Exhibit 10.38

 
LOAN AND SECURITY AGREEMENT
 
Dated as of February 20, 2008
 
between
 
ASYRMATOS, INC.
a Delaware corporation,

as “Borrower”,
 
and
 
LUMERA CORPORATION,
a Delaware corporation,

as “Lender”
 
TABLE OF CONTENTS
 
 
 

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Exhibit 10.38
 

   
Page(s)
ARTICLE   1INTERPRETATION
1
1.1
Definitions
1
ARTICLE 2  THE TERM LOAN
1
2.1
Term Loan
1
2.2
Note Evidencing Loans; Repayment
1
2.3
Interest
1
2.4
Interest Rate Calculation
1
2.5
Default Interest
1
2.6
Late Charges
1
2.7
Lender's Records
2
2.8
Grant of Security Interests; Filing of Financing Statements.
2
2.9
Prepayments
2
ARTICLE 3  REPRESENTATIONS AND WARRANTIES
2
3.1
Due Organization
2
3.2
Authorization, Validity and Enforceability
3
3.3
Compliance with Applicable Laws
3
3.4
No Conflict
3
3.5
Litigation, Claims or Proceedings
3
3.6
Correctness of Financial Statements
3
3.7
No Subsidiaries
3
3.8
Environmental Matters
3
3.9
No Event of Default
3
3.10
Full Disclosure
3
3.11
Specific Representations Regarding Collateral.
4
3.12
Copyrights, Patents, Trademarks and Licenses.
4
3.13
Survival
5
ARTICLE 4  CONDITIONS PRECEDENT
5
4.1
Conditions to the Loan
5

 
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Exhibit 10.38
 
ARTICLE 5  AFFIRMATIVE COVENANTS
6
5.1
Notice to Lender
6
5.2
Financial Statements
7
5.3
Existence
7
5.4
Insurance
7
5.5
Accounting Records
8
5.6
Compliance With Laws
8
5.7
Taxes and Other Liabilities
8
5.8
Special Collateral Covenants.
8
ARTICLE 6  NEGATIVE COVENANTS
9
6.1
Indebtedness
9
6.2
Liens
9
6.3
Dividends
9
6.4
Changes/Mergers
10
6.5
Sales of Assets
10
6.6
Loans/Investments
10
6.7
Transactions With Related Persons
11
6.8
Other Business
11
6.9
Financing Statements and Other Actions
11
6.10
Compliance
11
6.11
Other Deposit and Securities Accounts
11
6.12
Prepayment of Indebtedness
11
ARTICLE 7  EVENTS OF DEFAULT
12
7.1
Events of Default; Acceleration
12
7.2
Remedies Upon Default
13
7.3
Sale of Collateral
13
7.4
Borrower's Obligations Upon Default
14
ARTICLE 8  SPECIAL COLLATERAL PROVISIONS
14
8.1
Compromise and Collection
14
8.2
Performance of Borrower's Obligations
14
8.3
Power of Attorney
14

 
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Exhibit 10.38
 
8.4
Authorization for Lender to Take Certain Action
15
8.5
Application of Proceeds
16
8.6
Deficiency
16
8.7
Lender Transfer
16
8.8
Lender's Duties.
16
8.9
Termination of Security Interests
17
ARTICLE 9  GENERAL PROVISIONS
17
9.1
Notices
17
9.2
Binding Effect
17
9.3
No Waiver
17
9.4
Rights Cumulative
17
9.5
Unenforceable Provisions
17
9.6
Accounting Terms
18
9.7
Indemnification; Exculpation
18
9.8
Reimbursement
18
9.9
Execution in Counterparts
18
9.10
Entire Agreement
18
9.11
Governing Law and Jurisdiction.
19
9.12
Waiver of Jury Trial
19
ARTICLE 10  DEFINITIONS
19

 
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Exhibit 10.38
 

LOAN AND SECURITY AGREEMENT

The Borrower and Lender hereby enter into a transaction whereby the Lender will
make certain funds available to the Borrower pursuant to the terms and
conditions set forth in this document (the “Agreement”).
 
Accordingly, the parties agree as follows:
 
ARTICLE 1INTERPRETATION
 
1.1 Definitions. The terms defined in Article 10 will have the meanings therein
specified for purposes of this Agreement.
 
ARTICLE 2 THE TERM LOAN
 
2.1 Term Loan. Subject to the terms and conditions of this Agreement, Lender
agrees to make a term loan (the “Loan”) to Borrower in an aggregate principal
amount not exceeding $ 500,000 (the “Loan Amount”). The Loan is not a revolving
credit commitment, and Borrower does not have the right to repay and reborrow
hereunder. The proceeds of the Loan shall be used by the Borrower for
development of a millimeter wave communication system and corporate general
purposes..
 
2.2 Note Evidencing Loans; Repayment. The Loan shall be evidenced by a Note
payable to the order of Lender, in the total principal amount of the Loan.
Principal and interest of each Loan shall be payable at the times set forth in
the Note and regularly scheduled payments thereof.
 
2.3 Interest. Except as otherwise specified in the applicable Note, Basic
Interest on the outstanding principal balance of the Loan shall accrue daily
from the date hereof. If the outstanding principal balance of such Loan is not
paid at maturity, interest shall accrue at the Default Rate until paid in full,
as further set forth herein.
 
2.4 Interest Rate Calculation. Basic Interest, along with charges and fees under
this Agreement and any Loan Document, shall be calculated for actual days
elapsed on the basis of a 360-day year, which results in higher interest, charge
or fee payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay Lender interest, charges or fees at a rate in excess of the
highest rate permitted by applicable law from time to time in effect.
 
2.5 Default Interest. Any unpaid payments of principal or interest with respect
to the Loan shall bear interest from the Maturity Date at the Basic Interest
rate plus three percent (3.00%) per annum, until paid in full, whether before or
after judgment (the “Default Rate”). Borrower shall pay such interest on demand.
 
2.6 Late Charges. If Borrower is late in making any payment of principal or
interest under this Agreement by more than fifteen (15) days, Borrower agrees to
pay a late charge of five percent (5%) of the installment due, but not less than
fifty dollars ($50.00) for any one such delinquent payment. This late charge may
be charged by Lender for the purpose of defraying the expenses incidental to the
handling of such delinquent amounts. Borrower acknowledges that such late charge
represents a reasonable sum considering all of the circumstances existing on the
date of this Agreement and represents a fair and reasonable estimate of the
costs that will be sustained by Lender due to the failure of Borrower to make
timely payments. Borrower further agrees that proof of actual damages would be
costly and inconvenient. Such late charge shall be paid without prejudice to the
right of Lender to collect any other amounts provided to be paid or to declare a
default under this Agreement or any of the other Loan Documents or from
exercising any other rights and remedies of Lender.
 
 
 

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Exhibit 10.38
 
2.7 Lender's Records. Principal, Basic Interest and all other sums owed under
any Loan Document shall be evidenced by entries in records maintained by Lender
for such purpose. Each payment on and any other credits with respect to
principal, Basic Interest and all other sums outstanding under any Loan Document
shall be evidenced by entries in such records. Absent manifest error, Lender's
records shall be conclusive evidence thereof.
 
2.8 Grant of Security Interests; Filing of Financing Statements. 
 
(a) To secure the timely payment and performance of all of Borrower's
Obligations to Lender, Borrower hereby grants to Lender continuing security
interests in all of the Collateral. In connection with the foregoing, Borrower
authorizes Lender to prepare and file any financing statements describing the
Collateral without otherwise obtaining the Borrower’s signature or consent with
respect to the filing of such financing statements.
 
(b) Borrower is and shall remain absolutely and unconditionally liable for the
performance of its obligations under the Loan Documents, including, without
limitation, any deficiency by reason of the failure of the Collateral to satisfy
all amounts due Lender under any of the Loan Documents.
 
(c) All Collateral pledged by Borrower under this Agreement shall secure the
timely payment and performance of all Obligations under this Agreement, the
Notes and the other Loan Documents. Except as expressly provided in this
Agreement, no Collateral pledged under this Agreement shall be released until
such time as all Obligations under this Agreement and the other Loan Documents
have been satisfied and paid in full.
 
2.9 Prepayments. The Loan may be prepaid in whole or in part, without penalty,
provided that the Borrower must provide 10 days prior written notice of such
prepayment and the Lender shall have the opportunity to convert as set forth in
Section 3 of the Note before such prepayment. 
 
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
 
Borrower represents and warrants that, except as set forth in any schedule of
exceptions executed by the parties, as of the Closing Date:
 
3.1 Due Organization. Borrower is a corporation duly organized and validly
existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good standing
in each other jurisdiction in which its business is conducted or its properties
are located, except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect. Borrower’s federal tax
identification numbers are as set forth on Schedule 3.1.
 
