, until Lender files a claim with Exim Bank or the defaults have
been cured (but no Loans may be required during the cure period unless Exim Bank
gives its written approval). If directed by Exim Bank, Lender will have the
right to exercise any rights it may have against the Borrower to demand the
immediate repayment of all amounts outstanding under the Loan Documents.

8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:

“Account Debtor” means the obligor on an Account.

“Accounts” means all present and future “accounts” as defined in the Uniform
Commercial Code in effect on the date hereof with such additions to such term as
may hereafter be made, and includes without limitation all accounts receivable
and other sums owing to Borrower.

“Affiliate” means, with respect to any Person, a relative, partner, shareholder,
director, officer, or employee of such Person, or any parent or subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.

“this Agreement”, “the Loan Agreement” and “this Loan Agreement” mean
collectively to this Loan and Security Agreement and the Schedule and all
exhibits and schedules thereto, as the same may be modified, amended or restated
from time to time by a written agreement signed by Borrower and Lender.

“Anti-Terrorism Laws” means (i) the Money Laundering Control Act of 1986 (i.e.,
18 U.S.C. §§ 1956 and 1957), (ii) the Bank Secrecy Act, as amended by the USA
PATRIOT Act, (iii) the laws, regulations and Executive Orders administered by
the United States Department of the Treasury’s Office of Foreign Assets Control
(“OFAC”), (iv) the Comprehensive Iran Sanctions, Accountability, and Divestment
Act of 2010 and implementing regulations by the United States Department of the
Treasury, (v) the Proceeds of Crime (Money Laundering) and Terrorist Financing
Act (Canada), (vi) any law enacted in the United States, Canada or any other
jurisdiction in which any Borrower or any of its Subsidiaries operate
prohibiting or directed against terrorist activities or the financing of
terrorist activities (e.g., 18 U.S.C. §§ 2339A and 2339B), (vii) the foreign
asset control regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended) and any enabling legislation or executive
order relating thereto, or (viii) any similar laws relating to terrorism or
money laundering enacted in the United States, Canada or any other jurisdictions
in which Borrower or any of its Subsidiaries operate, as any of the foregoing
laws may from time to time be amended, renewed, extended, or replaced and all
other legal requirements of any Governmental Authority governing, addressing,
relating to, or attempting to eliminate, terrorist acts and acts of war and any
regulations promulgated pursuant thereto.

“BL Subs” has the meaning given in Section 8(e) of the Schedule.

“Business Day” means a day on which Lender is open for business other than
Saturday, Sunday or Federal holiday.

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

“Change in Control” means: (i) [omitted]; or (ii) a transaction other than a
bona fide equity financing or series of financings on terms and from investors
reasonably acceptable to Lender in which any “person” or “group” (within the
meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of a sufficient number of shares
of all classes of stock then outstanding of Borrower ordinarily entitled to vote
in the election of directors, empowering such “person” or “group” to elect a
majority of the Board of Directors of Borrower, who did not have such power
before such transaction.

 

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“Code” means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.

“Collateral” has the meaning set forth in Section 2 above.

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

“continuing” and “during the continuance of” when used with reference to a
Default or Event of Default means that the Default or Event of Default has
occurred and has not been either waived in writing by Lender or cured within any
applicable cure period.

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

“Country Limitation Schedule” is as defined in the Exim Borrower Agreement.

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

“Default Rate” has the meaning set forth in Section 7.2 above.

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

“Deposit Accounts” means all present and future “deposit accounts” 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 general and special bank
accounts, demand accounts, checking accounts, savings accounts and certificates
of deposit.

“Domestic Subsidiary” means any wholly-owned (directly or indirectly) Subsidiary
of Borrower that is not a Foreign Sub.

“Eligible Accounts” means Accounts and General Intangibles arising in the
ordinary course of Borrower’s business from the sale of goods or the rendition
of services, or the non-exclusive licensing of Intellectual Property, which
Lender, in its Good Faith Business Judgment, shall deem eligible for borrowing
meet all Borrower’s representations and warranties in Sections 4.1 and 4.2 and
conform in all respects to the Exim Borrower Agreement, and either (a) are
guaranteed by Exim Bank, less any deductible; (b) are supported by letter(s) of
credit acceptable to Lender; (c) are FCIA insured in a manner acceptable to
Lender, or (d) that Lender pre-approves in writing. Without limiting the fact
that the determination of which Accounts are eligible for borrowing is a matter
of Lender’s Good Faith Business Judgment, the following (the “Minimum
Eligibility Requirements”) are the minimum requirements for an Account to be an
Eligible Account:

(i) the Account must not be outstanding for more than 90 days from its due date
or 180 days from its invoice date (the “Eligibility Period”);

(ii) the Account must not represent progress billings, or be due under a
fulfillment or requirements contract with the Account Debtor;

(iii) the Account must not be subject to any contingencies (including Accounts
arising from sales on consignment, guaranteed sale, bill and hold, sale on
approval, or other terms pursuant to which payment by the Account Debtor may be
conditional);

(iv) the Account must not be owing from an Account Debtor with whom Borrower has
any dispute (whether or not relating to the particular Account), but if an
Account is owing from an Account Debtor with whom Borrower has any dispute, the
Account will not be Eligible under this clause (iv) only to the extent of the
amount of the dispute;

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

(v) the Account must not be owing from an Affiliate of Borrower;

(vi) the Account must not be owing from an Account Debtor which is subject to
any Insolvency Proceeding, or whose financial condition is not acceptable to
Lender, or which, fails or goes out of a material portion of its business;

(vii) the Account must not be owing from the United States or any department,
agency or instrumentality thereof (unless there has been compliance, to Lender’s
satisfaction, with the United States Assignment of Claims Act);

(viii) the Account must not be owing from an Account Debtor located outside the
United States (unless pre-approved by Lender in its discretion in writing, or
backed by a letter of credit satisfactory to Lender, or FCIA insured in a manner
satisfactory to Lender or covered by the Exim Guarantee);

(ix) the Account must have been billed to the Account Debtor and must not
represent deposits (such as good faith deposits) or other property of the
Account Debtor held by Borrower for the performance of services or delivery of
goods which Borrower has not yet performed or delivered;

(x) the Account must not be owing from an Account Debtor to whom Borrower is or
may be liable for goods purchased from such Account Debtor or otherwise (but, in
such case, the Account will be deemed not eligible only to the extent of any
amounts owed by Borrower to such Account Debtor);

(xi) the Account must not be subject to trust provisions, subrogation rights of
a bonding company or other Person, or any statutory trust rights or claims, any
retentions or holdbacks for completion or other claims;

