Exhibit 10.2

 

VENTURE LOAN AND SECURITY AGREEMENT

       

Dated as of June __, 2018

 

by and among

HORIZON TECHNOLOGY FINANCE CORPORATION,

a Delaware corporation

312 Farmington Avenue

Farmington, CT 06032

 

as a Lender and Collateral Agent

 

And

 

CATASYS, INC.,

a Delaware corporation

11601 Wilshire Blvd., Suite 1100

Los Angeles, CA 90025

 

as a Co-Borrower and Borrower Representative

 

 

ANXIOLITIX, INC.

a Delaware corporation

11601 Wilshire Blvd., Suite 1100

Los Angeles, CA 90025

 

as a Co-Borrower

 

CATASYS HEALTH, INC.

a Delaware corporation

11601 Wilshire Blvd., Suite 1100

Los Angeles, CA 90025

 

as a Co-Borrower

   

 

Loan A Commitment Amount: $2,500,000

Loan B Commitment Amount: $2,500,000

Loan C Commitment Amount: $2,500,000

 

 

Loan A Commitment Termination Date:     June 18, 2018

 

Loan B Commitment Termination Date:     June 18, 2018

 

Loan C Commitment Termination Date:     November 30, 2018

 

 

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The Lender, Collateral Agent and Co-Borrowers hereby agree as follows:

 

AGREEMENT

 

1.     Definitions and Construction.

 

1.1     Definitions. As used in this Agreement, the following capitalized terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

 

“Account Control Agreement” means an agreement acceptable to Lender which
perfects via control Lender’s and Collateral Agent’s security interest in each
Co-Borrower’s deposit accounts and/or securities accounts.

 

“Affiliate” means, with respect to any Person, any other Person that owns or
controls directly or indirectly ten percent (10%) or more of the stock of
another entity of such Person, any other Person that controls or is controlled
by or is under common control with such Person and each of such Person’s
officers, directors, managers, joint venturers or partners. For purposes of this
definition, the term “control” of a Person means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting Equity
Securities, by contract or otherwise and the terms “controlled by” and “under
common control with” shall have correlative meanings.

 

“Agreement” means this certain Venture Loan and Security Agreement by and among
Co-Borrowers, Collateral Agent and Lender dated as of the date on the cover page
hereto (as it may from time to time be amended, modified or supplemented in a
writing signed by each Co-Borrower, Collateral Agent and Lender).

 

“Anti-Terrorism Laws” means any laws relating to terrorism or money laundering,
including Executive Order No. 13224 (effective September 24, 2001), the USA
PATRIOT Act, the laws comprising or implementing the Bank Secrecy Act, and the
laws administered by OFAC.

 

“Billings” means the aggregate dollar value of the invoices generated by
Borrower Representative and sent to its customers during a measurement period as
a result of services rendered, or products sold, by Borrower Representative to
such customers during such measurement period.

 

“Borrower Representative” means the Borrower Representative as set forth on the
cover page of this Agreement.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banking institutions are authorized or required to close in Connecticut or
California.

 

“Claim” has the meaning given such term in Section 10.3 of this Agreement.

 

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“Co-Borrower” means a Co-Borrower as set forth on the cover page of this
Agreement, and “Co-Borrowers” means all such Co-Borrowers cumulatively.

 

“Code” means the Uniform Commercial Code as adopted and in effect in the State
of Connecticut, as amended from time to time; provided that if by reason of
mandatory provisions of law, the creation and/or perfection or the effect of
perfection or non-perfection of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Connecticut, the term “Code” shall also mean the Uniform
Commercial Code as in effect from time to time in such jurisdiction for purposes
of the provisions hereof relating to such creation, perfection or effect of
perfection or non-perfection.

 

“Collateral” has the meaning given such term in Section 4.1 of this Agreement.

 

“Collateral Agent” means Horizon, or any successor collateral agent appointed by
Lender.

 

“Commitment Amount” means the Loan A Commitment Amount, the Loan B Commitment
Amount, or the Loan C Commitment Amount, as applicable.

 

“Commitment Fee” has the meaning given such term in Section 2.6(c) of this
Agreement.

 

“Consolidated” means the consolidation of accounts in accordance with GAAP.

 

“Default” means any Event of Default or any event which with the passing of time
or the giving of notice or both would become an Event of Default hereunder.

 

“Default Rate” means the per annum rate of interest equal to five percent (5%)
over the Loan Rate, but such rate shall in no event be more than the highest
rate permitted by applicable law to be charged on commercial loans in a default
situation.

 

“Disclosure Schedule” means Exhibit A attached hereto.

 

“EBITDA” means, with respect to any fiscal period, an amount equal to the sum of
(a) earnings of the Borrower Representative for such fiscal period, plus (b) in
each case to the extent deducted in the calculation of the earnings of the
Borrower Representative and without duplication, (i) depreciation and
amortization for such period, plus (ii) income tax expense for such period, plus
(iii) interest expense paid or accrued during such period, plus (iv) all other
non-cash charges as approved by Lender from time to time, all as determined in
accordance with GAAP.

 

“Environmental Laws” means all foreign, federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid
Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the
Toxic Substances Control Act and the Emergency Planning and Community
Right-to-Know Act.

 

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“Equity Securities” of any Person means (a) all common stock, preferred stock,
participations, shares, partnership interests, membership interests or other
equity interests in and of such Person (regardless of how designated and whether
or not voting or non-voting) and (b) all warrants, options and other rights to
acquire any of the foregoing.

 

“ERISA” has the meaning given to such term in Section 7.12 of this Agreement.

 

“Event of Default” has the meaning given to such term in Section 8 of this
Agreement.

 

“Funding Certificate” means a certificate executed by a duly authorized
Responsible Officer of Borrower Representative substantially in the form of
Exhibit B or such other form as Lender may agree to accept.

 

“Funding Date” means any date on which a Loan is made to or on account of any
Co-Borrower under this Agreement.

 

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

 

“Good Faith Deposit” has the meaning given such term in Section 2.6(a) of this
Agreement.

 

“Governmental Authority” means (a) any federal, state, county, municipal or
foreign government, or political subdivision thereof, (b) any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal, or
(d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.

 

“Hazardous Materials” means all those substances which are regulated by, or
which may form the basis of liability under, any Environmental Law, including
all substances identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.

 

“Horizon” means Horizon Technology Finance Corporation.

 

“Indebtedness” means, with respect to any Person, the aggregate amount of,
without duplication, (a) all obligations of such Person for borrowed money, (b)
all obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) all obligations of such Person to pay the deferred
purchase price of property or services (excluding trade payables aged less than
one hundred eighty (180) days), (d) all capital lease obligations of such
Person, (e) all obligations or liabilities of others secured by a Lien on any
asset of such Person, whether or not such obligation or liability is assumed,
(f) all obligations or liabilities of others guaranteed by such Person, and (g)
any other obligations or liabilities which are required by GAAP to be shown as
debt on the balance sheet of such Person.

 

“Indemnified Person” has the meaning given such term in Section 10.3 of this
Agreement.

 

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“Intellectual Property” means, with respect to any Person, all of such Person’s
right, title and interest in and to patents, patent rights (and applications and
registrations therefor and divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same), trademarks and service marks
(and applications and registrations therefor and the goodwill associated
therewith), whether registered or not, inventions, copyrights (including
applications and registrations therefor and like protections in each work or
authorship and derivative work thereof), whether published or unpublished, mask
works (and applications and registrations therefor), trade names, trade styles,
software and computer programs, source code, object code, trade secrets,
licenses, methods, processes, know how, drawings, specifications, descriptions,
and all memoranda, notes, and records with respect to any research and
development, all whether now owned or subsequently acquired or developed by such
Person and whether in tangible or intangible form or contained on magnetic media
readable by machine together with all such magnetic media (but not including
embedded computer programs and supporting information included within the
definition of “goods” under the Code).

 

“Interest Only Extension Milestone” means, Borrower Representative providing
Lender with evidence reasonably satisfactory to Lender that Borrower
Representative, during the period commencing on January 1, 2019 and continuing
through June 30, 2019, has achieved Billings of not less than Twenty Million
Dollars ($20,000,000).

 

“Internal Revenue Code” has the meaning given such term in Section 5.19 of this
Agreement.

 

“Investment” means the purchase or acquisition of any capital stock, equity
interest, or any obligations or other securities of, or any interest in, any
Person, or the extension of any advance, loan, extension of credit or capital
contribution to, or any other investment in, or deposit with, any Person.

 

“Landlord Agreement” means an agreement substantially in the form provided by
Lender to Borrower Representative or such other form as Lender may agree to
accept in the exercise of its reasonable discretion.

 

“Lender” means the Lender as set forth on the cover page of this Agreement.

 

“Lender’s Expenses” means all reasonable costs or expenses (including reasonable
attorneys’ fees and expenses) incurred in connection with the preparation,
negotiation, documentation, drafting, amendment, modification, administration,
perfection and funding of the Loan Documents; and all of Lender’s reasonable
attorneys’ fees, costs and expenses incurred in enforcing or defending the Loan
Documents (including reasonable fees and expenses of appeal or review),
including the exercise of any rights or remedies afforded hereunder or under
applicable law, whether or not suit is brought, whether before or after
bankruptcy or insolvency, including all reasonable fees and costs incurred by
Lender in connection with such Lender’s enforcement of its rights in a
bankruptcy or insolvency proceeding filed by or against any Co-Borrower, any
Subsidiary or their respective Property.

 

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“Lien” means any voluntary or involuntary security interest, pledge, bailment,
lease, mortgage, hypothecation, conditional sales and title retention agreement,
encumbrance or other lien with respect to any Property in favor of any Person.

 

“Loan” means each advance of credit by Lender to any Co-Borrower under this
Agreement.

 

“Loan A” means the advance of credit by Horizon to any Co-Borrower under this
Agreement in the Loan A Commitment Amount.

 

“Loan A Commitment Amount” has the meaning set forth on the cover page of this
Agreement.

 

“Loan A Commitment Termination Date” has the meaning set forth on the cover page
of this Agreement.

 

“Loan A Final Payment” has the meaning given such term in Section 2.2(g) of this
Agreement.

 

“Loan Amortization Date” means, with respect to each Loan, the Payment Date on
which Co-Borrowers are required, pursuant to Section 2.2 (a) below, to commence
making equal payments of principal plus accrued interest on the outstanding
principal amount of such Loan.

 

“Loan B” means the advance of credit by Horizon to any Co-Borrower under this
Agreement in the Loan B Commitment Amount.

 

“Loan B Commitment Amount” has the meaning set forth on the cover page of this
Agreement.

 

“Loan B Commitment Termination Date” has the meaning set forth on the cover page
of this Agreement.

 

“Loan B Final Payment” has the meaning given such term in Section 2.2(g) of this
Agreement.

 

“Loan C” means the advance of credit by Horizon to any Co-Borrower under this
Agreement in the Loan C Commitment Amount.

 

“Loan C Commitment Amount” has the meaning set forth on the cover page of this
Agreement.

 

“Loan C Commitment Termination Date” has the meaning set forth on the cover page
of this Agreement.

 

“Loan C Final Payment” has the meaning given such term in Section 2.2(g) of this
Agreement.

 

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“Loan Documents” means, collectively, this Agreement, the Notes, any Landlord
Agreement, any Account Control Agreement and all other documents, instruments
and agreements entered into in connection with this Agreement.

 

“Loan Rate” means, with respect to each Loan, the per annum rate of interest
equal to 9.75% plus the amount by which the one month LIBOR Rate (rounded to the
nearest one hundredth percent), as reported in the Wall Street Journal exceeds
2.00%, provided, however that to the extent LIBOR (a) is no longer reported in
the Wall Street Journal, (b) is no longer widely used as a benchmark market rate
for new facilities of this type, or (c) becomes permanently unavailable, Lender
shall select a successor benchmark rate, which successor rate shall be applied
in a manner consistent with market practice, or if there is no consistent market
practice, such successor rate shall be applied in a manner reasonably determined
by Lender. Notwithstanding the foregoing, in no event shall the Loan Rate be
less than 9.75%.