 
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Exhibit 10.38
 
3.2 Authorization, Validity and Enforceability. The execution, delivery and
performance of all Loan Documents executed by Borrower are within Borrower's
powers, have been duly authorized, and are not in conflict with Borrower's
articles of incorporation or by-laws, or the terms of any charter or other
organizational document of Borrower, as amended from time to time; and all such
Loan Documents constitute valid and binding obligations of Borrower, enforceable
in accordance with their terms (except as may be limited by bankruptcy,
insolvency and similar laws affecting the enforcement of creditors' rights in
general, and subject to general principles of equity).
 
3.3 Compliance with Applicable Laws. Borrower has complied with all licensing,
permit and fictitious name requirements necessary to lawfully conduct the
business in which it is engaged, and to any sales, leases or the furnishing of
services by Borrower, including without limitation those requiring consumer or
other disclosures, the noncompliance with which would have a Material Adverse
Effect.
 
3.4 No Conflict. The execution, delivery, and performance by Borrower of all
Loan Documents are not in conflict with any law, rule, regulation, order or
directive, or any indenture, agreement, or undertaking to which Borrower is a
party or by which Borrower may be bound or affected.
 
3.5 Litigation, Claims or Proceedings. There is no litigation, tax claim,
proceeding or dispute pending, or, to the knowledge of Borrower, threatened
against or affecting Borrower, its property or the conduct of its business.
 
3.6 Correctness of Financial Statements. Borrower's financial statements which
have been delivered to Lender fairly and accurately reflect Borrower's financial
condition in accordance with GAAP as of the latest date of such financial
statements; and, since that date there has been no Material Adverse Change. 
 
3.7 No Subsidiaries. Borrower is not a majority owner of or in a control
relationship with any other business entity.
 
3.8 Environmental Matters. To its knowledge after reasonable inquiry, Borrower
has concluded that Borrower is in compliance with Environmental Laws, except to
the extent a failure to be in such compliance could not reasonably be expected
to have a Material Adverse Effect.
 
3.9 No Event of Default. No Default or Event of Default has occurred and is
continuing.
 
3.10 Full Disclosure. None of the representations or warranties made by Borrower
in the Loan Documents as of the date such representations and warranties are
made or deemed made, and none of the statements contained in any exhibit,
report, statement or certificate furnished by or on behalf of Borrower in
connection with the Loan Documents (including disclosure materials delivered by
or on behalf of Borrower to Lender prior to the Closing Date or pursuant to
Section 5.2 hereof), contains any untrue statement of a material fact or omits
any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
 
 
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Exhibit 10.38
 
3.11 Specific Representations Regarding Collateral. 
 
(a) Title. Except for the security interests created by this Agreement and
Permitted Liens, (i) Borrower is and will be the unconditional legal and
beneficial owner of the Collateral, and (ii) the Collateral is subject to no
Liens, rights or defenses of others. There exist no prior assignments or
encumbrances of record with the U.S. Patent and Trademark Office or U.S.
Copyright Office affecting any Collateral in favor of any third party other than
Lender.
 
(b) Rights to Payment. The names of the obligors, amount owing to Borrower, due
dates and all other information with respect to the Rights to Payment are and
will be correctly stated in all material respects in all Records relating to the
Rights to Payment. Borrower further represents and warrants, to its knowledge,
that each Person appearing to be obligated on a Right to Payment has authority
and capacity to contract and is bound as it appears to be.
 
(c) Location of Collateral. Borrower's chief executive office, Inventory,
Records, Equipment, and any other offices or places of business are located at
the address(es) shown on Schedule 3.11(c).
 
(d) Business Names. Other than its full corporate name, Borrower has not
conducted business using any trade names or fictitious business names.
 
(e) Accounts. Borrower’s primary operating account and wire transfer
instructions for such account is as set forth on Schedule 3.11(e). Borrower
maintains additional accounts as described on Schedule 3.11(e).
 
3.12 Copyrights, Patents, Trademarks and Licenses. 
 
(a) Borrower owns or is licensed or otherwise has the right to use all of the
patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other similar rights that are reasonably
necessary for the operation of its business, without conflict with the rights of
any other Person.
 
(b) To Borrower's knowledge, no slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed, by Borrower infringes upon any rights held by any
other Person.
 
(c) No claim or litigation regarding any of the foregoing is pending or, to
Borrower's knowledge, threatened, and no patent, invention, device, application,
principle or any statute, law, rule, regulation, standard or code is pending or
proposed which, in either case, could reasonably be expected to have a Material
Adverse Effect.
 
 
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Exhibit 10.38
 
3.13 Survival. The representations and warranties of Borrower as set forth in
this Agreement survive the execution and delivery of this Agreement.
 
ARTICLE 4 CONDITIONS PRECEDENT
 
4.1 Conditions to the Loan. The obligation of Lender to the Loan hereunder is
subject to the fulfillment of the following conditions and to the receipt by
Lender of the documents described below, duly executed and in form and substance
satisfactory to Lender and its counsel:
 
(a) No Default. No Default or Event of Default has occurred and is continuing or
will result from the making of any such Loan, and the representations and
warranties of Borrower contained in Article 3 of this Agreement are true and
correct as of the Closing Date.
 
(b) No Material Adverse Change. No event has occurred that has had or could
reasonably be expected to have a Material Adverse Change.
 
(c) Resolutions. A certified copy of the resolutions of the Board of Directors
of Borrower authorizing the execution, delivery and performance by Borrower of
the Loan Documents.
 
(d) Incumbency and Signatures. A certificate of the secretary of Borrower
certifying the names of the officer or officers of Borrower authorized to sign
the Loan Documents, together with a sample of the true signature of each such
officer.
 
(e) Legal Opinion. The opinion of legal counsel for Borrower as to such matters
as Lender may reasonably request, including the matters covered by Sections 3.1,
3.2, 3.4 and 3.5 hereof.
 
(f) Articles and By-Laws. Certified copies of the Articles of Incorporation and
By-Laws of Borrower, as amended through the Closing Date.
 
(g) This Agreement. Original counterparts of this Agreement, with all schedules
completed and attached thereto, and disclosing such information as is acceptable
to Lender.
 
(h) Financing Statements. Filing copies (or other evidence of filing
satisfactory to Lender and its counsel) of such UCC financing statements,
collateral assignments, account control agreements, and termination statements,
with respect to the Collateral as Lender shall request.
 
(i) Insurance Certificates. Insurance certificates showing Lender as loss payee
or additional insured.
 
 
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Exhibit 10.38
 
(j) Lien Searches. UCC lien, judgment, bankruptcy and tax lien searches of
Borrower from such jurisdictions or offices as Lender may reasonably request,
all as of a date reasonably satisfactory to Lender and its counsel.
 
(k) Good Standing Certificate. A certificate of status or good standing of
Borrower as of a date acceptable to Lender from the jurisdiction of Borrower's
organization and any foreign jurisdictions where Borrower is qualified to do
business.
 
(l) Other Documents. Such other documents and instruments as Lender may
reasonably request to effectuate the intents and purposes of this Agreement.
 
(m) Financial Projections. Borrower shall have delivered to Lender Borrower’s
business plan and/or financial projections or forecasts as most recently
approved by Borrower’s Board of Directors.
 
ARTICLE 5 AFFIRMATIVE COVENANTS
 
During the term of this Agreement and until its performance of all Obligations,
Borrower will:
 
5.1 Notice to Lender. Promptly give written notice to Lender of:
 
(a) Any litigation or administrative or regulatory proceeding affecting Borrower
where the amount claimed against Borrower is $50,000 or more, or where the
granting of the relief requested could have a Material Adverse Effect; or of the
acquisition by Borrower of any commercial tort claim, including brief details of
such claim and such other information as Lender may reasonably request to enable
Lender to better perfect its Lien in such commercial tort claim as Collateral.
 
(b) Any substantial dispute which may exist between Borrower and any
governmental or regulatory authority.
 
(c) The occurrence of any Default or any Event of Default.
 
(d) Any change in the location of any of Borrower's places of business or
Collateral at least thirty (30) days in advance of such change, or of the
establishment of any new, or the discontinuance of any existing, place of
business.
 
(e) Any dispute or default by Borrower or any other party under any joint
venture, partnering, distribution, cross-licensing, strategic alliance,
collaborative research or manufacturing, license or similar agreement which
could reasonably be expected to have a Material Adverse Effect, but not
including a dispute between the Borrower and the Lender.
 
(f) Any other matter which has resulted or might reasonably result in a Material
Adverse Change.
 
