Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective
Date between (i) SILICON VALLEY BANK, a California corporation with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at One Newton Executive Park,
Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 (“Bank”), and
(ii) MICROFLUIDICS INTERNATIONAL CORPORATION, a Delaware corporation and
MICROFLUIDICS CORPORATION, a Delaware corporation, each with offices located at
30 Ossipee Road, Newton, Massachusetts 02464 (“Borrower”), provides the terms on
which Bank shall lend to Borrower and Borrower shall repay Bank.  The parties
agree as follows:

 

1              ACCOUNTING AND OTHER TERMS

 

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

 

2              LOAN AND TERMS OF PAYMENT

 

2.1          PROMISE TO PAY.  BORROWER HEREBY UNCONDITIONALLY, JOINTLY AND
SEVERALLY, PROMISES TO PAY BANK THE OUTSTANDING PRINCIPAL AMOUNT OF ALL CREDIT
EXTENSIONS AND ACCRUED AND UNPAID INTEREST THEREON AS AND WHEN DUE IN ACCORDANCE
WITH THIS AGREEMENT.

 

2.1.1       REVOLVING ADVANCES.

 

(A)           AVAILABILITY.  SUBJECT TO THE TERMS AND CONDITIONS OF THIS
AGREEMENT AND TO DEDUCTION OF RESERVES, BANK SHALL MAKE REVOLVING LINE ADVANCES
NOT EXCEEDING THE AVAILABILITY AMOUNT.  AMOUNTS BORROWED HEREUNDER MAY BE REPAID
AND, PRIOR TO THE REVOLVING LINE MATURITY DATE, REBORROWED, SUBJECT TO THE
APPLICABLE TERMS AND CONDITIONS PRECEDENT HEREIN.

 

(B)           TERMINATION; REPAYMENT.  THE REVOLVING LINE TERMINATES ON THE
REVOLVING LINE MATURITY DATE, WHEN THE PRINCIPAL AMOUNT OF ALL ADVANCES, THE
UNPAID INTEREST THEREON, AND ALL OTHER OBLIGATIONS RELATING TO THE REVOLVING
LINE SHALL BE IMMEDIATELY DUE AND PAYABLE.

 

2.1.2       LETTERS OF CREDIT SUBLIMIT.

 

(A)           AS PART OF THE REVOLVING LINE, BANK SHALL ISSUE OR HAVE ISSUED
LETTERS OF CREDIT FOR BORROWER’S ACCOUNT.  SUCH AGGREGATE AMOUNTS UTILIZED
HEREUNDER SHALL AT ALL TIMES REDUCE THE AMOUNT OTHERWISE AVAILABLE FOR ADVANCES
UNDER THE REVOLVING LINE.  THE AGGREGATE FACE AMOUNT OF OUTSTANDING LETTERS OF
CREDIT (INCLUDING DRAWN BUT UNREIMBURSED LETTERS OF CREDIT AND ANY LETTER OF
CREDIT RESERVE) MAY NOT EXCEED FIVE HUNDRED THOUSAND DOLLARS ($500,000)
INCLUSIVE OF THE CREDIT EXTENSIONS MADE PURSUANT TO SECTIONS 2.1.3 AND 2.1.4. 
IF, ON THE REVOLVING LINE MATURITY DATE, THERE ARE ANY OUTSTANDING LETTERS OF
CREDIT, THEN ON SUCH DATE BORROWER SHALL EITHER PROVIDE REPLACEMENT LETTERS OF
CREDIT ACCEPTABLE TO BANK OR PROVIDE TO BANK CASH COLLATERAL IN AN AMOUNT EQUAL
TO ONE HUNDRED PERCENT (100%) OF THE FACE AMOUNT OF ALL SUCH LETTERS OF CREDIT
PLUS ALL INTEREST, FEES, AND COSTS DUE OR TO BECOME DUE IN CONNECTION THEREWITH
(AS ESTIMATED BY BANK IN ITS GOOD FAITH BUSINESS JUDGMENT), TO SECURE ALL OF THE
OBLIGATIONS RELATING TO SAID LETTERS OF CREDIT.  ALL LETTERS OF CREDIT SHALL BE
IN FORM AND SUBSTANCE ACCEPTABLE TO BANK IN ITS SOLE DISCRETION AND SHALL BE
SUBJECT TO THE TERMS AND CONDITIONS OF BANK’S STANDARD APPLICATION AND LETTER OF
CREDIT AGREEMENT (THE “LETTER OF CREDIT APPLICATION”).  BORROWER AGREES TO
EXECUTE ANY FURTHER DOCUMENTATION IN CONNECTION WITH THE LETTERS OF CREDIT AS
BANK MAY REASONABLY REQUEST.  BORROWER FURTHER AGREES TO BE BOUND BY THE
REGULATIONS AND INTERPRETATIONS OF THE ISSUER OF ANY LETTERS OF CREDIT
GUARANTIED BY BANK AND OPENED FOR BORROWER’S ACCOUNT OR BY BANK’S
INTERPRETATIONS OF ANY LETTER OF CREDIT ISSUED BY BANK FOR BORROWER’S ACCOUNT,
AND BORROWER UNDERSTANDS AND AGREES THAT BANK SHALL NOT BE LIABLE FOR ANY ERROR,
NEGLIGENCE, OR MISTAKE, WHETHER OF OMISSION OR COMMISSION, IN FOLLOWING
BORROWER’S INSTRUCTIONS OR THOSE CONTAINED IN THE LETTERS OF CREDIT OR ANY
MODIFICATIONS, AMENDMENTS, OR SUPPLEMENTS THERETO.

 

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(B)           THE OBLIGATION OF BORROWER TO IMMEDIATELY REIMBURSE BANK FOR
DRAWINGS MADE UNDER LETTERS OF CREDIT SHALL BE ABSOLUTE, UNCONDITIONAL, AND
IRREVOCABLE, AND SHALL BE PERFORMED STRICTLY IN ACCORDANCE WITH THE TERMS OF
THIS AGREEMENT, SUCH LETTERS OF CREDIT, AND THE LETTER OF CREDIT APPLICATION.

 

(C)           BORROWER MAY REQUEST THAT BANK ISSUE A LETTER OF CREDIT PAYABLE IN
A FOREIGN CURRENCY.  IF A DEMAND FOR PAYMENT IS MADE UNDER ANY SUCH LETTER OF
CREDIT, BANK SHALL TREAT SUCH DEMAND AS AN ADVANCE TO BORROWER OF THE EQUIVALENT
OF THE AMOUNT THEREOF (PLUS FEES AND CHARGES IN CONNECTION THEREWITH SUCH AS
WIRE, CABLE, SWIFT OR SIMILAR CHARGES) IN DOLLARS AT THE THEN-PREVAILING RATE OF
EXCHANGE IN SAN FRANCISCO, CALIFORNIA, FOR SALES OF THE FOREIGN CURRENCY FOR
TRANSFER TO THE COUNTRY ISSUING SUCH FOREIGN CURRENCY.

 

(D)           TO GUARD AGAINST FLUCTUATIONS IN CURRENCY EXCHANGE RATES, UPON THE
ISSUANCE OF ANY LETTER OF CREDIT PAYABLE IN A FOREIGN CURRENCY, BANK SHALL
CREATE A RESERVE (THE “LETTER OF CREDIT RESERVE”) UNDER THE REVOLVING LINE IN AN
AMOUNT EQUAL TO TEN PERCENT (10%) OF THE FACE AMOUNT OF SUCH LETTER OF CREDIT. 
THE AMOUNT OF THE LETTER OF CREDIT RESERVE MAY BE ADJUSTED BY BANK FROM TIME TO
TIME TO ACCOUNT FOR FLUCTUATIONS IN THE EXCHANGE RATE.  THE AVAILABILITY OF
FUNDS UNDER THE REVOLVING LINE SHALL BE REDUCED BY THE AMOUNT OF SUCH LETTER OF
CREDIT RESERVE FOR AS LONG AS SUCH LETTER OF CREDIT REMAINS OUTSTANDING.  ANY
AMOUNTS NEEDED TO FULLY REIMBURSE BANK WILL BE TREATED AS ADVANCES UNDER THE
REVOLVING LINE AND WILL ACCRUE INTEREST AT THE INTEREST RATE APPLICABLE TO
ADVANCES.

 

2.1.3       FOREIGN EXCHANGE SUBLIMIT.  AS PART OF THE REVOLVING LINE, BORROWER
MAY ENTER INTO FOREIGN EXCHANGE CONTRACTS WITH BANK UNDER WHICH BORROWER COMMITS
TO PURCHASE FROM OR SELL TO BANK A SPECIFIC AMOUNT OF FOREIGN CURRENCY (EACH, A
“FX FORWARD CONTRACT”) ON A SPECIFIED DATE (THE “SETTLEMENT DATE”).  FX FORWARD
CONTRACTS SHALL HAVE A SETTLEMENT DATE OF AT LEAST ONE (1) FX BUSINESS DAY AFTER
THE CONTRACT DATE AND SHALL BE SUBJECT TO A RESERVE OF TEN PERCENT (10%) OF EACH
OUTSTANDING FX FORWARD CONTRACT IN A MAXIMUM AGGREGATE AMOUNT EQUAL TO FIFTY
THOUSAND DOLLARS ($50,000) (THE “FX RESERVE”).  THE AGGREGATE AMOUNT OF FX
FORWARD CONTRACTS AT ANY ONE TIME PLUS CREDIT EXTENSIONS MADE PURSUANT TO
SECTIONS 2.1.2 AND 2.1.4 MAY NOT EXCEED TEN (10) TIMES THE AMOUNT OF THE FX
RESERVE.  ANY AMOUNTS NEEDED TO FULLY REIMBURSE BANK WILL BE TREATED AS ADVANCES
UNDER THE REVOLVING LINE AND WILL ACCRUE INTEREST AT THE INTEREST RATE
APPLICABLE TO ADVANCES.

 

2.1.4       CASH MANAGEMENT SERVICES SUBLIMIT.  BORROWER MAY USE UP TO FIVE
HUNDRED THOUSAND DOLLARS ($500,000), INCLUSIVE OF THE CREDIT EXTENSIONS MADE
PURSUANT TO SECTIONS 2.1.2 AND 2.1.3, FOR BANK’S CASH MANAGEMENT SERVICES WHICH
MAY INCLUDE MERCHANT SERVICES, DIRECT DEPOSIT OF PAYROLL, BUSINESS CREDIT CARD,
AND CHECK CASHING SERVICES IDENTIFIED IN BANK’S VARIOUS CASH MANAGEMENT SERVICES
AGREEMENTS (COLLECTIVELY, THE “CASH MANAGEMENT SERVICES”).  ANY AMOUNTS BANK
PAYS ON BEHALF OF BORROWER FOR ANY CASH MANAGEMENT SERVICES WILL BE TREATED AS
ADVANCES UNDER THE REVOLVING LINE AND WILL ACCRUE INTEREST AT THE INTEREST RATE
APPLICABLE TO ADVANCES.

 

2.2          OVERADVANCES.  IF, AT ANY TIME THE SUM OF (A) THE OUTSTANDING
AMOUNT OF ANY ADVANCES (INCLUDING ANY AMOUNTS USED FOR CASH MANAGEMENT SERVICES)
PLUS (B) THE FACE AMOUNT OF ANY OUTSTANDING LETTERS OF CREDIT (INCLUDING DRAWN
BUT UNREIMBURSED LETTERS OF CREDIT AND ANY LETTER OF CREDIT RESERVE), PLUS
(C) THE FX RESERVE EXCEEDS THE LESSER OF EITHER THE REVOLVING LINE OR THE
BORROWING BASE (SUCH SUM BEING AN “OVERADVANCE”), BORROWER SHALL IMMEDIATELY PAY
TO BANK IN CASH SUCH OVERADVANCE.  WITHOUT LIMITING BORROWER’S OBLIGATION TO
REPAY BANK ANY AMOUNT OF THE OVERADVANCE, BORROWER AGREES TO PAY BANK INTEREST
ON THE OUTSTANDING AMOUNT OF ANY OVERADVANCE, ON DEMAND, AT THE DEFAULT RATE.

 

2.3          PAYMENT OF INTEREST ON THE CREDIT EXTENSIONS.

 

(A)           INTEREST RATE; ADVANCES.  SUBJECT TO SECTION 2.3(B), THE PRINCIPAL
AMOUNT OUTSTANDING UNDER THE REVOLVING LINE SHALL ACCRUE INTEREST AT A PER ANNUM
RATE EQUAL TO THE PRIME RATE PLUS ONE PERCENT (1.00%).

 

(B)           DEFAULT RATE.  IMMEDIATELY UPON THE OCCURRENCE AND DURING THE
CONTINUANCE OF AN EVENT OF DEFAULT, OBLIGATIONS SHALL BEAR INTEREST AT A RATE
PER ANNUM WHICH IS FOUR PERCENTAGE POINTS ABOVE THE RATE THAT IS OTHERWISE
APPLICABLE THERETO (THE “DEFAULT RATE”).  PAYMENT OR ACCEPTANCE OF THE INCREASED
INTEREST RATE PROVIDED IN THIS SECTION 2.3(B) IS NOT A PERMITTED ALTERNATIVE TO
TIMELY PAYMENT AND SHALL NOT CONSTITUTE A WAIVER OF ANY EVENT OF DEFAULT OR
OTHERWISE PREJUDICE OR LIMIT ANY RIGHTS OR REMEDIES OF BANK.

 

(C)           ADJUSTMENT TO INTEREST RATE.  CHANGES TO THE INTEREST RATE OF ANY
CREDIT EXTENSION BASED ON CHANGES TO THE PRIME RATE SHALL BE EFFECTIVE ON THE
EFFECTIVE DATE OF ANY CHANGE TO THE PRIME RATE AND TO THE EXTENT OF ANY SUCH
CHANGE.

 

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(D)           360-DAY YEAR.  INTEREST SHALL BE COMPUTED ON THE BASIS OF A
360-DAY YEAR FOR THE ACTUAL NUMBER OF DAYS ELAPSED.

 

(E)           DEBIT OF ACCOUNTS.  BANK MAY DEBIT ANY OF BORROWER’S DEPOSIT
ACCOUNTS, INCLUDING THE DESIGNATED DEPOSIT ACCOUNT, FOR PRINCIPAL AND INTEREST
PAYMENTS OR ANY OTHER AMOUNTS BORROWER OWES BANK WHEN DUE.  THESE DEBITS SHALL
NOT CONSTITUTE A SET-OFF.

 

(F)            PAYMENT; INTEREST COMPUTATION; FLOAT CHARGE.  INTEREST IS PAYABLE
MONTHLY ON THE LAST BUSINESS DAY OF EACH MONTH THROUGH THE LAST DAY OF SUCH
MONTH.  IN COMPUTING INTEREST ON THE OBLIGATIONS, ALL PAYMENTS RECEIVED AFTER
12:00 P.M. PACIFIC TIME ON ANY DAY SHALL BE DEEMED RECEIVED ON THE NEXT BUSINESS
DAY.  IN ADDITION, SO LONG AS ANY PRINCIPAL OR INTEREST WITH RESPECT TO ANY
CREDIT EXTENSION REMAINS OUTSTANDING, BANK SHALL BE ENTITLED TO CHARGE BORROWER
A “FLOAT” CHARGE IN AN AMOUNT EQUAL TO THREE (3) BUSINESS DAYS INTEREST, AT THE
INTEREST RATE APPLICABLE TO THE CREDIT EXTENSIONS, ON ALL PAYMENTS RECEIVED BY
BANK.  THE FLOAT CHARGE FOR EACH MONTH SHALL BE PAYABLE ON THE LAST BUSINESS DAY
OF EACH MONTH.  BANK SHALL NOT, HOWEVER, BE REQUIRED TO CREDIT BORROWER’S
ACCOUNT FOR THE AMOUNT OF ANY ITEM OF PAYMENT WHICH IS UNSATISFACTORY TO BANK IN
ITS GOOD FAITH BUSINESS JUDGMENT, AND BANK MAY CHARGE BORROWER’S DESIGNATED
DEPOSIT ACCOUNT FOR THE AMOUNT OF ANY ITEM OF PAYMENT WHICH IS RETURNED TO BANK
UNPAID.

