EXHIBIT 10.1

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of January 11, 2012
(the “Effective Date”) between SILICON VALLEY BANK, a California corporation
(“Bank”), and UROLOGIX, INC., a Minnesota corporation (“Borrower”), provides the
terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The
parties agree as follows:

1                     ACCOUNTING AND OTHER TERMS

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

2                     LOAN AND TERMS OF PAYMENT

2.1                Promise to Pay.

Borrower hereby unconditionally promises to pay Bank the outstanding principal
amount of all Credit Extensions and accrued and unpaid interest thereon as and
when due in accordance with this Agreement.

2.1.1           Revolving Advances.

(a)                 Availability. Subject to the terms and conditions of this
Agreement and to deduction of Reserves, Bank shall make 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.

2.2                Overadvances.

If, at any time, the outstanding principal amount of any Advances 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)                 Advances. Subject to Section 2.3(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a floating per
annum rate equal to either the (i) Prime Rate, plus two and three quarters of
one percent (2.75%) at all times that Borrower is Streamline Eligible or (ii)
Prime Rate, plus three and three quarters of one percent (3.75%) at all other
times, which interest shall be payable monthly in accordance with Section 2.3(e)
below. The interest rate shall be adjusted based upon changes to Borrower being
Streamline Eligible as of the first (1st) day of the first (1st) month
immediately following such change.

(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 five percentage points (5.00%) above the rate that is
otherwise applicable thereto (the “Default Rate”) unless Bank otherwise elects
from time to time in its sole discretion to impose a smaller increase. Fees and
expenses which are required to be paid by Borrower pursuant to the Loan
Documents (including, without limitation, Bank Expenses) but are not paid when
due shall bear interest until paid at a rate equal to the highest rate
applicable to the Obligations. Payment or acceptance of the increased interest
rate provided in this Section 2.3(b) is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Bank.

(c)                 Adjustment to Interest Rate. Changes to the interest rate of
any Credit Extension based on changes to the Prime Rate shall be effective on
the effective date of any change to the Prime Rate and to the extent of any such
change.

(d)                 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.

(e)                 Payment; Interest Computation; Float Charge. Interest is
payable monthly on the last calendar day of each month and shall be computed on
the basis of a 360-day year for the actual number of days elapsed. In computing
interest, (i) all Payments received after 12:00 p.m. Pacific time on any day
shall be deemed received at the opening of business on the next Business Day,
and (ii) the date of the making of any Credit Extension shall be included and
the date of payment shall be excluded; provided, however, that if any Credit
Extension is repaid on the same day on which it is made, such day shall be
included in computing interest on such Credit Extension. In addition, Bank shall
be entitled to charge Borrower a “float” charge in an amount equal to two (2)
Business Days interest, at the interest rate applicable to the Advances whether
or not any Advances are outstanding, on all Payments received by Bank. Such
float charge is not included in interest for purposes of computing Minimum
Monthly Interest (if any) under this Agreement. The float charge for each month
shall be payable on the last day of the month. Bank shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Bank in its good faith business judgment, and Bank
may charge Borrower's Designated Deposit Account for the amount of any item of
payment which is returned to Bank unpaid.

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2.4                Fees.

Borrower shall pay to Bank:

(a)                 Commitment Fee. A fully earned, non-refundable commitment
fee of Thirty Thousand Dollars ($30,000) (the “Commitment Fee”) of which, (i)
Fifteen Thousand Dollars ($15,000), shall be paid on the Effective Date and (ii)
the balance of Fifteen Thousand Dollars ($15,000) shall be paid to Bank on
January 11, 2013.

(b)                 Termination Fee. Subject to the terms of Section 12.1, a
termination fee;

(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 half of one percent (0.50%) per annum of the
average unused portion of the Revolving Line, as determined by Bank. The unused
portion of the Revolving Line, for purposes of this calculation, shall equal the
difference between (x) the Revolving Line amount (as it may be reduced from time
to time) and (y) the average for the period of the daily closing balance of the
Revolving Line outstanding. 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 the
suspension or termination of Bank’s obligation to make loans and advances
hereunder;

(d)                 Collateral Monitoring Fee. At all times that Borrower is not
Streamline Eligible, a monthly collateral monitoring fee of Seven Hundred Fifty
Dollars ($750) (the “Collateral Monitoring Fee”), payable in arrears on the last
day of each month (prorated for any partial month at the beginning and upon
termination of this Agreement). The Collateral Monitoring Fee shall be adjusted
based upon changes to Borrower being Streamline Eligible as of the first (1st)
day of the first (1st) month immediately following such change.

(e)                 Good Faith Deposit. Borrower has paid to Bank a deposit of
Twenty-Five Thousand Dollars ($25,000) (the “Good Faith Deposit”) to initiate
Bank’s due diligence review process. Any portion of the Good Faith Deposit not
utilized to pay Bank Expenses will be applied to the Commitment Fee.

(f)                  Bank Expenses. All Bank Expenses incurred through and after
the Effective Date, when due, provided, attorneys’ fees for documentation and
negotiation of this Agreement will not exceed Ten Thousand Dollars ($10,000) as
of the Effective Date, plus costs.

2.5                Payments; Application of Payments.

(a)                 All payments (including prepayments) to be made by Borrower
under any Loan Document shall be made in immediately available funds in U.S.
Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the
date when due. Payments of principal and/or interest received after 12:00 p.m.
Pacific time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment shall be due the next Business Day, and additional fees or interest, as
applicable, shall continue to accrue until paid.

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(b)                 All payments with respect to the Obligations may be applied
in such order and manner as Bank shall determine in its sole discretion.
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.