 
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Exhibit 10.38
 
5.2 Financial Statements. Deliver to Lender or cause to be delivered to Lender,
in form and detail satisfactory to Lender the following financial and other
information, which Borrower warrants shall be accurate and complete in all
material respects:
 
(a) Monthly Financial Statements. As soon as available but no later than twenty
(20) days after the end of each month, Borrower's balance sheet as of the end of
such period, and Borrower's income statement for such period and for that
portion of Borrower's financial reporting year ending with such period, prepared
in accordance with GAAP and attested by a responsible financial officer of
Borrower as being complete and correct and fairly presenting Borrower's
financial condition and the results of Borrower's operations.
 
(b) Year-End Financial Statements. As soon as available but no later than one
hundred twenty (120) days after the end of the financial reporting year, a
complete copy of Borrower's audit report for each financial reporting year of
Borrower (or, if Borrower’s Board of Directors has waived the requirement for an
audit with respect to a particular financial reporting year, then an unaudited
report for such year), which shall include balance sheet, income statement,
statement of changes in equity and statement of cash flows for such year,
prepared in accordance with GAAP and certified by an independent certified
public accountant selected by Borrower and reasonably satisfactory to Lender
(the “Accountant”). The Accountant's certification shall not be qualified or
limited due to a restricted or limited examination by the Accountant of any
material portion of Borrower's records or otherwise.
 
(c) Government Required Reports; Press Releases. Promptly after sending,
issuing, making available, or filing, copies of all statements released to any
news media for publication, all reports, proxy statements, and financial
statements that Borrower sends or makes available to its stockholders, and, not
later than five (5) days after actual filing or the date such filing was first
due, all registration statements and reports that Borrower files or is required
to file with the Securities and Exchange Commission, or any other governmental
or regulatory authority.
 
(d) Other Information. Such other statements, lists of property and accounts,
budgets, forecasts, reports, information regarding equity financings that are
consummated after the Closing Date, or other information as Lender may from time
to time reasonably request.
 
5.3 Existence. Maintain and preserve Borrower's existence, present form of
business, and all rights and privileges necessary or desirable in the normal
course of its business; and keep all Borrower's property in good working order
and condition, ordinary wear and tear excepted.
 
5.4 Insurance. Obtain and keep in force insurance in such amounts and types as
is usual in the type of business conducted by Borrower, with insurance carriers
having a policyholder rating of not less than “A” and financial category rating
of Class VII in “Best's Insurance Guide,” unless otherwise approved by Lender.
Such insurance policies must be in form and substance satisfactory to Lender,
and shall list Lender as an additional insured or loss payee, as applicable, on
endorsement(s) in form reasonably acceptable to Lender. Borrower shall furnish
to Lender such endorsements, and upon Lender's request, copies of any or all
such policies.
 
 
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Exhibit 10.38
 
5.5 Accounting Records. Maintain adequate books, accounts and records, and
prepare all financial statements in accordance with GAAP, and in compliance with
the regulations of any governmental or regulatory authority having jurisdiction
over Borrower or Borrower's business; and upon reasonable prior notice, permit
employees or agents of Lender , at Borrower's expense, to inspect Borrower's
properties, and to examine, and make copies and memoranda of Borrower's books,
accounts and records which support quarterly financial statements
 
5.6 Compliance With Laws. Comply with all laws (including Environmental Laws),
rules, regulations applicable to, and all orders and directives of any
governmental or regulatory authority having jurisdiction over, Borrower or
Borrower's business, and with all material agreements to which Borrower is a
party, except where the failure to so comply would not have a Material Adverse
Effect.
 
5.7 Taxes and Other Liabilities. Pay all Borrower's Indebtedness when due; pay
all taxes and other governmental or regulatory assessments before delinquency or
before any penalty attaches thereto, except as may be contested in good faith by
the appropriate procedures and for which Borrower shall maintain appropriate
reserves; and timely file all required tax returns.
 
5.8 Special Collateral Covenants. 
 
(a) Maintenance of Collateral; Inspection. Do all things reasonably necessary to
maintain, preserve, protect and keep all Collateral in good working order and
salable condition, ordinary wear and tear excepted, deal with the Collateral in
all ways as are considered good practice by owners of like property, and use the
Collateral lawfully and, to the extent applicable, only as permitted by
Borrower's insurance policies. Maintain, or cause to be maintained, complete and
accurate Records relating to the Collateral. Upon reasonable prior notice at
reasonable times during normal business hours, Borrower hereby authorizes
Lender's officers, employees, representatives and agents to inspect the
Collateral and to discuss the Collateral and the Records relating thereto with
Borrower's officers, and, in the case of any Right to Payment, with any Person
which is or may be obligated thereon.
 
(b) Documents of Title. Not sign or authorize the signing of any financing
statement or other document naming Borrower as debtor or obligor, or acquiesce
or cooperate in the issuance of any bill of lading, warehouse receipt or other
document or instrument of title with respect to any Collateral, except those
negotiated to Lender, or those naming Lender as secured party, or if solely to
create, perfect or maintain a Permitted Lien.
 
(c) Change in Location or Name. Without at least 30 days' prior written notice
to Lender: (a) not relocate any Collateral or Records, its chief executive
office, or establish a place of business at a location other than as specified
in the Supplement; and (b) not change its name, mailing address, location of
Collateral, jurisdiction of incorporation or its legal structure.
 
 
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Exhibit 10.38
 
(d) Agreement With Real Property Owner/Landlord. Obtain and maintain such
acknowledgments, consents, waivers and agreements from the owner, lienholder,
mortgagee and landlord with respect to any real property on which Equipment is
located as Lender may require, all in form and substance reasonably satisfactory
to Lender.
 
(e) Certain Agreements on Rights to Payment. Other than in the ordinary course
of business, not make any material discount, credit, rebate or other reduction
in the original amount owing on a Right to Payment or accept in satisfaction of
a Right to Payment less than the original amount thereof.
 
ARTICLE 6 NEGATIVE COVENANTS
 
During the term of this Agreement and until the performance of all Obligations,
Borrower will not:
 
6.1 Indebtedness. Be indebted for borrowed money, the deferred purchase price of
property, or leases which would be capitalized in accordance with GAAP; or
become liable as a surety, guarantor, accommodation party or otherwise for or
upon the obligation of any other Person, except:
 
(a) Indebtedness incurred for the acquisition of machinery, equipment, goods,
supplies or inventory on normal trade credit;
 
(b) Indebtedness incurred pursuant to one or more transactions permitted under
Section 6.4;
 
(c) Indebtedness of Borrower under this Agreement;
 
(d) Subordinated Debt; and
 
(e) Any Indebtedness approved by Lender prior to the Closing Date as shown on
Schedule 6.1 hereto.
 
6.2 Liens. Create, incur, assume or permit to exist any Lien, or grant any other
Person a negative pledge, on any of Borrower's property, except Permitted Liens.
Borrower and Lender agree that this covenant is not intended to constitute a
lien, deed of trust, equitable mortgage, or security interest of any kind on any
of Borrower's real property, and this Agreement shall not be recorded or
recordable. Notwithstanding the foregoing, however, violation of this covenant
by Borrower shall constitute an Event of Default.
 
6.3 Dividends. Pay any dividends or purchase, redeem or otherwise acquire or
make any other distribution with respect to any of Borrower's capital stock,
except (a) dividends or other distributions solely of capital stock of Borrower,
and (b) so long as no Event of Default has occurred and is continuing,
repurchases of stock from employees upon termination of employment under reverse
vesting or similar repurchase plans not to exceed $100,000 in any calendar year.
 
 
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Exhibit 10.38
 
6.4 Changes/Mergers. Liquidate or dissolve; or enter into any consolidation,
merger or other combination in which the stockholders of the Borrower
immediately prior to the first such transaction own less than 50% of the voting
stock of the Borrower immediately after giving effect to such transaction or
related series of such transactions, except that Borrower may consolidate or
merge so long as: (A) the entity that results from such merger or consolidation
(the “Surviving Entity”) shall have executed and delivered to Lender an
agreement in form and substance reasonably satisfactory to Lender, containing an
assumption by the Surviving Entity of the due and punctual payment and
performance of all Obligations and performance and observance of each covenant
and condition of Borrower in the Loan Documents; (B) all such obligations of the
Surviving Entity to Lender shall be guaranteed by any entity that directly or
indirectly owns or controls more than 50% of the voting stock of the Surviving
Entity; (C) immediately after giving effect to such merger or consolidation, no
Event of Default or, event which with the lapse of time or giving of notice or
both, would result in an Event of Default shall have occurred and be continuing;
and (D) the credit risk to Lender, in its sole discretion, of the Surviving
Entity shall not be increased. In determining whether the proposed merger or
consolidation would result in an increased credit risk, Lender may consider,
among other things, changes in Borrower’s management team, employee base, access
to equity markets, venture capital support, financial position and/or
disposition of intellectual property rights which may reasonably be anticipated
as a result of the transaction.
 