 

2.4          FEES.  BORROWER SHALL PAY TO BANK:

 

(A)           COMMITMENT FEE.  A FULLY EARNED, NON-REFUNDABLE COMMITMENT FEE OF
FORTY FIVE THOUSAND DOLLARS ($45,000), PAYABLE AS FOLLOWS (I) THIRTY THOUSAND
DOLLARS ($30,000) (LESS THE SUM OF $15,000 PREVIOUSLY PAID), ON THE EFFECTIVE
DATE; AND (II) FIFTEEN THOUSAND DOLLARS ($15,000), ON THE EARLIER TO OCCUR OF
(X) THE TERMINATION OF THIS AGREEMENT, OR (Y) THE FIRST ANNIVERSARY OF THE
EFFECTIVE DATE;

 

(B)           LETTER OF CREDIT FEE.  BANK’S CUSTOMARY FEES AND EXPENSES FOR THE
ISSUANCE OR RENEWAL OF LETTERS OF CREDIT, UPON THE ISSUANCE, EACH ANNIVERSARY OF
THE ISSUANCE, AND THE RENEWAL OF SUCH LETTER OF CREDIT BY BANK;

 

(C)           UNUSED REVOLVING LINE FACILITY FEE.  A FEE (THE “UNUSED REVOLVING
LINE FACILITY FEE”), PAYABLE MONTHLY, IN ARREARS, ON A CALENDAR YEAR BASIS, IN
AN AMOUNT EQUAL TO ONE-QUARTER OF ONE PERCENT (0.25%) PER ANNUM OF THE AVERAGE
UNUSED PORTION OF THE REVOLVING LINE, AS DETERMINED BY BANK.  THE UNUSED PORTION
OF THE REVOLVING LINE, FOR THE PURPOSES OF THIS CALCULATION, SHALL INCLUDE
AMOUNTS RESERVED UNDER THE CASH MANAGEMENT SERVICES SUBLIMIT FOR PRODUCTS
PROVIDED AND UNDER THE FOREIGN EXCHANGE SUBLIMIT FOR FX FORWARD CONTRACTS. 
BORROWER SHALL NOT BE ENTITLED TO ANY CREDIT, REBATE OR REPAYMENT OF ANY UNUSED
REVOLVING LINE FACILITY FEE PREVIOUSLY EARNED BY BANK PURSUANT TO THIS
SECTION NOTWITHSTANDING ANY TERMINATION OF THE AGREEMENT, OR SUSPENSION OR
TERMINATION OF BANK’S OBLIGATION TO MAKE LOANS AND ADVANCES HEREUNDER; AND

 

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

 

3              CONDITIONS OF LOANS

 

3.1          CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.  BANK’S
OBLIGATION TO MAKE THE INITIAL CREDIT EXTENSION IS SUBJECT TO THE CONDITION
PRECEDENT THAT BORROWER SHALL CONSENT TO OR HAVE DELIVERED, IN FORM AND
SUBSTANCE SATISFACTORY TO BANK, SUCH DOCUMENTS, AND COMPLETION OF SUCH OTHER
MATTERS, AS BANK MAY REASONABLY DEEM NECESSARY OR APPROPRIATE, INCLUDING,
WITHOUT LIMITATION:

 

(A)           DULY EXECUTED ORIGINAL SIGNATURES TO THE LOAN DOCUMENTS TO WHICH
IT IS A PARTY;

 

(B)           ITS OPERATING DOCUMENTS AND A GOOD STANDING CERTIFICATE OF
BORROWER CERTIFIED BY THE SECRETARY OF STATE OF THE STATE OF DELAWARE AS OF A
DATE NO EARLIER THAN THIRTY (30) DAYS PRIOR TO THE EFFECTIVE DATE;

 

(C)           DULY EXECUTED ORIGINAL SIGNATURES TO THE COMPLETED BORROWING
RESOLUTIONS FOR BORROWER;

 

(D)           A PAYOFF LETTER FROM TD BANK, N.A.;

 

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(E)           EVIDENCE THAT (I) THE LIENS SECURING INDEBTEDNESS OWED BY BORROWER
TO TD BANK, N.A. WILL BE TERMINATED AND (II) THE DOCUMENTS AND/OR FILINGS
EVIDENCING THE PERFECTION OF SUCH LIENS, INCLUDING WITHOUT LIMITATION ANY
FINANCING STATEMENTS AND/OR CONTROL AGREEMENTS, HAVE OR WILL, CONCURRENTLY WITH
THE INITIAL CREDIT EXTENSION, BE TERMINATED.

 

(F)            CERTIFIED COPIES, DATED AS OF A RECENT DATE, OF FINANCING
STATEMENT SEARCHES, AS BANK SHALL REQUEST, ACCOMPANIED BY WRITTEN EVIDENCE
(INCLUDING ANY UCC TERMINATION STATEMENTS) THAT THE LIENS INDICATED IN ANY SUCH
FINANCING STATEMENTS EITHER CONSTITUTE PERMITTED LIENS OR HAVE BEEN OR, IN
CONNECTION WITH THE INITIAL CREDIT EXTENSION, WILL BE TERMINATED OR RELEASED;

 

(G)           THE PERFECTION CERTIFICATE EXECUTED BY BORROWER;

 

(H)           A LEGAL OPINION OF BORROWER’S COUNSEL DATED AS OF THE EFFECTIVE
DATE TOGETHER WITH THE DULY EXECUTED ORIGINAL SIGNATURES THERETO;

 

(I)            EVIDENCE SATISFACTORY TO BANK THAT THE INSURANCE POLICIES
REQUIRED BY SECTION 6.7 HEREOF ARE IN FULL FORCE AND EFFECT, TOGETHER WITH
APPROPRIATE EVIDENCE SHOWING LOSS PAYABLE AND/OR ADDITIONAL INSURED CLAUSES OR
ENDORSEMENTS IN FAVOR OF BANK; AND

 

(J)            PAYMENT OF THE FEES AND BANK EXPENSES THEN DUE AS SPECIFIED IN
SECTION 2.4 HEREOF.

 

3.2          CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.  BANK’S OBLIGATIONS
TO MAKE EACH CREDIT EXTENSION, INCLUDING THE INITIAL CREDIT EXTENSION, IS
SUBJECT TO THE FOLLOWING:

 

(A)           EXCEPT AS OTHERWISE PROVIDED IN SECTION 3.4, TIMELY RECEIPT OF AN
EXECUTED TRANSACTION REPORT;

 

(B)           THE REPRESENTATIONS AND WARRANTIES IN SECTION 5 SHALL BE TRUE IN
ALL MATERIAL RESPECTS ON THE DATE OF THE TRANSACTION REPORT AND ON THE FUNDING
DATE OF EACH CREDIT EXTENSION; PROVIDED, HOWEVER, THAT SUCH MATERIALITY
QUALIFIER SHALL NOT BE APPLICABLE TO ANY REPRESENTATIONS AND WARRANTIES THAT
ALREADY ARE QUALIFIED OR MODIFIED BY MATERIALITY IN THE TEXT THEREOF; AND
PROVIDED, FURTHER THAT THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY REFERRING
TO A SPECIFIC DATE SHALL BE TRUE, ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS
AS OF SUCH DATE, AND NO EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING
OR RESULT FROM THE CREDIT EXTENSION.  EACH CREDIT EXTENSION IS BORROWER’S
REPRESENTATION AND WARRANTY ON THAT DATE THAT THE REPRESENTATIONS AND WARRANTIES
IN SECTION 5 REMAIN TRUE IN ALL MATERIAL RESPECTS; PROVIDED, HOWEVER, THAT SUCH
MATERIALITY QUALIFIER SHALL NOT BE APPLICABLE TO ANY REPRESENTATIONS AND
WARRANTIES THAT ALREADY ARE QUALIFIED OR MODIFIED BY MATERIALITY IN THE TEXT
THEREOF; AND PROVIDED, FURTHER THAT THOSE REPRESENTATIONS AND WARRANTIES
EXPRESSLY REFERRING TO A SPECIFIC DATE SHALL BE TRUE, ACCURATE AND COMPLETE IN
ALL MATERIAL RESPECTS AS OF SUCH DATE; AND

 

(C)           IN BANK’S GOOD FAITH BUSINESS JUDGMENT, THERE HAS NOT BEEN ANY
MATERIAL IMPAIRMENT IN THE GENERAL AFFAIRS, MANAGEMENT, RESULTS OF OPERATION,
FINANCIAL CONDITION OR THE PROSPECT OF REPAYMENT OF THE OBLIGATIONS, OR THERE
HAS NOT BEEN ANY MATERIAL ADVERSE DEVIATION BY BORROWER FROM THE MOST RECENT
BUSINESS PLAN OF BORROWER PRESENTED TO AND ACCEPTED BY BANK, SUBJECT TO THE
NOTICE AND CURE PERIODS HEREIN SET FORTH.

 

3.3          COVENANT TO DELIVER.

 

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

 

3.4          PROCEDURES FOR BORROWING.  SUBJECT TO THE PRIOR SATISFACTION OF ALL
OTHER APPLICABLE CONDITIONS TO THE MAKING OF AN ADVANCE SET FORTH IN THIS
AGREEMENT, TO OBTAIN AN ADVANCE (OTHER THAN ADVANCES UNDER SECTIONS 2.1.2 OR
2.1.4), BORROWER SHALL NOTIFY BANK (WHICH NOTICE SHALL BE IRREVOCABLE) BY
ELECTRONIC MAIL, FACSIMILE, OR TELEPHONE BY 12:00 P.M. PACIFIC TIME ON THE
FUNDING DATE OF THE ADVANCE.  TOGETHER WITH SUCH NOTIFICATION, BORROWER MUST
PROMPTLY DELIVER TO BANK BY ELECTRONIC MAIL OR FACSIMILE A COMPLETED TRANSACTION
REPORT EXECUTED BY A RESPONSIBLE OFFICER OR HIS OR HER DESIGNEE.  BANK SHALL
CREDIT ADVANCES TO THE DESIGNATED DEPOSIT ACCOUNT.  BANK MAY MAKE ADVANCES UNDER
THIS AGREEMENT BASED ON INSTRUCTIONS FROM A RESPONSIBLE OFFICER OR HIS OR HER

 

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DESIGNEE OR WITHOUT INSTRUCTIONS IF THE ADVANCES ARE NECESSARY TO MEET
OBLIGATIONS WHICH HAVE BECOME DUE.  BANK MAY RELY ON ANY TELEPHONE NOTICE GIVEN
BY A PERSON WHOM BANK BELIEVES IS A RESPONSIBLE OFFICER OR DESIGNEE.

 

4              CREATION OF SECURITY INTEREST

 

4.1          GRANT OF SECURITY INTEREST.  BORROWER HEREBY GRANTS BANK, TO SECURE
THE PAYMENT AND PERFORMANCE IN FULL OF ALL OF THE OBLIGATIONS, A CONTINUING
SECURITY INTEREST IN, AND PLEDGES TO BANK, THE COLLATERAL, WHEREVER LOCATED,
WHETHER NOW OWNED OR HEREAFTER ACQUIRED OR ARISING, AND ALL PROCEEDS AND
PRODUCTS THEREOF.  BORROWER REPRESENTS, WARRANTS, AND COVENANTS THAT THE
SECURITY INTEREST GRANTED HEREIN IS AND SHALL AT ALL TIMES CONTINUE TO BE A
FIRST PRIORITY PERFECTED SECURITY INTEREST IN THE COLLATERAL (SUBJECT ONLY TO
PERMITTED LIENS THAT MAY HAVE SUPERIOR PRIORITY TO BANK’S LIEN UNDER THIS
AGREEMENT).  IF BORROWER SHALL ACQUIRE A COMMERCIAL TORT CLAIM, BORROWER SHALL
PROMPTLY NOTIFY BANK IN A WRITING SIGNED BY BORROWER OF THE GENERAL DETAILS
THEREOF AND GRANT TO BANK IN SUCH WRITING A SECURITY INTEREST THEREIN AND IN THE
PROCEEDS THEREOF, ALL UPON THE TERMS OF THIS AGREEMENT, WITH SUCH WRITING TO BE
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO BANK.

 

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

 

4.2          AUTHORIZATION TO FILE FINANCING STATEMENTS.  BORROWER HEREBY
AUTHORIZES BANK TO FILE FINANCING STATEMENTS, WITHOUT NOTICE TO BORROWER, WITH
ALL APPROPRIATE JURISDICTIONS TO PERFECT OR PROTECT BANK’S INTEREST OR RIGHTS
HEREUNDER, INCLUDING A NOTICE THAT ANY DISPOSITION OF THE COLLATERAL, BY EITHER
BORROWER OR ANY OTHER PERSON, SHALL BE DEEMED TO VIOLATE THE RIGHTS OF BANK
UNDER THE CODE.  SUCH FINANCING STATEMENTS MAY INDICATE THE COLLATERAL AS “ALL
ASSETS OF THE DEBTOR” OR WORDS OF SIMILAR EFFECT, OR AS BEING OF AN EQUAL OR
LESSER SCOPE, OR WITH GREATER DETAIL, ALL IN BANK’S DISCRETION.

 

5              REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1          DUE ORGANIZATION, AUTHORIZATION; POWER AND AUTHORITY.  EACH
BORROWER IS DULY EXISTING AND IN GOOD STANDING AS A REGISTERED ORGANIZATION IN
ITS JURISDICTION OF FORMATION AND IS QUALIFIED AND LICENSED TO DO BUSINESS AND
IS IN GOOD STANDING IN ANY JURISDICTION IN WHICH THE CONDUCT OF ITS BUSINESS OR
ITS OWNERSHIP OF PROPERTY REQUIRES THAT IT BE QUALIFIED EXCEPT WHERE THE FAILURE
TO DO SO WOULD NOT REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE CHANGE
IN BORROWER’S BUSINESS.  IN CONNECTION WITH THIS AGREEMENT, EACH BORROWER HAS
DELIVERED TO BANK A COMPLETED CERTIFICATE SIGNED BY SUCH BORROWER, ENTITLED
“PERFECTION CERTIFICATE”.  EACH BORROWER REPRESENTS AND WARRANTS TO BANK THAT
(A) SUCH BORROWER’S EXACT LEGAL NAME IS THAT INDICATED ON SUCH RESPECTIVE
PERFECTION CERTIFICATE AND, WITH RESPECT TO EACH BORROWER, ON THE SIGNATURE
PAGE HEREOF; (B) SUCH BORROWER IS AN ORGANIZATION OF THE TYPE AND IS ORGANIZED
IN THE JURISDICTION SET FORTH IN ITS RESPECTIVE PERFECTION CERTIFICATE; (C) EACH
PERFECTION CERTIFICATE ACCURATELY SETS FORTH SUCH BORROWER’S ORGANIZATIONAL
IDENTIFICATION NUMBER OR ACCURATELY STATES THAT SUCH BORROWER HAS NONE; (D) EACH
PERFECTION CERTIFICATE ACCURATELY SETS FORTH SUCH BORROWER’S PLACE OF BUSINESS,
OR, IF MORE THAN ONE, ITS CHIEF EXECUTIVE OFFICE AS WELL AS SUCH BORROWER’S
MAILING ADDRESS (IF DIFFERENT THAN ITS CHIEF EXECUTIVE OFFICE); (E) EACH
BORROWER (AND EACH OF ITS RESPECTIVE PREDECESSORS) HAS NOT, IN THE PAST FIVE
(5) YEARS, CHANGED ITS JURISDICTION OF FORMATION, ORGANIZATIONAL STRUCTURE OR
TYPE, OR ANY ORGANIZATIONAL NUMBER ASSIGNED BY ITS JURISDICTION EXCEPT AS
CONTEMPLATED IN THE CONSOLIDATION DOCUMENTS; AND (F) ALL OTHER INFORMATION SET
FORTH ON THE PERFECTION CERTIFICATE PERTAINING TO SUCH BORROWER AND EACH OF ITS
RESPECTIVE SUBSIDIARIES IS ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS (IT
BEING UNDERSTOOD AND AGREED THAT EACH BORROWER MAY FROM TIME TO TIME UPDATE
CERTAIN INFORMATION IN ITS RESPECTIVE PERFECTION CERTIFICATE AFTER THE EFFECTIVE
DATE TO THE EXTENT PERMITTED BY ONE OR MORE SPECIFIC PROVISIONS IN THIS
AGREEMENT).  IF ANY BORROWER IS NOT NOW A REGISTERED ORGANIZATION BUT LATER
BECOMES ONE, SUCH BORROWER SHALL PROMPTLY NOTIFY BANK OF SUCH OCCURRENCE AND
PROVIDE BANK WITH SUCH BORROWER’S ORGANIZATIONAL IDENTIFICATION NUMBER.

 

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any its Subsidiaries or any of their property or assets may be
bound or affected,

 

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(iv) require any action by, filing, registration, or qualification with, or
Governmental Approval from, any Governmental Authority (except such Governmental
Approvals which have already been obtained and are in full force and effect or
(v) constitute an event of default under any material agreement by which
Borrower is bound.  Borrower is not in default under any agreement to which it
is a party or by which it is bound in which the default could have a material
adverse effect on Borrower’s business.