(xii) the Account must not be owing from an Account Debtor with respect to which
Borrower has received Deferred Revenue (but only to the extent of the Deferred
Revenue);

(xiii) the Account must not be an Account arising from product returns and/or
exchanges;

(xiv) the Account must not be an Account generated by the sale or provision of
defense articles or services, subject to exceptions approved in writing by Exim
Bank;

(xv) the Account must not be an Account that is due and payable from a military
buyer, subject to exceptions approved in writing by Exim Bank;

(xvi) the Account must not be an Account that is due and payable from a foreign
buyer located in a country with which Exim Bank is legally prohibited from doing
business as set forth in the current Country Limitation Schedule (Note: If the
Borrower has knowledge that an export to a country in which Exim Bank may do
business, as set forth in the current Country Limitation Schedule, will be
re-exported to a country with which Exim Bank is legally prohibited from doing
business, the corresponding receivables (or a pro-rata portion thereof) are not
eligible for inclusion in the borrowing base);

(xvii) the Account must comply with the requirements of the Country Limitation
Schedule;

(xviii) the Account must not be an Account that arises from the sale of items
that do not meet 50% U.S. Content (as defined in the Exim Borrower Agreement)
requirements;

(xix) the Account must not be denominated in non-U.S. currency, unless
pre-approved in writing by EX-IM Bank;

(xx) the Account must comply with the terms of sale as set forth by Exim Bank;

(xxi) the Account must not be an Account for which Lender or Exim Bank, each in
its good faith business judgment, determines collection to be doubtful; and

(xxii) the Account must not be deemed to be ineligible by Exim Bank.

Accounts owing from one Account Debtor will not be deemed Eligible Accounts to
the extent they exceed 20% of the total Accounts outstanding. In addition, if
more than 20% of the Accounts owing from an Account Debtor are outstanding for a
period longer than their Eligibility Period or are otherwise not Eligible
Accounts, then all Accounts owing from that Account Debtor will be deemed
ineligible for borrowing. Without limiting the generality of the foregoing,
credit balances over 90 days from due date or 180 days from invoice date will be
deducted in determining Eligible Accounts. Lender may, from time to time, in its
Good Faith Business Judgment, revise the Minimum Eligibility Requirements, upon
30 days prior written notice to Borrower.

“Eligible Inventory” means Inventory consisting of finished goods, raw materials
and work in process (less any Inventory reserves) of Borrower, located in the
United States and (i) designated for a qualified Export Order and containing at
least 50% U.S. Content and (ii) complies with the terms of the definition of
Eligible Export-Related Inventory (as set forth in the Exim Borrower Agreement),
valued at the lower of cost or market in accordance with GAAP.

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

“Equipment” means all present and future “equipment” 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 machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the
foregoing.

“Event of Default” means any of the events set forth in Section 7.1 of this
Agreement.

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

“Exim Borrower Agreement” is defined in Section 1.8.

“Exim Guarantee” is as defined in Section 1.7.

“Export Order” is a written export order or contract for the purchase by the
buyer from the Borrower of any finished goods or services which are intended for
export.

“Foreign Subs” has the meaning given in Section 8(f) of the Schedule.

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

“General Intangibles” means all present and future “general intangibles” as
defined in the Code in effect on the date hereof with such additions to such
term as may hereafter be made, and includes without limitation all Intellectual
Property, payment intangibles, royalties, contract rights, goodwill, franchise
agreements, purchase orders, customer lists, route lists, telephone numbers,
domain names, claims, income 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.

“Good Faith Business Judgment” means Lender’s business judgment, exercised
honestly and in good faith and not arbitrarily.

“Guarantor” means any Person who has guaranteed, or in the future guarantees,
any of the Obligations.

“including” means including (but not limited to).

“Indebtedness” means (a) all indebtedness created, assumed or incurred in any
manner by Borrower representing money borrowed (including by the issuance of
debt securities, notes, bonds debentures or similar instruments), (b) all
indebtedness for the deferred purchase price of property or services, (c) the
Obligations, (d) obligations and liabilities of any Person secured by a Lien or
claim on property owned by Borrower, even though Borrower has not assumed or
become liable therefor, (e) obligations and liabilities created or arising under
any capital lease or conditional sales contract or other title retention
agreement with respect to property used or acquired by Borrower, even though the
rights and remedies of the lessor, seller or lender are limited to repossession
or otherwise limited; (f) all obligations of Borrower on or with respect to
letters of credit, bankers’ acceptances and other similar extensions of credit
whether or not representing obligations for borrowed money; and (g) the amount
of any Contingent Obligations.

“Intellectual Property” means all of Borrower’s right, title, and interest in
and to the following: Copyrights, Trademarks and Patents; any and all trade
secrets, and any and all intellectual property rights in computer software and
computer software products now or hereafter existing, created, acquired or held;
any and all design rights which may be available to Borrower now or hereafter
existing, created, acquired or held; any and all claims for damages by way of
past, present and future infringement of any of the rights included above, with
the right, but not the obligation, to sue for and collect such damages for said
use or infringement of the intellectual property rights identified above; all
licenses or other rights to use any of the Copyrights, Patents or Trademarks,
and all license fees and royalties arising from such use; and all amendments,
renewals and extensions of any of the Copyrights, Trademarks or Patents.

“Insolvency Proceeding” means any proceeding commenced by or against any Person
or entity under any provision of the United States Bankruptcy Code, as amended,
or under any other state, federal or other bankruptcy or insolvency law, now or
hereafter in effect, including assignments for the benefit of creditors, formal
or informal moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, readjustment of debt,
dissolution or liquidation, or other relief.

“Inventory” means all present and future “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.

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

“Investment” means any beneficial ownership interest in any Person (including
stock, securities, partnership interest, limited liability company interest, or
other interests), and any loan, advance or capital contribution to any Person,
including the creation or capital contribution to a wholly-owned or
partially-owned subsidiary)

“Investment Property” means all present and future investment property,
securities, stocks, bonds, debentures, debt securities, partnership interests,
limited liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets held
in any securities account or otherwise, and all options and warrants to purchase
any of the foregoing, wherever located, and all other securities of every kind,
whether certificated or uncertificated.

“Lien” means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

“Loan Documents” means, collectively, this Agreement, the Representations, and
all other present and future documents, instruments and agreements between
Lender and Borrower, including, but not limited to those relating to this
Agreement, and all amendments and modifications thereto and replacements
therefor.