6.5 Sales of Assets. Sell, transfer, lease, license or otherwise dispose of (a
“Transfer”) any of Borrower’s assets except (i) licenses of Intellectual
Property in the ordinary course of business consistent with industry practice,
provided that such licenses of Intellectual Property neither result in a legal
transfer of title of the licensed Intellectual Property nor have the same effect
as a sale of such Intellectual Property; (ii) Transfers of worn-out, obsolete or
surplus property (each as determined by the Borrower in its reasonable
judgment); (iii) Transfers of Inventory in the ordinary course of business; (iv)
Transfers constituting Permitted Liens; and (v) Transfers permitted in Section
6.6 hereunder.
 
6.6 Loans/Investments. Make or suffer to exist any loans, guaranties, advances,
or investments, except:
 
(a) Accounts receivable in the ordinary course of Borrower's business;
 
(b) Investments in domestic certificates of deposit issued by, and other
domestic investments with, financial institutions organized under the laws of
the United States or a state thereof, having at least One Hundred Million
Dollars ($100,000,000) in capital and a rating of at least “investment grade” or
“A” by Moody's or any successor rating agency;
 
(c) Investments in marketable obligations of the United States of America and in
open market commercial paper given the highest credit rating by a national
credit agency and maturing not more than one year from the creation thereof;
 
(d) Temporary advances to cover incidental expenses to be incurred in the
ordinary course of business;
 
 
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Exhibit 10.38
 
(e) Investments in joint ventures, strategic alliances, licensing and similar
arrangements customary in Borrower’s industry and which do not require Borrower
to assume or otherwise become liable for the obligations of any third party not
directly related to or arising out of such arrangement or, without the prior
written consent of Lender, require Borrower to transfer ownership of non-cash
assets to such joint venture or other entity; and,
 
(f) Investments in wholly-owned subsidiaries of the Borrower.
 
6.7 Transactions With Related Persons. Directly or indirectly enter into any
transaction with or for the benefit of a Related Person on terms more favorable
to the Related Person than would have been obtainable in an “arms' length”
dealing.
 
6.8 Other Business. Engage in any material line of business other than the
research and development and commercialization of Wireless Millimeter Wave
Communications Systems, broadly defined (the "Business")
 
6.9 Financing Statements and Other Actions. Fail to execute and deliver to
Lender all financing statements, notices and other documents from time to time
reasonably requested by Lender to maintain a first perfected security interest
in the Collateral in favor of Lender; perform such other acts, and execute and
deliver to Lender such additional conveyances, assignments, agreements and
instruments, as Lender may at any time request in connection with the
administration and enforcement of this Agreement or Lender's rights, powers and
remedies hereunder.
 
6.10 Compliance. Become an “investment company” or controlled by an “investment
company,” within the meaning of the Investment Company Act of 1940, or become
principally engaged in, or undertake as one of its important activities, the
business of extending credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Loan for such 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 law or regulation, which violation could have
a Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Lender’s Lien on the Collateral, or permit any of its subsidiaries
to do any of the foregoing. 
 
6.11 Other Deposit and Securities Accounts. Maintain any deposit accounts or
accounts holding securities owned by Borrower except (i) Deposit Accounts and
investment/securities accounts as set forth on Schedule 6.11 and (ii) other
Deposit Accounts and securities/investment accounts, in each case, with respect
to which Borrower and Lender shall have taken such action as Lender reasonably
deems necessary to obtain a perfected first security interest therein.
 
6.12 Prepayment of Indebtedness. Prepay, redeem or otherwise satisfy in any
manner prior to the scheduled repayment thereof any Indebtedness (other than the
Loan), unless in the ordinary course of Borrower's business.
 
 
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Exhibit 10.38
 
ARTICLE 7 EVENTS OF DEFAULT
 
7.1 Events of Default; Acceleration. The occurrence of any of the following
(each, an “Event of Default”) shall, at the option of Lender (1) make all sums
of Basic Interest and principal and any Obligations and other amounts owing
under any Loan Documents immediately due and payable without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor
or any other notices or demands, and (2) give Lender the right to exercise any
other right or remedy provided by contract or applicable law:
 
(a) Borrower shall fail to pay any principal, interest or other payment under
this Agreement or any Note, or fail to pay any fees or other charges when due
under any Loan Document, and such failure continues for fifteen (15) Business
Days or more after the same first becomes due; or an Event of Default as defined
in any other Loan Document shall have occurred.
 
(b) Any representation or warranty made, or financial statement, certificate or
other document provided, by Borrower under any Loan Document shall prove to have
been false or misleading in any material respect when made or deemed made
herein.
 
(c) Borrower shall fail to pay its debts generally as they become due or shall
commence any Insolvency Proceeding with respect to itself; an involuntary
Insolvency Proceeding shall be filed against Borrower, or a custodian, receiver,
trustee, assignee for the benefit of creditors, or other similar official, shall
be appointed to take possession, custody or control of the properties of
Borrower, and such involuntary Insolvency Proceeding, petition or appointment is
acquiesced to by Borrower or is not dismissed within forty five (45) days; or
the dissolution or termination of the business of Borrower; or Borrower shall
take any corporate action for the purpose of effecting, approving, or consenting
to any of the foregoing.
 
(d) Borrower shall be in default beyond any applicable period of grace or cure
under any other agreement involving the borrowing of money, the purchase of
property, the advance of credit or any other monetary liability of any kind to
Lender or to any Person which results in the acceleration of payment of such
obligation in an amount in excess of $50,000.
 
(e) Any governmental or regulatory authority shall take any judicial or
administrative action, or any defined benefit pension plan maintained by
Borrower shall have any unfunded liabilities, any of which, in the reasonable
judgment of Lender, might have a Material Adverse Effect.
 
(f) Any sale, transfer or other disposition of all or a substantial or material
part of the assets of Borrower, including without limitation to any trust or
similar entity, shall occur.
 
(g) Any judgment(s) singly or in the aggregate in excess of $50,000 shall be
entered against Borrower which remain unsatisfied, unvacated or unstayed pending
appeal for twenty (20) or more days after entry thereof.
 
 
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Exhibit 10.38
 
(h) Any Person or two or more Persons (other than any “Excluded Person” as
defined below) acting in concert shall have acquired (in a single transaction or
series of related transactions) beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission) of outstanding shares of voting
stock of Borrower representing fifty percent (50%) or more of the voting power
of all shares of Borrower’s voting stock that are outstanding immediately after
such acquisition. As used in this paragraph, “Excluded Person” means: (i) any
Person who is a stockholder of Borrower as of the Closing Date; (ii) a venture
capital firm or similar investment fund or institution; or (iii) an affiliate of
any Person described in clause (i) or (ii).
 
(i) Borrower shall fail to perform or observe any covenant contained in Article
6 of this Agreement.
 
(j) Borrower shall fail to perform or observe any covenant contained in Article
5 or elsewhere in this Agreement or any other Loan Document (other than a
covenant which is dealt with specifically elsewhere in this Article 7) and, if
capable of being cured, the breach of such covenant is not cured within 30 days
after the sooner to occur of Borrower's receipt of notice of such breach from
Lender or the date on which such breach first becomes known to any officer of
Borrower; provided, however that if such breach is not capable of being cured
within such 30-day period and Borrower timely notifies Lender of such fact and
Borrower diligently pursues such cure, then the cure period shall be extended to
the date requested in Borrower's notice but in no event more than 90 days from
the initial breach; provided, further, that such additional 60-day opportunity
to cure shall not apply in the case of any failure to perform or observe any
covenant which has been the subject of a prior failure within the preceding 180
days or which is a willful and knowing breach by Borrower.
 
7.2 Remedies Upon Default. Upon the occurrence and during the continuance of an
Event of Default, Lender shall be entitled to, at its option, exercise any or
all of the rights and remedies available to a secured party under the UCC or any
other applicable law, and exercise any or all of its rights and remedies
provided for in this Agreement and in any other Loan Document. The obligations
of Borrower under this Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any Obligations is
rescinded or must otherwise be returned by Lender upon, on account of, or in
connection with, the insolvency, bankruptcy or reorganization of Borrower or
otherwise, all as though such payment had not been made.
 
7.3 Sale of Collateral. Upon the occurrence and during the continuance of an
Event of Default, Lender may sell all or any part of the Collateral, at public
or private sales, to itself, a wholesaler, retailer or investor, for cash, upon
credit or for future delivery, and at such price or prices as may be
commercially reasonable. To the extent permitted by law, Borrower hereby
specifically waives all rights of redemption and any rights of stay or appraisal
which it has or may have under any applicable law in effect from time to time.
Any such public or private sales shall be held at such times and at such
place(s) as Lender may determine. In case of the sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Lender until the selling price is paid by the purchaser, but Lender
shall not incur any liability in case of the failure of such purchaser to pay
for the Collateral and, in case of any such failure, such Collateral may be
resold. Lender may, instead of exercising its power of sale, proceed to enforce
its security interest in the Collateral by seeking a judgment or decree of a
court of competent jurisdiction.
 