 

“Management Services Agreement” means any license, management or other agreement
by and between any Co-Borrower on the one hand and another Person organized
under the laws of a given jurisdiction, on the other hand, and involving, among
other things, the license of Intellectual Property or other personal property of
any Co-Borrower to such other Person so as to facilitate the provision of
certain Co-Borrowers’ services to end users or patients of such Person in a
manner that complies with the given jurisdiction’s laws generally concerning the
authorized practice of medicine. For the avoidance of any doubt, (i) the
Management Services Agreement by and between the Borrower Representative, as
Manager thereunder, and Texas Integrated Health, Inc., a Texas nonprofit health
organization (“TIH”), dated as of April 2, 2018, (ii) the License Agreement,
dated as of April 2, 2018 by and between the Borrower Representative, as
Licensor thereunder, and TIH, and (iii) the license, management and other
agreements (each that are of the type described in the previous sentence) that
the Co-Borrowers shall enter into after the date hereof with California
Integrated Health, Inc. (“CIH”), shall each constitute a “Management Services
Agreement” hereunder.

 

“Material Adverse Effect” means a material adverse effect on (a) the condition
(financial or otherwise), business, operations, or Properties of any
Co-Borrower, or all Co-Borrowers collectively, (b) the ability of any
Co-Borrower to perform its Obligations under the Loan Documents or (c) the
Collateral or Collateral Agent’s or Lender’s security interest in the
Collateral.

 

“Maturity Date” means, with respect to each Loan, March 1, 2022, or if earlier,
the date of acceleration of the Loans following an Event of Default or the date
of prepayment of the Loans, whichever is applicable.

 

“Minimum Required Revenue Based Payments” means, (a) if Lender makes Loans A and
B to or on behalf of any Co-Borrower, Seven Hundred Fifty Thousand Dollars
($750,000) and (b) if Lender makes Loans A, B and C to or on behalf of any
Co-Borrower, One Million One Hundred Thousand Dollars ($1,100,000).

 

“Note” means each promissory note executed in connection with a Loan in
substantially the form of Exhibit C attached hereto.

 

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“Obligations” means all debt, principal, interest, fees, charges, expenses and
reasonable attorneys’ fees and costs and other amounts, obligations, covenants,
and duties owing by any Co-Borrower to Collateral Agent or Lender of any kind
and description (whether pursuant to or evidenced by this Agreement or the other
Loan Documents, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, including all Lender’s Expenses.

 

“OFAC” means the Office of Foreign Assets Control of the United States
Department of the Treasury.

 

“Officer’s Certificate” means a certificate executed by a Responsible Officer
substantially in the form of Exhibit E or such other form as Lender may agree to
accept.

 

“Payment Date” has the meaning given such term in Section 2.2(a) of this
Agreement.

 

“Permitted Indebtedness” means and includes:

 

(a)     Indebtedness of Co-Borrowers to Lender under the Loan Documents;

 

(b)     Indebtedness arising from the endorsement of instruments in the ordinary
course of business;

 

(c)     Indebtedness of Co-Borrowers existing on the date hereof and set forth
on the Disclosure Schedule;

 

(d)     Indebtedness of Borrower Representative in an aggregate principal amount
not exceeding Two Million Five Hundred Thousand Dollars ($2,500,000), consisting
of a revolving credit facility in which the loans are limited to not more than
Eighty-Five Percent (85%) of Borrower Representative’s outstanding accounts
receivable; provided, however, that such Indebtedness described in this
subclause (d) shall only be deemed to be ‘Permitted Indebtedness” hereunder if
and to the extent that the lender and provider of such Indebtedness described
under this subclause (d) enters into an intercreditor agreement with the Lender
in a form and of a substance reasonably acceptable to Lender;

 

(e)     intercompany Indebtedness owed by any Subsidiary to Borrower
Representative or any wholly-owned Subsidiary, as applicable; provided that, if
applicable, such Indebtedness is also permitted as a Permitted Investment and,
in the case of such Indebtedness owed to Borrower Representative, such
Indebtedness shall be evidenced by one or more promissory notes;

 

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

 

(g)     to the extent constituting or that may constitute Indebtedness, any
Equity Securities of a Co-Borrower outstanding as of the date hereof, including
any preferred stock, warrants, options and other rights to acquire a
Co-Borrower’s Equity Securities and any payments that may arise thereunder;

 

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(h)     Indebtedness of Borrower secured by Liens permitted under clause (g) of
the definition of Permitted Liens, up to an aggregate principal amount of Two
Hundred Fifty Thousand Dollars ($250,000) at any one time;

 

(i)     Indebtedness for deferred salaried compensation to each Co-Borrower’s
employees, not to exceed $150,000 in the aggregate;

 

(j)     Reimbursement obligations of any Co-Borrower to its employees for travel
and other expenses incurred in the ordinary course of business;

 

(k)     liabilities of Co-Borrowers associated with accrued but unused vacation
time of employees of the Co-Borrowers incurred in the ordinary course of
business and pursuant to applicable laws governing Co-Borrowers; and

 

(l)     extensions, refinancings, modifications, amendments and restatements of
any items of Permitted Indebtedness under subsection (d) above; provided that
the principal amount thereof is not increased or the terms thereof are not
modified to impose materially more burdensome terms upon any Co-Borrower or all
Co-Borrowers collectively.

 

“Permitted Investments” means and includes any of the following Investments as
to which Collateral Agent and Lender have a perfected security interest:

 

(a)     Deposits and deposit accounts with commercial banks organized under the
laws of the United States or a state thereof to the extent: (i) the deposit
accounts of each such institution are insured by the Federal Deposit Insurance
Corporation up to the legal limit; and (ii) each such institution has an
aggregate capital and surplus of not less than One Hundred Million Dollars
($100,000,000);

 

(b)     Investments in marketable obligations issued or fully guaranteed by the
United States, any state thereof or any agency thereof and maturing not more
than one (1) year from the date of issuance;

 

(c)     Investments in open market commercial paper rated at least “A1” or “P1”
or higher by a national credit rating agency and maturing not more than one (1)
year from the creation thereof;

 

(d)     Investments pursuant to or arising under currency agreements or interest
rate agreements entered into in the ordinary course of business;

 

(e)     Investments by Borrower Representative and Subsidiaries in their
Subsidiaries outstanding on the date hereof;

 

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

 

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(g)     Investments or other participation in joint ventures or strategic
alliances in the ordinary course of each Co-Borrower’s business consisting of
the licensing of technology, intellectual property and/or product, the
development of such technology, intellectual property and/or product or the
providing of technical support, provided that any cash Investments by Co-
Borrowers do not exceed $100,000 in the aggregate in any fiscal year;

 

(h)     Investments by Borrower in TIH, CIH or any other Person pursuant to or
in connection with a Management Services Agreement in an aggregate amount not to
exceed One Hundred Thousand Dollars ($100,000) during any fiscal year; and

 

(i)      other Investments aggregating not in excess of One Hundred Thousand
Dollars ($100,000) at any time.

 

“Permitted Licenses” means and includes (i) non-exclusive licenses of
Intellectual Property entered into in the ordinary course of business,
including, without limitation pursuant to any Management Services Agreement (ii)
exclusive licenses of Intellectual Property entered into in the ordinary course
of business and applicable solely outside the United States, provided that such
exclusive licenses could not result in a legal transfer of title of the licensed
Intellectual Property and (iii) exclusive licenses of Intellectual Property
entered into in the ordinary course of business that are exclusive as to the
United States, to the extent consented to by Lender, which consent shall not be
unreasonably withheld, conditioned or delayed.

 

“Permitted Liens” means and includes:

 

(a)     the Liens created by this Agreement;

 

(b)     Liens for fees, taxes, levies, imposts, duties or other governmental
charges of any kind which are not yet delinquent or which are being contested in
good faith by appropriate proceedings which suspend the collection thereof
(provided that such appropriate proceedings do not involve any substantial
danger of the sale, forfeiture or loss of any material item of Collateral which
in the aggregate is material to any Co-Borrower, or all Co-Borrowers
collectively, and that Borrower Representative has adequately bonded such Lien
or reserves sufficient to discharge such Lien have been provided on the books of
Borrower Representative);

 

(c)     Liens identified on the Disclosure Schedule;

 

(d)     carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or
other similar Liens arising in the ordinary course of business and which are not
delinquent or remain payable without penalty or which are being contested in
good faith and by appropriate proceedings (provided that such appropriate
proceedings do not involve any substantial danger of the sale, forfeiture or
loss of any material item of Collateral or Collateral which in the aggregate is
material to any Co-Borrower, or all Co-Borrowers collectively, and that Borrower
Representative has adequately bonded such Lien or reserves sufficient to
discharge such Lien have been provided on the books of Borrower Representative);

 

(e)     Liens granted in connection with Indebtedness permitted under subsection
(d) of the definition of Permitted Indebtedness, provided, however, that the
lender providing the indebtedness permitted under subsection (d) of the
definition of Permitted Indebtedness shall have a first priority lien over
Borrower Representative’s cash, accounts receivable and bank accounts, and
Lender shall have a first priority lien over all other Collateral (as defined
below);

 

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(f)     Permitted Licenses;

 

(g)     Liens upon any equipment or other personal property acquired by Borrower
after the date hereof to secure (i) the purchase price of such equipment or
other personal property, or (ii) capital lease obligations or indebtedness
incurred solely for the purpose of financing the acquisition of such equipment
or other personal property; provided that (A) such Liens are confined solely to
the equipment or other personal property so acquired and the amount secured does
not exceed the acquisition price thereof, and (B) no such Lien shall be created,
incurred, assumed or suffered to exist in favor of Borrower’s officers,
directors or shareholders holding five percent (5%) or more of Borrower’s Equity
Securities;

 

(h)     leases or subleases of real property granted in the ordinary course of
any Co-Borrower’s business, and leases, subleases, non-exclusive licenses or
sublicenses of personal property (other than Intellectual Property) granted in
the ordinary course of any Co- Borrower’s business, if the leases, subleases,
licenses and sublicenses do not prohibit granting Lender a security interest
therein; and

 

(i)     Liens in favor of financial institutions arising solely in connection
with any Co-Borrower’s deposit or securities accounts held at such institutions.

 

“Person” means and includes any individual, any partnership, any corporation,
any business trust, any joint stock company, any limited liability company, any
unincorporated association or any other entity and any domestic or foreign
national, state or local government, any political subdivision thereof, and any
department, agency, authority or bureau of any of the foregoing.

 

“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, whether tangible or intangible.

 

“Responsible Officer” has the meaning given such term in Section 6.3 of this
Agreement.

 

“Restricted License” means any license or other agreement with respect to which
any Co-Borrower is the licensee and such license or agreement is material to any
Co-Borrower’s business and (a) that prohibits or otherwise restricts any
Co-Borrower from granting a security interest in any Co-Borrower’s interest in
such license or agreement or any other property or (b) for which a default under
or termination of would reasonably be expected to interfere with Collateral
Agent’s or Lender’s right to sell any Collateral.

 

“Revenue Based Payment” means the payment by Co-Borrowers to Lender of an amount
equal to the product of (a) 0.20% multiplied by (b) the revenue (as determined
in accordance with GAAP) achieved by all Co-Borrowers in the aggregate during
such calendar quarter, provided, however, that during any calendar quarter in
which Co-Borrowers achieve aggregate EBITDA of not less than one dollar ($1.00),
the Revenue Based Payment due and owing from Co-Borrowers to Lender for such
calendar quarter shall be equal to the product of (x) 0.40% multiplied by (y)
the revenue (as determined in accordance with GAAP) achieved by all Co-Borrowers
in the aggregate during such calendar quarter; provided, however, that if (i)
the Funding Date for Loans A and B occurs on a date other than the first
calendar day of a quarter, then the Revenue Based Payment required to be paid by
Co-Borrowers to Lender for such quarter shall be pro-rated based upon the actual
number of days in such calendar quarter occurring on or after such Funding Date
or (ii) the Maturity Date occurs on a date other than the last calendar day of a
quarter, then the Revenue Based Payment required to be paid by Co-Borrowers to
Lender for such quarter shall be pro-rated based upon the actual number of days
in such calendar quarter occurring on or prior to the Maturity Date.