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

“Obligations” means all present and future Loans, advances, debts, liabilities,
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to Lender, whether arising under this Agreement, or any note or other
instrument or document, or otherwise, whether arising from an extension of
credit, opening of a letter of credit, banker’s acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Lender in
Borrower’s debts owing to others, and any interest and other obligations that
accrue after the commencement of an Insolvency Proceeding), absolute or
contingent, due or to become due, including, without limitation, all interest,
charges, expenses, fees, attorney’s fees, expert witness fees, audit fees,
letter of credit fees, collateral monitoring fees, closing fees, facility fees,
termination fees, minimum interest charges and any other sums chargeable to
Borrower under this Agreement or under any other Loan Documents.

“Other Property” means the following as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and all
rights relating thereto: all present and future “commercial tort claims”
(including without limitation any commercial tort claims identified in the
Representations), “documents”, “instruments”, “promissory notes”, “chattel
paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm
products” and “money”; and all other goods and personal property of every kind,
tangible and intangible, whether or not governed by the Code.

“Overadvance” is defined in Section 1.3.

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

“Payment” means all checks, wire transfers and other items of payment received
by Lender (including proceeds of Accounts and payment of the Obligations in
full) for credit to Borrower’s outstanding Loans.

“Permitted Indebtedness” means:

(i) the Obligations;

(ii) Subordinated Debt;

(iii) Indebtedness existing on the date hereof in a total principal amount not
in excess of $15,300,000;

(iv) trade payables incurred in the ordinary course of business;

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

(vi) capitalized leases and purchase money Indebtedness secured by Permitted
Liens in an aggregate amount not exceeding $100,000 at any time outstanding,
provided the amount of such capitalized leases and purchase money Indebtedness
do not exceed, at the time they were incurred, the lesser of the cost or fair
market value of the property so leased or financed with such Indebtedness;

(vii) Indebtedness owed to SWK Funding LLC pursuant to the SWK Credit
Agreement;    

 

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(viii) extensions, refinancings, modifications, amendments and restatements of
any items of Permitted Indebtedness in clauses (iii) through (vi) above,
provided that the principal amount thereof is not increased and the terms
thereof are not modified to impose more burdensome terms upon Borrower.

“Permitted Investments” means:

(i) Marketable direct obligations issued or unconditionally guaranteed by the
United States of America or any agency or any State thereof maturing within one
year from the date of acquisition thereof, commercial paper maturing no more
than one year from the date of creation thereof and currently having rating of
at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s
Investors Service, Lender’s certificates of deposit maturing no more than one
year from the date of investment therein, and Lender’s money market accounts;
Investments in regular deposit or checking accounts held with Lender or subject
to a control agreement in favor of Lender;

(ii) Investments of a Borrower in another Borrower; and

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

“Permitted Liens” means the following:

(i) purchase money security interests in specific items of Equipment;

(ii) leases of specific items of Equipment;

(iii) Liens for taxes not yet payable;

(iv) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default;

(v) security interests being terminated substantially concurrently with this
Agreement;

(vi) Liens incurred on deposits made in the ordinary course of business in
connection with workers compensation, unemployment insurance, social security
and other like laws or to secure the performance of statutory obligations, in an
aggregate amount not exceeding $50,000 at any time;

(vii) Liens of mechanics, materialmen, workers, repairmen, fillers and common
carriers arising by operation of law for amounts that are not yet due and
payable or which are being contested in good faith by Borrower by appropriate
proceedings, in an aggregate amount not exceeding $25,000 at any time;

(viii) deposits or pledges of cash to secure leases arising in the ordinary
course of business, in an aggregate amount not exceeding $50,000 at any time;
and

(ix) Liens in favor of SWK Funding LLC that are subject to an Intercreditor
Agreement, of approximate even date herewith, by and between Lender and SWK
Funding LLC.

“Person” means any individual, sole proprietorship, partnership, joint venture,
limited liability company, trust, unincorporated organization, association,
corporation, government, or any agency or political division thereof, or any
other entity.

“Prime Rate” means the variable rate of interest per annum, shown as the “prime
rate” or “bank prime rate”, as published in the Wall Street Journal. If for any
reason the Wall Street Journal does not publish a “prime rate” or “bank prime
rate”, then the “Prime Rate” shall be such rate as Lender shall select in its
Good Faith Business Judgment from time to time, which is reasonably comparable
to the “prime rate” or “bank prime rate”, as published in the Wall Street
Journal.

“Representations” means the written Representations and Warranties provided by
Borrower to Lender referred to in the Schedule.

“Reserves” means, as of any date of determination, such amounts as Lender may
from time to time establish and revise in its Good Faith Business Judgment,
reducing the amount of Loans, and other financial accommodations which would
otherwise be available to Borrower under the lending formulas provided in the
Schedule: (a) to reflect events, conditions, contingencies or risks which, as
determined by Lender in its Good Faith Business Judgment, do or may adversely
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, business or prospects of Borrower
or any Guarantor, or (iii) the security interests and other rights of Lender in
the Collateral (including the enforceability, perfection and priority thereof);
or (b) to reflect Lender’s good faith belief that any Collateral report or
financial information furnished by or on behalf of Borrower or any Guarantor to
Lender is or may have been incomplete, inaccurate or misleading in any material
respect; or (c) in respect of any state of facts which Lender determines in good
faith constitutes an Event of Default or may, with notice or passage of time or
both, constitute an Event of Default.

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

“Sanctioned Entity” means (a) a country or a government of a country, (b) an
agency of the government of a country, (c) an organization directly or
indirectly controlled by a country or its government, or (d) a Person resident
in or determined to be resident in a country, in each case, that is subject to a
country sanctions program administered and enforced by OFAC.

“Sanctioned Person” means a Person named on the OFAC-maintained list of
“Specially Designated Nationals” (as defined by OFAC).

“Subordinated Debt” means unsecured Indebtedness which is in an amount and on
terms acceptable to Lender in its Good Faith Business Judgment, and which is
subordinated to the Obligations pursuant to a Subordination Agreement in such
form as Lender shall specify in its Good Faith Business Judgment.

“Subsidiary” means, with respect to any Person, a Person of which more than 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.

“SWK Credit Agreement” means that that certain Credit Agreement, dated
November 9, 2018, by and between Borrower and SWK Funding LLC, as amended from
time to time.

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

“USA PATRIOT Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced.

Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with GAAP,
consistently applied. All other terms contained in this Agreement, unless
otherwise indicated, shall have the meanings provided by the Code, to the extent
such terms are defined therein.

 

9.

GENERAL PROVISIONS.

