Exhibit 10.1

 

[

TABLE OF CONTENTS

]

 

 

 

 

 

 

 

VITALSTREAM HOLDINGS, INC.

VITALSTREAM, INC.

VITALSTREAM BROADCASTING CORPORATION

LOAN AND SECURITY AGREEMENT

 

 

 

 

 

 

 

 

 

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

TABLE OF CONTENTS

   

1.

DEFINITIONS AND CONSTRUCTION.

2.

LOAN AND TERMS OF PAYMENT.

3.

CONDITIONS OF LOANS.

4.

CREATION OF SECURITY INTEREST.

5.

REPRESENTATIONS AND WARRANTIES.

6.

AFFIRMATIVE COVENANTS.

7.

NEGATIVE COVENANTS.

8.

EVENTS OF DEFAULT.

9.

BANK'S RIGHTS AND REMEDIES.

10.

NOTICES.

11.

CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

12.

REFERENCE PROVISION.

13.

CO-BORROWERS.

14.

GENERAL PROVISIONS.

SIGNATURE PAGE

EXHIBITS

COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT

       

 

 

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

[

TABLE OF CONTENTS

]

 

                          This LOAN AND SECURITY AGREEMENT is entered into as of
October 7, 2004, by and between COMERICA BANK ("Bank") and VITALSTREAM HOLDINGS,
INC., VITALSTREAM, INC. and VITALSTREAM BROADCASTING CORPORATION (each a
"Borrower" and collectively, "Borrowers").

RECITALS

                          Borrowers wish to obtain credit from time to time from
Bank, and Bank desires to extend credit to Borrowers. This Agreement sets forth
the terms on which Bank will advance credit to Borrowers, and Borrowers will
repay the amounts owing to Bank.

AGREEMENT

                          The parties agree as follows:

                          1.       DEFINITIONS AND CONSTRUCTION.

                                           1.1       Definitions.   As used in
this Agreement, the following terms shall have the following definitions:

                                           "Accounts" means all presently
existing and hereafter arising accounts, contract rights, payment intangibles,
and all other forms of obligations owing to Borrowers arising out of the sale or
lease of goods (including, without limitation, the licensing of software and
other technology) or the rendering of services by Borrowers, whether or not
earned by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrowers and Borrowers' Books relating to any of the foregoing.

                                           "Advance" or "Advances" means a cash
advance or cash advances under the Revolving Facility.

                                           "Affiliate" means, with respect to
any Person, any Person that owns or controls directly or indirectly such Person,
any Person that controls or is controlled by or is under common control with
such Person, and each of such Person's senior executive officers, directors, and
partners.

                                           "Bank Expenses" means all: reasonable
costs or expenses (including reasonable attorneys' fees and expenses, whether
generated in-house or by outside counsel) reasonably incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; reasonable Collateral audit fees; and Bank's reasonable attorneys'
fees and expenses (whether generated in-house or by outside counsel) reasonably
incurred in amending, enforcing or defending the Loan Documents (including fees
and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.

                                           "Borrower State" means Nevada,
Delaware and Nevada, the states under whose laws VITALSTREAM HOLDINGS, INC.,
VITALSTREAM, INC. and VITALSTREAM BROADCASTING CORPORATION, respectively, is
organized.

                                           "Borrower's Books" means all of each
Borrower's books and records including: ledgers; records concerning such
Borrower's assets or liabilities, the Collateral, business operations or
financial condition; and all computer programs, or tape files, and the
equipment, containing such information.

                                           "Business Day" means any day that is
not a Saturday, Sunday, or other day on which banks in the State of California
are authorized or required to close.

                                           "Cash" means unrestricted cash and
cash equivalents.

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

[

TABLE OF CONTENTS

]

 

                                           "Change in Control" shall mean a
transaction in which any "person" or "group" (within the meaning of Section
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of a sufficient number of shares of all
classes of stock then outstanding of a Borrower ordinarily entitled to vote in
the election of directors, empowering such "person" or "group" to elect a
majority of the Board of Directors of a Borrower, who did not have such power
before such transaction.

"Chief Executive Office State" means California, where the chief executive
office of each Borrower is located.

                                           "Closing Date" means the date of this
Agreement.

                                           "Code" means the California Uniform
Commercial Code, as amended or supplemented from time to time.

                                           "Collateral" means the property
described on Exhibit A attached hereto and all Negotiable Collateral and
Intellectual Property Collateral to the extent not described on Exhibit A,
except to the extent any such property (i) is nonassignable by its terms without
the consent of the licensor thereof or another party (but only to the extent
such prohibition on transfer is enforceable under applicable law, including,
without limitation, Sections 9406 and 9408 of the Code), or (ii) the granting of
a security interest therein is contrary to applicable law, provided that upon
the cessation of any such restriction or prohibition, such property shall
automatically become part of the Collateral; provided that in no case shall the
definition of "Collateral" exclude any Accounts, proceeds of the disposition of
any property, or general intangibles consisting of rights to payment.

                                           "Collateral State" means the state or
states where the Collateral is located, which are California and Virginia.

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

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

                                           "Credit Extension" means each
Advance, Equipment Advance, or any other extension of credit by Bank to or for
the benefit of Borrowers hereunder.

                                           "Environmental Laws" means all laws,
rules, regulations, orders and the like issued by any federal state, local
foreign or other governmental or quasi-governmental authority or any agency
pertaining to the environment or to any hazardous materials or wastes, toxic
substances, flammable, explosive or radioactive materials, asbestos or other
similar materials.

                                           "Equipment" means all present and
future machinery, equipment, tenant improvements, furniture, fixtures, vehicles,
tools, parts and attachments in which a Borrower has any interest.

                                           "Equipment Advance(s)" means a cash
advance or cash advances under the Equipment Line.

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

[

TABLE OF CONTENTS

]

 

                                           "Equipment Line" means a Credit
Extension of up to Two Million Dollars ($2,000,000).

                                           "Equipment Line Availability End Date
means the earlier of (i) the first anniversary of the Closing Date, or (ii)
September 30, 2005.

                                           "Equipment Maturity Date" means the
earlier of (i) three (3) years from the Closing Date, or (ii) September 30,
2007.

                                           "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended, and the regulations thereunder.

                                           "Event of Default" has the meaning
assigned in Article 8.

                                           "GAAP" means generally accepted
accounting principles, consistently applied, as in effect from time to time.

                                           "Indebtedness" means (a) all
indebtedness for borrowed money or the deferred purchase price of property or
services, including without limitation reimbursement and other obligations with
respect to surety bonds and letters of credit, (b) all obligations evidenced by
notes, bonds, debentures or similar instruments, (c) all capital lease
obligations, and (d) all Contingent Obligations.

                                           "Insolvency Proceeding" means any
proceeding commenced by or against any Person under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.

                                           "Intellectual Property Collateral"
means all of a Borrower's right, title, and interest in and to the following:

                                           (a)          Copyrights, Trademarks
and Patents;

                                           (b)          Any and all trade
secrets, and any and all intellectual property rights in computer software and
computer software products now or hereafter existing, created, acquired or held;

                                           (c)          Any and all design
rights which may be available to a Borrower now or hereafter existing, created,
acquired or held;

                                           (d)          Any and all claims for
damages by way of past, present and future infringement of any of the rights
included above, with the right, but not the obligation, to sue for and collect
such damages for said use or infringement of the intellectual property rights
identified above;

                                           (e)          All licenses or other
rights to use any of the Copyrights, Patents or Trademarks, and all license fees
and royalties arising from such use to the extent permitted by such license or
rights;

                                           (f)          All amendments, renewals
and extensions of any of the Copyrights, Trademarks or Patents; and

                                           (g)          All proceeds and
products of the foregoing, including without limitation all payments under
insurance or any indemnity or warranty payable in respect of any of the
foregoing.

                                           "Inventory" means all present and
future inventory in which a Borrower has any interest.

                                           "Investment" means any beneficial
ownership (including stock, partnership or limited liability company interest or
other securities) of any Person, or any loan, advance or capital contribution to
any Person.

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

[

TABLE OF CONTENTS

]

 

                                           "IRC" means the Internal Revenue Code
of 1986, as amended, and the regulations thereunder.

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

                                           "Loan Documents" means, collectively,
this Agreement, any note or notes executed by a Borrower, and any other
document, instrument or agreement entered into in connection with this
Agreement, all as amended or extended from time to time.

                                           "Material Adverse Effect" means a
material adverse effect on (i) the business operations or condition (financial
or otherwise) of a Borrower and its Subsidiaries taken as a whole, (ii) the
ability of Borrowers and their Subsidiaries taken as a whole to repay the
Obligations or otherwise perform their obligations under the Loan Documents, or
(iii) Borrowers' interest in, or the value, perfection or priority of Bank's
security interest in the Collateral.

                                           "Negotiable Collateral" means all of
a Borrower's present and future letters of credit of which it is a beneficiary,
drafts, instruments (including promissory notes), securities, documents of
title, and chattel paper, and Borrower's Books relating to any of the foregoing.

                                           "Obligations" means all debt,
principal, interest, Bank Expenses and other amounts owed to Bank by Borrowers
pursuant to this Agreement or any other agreement, whether absolute or
contingent, due or to become due, now existing or hereafter arising, including
any interest that accrues after the commencement of an Insolvency Proceeding and
including any debt, liability, or obligation owing from a Borrower to others
that Bank may have obtained by assignment or otherwise.

                                           "Parent" means VITALSTREAM HOLDINGS,
INC., a Nevada corporation.

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

                                           "Periodic Payments" means all
installments or similar recurring payments that Borrowers may now or hereafter
become obligated to pay to Bank pursuant to the terms and provisions of any
instrument, or agreement now or hereafter in existence between Borrowers and
Bank.

                                           "Permitted Indebtedness" means:

                                           (a)          Indebtedness of
Borrowers in favor of Bank arising under this Agreement or any other Loan
Document;

                                           (b)          Indebtedness existing on
the Closing Date and disclosed in the Schedule;

                                           (c)          Indebtedness not to
exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal
year of Borrowers secured by a lien described in clause (c) of the defined term
"Permitted Liens;" provided such Indebtedness does not exceed the lesser of the
cost or fair market value of the equipment financed with such Indebtedness;

                                           (d)          Subordinated Debt;

                                           (e)          Indebtedness to trade
creditors incurred in the ordinary course of business; and

                                           (f)          Extensions, refinancings
and renewals of any items of Permitted Indebtedness, provided that the principal
amount is not increased or the terms modified to impose more burdensome terms
upon the respective Borrower or its Subsidiary, as the case may be.