3                     CONDITIONS OF LOANS

3.1                Conditions Precedent to Initial Credit Extension.

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

(a)                 duly executed original signatures to the Loan Documents;

(b)                 duly executed original signatures to the Control Agreements;

(c)                 Borrower’s Operating Documents and a good standing
certificate of Borrower certified by the Secretary of State of the State of
Minnesota as of a date no earlier than thirty (30) days prior to the Effective
Date;

(d)                 duly executed original signatures to the completed Borrowing
Resolutions for Borrower;

(e)                 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;

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

(g)                 a landlord’s consent in favor of Bank for Borrower’s chief
executive offices located at 14405 21st Avenue North, Minneapolis, Minnesota
55447 by the respective landlord thereof, together with the duly executed
original signatures thereto;

(h)                 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 lender loss payable and/or additional insured
clauses and cancellation notice to Bank (or endorsements reflecting the same) in
favor of Bank;

(i)                   the completion of the Initial Audit with results
satisfactory to Bank in its sole and absolute discretion; and

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(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 conditions precedent:

(a)                 except as otherwise provided in Section 3.4, timely receipt
of an executed Transaction Report;

(b)                 the representations and warranties in this Agreement shall
be true, accurate, and complete 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 this Agreement remain true,
accurate, and complete 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 sole discretion, 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 any material
adverse deviation by Borrower from the most recent business plan of Borrower
presented to and accepted by Bank.

3.3                Covenant to Deliver.

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

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, 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 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.

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4                     CREATION OF SECURITY INTEREST

4.1                Grant of Security Interest.

Borrower hereby grants Bank, to secure the payment and performance in full of
all of the Obligations, a continuing security interest in, and pledges to Bank,
the Collateral, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof.

Borrower acknowledges that it previously has entered, and/or may in the future
enter, into Bank Services Agreements with Bank.  Regardless of the terms of any
Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank
thereunder shall be deemed to be Obligations hereunder and that it is the intent
of Borrower and Bank to have all such Obligations secured by the first priority
perfected security interest in the Collateral granted herein (subject only to
Permitted Liens that may have superior priority to Bank’s Lien in this
Agreement).

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are satisfied
in full, and at such time, Bank shall, at Borrower’s sole cost and expense,
terminate its security interest in the Collateral and all rights therein shall
revert to Borrower. In the event (x) all Obligations (other than inchoate
indemnity obligations), except for Bank Services, are satisfied in full, and (y)
this Agreement is terminated, Bank shall terminate the security interest granted
herein upon Borrower providing cash collateral acceptable to Bank in its good
faith business judgment for Bank Services, if any. In the event such Bank
Services consist of outstanding Letters of Credit, Borrower shall provide to
Bank cash collateral in an amount equal to 105% of the Dollar Equivalent (or
110% if the Dollar Equivalent is denominated in Foreign Currency) of the face
amount of all such Letters of Credit plus all interest, fees, and costs due or
to become due in connection therewith (as estimated by Bank in its good faith
business judgment), to secure all of the Obligations relating to such Letters of
Credit.

4.2                Priority of Security Interest.

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.

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4.3                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,
except it shall not include Intellectual Property as Collateral.

5                     REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1                Due Organization, Authorization; Power and Authority.

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 could not reasonably be expected to have a material adverse effect on
Borrower’s business. In connection with this Agreement, Borrower has delivered
to Bank a completed certificate signed by Borrower, entitled “Perfection
Certificate”. Borrower represents and warrants to Bank that (a) Borrower’s exact
legal name is that indicated on the Perfection Certificate and on the signature
page hereof; (b) Borrower is an organization of the type and is organized in the
jurisdiction set forth in the Perfection Certificate; (c) the Perfection
Certificate accurately sets forth Borrower’s organizational identification
number or accurately states that Borrower has none; (d) the Perfection
Certificate accurately sets forth Borrower’s place of business, or, if more than
one, its chief executive office as well as Borrower’s mailing address (if
different than its chief executive office); (e) Borrower (and each of its
predecessors) has not, in the past five (5) years, changed its jurisdiction of
formation, organizational structure or type, or any organizational number
assigned by its jurisdiction; and (f) all other information set forth on the
Perfection Certificate pertaining to Borrower and each of its Subsidiaries is
accurate and complete (it being understood and agreed that Borrower may from
time to time update certain information in the Perfection Certificate after the
Effective Date to the extent permitted by one or more specific provisions in
this Agreement).

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

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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.

All Inventory is in all material respects of good and marketable quality, free
from material defects.

Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) non-exclusive licenses granted to its customers
in the ordinary course of business, (b) over-the-counter software that is
commercially available to the public, and (c) material Intellectual Property
licensed to Borrower and noted on the Perfection Certificate. Each Patent which
it owns or purports to own and which is material to Borrower’s business is valid
and enforceable, and no part of the Intellectual Property which Borrower owns or
purports to own and which is material to Borrower’s business has been judged
invalid or unenforceable, in whole or in part. To 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 to the extent such claim would not
reasonably be expected to have a material adverse effect on Borrower’s business.

Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is it bound by, any Restricted License.

5.3                Accounts Receivable.

(a)                 For each Account with respect to which Advances are
requested, on the date each Advance is requested and made, such Account shall 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.
Provided, that no Event of Default is anticipated or has occurred and is
continuing, Bank will use reasonable efforts to notify Borrower of such
verification, provided that the failure to do so shall not give rise to any
liability to Bank. 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.

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5.4                Litigation.

There are no actions or proceedings pending or, to the knowledge of the
Responsible Officers, threatened in writing by or against Borrower or any of its
Subsidiaries involving more than Fifty Thousand Dollars ($50,000).

5.5                Financial Statements; Financial Condition.

All consolidated financial statements for Borrower and any of its Subsidiaries
delivered to Bank fairly present in all material respects Borrower’s
consolidated financial condition and Borrower’s consolidated results of
operations. 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 Governmental Authorities that are necessary to continue their respective
businesses as currently conducted.