 

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“Rights to Payment” has the meaning given such term in Section 4.1 of this
Agreement.

 

“Sanctions” means any economic or financial sanction administered or enforced by
the United States Government (including, without limitation, OFAC and the United
States Department of State), the United Nations Security Council, the European
Union, Her Majesty’s Treasury of the United Kingdom or other relevant sanctions
authority.

 

“Scheduled Payments” has the meaning given such term in Section 2.2(a) of this
Agreement.

 

“SEC Documents” means the reports, schedules, forms, statements and other
documents required to be filed by a Person under the Securities Exchange Act of
1934, as amended, or the Securities Act of 1933, as amended, and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein.

 

“Solvent” has the meaning given such term in Section 5.12 of this Agreement.

 

“Subsidiary” means any corporation or other entity of which a majority of the
outstanding Equity Securities entitled to vote for the election of directors or
other governing body (otherwise than as the result of a default) is owned by any
Co-Borrower directly or indirectly through Subsidiaries.

 

“Transfer” has the meaning given such term in Section 7.4 of this Agreement.

 

1.2     Construction. References in this Agreement to “Articles,” “Sections,”
“Exhibits,” “Schedules” and “Annexes” are to recitals, articles, sections,
exhibits, schedules and annexes herein and hereto unless otherwise indicated.
References in this Agreement and each of the other Loan Documents to any
document, instrument or agreement shall include (a) all exhibits, schedules,
annexes and other attachments thereto, (b) all documents, instruments or
agreements issued or executed in replacement thereof, and (c) such document,
instrument or agreement, or replacement or predecessor thereto, as amended,
modified and supplemented from time to time and in effect at any given time
(subject, in the case of clauses (b) and (c), to any restrictions on such
replacement, amendment, modification or supplement set forth in the Loan
Documents). The words “hereof,” “herein” and “hereunder” and words of similar
import when used in this Agreement or any other Loan Document shall refer to
this Agreement or such other Loan Document, as the case may be, as a whole and
not to any particular provision of this Agreement or such other Loan Document,
as the case may be. The words “include” and “including” and words of similar
import when used in this Agreement or any other Loan Document shall not be
construed to be limiting or exclusive. Unless the context requires otherwise,
any reference in this Agreement or any other Loan Document to any Person shall
be construed to include such Person’s successors and assigns. Unless otherwise
indicated in this Agreement or any other Loan Document, all accounting terms
used in this Agreement or any other Loan Document shall be construed, and all
accounting and financial computations hereunder or thereunder shall be computed,
in accordance with GAAP, and all terms describing Collateral shall be construed
in accordance with the Code. The terms and information set forth on the cover
page of this Agreement are incorporated into this Agreement.

 

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2.     Loans; Repayment.

 

2.1     Commitments.

 

(a)     The Commitment Amounts. Subject to the terms and conditions of this
Agreement and relying upon the representations and warranties herein set forth
as and when made or deemed to be made, Horizon agrees to lend to Co-Borrowers
prior to the Loan A Commitment Termination Date, Loan A, prior to the Loan B
Commitment Termination Date, Loan B, and prior to the Loan C Commitment
Termination Date, Loan C.

 

(b)     The Loans and the Notes. The obligation of Co-Borrowers to repay the
unpaid principal amount of and interest on each Loan shall be evidenced by a
Note issued to the Lender.

 

(c)      Use of Proceeds. The proceeds of each Loan shall be used solely for
working capital or general corporate purposes of Co-Borrowers.

 

(d)     Termination of Commitment to Lend. Notwithstanding anything in the Loan
Documents, Lender’s obligation to lend the undisbursed portion of the Commitment
Amount to Co-Borrowers hereunder shall terminate on the earlier of (i) at
Lender’s sole election, the occurrence of any Default or Event of Default
hereunder, and (ii) with respect to Loan A, the Loan A Commitment Termination
Date, with respect to Loan B, the Loan B Commitment Termination Date and with
respect to Loan C, the Loan C Commitment Termination Date. Notwithstanding the
foregoing, Lender’s obligation to lend the undisbursed portion of the Commitment
Amount to Co-Borrowers shall terminate if, in Lender’s sole discretion, there
has been a material adverse change in the general affairs, management, or
results of operations, condition (financial or otherwise) of any Co-Borrower, or
Co-Borrowers collectively, whether or not arising from transactions in the
ordinary course of business, or there has been any material adverse deviation by
any Co-Borrower from the business plan of such Co-Borrower presented to Lender
on or before the date of this Agreement.

 

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2.2     Payments.

 

(a)     Scheduled Payments. Co-Borrowers shall make (i) a payment of accrued
interest only to Lender on the outstanding principal amount of each Loan
commencing on the first Payment Date occurring after the Funding Date of such
Loan and continuing through September 1, 2019 and (ii) an equal payment of
principal plus accrued interest to Lender on the outstanding principal amount of
each Loan on the next thirty (30) Payment Dates as set forth in the Note
applicable to such Loan (collectively, the “Initial Scheduled Payments”).
Notwithstanding, and in lieu of, the foregoing, if Co-Borrowers satisfies the
Interest Only Extension Milestone, then Co-Borrowers shall make (A) a payment of
accrued interest only to Lender on the outstanding principal amount of each Loan
commencing on the first Payment Date occurring after the Funding Date of such
Loan and continuing through March 1, 2020 and (ii) an equal payment of principal
plus accrued interest to Lender on the outstanding principal amount of each Loan
on the next twenty-four (24) Payment Dates as set forth in the Note applicable
to such Loan (collectively, the “Extended Scheduled Payments”, and collectively
with the Initial Scheduled Payments, the “Scheduled Payments”). Co-Borrowers
shall make such Scheduled Payments commencing on the date set forth in the Note
applicable to such Loan and continuing thereafter on the first Business Day of
each calendar month (each a “Payment Date”) through the Maturity Date. In any
event, all unpaid principal and accrued interest shall be due and payable in
full on the Maturity Date.

 

(b)     Interim Payment. Unless the Funding Date for a Loan is the first day of
a calendar month, Co-Borrower shall pay the per diem interest (accruing at the
Loan Rate from the Funding Date through the last day of that month) payable with
respect to such Loan on the first Business Day of the next calendar month.

 

(c)     Payment of Interest. Co-Borrowers shall pay interest on each Loan at a
per annum rate of interest equal to the Loan Rate. The Loan Rate shall initially
be calculated using the LIBOR Rate reported in the Wall Street Journal on the
date which is five (5) Business Days prior to the proposed date of disbursement
of the Loan, but shall thereafter be calculated for each calendar month using
the LIBOR Rate reported in the Wall Street Journal on the first calendar day of
such month, provided, however, that if the first calendar day of any month is
not a Business Day, the Loan Rate shall be calculated using the LIBOR Rate
reported in the Wall Street Journal on the Business Day immediately preceding
the first calendar day of such month. Interest (including interest at the
Default Rate, if applicable) shall be computed on the basis of a 360-day year
for the actual number of days elapsed. Notwithstanding any other provision
hereof, the amount of interest payable hereunder shall not in any event exceed
the maximum amount permitted by the law applicable to interest charged on
commercial loans.

 

(d)     Application of Payments. All payments received by Lender prior to an
Event of Default shall be applied as follows: (i) first, to Lender’s Expenses
then due and owing; and (ii) second, ratably, to all Scheduled Payments then due
and owing (provided, however, if such payments are not sufficient to pay the
whole amount then due, such payments shall be applied first to unpaid interest
at the Loan Rate, then to the remaining amounts then due). After the occurrence
of an Event of Default that has not been waived by Lender, all payments and
application of proceeds shall be made as set forth in Section 9.7.

 

(e)     Late Payment Fee. Co-Borrowers shall pay to Lender a late payment fee
equal to six percent (6%) of any Scheduled Payment or Revenue Based Payment not
paid when due to such Lender.

 

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(f)      Default Rate. After the occurrence of an Event of Default that has not
been waived by Lender, Co-Borrowers shall pay interest at a per annum rate equal
to the Default Rate on any amounts required to be paid by any Co-Borrower to
Collateral Agent or Lender under this Agreement or the other Loan Documents
(including Scheduled Payments and Revenue Based Payments), payable with respect
to any Loan, accrued and unpaid interest, and any fees or other amounts which
remain unpaid after such amounts are due. If an Event of Default has occurred
and the Obligations have been accelerated (whether automatically or by Lender’s
election), Co-Borrowers shall pay interest on the aggregate, outstanding
accelerated balance hereunder from the date of the Event of Default until all
Events of Default are cured, at a per annum rate equal to the Default Rate.

 

(g)     Final Payment.

 

(i)     Loan A Final Payment. Co-Borrowers shall pay to Horizon a payment in the
amount of One Hundred Fifty Thousand Dollars ($150,000) (the “Loan A Final
Payment”) upon the earlier of (A) payment in full of the principal balance of
Loan A, (B) an Event of Default and demand by Horizon in writing of payment in
full of Loan A or (C) the Maturity Date, as applicable.

 

(ii)     Loan B Final Payment. Co-Borrowers shall pay to Horizon a payment in
the amount of One Hundred Fifty Thousand Dollars ($150,000) (the “Loan B Final
Payment”) upon the earlier of (A) payment in full of the principal balance of
Loan B, (B) an Event of Default and demand by Horizon in writing of payment in
full of Loan B or (C) the Maturity Date, as applicable.

 

(iii)    Loan C Final Payment. Co-Borrowers shall pay to Horizon a payment in
the amount of One Hundred Fifty Thousand Dollars ($150,000) (the “Loan C Final
Payment”) upon the earlier of (A) payment in full of the principal balance of
Loan C, (B) an Event of Default and demand by Horizon in writing of payment in
full of Loan C or (C) the Maturity Date, as applicable.

 

2.3     Prepayments.

 

(a)     Mandatory Prepayment Upon an Acceleration. If the Loans are accelerated
following the occurrence of an Event of Default pursuant to Section 9.1(a)
hereof, then Co-Borrowers, in addition to any other amounts which may be due and
owing hereunder, shall immediately pay to Lender the amount set forth in Section
2.3(b) below, as if Co-Borrowers had opted to prepay on the date of such
acceleration.

 

(b)     Optional Prepayment. Upon ten (10) Business Days’ prior written notice
to Lender, Co-Borrowers may, at its option, at any time, prepay all (and not
less than all) of the outstanding Loans by simultaneously paying to Lender an
amount equal to (i) any accrued and unpaid interest on the outstanding principal
balance of the Loans; plus (ii) an amount equal to (A) if such Loan is prepaid
on or before the Loan Amortization Date applicable to such Loan, three percent
(3%) of the then outstanding principal balance of such Loan, or (B) if such Loan
is prepaid after the Loan Amortization Date applicable to such Loan, two percent
(2%) of the then outstanding principal balance of such Loan; plus (iii) the
outstanding principal balance of such Loan; plus (iv) an amount equal to the
difference between the actual Revenue Based Payments paid by Co-Borrowers to
Lender and the applicable Minimum Required Revenue Based Payments; plus (v) all
other sums, if any, that shall have become due and payable hereunder.

 

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2.4     Other Payment Terms.

 

(a)     Place and Manner. Co-Borrowers shall make all payments due to Lender in
lawful money of the United States. All payments of principal, interest, fees and
other amounts payable by any Co-Borrower hereunder shall be made, in immediately
available funds, not later than 2:00 p.m. Connecticut time, on the date on which
such payment is due. Co-Borrowers shall make such payments to Lender via wire
transfer or ACH as instructed by Lender from time to time.