 
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Exhibit 10.38
 
7.4 Borrower's Obligations Upon Default. Upon the request of Lender after the
occurrence and during the continuance of an Event of Default, Borrower will:
 
(a) Assemble and make available to Lender the Collateral at such place(s) as
Lender shall reasonably designate, segregating all Collateral so that each item
is capable of identification; and
 
(b) Subject to the rights of any lessor, permit Lender, by Lender's officers,
employees, agents and representatives, to enter any premises where any
Collateral is located, to take possession of the Collateral, to complete the
processing, manufacture or repair of any Collateral, and to remove the
Collateral, or to conduct any public or private sale of the Collateral, all
without any liability of Lender for rent or other compensation for the use of
Borrower's premises.
 
ARTICLE 8 SPECIAL COLLATERAL PROVISIONS
 
8.1 Compromise and Collection. Borrower and Lender recognize that setoffs,
counterclaims, defenses and other claims may be asserted by obligors with
respect to certain of the Rights to Payment; that certain of the Rights to
Payment may be or become uncollectible in whole or in part; and that the expense
and probability of success of litigating a disputed Right to Payment may exceed
the amount that reasonably may be expected to be recovered with respect to such
Right to Payment. Borrower hereby authorizes Lender, after and during the
continuance of an Event of Default, to compromise with the obligor, accept in
full payment of any Right to Payment such amount as Lender shall negotiate with
the obligor, or abandon any Right to Payment. Any such action by Lender shall be
considered commercially reasonable so long as Lender acts in good faith based on
information known to it at the time it takes any such action.
 
8.2 Performance of Borrower's Obligations. Without having any obligation to do
so, upon reasonable prior notice to Borrower, Lender may perform or pay any
obligation which Borrower has agreed to perform or pay under this Agreement,
including, without limitation, the payment or discharge of taxes or Liens levied
or placed on or threatened against the Collateral. In so performing or paying,
Lender shall determine the action to be taken and the amount necessary to
discharge such obligations. Borrower shall reimburse Lender on demand for any
amounts paid by Lender pursuant to this Section, which amounts shall constitute
Obligations secured by the Collateral and shall bear interest from the date of
demand at the Default Rate.
 
8.3 Power of Attorney. For the purpose of protecting and preserving the
Collateral and Lender's rights under this Agreement, Borrower hereby irrevocably
appoints Lender, with full power of substitution, as its attorney-in-fact with
full power and authority, after the occurrence and during the continuance of an
Event of Default, to do any act which Borrower is obligated to do hereunder; to
exercise such rights with respect to the Collateral as Borrower might exercise;
to use such Inventory, Equipment, Fixtures or other property as Borrower might
use; to enter Borrower's premises; to give notice of Lender's security interest
in, and to collect the Collateral; and before or after Default, to execute and
file in Borrower's name any financing statements, amendments and continuation
statements, account control agreements or other Security Documents necessary or
desirable to create, maintain, perfect or continue the perfection of Lender's
security interests in the Collateral. Borrower hereby ratifies all that Lender
shall lawfully do or cause to be done by virtue of this appointment.
 
 
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Exhibit 10.38
 
8.4 Authorization for Lender to Take Certain Action. The power of attorney
created in Section 8.3 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Lender hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon Lender to
exercise such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and in no event
shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Borrower for any act or failure to act, except
for gross negligence or willful misconduct. Only after the occurrence and during
the continuance of an Event of Default, may Lender exercise this power of
attorney. Such exercise may be without prior notice to or assent of Borrower, in
the name of Borrower, or in Lender's own name, from time to time in Lender's
sole discretion and at Borrower's expense. To further carry out the terms of
this Agreement, after the occurrence and during the continuance of an Event of
Default, Lender may:
 
(a) Execute any statements or documents or take possession of, and endorse and
collect and receive delivery or payment of, any checks, drafts, notes,
acceptances or other instruments and documents constituting Collateral, or
constituting the payment of amounts due and to become due or any performance to
be rendered with respect to the Collateral.
 
(b) Sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts; drafts, certificates and statements under any
commercial or standby letter of credit relating to Collateral; assignments,
verifications and notices in connection with Accounts; or any other documents
relating to the Collateral, including without limitation the Records.
 
(c) Use or operate Collateral or any other property of Borrower for the purpose
of preserving or liquidating Collateral.
 
(d) File any claim or take any other action or proceeding in any court of law or
equity or as otherwise deemed appropriate by Lender for the purpose of
collecting any and all monies due or securing any performance to be rendered
with respect to the Collateral.
 
(e) Commence, prosecute or defend any suits, actions or proceedings or as
otherwise deemed appropriate by Lender for the purpose of protecting or
collecting the Collateral. In furtherance of this right, upon the occurrence and
during the continuance of an Event of Default, Lender may apply for the
appointment of a receiver or similar official to operate Borrower's business.
 
(f) Prepare, adjust, execute, deliver and receive payment under insurance
claims, and collect and receive payment of and endorse any instrument in payment
of loss or returned premiums or any other insurance refund or return, and apply
such amounts at Lender's sole discretion, toward repayment of the Obligations or
replacement of the Collateral.
 
 
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Exhibit 10.38
 
8.5 Application of Proceeds. Any Proceeds and other monies or property received
by Lender pursuant to the terms of this Agreement or any Loan Document may be
applied by Lender first to the payment of expenses of collection, including
without limitation reasonable attorneys' fees, and then to the payment of the
Obligations in such order of application as Lender may elect.
 
8.6 Deficiency. If the Proceeds of any disposition of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Obligations, plus all other sums required to be expended or
distributed by Lender, then Borrower shall be liable for any such deficiency.
 
8.7 Lender Transfer. Upon the transfer of all or any part of the Obligations,
Lender may transfer all or part of the Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Lender hereunder with respect to such Collateral so transferred, but
with respect to any Collateral not so transferred, Lender shall retain all
rights and powers hereby given.
 
8.8 Lender's Duties. 
 
(a) Lender shall use reasonable care in the custody and preservation of any
Collateral in its possession. Without limitation on other conduct which may be
considered the exercise of reasonable care, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of such Collateral if
such Collateral is accorded treatment substantially equal to that which Lender
accords its own property, it being understood that Lender shall not have any
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, declining value, tenders or other matters
relative to any Collateral, regardless of whether Lender has or is deemed to
have knowledge of such matters; or taking any necessary steps to preserve any
rights against any Person with respect to any Collateral. Under no circumstances
shall Lender be responsible for any injury or loss to the Collateral, or any
part thereof, arising from any cause beyond the reasonable control of Lender.
 
(b) Lender may at any time deliver the Collateral or any part thereof to
Borrower and the receipt of Borrower shall be a complete and full acquittance
for the Collateral so delivered, and Lender shall thereafter be discharged from
any liability or responsibility therefor.
 
(c) Neither Lender, nor any of its directors, officers, employees, agents,
attorneys or any other person affiliated with or representing Lender shall be
liable for any claims, demands, losses or damages, of any kind whatsoever, made,
claimed, incurred or suffered by Borrower or any other party through the
ordinary negligence of Lender, or any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Lender.
 
 
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Exhibit 10.38
 
8.9 Termination of Security Interests. Upon the payment in full of the
Obligations and satisfaction of all Borrower’s obligations under this Agreement
and the other Loan Documents, and if Lender has no further obligations under its
Commitment, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to Borrower. Upon any such termination, the
Lender shall, at Borrower's expense, execute and deliver to Borrower such
documents as Borrower shall reasonably request to evidence such termination.
 
ARTICLE 9 GENERAL PROVISIONS
 
9.1 Notices. Any notice given by any party under any Loan Document shall be in
writing and personally delivered, sent by overnight courier, or United States
mail, postage prepaid, or sent by facsimile, or other authenticated message,
charges prepaid, to the other party's or parties' addresses set forth on
Schedule 9.1. Each party may change the address or facsimile number to which
notices, requests and other communications are to be sent by giving written
notice of such change to each other party. Notice given by hand delivery shall
be deemed received on the date delivered; if sent by overnight courier, on the
next Business Day after delivery to the courier service; if by first class mail,
on the third Business Day after deposit in the U.S. Mail; and if by facsimile,
on the date of transmission.
 
9.2 Binding Effect. The Loan Documents shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns;
provided, however, that Borrower may not assign or transfer Borrower's rights or
obligations under any Loan Document. Lender reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, Lender's rights and obligations under the Loan Documents. In
connection with any of the foregoing, Lender may disclose all documents and
information which Lender now or hereafter may have relating to the Loans,
Borrower, or its business.
 