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5.8                Subsidiaries; Investments.

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

5.9                Tax Returns and Payments; Pension Contributions.

Borrower has timely filed all required tax returns and reports, 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).

5.12            Definition of “Knowledge.”

For purposes of the Loan Documents, whenever a representation or warranty is
made to Borrower’s knowledge or awareness, to the “best of” Borrower’s
knowledge, or with a similar qualification, knowledge or awareness means the
actual knowledge, after reasonable investigation, of the Responsible Officers.

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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.

Provide Bank with the following:

(a)                 a Transaction Report (including sales, credit memos,
collections journals, other Collateral adjustments, and any schedules related
thereto), (i) in the event that Borrower is Streamline Eligible and provided no
Event of Default has occurred and is continuing, no later than thirty (30) days
after the end of each month and (ii) in all other cases, on a weekly basis;

(b)                 within thirty (30) 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) Borrower’s
Deferred Revenue report in form satisfactory to Bank in its sole discretion.

(c)                 as soon as available, but no later than thirty (30) days
after the last day of each month, a company prepared consolidated balance sheet
and income statement covering Borrower’s consolidated operations for such month
certified by a Responsible Officer and in a form acceptable to Bank (the
“Monthly Financial Statements”), provided, however, the Monthly Financial
Statements for the month ended June 30 may be subject to normal year end
adjustments, if any, and Borrower will provide to Bank a reconciliation of such
adjustments upon completion of the Borrower’s year end financial audit;

(d)                 within thirty (30) days after the last day of each month and
together with the Monthly Financial Statements, a duly completed 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;

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(e)                 within thirty (30) days prior to the end of each fiscal year
of Borrower or more frequently as updated, (A) annual operating budgets
(including income statements, balance sheets and cash flow statements, by month)
for the upcoming fiscal year of Borrower, and (B) annual financial projections
for the following fiscal year (on a quarterly basis) as approved by Borrower’s
board of directors, together with any related business forecasts used in the
preparation of such annual financial projections;

(f)                  as soon as available, and in any event within one hundred
twenty (120) days following the end of Borrower’s fiscal year, audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an
independent certified public accounting firm acceptable to Bank in its
reasonable discretion, provided, however, Borrower’s opinion on financial
statements for the fiscal year ending June 30, 2012 may contain a qualification
as to going concern substantially similar to the going concern qualification
included in the opinion of Borrower’s public accounting firm with respect to
Borrower’s audited consolidated financial statements for the fiscal year ending
June 30, 2011;

(g)                 Within five (5) days of filing, copies of all periodic and
other reports, including without limitation all reports on Form 10-K, 10-Q and
8-K, proxy statements and other materials filed by Borrower with the SEC, any
Governmental Authority succeeding to any or all of the functions of the SEC or
with any national securities exchange, or distributed to its shareholders, as
the case may be. Documents required to be delivered pursuant to the terms hereof
(to the extent any such documents are included in materials otherwise filed with
the SEC) may be delivered electronically and if so delivered, shall be deemed to
have been delivered on the date on which Borrower posts such documents, or
provides a link thereto, on Borrower’s website on the Internet at Borrower’s
website address;

(h)                 within five (5) days of delivery, copies of all statements,
reports and notices made available to Borrower’s security holders or to any
holders of Subordinated Debt;

(i)                   prompt written notice of (i) any material change in the
composition of the Intellectual Property, (ii) the registration of any
copyright, including any subsequent ownership right of Borrower in or to any
copyright, patent or trademark not previously disclosed in writing to Bank, and
(iii) Borrower’s knowledge of an event that could reasonably be expected to
materially and adversely affect the value of the Intellectual Property;

(j)                  prompt report of any legal actions pending or threatened in
writing against Borrower or any of its Subsidiaries that could result in damages
or costs to Borrower or any of its Subsidiaries of, individually or in the
aggregate, Fifty Thousand Dollars ($50,000) or more; and

(k)                 other financial information reasonably requested by Bank.

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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 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 Borrowing Base.

(c)                 Collection of Accounts. Borrower shall have the right to
collect all Accounts, unless and until an Event of Default has occurred and is
continuing.  Bank shall require that all proceeds of Accounts be deposited by
Borrower into a lockbox account, or such other “blocked account” as specified by
Bank, pursuant to a blocked account agreement in such form as Bank may specify
in its good faith business judgment.  Whether or not an Event of Default has
occurred and is continuing, Borrower shall immediately deliver all payments on
and proceeds of Accounts to an account maintained with Bank to be applied (i)
prior to an Event of Default, pursuant to the terms of Section 2.5(b), and (ii)
after the occurrence and during the continuance of an Event of Default, pursuant
to the terms of Section 9.4 hereof. At all times when Borrower is Streamline
Eligible, provided no Event of Default has occurred and is continuing, funds in
the blocked account will be remitted to Borrower’s Designated Deposit Account,
but at all other times, such collections shall be applied to reduce the
Obligations on a daily basis, prior to being deposited into Borrower’s
Designated Deposit Account.

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

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(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 (1) prior to an Event of
Default, pursuant to the terms of Section 2.5(b) hereof, and (2) after the
occurrence and during the continuance of an Event of Default, pursuant to the
terms of Section 9.4 hereof; provided that, if no Event of Default has occurred
and is continuing, Borrower shall not be obligated to remit to Bank the proceeds
of the sale of surplus, worn out or obsolete Equipment disposed of by Borrower
in good faith in an arm’s length transaction for an aggregate purchase price of
Two Hundred Thousand Dollars ($200,000) or less (for all such transactions in
any fiscal year). Borrower agrees that it will maintain all proceeds of
Collateral in an account maintained with Bank. Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.