 

(b)     Date. Whenever any payment is due hereunder on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall be included in the computation of interest or
fees, as the case may be.

 

(c)     Taxes.

 

(i)     Unless otherwise required under applicable law, any and all payments
made hereunder or under the Notes shall be made free and clear of and without
deduction for any taxes; provided that if any Co-Borrower shall be required to
deduct any taxes from such payments, then (A) the sum payable shall be increased
as necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.4(c)) the Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (B) such Co-Borrower shall make such deductions and (C)
such Co-Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.

 

(ii)     Each Co-Borrower shall indemnify Lender, within 10 days after written
demand therefor, for the full amount of any taxes imposed or asserted directly
on Lender by any Governmental Authority on or attributable to amounts payable
under this Agreement solely as a result of Lender entering into this Agreement
to the extent such taxes are paid by Lender, and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto, whether or not
such taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority; provided, however, that such indemnified taxes shall not
include income or franchise taxes imposed on (or measured by) Lender’s net
income by the jurisdiction, or any political subdivision thereof or taxing
authority therein, under the laws of which such recipient is organized or in
which its principal office is located or in which its applicable lending office
is located. A certificate as to the amount of such payment or liability
delivered to any Co-Borrower by Lender shall be conclusive absent manifest
error.

 

(iii)     As soon as practicable after any payment of taxes by any Co-Borrower
hereunder to a Governmental Authority, Borrower Representative shall deliver to
Lender the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to Lender.

 

(iv)     If Lender is entitled to an exemption from or reduction of withholding
tax under the law of the jurisdiction in which any Co-Borrower is located, or
any treaty to which such jurisdiction is a party, with respect to payments under
this Agreement, Lender shall deliver to Borrower Representative, as reasonably
requested by Borrower Representative, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate.

 

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(v)     If Lender receives a refund in respect of taxes paid by any Co-Borrower
pursuant to this Section 2.4(c), which in the reasonable discretion of Lender
exercised in good faith is allocable to such payment, it shall promptly pay such
refund, together with any other amounts paid by such Co-Borrower in connection
with such refunded taxes, to such Co-Borrower, net of all out-of-pocket expenses
(including any taxes to which Lender has become subject as a result of its
receipt of such refund) of Lender incurred in obtaining such refund and without
interest (other than any interest paid by the relevant Governmental Authority
with respect to such refund); provided that each Co-Borrower, upon the request
of the Lender, shall repay to Lender amounts paid over pursuant to the preceding
clause (plus any penalties, interest or other charges imposed by the relevant
Governmental Authority) in the event that Lender is required to repay such
refund to such Governmental Authority. Notwithstanding anything to the contrary
in this paragraph (v), in no event will Lender be required to pay any amount to
any Co-Borrower pursuant to this paragraph (v) the payment of which would place
Lender in a less favorable net after-tax position than Lender would have been in
if the indemnification payments or additional amounts giving rise to such refund
had never been paid. This paragraph shall not be construed to require Lender to
make available its tax returns (or any other information relating to its taxes
that it deems confidential) to any Co-Borrower or any other Person.

 

2.5     Procedure for Making the Loans.

 

(a)     Notice. Borrower Representative shall notify Lender of the date on which
any Co-Borrower desires Lender to make any Loan at least five (5) Business Days
in advance of the desired Funding Date, unless the Lender elects at its sole
discretion to allow the Funding Date for a Loan to be made by Lender to be
within five (5) Business Days of Borrower Representative’s notice. Lender
acknowledges that the Co-Borrowers have satisfied the five (5) Business Day
notice requirement with respect to Loan A and Loan B which shall be advanced by
Lender to Co-Borrowers on the date of this Agreement. Each Co-Borrower’s
execution and delivery to Lender of one or more Notes in respect of a Loan shall
be such Co-Borrower’s agreement to the terms and calculations thereunder with
respect to such Loan. Lender’s obligation to make any Loan shall be expressly
subject to the satisfaction of the conditions set forth in Section 3.

 

(b)     Loan Rate Calculation. Prior to each Funding Date for any Loan, Lender
shall establish the Loan Rate with respect to such Loan, which shall be set
forth in the Note to be executed by each Co-Borrower with respect to such Loan
and shall be conclusive in the absence of a manifest error.

 

(c)     Disbursement. Lender shall disburse the proceeds of each Loan by wire
transfer to Borrower Representative at the account specified in the Funding
Certificate for such Loan.

 

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2.6     Good Faith Deposit; Legal and Closing Expenses; and Commitment Fee.

 

(a)     Good Faith Deposit. Borrower Representative has delivered to Horizon a
good faith deposit in the amount of Fifty Thousand Dollars ($50,000) (the “Good
Faith Deposit”). The Good Faith Deposit paid to Horizon will be credited to the
Commitment Fee payable to the Lender. If the Funding Date for Loan A and Loan B
does not occur based on Borrower Representative’s election not to proceed with
the financing, Lender shall retain the Good Faith Deposit as compensation for
its time, expenses and opportunity cost. If the Funding Date for Loan A and Loan
B does not occur based on Lender’s election not to proceed with the financing,
Lender shall retain from the Good Faith Deposit its Lender’s Expenses and
promptly return the balance thereof to Borrower Representative.

 

(b)     Legal, Due Diligence and Documentation Expenses. Concurrently with its
execution and delivery of this Agreement, Co-Borrowers shall pay to Lender all
of Lender’s reasonable legal, due diligence and documentation expenses in
connection with the negotiation and documentation of this Agreement and the Loan
Documents.

 

(c)     Commitment Fee. Co-Borrowers shall pay, concurrently with its execution
and delivery of this Agreement, a commitment fee to Horizon in the amount of
Seventy-Five Thousand Dollars ($75,000) (the “Commitment Fee”). The Commitment
Fee shall be retained by the Lender and be deemed fully earned upon receipt.

 

3.     Conditions of Loans.

 

3.1     Conditions Precedent to Closing. At the time of the execution and
delivery of this Agreement, Lender shall have received, in form and substance
reasonably satisfactory to Lender, all of the following (unless Lender has
agreed to waive such condition or document, in which case such condition or
document shall be a condition precedent to the making of any Loan and shall be
deemed added to Section 3.2):

 

(a)     Loan Agreement. This Agreement duly executed by each Co-Borrower,
Collateral Agent and Lender.

 

(b)     INTENTIONALLY OMITTED

 

(c)     Secretary’s Certificate. A certificate of the secretary or assistant
secretary of each Co-Borrower, dated as of the date hereof, with copies of the
following documents attached: (i) the certificate of incorporation and bylaws
(or equivalent documents) of such Co-Borrower certified by such Co-Borrower as
being complete and in full force and effect on the date thereof, (ii) incumbency
and representative signatures, and (iii) resolutions authorizing the execution
and delivery of this Agreement and each of the other Loan Documents.

 

(d)     Good Standing Certificates. A good standing certificate from each
Co-Borrower’s state of organization and the state in which each Co-Borrower’s
principal place of business is located, each dated as of a date no earlier than
thirty (30) days prior to the date hereof.

 

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(e)     Certificate of Insurance. Evidence of the insurance coverage required by
Section 6.8 of this Agreement.

 

(f)     Consents. All necessary consents of shareholders and other third parties
with respect to the execution, delivery and performance of this Agreement and
the other Loan Documents.

 

(g)     Legal Opinion. A legal opinion of each Co-Borrower’s counsel, dated as
of the date hereof, covering the matters set forth in Exhibit D hereto.

 

(h)     Account Control Agreements. Account Control Agreements for all of each
Co-Borrower’s deposit accounts and securities accounts duly executed by all of
the parties thereto.     

 

(i)     INTENTIONALLY OMITTED

 

(j)     Fees and Expenses. Payment of all fees and expenses then due hereunder
or under any other Loan Document.

 

(k)     Other Documents. Such other documents and completion of such other
matters, as Lender may reasonably deem necessary or appropriate.

 

3.2     Conditions Precedent to Making Loan A and Loan B. The obligation of
Lender to make Loan A and Loan B is further subject to satisfaction of the
following conditions as of the applicable Funding Date:

 

(a)     No Default. No Default or Event of Default shall have occurred and be
continuing.

 

(b)     Landlord Agreements. Borrower Representative shall have provided Lender
with a Landlord Agreement for each location where any Co-Borrower’s books and
records and the Collateral (other than (i) laptops and similar equipment
maintained by any employee of any Co-Borrower and (ii) other Collateral with an
aggregate value of not more than $50,000) is located (unless a Co-Borrower is
the fee owner thereof).

 

(c)     Note. Each Co-Borrower shall have duly executed and delivered a Note in
the amount of each of the Loan A and Loan B to Horizon.

 

(d)     UCC Financing Statements. Lender shall have received such documents,
instruments and agreements, including UCC financing statements or amendments to
UCC financing statements and UCC financing statement searches, as Lender shall
reasonably request to evidence the perfection and priority of the security
interests granted to Collateral Agent and Lender pursuant to Section 4. Each
Co-Borrower authorizes Collateral Agent and Lender to file any UCC financing
statements, continuations of or amendments to UCC financing statements they deem
necessary to perfect its security interest in the Collateral.

 

(e)     Funding Certificate. Borrower Representative shall have duly executed
and delivered to Lender a Funding Certificate for such Loans.

 

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(f)     Subordination Agreement. To the extent Borrower Representative has
incurred any Indebtedness permitted pursuant to clause (d) of the definition of
Permitted Indebtedness prior to the date of this Agreement, Borrower
Representative shall have provided Lender with a Subordination Agreement with
respect to such Indebtedness, executed by the lender providing such
Indebtedness.

 

(g)     Representations and Warranties. The representations and warranties made
by each Co-Borrower in Section 5 and in the other Loan Documents shall be true
and correct as of such Funding Date.

 

(h)     Other Documents. Each Co-Borrower shall have provided Lender with such
other documents and completion of such other matters, as Lender may reasonably
deem necessary or appropriate.

 

3.3     Conditions Precedent to Making Loan C. The obligation of Lender to make
Loan C is further subject to satisfaction of the following conditions as of the
applicable Funding Date:

 

(a)     No Default. No Default or Event of Default shall have occurred and be
continuing.

 

(b)     Note. Each Co-Borrower shall have duly executed and delivered a Note in
the amount of each of the Loan C to Horizon.

 

(c)     Funding Certificate. Borrower Representative shall have duly executed
and delivered to Lender a Funding Certificate for such Loan C.

 

(d)     Billings. Borrower Representative shall have provided Lender with
evidence reasonably satisfactory to Lender that Co-Borrowers have, during the
three calendar month period immediately preceding the Funding Date for such Loan
C, achieved Billings of not less than Five Million Dollars ($5,000,000).

 

(e)     Representations and Warranties. The representations and warranties made
by each Co-Borrower in Section 5 and in the other Loan Documents shall be true
and correct as of such Funding Date (except to the extent that such
representations are made as of a specific date, in which event they shall only
be required to remain true and correct in all material respects as of such date
(or if such representation or warranty is already qualified as to materiality,
in all respects)).

 

(f)     Other Documents. Each Co-Borrower shall have provided Lender with such
other documents and completion of such other matters, as Lender may reasonably
deem necessary or appropriate.

 

3.4     Covenant to Deliver. Each Co-Borrower agrees (not as a condition but as
a covenant) to deliver to Lender each item required to be delivered to Lender as
a condition to each Loan, if such Loan is advanced. Each Co-Borrower expressly
agrees that the extension of any Loan prior to the receipt by Lender of any such
item shall not constitute a waiver by Lender of any Co-Borrower’s obligation to
deliver such item, and any such extension in the absence of a required item
shall be in each Lender’s sole discretion.

 

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4.     Creation of Security Interest.