9.3 No Waiver. Any waiver, consent or approval by Lender of any Event of Default
or breach of any provision, condition, or covenant of any Loan Document must be
in writing and shall be effective only to the extent set forth in writing. No
waiver of any breach or default shall be deemed a waiver of any later breach or
default of the same or any other provision of any Loan Document. No failure or
delay on the part of Lender in exercising any power, right, or privilege under
any Loan Document shall operate as a waiver thereof, and no single or partial
exercise of any such power, right, or privilege shall preclude any further
exercise thereof or the exercise of any other power, right or privilege. Lender
has the right at its sole option to continue to accept interest and/or principal
payments due under the Loan Documents after default, and such acceptance shall
not constitute a waiver of said default or an extension of the maturity of any
Loan unless Lender agrees otherwise in writing.
 
9.4 Rights Cumulative. All rights and remedies existing under the Loan Documents
are cumulative to, and not exclusive of, any other rights or remedies available
under contract or applicable law.
 
9.5 Unenforceable Provisions. Any provision of any Loan Document executed by
Borrower which is prohibited or unenforceable in any jurisdiction, shall be so
only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of any such Loan Document
shall remain valid and enforceable.
 
 
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Exhibit 10.38
 
9.6 Accounting Terms. Except as otherwise provided in this Agreement, accounting
terms and financial covenants and information shall be determined and prepared
in accordance with GAAP.
 
9.7 Indemnification; Exculpation. Borrower shall pay and protect, defend and
indemnify Lender and Lender's employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Lender,
collectively “Agents”) against, and hold Lender and each such Agent harmless
from, all claims, actions, proceedings, liabilities, damages, losses, expenses
(including, without limitation, attorneys' fees and costs) and other amounts
incurred by Lender and each such Agent, arising from (i) the matters
contemplated by this Agreement or any other Loan Documents, (ii) any dispute
between Borrower and a third party, or (iii) any contention that Borrower has
failed to comply with any law, rule, regulation, order or directive applicable
to Borrower's business; provided, however, that this indemnification shall not
apply to any of the foregoing incurred solely as the result of Lender's or any
Agent's gross negligence or willful misconduct. This indemnification shall
survive the payment and satisfaction of all of Borrower's Obligations to Lender.
 
9.8 Reimbursement. Borrower shall reimburse Lender for all costs and expenses,
including without limitation reasonable attorneys' fees and disbursements
expended or incurred by Lender in any arbitration, mediation, judicial
reference, legal action or otherwise in connection with (a) the preparation and
negotiation of the Loan Documents, (b) the amendment and enforcement of the Loan
Documents, including without limitation during any workout, attempted workout,
and/or in connection with the rendering of legal advice as to Lender's rights,
remedies and obligations under the Loan Documents, (c) collecting any sum which
becomes due Lender under any Loan Document, (d) any proceeding for declaratory
relief, any counterclaim to any proceeding, or any appeal, or (e) the
protection, preservation or enforcement of any rights of Lender. For the
purposes of this section, attorneys' fees shall include, without limitation,
fees incurred in connection with the following: (1) contempt proceedings;
(2) discovery; (3) any motion, proceeding or other activity of any kind in
connection with an Insolvency Proceeding; (4) garnishment, levy, and debtor and
third party examinations; and (5) post-judgment motions and proceedings of any
kind, including without limitation any activity taken to collect or enforce any
judgment. All of the foregoing costs and expenses shall be payable upon demand
by Lender, and if not paid within forty-five (45) days of presentation of
invoices shall bear interest at the highest applicable Default Rate.
 
9.9 Execution in Counterparts. This Agreement may be executed in any number of
counterparts which, when taken together, shall constitute but one agreement.
 
9.10 Entire Agreement. The Loan Documents are intended by the parties as the
final expression of their agreement and therefore contain the entire agreement
between the parties and supersede all prior understandings or agreements
concerning the subject matter hereof. This Agreement may be amended only in a
writing signed by Borrower and Lender.
 
 
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Exhibit 10.38
 
9.11 Governing Law and Jurisdiction. 
 
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE.
 
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF DELAWARE OR OF THE
UNITED STATES FOR THE DISTRICT OF DELAWARE, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF
BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.
BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR
OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY MASSACHUSETTS
LAW.
 
9.12 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW,
BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND
LENDER EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
 
ARTICLE 10 DEFINITIONS
 
The definitions appearing in this Agreement or any Supplement shall be
applicable to both the singular and plural forms of the defined terms:
 
 
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Exhibit 10.38
 
“Account” means any “account,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest and, in any event, shall include, without limitation, all
accounts receivable, book debts and other forms of obligations (other than forms
of obligations evidenced by Chattel Paper, Documents or Instruments) now owned
or hereafter received or acquired by or belonging or owing to Borrower
(including, without limitation, under any trade name, style or division thereof)
whether arising out of goods sold or services rendered by Borrower or from any
other transaction, whether or not the same involves the sale of goods or
services by Borrower (including, without limitation, any such obligation that
may be characterized as an account or contract right under the UCC) and all of
Borrower's rights in, to and under all purchase orders or receipts now owned or
hereafter acquired by it for goods or services, and all of Borrower's rights to
any goods represented by any of the foregoing (including, without limitation,
unpaid seller's rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), and all monies
due or to become due to Borrower under all purchase orders and contracts for the
sale of goods or the performance of services or both by Borrower or in
connection with any other transaction (whether or not yet earned by performance
on the part of Borrower), now in existence or hereafter occurring, including,
without limitation, the right to receive the proceeds of said purchase orders
and contracts, and all collateral security and guarantees of any kind given by
any Person with respect to any of the foregoing.

“Affiliate” means any Person which directly or indirectly controls, is
controlled by, or is under common control with Borrower. “Control,” “controlled
by” and “under common control with” mean direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise); provided,
that control shall be conclusively presumed when any Person or affiliated group
directly or indirectly owns five percent (5%) or more of the securities having
ordinary voting power for the election of directors of a corporation.

“Agreement” means this Loan and Security Agreement, as may be amended or
supplemented from time to time.

“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
§101, et seq.), as amended.

“Basic Interest” means 7% interest compounded daily.

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to close.

“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC,
now owned or hereafter acquired by Borrower or in which Borrower now holds or
hereafter acquires any interest.

“Closing Date” means the date of this Agreement.
 
 
20

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Exhibit 10.38
 
“Collateral” means all of Borrower’s right, title and interest in and to the
following property, whether now owned or hereafter acquired and wherever
located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all
General Intangibles and Rights to Payment; (e) all Inventory; (f) all Investment
Property; (g) all Deposit Accounts; (h) all other Goods and personal property of
Borrower, whether tangible or intangible and whether now or hereafter owned or
existing, leased, consigned by or to, or acquired by, Borrower and wherever
located; (i) all Records; and (j) all Proceeds of each of the foregoing and all
accessions to, substitutions and replacements for, and rents, profits and
products of each of the foregoing.

“Copyright License” means any written agreement granting any right to use any
Copyright or Copyright registration now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.

“Copyrights” means all of the following now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest: (i)
all copyrights, whether registered or unregistered, held pursuant to the laws of
the United States, any State thereof or of any other country; (ii) all
registrations, applications and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any State thereof or
any other country; (iii) all continuations, renewals or extensions thereof; and
(iv) any registrations to be issued under any pending applications.

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

“Default Rate” is defined in Section 2.5.

“Deposit Accounts” means any “deposit accounts,” as such term is defined in the
UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds
or hereafter acquires any interest.

“Documents” means any “documents,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.

“Environmental Laws” means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, in each case
relating to environmental, health, or safety matters.

“Equipment” means any “equipment,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest and any and all additions, substitutions and replacements
of any of the foregoing, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto.
 
 
21

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Exhibit 10.38
 
“Event of Default” means any event described in Section 7.1.

“Fixtures” means any “fixtures,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.

“GAAP” means generally accepted accounting principles and practices consistent
with those principles and practices promulgated or adopted by the Financial
Accounting Standards Board and the Board of the American Institute of Certified
Public Accountants, their respective predecessors and successors. Each
accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.

“General Intangibles” means any “general intangibles,” as such term is defined
in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all right, title and interest that Borrower may now or
hereafter have in or under any contract, all customer lists, Copyrights,
Trademarks, Patents, websites, domain names, and all applications therefor and
reissues, extensions, or renewals thereof, other rights to Intellectual
Property, interests in partnerships, joint ventures and other business
associations, Licenses, permits, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, recipes, experience, processes, models, drawings,
materials and records, goodwill (including, without limitation, the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark License), claims in or under insurance policies, including
unearned premiums, uncertificated securities, money, cash or cash equivalents,
deposit, checking and other bank accounts, rights to sue for past, present and
future infringement of Copyrights, Trademarks and Patents, rights to receive tax
refunds and other payments and rights of indemnification.

“Goods” means any “goods,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.