 

5.2          COLLATERAL.  BORROWER HAS GOOD TITLE TO, HAS RIGHTS IN, AND THE
POWER TO TRANSFER EACH ITEM OF THE COLLATERAL UPON WHICH IT PURPORTS TO GRANT A
LIEN HEREUNDER, FREE AND CLEAR OF ANY AND ALL LIENS EXCEPT PERMITTED LIENS. 
BORROWER HAS NO DEPOSIT ACCOUNTS OTHER THAN THE DEPOSIT ACCOUNTS WITH BANK, THE
DEPOSIT ACCOUNTS, IF ANY, DESCRIBED IN THE PERFECTION CERTIFICATE DELIVERED TO
BANK IN CONNECTION HEREWITH, OR OF WHICH BORROWER HAS GIVEN BANK NOTICE AND
TAKEN SUCH ACTIONS AS ARE NECESSARY TO GIVE BANK A PERFECTED SECURITY INTEREST
THEREIN.  THE ACCOUNTS ARE BONA FIDE, EXISTING OBLIGATIONS OF THE ACCOUNT
DEBTORS.

 

                THE COLLATERAL IS NOT IN THE POSSESSION OF ANY THIRD PARTY
BAILEE (SUCH AS A WAREHOUSE) EXCEPT AS OTHERWISE PROVIDED IN THE PERFECTION
CERTIFICATE.  NONE OF THE COMPONENTS OF THE COLLATERAL SHALL BE MAINTAINED AT
LOCATIONS OTHER THAN AS PROVIDED IN THE PERFECTION CERTIFICATE OR AS PERMITTED
PURSUANT TO SECTION 7.2.  IN THE EVENT THAT BORROWER, AFTER THE DATE HEREOF,
INTENDS TO STORE OR OTHERWISE DELIVER ANY PORTION OF THE COLLATERAL TO A BAILEE,
THEN BORROWER WILL FIRST RECEIVE THE WRITTEN CONSENT OF BANK AND SUCH BAILEE
MUST EXECUTE AND DELIVER A BAILEE AGREEMENT IN FORM AND SUBSTANCE SATISFACTORY
TO BANK IN ITS SOLE DISCRETION.

 

ALL INVENTORY IS IN ALL MATERIAL RESPECTS OF GOOD AND MARKETABLE QUALITY, FREE
FROM MATERIAL DEFECTS.

 

BORROWER IS THE SOLE OWNER OF ITS INTELLECTUAL PROPERTY, EXCEPT FOR
NON-EXCLUSIVE LICENSES GRANTED TO ITS CUSTOMERS IN THE ORDINARY COURSE OF
BUSINESS.  EACH PATENT IS VALID AND ENFORCEABLE AND NO PART OF THE INTELLECTUAL
PROPERTY HAS BEEN JUDGED INVALID OR UNENFORCEABLE, IN WHOLE OR IN PART, AND TO
THE BEST OF BORROWER’S KNOWLEDGE, NO CLAIM HAS BEEN MADE THAT ANY PART OF THE
INTELLECTUAL PROPERTY VIOLATES THE RIGHTS OF ANY THIRD PARTY.

 

EXCEPT AS NOTED ON THE PERFECTION CERTIFICATE, BORROWER IS NOT A PARTY TO, NOR
IS BOUND BY, ANY MATERIAL LICENSE OR OTHER AGREEMENT WITH RESPECT TO WHICH
BORROWER IS THE LICENSEE (A) THAT PROHIBITS OR OTHERWISE RESTRICTS BORROWER FROM
GRANTING A SECURITY INTEREST IN BORROWER’S INTEREST IN SUCH LICENSE OR AGREEMENT
OR ANY OTHER PROPERTY, OR (B) FOR WHICH A DEFAULT UNDER OR TERMINATION OF COULD
INTERFERE WITH THE BANK’S RIGHT TO SELL ANY COLLATERAL.  BORROWER SHALL PROVIDE
WRITTEN NOTICE TO BANK WITHIN THIRTY (30) DAYS OF ENTERING OR BECOMING BOUND BY
ANY SUCH LICENSE OR AGREEMENT (OTHER THAN OVER-THE-COUNTER SOFTWARE THAT IS
COMMERCIALLY AVAILABLE TO THE PUBLIC).  BORROWER SHALL TAKE SUCH STEPS AS BANK
REQUESTS TO OBTAIN THE CONSENT OF, OR WAIVER BY, ANY PERSON WHOSE CONSENT OR
WAIVER IS NECESSARY FOR (X) ALL SUCH LICENSES OR AGREEMENTS TO BE DEEMED
“COLLATERAL” AND FOR BANK TO HAVE A SECURITY INTEREST IN IT THAT MIGHT OTHERWISE
BE RESTRICTED OR PROHIBITED BY LAW OR BY THE TERMS OF ANY SUCH LICENSE OR
AGREEMENT, WHETHER NOW EXISTING OR ENTERED INTO IN THE FUTURE, AND (Y) BANK TO
HAVE THE ABILITY IN THE EVENT OF A LIQUIDATION OF ANY COLLATERAL TO DISPOSE OF
SUCH COLLATERAL IN ACCORDANCE WITH BANK’S RIGHTS AND REMEDIES UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

5.3          ACCOUNTS RECEIVABLE; INVENTORY.

 

(a)           For each Account with respect to which Advances are requested, on
the date each Advance is requested and made, such Account shall be an Eligible
Account.

 

(b)           All statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing the Eligible Accounts are
and shall be true and correct and all such invoices, instruments and other
documents, and all of Borrower’s Books are genuine and in all respects what they
purport to be.  Whether or not an Event of Default has occurred and is
continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s
security interest in such funds and verify the amount of such Eligible Account. 
All sales and other transactions underlying or giving rise to each Eligible
Account shall comply in all material respects with all applicable laws and
governmental rules and regulations.  Borrower has no knowledge of any actual or
imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible
Accounts in any Transaction Report.  To the best of Borrower’s knowledge, all
signatures and endorsements on all documents, instruments, and agreements
relating to all Eligible Accounts are genuine, and all such documents,
instruments and agreements are legally enforceable in accordance with their
terms.

 

(c)           For any item of Inventory consisting of Eligible Inventory in any
Transaction Report, such Inventory:

 

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(i) consists of (A) raw materials, (B) work-in-process and (C) finished goods
(in good, new, and salable condition), in each case which is not perishable,
returned, recalled, consigned, obsolete, not sellable, damaged, or defective,
and is not comprised of demonstrative or custom inventory, inventory sold on
consignment, packaging or shipping materials, or supplies;

 

(ii) meets all applicable governmental standards;

 

(iii) has been manufactured in compliance with the Fair Labor Standards Act;

 

(iv) is subject to a first priority Lien granted or in favor of Bank under this
Agreement or any of the other Loan Documents;

 

(v) is located in the United States at the locations identified by Borrower in
the Perfection Certificate where it maintains Inventory (or any location in the
United States permitted under Section 7.2);

 

(vi) is not subject to any offsetting claims;

 

(vii) is not in the possession of a processor or bailee, or located on premises
leased or subleased by Borrower, or on premises subject to a mortgage in favor
of a Person other than Bank, unless such bailee, processor, mortgagee, lessor or
sublessor of such premises, as the case may be, has executed and delivered all
documentation which Bank shall require to evidence the subordination or other
limitation or extinguishment of such Person’s rights with respect to such
Inventory;

 

(viii) is not used for defense or military purposes, or is not sold to a defense
or military agency (other than a United States government entity or any
department, agency, or instrumentality thereof); and

 

(ix) is not proprietary software not intended for resale.

 

5.4          LITIGATION.  EXCEPT FOR THE COWLS CLAIM SET FORTH IN THE PERFECTION
CERTIFICATE, THERE ARE NO ACTIONS OR PROCEEDINGS PENDING OR, TO THE KNOWLEDGE OF
THE RESPONSIBLE OFFICERS, THREATENED IN WRITING BY OR AGAINST BORROWER OR ANY OF
ITS SUBSIDIARIES INVOLVING MORE THAN TWENTY FIVE THOUSAND DOLLARS ($25,000).

 

5.5          NO MATERIAL DEVIATION IN FINANCIAL STATEMENTS.  ALL FINANCIAL
STATEMENTS FOR BORROWER DELIVERED TO BANK FAIRLY PRESENT IN ALL MATERIAL
RESPECTS BORROWER’S FINANCIAL CONDITION AND BORROWER’S RESULTS OF OPERATIONS. 
THERE HAS NOT BEEN ANY MATERIAL DETERIORATION IN BORROWER’S CONSOLIDATED
FINANCIAL CONDITION SINCE THE DATE OF THE MOST RECENT FINANCIAL STATEMENTS
SUBMITTED TO BANK.

 

5.6          SOLVENCY.  THE FAIR SALABLE VALUE OF BORROWER’S ASSETS (INCLUDING
GOODWILL MINUS DISPOSITION COSTS) EXCEEDS THE FAIR VALUE OF ITS LIABILITIES;
BORROWER IS NOT LEFT WITH UNREASONABLY SMALL CAPITAL AFTER THE TRANSACTIONS IN
THIS AGREEMENT; AND BORROWER IS ABLE TO PAY ITS DEBTS (INCLUDING TRADE DEBTS) AS
THEY MATURE.

 

5.7          REGULATORY COMPLIANCE.  BORROWER IS NOT AN “INVESTMENT COMPANY” OR
A COMPANY “CONTROLLED” BY AN “INVESTMENT COMPANY” UNDER THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED.  BORROWER IS NOT ENGAGED AS ONE OF ITS IMPORTANT
ACTIVITIES IN EXTENDING CREDIT FOR MARGIN STOCK (UNDER REGULATIONS X, T AND U OF
THE FEDERAL RESERVE BOARD OF GOVERNORS).  BORROWER HAS COMPLIED IN ALL MATERIAL
RESPECTS WITH THE FEDERAL FAIR LABOR STANDARDS ACT.  NEITHER BORROWER NOR ANY OF
ITS SUBSIDIARIES IS A “HOLDING COMPANY” OR AN “AFFILIATE” OF A “HOLDING COMPANY”
OR A “SUBSIDIARY COMPANY” OF A “HOLDING COMPANY” AS EACH TERM IS DEFINED AND
USED IN THE PUBLIC UTILITY HOLDING COMPANY ACT OF 2005.  BORROWER HAS NOT
VIOLATED ANY LAWS, ORDINANCES OR RULES, THE VIOLATION OF WHICH COULD REASONABLY
BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS.  NONE OF
BORROWER’S OR ANY OF ITS SUBSIDIARIES’ PROPERTIES OR ASSETS HAS BEEN USED BY
BORROWER OR ANY SUBSIDIARY OR, TO THE BEST OF BORROWER’S KNOWLEDGE, BY PREVIOUS
PERSONS, IN DISPOSING, PRODUCING, STORING, TREATING, OR TRANSPORTING ANY
HAZARDOUS SUBSTANCE OTHER THAN LEGALLY.  BORROWER AND EACH OF ITS SUBSIDIARIES
HAVE OBTAINED ALL CONSENTS, APPROVALS AND AUTHORIZATIONS OF, MADE ALL
DECLARATIONS OR FILINGS WITH, AND GIVEN ALL NOTICES TO, ALL GOVERNMENT
AUTHORITIES THAT ARE NECESSARY TO CONTINUE THEIR RESPECTIVE BUSINESSES AS
CURRENTLY CONDUCTED.

 

5.8          SUBSIDIARIES; INVESTMENTS.  BORROWER DOES NOT OWN ANY STOCK,
PARTNERSHIP INTEREST OR OTHER EQUITY SECURITIES EXCEPT FOR PERMITTED
INVESTMENTS.

 

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5.9          TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS.  BORROWER HAS
TIMELY FILED ALL REQUIRED TAX RETURNS AND REPORTS, AND BORROWER HAS TIMELY PAID
ALL FOREIGN, FEDERAL, STATE AND LOCAL TAXES, ASSESSMENTS, DEPOSITS AND
CONTRIBUTIONS OWED BY BORROWER.  BORROWER MAY DEFER PAYMENT OF ANY CONTESTED
TAXES, PROVIDED THAT BORROWER (A) IN GOOD FAITH CONTESTS ITS OBLIGATION TO PAY
THE TAXES BY APPROPRIATE PROCEEDINGS PROMPTLY AND DILIGENTLY INSTITUTED AND
CONDUCTED, (B) NOTIFIES BANK IN WRITING OF THE COMMENCEMENT OF, AND ANY MATERIAL
DEVELOPMENT IN, THE PROCEEDINGS, (C) POSTS BONDS OR TAKES ANY OTHER STEPS
REQUIRED TO PREVENT THE GOVERNMENTAL AUTHORITY LEVYING SUCH CONTESTED TAXES FROM
OBTAINING A LIEN UPON ANY OF THE COLLATERAL THAT IS OTHER THAN A “PERMITTED
LIEN”.  BORROWER IS UNAWARE OF ANY CLAIMS OR ADJUSTMENTS PROPOSED FOR ANY OF
BORROWER’S PRIOR TAX YEARS WHICH COULD RESULT IN ADDITIONAL TAXES BECOMING DUE
AND PAYABLE BY BORROWER.  BORROWER HAS PAID ALL AMOUNTS NECESSARY TO FUND ALL
PRESENT PENSION, PROFIT SHARING AND DEFERRED COMPENSATION PLANS IN ACCORDANCE
WITH THEIR TERMS, AND BORROWER HAS NOT WITHDRAWN FROM PARTICIPATION IN, AND HAS
NOT PERMITTED PARTIAL OR COMPLETE TERMINATION OF, OR PERMITTED THE OCCURRENCE OF
ANY OTHER EVENT WITH RESPECT TO, ANY SUCH PLAN WHICH COULD REASONABLY BE
EXPECTED TO RESULT IN ANY LIABILITY OF BORROWER, INCLUDING ANY LIABILITY TO THE
PENSION BENEFIT GUARANTY CORPORATION OR ITS SUCCESSORS OR ANY OTHER GOVERNMENTAL
AGENCY.

 

5.10        USE OF PROCEEDS.  BORROWER SHALL USE THE PROCEEDS OF THE CREDIT
EXTENSIONS SOLELY AS WORKING CAPITAL AND TO FUND ITS GENERAL BUSINESS
REQUIREMENTS AND NOT FOR PERSONAL, FAMILY, HOUSEHOLD OR AGRICULTURAL PURPOSES.

 

5.11        FULL DISCLOSURE.  NO WRITTEN REPRESENTATION, WARRANTY OR OTHER
STATEMENT OF BORROWER IN ANY CERTIFICATE OR WRITTEN STATEMENT GIVEN TO BANK, AS
OF THE DATE SUCH REPRESENTATION, WARRANTY, OR OTHER STATEMENT WAS MADE, TAKEN
TOGETHER WITH ALL SUCH WRITTEN CERTIFICATES AND WRITTEN STATEMENTS GIVEN TO
BANK, CONTAINS ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE A
MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS CONTAINED IN THE CERTIFICATES OR
STATEMENTS NOT MISLEADING (IT BEING RECOGNIZED BY BANK THAT THE PROJECTIONS AND
FORECASTS PROVIDED BY BORROWER IN GOOD FAITH AND BASED UPON REASONABLE
ASSUMPTIONS ARE NOT VIEWED AS FACTS AND THAT ACTUAL RESULTS DURING THE PERIOD OR
PERIODS COVERED BY SUCH PROJECTIONS AND FORECASTS MAY DIFFER FROM THE PROJECTED
OR FORECASTED RESULTS).

 

6              AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1          GOVERNMENT COMPLIANCE.

 

(A)           MAINTAIN ITS AND ALL ITS SUBSIDIARIES’ LEGAL EXISTENCE AND GOOD
STANDING IN THEIR RESPECTIVE JURISDICTIONS OF FORMATION AND MAINTAIN
QUALIFICATION IN EACH JURISDICTION IN WHICH THE FAILURE TO SO QUALIFY WOULD
REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON BORROWER’S BUSINESS
OR OPERATIONS.  BORROWER SHALL COMPLY, AND HAVE EACH SUBSIDIARY COMPLY, WITH ALL
LAWS, ORDINANCES AND REGULATIONS TO WHICH IT IS SUBJECT, NONCOMPLIANCE WITH
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON BORROWER’S BUSINESS.