6.5                Taxes; Pensions.

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 to inspect the Collateral and the right to audit
and copy Borrower’s Books. Unless an Event of Default has occurred and is
continuing, such inspections or audits shall be conducted no more often than
once every six (6) months (or more frequently as Bank shall determine conditions
warrant, in its sole discretion). The foregoing inspections and audits shall be
at Borrower’s expense, and the charge therefor shall be $850 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.

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6.7                Insurance.

Keep its business and the Collateral insured for risks and in amounts standard
for companies in Borrower’s industry and location and as Bank may reasonably
request. Insurance policies shall be in a form, with companies, and in amounts
that are satisfactory to Bank. All property policies shall have a lender’s loss
payable endorsement showing Bank as a lender loss payee and waive subrogation
against Bank. All liability policies shall show, or have endorsements showing,
Bank as an additional insured. All policies (or their respective endorsements)
shall provide that the insurer shall give Bank at least thirty (30) days notice
before canceling, amending, or declining to renew its policy. At Bank’s request,
Borrower shall deliver certified copies of policies and evidence of all premium
payments. Proceeds payable under any policy shall, at Bank’s option, be payable
to Bank on account of the Obligations. 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)                 Maintain all of its operating and other deposit accounts and
securities accounts, including all excess cash, with Bank and Bank’s Affiliates
and conduct Borrower’s primary banking services, including, without limitation,
foreign currency exchange and letters of credit, through the Bank and the Bank’s
Affiliates.

(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 which Control
Agreement may not be terminated without the prior written consent of Bank. The
provisions of the previous sentence shall not apply to deposit accounts
exclusively used for payroll, payroll taxes and other employee wage and benefit
payments to or for the benefit of Borrower’s employees and identified to Bank by
Borrower as such.

6.9                Financial Covenants.

Maintain at all times, to be tested as of the last day of each month, on a
consolidated basis with respect to Borrower and its Subsidiaries:

(a)                 Maximum Loss. a Maximum Loss, tested on a trailing three (3)
month period, of not greater than ($1,500,000) commencing with the trailing
three (3) month period ending November 30, 2011 and on the last day of each
month thereafter through September 30, 2012. Commencing with the month ending
October 31, 2012, the required amount of Borrower’s Maximum Loss is subject to
change based on Borrower’s annual financial projections approved by Borrower’s
Board of Directors for the June 30, 2013 fiscal year end (the “2013 Maximum Loss
Covenant”). Borrower’s failure to reach an agreement with Bank on the 2013
Maximum Loss Covenant and to execute and deliver to Bank an amendment to this
Agreement, shall constitute an immediate Event of Default under this Agreement.

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6.10            Protection of Intellectual Property Rights.

 

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

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

6.11            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 and records, 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.

7                     NEGATIVE COVENANTS

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

7.1                Dispositions.

Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively,
“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; and (d) of non-exclusive
licenses for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business.

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7.2                Changes in Business, Management, Ownership, or Business
Locations.

(a)                 Engage in or permit any of its Subsidiaries to engage in any
business other than the businesses currently engaged in by Borrower and such
Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or
dissolve; or (c) (i) have a change in any Key Person such that any Key Person
ceases to hold such office with Borrower and a replacement (which such
replacement may include one of the other Key Person’s to perform the duties of
such office) satisfactory to Borrower’s Board of Directors are not made within
ninety (90) days after the Key Person’s departure from Borrower; or (ii) enter
into any transaction or series of related transactions in which the stockholders
of Borrower who were not stockholders immediately prior to the first such
transaction own more than 49% of the voting stock of Borrower immediately after
giving effect to such transaction or related series of such transactions (other
than by the sale of Borrower’s equity securities in a public offering or to
venture capital investors so long as Borrower identifies to Bank the venture
capital investors prior to the closing of the transaction and provides to Bank a
description of the material terms of the transaction).

Borrower shall not, without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Fifty Thousand
Dollars ($50,000) in Borrower’s assets or property) or deliver any portion of
the Collateral valued, individually or in the aggregate, in excess Fifty
Thousand Dollars ($50,000) to a bailee at a location other than to a bailee and
at a location already disclosed in the Perfection Certificate, (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. If Borrower intends to deliver any
portion of the Collateral valued, individually or in the aggregate, in excess of
Fifty Thousand Dollars ($50,000) to a bailee, and Bank and such bailee are not
already parties to a bailee agreement governing both the Collateral and the
location to which Borrower intends to deliver the Collateral, then Borrower will
first receive the written consent of Bank, and such bailee shall execute and
deliver a bailee agreement in form and substance satisfactory to Bank in its
sole discretion.

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,
unless upon the closing of that certain Prostiva Acquisition, all of the
Obligations are repaid in full and Bank has no further obligation to make any
Credit Extensions hereunder. A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower.

7.4                Indebtedness.

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

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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
Liens” herein.

7.6                Maintenance of Collateral Accounts.

Maintain any Collateral Account except pursuant to the terms of Section 6.8(b)
hereof.

7.7                Distributions; Investments.

(a)                 Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock; 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 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.