“Indebtedness” of any Person means at any date, without duplication and without
regard to whether matured or unmatured, absolute or contingent: (i) all
obligations of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments;
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (iv) all obligations of such Person as lessee under capital
leases; (v) all obligations of such Person to reimburse or prepay any bank or
other Person in respect of amounts paid under a letter of credit, banker's
acceptance, or similar instrument, whether drawn or undrawn; (vi) all
obligations of such Person to purchase securities which arise out of or in
connection with the sale of the same or substantially similar securities;
(vii) all obligations of such Person to purchase, redeem, exchange, convert or
otherwise acquire for value any capital stock of such Person or any warrants,
rights or options to acquire such capital stock, now or hereafter outstanding,
except to the extent that such obligations remain performable solely at the
option of such Person; (viii) all obligations to repurchase assets previously
sold (including any obligation to repurchase any accounts or chattel paper under
any factoring, receivables purchase, or similar arrangement); (ix) obligations
of such Person under interest rate swap, cap, collar or similar hedging
arrangements; and (x) all obligations of others of any type described in clause
(i) through clause (ix) above guaranteed by such Person.
 
 
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Exhibit 10.38
 
“Insolvency Proceeding” means with respect to a Person (a) any case, action or
proceeding before any court or other governmental authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors with respect to such Person, or (b) any general
assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of such Person’s creditors
generally or any substantial portion of its creditors, undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code, but in each case,
excluding any avoidance or similar action against such Person commenced by an
assignee for the benefit of creditors, bankruptcy trustee, debtor in possession,
or other representative of another Person or such other Person’s estate.

“Instruments” means any “instrument,” as such term is defined in the UCC, now
owned or hereafter acquired by Borrower or in which Borrower now holds or
hereafter acquires any interest.

“Intellectual Property” means all Copyrights, Trademarks, Patents, Licenses,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
skill, expertise, experience, processes, models, drawings, materials, records
and goodwill associated with the foregoing.

“Inventory” means any “inventory,” as such term is defined in the UCC, wherever
located, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest, and, in any event, shall include,
without limitation, all inventory, goods and other personal property that are
held by or on behalf of Borrower for sale or lease or are furnished or are to be
furnished under a contract of service or that constitute raw materials, work in
process or materials used or consumed or to be used or consumed in Borrower's
business, or the processing, packaging, promotion, delivery or shipping of the
same, and all finished goods, whether or not the same is in transit or in the
constructive, actual or exclusive possession of Borrower or is held by others
for Borrower's account, including, without limitation, all goods covered by
purchase orders and contracts with suppliers and all goods billed and held by
suppliers and all such property that may be in the possession or custody of any
carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or
other Persons.

“Investment Property” means any “investment property,” as such term is defined
in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest.

“Letter of Credit Rights” means any “letter of credit rights,” as such term is
defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest, including any right to
payment under any letter of credit.
 
 
23

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Exhibit 10.38
 
“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest and any
renewals or extensions thereof.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
against any property, any conditional sale or other title retention agreement,
any lease in the nature of a security interest, and the filing of any financing
statement (other than a precautionary financing statement with respect to a
lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.

“Loan” means an extension of credit by Lender under this Agreement.

“Loan Documents” means, individually and collectively, this Loan and Security
Agreement, the Note, and any security or pledge agreement(s), and all other
contracts, instruments, addenda and documents executed in connection with this
Agreement.

“Material Adverse Effect” or “Material Adverse Change” means (a) a material
adverse change in, or a material adverse effect upon, the operations, business,
properties, or condition (financial or otherwise) of Borrower; (b) a material
impairment of the ability of Borrower to perform under any Loan Document; or (c)
a material adverse effect upon the legality, validity, binding effect or
enforceability against Borrower of any Loan Document.

“Maturity Date” means February __, 2010 unless the Note is converted in
accordance with its terms.

“Note” means a promissory note substantially in the form attached hereto as
Exhibit “A”.

“Obligations” means all debts, obligations and liabilities of Borrower to Lender
currently existing or now or hereafter made, incurred or created under, pursuant
to or in connection with this Agreement or any other Loan Document, whether
voluntary or involuntary and however arising or evidenced, whether direct or
acquired by Lender by assignment or succession, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, and
whether Borrower may be liable individually or jointly, or whether recovery upon
such debt may be or become barred by any statute of limitations or otherwise
unenforceable; and all renewals, extensions and modifications thereof; and all
attorneys' fees and costs incurred by Lender in connection with the collection
and enforcement thereof as provided for in any Loan Document.

“Patent License” means any written agreement granting any right with respect to
any invention on which a Patent is in existence now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Patents” means all of the following property now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest: (a)
all letters patent of, or rights corresponding thereto in, the United States or
any other country, all registrations and recordings thereof, and all
applications for letters patent of, or rights corresponding thereto in, the
United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country; (b) all reissues, continuations,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals,
and patents of addition; and (d) all patents to be issued under any such
applications.
 
 
24

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Exhibit 10.38
 
“Permitted Lien” means:

(a) involuntary Liens which, in the aggregate, would not have a Material Adverse
Effect and which in any event would not exceed, in the aggregate, the Threshold
Amount;

(b) Liens for current taxes or other governmental or regulatory assessments
which are not delinquent, or which are contested in good faith by the
appropriate procedures and for which appropriate reserves are maintained;

(c) security interests on any property held or acquired by Borrower in the
ordinary course of business securing Indebtedness incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such property;
provided, that such Lien attaches solely to the property acquired with such
Indebtedness and that the principal amount of such Indebtedness does not exceed
one hundred percent (100%) of the cost of such property;

(d) Liens in favor of Lender;

(e) bankers' liens, rights of setoff and similar Liens incurred on deposits made
in the ordinary course of business as long as an account control agreement for
each account in which such deposits are held in a form acceptable to Lender has
been executed and delivered to Lender;

(f)  materialmen's, mechanics', repairmen's, employees' or other like Liens
arising in the ordinary course of business and which are not delinquent for more
than 45 days or are being contested in good faith by appropriate proceedings;

(g)  any judgment, attachment or similar Lien, unless the judgment it secures
has not been discharged or execution thereof effectively stayed and bonded
against pending appeal within 30 days of the entry thereof;

(h)  licenses or sublicenses of Intellectual Property in accordance with Section
6.5;

(i) Liens securing Subordinated Debt; and

(j) Liens which have been approved by Lender in writing prior to the Closing
Date, as shown on Schedule 6.2.

“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department thereof).
 
 
25

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Exhibit 10.38
 
“Proceeds” means “proceeds,” as such term is defined in the UCC and, in any
event, shall include, without limitation, (a) any and all Accounts, Chattel
Paper, Instruments, cash or other forms of money or currency or other proceeds
payable to Borrower from time to time in respect of the Collateral, (b) any and
all proceeds of any insurance, indemnity, warranty or guaranty payable to
Borrower from time to time with respect to any of the Collateral, (c) any and
all payments (in any form whatsoever) made or due and payable to Borrower from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
authority (or any Person acting under color of governmental authority), (d) any
claim of Borrower against third parties (i) for past, present or future
infringement of any Copyright, Patent or Patent License or (ii) for past,
present or future infringement or dilution of any Trademark or Trademark License
or for injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License and (e) any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral.

“Receivables” means all of Borrower's Accounts, Instruments, Documents, Chattel
Paper, Supporting Obligations, and letters of credit and Letter of Credit
Rights.

“Records” means all Borrower's computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Borrower's business.

“Related Person” means any Affiliate of Borrower, or any officer, employee,
director or equity security holder of Borrower or any Affiliate.

“Rights to Payment” means all Borrower's accounts, instruments, contract rights,
documents, chattel paper and all other rights to payment, including, without
limitation, the Accounts, all negotiable certificates of deposit and all rights
to payment under any Patent License, any Trademark License, or any commercial or
standby letter of credit.

“Security Documents” means this Loan and Security Agreement, the Supplement
hereto, and any and all account control agreements, collateral assignments,
chattel mortgages, financing statements, amendments to any of the foregoing and
other documents from time to time executed or filed to create, perfect or
maintain the perfection of Lender’s Liens on the Collateral.

“Subordinated Debt” means Indebtedness (i) approved by Lender; and (ii) where
the holder’s right to payment of such Indebtedness, the priority of any Lien
securing the same, and the rights of the holder thereof to enforce remedies
against Borrower following default have been made subordinate to the Liens of
Lender and to the prior payment to Lender of the Obligations, pursuant to a
written subordination agreement approved by Lender in its sole but reasonable
discretion.
 
 
26

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Exhibit 10.38
 
“Subsidiary” means any Person a majority of the equity ownership or voting stock
of which is at the time owned by Borrower.