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

[

TABLE OF CONTENTS

]

 

                                           "Permitted Investment" means:

                                           (a)          Investments existing on
the Closing Date disclosed in the Schedule; and

                                           (b)           (i) Marketable direct
obligations issued or unconditionally guaranteed by the United States of America
or any agency or any State thereof maturing within one (1) year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one (1) year
from the date of creation thereof and currently having rating of at least A-2 or
P-2 from either Standard & Poor's Corporation or Moody's Investors Service,
(iii) Bank's certificates of deposit maturing no more than one (1) year from the
date of investment therein and (iv) Bank's money market accounts;

                                           (c)          Repurchases of stock
from shareholders of a Borrower under the terms of applicable repurchase
agreements, without duplication with Section 7.6 hereof (i) in an aggregate
amount not to exceed Two Million Dollars ($2,000,000) in any fiscal year,
provided that no Event of Default has occurred, is continuing or would exist
after giving effect to the repurchases, or (ii) in any amount where the
consideration for the repurchase is the cancellation of indebtedness owed by
former employees to such Borrower regardless of whether an Event of Default
exists;

                                           (d)          Investments accepted in
connection with Permitted Transfers;

                                           (e)          Investments of
Subsidiaries in or to other Subsidiaries or a Borrower and Investments by a
Borrower in Subsidiaries not to exceed Five Hundred Thousand Dollars ($500,000)
in the aggregate in any fiscal year;

                                           (f)          Investments not to
exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal
year consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans
to employees, officers or directors relating to the purchase of equity
securities of a Borrower or its Subsidiaries pursuant to employee stock purchase
plan agreements approved by such Borrower's Board of Directors;

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

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

                                           (i)          Joint ventures or
strategic alliances in the ordinary course of a Borrower's business consisting
of the non-exclusive licensing of technology, the development of technology or
the providing of technical support, provided that any cash Investments by
Borrowers do not exceed One Hundred Thousand Dollars ($100,000) in the aggregate
in any fiscal year.

                                           "Permitted Liens" means the
following:

                                           (a)          Any Liens existing on
the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied
with the proceeds of the Advances) or arising under this Agreement or the other
Loan Documents;

                                           (b)          Liens for taxes, fees,
assessments or other governmental charges or levies, either not delinquent or
being contested in good faith by appropriate proceedings and for which the
relevant Borrower maintains adequate reserves, provided the same have no
priority over any of Bank's security interests;

                                           (c)          Liens not to exceed Five
Hundred Thousand Dollars ($500,000) in the aggregate (i) upon or in any
Equipment (other than Equipment financed by an Equipment Advance) acquired or
held by a Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such Equipment, or (ii) existing on such Equipment at
the time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
Equipment;

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

[

TABLE OF CONTENTS

]

 

                                           (d)          Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (a) through (c) above,
provided that any extension, renewal or replacement Lien shall be limited to the
property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase;

                                           (e)          Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Sections 8.5 or 8.9; and

                                           (f)          Liens in favor of other
financial institutions arising in connection with Borrower's deposit accounts
held at such institutions to secured standard fees for deposit services charged
by, but not financing made available by such institutions, provided that Bank
has a perfected security interest in the amounts held in such deposit accounts.

                                           "Permitted Transfer" means the
conveyance, sale, lease, transfer or disposition by a Borrower or any Subsidiary
of:

                                           (a)          Inventory in the
ordinary course of business;

                                           (b)          licenses and similar
arrangements for the use of the property of a Borrower or its Subsidiaries in
the ordinary course of business;

                                           (c)          worn-out or obsolete
Equipment not financed with the proceeds of Equipment Advances; or

                                           (d)          other assets of
Borrowers and their Subsidiaries that do not in the aggregate exceed Five
Hundred Thousand Dollars ($500,000) during any fiscal year.

                                           "Person" means any individual, sole
proprietorship, partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or governmental
agency.

                                           "Prime Rate" means the variable rate
of interest, per annum, most recently announced by Bank, as its "prime rate,"
whether or not such announced rate is the lowest rate available from Bank.

                                           "Responsible Officer" means each of
the Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer, and the Vice President of Finance of a Borrower.

                                           "Revolving Line" means a Credit
Extension of up to Two Million Dollars ($2,000,000).

                                           "Revolving Maturity Date" means the
earlier of (i) the day before the first anniversary of the Closing Date, or (ii)
September 30, 2005.

                                           "Schedule" means the schedule of
exceptions attached hereto, as amended from time to time, and approved by Bank,
if any.

                                           "Shares" means (i) sixty-six and
two-thirds percent (66-2/3%) of the issued and outstanding capital stock,
membership units or other securities owned or held of record by a Borrower in
any Subsidiary of such Borrower which is not an entity organized under the laws
of the United States or any territory thereof, and (ii) one hundred percent
(100%) of the issued and outstanding capital stock, membership units or other
securities owned or held of record by a Borrower in any Subsidiary of such
Borrower which is an entity organized under the laws of the United States or any
territory thereof.

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

[

TABLE OF CONTENTS

]

 

                                           "SOS Reports" means the official
reports from the Secretaries of State of each Collateral State, Chief Executive
Office State and Borrower State and other applicable federal, state or local
government offices identifying all current security interests filed in the
Collateral and Liens of record as of the date of such report.

                                           "Subordinated Debt" means any debt
incurred by a Borrower that is subordinated in writing to the debt owing by such
Borrower to Bank on terms reasonably acceptable to Bank (and identified as being
such by such Borrower and Bank).

                                           "Subsidiary" means any corporation,
partnership or limited liability company or joint venture in which (i) any
general partnership interest or (ii) more than fifty percent (50%) of the stock,
limited liability company interest or joint venture of which by the terms
thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity, at the time as of which any determination is being made,
is owned by a Borrower, either directly or through an Affiliate.

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

                                           1.2       Accounting Terms.   Any
accounting term not specifically defined herein shall be construed in accordance
with GAAP and all calculations shall be made in accordance with GAAP. The term
"financial statements" shall include the accompanying notes and schedules.

 

                          2.       LOAN AND TERMS OF PAYMENT.

                                           2.1       Credit Extensions.

                          Borrowers promise to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrowers hereunder. Borrowers
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.

                                           (a)          Promise to Pay.
Borrowers promise to pay to Bank, in lawful money of the United States of
America, the aggregate unpaid principal amount of all Credit Extensions made by
Bank to Borrowers, together with interest on the unpaid principal amount of such
Credit Extensions at rates in accordance with the terms hereof.

                                           (b)          Advances Under Revolving
Line.

                                                            
(i)          Amount. Subject to and upon the terms and conditions of this
Agreement (1) Parent may request Advances in an aggregate outstanding amount not
to exceed the Revolving Line, and (2) amounts borrowed pursuant to this Section
2.1(b) may be repaid and reborrowed at any time prior to the Revolving Maturity
Date, at which time all Advances under this Section 2.1(b) shall be immediately
due and payable. Borrowers may prepay any Advances without penalty or premium.

                                                            (ii)          Form
of Request. Whenever Parent desires an Advance, Parent will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Pacific time (1:00
p.m. Pacific time for wire transfers), on the Business Day that the Advance is
to be made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is
authorized to make Advances under this Agreement, based upon instructions
received from a Responsible Officer or a designee of a Responsible Officer, or
without instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid beyond any applicable cure
period (except for Bank Expenses, which shall be subject to Parent's prior
review and approval; except during the continuance of an Event of Default). Bank
shall be entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer or a designee thereof, and
Borrowers shall indemnify and hold Bank harmless for any damages or loss
suffered by Bank as a result of such reliance. Bank will credit the amount of
Advances made under this Section 2.1(b) to Parent's deposit account.

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

[

TABLE OF CONTENTS

]

 

                                           (c)          Equipment Advances.

                                                            
(i)          Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make Equipment Advances to Borrowers. Parent may request
Equipment Advances at any time from the date hereof through the Equipment Line
Availability End Date. The aggregate outstanding amount of Equipment Advances
shall not exceed the Equipment Line. Each Equipment Advance shall not exceed one
hundred percent (100%) of the invoice amount of equipment and software approved
by Bank from time to time (which Borrowers shall, in any case, have purchased
within 90 days of the date of the corresponding Equipment Advance), excluding
taxes, shipping, warranty charges, freight discounts and installation expense.
Equipment Advances for software shall not exceed twenty percent (20%) of the
Equipment Line.

                                                            (ii)          Interest
shall accrue from the date of each Equipment Advance at the rate specified in
Section 2.3(a), and shall be payable in accordance with Section 2.3(c). Any
Equipment Advances that are outstanding on the Equipment Line Availability End
Date shall be payable in twenty four (24) equal monthly installments of
principal, plus all accrued interest, beginning on the first Business Day of the
first month after the Equipment Line Availability End Date, and continuing on
the same day of each month thereafter through the Equipment Maturity Date, at
which time all amounts due under this Section 2.1(c) shall be immediately due
and payable. Equipment Advances, once repaid, may not be reborrowed. Borrowers
may prepay any Equipment Advances without penalty or premium.

                                                           (iii)          When a
Borrower desires to obtain an Equipment Advance, Parent shall notify Bank (which
notice shall be irrevocable) by facsimile transmission to be received no later
than 3:00 p.m. Pacific time three (3) Business Days before the day on which the
Equipment Advance is to be made. Such notice shall be substantially in the form
of Exhibit B. The notice shall be signed by a Responsible Officer or its
designee and include a copy of the invoice for any Equipment to be financed.

                                           2.2       Overadvances. If the
aggregate amount of the outstanding Advances exceeds the Revolving Line at any
time, Borrowers shall immediately pay to Bank, in cash, the amount of such
excess.

                                           2.3       Interest Rates, Payments,
and Calculations.

                                           (a)          Interest Rates.

                                                            
(i)          Advances. Except as set forth in Section 2.3(b), the Advances shall
bear interest, on the outstanding daily balance thereof, at a variable rate
equal to the Prime Rate.

                                                            
(ii)          Equipment Advances. Except as set forth in Section 2.3(b), the
Equipment Advances shall bear interest, on the outstanding daily balance
thereof, at a rate equal to one half of one percent (0.50%) above the Prime
Rate.

                                           (b)          Late Fee; Default Rate.
If any payment is not made within ten (10) days after the date such payment is
due, Borrowers shall pay Bank a late fee equal to the lesser of (i) five percent
(5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to
be charged under applicable law. All Obligations shall bear interest, from and
after the occurrence and during the continuance of an Event of Default, at a
rate equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.

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

[

TABLE OF CONTENTS

]

 

                                           (c)          Payments. Interest
hereunder shall be due and payable on the first calendar day of each month
during the term hereof. Bank shall, at its option, charge such interest, all
Bank Expenses (subject to Parent's prior review and approval, except during the
continuance of an Event of Default), and all Periodic Payments against any of
either Borrower's deposit accounts or against the Revolving Line, in which case
those amounts shall thereafter accrue interest at the rate then applicable
hereunder. Any interest not paid when due shall be compounded by becoming a part
of the Obligations, and such interest shall thereafter accrue interest at the
rate then applicable hereunder.

                                           (d)          Computation. In the
event the Prime Rate is changed from time to time hereafter, the applicable rate
of interest hereunder shall be increased or decreased, effective as of the day
the Prime Rate is changed, by an amount equal to such change in the Prime Rate.
All interest chargeable under the Loan Documents shall be computed on the basis
of a three hundred sixty (360) day year for the actual number of days elapsed.