 

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

 

6.2          FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

 

(a)           Borrower shall provide Bank with the following:

 

                (i) weekly, on the last Business Day of each week, and with each
Advance request, a Transaction Report (and any schedules related thereto);

 

                (ii) within fifteen (15) days after the end of each month,
(A) monthly accounts receivable agings, aged by invoice date, (B) monthly
accounts payable agings, aged by invoice date, and outstanding or held check
registers, if any, (C) monthly reconciliations of accounts receivable agings
(aged by invoice date), transaction reports and general ledger, and (D) monthly
perpetual inventory reports for Inventory valued on a first-in, first-out basis
at the lower of cost or market (in accordance with GAAP) or such other inventory
reports as are requested by Bank in its good faith business judgment;

 

(iii) as soon as available, and in any event within thirty (30) days after the
end of each month, monthly unaudited consolidated and consolidating financial
statements;

 

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(iv) within thirty (30) days after the end of each month a monthly Compliance
Certificate signed by a Responsible Officer, certifying that as of the end of
such month, Borrower was in full compliance with all of the terms and conditions
of this Agreement, and setting forth calculations showing compliance with the
financial covenants set forth in this Agreement and such other information as
Bank shall reasonably request, including, without limitation, a statement that
at the end of such month there were no held checks;

 

(v) within thirty (30) days if possible prior to the end of each fiscal year
(but no later than February 1st of the subsequent year) of Borrower, (A) annual
operating budgets (including income statements, balance sheets and cash flow
statements) for the upcoming fiscal year of Borrower, and (B) annual financial
projections for the following fiscal year (on a quarterly basis) as approved by
Borrower’s management, together with any related business forecasts used in the
preparation of such annual financial projections; and

 

(vi) as soon as available, and in any event within one hundred fifty (150) days
following the end of Borrower’s fiscal year, annual consolidated and
consolidating financial statements certified by, and with an unqualified opinion
of, independent certified public accountants acceptable to Bank.

 

(b)           Within five (5) days after filing, all reports on Form 10-K, 10-Q
and 8-K filed with the Securities and Exchange Commission or a link thereto on
Borrower’s or another website on the Internet.

 

(c)           Prompt written notice of (i) any material change in the
composition of the intellectual property, (ii) the registration of any
copyright, including any subsequent ownership right of Borrower in or to any
copyright, patent or trademark not shown in the IP Security Agreement, or
(iii) Borrower’s knowledge of an event that materially adversely affects the
value of the intellectual property.

 

6.3          ACCOUNTS RECEIVABLE.

 

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

 

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

 

(c)           Collection of Accounts.  Borrower shall have the right to collect
all Accounts, unless and until a Default or an Event of Default has occurred and
is continuing.  All payments on, and proceeds of, Accounts shall be deposited
directly by the applicable Account Debtor into a lockbox account, or such other
“blocked account” as Bank may specify, pursuant to a blocked account agreement
in form and substance satisfactory to Bank in its sole discretion.  Whether or
not an Event of Default has occurred and is continuing, Borrower shall hold all
payments on, and proceeds of, Accounts in trust for Bank, and Borrower shall
immediately deliver all such payments and proceeds to Bank in their original
form, duly endorsed, to be applied to the Obligations pursuant to the terms of
Section 9.4 hereof.

 

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

 

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and during the continuance of any Event of Default, Borrower shall hold the
returned Inventory in trust for Bank, and immediately notify Bank of the return
of the Inventory.

 

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

 

(F)            NO LIABILITY.  BANK SHALL NOT BE RESPONSIBLE OR LIABLE FOR ANY
SHORTAGE OR DISCREPANCY IN, DAMAGE TO, OR LOSS OR DESTRUCTION OF, ANY GOODS, THE
SALE OR OTHER DISPOSITION OF WHICH GIVES RISE TO AN ACCOUNT, OR FOR ANY ERROR,
ACT, OMISSION, OR DELAY OF ANY KIND OCCURRING IN THE SETTLEMENT, FAILURE TO
SETTLE, COLLECTION OR FAILURE TO COLLECT ANY ACCOUNT, OR FOR SETTLING ANY
ACCOUNT IN GOOD FAITH FOR LESS THAN THE FULL AMOUNT THEREOF, NOR SHALL BANK BE
DEEMED TO BE RESPONSIBLE FOR ANY OF BORROWER’S OBLIGATIONS UNDER ANY CONTRACT OR
AGREEMENT GIVING RISE TO AN ACCOUNT.  NOTHING HEREIN SHALL, HOWEVER, RELIEVE
BANK FROM LIABILITY FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

6.4          REMITTANCE OF PROCEEDS.  EXCEPT AS OTHERWISE PROVIDED IN
SECTION 6.3(C), DELIVER, IN KIND, ALL PROCEEDS ARISING FROM THE DISPOSITION OF
ANY COLLATERAL TO BANK IN THE ORIGINAL FORM IN WHICH RECEIVED BY BORROWER NOT
LATER THAN THE FOLLOWING BUSINESS DAY AFTER RECEIPT BY BORROWER, TO BE APPLIED
TO THE OBLIGATIONS PURSUANT TO THE TERMS OF SECTION 9.4 HEREOF; PROVIDED THAT,
IF NO DEFAULT OR EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, BORROWER SHALL
NOT BE OBLIGATED TO REMIT TO BANK THE PROCEEDS OF THE SALE OF WORN OUT OR
OBSOLETE EQUIPMENT DISPOSED OF BY BORROWER IN GOOD FAITH IN AN ARM’S LENGTH
TRANSACTION FOR AN AGGREGATE PURCHASE PRICE OF TWENTY FIVE THOUSAND DOLLARS
($25,000) OR LESS (FOR ALL SUCH TRANSACTIONS IN ANY FISCAL YEAR).  BORROWER
AGREES THAT IT WILL NOT COMMINGLE PROCEEDS OF COLLATERAL WITH ANY OF BORROWER’S
OTHER FUNDS OR PROPERTY, BUT WILL HOLD SUCH PROCEEDS SEPARATE AND APART FROM
SUCH OTHER FUNDS AND PROPERTY AND IN AN EXPRESS TRUST FOR BANK.  NOTHING IN THIS
SECTION LIMITS THE RESTRICTIONS ON DISPOSITION OF COLLATERAL SET FORTH ELSEWHERE
IN THIS AGREEMENT.

 

6.5          Taxes; Pensions.  Except as same are legally extended in compliance
with all applicable requirements, timely file, and require each of its
Subsidiaries to timely file, all required tax returns and reports and timely
pay, and require each of its Subsidiaries to timely pay, all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower
and each of its Subsidiaries, except for deferred payment of any taxes contested
pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on
demand, appropriate certificates attesting to such payments, and pay all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms.

 

6.6          ACCESS TO COLLATERAL; BOOKS AND RECORDS.  AT REASONABLE TIMES, ON
ONE (1) BUSINESS DAY’S NOTICE (PROVIDED NO NOTICE IS REQUIRED IF AN EVENT OF
DEFAULT HAS OCCURRED AND IS CONTINUING), BANK, OR ITS AGENTS, SHALL HAVE THE
RIGHT, ON A SEMI-ANNUAL BASIS (OR MORE FREQUENTLY, AS BANK SHALL DETERMINE
NECESSARY IN ITS SOLE DISCRETION), TO INSPECT THE COLLATERAL AND THE RIGHT TO
AUDIT AND COPY BORROWER’S BOOKS.  THE FOREGOING INSPECTIONS AND AUDITS SHALL BE
AT BORROWER’S EXPENSE, AND THE CHARGE THEREFOR SHALL BE $750 PER PERSON PER DAY
(OR SUCH HIGHER AMOUNT AS SHALL REPRESENT BANK’S THEN-CURRENT STANDARD CHARGE
FOR THE SAME), PLUS REASONABLE OUT-OF-POCKET EXPENSES.  IN THE EVENT BORROWER
AND BANK SCHEDULE AN AUDIT MORE THAN TEN (10) DAYS IN ADVANCE, AND BORROWER
CANCELS OR SEEKS TO RESCHEDULES THE AUDIT WITH LESS THAN TEN (10) DAYS WRITTEN
NOTICE TO BANK, THEN (WITHOUT LIMITING ANY OF BANK’S RIGHTS OR REMEDIES),
BORROWER SHALL PAY BANK A FEE OF $1,000 PLUS ANY OUT-OF-POCKET EXPENSES INCURRED
BY BANK TO COMPENSATE BANK FOR THE ANTICIPATED COSTS AND EXPENSES OF THE
CANCELLATION OR RESCHEDULING.

 

6.7          INSURANCE.  KEEP ITS BUSINESS AND THE COLLATERAL INSURED FOR RISKS
AND IN AMOUNTS STANDARD FOR COMPANIES IN BORROWER’S INDUSTRY AND LOCATION AND AS
BANK MAY REASONABLY REQUEST.  INSURANCE POLICIES SHALL BE IN A FORM, WITH
COMPANIES, AND IN AMOUNTS THAT ARE SATISFACTORY TO BANK.  ALL PROPERTY POLICIES
SHALL HAVE A LOSS PAYABLE ENDORSEMENT SHOWING BANK AS AN ADDITIONAL LOSS PAYEE
AND WAIVE SUBROGATION AGAINST BANK, AND ALL LIABILITY POLICIES SHALL SHOW, OR
HAVE ENDORSEMENTS SHOWING, BANK AS AN ADDITIONAL INSURED.  ALL POLICIES (OR THE
LOSS PAYABLE AND ADDITIONAL INSURED ENDORSEMENTS) SHALL PROVIDE THAT THE INSURER
SHALL ENDEAVOR TO GIVE BANK AT LEAST TWENTY (20) DAYS NOTICE BEFORE CANCELING,
AMENDING, OR DECLINING TO RENEW ITS POLICY.  AT BANK’S REQUEST, BORROWER SHALL
DELIVER CERTIFIED COPIES OF POLICIES AND EVIDENCE OF ALL PREMIUM PAYMENTS. 
PROCEEDS PAYABLE UNDER ANY PROPERTY POLICY SHALL, AT BANK’S OPTION, BE PAYABLE
TO BANK ON ACCOUNT OF THE OBLIGATIONS.  NOTWITHSTANDING THE FOREGOING, (A) SO
LONG AS NO EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, BORROWER SHALL HAVE
THE OPTION OF APPLYING THE PROCEEDS OF ANY CASUALTY POLICY UP TO TWO HUNDRED
FIFTY THOUSAND DOLLARS ($250,000) WITH RESPECT TO ANY LOSS, BUT NOT EXCEEDING
TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) IN THE AGGREGATE FOR ALL LOSSES
UNDER ALL CASUALTY POLICIES IN ANY ONE YEAR, TOWARD THE REPLACEMENT OR REPAIR OF
DESTROYED OR DAMAGED PROPERTY; PROVIDED THAT ANY SUCH REPLACED OR REPAIRED
PROPERTY (I) SHALL BE OF EQUAL OR LIKE VALUE AS THE REPLACED OR REPAIRED
COLLATERAL AND (II) SHALL BE DEEMED

 

10

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COLLATERAL IN WHICH BANK HAS BEEN GRANTED A FIRST PRIORITY SECURITY INTEREST,
AND (B) AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT,
ALL PROCEEDS PAYABLE UNDER SUCH CASUALTY POLICY SHALL, AT THE OPTION OF BANK, BE
PAYABLE TO BANK ON ACCOUNT OF THE OBLIGATIONS.  IF BORROWER FAILS TO OBTAIN
INSURANCE AS REQUIRED UNDER THIS SECTION 6.7 OR TO PAY ANY AMOUNT OR FURNISH ANY
REQUIRED PROOF OF PAYMENT TO THIRD PERSONS AND BANK, BANK MAY MAKE ALL OR PART
OF SUCH PAYMENT OR OBTAIN SUCH INSURANCE POLICIES REQUIRED IN THIS SECTION 6.7,
AND TAKE ANY ACTION UNDER THE POLICIES BANK DEEMS PRUDENT.

 

6.8          OPERATING ACCOUNTS.

 

(A)         SUBJECT TO THE FOLLOWING, MAINTAIN ALL OF ITS OPERATING AND OTHER
DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS WITH BANK AND BANK’S AFFILIATES:

 

                (I)            BORROWER IS PERMITTED TO MAINTAIN THE EXISTING
BANK OF AMERICA, N.A. ACCOUNT NUMBER 0006827055 AND THE EXISTING TD BANK, N.A.
ACCOUNT NUMBER 8242351851 (COLLECTIVELY, THE “BORROWER BANK ACCOUNTS”), PROVIDED
THAT (A) THE CONTROL AGREEMENTS ARE DELIVERED IN ACCORDANCE WITH THE TERMS OF
THE POST-CLOSING LETTER; AND (B) SUCH BORROWER BANK ACCOUNTS SHALL BE CLOSED
WITHIN SIXTY (60) DAYS OF THE EFFECTIVE DATE, AND THE PROCEEDS OF SUCH BORROWER
BANK ACCOUNTS SHALL BE TRANSFERRED FOR DEPOSIT INTO AN ACCOUNT AT BANK.  IN ANY
EVENT, BORROWER SHALL PROMPTLY NOTIFY ITS ACCOUNT DEBTORS TO REMIT PAYMENTS TO
BORROWER’S COLLATERAL ACCOUNT MAINTAINED AT BANK.

 

                (II)           BORROWER IS PERMITTED TO MAINTAIN ITS CERTIFICATE
OF DEPOSIT NUMBER 8731024878 (THE “CD”) AT TD BANK, N.A.; PROVIDED THAT
(X) WITHIN TEN (10) DAYS OF THE EFFECTIVE DATE, BORROWER SHALL DELIVER A CONTROL
AGREEMENT OVER THE COLLATERAL ACCOUNT HOLDING SUCH CD, IN FORM AND SUBSTANCE
ACCEPTABLE TO BANK IN ITS SOLE DISCRETION, SUBORDINATE ONLY TO THE RIGHTS AND
INTERESTS OF TD BANK, N.A. IN SUCH CD; AND (Y) WITHIN THIRTY (30) DAYS OF THE
EFFECTIVE DATE, SUCH CD SHALL EITHER (1) BE TRANSFERRED TO AN ACCOUNT AT BANK OR
BANK’S AFFILIATE (AND IF TRANSFERRED TO BANK’S AFFILIATE, BORROWER WILL EXECUTE
A CONTROL AGREEMENT WITH SUCH BANK AFFILIATE IN FAVOR OF BANK) OR (2) BE
LIQUIDATED, AND THE PROCEEDS THEREFROM SHALL BE DEPOSITED AT AN ACCOUNT WITH
BANK.

 

(B)           PROVIDE BANK FIVE (5) DAYS PRIOR-WRITTEN NOTICE BEFORE
ESTABLISHING ANY COLLATERAL ACCOUNT AT OR WITH ANY BANK OR FINANCIAL INSTITUTION
OTHER THAN BANK OR BANK’S AFFILIATES.  FOR EACH COLLATERAL ACCOUNT THAT BORROWER
AT ANY TIME MAINTAINS, BORROWER SHALL CAUSE THE APPLICABLE BANK OR FINANCIAL
INSTITUTION (OTHER THAN BANK) AT OR WITH WHICH ANY COLLATERAL ACCOUNT IS
MAINTAINED TO EXECUTE AND DELIVER A CONTROL AGREEMENT OR OTHER APPROPRIATE
INSTRUMENT WITH RESPECT TO SUCH COLLATERAL ACCOUNT TO PERFECT BANK’S LIEN IN
SUCH COLLATERAL ACCOUNT IN ACCORDANCE WITH THE TERMS HEREUNDER.  THE PROVISIONS
OF THE PREVIOUS SENTENCE SHALL NOT APPLY TO DEPOSIT ACCOUNTS EXCLUSIVELY USED
FOR PAYROLL, PAYROLL TAXES AND OTHER EMPLOYEE WAGE AND BENEFIT PAYMENTS TO OR
FOR THE BENEFIT OF BORROWER’S EMPLOYEES AND IDENTIFIED TO BANK BY BORROWER AS
SUCH.

 

(C)           NOTWITHSTANDING THE FOREGOING, BORROWER IS PERMITTED TO MAINTAIN
ITS EXISTING DEPOSIT ACCOUNT #5800495 00 LOCATED AT DEUTSCHE BANK – 
ADENAUERPLATZ 1 69115 HEIDELBERG, GERMANY; PROVIDED THAT SUCH DEPOSIT ACCOUNT
SHALL NOT MAINTAIN A BALANCE IN EXCESS OF SEVENTY-FIVE THOUSAND DOLLARS
($75,000) AT ANY TIME OUTSTANDING.

 

6.9          FINANCIAL COVENANTS.

 

Borrower shall maintain at all times, unless otherwise noted:

 

 (a)          Liquidity.  Borrower’s consolidated unrestricted cash and Cash
Equivalents plus Committed Availability of at least Five Hundred Thousand
Dollars ($500,000).

 

(b)           Tangible Net Worth.  Tangible Net Worth tested (i) as of the last
day of each of the first two months of each fiscal quarter of the Borrower,
measured on a consolidated basis, of at least Two Million Five Hundred Thousand
Dollars ($2,500,000); and (ii) as of the last day of the third month of each
fiscal quarter of the Borrower, measured on a consolidated basis, of at least
Three Million Dollars ($3,000,000).