9.1 Application of Payments. All payments with respect to the Obligations may be
applied, and in Lender’s Good Faith Business Judgment reversed and re-applied,
to the Obligations, in such order and manner as Lender shall determine in its
Good Faith Business Judgment. Lender shall not be required to credit Borrower’s
account for the amount of any item of payment which is unsatisfactory to Lender
in its Good Faith Business Judgment, and Lender may charge Borrower’s loan
account for the amount of any item of payment which is returned to Lender
unpaid. In computing interest on the Obligations, all Payments will be deemed
received when received in immediately available funds, and if such immediately
available funds are received after 1:00 PM Pacific Time on any day, they shall
be deemed received on the next Business Day.

9.2 Increased Costs and Reduced Return. If Lender shall have determined, in its
Good Faith Business Judgment after consultation with legal counsel, that the
adoption or implementation of, or any change in, any law, rule, treaty or
regulation, or any policy, guideline or directive of, or any change in, the
interpretation or administration thereof by, any court, central bank or other
administrative or governmental authority, or compliance by Lender with any
directive of, or guideline from, any central bank or other Governmental
Authority or the introduction of, or change in, any accounting principles
applicable to Lender (whether or not having the force of law) shall (i) subject
the Lender to any tax, duty or other charge with respect to this Agreement or
any Loan made hereunder, or change the basis of taxation of payments to Lender
of any amounts payable hereunder (except for taxes on the overall net income of
Lender), (ii) impose, modify or deem applicable any reserve, special deposit or
similar requirement against any Loan, or against assets of or held by, or
deposits with or for the account of, or credit extended by, Lender, or
(iii) impose on Lender any other condition regarding this Agreement or any Loan,
and the result of any event referred to in clauses (i), (ii) or (iii) above
shall be to increase the cost to Lender of making any Loan, or agreeing to make
any Loan or to reduce any amount received or receivable by Lender, then, upon
demand by Lender, the Borrower shall pay to Lender such additional amounts as
will compensate the Lender for such increased costs or reductions in amount. All
amounts payable under this Section shall bear interest from the date of demand
by the Lender until payment in full to the Lender at the highest interest rate
applicable to the Obligations. A certificate of the Lender claiming compensation
under this Section, specifying the event herein above described and the nature
of such event shall be submitted by the Lender to the Borrower, setting forth
the additional amount due and an explanation of the calculation thereof, and the
Lender’s reasons for invoking the provisions of this Section, and the same shall
be final and conclusive absent manifest error.

9.3 Charges to Accounts. Lender may, in its discretion, require that Borrower
pay monetary Obligations in cash to Lender, or charge them to Borrower’s Loan
account (in which event they will bear interest at the same rate applicable to
the Loans), or any of Borrower’s Deposit Accounts maintained with Lender.

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

9.4 Monthly Accountings. Lender may provide Borrower monthly with an account of
advances, charges, expenses and payments made pursuant to this Agreement. Such
account shall be deemed correct, accurate and binding on Borrower and an account
stated (except for reverses and reapplications of payments made and corrections
of errors discovered by Lender), unless Borrower notifies Lender in writing to
the contrary within 60 days after such account is rendered, describing the
nature of any alleged errors or omissions.

9.5 Notices. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed (i) to Borrower at the address shown in the heading to this Agreement,
or (ii) to Lender at the address shown in the heading to this Agreement, or
(iii) for either party at any other address designated in writing by one party
to the other party. All notices shall be deemed to have been given upon delivery
in the case of notices personally delivered, or at the expiration of one
Business Day following delivery to the private delivery service, or two Business
Days following the deposit thereof in the United States mail, with postage
prepaid.

9.6 Severability. Should any provision of this Agreement be held by any court of
competent jurisdiction to be void or unenforceable, such defect shall not affect
the remainder of this Agreement, which shall continue in full force and effect.

9.7 Integration. This Agreement and such other written agreements, documents and
instruments as may be executed in connection herewith are the final, entire and
complete agreement between Borrower and Lender and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.

9.8 Waivers; Indemnity. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Document shall not waive or diminish any right of Lender later to
demand and receive strict compliance therewith. Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar. None of the provisions of this Agreement or any other Loan
Document shall be deemed to have been waived by any act or knowledge of Lender
or its agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives the
benefit of all statutes of limitations relating to any of the Obligations or
this Agreement or any other Loan Document, and Borrower waives demand, protest,
notice of protest and notice of default or dishonor, notice of payment and
nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by Lender on which Borrower is or may in any way be liable, and
notice of any action taken by Lender, unless expressly required by this
Agreement. Borrower hereby agrees to indemnify Lender and its affiliates,
subsidiaries, parent, directors, officers, employees, agents, and attorneys, and
to hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including reasonable attorneys’ fees), of every kind, which they may sustain or
incur based upon or arising out of any of the Obligations, or any relationship
or agreement between Lender and Borrower, or any other matter, relating to
Borrower or the Obligations; provided that this indemnity shall not extend to
damages proximately caused by the indemnitee’s own gross negligence or willful
misconduct. Notwithstanding any provision in this Agreement to the contrary, the
indemnity agreement set forth in this Section shall survive any termination of
this Agreement and shall for all purposes continue in full force and effect.

9.9 Liability. NEITHER LENDER NOR ANY OF ITS AFFILIATES, SUBSIDIARIES,
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR ATTORNEYS SHALL BE LIABLE FOR ANY
CLAIMS, DEMANDS, LOSSES OR DAMAGES, OF ANY KIND WHATSOEVER, MADE, CLAIMED,
INCURRED OR SUFFERED BY BORROWER OR ANY OTHER PARTY THROUGH THE ORDINARY
NEGLIGENCE OF LENDER, OR ITS PARENT OR ANY OF ITS AFFILIATES, SUBSIDIARIES,
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR ATTORNEYS, BUT NOTHING HEREIN SHALL
RELIEVE LENDER FROM LIABILITY FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. NEITHER LENDER NOR ANY OF ITS AFFILIATES, SUBSIDIARIES, DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR ATTORNEYS SHALL BE RESPONSIBLE OR LIABLE TO
BORROWER OR TO ANY OTHER PARTY FOR ANY INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES OR LOST PROFITS WHICH MAY BE ALLEGED AS A RESULT OF ANY
FINANCIAL ACCOMMODATION HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS
AGREEMENT OR AS A RESULT OF ANY OTHER ACT, OMISSION OR TRANSACTION.

9.10 Amendment. The terms and provisions of this Agreement may not be waived or
amended, except in a writing executed by Borrower and a duly authorized officer
of Lender.