                                           2.4       Crediting Payments.   Prior
to the occurrence of an Event of Default, Bank shall credit a wire transfer of
funds, check or other item of payment to such deposit account or Obligation as
Parent specifies, except that to the extent a Borrower uses the Advances to
purchase Collateral, Borrowers' repayment of the Advances shall apply on a
"first-in-first-out" basis so that the portion of the Advances used to purchase
a particular item of Collateral shall be paid in the chronological order the
Borrower purchased the Collateral. After the occurrence of an Event of Default,
Bank shall have the right, in its sole discretion, to immediately apply any wire
transfer of funds, check, or other item of payment Bank may receive to
conditionally reduce Obligations, but such applications of funds shall not be
considered a payment on account unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.

                                           2.5       Fees.   Borrowers shall pay
to Bank the following:

                                           (a)          Facility Fee. On the
Closing Date, a fee equal to $5,000 on account of the Revolving Line; and $5,000
on account of the Equipment Line; each of which shall be nonrefundable; and

                                           (b)          Bank Expenses. On the
Closing Date, all Bank Expenses incurred through the Closing Date, and, after
the Closing Date, all Bank Expenses as and when they become due.

                                           2.6       Term.   This Agreement
shall become effective on the Closing Date and, subject to Section 14.7, shall
continue in full force and effect for so long as any Obligations remain
outstanding or Bank has any obligation to make Credit Extensions under this
Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate
its obligation to make Credit Extensions under this Agreement immediately and
without prior notice upon the occurrence and during the continuance of an Event
of Default. Borrower shall have the right to terminate this Agreement upon no
less than ten (10) days prior written notice to Bank, and Bank shall have no
obligation to make Credit Extensions to Borrower after termination, provided
that all Obligations indefeasibly have been repaid in full.

 

                          3.       CONDITIONS OF LOANS.

                                           3.1       Conditions Precedent to
Initial Credit Extension.   The obligation of Bank to make the initial Credit
Extension is subject to the condition precedent that Bank shall have received,
in form and substance reasonably satisfactory to Bank, the following:

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

[

TABLE OF CONTENTS

]

 

                                           (a)          this Agreement;

                                           (b)          an officer's certificate
of each Borrower with respect to incumbency and resolutions authorizing the
execution and delivery of this Agreement;

                                           (c)          UCC National Form
Financing Statement;

                                           (d)          an intellectual property
security agreement from each Borrower;

                                           (e)          the certificate(s) for
the Shares, together with Assignment(s) Separate from Certificate, duly executed
by in blank;

                                           (f)          current SOS Reports
indicating that except for Permitted Liens, there are no other security
interests or Liens of record in the Collateral;

                                           (g)          securities and/or
deposit account control agreements with respect to any accounts permitted
hereunder to be maintained outside Bank;

                                           (h)          agreement to provide
insurance;

                                           (i)          payment of the fees and
Bank Expenses then due specified in Section 2.5 hereof;

                                           (j)          current financial
statements, including audited statements for Borrowers' most recently ended
fiscal year, together with an unqualified opinion, company prepared consolidated
and consolidating balance sheets and income statements for the most recently
ended month in accordance with Section 6.2, and such other updated financial
information as Bank may reasonably request;

                                           (k)          current Compliance
Certificate in accordance with Section 6.2;

                                           (l)          an audit of Borrowers'
Books, which shall be completed within thirty (30) days of the Closing Date, the
results of which shall be satisfactory to Bank in its reasonable discretion; and

                                           (m)          such other documents or
certificates, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate.

                                           3.2       Conditions Precedent to all
Credit Extensions.   The obligation of Bank to make each Credit Extension,
including the initial Credit Extension, is further subject to the following
conditions:

                                           (a)          timely receipt by Bank
of the Payment/Advance Form as provided in Section 2.1; and

                                           (b)          the representations and
warranties contained in Section 5 shall be true and correct in all material
respects on and as of the date of such Payment/Advance Form and on the effective
date of each Credit Extension as though made at and as of each such date, and no
Event of Default shall have occurred and be continuing, or would exist after
giving effect to such Credit Extension (provided, however, that those
representations and warranties expressly referring to another date shall be
true, correct and complete in all material respects as of such date). The making
of each Credit Extension shall be deemed to be a representation and warranty by
Borrowers on the date of such Credit Extension as to the accuracy of the facts
referred to in this Section 3.2.

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

[

TABLE OF CONTENTS

]

 

                          4.       CREATION OF SECURITY INTEREST.

                                           4.1       Grant of Security
Interest.   Each Borrower grants and pledges to Bank a continuing security
interest in the Collateral to secure prompt repayment of any and all Obligations
and to secure prompt performance by Borrowers of each of its covenants and
duties under the Loan Documents. Except as set forth in the Schedule, when Bank
files a UCC Financing Statement with respect to the Collateral a security
interest in which may be perfected by the filing of such UCC Financing Statement
in the respective Borrowers' jurisdiction of organization, such security
interest will constitute a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in later-acquired Collateral. Notwithstanding any termination,
Bank's Lien on the Collateral shall remain in effect for so long as any
Obligations are outstanding.

                                           4.2       Perfection of Security
Interest.    Each Borrower authorizes Bank to file at any time financing
statements, continuation statements, and amendments thereto that (i) either
specifically describe the Collateral or describe the Collateral as all assets of
such Borrower of the kind pledged hereunder, and (ii) contain any other
information required by the Code for the sufficiency of filing office acceptance
of any financing statement, continuation statement, or amendment, including
whether such Borrower is an organization, the type of organization and any
organizational identification number issued to such Borrower, if applicable. Any
such financing statements may be signed by Bank on behalf of Borrowers, as
provided in the Code, and may be filed at any time in any jurisdiction whether
or not Revised Article 9 of the Code is then in effect in that jurisdiction.
Each Borrower shall from time to time endorse and deliver to Bank, at the
request of Bank, all Negotiable Collateral and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents. Each
Borrower shall have possession of the Collateral, except where expressly
otherwise provided in this Agreement or where Bank chooses to perfect its
security interest by possession in addition to the filing of a financing
statement. Where Collateral is in possession of a third party bailee, each
Borrower shall take such steps as Bank reasonably requests for Bank to (i)
obtain an acknowledgment, in form and substance satisfactory to Bank, of the
bailee that the bailee holds such Collateral for the benefit of Bank, (ii)
obtain "control" of any Collateral consisting of investment property, deposit
accounts, letter-of-credit rights or electronic chattel paper (as such items and
the term "control" are defined in Revised Article 9 of the Code) by causing the
securities intermediary or depositary institution or issuing bank to execute a
control agreement in form and substance satisfactory to Bank. No Borrower will
create any chattel paper without placing a legend on the chattel paper
acceptable to Bank indicating that Bank has a security interest in the chattel
paper. Each Borrower from time to time may deposit with Bank specific cash
collateral to secure specific Obligations; each Borrower authorizes Bank to hold
such specific balances in pledge and to decline to honor any drafts thereon or
any request by a Borrower or any other Person to pay or otherwise transfer any
part of such balances for so long as the specific Obligations are outstanding.

                                           4.3       Right to Inspect.   Bank
(through any of its officers, employees, or agents) shall have the right, upon
reasonable prior notice, from time to time during a Borrower's usual business
hours but no more than twice a year (unless an Event of Default has occurred and
is continuing), to inspect such Borrower's Books and to make copies thereof and
to check, test, and appraise the Collateral in order to verify such Borrower's
financial condition or the amount, condition of, or any other matter relating
to, the Collateral.

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

[

TABLE OF CONTENTS

]

 

                                           4.4       Pledge of
Collateral.   Each Borrower hereby pledges, assigns and grants to Bank a
security interest in all the Shares, together with all proceeds and
substitutions thereof, all cash, stock and other moneys and property paid
thereon, all rights to subscribe for securities declared or granted in
connection therewith, and all other cash and noncash proceeds of the foregoing,
as security for the performance of the Obligations. On the Closing Date, the
certificate or certificates for the Shares will be delivered to Bank,
accompanied by an instrument of assignment duly executed in blank by the
appropriate Borrower. To the extent required by the terms and conditions
governing the Shares, the relevant Borrower shall cause the books of each entity
whose Shares are part of the Collateral and any transfer agent to reflect the
pledge of the Shares. Upon the occurrence and continuance of an Event of Default
hereunder, Bank may effect the transfer of any securities included in the
Collateral (including but not limited to the Shares) into the name of Bank and
cause new certificates representing such securities to be issued in the name of
Bank or its transferee. Each Borrower will execute and deliver such documents,
and take or cause to be taken such actions, as Bank may reasonably request to
perfect or continue the perfection of Bank's security interest in the Shares.
Unless an Event of Default shall have occurred and be continuing, each Borrower
shall be entitled to exercise any voting rights with respect to the relevant
Shares and to give consents, waivers and ratifications in respect thereof,
provided that no vote shall be cast or consent, waiver or ratification given or
action taken which would be inconsistent with any of the terms of this Agreement
or which would constitute or create any violation of any of such terms. All such
rights to vote and give consents, waivers and ratifications shall terminate upon
the occurrence and continuance of an Event of Default.

                                           4.5       Termination of Security
Interest.   Upon indefeasible repayment in full of all Obligations under the
Loan Documents, Borrower may request in writing and Bank shall authorize the
filing by Borrower of UCC Termination Statements (or similar) sufficient to
evidence the satisfaction in full of the Obligations and termination of Bank's
security interest in the Collateral.

 

                          5.       REPRESENTATIONS AND WARRANTIES.

                          Each Borrower represents and warrants as follows:

                                           5.1       Due Organization and
Qualification.   Borrower and each Subsidiary is a duly existing corporation
under the laws of the state in which it is organized and qualified and licensed
to do business in any state in which the conduct of its business or its
ownership of property requires that it be so qualified, except where the failure
to do so could not reasonably be expected to cause a Material Adverse Effect.

                                           5.2       Due Authorization; No
Conflict.   The execution, delivery, and performance of the Loan Documents are
within Borrower's powers, have been duly authorized, and are not in conflict
with nor constitute a breach of any provision contained in Borrower's Articles
of Incorporation or Bylaws, nor will they constitute an event of default under
any material agreement by which Borrower is bound. Borrower is not in default
under any agreement by which it is bound, except to the extent such default
could not reasonably be expected to cause a Material Adverse Effect.

                                           5.3       Collateral.   Borrower has
rights in or the power to transfer the Collateral, and its title to the
Collateral is free and clear of Liens, adverse claims, and restrictions on
transfer or pledge except for Permitted Liens, or as otherwise set forth in the
Schedule. All Collateral is located solely in the Collateral States. All
Inventory is in all material respects of good and merchantable quality, free
from all material defects, except for Inventory for which adequate reserves have
been made. Except as set forth in the Schedule, none of the Collateral is
maintained or invested with a Person other than Bank or Bank's Affiliates.