 

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6.10        PROTECTION AND REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. 
BORROWER SHALL: (A) PROTECT, DEFEND AND MAINTAIN THE VALIDITY AND ENFORCEABILITY
OF ITS INTELLECTUAL PROPERTY; (B) PROMPTLY ADVISE BANK IN WRITING OF MATERIAL
INFRINGEMENTS OF ITS INTELLECTUAL PROPERTY; AND (C) NOT ALLOW ANY INTELLECTUAL
PROPERTY MATERIAL TO BORROWER’S BUSINESS TO BE ABANDONED, FORFEITED OR DEDICATED
TO THE PUBLIC WITHOUT BANK’S WRITTEN CONSENT.  IF BORROWER (I) OBTAINS ANY
PATENT, REGISTERED TRADEMARK OR SERVICEMARK, REGISTERED COPYRIGHT, REGISTERED
MASK WORK, OR ANY PENDING APPLICATION FOR ANY OF THE FOREGOING, WHETHER AS
OWNER, LICENSEE OR OTHERWISE, OR (II) APPLIES FOR ANY PATENT OR THE REGISTRATION
OF ANY TRADEMARK OR SERVICEMARK, THEN BORROWER SHALL IMMEDIATELY PROVIDE WRITTEN
NOTICE THEREOF TO BANK AND SHALL EXECUTE SUCH INTELLECTUAL PROPERTY SECURITY
AGREEMENTS AND OTHER DOCUMENTS AND TAKE SUCH OTHER ACTIONS AS BANK SHALL REQUEST
IN ITS GOOD FAITH BUSINESS JUDGMENT TO PERFECT AND MAINTAIN A FIRST PRIORITY
PERFECTED SECURITY INTEREST IN FAVOR OF BANK IN SUCH PROPERTY.  IF BORROWER
DECIDES TO REGISTER ANY COPYRIGHTS OR MASK WORKS IN THE UNITED STATES COPYRIGHT
OFFICE, BORROWER SHALL: (X) PROVIDE BANK WITH AT LEAST FIFTEEN (15) DAYS PRIOR
WRITTEN NOTICE OF BORROWER’S INTENT TO REGISTER SUCH COPYRIGHTS OR MASK WORKS
TOGETHER WITH A COPY OF THE APPLICATION IT INTENDS TO FILE WITH THE UNITED
STATES COPYRIGHT OFFICE (EXCLUDING EXHIBITS THERETO); (Y) EXECUTE AN
INTELLECTUAL PROPERTY SECURITY AGREEMENT AND SUCH OTHER DOCUMENTS AND TAKE SUCH
OTHER ACTIONS AS BANK MAY REQUEST IN ITS GOOD FAITH BUSINESS JUDGMENT TO PERFECT
AND MAINTAIN A FIRST PRIORITY PERFECTED SECURITY INTEREST IN FAVOR OF BANK IN
THE COPYRIGHTS OR MASK WORKS INTENDED TO BE REGISTERED WITH THE UNITED STATES
COPYRIGHT OFFICE; AND (Z) RECORD SUCH INTELLECTUAL PROPERTY SECURITY AGREEMENT
WITH THE UNITED STATES COPYRIGHT OFFICE CONTEMPORANEOUSLY WITH FILING THE
COPYRIGHT OR MASK WORK APPLICATION(S) WITH THE UNITED STATES COPYRIGHT OFFICE. 
BORROWER SHALL PROMPTLY PROVIDE TO BANK COPIES OF ALL APPLICATIONS THAT IT FILES
FOR PATENTS OR FOR THE REGISTRATION OF TRADEMARKS, SERVICEMARKS, COPYRIGHTS OR
MASK WORKS, TOGETHER WITH EVIDENCE OF THE RECORDING OF THE INTELLECTUAL PROPERTY
SECURITY AGREEMENT NECESSARY FOR BANK TO PERFECT AND MAINTAIN A FIRST PRIORITY
PERFECTED SECURITY INTEREST IN SUCH PROPERTY.

 

6.11        LITIGATION COOPERATION.  FROM THE DATE HEREOF AND CONTINUING THROUGH
THE TERMINATION OF THIS AGREEMENT, MAKE AVAILABLE TO BANK, WITHOUT EXPENSE TO
BANK, BORROWER AND ITS OFFICERS, EMPLOYEES AND AGENTS AND BORROWER’S BOOKS, TO
THE EXTENT THAT BANK MAY DEEM THEM REASONABLY NECESSARY TO PROSECUTE OR DEFEND
ANY THIRD-PARTY SUIT OR PROCEEDING INSTITUTED BY OR AGAINST BANK WITH RESPECT TO
ANY COLLATERAL OR RELATING TO BORROWER.

 

6.12        FURTHER ASSURANCES.  EXECUTE ANY FURTHER INSTRUMENTS AND TAKE
FURTHER ACTION AS BANK REASONABLY REQUESTS TO PERFECT OR CONTINUE BANK’S LIEN IN
THE COLLATERAL OR TO EFFECT THE PURPOSES OF THIS AGREEMENT.  DELIVER TO BANK,
WITHIN FIVE (5) DAYS AFTER THE SAME ARE SENT OR RECEIVED, COPIES OF ALL
CORRESPONDENCE, REPORTS, DOCUMENTS AND OTHER FILINGS WITH ANY GOVERNMENTAL
AUTHORITY REGARDING COMPLIANCE WITH OR MAINTENANCE OF GOVERNMENTAL APPROVALS OR
REQUIREMENTS OF LAW OR THAT COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL
EFFECT ON ANY OF THE GOVERNMENTAL APPROVALS OR OTHERWISE ON THE OPERATIONS OF
BORROWER OR ANY OF ITS SUBSIDIARIES.

 

7              NEGATIVE COVENANTS

 

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

 

7.1          DISPOSITIONS.  CONVEY, SELL, LEASE, TRANSFER OR OTHERWISE DISPOSE
OF (COLLECTIVELY, “TRANSFER”), OR PERMIT ANY OF ITS SUBSIDIARIES TO TRANSFER,
ALL OR ANY PART OF ITS BUSINESS OR PROPERTY, EXCEPT FOR TRANSFERS (A) OF
INVENTORY IN THE ORDINARY COURSE OF BUSINESS; (B) OF WORN-OUT OR OBSOLETE
EQUIPMENT; AND (C) IN CONNECTION WITH PERMITTED LIENS AND PERMITTED INVESTMENTS.

 

7.2             CHANGES IN BUSINESS, MANAGEMENT, OWNERSHIP CONTROL, OR BUSINESS
LOCATIONS.  (A) ENGAGE IN OR PERMIT ANY OF ITS SUBSIDIARIES TO ENGAGE IN ANY
BUSINESS OTHER THAN THE BUSINESSES CURRENTLY ENGAGED IN BY BORROWER AND SUCH
SUBSIDIARY, AS APPLICABLE, OR REASONABLY RELATED THERETO; (B) LIQUIDATE OR
DISSOLVE; OR (C) PERMIT OR SUFFER ANY CHANGE IN CONTROL.  BORROWER SHALL NOT,
WITHOUT AT LEAST THIRTY (30) DAYS PRIOR WRITTEN NOTICE TO BANK: (1) ADD ANY NEW
OFFICES OR BUSINESS LOCATIONS, INCLUDING WAREHOUSES (UNLESS SUCH NEW OFFICES OR
BUSINESS LOCATIONS CONTAIN LESS THAN TEN THOUSAND DOLLARS ($10,000) IN
BORROWER’S ASSETS OR PROPERTY), (2) CHANGE ITS JURISDICTION OF ORGANIZATION,
(3) CHANGE ITS ORGANIZATIONAL STRUCTURE OR TYPE, (4) CHANGE ITS LEGAL NAME, OR
(5) CHANGE ANY ORGANIZATIONAL NUMBER (IF ANY) ASSIGNED BY ITS JURISDICTION OF
ORGANIZATION.

 

7.3          MERGERS OR ACQUISITIONS.  MERGE OR CONSOLIDATE, OR PERMIT ANY OF
ITS SUBSIDIARIES TO MERGE OR CONSOLIDATE, WITH ANY OTHER PERSON, OR ACQUIRE, OR
PERMIT ANY OF ITS SUBSIDIARIES TO ACQUIRE, ALL OR SUBSTANTIALLY ALL OF THE
CAPITAL STOCK OR PROPERTY OF ANOTHER PERSON.  A SUBSIDIARY MAY MERGE OR
CONSOLIDATE INTO ANOTHER SUBSIDIARY OR INTO BORROWER.

 

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7.4          INDEBTEDNESS.  CREATE, INCUR, ASSUME, OR BE LIABLE FOR ANY
INDEBTEDNESS, OR PERMIT ANY SUBSIDIARY TO DO SO, OTHER THAN PERMITTED
INDEBTEDNESS.

 

7.5          ENCUMBRANCE.  CREATE, INCUR, ALLOW, OR SUFFER ANY LIEN ON ANY OF
ITS PROPERTY, OR ASSIGN OR CONVEY ANY RIGHT TO RECEIVE INCOME, INCLUDING THE
SALE OF ANY ACCOUNTS, OR PERMIT ANY OF ITS SUBSIDIARIES TO DO SO, EXCEPT FOR
PERMITTED LIENS, PERMIT ANY COLLATERAL NOT TO BE SUBJECT TO THE FIRST PRIORITY
SECURITY INTEREST GRANTED HEREIN, OR ENTER INTO ANY AGREEMENT, DOCUMENT,
INSTRUMENT OR OTHER ARRANGEMENT (EXCEPT WITH OR IN FAVOR OF BANK) WITH ANY
PERSON WHICH DIRECTLY OR INDIRECTLY PROHIBITS OR HAS THE EFFECT OF PROHIBITING
BORROWER OR ANY SUBSIDIARY FROM ASSIGNING, MORTGAGING, PLEDGING, GRANTING A
SECURITY INTEREST IN OR UPON, OR ENCUMBERING ANY OF BORROWER’S OR ANY
SUBSIDIARY’S INTELLECTUAL PROPERTY, EXCEPT AS IS OTHERWISE PERMITTED IN
SECTION 7.1 HEREOF AND THE DEFINITION OF “PERMITTED LIEN” HEREIN.

 

7.6          MAINTENANCE OF COLLATERAL ACCOUNTS.  MAINTAIN ANY COLLATERAL
ACCOUNT EXCEPT PURSUANT TO THE TERMS OF SECTION 6.8 HEREOF.

 

7.7          DISTRIBUTIONS; INVESTMENTS.  (A) PAY ANY DIVIDENDS OR MAKE ANY
DISTRIBUTION OR PAYMENT OR REDEEM, RETIRE OR PURCHASE ANY CAPITAL STOCK PROVIDED
THAT (I) BORROWER MAY CONVERT ANY OF ITS CONVERTIBLE SECURITIES INTO OTHER
SECURITIES PURSUANT TO THE TERMS OF SUCH CONVERTIBLE SECURITIES OR OTHERWISE IN
EXCHANGE THEREOF, (II) BORROWER MAY PAY DIVIDENDS SOLELY IN COMMON STOCK; AND
(III) BORROWER MAY REPURCHASE THE STOCK OF FORMER EMPLOYEES OR CONSULTANTS
PURSUANT TO STOCK REPURCHASE AGREEMENTS SO LONG AS AN EVENT OF DEFAULT DOES NOT
EXIST AT THE TIME OF SUCH REPURCHASE AND WOULD NOT EXIST AFTER GIVING EFFECT TO
SUCH REPURCHASE, PROVIDED SUCH REPURCHASE DOES NOT EXCEED IN THE AGGREGATE OF
FIFTY THOUSAND DOLLARS ($50,000) PER FISCAL YEAR; OR (B) DIRECTLY OR INDIRECTLY
MAKE ANY INVESTMENT OTHER THAN PERMITTED INVESTMENTS, OR PERMIT ANY OF ITS
SUBSIDIARIES TO DO SO.

 

7.8          TRANSACTIONS WITH AFFILIATES.  DIRECTLY OR INDIRECTLY ENTER INTO OR
PERMIT TO EXIST ANY MATERIAL TRANSACTION WITH ANY AFFILIATE OF BORROWER, EXCEPT
FOR TRANSACTIONS THAT ARE IN THE ORDINARY COURSE OF BORROWER’S BUSINESS, UPON
FAIR AND REASONABLE TERMS THAT ARE NO LESS FAVORABLE TO BORROWER THAN WOULD BE
OBTAINED IN AN ARM’S LENGTH TRANSACTION WITH A NON-AFFILIATED PERSON.

 

7.9          SUBORDINATED DEBT.  (A) MAKE OR PERMIT ANY PAYMENT ON ANY
SUBORDINATED DEBT, EXCEPT UNDER THE TERMS OF THE SUBORDINATION, INTERCREDITOR,
OR OTHER SIMILAR AGREEMENT TO WHICH SUCH SUBORDINATED DEBT IS SUBJECT, OR
(B) AMEND ANY PROVISION IN ANY DOCUMENT RELATING TO THE SUBORDINATED DEBT WHICH
WOULD INCREASE THE AMOUNT THEREOF OR ADVERSELY AFFECT THE SUBORDINATION THEREOF
TO OBLIGATIONS OWED TO BANK.

 

7.10        COMPLIANCE.  BECOME AN “INVESTMENT COMPANY” OR A COMPANY CONTROLLED
BY AN “INVESTMENT COMPANY”, UNDER THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED, OR UNDERTAKE AS ONE OF ITS IMPORTANT ACTIVITIES EXTENDING CREDIT TO
PURCHASE OR CARRY MARGIN STOCK (AS DEFINED IN REGULATION U OF THE BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM), OR USE THE PROCEEDS OF ANY CREDIT
EXTENSION FOR THAT PURPOSE; FAIL TO MEET THE MINIMUM FUNDING REQUIREMENTS OF
ERISA, PERMIT A REPORTABLE EVENT OR NON-EXEMPT PROHIBITED TRANSACTION, AS
DEFINED IN ERISA, TO OCCUR; FAIL TO COMPLY WITH THE FEDERAL FAIR LABOR STANDARDS
ACT OR VIOLATE ANY OTHER LAW OR REGULATION, IF THE VIOLATION COULD REASONABLY BE
EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON BORROWER’S BUSINESS, OR PERMIT ANY
OF ITS SUBSIDIARIES TO DO SO; WITHDRAW OR PERMIT ANY SUBSIDIARY TO WITHDRAW FROM
PARTICIPATION IN, PERMIT PARTIAL OR COMPLETE TERMINATION OF, OR PERMIT THE
OCCURRENCE OF ANY OTHER EVENT WITH RESPECT TO, ANY PRESENT PENSION, PROFIT
SHARING AND DEFERRED COMPENSATION PLAN WHICH COULD REASONABLY BE EXPECTED TO
RESULT IN ANY LIABILITY OF BORROWER, INCLUDING ANY LIABILITY TO THE PENSION
BENEFIT GUARANTY CORPORATION OR ITS SUCCESSORS OR ANY OTHER GOVERNMENTAL AGENCY.

 

8             EVENTS OF DEFAULT

 

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

 

8.1          PAYMENT DEFAULT.  BORROWER FAILS TO (A) MAKE ANY PAYMENT OF
PRINCIPAL OR INTEREST ON ANY CREDIT EXTENSION ON ITS DUE DATE, OR (B) PAY ANY
OTHER OBLIGATIONS WITHIN THREE (3) DAYS AFTER SUCH OBLIGATIONS ARE DUE AND
PAYABLE (WHICH THREE (3) DAY GRACE PERIOD SHALL NOT APPLY TO PAYMENTS DUE ON THE
REVOLVING LINE MATURITY DATE).  DURING THE CURE PERIOD, THE FAILURE TO CURE THE
PAYMENT DEFAULT IS NOT AN EVENT OF DEFAULT (BUT NO CREDIT EXTENSION WILL BE MADE
DURING THE CURE PERIOD);

 

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8.2          COVENANT DEFAULT.