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8                     EVENTS OF DEFAULT

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

8.1                Payment Default.

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

8.2                Covenant Default.

(a)                 Borrower fails or neglects to perform any obligation in
Sections 6.2, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10(b), or violates any covenant in
Section ; 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). Cure periods provided
under this section shall not apply, among other things, to financial covenants
or any other covenants set forth in clause (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 the control of
Borrower (including a Subsidiary) on deposit or otherwise maintained with Bank
or any Bank Affiliate, or (ii) a notice of lien or levy is filed against any of
Borrower’s assets by any government agency, and the same under subclauses (i)
and (ii) hereof are not, within ten (10) days after the occurrence thereof,
discharged or stayed (whether through the posting of a bond or otherwise);
provided, however, no Credit Extensions shall be made during any ten (10) day
cure period; or

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

8.5                Insolvency.

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

8.6                Other Agreements.

There is, under any agreement to which Borrower is a party with a third party or
parties, (a) any default resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any Indebtedness in an
amount individually or in the aggregate in excess of Fifty Thousand Dollars
($50,000); or (b) any default by Borrower, the result of which could have a
material adverse effect on Borrower’s business;

8.7                Judgments.

One or more final judgments, orders, or decrees for the payment of money in an
amount, individually or in the aggregate, of at least 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 the same are not, within ten (10) days after the entry thereof,
discharged or execution thereof stayed or bonded pending appeal, or such
judgments are not discharged prior to the expiration of any such stay (provided
that no Credit Extensions will be made prior to the discharge, stay, or bonding
of such judgment, order, or decree);

8.8                Misrepresentations.

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

8.9                Subordinated Debt.

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

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9                     BANK’S RIGHTS AND REMEDIES

9.1                Rights and Remedies.

While an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:

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

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

(c)                 for any Letters of Credit, demand that Borrower (i) deposit
cash with Bank in an amount equal to 105% of the Dollar Equivalent (or 110% if
the Dollar Equivalent is denominated in Foreign Currency) of the aggregate face
amount of all Letters of Credit remaining undrawn (plus all interest, fees, and
costs due or to become due in connection therewith (as estimated by Bank in its
good faith business judgment)), to secure all of the Obligations relating to
such Letters of Credit, as collateral security for the repayment of any future
drawings under such Letters of Credit, and Borrower shall forthwith deposit and
pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to
be paid or payable over the remaining term of any Letters of Credit;

(d)                 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, 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;

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

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

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

9.2                Power of Attorney.

Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact,
exercisable upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse Borrower’s name on any checks or other forms of payment
or security; (b) sign Borrower’s name on any invoice or bill of lading for any
Account or drafts against Account Debtors; (c) settle and adjust disputes and
claims about the Accounts directly with Account Debtors, for amounts and on
terms Bank determines reasonable; (d) make, settle, and adjust all claims under
Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral, or
any judgment based thereon, or otherwise take any action to terminate or
discharge the same; and (f) transfer the Collateral into the name of Bank or a
third party as the Code permits. For purposes of clarification, Bank’s foregoing
appointment shall be immediately revoked and of no force or effect at such time
as such Event of Default ceases to continue. 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 rate applicable to the Obligations, and secured by the Collateral. Bank
will make reasonable efforts to provide Borrower with notice of Bank obtaining
such insurance at the time it is obtained or within a reasonable time
thereafter. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank’s waiver of any Event of Default.

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9.4                Application of Payments and Proceeds.

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 the party granting the waiver and then is only effective for
the specific instance and purpose for which it is given. Bank’s rights and
remedies under this Agreement and the other Loan Documents are cumulative. Bank
has all rights and remedies provided under the Code, by law, or in equity.
Bank’s exercise of one right or remedy is not an election and shall not preclude
Bank from exercising any other remedy under this Agreement or other remedy
available at law or in equity, and Bank’s waiver of any Event of Default is not
a continuing waiver. Bank’s delay in exercising any remedy is not a waiver,
election, or acquiescence.

9.7                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.

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10                 NOTICES

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

If to Borrower: Urologix, Inc.   14405 21st Avenue North   Minneapolis,
Minnesota 55447   Attn:  Brian Smrdel   Fax:  (763) 475-1443   Email:
[intentionally omitted in exhibit copy]     If to Bank: Silicon Valley Bank  
1550 Utica Ave South   Suite 700   St. Louis Park, Minnesota 55416   Attn:  Adam
Glick   Fax:  (952) 417-9330   Email: [intentionally omitted in exhibit copy]

 

11                 Choice of Law, Venue, Jury Trial Waiver and Judicial
Reference

California 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 Santa Clara County, California; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank. Borrower expressly
submits and consents in advance to such jurisdiction in any action or suit
commenced in any such court, and Borrower hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or equitable relief
as is deemed appropriate by such court. Borrower hereby waives personal service
of the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in, or subsequently provided by Borrower in accordance with, Section 10 of this
Agreement and that service so made shall be deemed completed upon the earlier to
occur of Borrower’s actual receipt thereof or three (3) days after deposit in
the U.S. mails, proper postage prepaid.

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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 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.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and orders applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this
paragraph shall limit the right of any party at any time to exercise self-help
remedies, foreclose against collateral, or obtain provisional remedies. The
private judge shall also determine all issues relating to the applicability,
interpretation, and enforceability of this paragraph.

12                 GENERAL PROVISIONS

12.1            Termination Prior to Revolving Line Maturity Date.

This Agreement may be terminated prior to the Revolving Line Maturity Date by
Borrower, effective three (3) Business Days after written notice of termination
is given to Bank. Notwithstanding any such termination, Bank’s lien and security
interest in the Collateral shall continue until Borrower fully satisfies its
Obligations. If such termination is at Borrower’s election or at Bank’s election
due to the occurrence and continuance of an Event of Default, Borrower shall pay
to Bank, in addition to the payment of any other expenses or fees then-owing, a
termination fee in an amount equal to Twenty Thousand Dollars ($20,000),
provided, that no termination fee shall be charged if the credit facility
hereunder is replaced with a new facility from another division of Bank.

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12.2            Successors and Assigns.