9.11 Time of Essence. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

9.12 Attorneys’ Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys’ and consultant’s fees (including without limitation those
of Lender’s outside counsel and in-house counsel, and whether incurred before,
during or after an Insolvency Proceeding), and all filing, recording, search,
title insurance, appraisal, audit, and other reasonable costs incurred by
Lender, pursuant to, or in connection with, or relating to this Agreement
(whether or not a lawsuit is filed), including, but not limited to, any
reasonable attorneys’ fees and costs Lender incurs in order to do the following:
prepare and negotiate this Agreement and all present and future documents
relating to this Agreement; obtain legal advice in connection with this
Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute
actions against, or defend actions by, Account Debtors; commence, intervene in,
or defend any action or proceeding; initiate any complaint to be relieved of any
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect any
of the Collateral or any of Borrower’s books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender’s security
interest in, the Collateral; and otherwise represent Lender in any litigation
relating to Borrower. If either Lender or Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and attorneys’ fees,
including (but not limited to) reasonable attorneys’ fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment from the non-prevailing party. All attorneys’ fees and costs to which
Lender may be entitled pursuant to this Paragraph shall immediately become part
of Borrower’s Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.

9.13 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Lender; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Lender, and any prohibited assignment shall
be void. No consent by Lender to any assignment shall release Borrower from its
liability for the Obligations.

9.14 Joint and Several Liability. If Borrower consists of more than one Person,
their liability shall be joint and several, and the compromise of any claim
with, or the release of, any Borrower shall not constitute a compromise with, or
a release of, any other Borrower.

9.15 Limitation of Actions. Any claim or cause of action by Borrower against
Lender, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other Loan
Document, or any other transaction contemplated hereby or thereby or relating
hereto or thereto, or any other matter, cause or thing whatsoever, occurred,
done, omitted or suffered to be done by Lender, its directors, officers,
employees, agents, accountants or attorneys, shall be barred unless asserted by
Borrower by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within one year after the first act,
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, and the service of a summons and complaint on an officer of
Lender, or on any other person authorized to accept service on behalf of Lender,
within thirty (30) days thereafter. Borrower agrees that such one-year period is
a reasonable and sufficient time for Borrower to investigate and act upon any
such claim or cause of action. The one-year period provided herein shall not be
waived, tolled, or extended except by the written consent of Lender in its sole
discretion. This provision shall survive any termination of this Loan Agreement
or any other Loan Document.

9.16 Section Headings; Construction; Signing. Section headings are only used in
this Agreement for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
section, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed strictly
against Lender or Borrower under any rule of construction or otherwise. This
Agreement may be executed and delivered by exchanging original signed
counterparts, or signed counterparts by facsimile, pdf or other electronic
means, or a combination of the foregoing, and this Agreement shall be fully
effective if so executed and delivered.

9.17 Public Announcement. Borrower hereby agrees that Lender may make a public
announcement of the transactions contemplated by this Agreement, and may
publicize the same in marketing materials, newspapers and other publications,
and otherwise, and in connection therewith may use the Borrower’s name,
tradenames and logos.

9.18 Confidentiality. Lender agrees to use the same degree of care that it
exercises with respect to its own proprietary information, to maintain the
confidentiality of any and all proprietary, trade secret or confidential
information provided to or received by Lender from the Borrower, which indicates
that it is confidential or would reasonably be understood to be confidential,
including business plans and forecasts, non-public financial information,
confidential or secret processes, formulae, devices and contractual information,
customer lists, and employee relation matters, provided that Lender may disclose
such information to its officers, directors, employees, attorneys, accountants,
affiliates, participants, prospective participants, assignees and prospective
assignees, and such other Persons to whom Lender shall at any time be required
to make such disclosure in accordance with applicable law, and provided, that
the foregoing provisions shall not apply to disclosures made by Lender in its
Good Faith Business Judgment in connection with the enforcement of its rights or
remedies after an Event of Default. The confidentiality agreement in this
Section supersedes any prior confidentiality agreement of Lender relating to
Borrower.

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

9.19 PATRIOT Act Notice. Lender hereby notifies Borrower that pursuant to the
requirements of the USA PATRIOT Act, it is required to obtain, verify and record
information that identifies Borrower and each of its Subsidiaries, which
information includes the names and addresses of each Borrower and each of its
Subsidiaries and other information that will allow it to identify Borrower and
each of its Subsidiaries in accordance with the USA PATRIOT Act.

9.20 Governing Law; Jurisdiction; Venue. This Agreement and all acts,
transactions, disputes and controversies arising hereunder or relating hereto,
and all rights and obligations of the parties shall be governed by, and
construed in accordance with, the internal laws (and not the conflict of laws
rules) of the State of California. All disputes, controversies, claims, actions
and other proceedings involving, directly or indirectly, any matter in any way
arising out of, related to, or connected with, this Agreement or the
relationship between Borrower and Lender, and any and all other claims of
Borrower against Lender of any kind, shall be brought only in a court located in
Orange County, California, and each party consents to the jurisdiction of an
such court and the referee referred to in Section 9.21 below, and waives any and
all rights the party may have to object to the jurisdiction of any such court,
or to transfer or change the venue of any such action or proceeding, including,
without limitation, any objection to venue or request for change in venue based
on the doctrine of forum non conveniens; provided that, notwithstanding the
foregoing, nothing herein shall limit the right of Lender to bring proceedings
against Borrower in the courts of any other jurisdiction. Borrower consents to
service of process in any action or proceeding brought against it by Lender, by
personal delivery, or by mail addressed as set forth in this Agreement or by any
other method permitted by law.

9.21 Dispute Resolution. Any controversy, dispute or claim between the parties
based upon, arising out of, or in any way relating to: (i) this Agreement or any
supplement or amendment thereto; or (ii) any other present or future instrument
or agreement between the parties hereto; or (iii) any breach, conduct, acts or
omissions of any of the parties hereto or any of their respective directors,
officers, employees, agents, attorneys or any other person affiliated with or
representing any of the parties hereto; in each of the foregoing cases, whether
sounding in contract or tort or otherwise (a “Dispute”) shall be resolved
exclusively by judicial reference in accordance with Sections 638 et seq. of the
California Code of Civil Procedure (“CCP”) and Rules 3.900 et seq. of the
California Rules of Court (“CRC”), subject to the following terms and
conditions. (All references in this section to provisions of the CCP and/or CRC
shall be deemed to include any and all successor provisions.)