 

4.1     Grant of Security Interests. Each Co-Borrower grants to Collateral Agent
and Lender a valid, continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure prompt, full and
complete payment of any and all Obligations and in order to secure prompt, full
and complete performance by each Co-Borrower of each of its covenants and duties
under each of the Loan Documents. The “Collateral” shall mean and include all
right, title, interest, claims and demands of each Co-Borrower in the following:

 

(a)     All goods (and embedded computer programs and supporting information
included within the definition of “goods” under the Code) and equipment now
owned or hereafter acquired, including all laboratory equipment, computer
equipment, office equipment, machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;

 

(b)     All inventory now owned or hereafter acquired, including all
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products including such inventory as is temporarily
out of any Co-Borrower’s custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and each Co-Borrower’s books relating to
any of the foregoing;

 

(c)     All contract rights and general intangibles (except to the extent
included within the definition of Intellectual Property), now owned or hereafter
acquired, including goodwill, license agreements, franchise agreements,
blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, software, computer programs, computer disks, computer
tapes, literature, reports, catalogs, design rights, income tax refunds, payment
intangibles, commercial tort claims, payments of insurance and rights to payment
of any kind;

 

(d)     All now existing and hereafter arising accounts, contract rights,
royalties, license rights, license fees and all other forms of obligations owing
to any Co-Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by any Co-Borrower (subject, in each
case, to the contractual rights of third parties to require funds received by
any Co-Borrower to be expended in a particular manner), 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 any Co-Borrower
and each Co-Borrower’s books relating to any of the foregoing;

 

(e)     All documents, cash, deposit accounts, letters of credit and letters of
credit rights (whether or not the letter of credit is evidenced by a writing)
and other supporting obligations, certificates of deposit, instruments,
promissory notes, chattel paper (whether tangible or electronic) and investment
property, including all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts and commodity
accounts, and all financial assets held in any securities account or otherwise,
wherever located, now owned or hereafter acquired and each Co-Borrower’s books
relating to the foregoing; and

 

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(f)     To the extent not covered by clauses (a) through (e), all other personal
property of each Co-Borrower, whether tangible or intangible, and any and all
rights and interests in any of the above and the foregoing and, any and all
claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof, including insurance,
condemnation, requisition or similar payments and proceeds of the sale or
licensing of Intellectual Property to the extent such proceeds no longer
constitute Intellectual Property; but

 

Notwithstanding the foregoing, the Collateral shall not include any Intellectual
Property; provided, however, that the Collateral shall include all accounts
receivables, accounts, and general intangibles that consist of rights to payment
and proceeds from the sale, licensing or disposition of all or any part, or
rights in, the foregoing (the “Rights to Payment”). Notwithstanding the
foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds
that a security interest in the underlying Intellectual Property is necessary to
have a security interest in the Rights to Payment, then the Collateral shall
automatically, and effective as of the date hereof, include the Intellectual
Property to the extent necessary to permit perfection of Lender’s security
interest in the Rights to Payment.

 

4.2     After-Acquired Property. If any Co-Borrower shall at any time acquire a
commercial tort claim, as defined in the Code, with a value in excess of Fifty
Thousand Dollars ($50,000), Borrower Representative shall promptly notify
Collateral Agent and Lender in writing signed by Borrower Representative of the
brief details thereof and grant to Collateral Agent and Lender in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory to
Collateral Agent and Lender.

 

4.3     Duration of Security Interest. Collateral Agent’s and Lender’s security
interest in the Collateral shall continue until the indefeasible payment in full
and the satisfaction of all Obligations, and termination of Lender’s commitment
to fund the Loans, whereupon such security interest shall terminate. Collateral
Agent and Lender shall, at Co-Borrowers’ sole cost and expense, execute such
further documents and take such further actions as may be reasonably necessary
to make effective the release contemplated by this Section 4.3, including duly
authorizing and delivering termination statements for filing in all relevant
jurisdictions under the Code.

 

4.4     Location and Possession of Collateral. The Collateral (other than (i)
laptops and similar equipment maintained by any Co-Borrower’s employees and (ii)
other Collateral with an aggregate value of not more than $50,000) is and shall
remain in the possession of each Co-Borrower at its location listed on the cover
page hereof or as set forth in the Disclosure Schedule or at such other
location(s) as to which any Co-Borrower has provided not less than ten (10)
Business Days prior written notice to Collateral Agent. Co-Borrowers shall
remain in full possession, enjoyment and control of the Collateral (other than
(i) laptops and similar equipment maintained by any Co-Borrower’s employees and
(ii) other Collateral with an aggregate value of not more than $50,000 and
except only as may be otherwise required by Collateral Agent or Lender for
perfection of the security interests therein created hereunder) and so long as
no Event of Default has occurred, shall be entitled to manage, operate, dispose
of and use the same and each part thereof with the rights and franchises
appertaining thereto; provided that the possession, enjoyment, control and use
of the Collateral shall at all times be subject to the observance and
performance of the terms of this Agreement.

 

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4.5     Delivery of Additional Documentation Required. Each Co-Borrower shall
from time to time execute and deliver to Collateral Agent and Lender, at the
request of Collateral Agent or Lender, all financing statements and other
documents Collateral Agent or Lender may reasonably request, in form reasonably
satisfactory to Collateral Agent and Lender, to perfect and continue Collateral
Agent’s and Lender’s perfected security interests in the Collateral and in order
to consummate fully all of the transactions contemplated under the Loan
Documents.

 

4.6     Right to Inspect. Collateral Agent and Lender (through any of their
officers, employees, or agents) shall have the right, upon reasonable prior
written notice, from time to time during each Co-Borrower’s usual business
hours, to inspect the books and records of each Co-Borrower and Subsidiaries and
to make copies thereof and to inspect, test, and appraise the Collateral in
order to verify each Co-Borrower’s financial condition or the amount, condition
of, or any other matter relating to, the Collateral; provided that so long as no
Event of Default has occurred or is continuing, Collateral Agent and Lender
shall not make such inspections, in the aggregate, more than twice in any
calendar year. Any inspection, test or appraisal conducted hereunder shall be
conducted at the sole cost and expense of Co-Borrowers.

 

4.7     Protection of Intellectual Property. Each Co-Borrower shall:

 

(a)     protect, defend and maintain the validity and enforceability of its
Intellectual Property and promptly advise Collateral Agent in writing of
material infringements;

 

(b)     not allow any Intellectual Property material to any Co-Borrower’s
business to be abandoned, forfeited or dedicated to the public without Lender’s
written consent; and

 

(c)      provide written notice to Collateral Agent within ten (10) days of
entering or becoming bound by any Restricted License (other than
over-the-counter software that is commercially available to the public).

 

5.     Representations and Warranties. Except as set forth in the Disclosure
Schedule, each Co-Borrower represents and warrants as follows:

 

5.1     Organization and Qualification. Each Co-Borrower and its Subsidiaries is
a corporation duly organized and validly existing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any jurisdiction in which the conduct of its business or its
ownership of Property requires that it be so qualified and licensed or in which
the Collateral is located, except for such states as to which any failure to so
qualify would not have a Material Adverse Effect.

 

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5.2     Authority. Each Co-Borrower has all necessary power and authority to
execute, deliver, and perform its obligations in accordance with the terms
thereof, the Loan Documents to which it is a party. Each Co-Borrower and its
Subsidiaries have all requisite power and authority to own and operate their
Property and to carry on their businesses as now conducted. Each Co-Borrower and
its Subsidiaries have obtained all licenses, permits, approvals and other
authorizations necessary for the operation of their business, other than the
failure to obtain which would not reasonably be likely to have a Material
Adverse Effect.

 

5.3     Conflict with Other Instruments, etc. Neither the execution and delivery
of any Loan Document to which any Co-Borrower is a party nor the consummation of
the transactions therein contemplated nor compliance with the terms, conditions
and provisions thereof will conflict with or result in a breach of any of the
terms, conditions or provisions of the certificate of incorporation, the
by-laws, or any other organizational documents of any Co-Borrower or violate in
any material respect any law or any regulation, order, writ, injunction or
decree of any court or Governmental Authority by which any Co-Borrower or any
Subsidiary or any of their respective property or assets may be bound or
affected or any material agreement or instrument to which any Co-Borrower is a
party or by which it or any of its Property is bound or to which it or any of
its Property is subject, or constitute a default thereunder or result in the
creation or imposition of any Lien, other than Permitted Liens, in each case, to
the extent such contravention, conflict, violation or default would not
reasonably be likely to have a Material Adverse Effect.

 

5.4     Authorization; Enforceability. The execution and delivery of this
Agreement, the granting of the security interest in the Collateral, the
incurrence of the Loans, the execution and delivery of the other Loan Documents
to which any Co-Borrower is a party and the consummation of the transactions
herein and therein contemplated have each been duly authorized by all necessary
action on the part of each Co-Borrower. No authorization, consent, approval,
license or exemption of, and no registration, qualification, designation,
declaration or filing with, or notice to, (other than those that have been
obtained on or before the date hereof), any Person is, was or will be necessary
to (a) the valid execution and delivery of any Loan Document to which any
Co-Borrower is a party, (b) the performance of each Co-Borrower’s obligations
under any Loan Document or (c) the granting of the security interest in the
Collateral, except for filings in connection with the perfection of the security
interest in any of the Collateral. and those that would not reasonably be likely
to have a Material Adverse Effect. The Loan Documents have been duly executed
and delivered and constitute legal, valid and binding obligations of each
Co-Borrower, enforceable against each Co-Borrower in accordance with their
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws of general application relating to
or affecting the enforcement of creditors’ rights or by general principles of
equity.

 

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5.5     No Prior Encumbrances. Each Co-Borrower has good and marketable title to
the Collateral, free and clear of Liens except for Permitted Liens. Each
Co-Borrower has good title and ownership of, or is licensed under, all of such
Co-Borrower’s current Intellectual Property. Each Co-Borrower is the sole owner
of the Intellectual Property which it owns or purports to own except for (a)
Permitted Licenses, (b) over-the-counter software that is commercially available
to the public and (c) material Intellectual Property licensed to such
Co-Borrower (other than off-the-shelf software) and noted on the Disclosure
Schedule. Each patent which it owns or purports to own and which is material to
any Co-Borrower’s business is valid and enforceable, and no part of the
Intellectual Property which any Co-Borrower owns or purports to own and which is
material to any Co-Borrower’s business has been judged invalid or unenforceable,
in whole or in part. Except as noted on the Disclosure Schedule, no Co-Borrower
is a party to, nor is it bound by, any Restricted License. No Co-Borrower has
received any communications alleging that any Co-Borrower has violated, or by
conducting its business as proposed, would violate any proprietary rights of any
other Person, in each case that could reasonably be expected to have a Material
Adverse Effect. No Co-Borrower has knowledge of any infringement or violation by
it of the intellectual property rights of any third party and has no knowledge
of any violation or infringement by a third party of any of its Intellectual
Property. The Collateral and the Intellectual Property constitute substantially
all of the assets and property each Co-Borrower, and each Co-Borrower owns all
Intellectual Property associated with the business of such Co-Borrower and
Subsidiaries, free and clear of any Liens other than Permitted Liens.

 

5.6     Security Interest. The provisions of this Agreement create legal and
valid security interests in the Collateral in favor of Collateral Agent and
Lender, and, assuming the proper filing of one or more financing statement(s)
identifying the Collateral with the proper state and/or local authorities, the
security interests in the Collateral granted to Collateral Agent and Lender
pursuant to this Agreement (a) constitute and will continue to constitute first
priority security interests (except to the extent any Permitted Liens may have a
superior priority to Collateral Agent’s and Lender’s Liens under this Agreement)
and (b) are and will continue to be superior and prior to the rights of all
other creditors of each Co-Borrower (except to the extent any Permitted Liens
may have a superior priority to Collateral Agent’s and Lender’s Liens under this
Agreement).