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

[

TABLE OF CONTENTS

]

 

                                           5.4       Intellectual Property
Collateral.   Borrower is the sole owner of the Intellectual Property
Collateral, except for licenses granted by Borrower to its customers or other
trading partners in the ordinary course of business. To the best of Borrower's
knowledge, each of the Copyrights, Trademarks and Patents is valid and
enforceable, and no part of the Intellectual Property Collateral has been judged
invalid or unenforceable, in whole or in part, and no claim has been made to
Borrower that any part of the Intellectual Property Collateral violates the
rights of any third party except to the extent such claim could not reasonably
be expected to cause a Material Adverse Effect. Except as set forth in the
Schedule, Borrower's rights as a licensee of intellectual property do not give
rise to more than twenty percent (20%) of its gross revenue in any given month,
including without limitation revenue derived from the sale, licensing, rendering
or disposition of any product or service.

                                           5.5       Name; Location of Chief
Executive Office.   Except as disclosed in the Schedule, Borrower has not done
business under any name other than that specified on the signature page hereof,
and its exact legal name is as set forth in the first paragraph of this
Agreement. The chief executive office of Borrower is located in the Chief
Executive Office State at the address indicated in Section 10 hereof.

                                           5.6       Litigation.   To the best
of Borrower's knowledge, there are no actions or proceedings pending by or
against Borrower or any Subsidiary before any court or administrative agency in
which a likely adverse decision could reasonably be expected to have a Material
Adverse Effect.

                                           5.7       No Material Adverse Change
in Financial Statements.   All consolidated and consolidating financial
statements related to Borrower and any Subsidiary that are delivered by Borrower
to Bank fairly present in all material respects Borrower's consolidated and
consolidating financial condition as of the date thereof and Borrower's
consolidated and consolidating results of operations for the period then ended.
There has not been a material adverse change in the consolidated or in the
consolidating financial condition of Borrower since the date of the most recent
of such financial statements submitted to Bank.

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

                                           5.9       Compliance with Laws and
Regulations.   Borrower and each Subsidiary have met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA. No event has occurred resulting from Borrower's failure to comply with
ERISA that is reasonably likely to result in Borrower's incurring any liability
that could have a Material Adverse Effect. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940. Borrower is not engaged principally, or
as one of the important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations T and U of the Board of Governors of the Federal Reserve System). To
the best of Borrower's knowledge, Borrower has complied in all material respects
with all the provisions of the Federal Fair Labor Standards Act. To the best of
Borrower's knowledge, Borrower is in compliance with all environmental laws,
regulations and ordinances except where the failure to comply is not reasonably
likely to have a Material Adverse Effect. To the best of Borrower's knowledge,
Borrower has not violated any statutes, laws, ordinances or rules applicable to
it, the violation of which could reasonably be expected to have a Material
Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed
all tax returns required to be filed, and have paid, or have made adequate
provision for the payment of, all taxes reflected therein except those being
contested in good faith with adequate reserves under GAAP or where the failure
to file such returns or pay such taxes could not reasonably be expected to have
a Material Adverse Effect.

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

[

TABLE OF CONTENTS

]

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

                                           5.11       Government Consents.   To
the best of Borrower's knowledge, Borrower and each Subsidiary have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted,
except where the failure to do so could not reasonably be expected to cause a
Material Adverse Effect.

                                           5.12       Inbound Licenses.   Except
as disclosed on the Schedule, and except with respect to licenses or other
agreements the failure, breach and/or termination of which could not reasonably
be expected to have a Material Adverse Effect, Borrower is not a party to, nor
is bound by, any license or other agreement that prohibits or otherwise
restricts Borrower from granting a security interest in Borrower's interest in
such license or agreement or any other property.

                                           5.13       Shares.   Borrower has
full power and authority to create a first lien on the Shares and no disability
or contractual obligation exists that would prohibit Borrower from pledging the
Shares pursuant to this Agreement. To Borrower's knowledge, there are no
subscriptions, warrants, rights of first refusal or other restrictions on
transfer relative to, or options exercisable with respect to the Shares. The
Shares have been and will be duly authorized and validly issued, and are fully
paid and non-assessable. To Borrower's knowledge, the Shares are not the subject
of any present or threatened suit, action, arbitration, administrative or other
proceeding, and Borrower knows of no reasonable grounds for the institution of
any such proceedings.

                                           5.14       Full Disclosure.   No
representation, warranty or other statement made by Borrower in any certificate
or written statement furnished to Bank taken together with all such certificates
and written statements furnished to Bank contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained in such certificates or statements not misleading, it being
recognized by Bank that the projections and forecasts provided by Borrower in
good faith and based upon reasonable assumptions are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections and forecasts may differ from the projected or forecasted results.

 

                          6.       AFFIRMATIVE COVENANTS.

                          Each Borrower covenants and agrees that, until payment
in full of all outstanding Obligations, and for so long as Bank may have any
commitment to make a Credit Extension hereunder, such Borrower (except as
otherwise indicated) shall do all of the following:

                                           6.1       Good Standing and
Government Compliance.   Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in the Borrower State, shall
maintain qualification and good standing in each other jurisdiction in which the
failure to so qualify could have a Material Adverse Effect, and shall furnish to
Bank the organizational identification number issued to Borrower by the
authorities of the state in which Borrower is organized, if applicable. Borrower
shall meet, and shall cause each Subsidiary to meet, the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA. Borrower shall comply in all material respects with all applicable
Environmental Laws, and maintain all material permits, licenses and approvals
required thereunder where the failure to do so could have a Material Adverse
Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with
all statutes, laws, ordinances and government rules and regulations to which it
is subject, and shall maintain, and shall cause each of its Subsidiaries to
maintain, in force all licenses, approvals and agreements, the loss of which or
failure to comply with which could reasonably be expected to have a Material
Adverse Effect.

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

[

TABLE OF CONTENTS

]

 

                                           6.2       Financial Statements,
Reports, Certificates.   Parent shall deliver the following to Bank: (i) as soon
as available, but in any event within forty-five (45) days after the end of each
calendar quarter, a company prepared consolidated balance sheet and income
statement covering Borrowers' operations during such period, in a form
reasonably acceptable to Bank and certified by a Responsible Officer; (ii) as
soon as available, but in any event within ninety (90) days after the end of
Parent's fiscal year, audited consolidated and consolidating financial
statements of Borrowers prepared in accordance with GAAP, consistently applied,
together with an opinion which is unqualified or otherwise consented to in
writing by Bank on such financial statements of an independent certified public
accounting firm reasonably acceptable to Bank, reflecting no material changes
from the company-prepared financial statements for the same period commencing
with the fiscal year ending December 31, 2004; (iii) if applicable, copies of
all statements, reports and notices sent or made available generally by a
Borrower to its security holders or to any holders of Subordinated Debt and,
within five (5) days of filing, all reports on Forms 10-K and 10-Q filed with
the Securities and Exchange Commission; (iv) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against a Borrower
or any Subsidiary that could result in uninsured damages or costs to a Borrower
or any Subsidiary of Two Hundred Fifty Thousand Dollars ($250,000) or more; (v)
promptly upon receipt, each management letter prepared by a Borrower's
independent certified public accounting firm regarding such Borrower's
management control systems; (vi) such budgets, sales projections, operating
plans or other financial information generally prepared by a Borrower in the
ordinary course of business as Bank may reasonably request from time to time,
including but not limited to Borrowers' annual business plan, including 2005
operating budget, no later than thirty (30) days after the end of the preceding
fiscal year; and (vii) within thirty (30) days of the last day of each fiscal
quarter, a report signed by Parent, in form reasonably acceptable to Bank,
listing any applications or registrations that a Borrower has made or filed in
respect of any Patents, Copyrights or Trademarks and the status of any
outstanding applications or registrations, as well as any material change in a
Borrower's Intellectual Property Collateral, including but not limited to any
subsequent ownership right of such Borrower in or to any Trademark, Patent or
Copyright not specified in Exhibits A, B, and C of any Intellectual Property
Security Agreement delivered to Bank by such Borrower in connection with this
Agreement.

                                           (a)          Within forty-five (45)
days after the last day of each quarter, Parent shall deliver to Bank with the
quarterly financial statements a Compliance Certificate certified as of the last
day of the applicable quarter and signed by a Responsible Officer in
substantially the form of Exhibit C hereto.

                                           (b)          As soon as possible and
in any event within three (3) calendar days after becoming aware of the
occurrence or existence of an Event of Default hereunder, a written statement of
a Responsible Officer of Parent setting forth details of the Event of Default,
and the action which Parent and the relevant Borrower (if other than Parent) has
taken or proposes to take with respect thereto.

                                           (c)          Bank shall have a right
from time to time hereafter to audit each Borrower's Accounts and appraise
Collateral at Borrowers' expense, provided that such audits will be conducted no
more often than every twelve (12) months unless an Event of Default has occurred
and is continuing.

                                           Parent may deliver to Bank on an
electronic basis any certificates, reports or information required pursuant to
this Section 6.2, and Bank shall be entitled to rely on the information
contained in the electronic files, provided that Bank in good faith believes
that the files were delivered by a Responsible Officer. If Parent delivers this
information electronically, it shall also deliver to Bank by U.S. Mail,
reputable overnight courier service, hand delivery, facsimile or .pdf file
within five (5) Business Days of submission of the unsigned electronic copy the
certification of monthly financial statements, the intellectual property report,
the Borrowing Base Certificate and the Compliance Certificate, each bearing the
physical signature of the Responsible Officer.

                                           6.3       Inventory;
Returns.   Borrower shall keep all Inventory in good and merchantable condition,
free from all material defects except for Inventory for which adequate reserves
have been made. Returns and allowances, if any, as between Borrower and its
account debtors shall be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist on the Closing Date. Borrower
shall promptly notify Bank of all returns and recoveries and any related
disputes and claims involving more than One Hundred Thousand Dollars ($100,000).

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

[

TABLE OF CONTENTS

]

 

                                           6.4       Taxes.   Borrower shall
make, and cause each Subsidiary to make, due and timely payment or deposit of
all material federal, state, and local taxes, assessments, or contributions
required of it by law, including, but not limited to, those laws concerning
income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and
deliver to Bank, on demand, proof satisfactory to Bank indicating that Borrower
or a Subsidiary has made such payments or deposits and any appropriate
certificates attesting to the payment or deposit thereof; provided that Borrower
or a Subsidiary need not make any payment if the amount or validity of such
payment is contested in good faith by appropriate proceedings and is reserved
against (to the extent required by GAAP) by Borrower.

                                           6.5       Insurance.

                                           (a)          Borrower, at its
expense, shall keep the Collateral insured against loss or damage by fire,
theft, explosion, sprinklers, and all other hazards and risks, and in such
amounts, as ordinarily insured against by other owners in similar businesses
conducted in the locations where Borrower's business is conducted on the date
hereof. Borrower shall also maintain liability and other insurance in amounts
and of a type that are customary to businesses similar to Borrower's.