 

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5,
6.7, 6.8, 6.9, 6.12, or violates any covenant in Section 7; or

 

(B) BORROWER FAILS OR NEGLECTS TO PERFORM, KEEP, OR OBSERVE ANY OTHER TERM,
PROVISION, CONDITION, COVENANT OR AGREEMENT CONTAINED IN THIS AGREEMENT OR ANY
LOAN DOCUMENTS, AND AS TO ANY DEFAULT (OTHER THAN THOSE SPECIFIED IN THIS
SECTION 8) UNDER SUCH OTHER TERM, PROVISION, CONDITION, COVENANT OR AGREEMENT
THAT CAN BE CURED, HAS FAILED TO CURE THE DEFAULT WITHIN TEN (10) DAYS AFTER THE
OCCURRENCE THEREOF; PROVIDED, HOWEVER, THAT IF THE DEFAULT CANNOT BY ITS NATURE
BE CURED WITHIN THE TEN (10) DAY PERIOD OR CANNOT AFTER DILIGENT ATTEMPTS BY
BORROWER BE CURED WITHIN SUCH TEN (10) DAY PERIOD, AND SUCH DEFAULT IS LIKELY TO
BE CURED WITHIN A REASONABLE TIME, THEN BORROWER SHALL HAVE AN ADDITIONAL PERIOD
(WHICH SHALL NOT IN ANY CASE EXCEED THIRTY (30) DAYS) TO ATTEMPT TO CURE SUCH
DEFAULT, AND WITHIN SUCH REASONABLE TIME PERIOD THE FAILURE TO CURE THE DEFAULT
SHALL NOT BE DEEMED AN EVENT OF DEFAULT (BUT NO CREDIT EXTENSIONS SHALL BE MADE
DURING SUCH CURE PERIOD).  GRACE PERIODS PROVIDED UNDER THIS SECTION SHALL NOT
APPLY, AMONG OTHER THINGS, TO FINANCIAL COVENANTS OR ANY OTHER COVENANTS SET
FORTH IN SUBSECTION (A) ABOVE;

 

8.3          MATERIAL ADVERSE CHANGE.  A MATERIAL ADVERSE CHANGE OCCURS;

 

8.4          ATTACHMENT; LEVY; RESTRAINT ON BUSINESS.  (A) (I) THE SERVICE OF
PROCESS SEEKING TO ATTACH, BY TRUSTEE OR SIMILAR PROCESS, ANY FUNDS OF BORROWER
OR OF ANY ENTITY UNDER CONTROL OF BORROWER (INCLUDING A SUBSIDIARY) ON DEPOSIT
WITH BANK OR ANY BANK AFFILIATE, OR (II) A NOTICE OF LIEN, LEVY, OR ASSESSMENT
IS FILED AGAINST ANY OF BORROWER’S ASSETS BY ANY GOVERNMENT AGENCY, AND THE SAME
UNDER SUBCLAUSES (I) AND (II) HEREOF ARE NOT, WITHIN TEN (10) DAYS AFTER THE
OCCURRENCE THEREOF, DISCHARGED OR STAYED (WHETHER THROUGH THE POSTING OF A BOND
OR OTHERWISE); PROVIDED, HOWEVER, NO CREDIT EXTENSIONS SHALL BE MADE DURING ANY
TEN (10) DAY CURE PERIOD; AND (B) (I) ANY MATERIAL PORTION OF BORROWER’S ASSETS
IS ATTACHED, SEIZED, LEVIED ON, OR COMES INTO POSSESSION OF A TRUSTEE OR
RECEIVER, OR (II) ANY COURT ORDER ENJOINS, RESTRAINS, OR PREVENTS BORROWER FROM
CONDUCTING ANY PART OF ITS BUSINESS;

 

8.5          INSOLVENCY.  (A) BORROWER IS UNABLE TO PAY ITS DEBTS (INCLUDING
TRADE DEBTS) AS THEY BECOME DUE OR OTHERWISE BECOMES INSOLVENT; (B) BORROWER
BEGINS AN INSOLVENCY PROCEEDING; OR (C) AN INSOLVENCY PROCEEDING IS BEGUN
AGAINST BORROWER AND NOT DISMISSED OR STAYED WITHIN FORTY-FIVE (45) DAYS (BUT NO
CREDIT EXTENSIONS SHALL BE MADE WHILE OF ANY OF THE CONDITIONS DESCRIBED IN
CLAUSE (A) EXIST AND/OR UNTIL ANY INSOLVENCY PROCEEDING IS DISMISSED);

 

8.6          OTHER AGREEMENTS.  THERE IS A DEFAULT IN ANY AGREEMENT TO WHICH
BORROWER OR ANY GUARANTOR IS A PARTY WITH A THIRD PARTY OR PARTIES RESULTING IN
A RIGHT BY SUCH THIRD PARTY OR PARTIES, WHETHER OR NOT EXERCISED, TO ACCELERATE
THE MATURITY OF ANY INDEBTEDNESS IN AN AMOUNT IN EXCESS OF FIFTY THOUSAND
DOLLARS ($50,000) OR THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON BORROWER’S OR
ANY GUARANTOR’S BUSINESS;

 

8.7          JUDGMENTS.  ONE OR MORE JUDGMENTS, ORDERS, OR DECREES FOR THE
PAYMENT OF MONEY IN AN AMOUNT, INDIVIDUALLY OR IN THE AGGREGATE, OF AT LEAST
FIFTY THOUSAND DOLLARS ($50,000) (NOT COVERED BY INDEPENDENT THIRD-PARTY
INSURANCE AS TO WHICH LIABILITY HAS BEEN ACCEPTED BY SUCH INSURANCE CARRIER)
SHALL BE RENDERED AGAINST BORROWER AND SHALL REMAIN UNSATISFIED, UNVACATED, OR
UNSTAYED FOR A PERIOD OF TEN (10) DAYS AFTER THE ENTRY THEREOF (PROVIDED THAT NO
CREDIT EXTENSIONS WILL BE MADE PRIOR TO THE SATISFACTION, VACATION, OR STAY OF
SUCH JUDGMENT, ORDER, OR DECREE);

 

8.8          MISREPRESENTATIONS.  BORROWER OR ANY PERSON ACTING FOR BORROWER
MAKES ANY REPRESENTATION, WARRANTY, OR OTHER STATEMENT NOW OR LATER IN THIS
AGREEMENT, ANY LOAN DOCUMENT OR IN ANY WRITING DELIVERED TO BANK OR TO INDUCE
BANK TO ENTER THIS AGREEMENT OR ANY LOAN DOCUMENT, AND SUCH REPRESENTATION,
WARRANTY, OR OTHER STATEMENT IS INCORRECT IN ANY MATERIAL RESPECT WHEN MADE;

 

8.9          SUBORDINATED DEBT.  A DEFAULT OR BREACH OCCURS UNDER ANY AGREEMENT
BETWEEN BORROWER AND ANY CREDITOR OF BORROWER THAT SIGNED A SUBORDINATION,
INTERCREDITOR, OR OTHER SIMILAR AGREEMENT WITH BANK, OR ANY CREDITOR THAT HAS
SIGNED SUCH AN AGREEMENT WITH BANK BREACHES ANY TERMS OF SUCH AGREEMENT; OR

 

8.10        GOVERNMENTAL APPROVALS.  ANY GOVERNMENTAL APPROVAL SHALL HAVE BEEN
(A) REVOKED, RESCINDED, SUSPENDED, MODIFIED IN AN ADVERSE MANNER OR NOT RENEWED
IN THE ORDINARY COURSE FOR A FULL TERM OR (B) SUBJECT TO ANY DECISION BY A
GOVERNMENTAL AUTHORITY THAT DESIGNATES A HEARING WITH RESPECT TO ANY
APPLICATIONS FOR RENEWAL OF ANY OF SUCH GOVERNMENTAL APPROVAL OR THAT COULD
RESULT IN THE GOVERNMENTAL AUTHORITY TAKING ANY OF THE ACTIONS DESCRIBED IN
CLAUSE (A) ABOVE, AND SUCH DECISION OR SUCH REVOCATION, RESCISSION, SUSPENSION,
MODIFICATION OR NON-RENEWAL

 

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(I) HAS, OR COULD REASONABLY BE EXPECTED TO HAVE, A MATERIAL ADVERSE CHANGE, OR
(II) ADVERSELY AFFECTS THE LEGAL QUALIFICATIONS OF BORROWER OR ANY OF ITS
SUBSIDIARIES TO HOLD SUCH GOVERNMENTAL APPROVAL IN ANY APPLICABLE JURISDICTION
AND SUCH REVOCATION, RESCISSION, SUSPENSION, MODIFICATION OR NON-RENEWAL COULD
REASONABLY BE EXPECTED TO AFFECT THE STATUS OF OR LEGAL QUALIFICATIONS OF
BORROWER OR ANY OF ITS SUBSIDIARIES TO HOLD ANY GOVERNMENTAL APPROVAL IN ANY
OTHER JURISDICTION.

 

9             BANK’S RIGHTS AND REMEDIES

 

9.1          RIGHTS AND REMEDIES.  WHILE AN EVENT OF DEFAULT OCCURS AND
CONTINUES BANK MAY, WITHOUT NOTICE OR DEMAND, DO ANY OR ALL OF THE FOLLOWING:

 

(A)           DECLARE ALL OBLIGATIONS IMMEDIATELY DUE AND PAYABLE (BUT IF AN
EVENT OF DEFAULT DESCRIBED IN SECTION 8.5 OCCURS ALL OBLIGATIONS ARE IMMEDIATELY
DUE AND PAYABLE WITHOUT ANY ACTION BY BANK);

 

(B)           STOP ADVANCING MONEY OR EXTENDING CREDIT FOR BORROWER’S BENEFIT
UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT BETWEEN BORROWER AND BANK;

 

(C)           DEMAND THAT BORROWER (I) DEPOSITS CASH WITH BANK IN AN AMOUNT
EQUAL TO THE AGGREGATE AMOUNT OF ANY LETTERS OF CREDIT REMAINING UNDRAWN, AS
COLLATERAL SECURITY FOR THE REPAYMENT OF ANY FUTURE DRAWINGS UNDER SUCH LETTERS
OF CREDIT, AND BORROWER SHALL FORTHWITH DEPOSIT AND PAY SUCH AMOUNTS, AND
(II) PAY IN ADVANCE ALL LETTER OF CREDIT FEES SCHEDULED TO BE PAID OR PAYABLE
OVER THE REMAINING TERM OF ANY LETTERS OF CREDIT;

 

(D)           TERMINATE ANY FX FORWARD CONTRACTS;

 

(E)           SETTLE OR ADJUST DISPUTES AND CLAIMS DIRECTLY WITH ACCOUNT DEBTORS
FOR AMOUNTS ON TERMS AND IN ANY ORDER THAT BANK CONSIDERS ADVISABLE, NOTIFY ANY
PERSON OWING BORROWER MONEY OF BANK’S SECURITY INTEREST IN SUCH FUNDS, AND
VERIFY THE AMOUNT OF SUCH ACCOUNT;

 

(F)            MAKE ANY PAYMENTS AND DO ANY ACTS IT CONSIDERS NECESSARY OR
REASONABLE TO PROTECT THE COLLATERAL AND/OR ITS SECURITY INTEREST IN THE
COLLATERAL.  BORROWER SHALL ASSEMBLE THE COLLATERAL IF BANK REQUESTS AND MAKE IT
AVAILABLE AS BANK DESIGNATES.  BANK MAY ENTER PREMISES WHERE THE COLLATERAL IS
LOCATED, TAKE AND MAINTAIN POSSESSION OF ANY PART OF THE COLLATERAL, AND PAY,
PURCHASE, CONTEST, OR COMPROMISE ANY LIEN WHICH APPEARS TO BE PRIOR OR SUPERIOR
TO ITS SECURITY INTEREST AND PAY ALL EXPENSES INCURRED. BORROWER GRANTS BANK A
LICENSE TO ENTER AND OCCUPY ANY OF ITS PREMISES, WITHOUT CHARGE, TO EXERCISE ANY
OF BANK’S RIGHTS OR REMEDIES;

 

(G)           APPLY TO THE OBLIGATIONS ANY (I) BALANCES AND DEPOSITS OF BORROWER
IT HOLDS, OR (II) ANY AMOUNT HELD BY BANK OWING TO OR FOR THE CREDIT OR THE
ACCOUNT OF BORROWER;

 

(H)           SHIP, RECLAIM, RECOVER, STORE, FINISH, MAINTAIN, REPAIR, PREPARE
FOR SALE, ADVERTISE FOR SALE, AND SELL THE COLLATERAL.  BANK IS HEREBY GRANTED A
NON-EXCLUSIVE, ROYALTY-FREE LICENSE OR OTHER RIGHT TO USE, WITHOUT CHARGE,
BORROWER’S LABELS, PATENTS, COPYRIGHTS, MASK WORKS, RIGHTS OF USE OF ANY NAME,
TRADE SECRETS, TRADE NAMES, TRADEMARKS, SERVICE MARKS, AND ADVERTISING MATTER,
OR ANY SIMILAR PROPERTY AS IT PERTAINS TO THE COLLATERAL, IN COMPLETING
PRODUCTION OF, ADVERTISING FOR SALE, AND SELLING ANY COLLATERAL AND, IN
CONNECTION WITH BANK’S EXERCISE OF ITS RIGHTS UNDER THIS SECTION, BORROWER’S
RIGHTS UNDER ALL LICENSES AND ALL FRANCHISE AGREEMENTS INURE TO BANK’S BENEFIT;

 

(I)            PLACE A “HOLD” ON ANY ACCOUNT MAINTAINED WITH BANK AND/OR DELIVER
A NOTICE OF EXCLUSIVE CONTROL, ANY ENTITLEMENT ORDER, OR OTHER DIRECTIONS OR
INSTRUCTIONS PURSUANT TO ANY CONTROL AGREEMENT OR SIMILAR AGREEMENTS PROVIDING
CONTROL OF ANY COLLATERAL;

 

(J)            DEMAND AND RECEIVE POSSESSION OF BORROWER’S BOOKS; AND

 

(K)           EXERCISE ALL RIGHTS AND REMEDIES AVAILABLE TO BANK UNDER THE LOAN
DOCUMENTS OR AT LAW OR EQUITY, INCLUDING ALL REMEDIES PROVIDED UNDER THE CODE
(INCLUDING DISPOSAL OF THE COLLATERAL PURSUANT TO THE TERMS THEREOF).

 

9.2          POWER OF ATTORNEY.  BORROWER HEREBY IRREVOCABLY APPOINTS BANK AS
ITS LAWFUL ATTORNEY-IN-FACT, EXERCISABLE UPON THE OCCURRENCE AND DURING THE
CONTINUANCE OF AN EVENT OF DEFAULT, TO:  (A) ENDORSE BORROWER’S

 

15

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NAME ON ANY CHECKS OR OTHER FORMS OF PAYMENT OR SECURITY; (B) SIGN BORROWER’S
NAME ON ANY INVOICE OR BILL OF LADING FOR ANY ACCOUNT OR DRAFTS AGAINST ACCOUNT
DEBTORS; (C) SETTLE AND ADJUST DISPUTES AND CLAIMS ABOUT THE ACCOUNTS DIRECTLY
WITH ACCOUNT DEBTORS, FOR AMOUNTS AND ON TERMS BANK DETERMINES REASONABLE;
(D) MAKE, SETTLE, AND ADJUST ALL CLAIMS UNDER BORROWER’S INSURANCE POLICIES;
(E) PAY, CONTEST OR SETTLE ANY LIEN, CHARGE, ENCUMBRANCE, SECURITY INTEREST, AND
ADVERSE CLAIM IN OR TO THE COLLATERAL, OR ANY JUDGMENT BASED THEREON, OR
OTHERWISE TAKE ANY ACTION TO TERMINATE OR DISCHARGE THE SAME; AND (F) TRANSFER
THE COLLATERAL INTO THE NAME OF BANK OR A THIRD PARTY AS THE CODE PERMITS. 
BORROWER HEREBY APPOINTS BANK AS ITS LAWFUL ATTORNEY-IN-FACT TO SIGN BORROWER’S
NAME ON ANY DOCUMENTS NECESSARY TO PERFECT OR CONTINUE THE PERFECTION OF BANK’S
SECURITY INTEREST IN THE COLLATERAL REGARDLESS OF WHETHER AN EVENT OF DEFAULT
HAS OCCURRED UNTIL ALL OBLIGATIONS HAVE BEEN SATISFIED IN FULL AND BANK IS UNDER
NO FURTHER OBLIGATION TO MAKE CREDIT EXTENSIONS HEREUNDER.  BANK’S FOREGOING
APPOINTMENT AS BORROWER’S ATTORNEY IN FACT, AND ALL OF BANK’S RIGHTS AND POWERS,
COUPLED WITH AN INTEREST, ARE IRREVOCABLE UNTIL ALL OBLIGATIONS HAVE BEEN FULLY
REPAID AND PERFORMED AND BANK’S OBLIGATION TO PROVIDE CREDIT EXTENSIONS
TERMINATES.

 

9.3          PROTECTIVE PAYMENTS.  IF BORROWER FAILS TO OBTAIN THE INSURANCE
CALLED FOR BY SECTION 6.7 OR FAILS TO PAY ANY PREMIUM THEREON OR FAILS TO PAY
ANY OTHER AMOUNT WHICH BORROWER IS OBLIGATED TO PAY UNDER THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, BANK MAY OBTAIN SUCH INSURANCE OR MAKE SUCH PAYMENT, AND
ALL AMOUNTS SO PAID BY BANK ARE BANK EXPENSES AND IMMEDIATELY DUE AND PAYABLE,
BEARING INTEREST AT THE THEN HIGHEST APPLICABLE RATE, AND SECURED BY THE
COLLATERAL.  BANK WILL MAKE REASONABLE EFFORTS TO PROVIDE BORROWER WITH NOTICE
OF BANK OBTAINING SUCH INSURANCE AT THE TIME IT IS OBTAINED OR WITHIN A
REASONABLE TIME THEREAFTER.  NO PAYMENTS BY BANK ARE DEEMED AN AGREEMENT TO MAKE
SIMILAR PAYMENTS IN THE FUTURE OR BANK’S WAIVER OF ANY EVENT OF DEFAULT.