 

5.7     Name; Location of Chief Executive Office, Principal Place of Business
and Collateral. No Co-Borrower has done business under any name other than that
specified on the signature page hereof. Each Co-Borrower’s jurisdiction of
incorporation, chief executive office, principal place of business, and the
place where such Co-Borrower maintains its records concerning the Collateral are
presently located in the state and at the address set forth on the cover page of
this Agreement. The Collateral is presently located at the address set forth on
the cover page hereof or as set forth in the Disclosure Schedule or at such
locations permitted under Section 7.2 of this Agreement.

 

5.8     Litigation. There are no actions or proceedings pending by or against
any Co-Borrower or any Subsidiary before any court, arbitral tribunal,
regulatory organization, administrative agency or similar body in which an
adverse decision could have a Material Adverse Effect. No Co-Borrower has
knowledge of any such pending or threatened actions or proceedings.

 

5.9     Financial Statements. All financial statements relating to any
Co-Borrower, any Subsidiary or any Affiliate that have been delivered by any
Co-Borrower to Collateral Agent or Lender present fairly in all material
respects such Co-Borrower’s Consolidated financial condition as of the date
thereof and such Co-Borrower’s Consolidated results of operations for the period
then ended.

 

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5.10     No Material Adverse Effect. No event has occurred and no condition
exists which could reasonably be expected to have a Material Adverse Effect
since the Co-Borrowers’ most recently filed SEC Documents.

 

5.11     Full Disclosure. No representation, warranty or other statement made by
any Co-Borrower in any Loan Document (including the Disclosure Schedule),
certificate or written statement furnished to Collateral Agent or Lender (other
than projections, forward-looking statements and other information of a general
economic or industry nature, which projections, forward-looking statements and
other information of a general economic or industry nature have been prepared by
the applicable Co-Borrower in good faith based upon assumptions believed by such
Co-Borrower to be reasonable at the time) 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. There is
no fact known to any Co-Borrower which materially adversely affects, or which
could in the future be reasonably expected to materially adversely affect, its
ability to perform its obligations under this Agreement.

 

5.12     Solvency, Etc. Each Co-Borrower is Solvent (as defined below) and,
after the execution and delivery of the Loan Documents and the consummation of
the transactions contemplated thereby, each Co-Borrower will be Solvent.
“Solvent” means, with respect to any Person on any date, that on such date (a)
the fair value of the property of such Person is greater than the fair value of
the liabilities (including contingent liabilities) of such Person, (b) the
present fair saleable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured, (c) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature and (d) such Person
is not engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person’s property would constitute an
unreasonably small capital.

 

5.13      Subsidiaries. No Co-Borrower has any Subsidiaries.

 

5.14     Capitalization. All issued and outstanding Equity Securities of each
Co-Borrower are duly authorized and validly issued, fully paid and
non-assessable, and such securities were issued in compliance with all
applicable state and federal laws concerning the issuance of securities, except
for such compliance with such laws that would not reasonably be expected to
result in a Material Adverse Effect.

 

5.15     Catastrophic Events; Labor Disputes. No Co-Borrower, Subsidiary or any
of their respective Property is or has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or other casualty that could reasonably be
expected to have a Material Adverse Effect. There are no disputes presently
subject to grievance procedure, arbitration or litigation under any of the
collective bargaining agreements, employment contracts or employee welfare or
incentive plans to which any Co-Borrower or any Subsidiary is a party, and there
are no strikes, lockouts, work stoppages or slowdowns, or, to the knowledge of
any Co-Borrower, jurisdictional disputes or organizing activity occurring or
threatened which could reasonably be expected to have a Material Adverse Effect.

 

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5.16     Certain Agreements of Officers, Employees and Consultants.

 

(a)     No Violation. To the knowledge of each Co-Borrower, no officer, employee
or consultant of any Co-Borrower is, or is now expected to be, in violation of
any term of any employment contract, proprietary information agreement,
nondisclosure agreement, noncompetition agreement or any other material contract
or agreement or any restrictive covenant relating to the right of any such
officer, employee or consultant to be employed by any Co-Borrower because of the
nature of the business conducted or to be conducted by any Co-Borrower or
relating to the use of trade secrets or proprietary information of others, and
to each Co-Borrower’s knowledge, the continued employment of each Co-Borrower’s
officers, employees and consultants does not subject any Co-Borrower to any
material liability for any claim or claims arising out of or in connection with
any such contract, agreement, or covenant.

 

(b)     No Present Intention to Terminate. To the knowledge of each Co-Borrower,
no officer of any Co-Borrower, and no employee or consultant of any Co-Borrower
whose termination, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, has any present intention of
terminating his or her employment or consulting relationship with such
Co-Borrower.

 

5.17     No Plan Assets. No Co-Borrower nor any Subsidiary is an “employee
benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of ERISA,
and none of the assets of any Co-Borrower or any Subsidiary constitutes or will
constitute “plan assets” of one or more such plans within the meaning of 29
C.F.R. Section 2510.3-101. In addition, (a) no Co-Borrower nor any Subsidiary is
a “governmental plan” within the meaning of Section 3(32) of ERISA and
(b) transactions by or with each Co-Borrower or any Subsidiary are not subject
to state statutes regulating investment of, and fiduciary obligations with
respect to, governmental plans similar to the provisions of Section 406 of ERISA
or Section 4975 of the Internal Revenue Code currently in effect, which prohibit
or otherwise restrict the transactions contemplated by this Loan Agreement.

 

5.18     Sanctions, Etc. No Co-Borrower, any of its Subsidiaries or, to the
knowledge of any Co-Borrower, any director, officer, employee, agent or
Affiliate of any Co-Borrower or any of its Subsidiaries, is a Person that is, or
is owned or controlled by Persons that are, (a) the subject or target of any
Sanctions or (b) located, organized or resident in a country or territory that
is, or whose government is, the subject of Sanctions. To the best of each
Co-Borrower’s knowledge, as of the date hereof and at all times throughout the
term of this Agreement, including after giving effect to any transfers of
interests permitted pursuant to the Loan Documents, none of the funds of each
Co-Borrower, each Subsidiary or each of their Affiliates have been (or will be)
derived from any unlawful activity with the result that the investment in the
respective party (whether directly or indirectly), is prohibited by applicable
law or the Loans are in violation of applicable law.

 

5.19     Regulatory Compliance. No Co-Borrower is a “bank holding company” or a
direct or indirect subsidiary of a “bank holding company” as defined in the Bank
Holding Company Act of 1956, as amended, and Regulation Y thereunder of the
Board of Governors of the Federal Reserve System. No Co-Borrower or any
Subsidiary is an “investment company” or a company controlled by an “investment
company” under the Investment Company Act of 1940. No Co-Borrower is engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) and no proceeds of any Loan will be used to purchase or
carry margin stock or to extend credit to others for the purpose of purchasing
or carrying any margin stock.

 

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5.20     Payment of Taxes. All federal and other material tax returns, reports
and statements (including any attachments thereto or amendments thereof) of each
Co-Borrower and its Subsidiaries filed or required to be filed by any of them
have been timely filed (or extensions have been obtained and such extensions
have not expired) and all taxes shown on such tax returns or otherwise due and
payable and all assessments, fees and other governmental charges upon each
Co-Borrower, its Subsidiaries and their respective properties, assets, income,
businesses and franchises which are due and payable have been paid when due and
payable, except for the payment of any such taxes, assessments, fees and other
governmental charges which are being diligently contested by such Co-Borrower in
good faith by appropriate proceedings and for which adequate reserves have been
made under GAAP. To the knowledge of each Co-Borrower, no tax return of any
Co-Borrower or any Subsidiary is currently under an audit or examination, and no
Co-Borrower has received written notice of any proposed audit or examination, in
each case, where a material amount of tax is at issue. No Co-Borrower is an “S
corporation” within the meaning of Section 1361(a)(1) of the Internal Revenue
Code of 1986, as amended (the “Internal Revenue Code”).

 

5.21     Anti-Terrorism Laws. No Co-Borrower will, directly or indirectly, use
the proceeds of the Loans, or lend, contribute or otherwise make available such
proceeds to any Subsidiary, joint venture partner or other Person, (i) to fund
any activities or business of or with any Person, or in any country or
territory, that, at the time of such funding, is, or whose government is, the
subject of Sanctions, or (ii) in any other manner that would result in a
violation of Sanctions by any Person (including any Person participating in the
Loans, whether as lender, underwriter, advisor, investor or otherwise). Lender
hereby notifies each Co-Borrower that pursuant to the requirements of
Anti-Terrorism Laws, and Lender’s policies and practices, Lender is required to
obtain, verify and record certain information and documentation that identifies
each Co-Borrower and its principals, which information includes the name and
address of each Co-Borrower and its principals and such other information that
will allow Lender to identify such party in accordance with Anti-Terrorism Laws.

 

6.     Affirmative Covenants. Each Co-Borrower, until the full and complete
payment of the Obligations, covenants and agrees that:

 

6.1     Good Standing. Each Co-Borrower shall maintain, and cause each of its
Subsidiaries to maintain, its corporate existence and its good standing in its
jurisdiction of incorporation and maintain qualification in each jurisdiction in
which the failure to so qualify could reasonably be expected to have a Material
Adverse Effect. Each Co-Borrower shall maintain, and cause each of its
Subsidiaries to maintain, in force all licenses, approvals and agreements, the
loss of which could reasonably be expected to have a Material Adverse Effect.

 

6.2     Government Compliance. Each Co-Borrower shall comply, and cause each of
its Subsidiaries to comply, with all statutes, laws, ordinances and government
rules and regulations to which it is subject, noncompliance with which could
reasonably be expected to have a Material Adverse Effect.

 

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6.3     Financial Statements, Reports, Certificates. Each Co-Borrower shall
deliver to Lender: (a) as soon as available, but in any event within forty-five
(45) days after the end of each calendar quarter, a Co-Borrower prepared
Consolidated balance sheet, Consolidated income statement and Consolidated cash
flow statement covering such Co-Borrower’s operations during such period,
certified by such Co-Borrower’s president, treasurer or chief financial officer
(each, a “Responsible Officer”), (b) as soon as available, but in any event
within ninety (90) days after the end of such Co-Borrower’s fiscal year, audited
Consolidated financial statements of such Co-Borrower prepared in accordance
with GAAP, together with an unqualified opinion on such financial statements of
a nationally recognized or other independent public accounting firm reasonably
acceptable to Lender; and (c) as soon as available, but in any event within
thirty (30) days after the earlier of (i) the end of such Co-Borrower’s fiscal
year or (ii) the date of such Co-Borrower’s board of directors’ adoption, such
Co-Borrower’s operating budget and plan for the next fiscal year; and (d) such
other financial information as Lender may reasonably request from time to time.
Additionally, each Co-Borrower shall provide Lender promptly as they are
available and in any event: (i) at the time of filing of such Co-Borrower’s
Form 10-K with the Securities and Exchange Commission after the end of each
fiscal year of such Co-Borrower, the financial statements of such Co-Borrower
filed with such Form 10-K; and (ii) at the time of filing of such Co-Borrower’s
Form 10-Q with the Securities and Exchange Commission after the end of each of
the first three fiscal quarters of such Co-Borrower, the Consolidated financial
statements of such Co-Borrower filed with such Form 10-Q. In addition, each
Co-Borrower shall deliver to Lender (A) promptly upon becoming available, copies
of all statements, reports and notices sent or made available generally by such
Co-Borrower to its security holders and (B) immediately upon receipt of notice
thereof, a report of any material legal actions pending or threatened against
any Co-Borrower or any Subsidiary or the commencement of any action, proceeding
or governmental investigation involving any Co-Borrower or any Subsidiary is
commenced that is reasonably expected to result in damages or costs to any
Co-Borrower, or all Co-Borrowers collectively, of One Hundred Thousand Dollars
($100,000) or more.