                                           (b)          All such policies of
insurance shall be in such form, with such companies, and in such amounts as
reasonably satisfactory to Bank. All policies of property insurance shall
contain a lender's loss payable endorsement, in a form satisfactory to Bank,
showing Bank as an additional loss payee, and all liability insurance policies
shall show Bank as an additional insured and specify that the insurer must give
at least 20 days notice to Bank before canceling its policy for any reason. Upon
Bank's request, Borrower shall deliver to Bank certified copies of the policies
of insurance and evidence of all premium payments. If no Event of Default has
occurred and is continuing, proceeds payable under any casualty policy will, at
Borrower's option, be payable to Borrower to replace the property subject to the
claim, provided that any such replacement property shall be deemed Collateral in
which Bank has been granted a first priority security interest. If an Event of
Default has occurred and is continuing, all proceeds payable under any such
policy shall, at Bank's option, be payable to Bank to be applied on account of
the Obligations.

                                           6.6       Accounts.   Borrower shall
maintain its primary depository and operating accounts with Bank, and its
primary investment accounts with Bank or Bank's Affiliates.

                                           6.7       Financial
Covenants.   Borrower shall at all times maintain the following financial
covenant:

                                           (c)          Minimum Cash. A balance
of Cash at Bank of not less (i) Three Million Dollars ($3,000,000) when
aggregate outstanding Advances and Equipment Advances are less than or equal to
Three Million Dollars ($3,000,000); and (ii) Three Million Five Hundred Thousand
Dollars ($3,500,000) when aggregate outstanding Advances and Equipment Advances
are greater than Three Million Dollars ($3,000,000). Borrowers may not request
or receive Advances in order to comply with this Section 6.7(a).

                                           6.8       Intellectual Property
Rights.

                                           (a)          Borrower shall register
or cause to be registered on an expedited basis (to the extent not already
registered) with the United States Patent and Trademark Office or the United
States Copyright Office, as the case may be, those registerable intellectual
property rights now owned or hereafter developed or acquired by Borrower, to the
extent that Borrower, in its reasonable business judgment, deems it appropriate
to so protect such intellectual property rights.

                                           (b)          Borrower shall promptly
give Bank written notice of any applications or registrations of intellectual
property rights filed with the United States Patent and Trademark Office,
including the date of such filing and the registration or application numbers,
if any.

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

[

TABLE OF CONTENTS

]

 

                                           (c)          Borrower shall (i) give
Bank not less than thirty (30) days prior written notice of the filing of any
applications or registrations with the United States Copyright Office, including
the title of such intellectual property rights to be registered, as such title
will appear on such applications or registrations, and the date such
applications or registrations will be filed; (ii) prior to the filing of any
such applications or registrations, execute such documents as Bank may
reasonably request for Bank to maintain its perfection in such intellectual
property rights to be registered by Borrower; (iii) upon the request of Bank,
either deliver to Bank or file such documents simultaneously with the filing of
any such applications or registrations; (iv) upon filing any such applications
or registrations, promptly provide Bank with a copy of such applications or
registrations together with any exhibits, evidence of the filing of any
documents requested by Bank to be filed for Bank to maintain the perfection and
priority of its security interest in such intellectual property rights, and the
date of such filing.

                                           (d)          Borrower shall execute
and deliver such additional instruments and documents from time to time as Bank
shall reasonably request to perfect and maintain the perfection and priority of
Bank's security interest in the Intellectual Property Collateral.

                                           (e)          Borrower shall (i)
protect, defend and maintain the validity and enforceability of the trade
secrets, Trademarks, Patents and Copyrights, (ii) use commercially reasonable
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Bank in writing of material infringements detected and (iii) not
allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited
or dedicated to the public without the written consent of Bank, which shall not
be unreasonably withheld.

                                           (f)          Bank may audit
Borrower's Intellectual Property Collateral to confirm compliance with this
Section, provided such audit may not occur more often than twice per year,
unless an Event of Default has occurred and is continuing. Bank shall have the
right, but not the obligation, to take, at Borrower's sole expense, any actions
that Borrower is required under this Section to take but which Borrower fails to
take, after fifteen (15) days' notice to Borrower. Borrower shall reimburse and
indemnify Bank for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section.

                                           6.9       Consent of Inbound
Licensors.   Prior to entering into or becoming bound by any license or
agreement the failure, breach and/or termination of which could reasonably be
expected to have a Material Adverse Effect, Borrower shall: (i) provide written
notice to Bank of the material terms of such license or agreement with a
description of its likely impact on Borrower's business or financial condition;
and (ii) in good faith use commercially reasonable efforts to obtain the consent
of, or waiver by, any person whose consent or waiver is necessary for Borrower's
interest in such licenses or contract rights to be deemed Collateral and for
Bank to have a security interest in it that might otherwise be restricted by the
terms of the applicable license or agreement, whether now existing or entered
into in the future, provided, however, that the failure to obtain any such
consent or waiver shall not constitute a default under this Agreement.

                                           6.10       Further Assurances.   At
any time and from time to time Borrower shall execute and deliver such further
instruments and take such further action as may reasonably be requested by Bank
to effect the purposes of this Agreement.

 

                          7.       NEGATIVE COVENANTS.

                          Each Borrower covenants and agrees that, so long as
any credit hereunder shall be available and until the outstanding Obligations
are paid in full or for so long as Bank may have any commitment to make any
Credit Extensions, such Borrower will not do any of the following without Bank's
prior written consent, which shall not be unreasonably withheld:

                                           7.1       Dispositions.   Convey,
sell, lease, license, transfer or otherwise dispose of (collectively, to
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, or move cash balances on deposit with Bank, except in
excess of amounts required hereunder to be maintained with Bank and/or Bank's
Affiliates, to accounts opened at another financial institution, other than
Permitted Transfers.

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

[

TABLE OF CONTENTS

]

 

                                           7.2       Change in Name, Location,
Executive Office, or Executive Management; Change in Business; Change in Fiscal
Year; Change in Control .   Change its name or the Borrower State or relocate
its chief executive office without thirty(30) days prior written notification to
Bank; replace its chief executive officer or chief financial officer without
three (3) days prior written notification to Bank; engage in any business, or
permit any of its Subsidiaries to engage in any business, other than or
reasonably related or incidental to the businesses currently engaged in by
Borrower; change its fiscal year end; suffer or permit a Change in Control.

                                           7.3       Mergers or
Acquisitions.   Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with or into any other business organization (other than mergers
or consolidations of a Subsidiary into another Subsidiary or into Borrower), or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person; provided that, Parent may
merge or consolidate with or acquire all or substantially all of the capital
stock or property of another Person where (i) the cash consideration paid by
Borrower for such transactions does not in the aggregate exceed Four Million
Dollars ($4,000,000) at any time during the term hereof, (ii) such Person(s) is
in the same line of business as Borrowers; (iii) no Event of Default has
occurred, is continuing or would exist after giving effect to such transactions,
(iv) such transactions occur with in twelve (12) months of the Closing Date, and
do not result in a Change in Control or a material change in management of any
Borrower, (v) each Borrower survives such transactions; and (vi) and Subsidiary
formed or acquired in connection with such transactions becomes a Borrower
hereunder and any Shares created or acquired in connection therewith are pledged
to Bank as Collateral in accordance with this Agreement.

                                           7.4       Indebtedness.   Create,
incur, assume, guarantee or be or remain liable with respect to any
Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness, or prepay any Indebtedness or take any actions which impose on
Borrower an obligation to prepay any Indebtedness, except Indebtedness to Bank.

                                           7.5       Encumbrances.   Create,
incur, assume or allow any Lien with respect to any of its property, or assign
or otherwise convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries so to do, except for Permitted
Liens, or covenant to any other Person that Borrower in the future will refrain
from creating, incurring, assuming or allowing any Lien with respect to any of
Borrower's property.

                                           7.6       Distributions.   Pay any
dividends or make any other distribution or payment on account of or in
redemption, retirement or purchase of any capital stock, except that Borrower
may (i) repurchase the stock of Parent's shareholders pursuant to stock
repurchase agreements as long as (x) an Event of Default does not exist prior to
such repurchase or would not exist after giving effect to such repurchase, and
(y) such repurchases do not in the aggregate exceed Two Million Dollars
($2,000,000) in cash; and (ii) repurchase the stock of Parent's shareholders
pursuant to stock repurchase agreements by the cancellation of indebtedness owed
by such shareholders to Borrower regardless of whether an Event of Default
exists.

                                           7.7       Investments.   Directly or
indirectly acquire or own, or make any Investment in or to any Person, or permit
any of its Subsidiaries so to do, other than Permitted Investments, or maintain
or invest any of its property with a Person other than Bank or Bank's Affiliates
or permit any Subsidiary to do so unless such Person has entered into a control
agreement with Bank, in form and substance reasonably satisfactory to Bank, or
suffer or permit any Subsidiary to be a party to, or be bound by, an agreement
that restricts such Subsidiary from paying dividends or otherwise distributing
property to Borrower.

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

[

TABLE OF CONTENTS

]

                                           7.8       Transactions with
Affiliates.   Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-affiliated Person.

                                           7.9       Subordinated Debt.   Make
any payment in respect of any Subordinated Debt, or permit any of its
Subsidiaries to make any such payment, except in compliance with the terms of
such Subordinated Debt, or amend any provision affecting Bank's rights contained
in any documentation relating to the Subordinated Debt without Bank's prior
written consent which shall not be unreasonably withheld.

                                           7.10       Inventory and
Equipment.   Store the Inventory or the Equipment with a bailee, warehouseman,
or similar third party unless the third party has been notified of Bank's
security interest and Bank (a) has received an acknowledgment from the third
party that it is holding or will hold the Inventory or Equipment for Bank's
benefit or (b) is in possession of the warehouse receipt, where negotiable,
covering such Inventory or Equipment. Except for Inventory sold in the ordinary
course of business and except for such other locations as Bank may approve in
writing, Borrower shall keep the Inventory and Equipment only at the location
set forth in Section 10 and such other locations of which Borrower gives Bank
prior written notice and as to which Bank files a financing statement, or takes
other action, where needed to perfect its security interest.

                                           7.11       No Investment Company;
Margin Regulation.   Become or be 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 Credit Extension for such purpose.

                                           7.12       Negative Pledge
Agreements.   Permit the inclusion in any contract to which it or a Subsidiary
becomes a party of any provisions that could restrict or invalidate the creation
of a security interest in any of Borrower's or such Subsidiary's property.