 

9.4          APPLICATION OF PAYMENTS AND PROCEEDS.  BORROWER SHALL HAVE NO RIGHT
TO SPECIFY THE ORDER OR THE ACCOUNTS TO WHICH BANK SHALL ALLOCATE OR APPLY ANY
PAYMENTS REQUIRED TO BE MADE BY BORROWER TO BANK OR OTHERWISE RECEIVED BY BANK
UNDER THIS AGREEMENT WHEN ANY SUCH ALLOCATION OR APPLICATION IS NOT SPECIFIED
ELSEWHERE IN THIS AGREEMENT.  IF AN EVENT OF DEFAULT HAS OCCURRED AND IS
CONTINUING, BANK MAY APPLY ANY FUNDS IN ITS POSSESSION, WHETHER FROM BORROWER
ACCOUNT BALANCES, PAYMENTS, PROCEEDS REALIZED AS THE RESULT OF ANY COLLECTION OF
ACCOUNTS OR OTHER DISPOSITION OF THE COLLATERAL, OR OTHERWISE, TO THE
OBLIGATIONS IN SUCH ORDER AS BANK SHALL DETERMINE IN ITS SOLE DISCRETION.  ANY
SURPLUS SHALL BE PAID TO BORROWER BY CREDIT TO THE DESIGNATED DEPOSIT ACCOUNT OR
TO OTHER PERSONS LEGALLY ENTITLED THERETO; BORROWER SHALL REMAIN LIABLE TO BANK
FOR ANY DEFICIENCY.  IF BANK, IN ITS GOOD FAITH BUSINESS JUDGMENT, DIRECTLY OR
INDIRECTLY ENTERS INTO A DEFERRED PAYMENT OR OTHER CREDIT TRANSACTION WITH ANY
PURCHASER AT ANY SALE OF COLLATERAL, BANK SHALL HAVE THE OPTION, EXERCISABLE AT
ANY TIME, OF EITHER REDUCING THE OBLIGATIONS BY THE PRINCIPAL AMOUNT OF THE
PURCHASE PRICE OR DEFERRING THE REDUCTION OF THE OBLIGATIONS UNTIL THE ACTUAL
RECEIPT BY BANK OF CASH THEREFOR.

 

9.5          BANK’S LIABILITY FOR COLLATERAL.  SO LONG AS BANK COMPLIES WITH
REASONABLE BANKING PRACTICES REGARDING THE SAFEKEEPING OF THE COLLATERAL IN THE
POSSESSION OR UNDER THE CONTROL OF BANK, BANK SHALL NOT BE LIABLE OR RESPONSIBLE
FOR: (A) THE SAFEKEEPING OF THE COLLATERAL; (B) ANY LOSS OR DAMAGE TO THE
COLLATERAL; (C) ANY DIMINUTION IN THE VALUE OF THE COLLATERAL; OR (D) ANY ACT OR
DEFAULT OF ANY CARRIER, WAREHOUSEMAN, BAILEE, OR OTHER PERSON.  BORROWER BEARS
ALL RISK OF LOSS, DAMAGE OR DESTRUCTION OF THE COLLATERAL.

 

9.6          NO WAIVER; REMEDIES CUMULATIVE.  BANK’S FAILURE, AT ANY TIME OR
TIMES, TO REQUIRE STRICT PERFORMANCE BY BORROWER OF ANY PROVISION OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL NOT WAIVE, AFFECT, OR DIMINISH ANY
RIGHT OF BANK THEREAFTER TO DEMAND STRICT PERFORMANCE AND COMPLIANCE HEREWITH OR
THEREWITH.  NO WAIVER HEREUNDER SHALL BE EFFECTIVE UNLESS SIGNED BY BANK AND
THEN IS ONLY EFFECTIVE FOR THE SPECIFIC INSTANCE AND PURPOSE FOR WHICH IT IS
GIVEN.  BANK’S RIGHTS AND REMEDIES UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS ARE CUMULATIVE.  BANK HAS ALL RIGHTS AND REMEDIES PROVIDED UNDER THE
CODE, BY LAW, OR IN EQUITY.  BANK’S EXERCISE OF ONE RIGHT OR REMEDY IS NOT AN
ELECTION, AND BANK’S WAIVER OF ANY EVENT OF DEFAULT IS NOT A CONTINUING WAIVER. 
BANK’S DELAY IN EXERCISING ANY REMEDY IS NOT A WAIVER, ELECTION, OR
ACQUIESCENCE.

 

9.7          DEMAND WAIVER.  BORROWER WAIVES DEMAND, NOTICE OF DEFAULT OR
DISHONOR, NOTICE OF PAYMENT AND NONPAYMENT, NOTICE OF ANY DEFAULT, NONPAYMENT AT
MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION, OR RENEWAL OF ACCOUNTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND GUARANTEES HELD BY BANK ON WHICH
BORROWER IS LIABLE.

 

10           NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by
any party to this Agreement or any other Loan Document must be in writing and
shall be deemed to have been validly served, given, or delivered: (a) upon the
earlier of actual receipt and three (3) Business Days after deposit in the U.S.
mail, first

 

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class, registered or certified mail return receipt requested, with proper
postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below.  Bank or Borrower may change its mailing or electronic mail address or
facsimile number by giving the other party written notice thereof in accordance
with the terms of this Section 10.

 

If to Borrower:

 

Microfluidics International Corporation

 

 

30 Ossipee Road

 

 

Newton, Massachusetts 02464

 

 

Attn: Brian LeClair, Executive Vice President and CFO

 

 

Fax:                                                

 

 

Email:                                            

 

 

 

With a copy to:

 

McCarter & English, LLP

 

 

265 Franklin Street

 

 

Boston, Massachusetts 02110

 

 

Attn: Jeffrey M. Stoler, Esquire

 

 

Fax:                                                 

 

 

Email:                                              

 

 

 

If to Bank:

 

Silicon Valley Bank

 

 

One Newton Executive Park, Suite 200

 

 

2221 Washington Street

 

 

Newton, Massachusetts 02462

 

 

Attn: Michael Tramack

 

 

Fax: 617.969.5962

 

 

Email: mtramack@svb.com

 

 

 

With a copy to:

 

Riemer & Braunstein LLP

 

 

Three Center Plaza

 

 

Boston, Massachusetts 02108

 

 

Attn: Charles W. Stavros, Esquire

 

 

Fax: 617-692-3441

 

 

Email: cstavros@riemerlaw.com

 

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

 

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

 

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE
THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY

 

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CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12           GENERAL PROVISIONS

 

12.1        SUCCESSORS AND ASSIGNS.  THIS AGREEMENT BINDS AND IS FOR THE BENEFIT
OF THE SUCCESSORS AND PERMITTED ASSIGNS OF EACH PARTY.  BORROWER MAY NOT ASSIGN
THIS AGREEMENT OR ANY RIGHTS OR OBLIGATIONS UNDER IT WITHOUT BANK’S PRIOR
WRITTEN CONSENT (WHICH MAY BE GRANTED OR WITHHELD IN BANK’S DISCRETION).  BANK
HAS THE RIGHT, WITHOUT THE CONSENT OF OR NOTICE TO BORROWER, TO SELL, TRANSFER,
NEGOTIATE, OR GRANT PARTICIPATION IN ALL OR ANY PART OF, OR ANY INTEREST IN,
BANK’S OBLIGATIONS, RIGHTS, AND BENEFITS UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

 

12.2        INDEMNIFICATION.  BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD BANK
AND ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS, OR ANY OTHER PERSON
AFFILIATED WITH OR REPRESENTING BANK (EACH, AN “INDEMNIFIED PERSON”) HARMLESS
AGAINST:  (A) ALL OBLIGATIONS, DEMANDS, CLAIMS, AND LIABILITIES (COLLECTIVELY,
“CLAIMS”) ASSERTED BY ANY OTHER PARTY IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS; AND (B) ALL LOSSES OR BANK EXPENSES
INCURRED, OR PAID BY SUCH INDEMNIFIED PERSON FROM, FOLLOWING, OR ARISING FROM
TRANSACTIONS BETWEEN BANK AND BORROWER (INCLUDING REASONABLE ATTORNEYS’ FEES AND
EXPENSES), EXCEPT FOR CLAIMS AND/OR LOSSES DIRECTLY CAUSED BY SUCH INDEMNIFIED
PERSON’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

12.3        TIME OF ESSENCE.  TIME IS OF THE ESSENCE FOR THE PERFORMANCE OF ALL
OBLIGATIONS IN THIS AGREEMENT.

 

12.4        SEVERABILITY OF PROVISIONS.  EACH PROVISION OF THIS AGREEMENT IS
SEVERABLE FROM EVERY OTHER PROVISION IN DETERMINING THE ENFORCEABILITY OF ANY
PROVISION.

 

12.5        CORRECTION OF LOAN DOCUMENTS.  BANK MAY CORRECT PATENT ERRORS AND
FILL IN ANY BLANKS IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSISTENT
WITH THE AGREEMENT OF THE PARTIES.

 

12.6        AMENDMENTS IN WRITING; INTEGRATION.  ALL AMENDMENTS TO THIS
AGREEMENT MUST BE IN WRITING AND SIGNED BY BOTH BANK AND BORROWER.  THIS
AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE ENTIRE AGREEMENT ABOUT THIS
SUBJECT MATTER AND SUPERSEDE PRIOR NEGOTIATIONS OR AGREEMENTS.  ALL PRIOR
AGREEMENTS, UNDERSTANDINGS, REPRESENTATIONS, WARRANTIES, AND NEGOTIATIONS
BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF THIS AGREEMENT AND THE LOAN
DOCUMENTS MERGE INTO THIS AGREEMENT AND THE LOAN DOCUMENTS.

 

12.7        COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF
COUNTERPARTS AND BY DIFFERENT PARTIES ON SEPARATE COUNTERPARTS, EACH OF WHICH,
WHEN EXECUTED AND DELIVERED, ARE AN ORIGINAL, AND ALL TAKEN TOGETHER, CONSTITUTE
ONE AGREEMENT.

 

12.8        SURVIVAL.  ALL COVENANTS, REPRESENTATIONS AND WARRANTIES MADE IN
THIS AGREEMENT CONTINUE IN FULL FORCE UNTIL THIS AGREEMENT HAS TERMINATED
PURSUANT TO ITS TERMS AND ALL OBLIGATIONS (OTHER THAN INCHOATE INDEMNITY
OBLIGATIONS AND ANY OTHER OBLIGATIONS WHICH, BY THEIR TERMS, ARE TO SURVIVE THE
TERMINATION OF THIS AGREEMENT) HAVE BEEN SATISFIED.  THE OBLIGATION OF BORROWER
IN SECTION 12.2 TO INDEMNIFY BANK SHALL SURVIVE UNTIL THE STATUTE OF LIMITATIONS
WITH RESPECT TO SUCH CLAIM OR CAUSE OF ACTION SHALL HAVE RUN.

 

12.9        CONFIDENTIALITY.  IN HANDLING ANY CONFIDENTIAL INFORMATION, BANK
SHALL EXERCISE THE SAME DEGREE OF CARE THAT IT EXERCISES FOR ITS OWN PROPRIETARY
INFORMATION, BUT DISCLOSURE OF INFORMATION MAY BE MADE: (A) TO BANK’S
SUBSIDIARIES OR AFFILIATES; (B) TO PROSPECTIVE TRANSFEREES OR PURCHASERS OF ANY
INTEREST IN THE CREDIT EXTENSIONS (PROVIDED, HOWEVER, BANK SHALL USE
COMMERCIALLY REASONABLE EFFORTS TO OBTAIN SUCH PROSPECTIVE TRANSFEREE’S OR
PURCHASER’S AGREEMENT TO THE TERMS OF THIS PROVISION); (C) AS REQUIRED BY LAW,
REGULATION, SUBPOENA, OR OTHER ORDER; (D) TO BANK’S REGULATORS OR AS OTHERWISE
REQUIRED IN CONNECTION WITH BANK’S EXAMINATION OR AUDIT; (E) AS BANK CONSIDERS
APPROPRIATE IN EXERCISING REMEDIES UNDER THE LOAN DOCUMENTS; AND (F) TO
THIRD-PARTY SERVICE PROVIDERS OF BANK SO LONG AS SUCH SERVICE PROVIDERS HAVE
EXECUTED A CONFIDENTIALITY AGREEMENT WITH BANK WITH TERMS NO LESS RESTRICTIVE
THAN THOSE CONTAINED HEREIN.  CONFIDENTIAL INFORMATION DOES NOT INCLUDE
INFORMATION THAT EITHER: (I) IS IN THE PUBLIC DOMAIN OR IN BANK’S POSSESSION
WHEN DISCLOSED TO BANK, OR BECOMES PART OF THE PUBLIC DOMAIN AFTER DISCLOSURE TO
BANK; OR (II) IS DISCLOSED TO BANK BY A THIRD PARTY, IF BANK DOES NOT KNOW THAT
THE THIRD PARTY IS PROHIBITED FROM DISCLOSING THE INFORMATION.

 

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Bank may use confidential information for any purpose, including, without
limitation, for the development of client databases, reporting purposes, and
market analysis, so long as Bank does not disclose Borrower’s identity or the
identity of any person associated with Borrower unless otherwise expressly
permitted by this Agreement.  The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.

 

12.10      BORROWER LIABILITY.  EITHER BORROWER MAY, ACTING SINGLY, REQUEST
CREDIT EXTENSIONS HEREUNDER.  EACH BORROWER HEREBY APPOINTS THE OTHER AS AGENT
FOR THE OTHER FOR ALL PURPOSES HEREUNDER, INCLUDING WITH RESPECT TO REQUESTING
CREDIT EXTENSIONS HEREUNDER.  EACH BORROWER HEREUNDER SHALL BE JOINTLY AND
SEVERALLY OBLIGATED TO REPAY ALL CREDIT EXTENSIONS MADE HEREUNDER, REGARDLESS OF
WHICH BORROWER ACTUALLY RECEIVES SAID CREDIT EXTENSION, AS IF EACH BORROWER
HEREUNDER DIRECTLY RECEIVED ALL CREDIT EXTENSIONS.  EACH BORROWER WAIVES ANY
SURETYSHIP DEFENSES AVAILABLE TO IT UNDER THE CODE OR ANY OTHER APPLICABLE LAW. 
EACH BORROWER WAIVES ANY RIGHT TO REQUIRE BANK TO: (I) PROCEED AGAINST ANY
BORROWER OR ANY OTHER PERSON; (II) PROCEED AGAINST OR EXHAUST ANY SECURITY; OR
(III) PURSUE ANY OTHER REMEDY.  BANK MAY EXERCISE OR NOT EXERCISE ANY RIGHT OR
REMEDY IT HAS AGAINST ANY BORROWER OR ANY SECURITY IT HOLDS (INCLUDING THE RIGHT
TO FORECLOSE BY JUDICIAL OR NON-JUDICIAL SALE) WITHOUT AFFECTING ANY BORROWER’S
LIABILITY HEREUNDER.  NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, EACH BORROWER IRREVOCABLY WAIVES ALL RIGHTS THAT IT MAY
HAVE AT LAW OR IN EQUITY (INCLUDING, WITHOUT LIMITATION, ANY LAW SUBROGATING
BORROWER TO THE RIGHTS OF BANK UNDER THIS AGREEMENT) TO SEEK CONTRIBUTION,
INDEMNIFICATION OR ANY OTHER FORM OF REIMBURSEMENT FROM ANY OTHER BORROWER, OR
ANY OTHER PERSON NOW OR HEREAFTER PRIMARILY OR SECONDARILY LIABLE FOR ANY OF THE
OBLIGATIONS, FOR ANY PAYMENT MADE BY BORROWER WITH RESPECT TO THE OBLIGATIONS IN
CONNECTION WITH THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR OTHERWISE AND ALL
RIGHTS THAT IT MIGHT HAVE TO BENEFIT FROM, OR TO PARTICIPATE IN, ANY SECURITY
FOR THE OBLIGATIONS AS A RESULT OF ANY PAYMENT MADE BY BORROWER WITH RESPECT TO
THE OBLIGATIONS IN CONNECTION WITH THIS AGREEMENT OR OTHERWISE BUT ONLY UNTIL
SUCH TIME AS THE BANK HAS BEEN PAID IN FULL.  ANY AGREEMENT PROVIDING FOR
INDEMNIFICATION, REIMBURSEMENT OR ANY OTHER ARRANGEMENT PROHIBITED UNDER THIS
SECTION 12.12 SHALL BE NULL AND VOID.  IF ANY PAYMENT IS MADE TO A BORROWER IN
CONTRAVENTION OF THIS SECTION 12.12, SUCH BORROWER SHALL HOLD SUCH PAYMENT IN
TRUST FOR BANK AND SUCH PAYMENT SHALL BE PROMPTLY DELIVERED TO BANK FOR
APPLICATION TO THE OBLIGATIONS, WHETHER MATURED OR UNMATURED.