(a) The reference shall be a consensual general reference pursuant to CCP
Sections 638 and 644(a). Unless the parties otherwise agree in writing, the
reference shall be to a single referee. The referee shall be a retired Judge of
the Los Angeles County or Orange County Superior Court (“Superior Court”) or a
retired Justice of the California Court of Appeal or California Supreme Court.
Nothing in this section shall be construed to limit the right of Lender, pending
or after the appointment of the referee, to seek and obtain provisional relief
from the Superior Court or such referee, or any other court in a jurisdiction in
which any Collateral is located or having jurisdiction over any Collateral,
including without limitation, writ of attachment, writ of possession,
appointment of a receiver, temporary restraining order and/or preliminary
injunction, or other “provisional remedy” (as such term is defined in CCP
Section 1281.8).

(b) Within fifteen (15) days after a party gives written notice in accordance
with this Agreement to all other parties to a Dispute that the Dispute exists,
all parties to the Dispute shall attempt to agree on the individual to be
appointed as referee. If the parties are unable to agree on the individual to be
appointed as referee, the referee shall be appointed, upon noticed motion or ex
parte application by any party, by the Superior Court in accordance with CCP
Section 640, subject to all rights of the parties to challenge or object to the
appointment, including without limitation the right to peremptory challenge
under CCP Section 170.6. If the referee (or any successor referee) appointed by
the Superior Court is unable, or at any time becomes unable, to serve as referee
in the Dispute, the Superior Court shall appoint a new referee as agreed to by
the parties or, if the parties cannot agree, in accordance with CCP Section 640,
which new referee shall then have the same powers, and be subject to the same
terms and conditions, as the predecessor referee.

(c) Venue for all proceedings before the referee, and for any Superior Court
proceeding for the appointment of the referee, shall be exclusively within the
County of Orange, State of California. The referee shall have the exclusive
power to determine whether a Dispute is subject to judicial reference pursuant
to this section. Trial, and all proceedings and hearings on dispositive motions,
conducted before the referee shall be conducted in the presence of, and shall be
transcribed by, a court reporter, unless otherwise agreed in writing by all
parties to the proceeding. The referee shall issue a written statement of
decision, which shall be subject to objections of the parties pursuant to CRC
Rule 3.1590 as if the statement of decision were issued by the Superior Court.
The referee’s powers include, in addition to those set forth in CCP Sections
638, et seq., and CRC Rules 3.900 et seq., (i) the power to grant provisional
relief, including without limitation, writ of attachment, writ

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

of possession, appointment of a receiver, temporary restraining order and/or
preliminary injunction, or other “provisional remedy” (as such term is defined
in CCP Section 1281.8), and (ii) the power to hear and resolve all post-trial
matters in connection with the Dispute that would otherwise be determined by the
Superior Court, including without limitation motions for new trial,
reconsideration, to vacate judgment, to stay execution or enforcement, to tax
costs, and/or for attorneys’ fees. The parties shall, subject to the referee’s
power to award costs to the prevailing party, bear equally the costs of the
reference proceeding, including without limitation the fees and costs of the
referee and the court reporter.

(d) The parties acknowledge and agree that (i) the referee alone shall determine
all issues of fact and/or law in the Dispute, without a jury (subject, however,
to the right of a party, pending or after the appointment of the referee, to
seek and obtain provisional relief from the Superior Court or such referee,
including without limitation, writ of attachment, writ of possession,
appointment of a receiver, temporary restraining order and/or preliminary
injunction, or other “provisional remedy” (as such term is defined in CCP
Section 1281.8)), (ii) the referee does not have the power to empanel a jury,
(iii) the Superior Court shall enter judgment on the decision of the referee
pursuant to CCP Section 644(a) as if the decision were issued by the Superior
Court, (iv) the decision of the referee shall not be subject to review by the
Superior Court, and (v) the decision of the referee, once entered as a judgment
by the Superior Court, shall be binding, final and conclusive, shall have the
full force and effect of a judgment of the Superior Court, and shall be subject
to appeal to the same extent as a judgment of the Superior Court.

[Signatures on Next Page]

 

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Pacific Mercantile Bank    Loan and Security Agreement

 

9.22 Exim Borrower Agreement; Cross-Collateralization; Cross-Default; Conflicts.
This Agreement and the Exim Borrower Agreement shall continue in full force and
effect until all Obligations (other than inchoate indemnity obligations to the
extent no claim giving rise thereto has been asserted) have been paid in full
and Lender has no commitment to fund, and all rights and remedies under this
Agreement and the Exim Borrower Agreement are cumulative. Without limiting the
generality of the foregoing, all “Collateral” as defined in this Agreement and
as defined in the Exim Borrower Agreement shall secure all Loans and all
interest thereon, and all other Obligations. Any Event of Default under this
Agreement shall also constitute an Event of Default under the Exim Borrower
Agreement; and any Event of Default under the Exim Borrower Agreement shall also
constitute an Event of Default under this Agreement. In the event Lender assigns
its rights under this Agreement or the Exim Borrower Agreement and/or under any
note evidencing the Loans, to any third party, including, without limitation,
the Exim Bank, whether before or after the occurrence of any Event of Default,
Lender shall have the right (but not any obligation), in its sole discretion, to
allocate and apportion Collateral to the Exim Borrower Agreement and/or note
assigned and to specify the priorities of the respective security interests in
such Collateral between itself and the assignee, all without notice to or
consent of the Borrower. Should any term of this Agreement conflict with any
term of the Exim Borrower Agreement, the more restrictive term in such
agreements shall govern Borrower.

9.23 Mutual Waiver of Jury Trial. LENDER AND BORROWER EACH ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED.
EACH OF THE PARTIES, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT,
WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING
OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), ACTION OR INACTION OF ANY OF THEM. THESE
PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR
RELINQUISHED BY LENDER OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY
EACH OF THEM. IF FOR ANY REASON THE PROVISIONS OF THIS SECTION ARE VOID, INVALID
OR UNENFORCEABLE, THE SAME SHALL NOT AFFECT ANY OTHER TERM OR PROVISION OF THIS
AGREEMENT, AND ALL OTHER TERMS AND PROVISIONS OF THIS AGREEMENT SHALL BE
UNAFFECTED BY THE SAME AND CONTINUE IN FULL FORCE AND EFFECT.

 

Borrower: Biolase, Inc. By  

/s/ John R. Beaver

  Title EVP & CFO Lender: Pacific Mercantile Bank By  

/s/ Nick Valencia

  Title VP R.M.