 

                          8.       EVENTS OF DEFAULT.

                          Any one or more of the following events shall
constitute an Event of Default by Borrowers under this Agreement:

                                           8.1       Payment Default.   If a
Borrower fails to pay, within three (3) Business Days of the date when due, any
of the Obligations;

                                           8.2       Covenant Default.

                                           (a)          If a Borrower fails to
perform any obligation under Article 6 or violates any of the covenants
contained in Article 7 of this Agreement; or

                                           (b)          If a Borrower fails or
neglects to perform or observe any other material term, provision, condition,
covenant contained in this Agreement, in any of the Loan Documents, or in any
other present or future agreement between a Borrower and Bank and as to any
default under such other term, provision, condition or covenant that can be
cured, has failed to cure such default within ten (10) days after a Borrower
receives notice thereof or any officer of a Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrowers be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrowers shall have an additional reasonable period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have cured such
default shall not be deemed an Event of Default but no Credit Extensions will be
made;

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

[

TABLE OF CONTENTS

]

                                           8.3       Defective Perfection.   If
Bank shall receive at any time following the Closing Date an SOS Report
indicating that except for Permitted Liens, Bank's security interest in the
Collateral is not prior to all other security interests or Liens of record
reflected in such SOS Report, except to the extent the same is the result of
Bank's negligence or willful malfeasance, or failure to take appropriate action
with respect to Bank's security interest in the Collateral;

                                           8.4       Material Adverse
Effect.   If there occurs any circumstance or circumstances that could
reasonably be expected to have a Material Adverse Effect;

                                           8.5       Attachment.   If any
material portion of a Borrower's assets is attached, seized, subjected to a writ
or distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such attachment,
seizure, writ or distress warrant or levy has not been removed, discharged or
rescinded within twenty (20) days, or if a Borrower is enjoined, restrained, or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs, or if a judgment or other claim becomes a
lien or encumbrance upon any material portion of a Borrower's assets, or if a
notice of lien, levy, or assessment is filed of record with respect to any of a
Borrower's assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, and the same is not paid within twenty (20) days after such Borrower
receives notice thereof, provided that none of the foregoing shall constitute an
Event of Default where such action or event is stayed or an adequate bond has
been posted pending a good faith contest by such Borrower (provided that no
Credit Extensions will be required to be made during such cure period);

                                           8.6       Insolvency.   If a Borrower
becomes insolvent, or if an Insolvency Proceeding is commenced by a Borrower, or
if an Insolvency Proceeding is commenced against a Borrower and is not dismissed
or stayed within forty-five (45) days (provided that no Credit Extensions will
be made prior to the dismissal of such Insolvency Proceeding);

                                           8.7       Other Agreements.   If
there is a default or other failure to perform in any agreement to which a
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of Two Hundred Fifty Thousand Dollars
($250,000) or that could reasonably be expected to have a Material Adverse
Effect;

                                           8.8       Subordinated Debt.   If a
Borrower makes any payment on account of Subordinated Debt, except to the extent
such payment is allowed under any subordination agreement entered into with
Bank;

                                           8.9       Judgments.   If a final,
non-appealable judgment or judgments for the uninsured payment of money by a
Borrower in an amount, individually or in the aggregate, of at least One Hundred
Thousand Dollars ($100,000) shall be rendered against a Borrower and shall
remain unsatisfied and unstayed for a period of ten (10) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or

                                           8.10       Misrepresentations.   If
any material misrepresentation or material misstatement exists now or hereafter
in any warranty or representation set forth herein or in any certificate
delivered to Bank by any Responsible Officer pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan Document.

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

[

TABLE OF CONTENTS

]

 

                          9.       BANK'S RIGHTS AND REMEDIES.

                                           9.1       Rights and Remedies.   Upon
the occurrence and during the continuance of an Event of Default, Bank may, at
its election, without notice of its election and without demand, do any one or
more of the following, all of which are authorized by Borrowers:

                                           (a)          Declare all Obligations,
whether evidenced by this Agreement, by any of the other Loan Documents, or
otherwise, immediately due and payable (provided that upon the occurrence of an
Event of Default described in Section 8.6, all Obligations shall become
immediately due and payable without any action by Bank);

                                           (b)          Demand that Borrowers
(i) deposit cash with Bank in an amount equal to the amount of any Letters of
Credit remaining undrawn, as collateral security for the repayment of any future
drawings under such Letters of Credit, and (ii) pay in advance all Letter of
Credit fees scheduled to be paid or payable over the remaining term of the
Letters of Credit, and Borrowers shall promptly deposit and pay such amounts;

                                           (c)          Cease advancing money or
extending credit to or for the benefit of Borrowers under this Agreement or
under any other agreement between a Borrower and Bank;

                                           (d)          Settle or adjust
disputes and claims directly with account debtors for amounts, upon terms and in
whatever order that Bank reasonably considers advisable;

                                           (e)          Make such payments and
do such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrowers agree to assemble the Collateral if Bank
so requires, and to make the Collateral available to Bank as Bank may designate.
Borrowers authorize Bank to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
a Borrower's owned premises, Borrowers hereby grant Bank a license to enter into
possession of such premises and to occupy the same, without charge, in order to
exercise any of Bank's rights or remedies provided herein, at law, in equity, or
otherwise;

                                           (f)          Set off and apply to the
Obligations any and all (i) balances and deposits of a Borrower held by Bank,
and (ii) indebtedness at any time owing to or for the credit or the account of a
Borrower held by Bank;

                                           (g)          Ship, reclaim, recover,
store, finish, maintain, repair, prepare for sale, advertise for sale, and sell
(in the manner provided for herein) the Collateral. Bank is hereby granted a
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrowers' labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and, in connection with Bank's exercise of its rights under this Section 9.1,
each Borrower's rights under all licenses and all franchise agreements shall
inure to Bank's benefit;

                                           (h)          Sell the Collateral at
either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrowers' premises) as Bank determines is commercially reasonable, and apply
any proceeds to the Obligations in whatever manner or order Bank deems
appropriate. Bank may sell the Collateral without giving any warranties as to
the Collateral. Bank may specifically disclaim any warranties of title or the
like. This procedure will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral. If Bank sells any of the
Collateral upon credit, Borrowers will be credited only with payments actually
made by the purchaser, received by Bank, and applied to the indebtedness of the
purchaser. If the purchaser fails to pay for the Collateral, Bank may resell the
Collateral and Borrowers shall be credited with the proceeds of the sale;

                                           (i)          Bank may credit bid and
purchase at any public sale;

                                           (j)          Apply for the
appointment of a receiver, trustee, liquidator or conservator of the Collateral,
without notice and without regard to the adequacy of the security for the
Obligations and without regard to the solvency of any Borrower, any guarantor or
any other Person liable for any of the Obligations; and

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

[

TABLE OF CONTENTS

]

 

                                           (k)          Any deficiency that
exists after disposition of the Collateral as provided above will be paid
immediately by Borrowers.

                                           9.2       Power of
Attorney.   Effective only upon the occurrence and during the continuance of an
Event of Default, Borrowers hereby irrevocably appoint Bank (and any of Bank's
designated officers, or employees) as each Borrower's true and lawful attorney
to: (a) send requests for verification of Accounts or notify account debtors of
Bank's security interest in the Accounts; (b) endorse each Borrower's name on
any checks or other forms of payment or security that may come into Bank's
possession; (c) sign each Borrower's name on any invoice or bill of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to a Borrower's policies of insurance; (f)
settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which Bank determines to be
reasonable; (g) to modify, in its sole discretion, any intellectual property
security agreement entered into between a Borrower and Bank without first
obtaining a Borrower's approval of or signature to such modification by amending
Exhibits A, B, and C, thereof, as appropriate, to include reference to any
right, title or interest in any Copyrights, Patents or Trademarks acquired by a
Borrower after the execution hereof or to delete any reference to any right,
title or interest in any Copyrights, Patents or Trademarks in which a Borrower
no longer has or claims to have any right, title or interest; and (h) to file,
in its sole discretion, one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the signature of
Borrower where permitted by law; provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
clauses (g) and (h) above, regardless of whether an Event of Default has
occurred. The appointment of Bank as each Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide Credit Extensions hereunder is terminated.

                                           9.3       Accounts Collection.   At
any time after the occurrence and during the continuance of an Event of Default,
Bank may notify any Person owing funds to a Borrower of Bank's security interest
in such funds and verify the amount of such Account. Borrowers shall collect all
amounts owing to Borrowers for Bank, receive in trust all payments as Bank's
trustee, and immediately deliver such payments to Bank in their original form as
received from the account debtor, with proper endorsements for deposit.

                                           9.4       Bank Expenses.   If a
Borrower fails to pay any amounts or furnish any required proof of payment due
to third persons or entities, as required under the terms of this Agreement,
then Bank may do any or all of the following after reasonable notice to
Borrowers: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Revolving Line as Bank deems necessary to protect Bank from
the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.5 of this Agreement, and take any
action with respect to such policies as Bank deems prudent. Any amounts so paid
or deposited by Bank shall constitute Bank Expenses, shall be immediately due
and payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement.

                                           9.5       Bank's Liability for
Collateral.   Bank has no obligation to clean up or otherwise prepare the
Collateral for sale. All risk of loss, damage or destruction of the Collateral
shall be borne by Borrowers.

                                           9.6       No Obligation to Pursue
Others.   Bank has no obligation to attempt to satisfy the Obligations by
collecting them from any other Person liable for them and Bank may release,
modify or waive any collateral provided by any other Person to secure any of the
Obligations, all without affecting Bank's rights against Borrowers. Each
Borrower waives any right it may have to require Bank to pursue any other Person
for any of the Obligations.

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

[

TABLE OF CONTENTS

]

 

                                           9.7       Remedies
Cumulative.   Bank's rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Bank shall have all
other rights and remedies not inconsistent herewith as provided under the Code,
by law, or in equity. No exercise by Bank of one right or remedy shall be deemed
an election, and no waiver by Bank of any Event of Default on a Borrower's part
shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless
made in a written document signed on behalf of Bank and then shall be effective
only in the specific instance and for the specific purpose for which it was
given. Each Borrower expressly agrees that this Section may not be waived or
modified by Bank by course of performance, conduct, estoppel or otherwise.

                                           9.8       Demand; Protest.   Except
as otherwise provided in this Agreement, each Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment and any other notices relating to the Obligations.

 

                          10.       NOTICES.

                          Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement or any other
agreement entered into in connection herewith shall be in writing and (except
for financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by a
recognized overnight delivery service, certified mail, postage prepaid, return
receipt requested, or by telefacsimile to Borrowers or to Bank, as the case may
be, at its addresses set forth below:

If to Borrowers:

c/o VITALSTREAM HOLDINGS, INC.
One Jenner, Suite 100
Irvine, CA 92618
Attn: Chief Financial Officer and General Counsel
FAX: (949) 727-9660

If to Bank:

Comerica Bank
2321 Rosecrans Ave., Suite 5000
El Segundo, CA 90245
Attn: Manager
FAX: (310) 297-2290

With a copy to:

Comerica Bank
611 Anton Blvd. Suite 400
Costa Mesa, CA 92649
Attn: James Ligman
FAX: (714) 433-3280

                          The parties hereto may change the address at which
they are to receive notices hereunder, by notice in writing in the foregoing
manner given to the other.