 

12.11      RIGHT OF SET OFF.   BORROWER HEREBY GRANTS TO BANK, A LIEN, SECURITY
INTEREST AND RIGHT OF SET OFF AS SECURITY FOR ALL OBLIGATIONS TO BANK, WHETHER
NOW EXISTING OR HEREAFTER ARISING UPON AND AGAINST ALL DEPOSITS, CREDITS,
COLLATERAL AND PROPERTY, NOW OR HEREAFTER IN THE POSSESSION, CUSTODY,
SAFEKEEPING OR CONTROL OF BANK OR ANY ENTITY UNDER THE CONTROL OF BANK
(INCLUDING A BANK SUBSIDIARY) OR IN TRANSIT TO ANY OF THEM.  AT ANY TIME AFTER
THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, WITHOUT DEMAND
OR NOTICE, BANK MAY SET OFF THE SAME OR ANY PART THEREOF AND APPLY THE SAME TO
ANY LIABILITY OR OBLIGATION OF BORROWER EVEN THOUGH UNMATURED AND REGARDLESS OF
THE ADEQUACY OF ANY OTHER COLLATERAL SECURING THE OBLIGATIONS.  ANY AND ALL
RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY
OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

13           DEFINITIONS

 

13.1        DEFINITIONS.  AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE
THE FOLLOWING MEANINGS:

 

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

 

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

 

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

 

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

 

“Agreement” is defined in the preamble hereof.

 

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“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
amount available under the Borrowing Base minus (b) the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) plus (c) an amount equal to the Letter of Credit Reserve, minus (d) the
FX Reserve, minus (e) any amounts used for Cash Management Services, and minus
(f) the outstanding principal balance of any Advances.

 

“Bank” is defined in the preamble hereof.

 

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

 

“Borrower” is defined in the preamble hereof.

 

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

 

“Borrowing Base” is (a) eighty (80%) of Eligible Accounts plus (b) fifty (50%)
of the value of Borrower’s Eligible Inventory (valued at the lower of cost or
wholesale fair market value) (provided, however, such amount in clause (b) shall
not exceed the lesser of (i) Four Hundred Thousand Dollars ($400,000) or
(ii) one-third (33.3%) of the sum of clause (a) plus clause (b)), in each case
as determined by Bank from Borrower’s most recent Transaction Report; provided,
however, that Bank may decrease the foregoing amounts and/or percentages in its
good faith business judgment based on events, conditions, contingencies, or
risks which, as determined by Bank, may adversely affect Collateral.

 

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

 

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

 

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

 

“Cash Management Services” is defined in Section 2.1.4.

 

“Change in Control” means any event, transaction, or occurrence as a result of
which (a) any “person” (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange
Act”)), other than a trustee or other fiduciary holding securities under an
employee benefit plan of Borrower, is or becomes a beneficial owner (within the
meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly,
of securities of Borrower, representing twenty-five percent (25%) or more of the
combined voting power of Borrower’s then outstanding securities; or (b) during
any period of twelve consecutive calendar months, individuals who at the
beginning of such period constituted the board of directors of Borrower
(together with any new directors whose election by the board of directors of
Borrower was approved by a vote of at least two-thirds of the directors then
still in office who either were directions at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason other than death or disability to constitute a majority of the
directors then in office.

 

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

 

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

 

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

 

“Committed Availability” means, as the date of determination, an amount equal to
the lesser of (i) the Revolving Line or (ii) the Borrowing Base minus all
outstanding Credit Extensions.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

 

21

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

 

“Eligible Accounts” means Accounts which arise in the ordinary course of
Borrower’s business that meet all Borrower’s representations and warranties in
Section 5.3.  Eligible Accounts shall not include:

 

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

 

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

 

(c)           Accounts billed in the United States and owing from an Account
Debtor which does not have its principal place of business in the United States
unless such Accounts are otherwise Eligible Accounts and (i) covered in full by
credit insurance satisfactory to Bank, less any deductible, (ii) supported by
letter(s) of credit acceptable to Bank, or (iii) that Bank otherwise approves of
in writing;

 

(d)           Accounts billed and payable outside of the United States;

 

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

 

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

 

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

 

(h)           Other than as provided for in clause hereof, Accounts owing from
an Account Debtor, including Affiliates, whose total obligations to Borrower
exceed twenty-five (25%) of all Accounts (other than Accounts of GlaxoSmithKline
generated on or before June 30, 2008, for which such concentration limit shall
not apply), for the amounts that exceed that percentage, unless Bank approves in
writing;

 

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

 

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

 

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

 

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

 

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

 

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

 

(o)           Accounts owing from an Account Debtor that has been invoiced for
goods that have not been shipped to the Account Debtor unless Bank, Borrower,
and the Account Debtor have entered into an agreement acceptable to Bank in its
sole discretion wherein the Account Debtor acknowledges that (i) it has title to
and has

 

22

--------------------------------------------------------------------------------

 

ownership of the goods wherever located, (ii) a bona fide sale of the goods has
occurred, and (iii) it owes payment for such goods in accordance with invoices
from Borrower (sometimes called “bill and hold” accounts);

 

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

 

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

 

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

 

(s)           Accounts subject to chargebacks or others payment deductions taken
by an Account Debtor (but only to the extent the chargeback is determined
invalid and subsequently collected by Borrower);

 

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

 

(u)           Accounts for which Bank in its good faith business judgment
determines collection to be doubtful.

 

“Eligible Inventory” means Inventory that meets all of Borrower’s
representations and warranties in Section 5.3(c) and is otherwise acceptable to
Bank in all respects.

 

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

 

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

 

“Event of Default” is defined in Section 8.

 

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

 

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

 

“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is
conducting its normal business and (b) the Foreign Currency being purchased or
sold by Borrower is available to Bank from the entity from which Bank shall buy
or sell such Foreign Currency.

 

“FX Forward Contract” is defined in Section 2.1.3.

 

“FX Reserve” is defined in Section 2.1.3.

 

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

 

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights,
including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other
tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter

 

23

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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.

 

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

 

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

 

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

 

“Indemnified Person” is defined in Section 12.3.

 

“Initial Audit” is Bank’s inspection of the Collateral, and Borrower’s Books.

 

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

 

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

 

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

 

“IP Agreement” is that certain Intellectual Property Security Agreement executed
and delivered by Borrower to Bank dated as of the Effective Date.

 

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

 

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

 

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).

 

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

 

“Liquidity” is Borrower’s unrestricted cash and Cash Equivalents at Bank plus
Committed Availability.

 

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate,
the IP Agreement, the Post-closing Letter, any subordination or intercreditor
agreement entered into with respect to any Subordinated Debt, any note, or notes
or guaranties executed by Borrower or any Guarantor, and any other present or
future agreement between Borrower any Guarantor and/or for the benefit of Bank
in connection with this Agreement, all as amended, restated, or otherwise
modified.

 

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower; (c) a material impairment of the prospect
of repayment of any portion of the Obligations or (d) Bank determines, based
upon information available to it and in its reasonable judgment, that there

 

24

--------------------------------------------------------------------------------

 

is a reasonable likelihood that Borrower shall fail to comply with one or more
of the financial covenants in Section 6 during the next succeeding financial
reporting period.

 

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

 

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

 

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

 

“Overadvance” is defined in Section 2.2.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c)           Subordinated Debt;

 

(d)           unsecured Indebtedness to trade creditors; and

 

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

 

“Permitted Investments” are:

 

(a)           Investments shown on the Perfection Certificate and existing on
the Effective Date;

 

(b)           Cash Equivalents;

 

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

 

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

 

(e)           Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business; and

 

25

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(f)            Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph
(f) shall not apply to Investments of Borrower in any Subsidiary.

 

“Permitted Liens” are:

 

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

 

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

 

(c)           purchase money Liens (i) on Equipment acquired or held by Borrower
incurred for financing the acquisition of Equipment securing no more than Fifty
Thousand Dollars ($50,000) in the aggregate amount outstanding, or (ii) existing
on Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment;

 

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

 

(e)           leases or subleases of real property granted in the ordinary
course of business, and leases, subleases, non-exclusive licenses or sublicenses
of property (other than real property or intellectual property) granted in the
ordinary course of Borrower’s business, if such leases, subleases, licenses and
sublicenses do not prohibit granting Bank a security interest;

 

(f)            non-exclusive license of intellectual property granted to third
parties in the ordinary course of business;

 

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

 

(h)           Liens securing Permitted Investments.

 

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

 

“Post-closing Letter” is that certain letter agreement of even date executed by
Borrower in favor of Bank with respect to the timing of delivery of various
closing documents in the form attached hereto as Exhibit C.

 

“Prime Rate” is the greater of (i) five percent (5.00%) or (ii) Bank’s most
recently announced “prime rate,” even if it is not Bank’s lowest rate.

 

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

 

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

 

“Reserves” means, as of any date of determination, such amounts as Bank may from
time to time establish and revise in its good faith business judgment, reducing
the amount of Advances and other financial accommodations which would otherwise
be available to Borrower (a) to reflect events, conditions, contingencies or
risks which, as determined by Bank in its good faith business judgment, do or
may adversely affect (i) the Collateral

 

26

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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 Bank in the Collateral
(including the enforceability, perfection and priority thereof); or (b) to
reflect Bank’s good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any Guarantor to Bank is or
may have been incomplete, inaccurate or misleading in any material respect; or
(c) in respect of any state of facts which Bank determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.

 

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

 

“Revolving Line” is an Advance or Advances in an amount equal to One Million Two
Hundred Fifty Thousand Dollars ($1,250,000).

 

“Revolving Line Maturity Date” is June    , 2010.

 

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

 

“Settlement Date” is defined in Section 2.1.3.

 

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

 

“Subsidiary” means, with respect to any Person, any Person of which more than
fifty percent (50.00%) of the voting stock or other equity interests (in the
case of Persons other than corporations) is owned or controlled directly or
indirectly by such Person or one or more of Affiliates of such Person.

 

“Tangible Net Worth” is, on any date, the total assets of Borrower minus (a) any
amounts attributable to (i) goodwill, (ii) intangible items including
unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
(iii) notes, accounts receivable and other obligations owing to Borrower from
its officers or other Affiliates, and (iv) Reserves not already deducted from
assets, minus (b) Total Liabilities.

 

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

 

“Transaction Report” is the Bank’s standard transaction reporting package that
Bank shall provide to Borrower.

 

“Transfer” is defined in Section 7.1.

 

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

 

 

[Signature page follows.]

 

27

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as a sealed instrument under the laws of the Commonwealth of Massachusetts as of
the Effective Date.

 

BORROWER:

 

 

 

MICROFLUIDICS INTERNATIONAL CORPORATION

 

 

 

By

/s/ Brian E. LeClair

 

Name:

Brian E. LeClair

 

Title:

Exec. V.P. & CFO

 

 

 

 

MICROFLUIDICS CORPORATION

 

 

 

 

By

/s/ Brian E. LeClair

 

Name:

Brian E. LeClair

 

Title:

Exec. V.P. & CFO

 

 

 

 

BANK:

 

 

 

 

 

SILICON VALLEY BANK

 

 

 

 

By

/s/ Mark Sperling

 

Name:

Mark Sperling

 

Title:

Vice President

 

 

 

 

 

Effective Date: June 30, 2008

 

 

[Signature Page – Loan and Security Agreement]

 

--------------------------------------------------------------------------------

 

EXHIBIT A

 

Collateral Description

 

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

 

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

 

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

 

--------------------------------------------------------------------------------

 

EXHIBIT B - COMPLIANCE CERTIFICATE

 

TO:

SILICON VALLEY BANK

Date:

 

 

FROM:  MICROFLUIDICS INTERNATIONAL CORPORATION AND MICROFLUIDICS CORPORATION

 

The undersigned authorized officer of Microfluidics International Corporation
and Microfluidics Corporation (individually and collectively, jointly and
severally, the “Borrower”) certifies that under the terms and conditions of the
Loan and Security Agreement between Borrower and Bank (the “Agreement”),
(1) Borrower is in complete compliance for the period ending
                               with all required covenants except as noted
below, (2) there are no Events of Default, (3) all representations and
warranties in the Agreement are true and correct in all material respects on
this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of
the Agreement, and (5) no Liens have been levied or claims made against Borrower
or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Bank. 
Attached are the required documents supporting the certification.  The
undersigned certifies that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.  The undersigned acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that compliance
is determined not just at the date this certificate is delivered.  Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.

 

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

 

Reporting Covenant

 

Required

 

Complies

 

 

 

 

 

Transaction Reports (with all applicable schedules)

 

Weekly and with each request for an Advance

 

Yes  No

A/R and A/P agings, held check registers, general ledger and inventory reports

 

Monthly, within 15 days

 

Yes  No

Monthly unaudited financial statements

 

Monthly, within 30 days

 

Yes  No

Compliance Certificate

 

Monthly, within 30 days

 

Yes  No

Annual audited financial statement (CPA Audited) + CC

 

FYE within 150 days

 

Yes  No

Projections

 

Within 30 days prior to FYE

 

Yes  No

10-Q, 10-K and 8-K

 

Within 5 days after filing with SEC

 

Yes  No

 

The following Intellectual Property was registered (or a registration
application submitted) after the Effective Date (if no registrations, state
“None”)

 

Financial Covenant

 

Required

 

Actual

 

Complies

 

 

 

 

 

 

 

Maintain at all times:

 

 

 

 

 

 

Liquidity

 

$

500,000

 

$

  

 

Yes  No

Minimum Tangible Net Worth (tested monthly)

 

$

2,500,000

 

$

  

 

Yes  No

 

--------------------------------------------------------------------------------

 

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

 

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

 

 

Microfluidics International Corporation

 

BANK USE ONLY

Microfluidics Corporation

 

 

 

 

Received by:

 

 

 

 

AUTHORIZED SIGNER

By:

 

 

Date:

 

Name:

 

 

 

Title:

 

 

Verified:

 

 

 

 

AUTHORIZED SIGNER

 

 

 

 

 

Date:

 

 

 

 

 

 

Compliance Status:

Yes     No

 

--------------------------------------------------------------------------------

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

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

 

Dated:

 

I.              Liquidity (Section 6.9(a))

 

Required: Borrower’s unrestricted cash and Cash Equivalents plus Committed
Availability of at least Five Hundred Thousand Dollars ($500,000).

 

Actual:

 

A.

 

Unrestricted cash and Cash Equivalents held at Bank

 

$

 

 

 

 

 

 

B.

 

Lesser of the Revolving Line or the Borrowing Base

 

$

 

 

 

 

 

 

C.

 

Outstanding Credit Extensions

 

$

 

 

 

 

 

 

D.

 

Availability (line B minus line C)

 

$

 

 

 

 

 

 

E.

 

Liquidity (line A plus line D)

 

$

 

 

Is line E equal to or greater than $500,000?

 

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II.            Tangible Net Worth (Section 6.9(b))

 

Required:  Tangible Net Worth tested (i) as of the last day of each of the first
two months of each fiscal quarter of the Borrower, measured on a consolidated
basis, of at least Two Million Five Hundred Thousand Dollars ($2,500,000); and
(ii) as of the last day of the third month of each fiscal quarter of the
Borrower, measured on a consolidated basis, of at least Three Million Dollars
($3,000,000).

 

Actual:

 

A.

 

Aggregate value of total assets of Borrower and its Subsidiaries

 

$

 

 

 

 

 

 

B.

 

Aggregate value of goodwill of Borrower and its Subsidiaries

 

$

 

 

 

 

 

 

C.

 

Aggregate value of intangible assets of Borrower and its Subsidiaries

 

$

 

 

 

 

 

 

D.

 

Aggregate value of any notes, accounts receivable and other obligations owing to
Borrower from officers or Affiliates

 

$

 

 

 

 

 

 

E.

 

Aggregate value of Reserves not already deducted from assets

 

$

 

 

 

 

 

 

F.

 

Aggregate value of Total Liabilities listed on Borrower’s balance sheet

 

$

 

 

 

 

 

 

G.

 

Sum of Line B plus Line C plus Line D plus Line E plus Line F

 

$

 

 

 

 

 

 

H.

 

TANGIBLE NET WORTH (Line A minus Line G)

 

$

 

 

Is line H equal to or greater than [$2,500,000] [$3,000,000]?

 

 

o

No, not in compliance

o

Yes, in compliance

 

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