 

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LOGO [g822504g1101040643183.jpg]

Schedule to

Loan and Security Agreement

 

Borrower:    Biolase, Inc. Address:    4 Cromwell    Irvine, California 92618
Date:    October 28, 2019

This Schedule forms an integral part of the Loan and Security Agreement between
PACIFIC MERCANTILE BANK and the above Borrower of even date (the “Loan
Agreement”).

 

 

 

 

1.

CREDIT LIMIT

(Section 1.1):

   An amount (the “Credit Limit”) not to exceed the lesser of $3,000,000 (the
“Maximum Credit Limit”), or the sum of (a) and (b) below:   

(a) 90% (an “Advance Rate”) of the amount of Borrower’s Eligible Accounts (as
defined in Section 8 above); plus

  

(b) 75% (an “Advance Rate”) of the amount of Borrower’s Eligible Inventory (as
defined in Section 8 above), but in no event to exceed 60% of the principal
amount of all outstanding Loans after giving effect to such Loan under this
subclause (b). Loans under this subclause (b) are subject to Lender’s timely
receipt of any Export Order relating to the request.

   Notwithstanding the foregoing, until such time as the Capital Raise financial
covenant is satisfied, the Maximum Credit Limit shall be $0.    Lender may, from
time to time, adjust the Advance Rates, in its Good Faith Business Judgment,
upon notice to the Borrower, based on changes in collection experience with
respect to Accounts, or other issues or factors relating to the Accounts or
other Collateral or Borrower.

 

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Pacific Mercantile Bank    Schedule to Loan and Security Agreement

 

 

 

 

2.

INTEREST.

Interest Rate (Section 1.2):

  A rate equal to the Prime Rate in effect from time to time, plus 1.50% per
annum, provided that the interest rate in effect on any day shall not be less
than 6.0% per annum. Interest shall be calculated on the basis of a 360-day year
for the actual number of days elapsed. The interest rate applicable to the
Obligations shall change on each date there is a change in the Prime Rate.

 

 

 

 

3.

FEES (Section 1.4):

 

Loan Fee:   Exim Bank:    $52,500, payable concurrently herewith and each
anniversary hereof.   Lender:    $7,500, payable concurrently herewith.
Collateral Monitoring   Fee:   $500, per month, payable in arrears (prorated for
any partial month at the beginning and at termination of the Loan Agreement).
Termination Fee:   An amount equal to (i) 1.0 % of the Maximum Credit Limit, if
the effective date of termination is on or prior to the first anniversary of the
date hereof and (ii) 0.0% of the Maximum Credit Limit, if the effective date of
termination is after the first anniversary of the date hereof.

 

 

 

 

4.

MATURITY DATE

 

(Section 6.1):

   October 28, 2021.

 

 

 

 

5.

FINANCIAL COVENANTS

(Section 5.1):

   Borrower shall comply with each of the following covenants. Compliance shall
be determined as of the end of each month (except as otherwise provided for
below):

Liquidity:

   Borrower shall maintain unrestricted cash at Lender plus unused availability
under the Credit Limit in an amount equal to at least the Burn Rate.    As used
herein, “Burn Rate” means Borrower’s net profit/net loss plus depreciation plus
amortization plus stock-based compensation measured on a trailing three month
basis commencing with the three month period ending September 30, 2019 and each
rolling three month period ending thereafter.

 

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Pacific Mercantile Bank    Schedule to Loan and Security Agreement

 

 

Capital Raise:

   By December 31, 2019, Borrower shall have received net cash proceeds in the
amount of at least $5,000,000 from the issuance of Borrower’s equity securities
issued after the date hereof and such proceeds shall have been deposited in an
account or accounts maintained with Lender.

 

 

 

 

6.

REPORTING.

(Section 5.3):

      Borrower shall provide Lender with the following, all of which shall be in
such form as Lender shall specify (Lender may, at its option, require Borrower
to submit the following on a more frequent basis in the event that (i) an Event
of Default occurs and is continuing, (ii) an Overadvance occurs and remaining
outstanding or (iii) Lender determines in its sole discretion that there exists
a material weakness in the Collateral or Lender’s security interest therein):   

(a)   Monthly borrowing base certificate within 15 days after the end of each
calendar month, together with the documents and reports in subclauses
(b) through (e) below);

  

(b)   Monthly accounts receivable agings, aged by invoice date, with borrowing
base certificate, within fifteen days after the end of each month;

  

(c)   Monthly accounts payable agings, aged by invoice date, and outstanding or
held check registers, if any, within fifteen days after the end of each month;

  

(d)   Monthly reconciliations of accounts receivable agings (aged by invoice
date), transaction reports, and general ledger, within fifteen days after the
end of each month;

  

(e)   Monthly perpetual inventory reports for the Inventory valued on a
first-in, first-out basis at the lower of cost or market (in accordance with
GAAP) or such other inventory reports as are requested by Lender in its Good
Faith Business Judgment, all within fifteen days after the end of each month;

  

(f)   Monthly unaudited financial statements, as soon as available, and in any
event within 30 days after the end of each month (“Monthly Financial
Statements”);

  

(g)   Annual operating budgets and financial projections (including income
statements, balance sheets and cash flow statements, by month) for (i) the
upcoming fiscal year of Borrower within 30 days prior to such upcoming fiscal
year-end of Borrower, and (ii) such periods and at such times as requested by
Lender in its Good Faith Business Judgment;

 

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Pacific Mercantile Bank    Schedule to Loan and Security Agreement

 

  

(h)   Annual financial statements, as soon as available, and in any event within
90 days following the end of Borrower’s fiscal year, certified by, and with an
unqualified opinion of, independent certified public accountants acceptable to
Lender (the “Annual Financial Statements”);

  

(i) Each of the Monthly Financial Statements and the Annual Financial Statements
shall be accompanied by Compliance Certificates, in such form as Lender shall
reasonably specify, signed by the Chief Financial Officer of Borrower,
certifying that as of the end of such period and the date of such Certificate
Borrower was in full compliance with all of the terms and conditions of the Loan
Agreement, and no Default or Event of Default had occurred, and setting forth
calculations showing compliance with the financial covenants set forth in this
Agreement and such other information as Lender shall request in its Good Faith
Business Judgment, including, without limitation, a statement that at the end of
such period there were no held checks;

  

(j) promptly upon receipt, each management letter prepared by Borrower’s
independent certified public accounting firm regarding Borrower’s management
control systems;

  

(k)   such budgets, sales projections, operating plans or other financial
information as Lender may reasonably request from time to time;

  

(l) [Intentionally Omitted]; and

  

(m) Borrower shall deliver all reports, certificates and other documents to
Lender as provided in the Exim Borrower Agreement, including, without
limitation, purchase orders and any other information that Lender and Exim Bank
may reasonably request.