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

[

TABLE OF CONTENTS

]

                          11.       CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

                          This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrowers and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Orange, State of California. BANK AND BORROWERS EACH ACKNOWLEDGE THAT THE RIGHT
TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH OF
THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF
THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS
SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK
OR BORROWERS, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.

                          12.       REFERENCE PROVISION.

                          The parties prefer that any dispute between them be
resolved in litigation subject to a Jury Trial Waiver as set forth in Section 11
of this Agreement, but the availability of that process is in doubt because of
the opinion of the California Court of Appeal in Grafton Partners LP v. Superior
Court, 9 Cal.Rptr.3d 511. This Reference Provision will be applicable until the
California Supreme Court completes its review of that case, and will continue to
be applicable if either that court or a California Court of Appeal publishes a
decision holding that a pre-dispute Jury Trial Waiver provision similar to that
contained in the Loan Documents is invalid or unenforceable. Delay in requesting
appointment of a referee pending review of any such decision, or participation
in litigation pending review, will not be deemed a waiver of this Reference
Provision.

                                           12.1       Mechanics.

                                           (a)          Other than (i)
nonjudicial foreclosure of security interests in real or personal property, (ii)
the appointment of a receiver or (iii) the exercise of other provisional
remedies (any of which may be initiated pursuant to applicable law), any
controversy, dispute or claim (each, a "Claim") between the parties arising out
of or relating to this Agreement or any other document, instrument or agreement
between the Bank and the undersigned (collectively in this Section, the "Loan
Documents"), will be resolved by a reference proceeding in California in
accordance with the provisions of Section 638 et seq. of the California Code of
Civil Procedure ("CCP"), or their successor sections, which shall constitute the
exclusive remedy for the resolution of any Claim, including whether the Claim is
subject to the reference proceeding. Except as otherwise provided in the Loan
Documents, venue for the reference proceeding will be in the Superior Court or
Federal District Court in the County or District where venue is otherwise
appropriate under applicable law (the "Court").

                                           (b)          The referee shall be a
retired Judge or Justice selected by mutual written agreement of the parties. If
the parties do not agree, the referee shall be selected by the Presiding Judge
of the Court (or his or her representative). A request for appointment of a
referee may be heard on an ex parte or expedited basis, and the parties agree
that irreparable harm would result if ex parte relief is not granted. The
referee shall be appointed to sit with all the powers provided by law. Each
party shall have one peremptory challenge pursuant to CCP Subsection 170.6.
Pending appointment of the referee, the Court has power to issue temporary or
provisional remedies.

                                           (c)          The parties agree that
time is of the essence in conducting the reference proceedings. Accordingly, the
referee shall be requested to (a) set the matter for a status and trial-setting
conference within fifteen (15) days after the date of selection of the referee,
(b) if practicable, try all issues of law or fact within ninety (90) days after
the date of the conference and (c) report a statement of decision within twenty
(20) days after the matter has been submitted for decision. Any decision
rendered by the referee will be final, binding and conclusive, and judgment
shall be entered pursuant to CCP Subsection 644.

                                           (d)          The referee will have
power to expand or limit the amount and duration of discovery. The referee may
set or extend discovery deadlines or cutoffs for good cause, including a party's
failure to provide requested discovery for any reason whatsoever. Unless
otherwise ordered, no party shall be entitled to "priority" in conducting
discovery, depositions may be taken by either party upon seven (7) days written
notice, and all other discovery shall be responded to within fifteen (15) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding.

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

[

TABLE OF CONTENTS

]

 

                                           12.2       Procedures. Except as
expressly set forth in this Agreement, the referee shall determine the manner in
which the reference proceeding is conducted including the time and place of
hearings, the order of presentation of evidence, and all other questions that
arise with respect to the course of the reference proceeding. All proceedings
and hearings conducted before the referee, except for trial, shall be conducted
without a court reporter, except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee, and the
referee will be provided a courtesy copy of the transcript. The party making
such a request shall have the obligation to arrange for and pay the court
reporter. Subject to the referee's power to award costs to the prevailing party,
the parties will equally share the cost of the referee and the court reporter at
trial.

                                           12.3       Application of Law. The
referee shall be required to determine all issues in accordance with existing
case law and the statutory laws of the State of California. The rules of
evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, provide all temporary or provisional
remedies, enter equitable orders that will be binding on the parties and rule on
any motion which would be authorized in a trial, including without limitation
motions for summary judgment or summary adjudication . The referee shall issue a
decision at the close of the reference proceeding which disposes of all claims
of the parties that are the subject of the reference. The referee's decision
shall be entered by the Court as a judgment or an order in the same manner as if
the action had been tried by the Court. The parties reserve the right to appeal
from the final judgment or order or from any appealable decision or order
entered by the referee. The parties reserve the right to findings of fact,
conclusions of laws, a written statement of decision, and the right to move for
a new trial or a different judgment, which new trial, if granted, is also to be
a reference proceeding under this provision.

                                           12.4       Repeal. If the enabling
legislation which provides for appointment of a referee is repealed (and no
successor statute is enacted), any dispute between the parties that would
otherwise be determined by reference procedure will be resolved and determined
by arbitration. The arbitration will be conducted by a retired judge or Justice,
in accordance with the California Arbitration Act Subsection 1280 through
Subsection 1294.2 of the CCP as amended from time to time. The limitations with
respect to discovery set forth above shall apply to any such arbitration
proceeding.

                                           12.5       THE PARTIES RECOGNIZE AND
AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED
BY A REFEREE AND NOT BY A JURY, AND THAT THEY ARE IN EFFECT WAIVING THEIR RIGHT
TO TRIAL BY JURY IN AGREEING TO THIS REFERENCE PROVISION. AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH
PARTY KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS
REFERENCE PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT OF
OR IS RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS.

 

                          13.       CO-BORROWERS.

                                           13.1       Co-Borrowers. Borrowers
are jointly and severally liable for the Obligations and Bank may proceed
against one Borrower to enforce the Obligations without waiving its right to
proceed against the other Borrower. This Agreement and the Loan Documents are a
primary and original obligation of each Borrower and shall remain in effect
notwithstanding future changes in conditions, including any change of law or any
invalidity or irregularity in the creation or acquisition of any Obligations or
in the execution or delivery of any agreement between Bank and any Borrower.
Each Borrower shall be liable for existing and future Obligations as fully as if
all of the Credit Extensions were advanced to such Borrower. Bank may rely on
any certificate or representation made by any Borrower as made on behalf of, and
binding on, all Borrowers, including without limitation Advance Request Forms,
Borrowing Base Certificates and Compliance Certificates. Borrowers are jointly
and severally liable for the Obligations and Bank may proceed against one or
more of the Borrowers to enforce the Obligations without waiving its right to
proceed against any of the other Borrowers. Each Borrower appoints each other
Borrower as its agent with all necessary power and authority to give and receive
notices, certificates or demands for and on behalf of both Borrowers, to act as
disbursing agent for receipt of any Advances on behalf of each Borrower and to
apply to Bank on behalf of each Borrower for Advances, any waivers and any
consents. This authorization cannot be revoked, and Bank need not inquire as to
one Borrower's authority to act for or on behalf of another Borrower.

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

[

TABLE OF CONTENTS

]

 

                                           13.2       Subrogation and Similar
Rights. Notwithstanding any other provision of this Agreement or any other Loan
Document, each Borrower irrevocably waives, until all obligations are paid in
full and Bank has no further obligation to make Credit Extensions to Borrower,
all rights that it may have at law or in equity (including, without limitation,
any law subrogating the Borrower to the rights of Bank under the Loan Documents)
to seek contribution, indemnification, or any other form of reimbursement from
any other Borrower, or any other Person now or hereafter primarily or
secondarily liable for any of the Obligations, for any payment made by the
Borrower with respect to the Obligations in connection with the Loan Documents
or otherwise and all rights that it might have to benefit from, or to
participate in, any security for the Obligations as a result of any payment made
by the Borrower with respect to the Obligations in connection with the Loan
Documents or otherwise. Any agreement providing for indemnification,
reimbursement or any other arrangement prohibited under this Section shall be
null and void. If any payment is made to a Borrower in contravention of this
Section, such Borrower shall hold such payment in trust for Bank and such
payment shall be promptly delivered to Bank for application to the Obligations,
whether matured or unmatured.

                                           13.3       Waivers of Notice. Except
as otherwise set forth herein, each Borrower waives, to the extent permitted by
law, notice of acceptance hereof; notice of the existence, creation or
acquisition of any of the Obligations; notice of an Event of Default except as
set forth herein; notice of the amount of the Obligations outstanding at any
time; notice of any adverse change in the financial condition of any other
Borrower or of any other fact that might increase the Borrower's risk;
presentment for payment; demand; protest and notice thereof as to any
instrument; and all other notices and demands to which the Borrower would
otherwise be entitled by virtue of being a co-borrower or a surety. Each
Borrower waives any defense arising from any defense of any other Borrower, or
by reason of the cessation from any cause whatsoever of the liability of any
other Borrower. Bank's failure at any time to require strict performance by any
Borrower of any provision of the Loan Documents shall not waive, alter or
diminish any right of Bank thereafter to demand strict compliance and
performance therewith. Each Borrower also waives any defense arising from any
act or omission of Bank that changes the scope of the Borrower's risks
hereunder. Each Borrower hereby waives any right to assert against Bank any
defense (legal or equitable), setoff, counterclaim, or claims that such Borrower
individually may now or hereafter have against another Borrower or any other
Person liable to Bank with respect to the Obligations in any manner or
whatsoever.

                                           13.4       Subrogation Defenses.
Until all Obligations are paid in full and Bank has no further obligation to
make Credit Extensions to Borrower, each Borrower hereby waives any defense
based on impairment or destruction of its subrogation or other rights against
any other Borrower and waives all benefits which might otherwise be available to
it under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848,
2849, 2850, 2899, and 3433 and California Code of Civil Procedure Sections 580a,
580b, 580d and 726, as those statutory provisions are now in effect and
hereafter amended, and under any other similar statutes now and hereafter in
effect.

                                           13.5       Right to Settle, Release.

                                                     13.5.1       The liability
of Borrowers hereunder shall not be diminished by (i) any agreement,
understanding or representation that any of the Obligations is or was to be
guaranteed by another Person or secured by other property, or (ii) any release
or unenforceability, whether partial or total, of rights, if any, which Bank may
now or hereafter have against any other Person, including another Borrower, or
property with respect to any of the Obligations.

                                                     13.5.2       Without notice
to any Borrower and without affecting the liability of any Borrower hereunder,
Bank may (i) compromise, settle, renew, extend the time for payment, change the
manner or terms of payment, discharge the performance of, decline to enforce, or
release all or any of the Obligations with respect to a Borrower, (ii) grant
other indulgences to a Borrower in respect of the Obligations, (iii) modify in
any manner any documents relating to the Obligations with respect to a Borrower,
(iv) release, surrender or exchange any deposits or other property securing the
Obligations, whether pledged by a Borrower or any other Person, or (v)
compromise, settle, renew, or extend the time for payment, discharge the
performance of, decline to enforce, or release all or any obligations of any
guarantor, endorser or other Person who is now or may hereafter be liable with
respect to any of the Obligations.