This Agreement binds and is for the benefit of the successors and permitted
assigns of each party.  Borrower may not assign this Agreement or any rights or
obligations under it without Bank’s prior written consent (which may be granted
or withheld in Bank’s discretion).  Bank has the right, without the consent of
or notice to Borrower, to sell, transfer, assign, negotiate, or grant
participation in all or any part of, or any interest in, Bank’s obligations,
rights, and benefits under this Agreement and the other Loan Documents.
Notwithstanding the foregoing, prior to the occurrence of an Event of Default,
the Bank shall not assign any interest in the Loan Documents to an operating
company which is a known direct competitor of Borrower (as determined by Bank).

12.3            Indemnification.

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

12.4            Time of Essence.

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

12.5            Severability of Provisions.

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

12.6            Correction of Loan Documents.

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

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12.7            Amendments in Writing; Waiver; Integration.

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

12.8            Counterparts.

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

12.9            Survival.

All covenants, representations and warranties made in this Agreement continue in
full force until this Agreement has terminated pursuant to its terms and all
Obligations (other than inchoate indemnity obligations and any other obligations
which, by their terms, are to survive the termination of this Agreement) have
been paid in full and satisfied. Without limiting the foregoing, except as
otherwise provided in Section 4.1, the grant of security interest by Borrower in
Section 4.1 shall survive until the termination of all Bank Services Agreements.
The obligation of Borrower in Section 12.3 to indemnify Bank shall survive until
the statute of limitations with respect to such claim or cause of action shall
have run.

12.10         Confidentiality. 

In handling any confidential information, Bank shall exercise the same degree of
care that it exercises for its own proprietary information, but disclosure of
information may be made: (a) to Bank’s Subsidiaries or Affiliates (such
Subsidiaries and Affiliates, together with Bank, collectively, “Bank Entities”);
(b) to prospective transferees or purchasers of any interest in the Credit
Extensions (provided, however, Bank shall use its best efforts to obtain any
prospective transferee’s or purchaser’s agreement to the terms of this
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 is either: (i) 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) disclosed to Bank by a third party if Bank does not
know that the third party is prohibited from disclosing the information.
Notwithstanding the foregoing, prior to the occurrence of an Event of Default,
the Bank shall not disclose confidential information to an operating company
which is a known direct competitor of Borrower (as determined by Bank).

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

12.11         Attorneys’ Fees, Costs and Expenses.

In any action or proceeding between Borrower and Bank arising out of or relating
to the Loan Documents, the prevailing party shall be entitled to recover its
reasonable attorneys’ fees and other costs and expenses incurred, in addition to
any other relief to which it may be entitled.

12.12         Electronic Execution of Documents.

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

12.13         Captions.

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

12.14         Construction of Agreement.

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

12.15         Relationship.

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

12.16         Third Parties.

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

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13                 DEFINITIONS

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

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

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

“Acquisition Option Agreement” means that certain Acquisition Option Agreement,
dated September 6, 2011, among Medtronic VidaMed, Inc., Medtronic, Inc., and
Borrower.

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

“Affiliate” is, with respect to any Person, each other 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.

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
amount available under the Borrowing Base minus (b) 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.

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

“Borrower” is defined in the preamble hereof.

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“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 80% of Eligible Accounts, as determined by Bank from
Borrower’s most recent Transaction Report; provided, however, that Bank may
decrease the foregoing percentage in its good faith business judgment based on
events, conditions, contingencies, or risks which, as determined by Bank based
on an audit of the Collateral pursuant to Section 6.6 of this Agreement, may
adversely affect Collateral. Provided, that no Event of Default is anticipated
or has occurred and is continuing, Bank shall notify Borrower of such decrease,
provided that the failure to do so shall not give rise to any liability to Bank.

“Borrowing Resolutions” are, with respect to any Person, those resolutions
substantially in the form attached hereto as Exhibit E.

“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.

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

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

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

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

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“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, in each
case, 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.

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

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

“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
[intentionally omitted in exhibit copy], maintained with Bank.

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

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

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“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the
extent deducted in the calculation of Net Income, depreciation expense and
amortization expense, plus (d) income tax expense.

“Effective Date” is defined in the preamble 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. Bank reserves the right upon prior written notice to Borrower at
any time after the Effective Date to adjust any of the criteria set forth below
and to establish new criteria in its good faith business judgment. Unless Bank
otherwise agrees in writing, Eligible Accounts shall not include:

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

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

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

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

(e)                 Accounts owing from an Account Debtor which does not have
its principal place of business in the United States;

(f)                 Accounts billed and/or payable outside of the United States
(sometimes called foreign invoiced accounts);

(g)                 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).

(h)                 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;

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

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

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(k)                 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);

(l)                 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);

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

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

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

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

(q)                 Accounts for which Borrower has permitted Account Debtor’s
payment to extend beyond 90 days;

(r)                 Accounts arising from chargebacks, debit memos or others
payment deductions taken by an Account Debtor;

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

(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;

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

(v)                 Accounts owing from an Account Debtor, whose total
obligations to Borrower exceed twenty-five percent (25%) of all Accounts, for
the amounts that exceed that percentage, unless Bank approves in writing; and

-33-

 

 

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

“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 for the
account of Borrower which shall be a Business Day.

“FX Forward Contract” is any foreign exchange contract by and between Borrower
and Bank under which Borrower commits to purchase from or sell to Bank a
specific amount of Foreign Currency on a specified date.

“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 Intellectual Property, claims, income
and other tax refunds, security and other deposits, payment intangibles,
contract rights, options to purchase or sell real or personal property, rights
in all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.

“Good Faith Deposit” is defined in Section 2.4(e).

“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.

-34-

 

 

“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 Borrower’s Accounts, 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.