 

 

 

 

7.

BORROWER INFORMATION:

 

       Borrower represents and warrants that the information set forth in the
Borrower Information Certificate dated July 22, 2019, previously submitted to
Lender (the “Representations”) is true and correct as of the date hereof.

 

 

 

 

8.

ADDITIONAL PROVISIONS

 

      

(a)   Additional Conditions Precedent. In addition to any other conditions to
the first disbursement of the Loans set forth in the Loan Agreement, the first
disbursement of the Loans is subject to the following additional conditions
precedent:

 

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Pacific Mercantile Bank    Schedule to Loan and Security Agreement

 

 

(1)   Exim Approval. Lender shall have received written approval from Exim Bank
approving of this Agreement and the transactions contemplated herein.

 

(2)   Exim Guarantee. The Exim Guarantee from Exim Bank, as provided for in
Section 1.7 of this Agreement, in favor of Lender shall have been issued and be
in full force and effect. Throughout the term of the Loan Agreement, Borrower
shall cause such Exim Guarantee to continue in full force and effect.

 

(3)   Exim Borrower Agreement. The Exim Borrower Agreement, as provided for in
Section 1.8 of this Agreement, shall have been executed and be in full force and
effect. Throughout the term of the Loan Agreement, Borrower shall cause such
Exim Borrower Agreement to continue in full force and effect.

 

(4)   SWK Funding Intercreditor Agreement. SWK Funding LLC shall execute and
deliver to Lender an Intercreditor Agreement in such form as Lender shall
specify, including, without limitation, the priorities of SWK Funding and Lender
in the Collateral. Throughout the term of this Loan Agreement, Borrower shall
cause such Intercreditor Agreement to continue in full force and effect.

 

(b)  Subordination of Inside Debt. All present and future indebtedness of
Borrower to its officers, directors and shareholders (“Inside Debt”) shall, at
all times, be subordinated to the Obligations pursuant to a subordination
agreement on Lender’s standard form. Borrower represents and warrants that there
is no Inside Debt presently outstanding, except for the following: NONE. Prior
to incurring any Inside Debt in the future, Borrower shall cause the person to
whom such Inside Debt will be owed to execute and deliver to Lender a
subordination agreement on Lender’s standard form.

 

(c)   Deposit Accounts. Within 30 days after the date hereof, Borrower shall
transfer all of its Deposit Accounts and investment accounts to Lender, and at
all times thereafter Borrower shall maintain the foregoing with Lender. Within
30 days after the date hereof, Borrower shall cause any other banks or other
institutions where its investment accounts, are maintained to enter into control
agreements with Lender, in form and substance satisfactory to Lender in its Good
Faith Business Judgment and sufficient to perfect Lender’s first-priority
security interest in the same.

 

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Pacific Mercantile Bank    Schedule to Loan and Security Agreement

 

 

(d)  Guaranty. Lender acknowledges that, so long as Borrower and the BL Subs
comply with the representations, warranties and covenant regarding the BL Subs
provided for in subclause (e) below, the BL Subs will not be required to provide
a Guaranty. Unless otherwise requested by Lender in writing, Borrower’s Foreign
Subs will not be required to provide a Guaranty.

 

(e)   Domestic Subsidiaries. Borrower represents and warrants that it has no
partially-owned or wholly-owned Domestic Subsidiaries other than BL Acquisition
Corp. and BL Acquisition II Inc. (collectively, the “BL Subs”). Borrower further
represents and warrants that each of the BL Subs is inactive with little or no
assets and that each BL Sub shall continue to be inactive with little or no
assets throughout the term of this Agreement absent the prior written consent of
Lender. Borrower covenants and agrees not to transfer any Collateral or assets
to the BL Subs while this Agreement is in effect without the prior written
consent of Lender.

 

(f)   Foreign Subsidiaries; Foreign Assets. Borrower represents and warrants
that it has no partially-owned or wholly-owned Subsidiaries which are not
Borrowers or Guarantors hereunder, except for Subsidiaries organized under the
laws of a jurisdiction other than the United States or any state or territory
thereof or the District of Columbia (“Foreign Subs”). Borrower may make
Investments in the Foreign Subs, in an aggregate amount not to exceed the amount
necessary to fund the current operating expenses of the Foreign Subs (taking
into account their revenue from other sources); provided that (i) the total of
such investments and loans in any fiscal year to all such Foreign Subs shall not
exceed $250,000, and (ii) the total assets of the Foreign Subs combined shall
not, at any time, exceed $10,000,000 in the aggregate. The foregoing shall
constitute “Permitted Investments” for purposes of the Loan Agreement. Borrower
covenants that (i) the total assets of the Foreign Subs combined (excluding
intercompany obligations due from the Borrower), plus the total assets of
Borrower located outside the United States (including without limitation
deposits in foreign bank accounts) combined shall not, at any time, exceed
$10,000,000 in the aggregate, and (ii) the total amount maintained by Borrower
in foreign bank accounts shall not, at any time, exceed $1,500,000. Borrower
shall not permit any of the assets of any of the Foreign Subs to be subject to
any security interest, lien or encumbrance, and Borrower shall not agree with
any other Person to restrict its ability to cause a Foreign Sub to grant any
security interest in, or lien or encumbrance on, its assets.

 

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Pacific Mercantile Bank    Schedule to Loan and Security Agreement

 

 

(g)   Insurance Endorsements. Within 60 days of the date hereof, Borrower shall
deliver to Lender insurance endorsements adding Lender as a lenders loss payee
on all property insurance policies and as an additional insured on all liability
insurance policies, as required by Section 5.2 of the Loan Agreement.

 

(h)   Landlord Waivers and Bailee Agreements. Within 60 days of the date hereof,
(i) as to those locations in which Borrower is currently a tenant or in which
any third party has an interest in such Collateral and (ii) at Lender’s request,
Borrower shall cause the landlord or such third party to execute and deliver to
Lender, in form acceptable to Lender, such waivers and subordinations as Lender
shall specify in its Good Faith Business Judgment.

 

[Signatures on Next Page]

 

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Pacific Mercantile Bank    Schedule to Loan and Security Agreement

 

 

Borrower:      Lender: Biolase, Inc.      Pacific Mercantile Bank By   

/s/ John R. Beaver

     By   

/s/ Nick Valencia

Title EVP & CFO      Title VP R.M.

 

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