                                           13.6       Subordination. All
indebtedness of a Borrower now or hereafter arising held by another Borrower is
subordinated to the Obligations and the Borrower holding the indebtedness shall
take all actions reasonably requested by Bank to effect, to enforce and to give
notice of such subordination.

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

[

TABLE OF CONTENTS

]

 

                          14.       GENERAL PROVISIONS.

                                           14.1       Successors and
Assigns.   This Agreement shall bind and inure to the benefit of the respective
successors and permitted assigns of each of the parties and shall bind all
Persons who become bound as a debtor to this Agreement; provided, however, that
neither this Agreement nor any rights hereunder may be assigned by a Borrower
without Bank's prior written consent, which consent may be granted or withheld
in Bank's sole discretion. Bank shall have the right without the consent of or
notice to a Borrower to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
hereunder.

                                           14.2       Indemnification.   Each
Borrower shall defend, indemnify and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities (collectively, "Claims") claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement; and (b) all
losses or Bank Expenses (collectively, "Losses") in any way suffered, incurred,
or paid by Bank, its officers, employees and agents as a result of or in any way
arising out of, following, or consequential to transactions between Bank and a
Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys' fees and expenses), except to the extent such
Claims or Losses are caused by, arise out of, follow or are consequential to
Bank's, or its officers', employees' or agents' gross negligence or willful
misconduct.

                                           14.3       Time of Essence.   Time is
of the essence for the performance of all obligations set forth in this
Agreement.

                                           14.4       Severability of
Provisions.   Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.

                                           14.5       Amendments in Writing,
Integration.   All amendments to or terminations of this Agreement or the other
Loan Documents must be in writing. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement and the other Loan Documents, if
any, are merged into this Agreement and the Loan Documents.

                                           14.6      Counterparts.   This
Agreement may be executed in any number of counterparts and by different parties
on separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement.

                                           14.7       Survival.   All covenants,
representations and warranties made in this Agreement shall continue in full
force and effect so long as any Obligations remain outstanding or Bank has any
obligation to make any Credit Extension to a Borrower. The obligations of
Borrowers to indemnify Bank with respect to the expenses, damages, losses, costs
and liabilities described in Section 14.2 shall survive until all applicable
statute of limitations periods with respect to actions that may be brought
against Bank have run.

 

 

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

 

 

 

 

 

[Balance of Page Intentionally Left Blank]

 

 

 

 

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

[

TABLE OF CONTENTS

]

 

 

                 IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.

 

 

VITALSTREAM HOLDINGS, INC.

   

By:

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

Title:

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

             

VITALSTREAM, INC.

   

By:

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

Title:

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

             

VITALSTREAM BROADCASTING CORPORATION

   

By:

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

Title:

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

             

COMERICA BANK

   

By:

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

Title:

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

           

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

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to Loan and Security Agreement]

 

 

 

 

 

 

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

[

TABLE OF CONTENTS

]

 

DEBTOR

VITALSTREAM HOLDINGS, INC.

SECURED PARTY:

COMERICA BANK

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT

            All personal property of Borrower (herein referred to as "Borrower"
or "Debtor") whether presently existing or hereafter created or acquired, and
wherever located, including, but not limited to:

                            (a)            all accounts (including
health-care-insurance receivables), chattel paper (including tangible and
electronic chattel paper), deposit accounts, documents (including negotiable
documents), equipment (including all accessions and additions thereto), general
intangibles (including payment intangibles and software), goods (including
fixtures), instruments (including promissory notes), inventory (including all
goods held for sale or lease or to be furnished under a contract of service, and
including returns and repossessions), investment property (including securities
and securities entitlements), letter of credit rights, money, and all of
Debtor's books and records with respect to any of the foregoing, and the
computers and equipment containing said books and records;

                            (b)            all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, in the United States of America or in any foreign
jurisdiction, obtained or to be obtained on or in connection with any of the
foregoing, or any parts thereof or any underlying or component elements of any
of the foregoing, together with the right to copyright and all rights to renew
or extend such copyrights and the right (but not the obligation) of Secured
Party to sue in its own name and/or in the name of the Debtor for past, present
and future infringements of copyright;

                            (c)            all trademarks, service marks, trade
names and service names and the goodwill associated therewith, together with the
right to trademark and all rights to renew or extend such trademarks and the
right (but not the obligation) of Secured Party to sue in its own name and/or in
the name of the Debtor for past, present and future infringements of trademark;

                            (d)            all (i) patents and patent
applications filed in the United States Patent and Trademark Office or any
similar office of any foreign jurisdiction, and interests under patent license
agreements, including, without limitation, the inventions and improvements
described and claimed therein, (ii) licenses pertaining to any patent whether
Debtor is licensor or licensee, (iii) income, royalties, damages, payments,
accounts and accounts receivable now or hereafter due and/or payable under and
with respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (iv) right (but not the
obligation) to sue in the name of Debtor and/or in the name of Secured Party for
past, present and future infringements thereof, (v) rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been issued
or applied for, and (vi) reissues, divisions, continuations, renewals,
extensions and continuations-in-part with respect to any of the foregoing; and

                            (e)            any and all cash proceeds and/or
noncash proceeds of any of the foregoing, including, without limitation,
insurance proceeds, and all supporting obligations and the security therefor or
for any right to payment. All terms above have the meanings given to them in the
California Uniform Commercial Code, as amended or supplemented from time to
time, including revised Division 9 of the Uniform Commercial Code-Secured
Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July
1, 2001.

 

 

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

 

[

TABLE OF CONTENTS

]

DEBTOR

VITALSTREAM, INC.

SECURED PARTY:

COMERICA BANK

 

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT

            All personal property of Borrower (herein referred to as "Borrower"
or "Debtor") whether presently existing or hereafter created or acquired, and
wherever located, including, but not limited to:

                            (a)            all accounts (including
health-care-insurance receivables), chattel paper (including tangible and
electronic chattel paper), deposit accounts, documents (including negotiable
documents), equipment (including all accessions and additions thereto), general
intangibles (including payment intangibles and software), goods (including
fixtures), instruments (including promissory notes), inventory (including all
goods held for sale or lease or to be furnished under a contract of service, and
including returns and repossessions), investment property (including securities
and securities entitlements), letter of credit rights, money, and all of
Debtor's books and records with respect to any of the foregoing, and the
computers and equipment containing said books and records;

                            (b)            all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, in the United States of America or in any foreign
jurisdiction, obtained or to be obtained on or in connection with any of the
foregoing, or any parts thereof or any underlying or component elements of any
of the foregoing, together with the right to copyright and all rights to renew
or extend such copyrights and the right (but not the obligation) of Secured
Party to sue in its own name and/or in the name of the Debtor for past, present
and future infringements of copyright;

                            (c)            all trademarks, service marks, trade
names and service names and the goodwill associated therewith, together with the
right to trademark and all rights to renew or extend such trademarks and the
right (but not the obligation) of Secured Party to sue in its own name and/or in
the name of the Debtor for past, present and future infringements of trademark;

                            (d)            all (i) patents and patent
applications filed in the United States Patent and Trademark Office or any
similar office of any foreign jurisdiction, and interests under patent license
agreements, including, without limitation, the inventions and improvements
described and claimed therein, (ii) licenses pertaining to any patent whether
Debtor is licensor or licensee, (iii) income, royalties, damages, payments,
accounts and accounts receivable now or hereafter due and/or payable under and
with respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (iv) right (but not the
obligation) to sue in the name of Debtor and/or in the name of Secured Party for
past, present and future infringements thereof, (v) rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been issued
or applied for, and (vi) reissues, divisions, continuations, renewals,
extensions and continuations-in-part with respect to any of the foregoing; and

                            (e)            any and all cash proceeds and/or
noncash proceeds of any of the foregoing, including, without limitation,
insurance proceeds, and all supporting obligations and the security therefor or
for any right to payment. All terms above have the meanings given to them in the
California Uniform Commercial Code, as amended or supplemented from time to
time, including revised Division 9 of the Uniform Commercial Code-Secured
Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July
1, 2001.

 

 

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

 

[

TABLE OF CONTENTS

]

DEBTOR

VITALSTREAM BROADCASTING CORPORATION

SECURED PARTY:

COMERICA BANK

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT

            All personal property of Borrower (herein referred to as "Borrower"
or "Debtor") whether presently existing or hereafter created or acquired, and
wherever located, including, but not limited to:

                            (a)            all accounts (including
health-care-insurance receivables), chattel paper (including tangible and
electronic chattel paper), deposit accounts, documents (including negotiable
documents), equipment (including all accessions and additions thereto), general
intangibles (including payment intangibles and software), goods (including
fixtures), instruments (including promissory notes), inventory (including all
goods held for sale or lease or to be furnished under a contract of service, and
including returns and repossessions), investment property (including securities
and securities entitlements), letter of credit rights, money, and all of
Debtor's books and records with respect to any of the foregoing, and the
computers and equipment containing said books and records;

                            (b)            all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, in the United States of America or in any foreign
jurisdiction, obtained or to be obtained on or in connection with any of the
foregoing, or any parts thereof or any underlying or component elements of any
of the foregoing, together with the right to copyright and all rights to renew
or extend such copyrights and the right (but not the obligation) of Secured
Party to sue in its own name and/or in the name of the Debtor for past, present
and future infringements of copyright;

                            (c)            all trademarks, service marks, trade
names and service names and the goodwill associated therewith, together with the
right to trademark and all rights to renew or extend such trademarks and the
right (but not the obligation) of Secured Party to sue in its own name and/or in
the name of the Debtor for past, present and future infringements of trademark;

                            (d)            all (i) patents and patent
applications filed in the United States Patent and Trademark Office or any
similar office of any foreign jurisdiction, and interests under patent license
agreements, including, without limitation, the inventions and improvements
described and claimed therein, (ii) licenses pertaining to any patent whether
Debtor is licensor or licensee, (iii) income, royalties, damages, payments,
accounts and accounts receivable now or hereafter due and/or payable under and
with respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (iv) right (but not the
obligation) to sue in the name of Debtor and/or in the name of Secured Party for
past, present and future infringements thereof, (v) rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been issued
or applied for, and (vi) reissues, divisions, continuations, renewals,
extensions and continuations-in-part with respect to any of the foregoing; and

                            (e)            any and all cash proceeds and/or
noncash proceeds of any of the foregoing, including, without limitation,
insurance proceeds, and all supporting obligations and the security therefor or
for any right to payment. All terms above have the meanings given to them in the
California Uniform Commercial Code, as amended or supplemented from time to
time, including revised Division 9 of the Uniform Commercial Code-Secured
Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July
1, 2001.

 

 

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