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

(a)                 its Copyrights, Trademarks and Patents;

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

(c)                 any and all source code;

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

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

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

“Interest Expense” means for any fiscal period, interest expense (whether cash
or non-cash) determined in accordance with GAAP for the relevant period ending
on such date, including, in any event, interest expense with respect to any
Credit Extension and other Indebtedness of Borrower and its Subsidiaries,
including, without limitation or duplication, all commissions, discounts, or
related amortization and other fees and charges with respect to letters of
credit and bankers’ acceptance financing and the net costs associated with
interest rate swap, cap, and similar arrangements, and the interest portion of
any deferred payment obligation (including leases of all types).

“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.

-35-

 

 

“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.

“Key Person” is any of Borrower’s Chief Executive Officer, Chief Financial
Officer, or Chief Operating Officer who are, as of the Effective Date, Stryker
Warren, Jr., Brian Smrdel, and Gregory Fluet, respectively, and shall include
any Person who is designated by the Borrower’s Board of Directors to replace or
perform the duties of such individuals.

“Letter of Credit” is a standby or commercial letter of credit issued by Bank
upon request of Borrower based upon an application, guarantee, indemnity, or
similar agreement.

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

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate,
any Bank Services Agreement, any subordination agreement, any note, or notes or
guaranties executed by Borrower, and any other present or future agreement
between Borrower 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; or (c) a material impairment of the
prospect of repayment of any portion of the Obligations.

“Maximum Loss” means, as calculated on a consolidated basis for Borrower and its
Subsidiaries for any period as at any date of determination, the net loss of
Borrower and its Subsidiaries, plus (a) Interest Expense, plus (b) to the extent
deducted in the calculation of net loss, depreciation expense and amortization
expense, plus (c) income tax expense for such period taken as a single
accounting period, plus (d) non-cash stock compensation expense.

“Monthly Financial Statements” is defined in Section 6.2(c).

“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 obligations 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, any interest accruing after Insolvency Proceedings begin and
debts, liabilities, or obligations of Borrower any Credit Party assigned to
Bank, and to perform Borrower’s duties under the Loan Documents.

-36-

 

 

“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.

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

“Payment” means all checks, wire transfers and other items of payment received
by Bank (including proceeds of Accounts and payment of the Obligations in full)
for credit to Borrower’s outstanding Credit Extensions or, if the balance of the
Credit Extensions has been reduced to zero, for credit to its deposit accounts.

“Perfection Certificate” is defined in Section 5.1.

“Permitted Indebtedness” is:

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

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

(c)                 Subordinated Debt;

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

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

(f)                  Indebtedness secured by Liens permitted under clauses (a)
and (c) of the definition of “Permitted Liens” hereunder;

(g)                 Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to Borrower in an aggregate principal amount not to exceed Fifty
Thousand Dollars ($50,000) or any other Subsidiary and Contingent Obligations of
any Subsidiary with respect to obligations of any other Subsidiary (provided
that the primary obligations are not prohibited hereby); and

-37-

 

 

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

“Permitted Investments” are:

(a)                 Investments (including, without limitation, Subsidiaries)
existing on the Effective Date and shown on the Perfection Certificate;

(b)                 Investments consisting of 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 deposit accounts in which Bank has
a perfected security interest;

(e)                 Investments accepted in connection with Transfers permitted
by Section 7.1;

(f)                  Investments (i) by Borrower in Subsidiaries not to exceed
Fifty Thousand Dollars ($50,000) in the aggregate in any fiscal year and (ii) by
Subsidiaries in other Subsidiaries not to exceed Fifty Thousand Dollars
($50,000) in the aggregate in any fiscal year or in Borrower;

(g)                 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;

(h)                 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

(i)                   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 (i)
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;

-38-

 

 

(b)                 Liens for taxes, fees, assessments or other government
charges or levies, either (i) not due and payable or (ii) being contested in
good faith and for which Borrower maintains adequate reserves on 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 the 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 of carriers, warehousemen, suppliers, or other Persons
that are possessory in nature arising in the ordinary course of business so long
as such Liens attach only to Inventory, securing liabilities in the aggregate
amount not to exceed Fifty Thousand Dollars ($50,000) and which are not
delinquent or remain payable without penalty or which are being contested in
good faith and by appropriate proceedings which proceedings have the effect of
preventing the forfeiture or sale of the property subject thereto;

(e)                 Liens to secure payment of workers’ compensation, employment
insurance, old-age pensions, social security and other like obligations incurred
in the ordinary course of business (other than Liens imposed by ERISA);

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

(g)                 leases or subleases of real property granted in the ordinary
course of Borrower’s business (or, if referring to another Person, in the
ordinary course of such Person’s business), and leases, subleases, non-exclusive
licenses or sublicenses of personal property (other than Intellectual Property)
granted in the ordinary course of Borrower’s business (or, if referring to
another Person, in the ordinary course of such Person’s business), if the
leases, subleases, licenses and sublicenses do not prohibit granting Bank a
security interest therein;

(h)                 non-exclusive license of Intellectual Property granted to
third parties in the ordinary course of business; and

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

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

“Prime Rate” is the “prime rate” of interest, as published from time to time by
The Wall Street Journal in the “Money Rates” section of its Western Edition
newspaper. In the event The Wall Street Journal or such rate is no longer
published or available, Bank shall select a comparable rate.

-39-

 

 

“Prostiva Acquisition” is the acquisition transaction described in that certain
Acquisition Option Agreement.

“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 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 (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 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.

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

“Revolving Line” is an Advance or Advances in an amount equal to Two Million
Dollars ($2,000,000).

“Revolving Line Maturity Date” is January 11, 2014.