 

6.4     Certificates of Compliance. Each time financial statements are furnished
pursuant to Section 6.3 above, Borrower Representative shall deliver to Lender
an Officer’s Certificate signed by a Responsible Officer in the form of, and
certifying to the matters set forth in Exhibit E hereto.

 

6.5     Notice of Defaults. As soon as possible, and in any event within five
(5) days after the discovery of a Default or an Event of Default, Borrower
Representative shall provide Lender with an Officer’s Certificate setting forth
the facts relating to or giving rise to such Default or Event of Default and the
action which each Co-Borrower proposes to take with respect thereto.

 

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6.6     Taxes. Each Co-Borrower shall make, and cause each Subsidiary to make,
due and timely payment or deposit of all federal, state, and local taxes,
assessments, or contributions required of it by law or imposed upon any Property
belonging to it, and will execute and deliver to Collateral Agent and Lender, on
written demand therefor, appropriate certificates attesting to the payment or
deposit thereof; and each Co-Borrower will make, and cause each Subsidiary to
make, timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Collateral Agent and Lender with proof satisfactory
to Lender indicating that each Co-Borrower and each Subsidiary has made such
payments or deposits; provided that no Co-Borrower shall be required to make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and that such Co-Borrower has adequately bonded such
amounts or reserves sufficient to discharge such amounts have been provided on
the books of such Co-Borrower. In addition, no Co-Borrower shall change, and
shall not permit any Subsidiary to change, its respective jurisdiction of
residence for taxation purposes.

 

6.7     Use; Maintenance. Each Co-Borrower shall keep and maintain all items of
equipment and other similar types of personal property that form any significant
portion or portions of the Collateral in reasonably good operating condition and
repair (ordinary wear and tear excepted) and shall make all reasonably necessary
replacements thereof and renewals thereto so that the value and operating
efficiency thereof shall at all times be reasonably maintained and preserved. No
Co-Borrower shall permit any such material item of Collateral to become a
fixture to real estate or an accession to other personal property of another
Person, without the prior written consent of Collateral Agent and Lender. No
Co-Borrower shall permit any such material item of Collateral to be operated or
maintained in violation of any applicable law, statute, rule or regulation. With
respect to items of leased equipment (to the extent Collateral Agent and Lender
have any security interest in any residual any Co-Borrower’s interest in such
equipment under the lease), each Co-Borrower shall keep, maintain, repair,
replace and operate such leased equipment in accordance in all material respects
with the terms of the applicable lease.

 

6.8     Insurance. Each Co-Borrower shall keep its business and the Collateral
insured for risks and in amounts standard for companies in such Co-Borrower’s
industry and location, and as Collateral Agent or Lender may reasonably request.
Insurance policies shall be in a form, with companies, and in amounts that are
reasonably satisfactory to Collateral Agent and Lender. All property policies
shall have a lender’s loss payable endorsement showing Collateral Agent and
Lender as an additional loss payee and all general liability policies shall show
Collateral Agent and Lender as an additional insured and all policies shall
provide that the insurer must give Collateral Agent at least thirty (30) days
notice before canceling its policy. At Collateral Agent’s or Lender’s request,
Borrower Representative shall deliver certified copies of policies and evidence
of all premium payments. Proceeds payable under any property policy shall, at
Collateral Agent’s or Lender’s option, be payable to Collateral Agent, for the
benefit of Lender, or to Lender on account of the Obligations. Notwithstanding
the foregoing, so long as no Event of Default has occurred and is continuing,
Co-Borrowers shall have the option of applying the proceeds of any property
policy, toward the replacement or repair of destroyed or damaged property;
provided that (a) any such replaced or repaired property (i) shall be of equal
or like value as the replaced or repaired Collateral and (ii) shall be deemed
Collateral in which Collateral Agent and Lender have been granted a first
priority security interest and (b) after the occurrence and during the
continuation of an Event of Default all proceeds payable under such property
policy shall, at the option of Collateral Agent or Lender, be payable to
Collateral Agent, for the benefit of Lender, or to Lender on account of the
Obligations. If any Co-Borrower fails to obtain insurance as required under
Section 6.8 or to pay any amount or furnish any required proof of payment to
third persons and Collateral Agent, Collateral Agent or Lender may make all or
part of such payment or obtain such insurance policies required in Section 6.8,
and take any action under the policies Collateral Agent or Lender deems prudent.
On or prior to the first Funding Date and prior to each policy renewal, Borrower
Representative shall furnish to Collateral Agent certificates of insurance or
other evidence reasonably satisfactory to Collateral Agent that insurance
complying with all of the above requirements is in effect.

 

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6.9      Further Assurances. At any time and from time to time, each Co-Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Collateral Agent or Lender to make effective
the purposes of this Agreement, including the continued perfection and priority
of Collateral Agent’s Lender’s security interest in the Collateral.

 

6.10     Subsidiaries. Each Co-Borrower, upon Lender’s or Collateral Agent’s
request, shall cause any Subsidiary to provide Lender and Collateral Agent with
a guaranty of the Obligations and a security interest in such Subsidiary’s
assets to secure such guaranty.

 

6.11      Keeping of Books. Each Co-Borrower shall keep proper books of record
and account, in which full and correct entries shall be made of all financial
transactions and the assets and business of such Co-Borrower and its
Subsidiaries in accordance with GAAP.

 

6.12     Increasing Billings. Co-Borrowers shall achieve aggregate Billings in
each two (2) fiscal quarter period in an amount greater than the Billings
achieved in the aggregate by Co-Borrowers in the immediately preceding two (2)
fiscal quarter period. This covenant shall be tested on the last day of each
calendar quarter.

 

6.13      Revenue Based Payments. Until the Obligations are indefeasibly repaid
in full, and subject to the terms of Section 2.3(b), within sixty (60) days of
the end of each calendar quarter, Co-Borrowers shall pay to Lender the required
Revenue Based Payment. In addition, upon (a) the date of acceleration of the
Loans following an Event of Default or (b) the date of prepayment of the Loans,
Co-Borrowers shall pay to Lender an amount equal to the difference between the
actual Revenue Based Payments paid by Co-Borrowers to Lender and the applicable
Minimum Required Revenue Based Payments.

 

6.14     Upstreaming of Amounts from Managed Entities. Until the Obligations are
indefeasibly repaid in full, Borrower Representative shall take all actions
necessary to ensure that all amounts due and owing to Borrower Representative
pursuant to the terms of any Management Services Agreement are paid to Borrower
Representative no later than the end of each calendar month and not less than
once a month.

 

7.     Negative Covenants. Each Co-Borrower, until the full and complete payment
of the Obligations, covenants and agrees that such Co-Borrower shall not:

 

7.1       Chief Executive Office. Change its name, jurisdiction of
incorporation, chief executive office, principal place of business or any of the
items set forth in Section 1 of the Disclosure Schedule without thirty (30) days
prior written notice to Collateral Agent.

 

7.2      Collateral Control. Subject to its rights under Sections 4.4 and 7.4,
remove any items of Collateral (other than (i) laptops and similar equipment
maintained by any Co-Borrower’s employees and (ii) other Collateral with an
aggregate value of not more than $50,000) from any Co-Borrower’s facility
located at the address set forth on the cover page hereof or as set forth on the
Disclosure Schedule.

 

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7.3     Liens. Create, incur, allow or suffer, or permit any Subsidiary to
create, incur, allow or suffer, any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any accounts except
for Permitted Liens, or permit any Collateral not to be subject to the first
priority security interest granted herein (except for Permitted Liens that are
permitted by the terms of this Agreement or by operation of law to have priority
to Collateral Agent’s and Lender’s Liens), or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Collateral
Agent, for the benefit of Lender, or Lender) with any Person which directly or
indirectly prohibits or has the effect of prohibiting any Co-Borrower or any
Subsidiary from assigning, mortgaging, pledging, granting a security interest in
or upon, or encumbering any Co-Borrower’s or any Subsidiary’s Intellectual
Property, except (a) as otherwise permitted in Section 7.4 hereof and (b) as set
forth in the definition of “Permitted Liens” herein.

 

7.4     Other Dispositions of Collateral. Convey, sell, lease or otherwise
dispose of, or permit any Subsidiary to convey, sell, lease or otherwise
dispose, of all or any part of the Collateral to any Person (collectively, a
“Transfer”), except for: (a) Transfers of inventory in the ordinary course of
business; (b) Transfers of worn-out or obsolete equipment made in the ordinary
course of business; (c) Transfers pursuant to Permitted Licenses; (d) sales of
assets consented to by Lender; (e) Transfers by a Subsidiary of any or all of
its business, property or assets to a Co-Borrower; (f) Transfers in connection
with transactions permitted by Sections 7.5, 7.6 and 7.8; (g) Transfers of cash
or cash equivalents for uses not prohibited by the terms of this Agreement; (h)
Permitted Liens; (i) disposition of Investments permitted by Section 7.11.

 

7.5     Distributions. (a) Pay any dividends or make any distributions, or
permit any Subsidiary to pay any dividends or make any distributions, on their
respective Equity Securities; (b) purchase, redeem, retire, defease or otherwise
acquire, or permit any Subsidiary to purchase, redeem, retire, defease or
otherwise acquire, for value any of their respective Equity Securities (other
than repurchases pursuant to the terms of employee stock purchase plans,
employee restricted stock agreements or similar arrangements in an aggregate
amount not to exceed One Hundred Thousand Dollars ($100,000) in any fiscal
year); (c) return, or permit any Subsidiary to return, any capital to any holder
of its Equity Securities as such; (d) make, or permit any Subsidiary to make,
any distribution of assets, Equity Securities, obligations or securities to any
holder of its Equity Securities as such; or (e) set apart any sum for any such
purpose; provided, however, a Co-Borrower may pay dividends payable solely in
such Co-Borrower’s common stock.

 

7.6     Mergers or Acquisitions. Merge or consolidate, or permit any Subsidiary
to merge or consolidate, with or into any other Person or acquire, or permit any
Subsidiary to acquire, all or substantially all of the capital stock or assets
of another Person; provided that (a) any Subsidiary may merge into another
Subsidiary and (b) any Subsidiary may merge into a Co-Borrower so long as such
Co-Borrower is the surviving entity.

 

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7.7     Change in Business or Ownership. (a) Engage, or permit any Subsidiary to
engage, in any business other than the businesses currently engaged in by
Borrower or such Subsidiary, as applicable, or reasonably related thereto or (b)
have a material change in such Co-Borrower’s ownership equal to or greater than
twenty-five percent (25%) other than (i) by the sale by such Co-Borrower of such
Co-Borrower’s Equity Securities in a public offering or (ii) to venture capital
investors so long as Borrower Representative identifies to Lender and Collateral
Agent the venture capital investors prior to the execution of a definitive
agreement relating to such change of ownership and any such venture capital
investors that purchase or otherwise acquire twenty-five percent (25%) or more
of the ownership of any Co-Borrower in one or a series of transactions have
cleared Lender’s “know your customer” checks.

 

7.8     Transactions With Affiliates; Creation of Subsidiaries. (a) Enter, or
permit any Subsidiary to enter, into any contractual obligation with any
Affiliate or engage in any other transaction with any Affiliate except upon
terms at least as favorable to each Co-Borrower or such Subsidiary, as
applicable, as an arms-length transaction with Persons who are not Affiliates of
any Co-Borrower or (b) create a Subsidiary without providing at least 10
Business Days advance notice thereof to Lender and, if requested by Lender, such
Subsidiary guarantees the Obligations and grants a security interest in its
assets to secure such guaranty, in each case on terms reasonably satisfactory to
Collateral Agent and Lender.

 

7.9     Indebtedness Payments. (a) Prepay, redeem, purchase, defease or
otherwise satisfy in any manner prior to the scheduled repayment thereof any
Indebtedness for borrowed money (other than amounts due or permitted to be
prepaid under this Agreement or under any revolving credit agreement
constituting Permitted Indebtedness under clause (d) of the definition of
Permitted Indebtedness) or lease obligations, (b) amend, modify or otherwise
change the terms of any Indebtedness for borrowed money or lease obligations so
as to accelerate the scheduled repayment thereof or (c) repay any notes to
officers, directors or shareholders.