“Supplement” means that certain supplement to the Loan and Security Agreement,
as the same may be amended or restated from time to time, and any other
supplements entered into between Borrower and Lender, as the same may be amended
or restated from time to time.

“Supporting Obligations” means any “supporting obligations,” as such term is
defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.

“Trademark License” means any written agreement granting any right to use any
Trademark or Trademark registration now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.

“Trademarks” means all of the following property now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) all trademarks, tradenames, corporate names, business names, trade styles,
service marks, logos, other source or business identifiers, prints and labels on
which any of the foregoing have appeared or appear, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and any applications in connection
therewith, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other country or
any political subdivision thereof and (b) reissues, extensions or renewals
thereof.

“UCC” means the Uniform Commercial Code as the same may, from time to time, be
in effect in the State of Delaware; provided, 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, Lender's Lien on any Collateral is
governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of Delaware, the term “UCC” 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 related to such
provisions. Unless otherwise defined herein, terms that are defined in the UCC
and used herein shall have the meanings given to them in the UCC.
 
[Signature page follows]

 
27

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Exhibit 10.38

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
 
BORROWER:
   
ASYRMATOS, INC.
       
By:
/s/ Panos Lekkas
Name:
Panos Lekkas
Title:
Chief Executive Officer
           
LENDER:
   
LUMERA CORPORATION
       
By:
/s/ Peter J. Biere
Name:
Peter J. Biere
Title:
Chief Financial Officer

 
Exhibit to Financing Statement - 1
 

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

 
Exhibit 10.38
 
EXHIBIT “A”

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH
RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL FOR THE HOLDER SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION.
 
PROMISSORY NOTE
 

$500,000
________, 2008
 
Worcester, Massachusetts

For value received Asyrmatos, Inc., a Delaware corporation (“Borrower”) promises
to pay to Lumera Corporation, a Delaware corporation, or its assigns (the
“Lender”) the principal sum of $500,000 with interest on the outstanding
principal amount at the rate of 7.0% per annum, compounded annually (the
“Interest Rate”).
 
This Note is the Note referred to in, and is entitled to all the benefits of, a
Loan and Security Agreement dated as of ________ ___, 2008, between Borrower and
Lender (the “Loan Agreement”). Each capitalized term not otherwise defined
herein shall have the meaning set forth in the Loan Agreement. The Loan
Agreement contains provisions for the acceleration of the maturity of this Note
upon the happening of certain stated events.
 
1. Payment. All payments of interest and principal shall be in lawful money of
the United States of America. All payments shall be applied first to accrued
interest, and thereafter to principal.
 
2. Maturity. Unless this Note has been converted in accordance with the terms of
Section 5 below, the entire outstanding principal balance and all unpaid accrued
interest shall become fully due and payable on February _, 2010 (the “Maturity
Date”).
 
3. Conversion.
 
(a) Optional Conversion. Until the date that is one hundred-fifty (150) days
after that Borrower offers and issues (the "Offering"), a series of new equity
securities in a Qualified Financing, as long as this Note remains outstanding
and such date is prior to the Maturity Date, then the Lender may elect that this
Note, including any accrued but unpaid interest thereon, convert into equity
securities of the Borrower upon closing of such Offering at a price per share
equal to the price per share of the equity securities sold in such Offering and
subject to the same rights, preferences, privileges and obligations attached to
shares of the equity securities issued in the Offering at the time of such
conversion. For purposes of this Note, a “Qualified Financing” shall be either
(a) a new investment of or a series of new investments that aggregate to at
least, including amounts raised in previous rounds of financing (e.g. the round
issuing Series A Preferred Stock), $3,000,000 cash by any person or entity
(other than the members of the Company as of the date of this note) or (b) an
initial public offering of securities of the Company registered under the
Securities Act raising at least $3,000,000. Notwithstanding the foregoing, if
the initial closing of an Qualified Financing does not occur on or before the
Maturity Date, Lender shall have the option, in its sole discretion, to convert
this Note into the number of fully paid and non-assessable shares of the
Borrower’s Series A Preferred Stock at the purchase price paid to the Borrower
at the time of the sale of the Series A Preferred Stock. The foregoing option
may be exercised at any time within the ninety (90) days following the Maturity
Date, after which this option to convert shall terminate.
 
Exhibit A - 1
 

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

 
Exhibit 10.38
 
(b) Conversion Procedure.
 
(i) Upon any conversion pursuant to Section 3(a), the Borrower shall take all
measures necessary or appropriate to permit such conversion to occur as promptly
as practicable and otherwise comply with all of its obligations hereunder,
including, but not limited to, (A) calling a special meeting of the Board of
Directors and/or stockholders of the Borrower to authorize an amendment to the
Borrower’s Certificate of Incorporation authorizing the applicable class or
series of Borrower’s capital stock issuable upon conversion of the Note and, if
necessary, the additional capital stock issuable upon conversion of the
aforementioned capital stock, (B) filing such amendment with the Secretary of
State of the State of Delaware, and (C) taking any other action necessary or
appropriate to consummate the transactions contemplated hereby and to permit the
conversion to occur as promptly as practicable. If at any time the number of
authorized but unissued shares of Borrower’s capital stock are insufficient to
permit the conversions contemplated by this Section 3, the Borrower shall take
such actions as may be necessary to increase the Borrower’s authorized,
unreserved and unissued shares of the applicable class or series of capital
stock to such number of shares as shall be sufficient for such conversion. Upon
delivery, all shares issued pursuant to this Section 4 shall be duly and validly
issued, fully paid and non-assessable.
 
(ii) No fractional shares or interest of capital stock of the Borrower, or scrip
representing fractional shares or interests, shall be issued upon conversion of
the Note pursuant to this Section 3. Any principal amount and accrued but unpaid
interest not converted into the capital stock because of the restrictions of the
preceding sentence shall be paid by the Borrower to the Lender in immediately
available funds on the date of the conversion. If this Note is converted into
capital stock of the Borrower, this Note shall be treated by the Borrower as
surrendered for cancellation and exchanged into such capital stock and this Note
will be deemed, for all purposes, to be canceled on the books of the Borrower
and the obligation represented by this Note so terminated. The Borrower shall,
as soon as practicable after receipt of this Note marked cancelled, issue and
deliver to the Lender at its designated address a certificate or certificates
for the number of shares of capital stock to which the Lender shall be entitled
upon such conversion (bearing such legends as are required by applicable state
and Federal securities laws in the opinion of counsel to the Borrower), together
with immediately available funds payable to the Holder for any cash amounts
payable as described in this clause (ii).
 
4. Liquidity Event. If the Borrower shall determine to engage in any transaction
which would result in a Liquidity Event (defined below) at any time while this
Note remains outstanding, the Borrower shall deliver to the Lender written
notice thereof (the “Company Liquidity Notice”), including a summary of the
material terms of such Liquidity Event to the Lender not less than 15 days prior
to the consummation of such Liquidity Event (or such shorter period as may be
approved by the Lender). Upon the consummation of a Liquidity Event and delivery
by the Lender of this Note, the Lender may direct the Borrower to pay the
Lender, in cash, an amount equal to the outstanding principal amount of this
Note, plus accrued but unpaid interest thereon or to convert this Note into
equity securities in accordance with Section 3(a). The term “Liquidity Event”
means the consummation of a sale of all or substantially all of the assets of
the Borrower, or a consolidation or merger of the Borrower, or other transaction
or series of related transactions, in either case resulting in the disposition
of more than fifty percent (50%) of the voting power of the Borrower; provided,
however, that a Qualified Financing shall not, in any event, be deemed to be a
Liquidity Event.
 
Exhibit A - 2
 

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

 
Exhibit 10.38
 
Any unpaid payments of principal or interest on this Note shall bear interest
from their respective maturities, whether scheduled or accelerated, at a rate
per annum equal to the Default Rate. Borrower shall pay such interest on demand.
 
Interest, charges and fees shall be calculated for actual days elapsed on the
basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.
 
If Borrower is late in making any payment under this Note by more than five (5)
days, Borrower agrees to pay a “late charge” of five percent (5%) of the
installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose of
defraying the expenses incidental to the handling of such delinquent amounts.
Borrower acknowledges that such late charge represents a reasonable sum
considering all of the circumstances existing on the date of this Note and
represents a fair and reasonable estimate of the costs that will be sustained by
Lender due to the failure of Borrower to make timely payments. Borrower further
agrees that proof of actual damages would be costly and inconvenient. Such late
charge shall be paid without prejudice to the right of Lender to collect any
other amounts provided to be paid or to declare a default under this Note or any
of the other Loan Documents or from exercising any other rights and remedies of
Lender.
 
This Note shall be governed by, and construed in accordance with, the laws of
the State of Delaware.
 

 
ASYRMATOS, INC.
       
By:
           
 
Name:
                 
 
Its:
                      

Exhibit A - 3
 

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