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

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

-40-

 

 

“Streamline Eligible” shall mean at all times that Borrower’s unrestricted cash
maintained at Bank for the immediately preceding month is greater than the
outstanding Obligations, as determined by Bank, in its sole discretion (the
“Streamline Threshold”); provided, however, Borrower shall not be Streamline
Eligible during the continuance of an Event of Default. At any time that
Borrower’s unrestricted cash maintained at Bank is equal to or less than the
Streamline Threshold, Borrower will not be Streamline Eligible until such time
as Bank confirms that (a) Borrower’s cash maintained at Bank is greater than the
Streamline Threshold as of such date and (b) Borrower’s unrestricted cash
maintained at Bank is greater than the Streamline Threshold at all times during
the immediately preceding thirty (30) day period.

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

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

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

“Transaction Report” is that certain report of transactions and schedule of
collections in the form attached hereto as Exhibit C.

“Transfer” is defined in Section 7.1.

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

[Signature page follows.]

 

 

 

-41-

 

 

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

 

 

BORROWER:       UROLOGIX, INC.             By: Brian J. Smrdel   Name: Brian J.
Smrdel   Title: Chief Financial Officer             BANK:   SILICON VALLEY BANK
            By: Adam Glick   Name: Adam Glick   Title: Relationship Manager

 

 

 

 

 

 

 

EXHIBIT A

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

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

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

Notwithstanding the foregoing, the Collateral does not include any Intellectual
Property; provided, however, the Collateral shall include all Accounts and all
proceeds of Intellectual Property. If a judicial authority (including a U.S.
Bankruptcy Court) would hold that a security interest in the underlying
Intellectual Property is necessary to have a security interest in such Accounts
and such property that are proceeds of Intellectual Property, then the
Collateral shall automatically, and effective as of the Effective Date, include
the Intellectual Property to the extent necessary to permit perfection of Bank’s
security interest in such Accounts and such other property of Borrower that are
proceeds of the Intellectual Property.

Pursuant to the terms of a certain negative pledge arrangement with Bank,
Borrower has agreed not to encumber any of its Intellectual Property without
Bank’s prior written consent.

 

 

 

 

 

 

 

EXHIBIT B – LOAN PAYMENT/ADVANCE REQUEST FORM

 

Deadline for same day processing is Noon Pacific Time

 

Fax To:   Date:     

 

Loan Payment:                 Urologix, Inc.                 From Account #    
To Account #       (Deposit Account #)     (Loan Account #)   Principal $    
and/or Interest $                 Authorized Signature:     Phone Number:    
Print Name/Title:                      

 

Loan Advance:                       Complete Outgoing Wire Request section below
if all or a portion of the funds from this loan advance are for an outgoing
wire.             From Account #     To Account #       (Loan Account #)    
(Deposit Account #)   Amount of Advance $                       All Borrower’s
representations and warranties in the Loan and Security Agreement are true,
correct and complete in all material respects on the date of the request for an
advance; 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:          
  Authorized Signature:     Phone Number:     Print Name/Title:                
     

 

Outgoing Wire Request:

Complete only if all or a portion of funds from the loan advance above is to be
wired.

Deadline for same day processing is noon, Pacific Time

            Beneficiary Name:     Amount of Wire: $     Beneficiary Bank:    
Account Number:     City and State:                      

Beneficiary Bank Transit (ABA) #:     Beneficiary Bank Code (Swift, Sort, Chip,
etc.):           (For International Wire Only)    

            Intermediary Bank:     Transit (ABA) #:     For Further Credit to:  
        Special Instruction:                 By signing below, I (we)
acknowledge and agree that my (our) funds transfer request shall be processed in
accordance with and subject to the terms and conditions set forth in the
agreements(s) covering funds transfer service(s), which agreements(s) were
previously received and executed by me (us).             Authorized Signature:  
  2nd Signature (if required):     Print Name/Title:     Print Name/Title:    
Telephone #:     Telephone #:                

 

 

 

EXHIBIT C

Transaction Report

 

 

 

 

 

 

 

EXHIBIT D – COMPLIANCE CERTIFICATE

 

 

TO:  SILICON VALLEY BANK Date:     FROM:   Urologix, Inc    

 

The undersigned authorized officer of Urologix, Inc. (“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       Monthly financial statements with
Compliance Certificate Monthly within 30 days Yes   No Annual financial
statement (CPA Audited) FYE within 120 days Yes   No Board Projections FYE
within 30 days Yes    No A/R & A/P Agings Monthly within 30 days Yes    No
Transaction Report Weekly; or
Monthly within 30 days if Streamline Eligible Yes   No Deferred Revenue Reports
Monthly within 30 days Yes   No  

 

Financial Covenants Required Actual Complies         Maintain on a Monthly
Basis:          Monthly Maximum Loss (trailing 3 month period):       November
30, 2011 through September 30, 2012 ($1,500,000) $_________ Yes   No October 31,
2012 and at all times thereafter TBD based on 2013 Board approved plan
$_________ Yes   No

 

1

 

 

The following financial covenant analysis 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.”)

 

 

 

UROLOGIX, Inc.

 

 

By: __________________________________

Name:

Title:

 

BANK USE ONLY

 

Received by: _____________________

authorized signer

Date: __________________________

Verified: ________________________

authorized signer

Date: _________________________

Compliance Status:        Yes   No

 

 

 

 

2

 

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: ____________________

 

Maximum Loss (Section 6.9(a))

Required: a Maximum Loss of not greater than ($1,500,000) commencing with the
trailing three (3) month period ending November 30, 2011 and on the last day of
each month thereafter through September 30, 2012.

 

Actual:

 

A. Net loss $_____ B. Interest Expense $_____ C. To the extent deducted in the
determination of Net loss, depreciation expense, plus amortization expense

$_____

D. Income tax expense $_____ E Non-cash compensation expense $_____ F. Loss
(line A, plus line B, plus line C, plus line D, plus line E) $_____

 

Is line E equal to or greater than the required amount?

 

________  No, not in compliance                ________  Yes, in compliance