 

7.10    Indebtedness. Create, incur, assume or permit, or permit any Subsidiary
to create, incur, or permit to exist, any Indebtedness except Permitted
Indebtedness.

 

7.11     Investments. Make, or permit any Subsidiary to make, any Investment
except for Permitted Investments.

 

7.12     Compliance. (a) Become, or permit any Subsidiary to become, an
“investment company” or a company controlled by an “investment company” under
the Investment Company Act of 1940, or undertake as one of its important
activities, extending credit to purchase or carry margin stock (as defined in
Regulation U of the Board of Governors of the Federal Reserve System), or use
the proceeds of any Loan for that purpose; (b) become, or permit any Subsidiary
to become, subject to any other federal or state law or regulation which
purports to restrict or regulate its ability to borrow money; or (c) (i) fail,
or permit any Subsidiary to fail, to meet the minimum funding requirements of
the Employment Retirement Income Security Act of 1974, and its regulations, as
amended from time to time (“ERISA”), permit, or (ii) permit, or permit any
Subsidiary to permit, a Reportable Event or Prohibited Transaction, as defined
in ERISA, to occur; (d) fail, or permit any Subsidiary to fail, to comply with
the Federal Fair Labor Standards Act or violate any other law or regulation, if
the violation could reasonably be expected to have Material Adverse Effect.

 

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7.13     Maintenance of Accounts. (a) Maintain any deposit account or securities
account except accounts with respect to which Collateral Agent and Lender has
obtained a perfected security interest in such accounts through one or more
Account Control Agreements or (b) grant or allow any other Person (other than
Collateral Agent or Lender) to perfect a security interest in, or enter into any
agreements with any Persons (other than Collateral Agent or Lender)
accomplishing perfection via control as to, any of its deposit accounts or
securities accounts other than in favor of the lender providing Borrower
Representative with Indebtedness permitted under subsection (d) of the
definition of Permitted Indebtedness. Notwithstanding the foregoing,
Co-Borrowers may maintain one account at California Bank and Trust that exists
as of the date of this Agreement and over which Lender does not maintain an
Account Control Agreement, provided that such account at California Bank and
Trust is closed on or before the date that is ninety (90) days after the date of
this Agreement.

 

7.14     Negative Pledge Regarding Intellectual Property. Create, incur, assume
or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer
to exist, any Lien of any kind upon any Intellectual Property or Transfer any
Intellectual Property, whether now owned or hereafter acquired, other than
Permitted Liens.

 

8.     Events of Default. Any one or more of the following events shall
constitute an “Event of Default” by Co-Borrowers under this Agreement:

 

8.1     Failure to Pay. If any Co-Borrower fails to pay when due and payable or
when declared due and payable in accordance with the Loan Documents: (a) any
Scheduled Payment on the relevant Payment Date or on the relevant Maturity Date;
(b) any Revenue Based Payment on the date any such payment is due; or (c) any
other portion of the Obligations within five (5) days after receipt of written
notice from Lender that such payment is due.

 

8.2     Certain Covenant Defaults. If any Co-Borrower fails to perform any
obligation arising under Sections 6.5, 6.8, 6.12, 6.13 or 6.14 or violates any
of the covenants contained in Section 7 of this Agreement.

 

8.3     Other Covenant Defaults. If any Co-Borrower fails or neglects to
perform, keep, or observe any other term, provision, condition, covenant, or
agreement contained in this Agreement (other than as set forth in Sections 8.1,
8.2 or 8.4 through 8.14), in any of the other Loan Documents and such
Co-Borrower has failed to cure such default within thirty (30) days of the
occurrence of such default. During this thirty (30) day period, the failure to
cure the default is not an Event of Default (but no Loan will be made during the
cure period).

 

8.4     Material Adverse Effect. The occurrence of an event that results in a
Material Adverse Effect.

 

8.5     INTENTIONALLY OMITTED

 

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8.6     Seizure of Assets, Etc. (a) If any material portion of any Co-Borrower’s
or any Subsidiary’s assets (i) is attached, seized, subjected to a writ or
distress warrant, or is levied upon or (ii) 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 ten (10) days, (b) if any Co-Borrower or any Subsidiary is
enjoined, restrained or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, (c) if a judgment or
other claim becomes a lien or encumbrance upon any material portion of any
Co-Borrower’s or any Subsidiary’s assets or (d) if a notice of lien, levy, or
assessment is filed of record with respect to any Co-Borrower’s or any
Subsidiary’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 ten (10) days after any Co-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 Co-Borrower.

 

8.7     Service of Process. (a) The service of process upon Collateral Agent or
Lender seeking to attach by a trustee or other process any funds of any
Co-Borrower on deposit or otherwise held by Collateral Agent or Lender in excess
of One Hundred Thousand Dollars ($100,000), (b) the delivery upon Collateral
Agent or Lender of a notice of foreclosure by any Person seeking to attach or
foreclose on any funds of any Co-Borrower on deposit or otherwise held by
Collateral Agent or Lender in excess of One Hundred Thousand Dollars ($100,000)
or (c) the delivery of a notice of foreclosure or exclusive control to any
entity holding or maintaining any Co-Borrower’s deposit accounts or accounts
holding securities by any Person (other than Collateral Agent or Lender) seeking
to foreclose or attach any such accounts or securities.

 

8.8     Default on Indebtedness. One or more defaults shall exist under any
agreement with any third party or parties which consists of the failure to pay
any Indebtedness of any Co-Borrower or any Subsidiary at maturity or which
results in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of Indebtedness in an aggregate amount in excess of One
Hundred Thousand Dollars ($100,000) or a default shall exist under any financing
agreement with a Lender or any Lender’s Affiliates.

 

8.9     Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against one or more Co-Borrowers or
Subsidiary and shall remain unsatisfied and unstayed for a period of ten (10)
days or more except for those that are fully covered by a reputable and
financially sound insurer.

 

8.10     Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty, representation, statement,
certification, or report made to Collateral Agent or Lender by any Co-Borrower
or any officer, employee, agent, or director of any Co-Borrower.

 

8.11      INTENTIONALLY OMITTED

 

8.12     Unenforceable Loan Document. If any Loan Document shall in any material
respect cease to be, or any Co-Borrower shall assert that any Loan Document is
not, a legal, valid and binding obligation of any Co-Borrower enforceable in
accordance with its terms.

 

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8.13     Involuntary Insolvency Proceeding. (a) If a proceeding shall have been
instituted in a court having jurisdiction (i) seeking a decree or order for
relief in respect of any Co-Borrower or any Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) for the appointment of a receiver, liquidator,
administrator, assignee, custodian, trustee (or similar official) of any
Co-Borrower or any Subsidiary or for any substantial part of its Property or
(iii) for the winding-up or liquidation of its affairs, and such proceeding
shall remain undismissed or unstayed and in effect for a period of thirty (30)
consecutive days or (b) such court shall enter a decree or order granting the
relief sought in any such proceeding.

 

8.14     Voluntary Insolvency Proceeding. If any Co-Borrower or any Subsidiary
shall (a) commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (b) consent to the entry of an
order for relief in an involuntary case under any such law, (c) consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian (or other similar official) of any Co-Borrower or any
Subsidiary or for any substantial part of its Property, (d) shall make a general
assignment for the benefit of creditors, (e) shall fail generally to pay its
debts as they become due or (f) take any corporate action in furtherance of any
of the foregoing.

 

9.     Lender’s Rights and Remedies.

 

9.1     Rights and Remedies. Upon the occurrence of any Default or Event of
Default, Lender shall not have any further obligation to advance money or extend
credit to or for the benefit of any Co-Borrower. In addition, upon the
occurrence of an Event of Default, Collateral Agent and Lender shall have the
rights, options, duties and remedies of a secured party as permitted by law and,
in addition to and without limitation of the foregoing, Collateral Agent, on
behalf of Lender, or Lender (acting alone) may, at its election, without notice
of election and without demand, do any one or more of the following, all of
which are authorized by each Co-Borrower:

 

(a)     Acceleration of Obligations. Declare all Obligations, whether evidenced
by this Agreement, by any of the other Loan Documents, or otherwise, including
(i) any accrued and unpaid interest, (ii) the amounts which would have otherwise
come due under Section 2.3(b)(ii) if the Loans had been voluntarily prepaid,
(iii) the unpaid principal balance of the Loans and (iv) all other sums, if any,
that shall have become due and payable hereunder, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.13 or 8.14 all Obligations shall become immediately due and payable without
any action by Collateral Agent or Lender);

 

(b)     Protection of Collateral. Make such payments and do such acts as
Collateral Agent or Lender consider necessary or reasonable to protect
Collateral Agent’s and Lender’s security interest in the Collateral. Borrower
Representative agrees to assemble the Collateral if Collateral Agent or Lender
so requires and to make the Collateral available to Collateral Agent or Lender
as Collateral Agent or Lender may designate. Each Co-Borrower authorizes
Collateral Agent, Lender and their designees and agents 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
Lien which in Collateral Agent’s or Lender’s determination appears or is claimed
to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any Co-Borrower’s owned
premises, such Co-Borrower hereby grants Collateral Agent and Lender a license
to enter into possession of such premises and to occupy the same, without
charge, for up to one hundred twenty (120) days in order to exercise any of
Collateral Agent’s and Lender’s rights or remedies provided herein, at law, in
equity, or otherwise;

 

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(c)     Preparation of Collateral for Sale. Ship, reclaim, recover, store,
finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the
manner provided for herein) the Collateral. Collateral Agent, Lender and their
agents and any purchasers at or after foreclosure are hereby granted a
non-exclusive, irrevocable, perpetual, fully paid, royalty-free license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, each Co-Borrower’s Intellectual Property, including 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, now
or at any time hereafter owned or acquired by any Co-Borrower or in which any
Co-Borrower now or at any time hereafter has any rights; provided that such
license shall only be exercisable in connection with the disposition of
Collateral upon Collateral Agent’s or Lender’s exercise of its remedies
hereunder and that any exercise of remedies under this Section 9.1(c) shall be
subject to any rights of third parties in or to such Intellectual Property;

 

(d)     Sale of Collateral. 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 any Co-Borrower’s premises)
as Collateral Agent or Lender determines are commercially reasonable; and

 

(e)     Purchase of Collateral. Credit bid and purchase all or any portion of
the Collateral at any public sale.

 

Any deficiency that exists after disposition of the Collateral as provided above
will be paid immediately by Co-Borrowers.

 

9.2     Set Off Right. Upon the occurrence of an Event of Default that has not
been waived by Lender, Collateral Agent and Lender may set off and apply to the
Obligations any and all Indebtedness at any time owing to or for the credit or
the account of any Co-Borrower or any other assets of any Co-Borrower in
Collateral Agent’s or Lender’s possession or control.

 

9.3     Effect of Sale. Upon the occurrence of an Event of Default that has not
been waived by Lender, to the extent permitted by law, each Co-Borrower
covenants that it will not at any time insist upon or plead, or in any manner
whatsoever claim or take any benefit or advantage of, any stay or extension law
now or at any time hereafter in force, nor claim, take nor insist upon any
benefit or advantage of or from any law now or hereafter in force providing for
the valuation or appraisement of the Collateral or any part thereof prior to any
sale or sales thereof to be made pursuant to any provision herein contained, or
to the decree, judgment or order of any court of competent jurisdiction; nor,
after such sale or sales, claim or exercise any right under any statute now or
hereafter made or enacted by any state or otherwise to redeem the property so
sold or any part thereof, and, to the full extent legally permitted, except as
to rights expressly provided herein, hereby expressly waives for itself and on
behalf of each and every Person, except decree or judgment creditors of any
Co-Borrower, acquiring any interest in or title to the Collateral or any part
thereof subsequent to the date of this Agreement, all benefit and advantage of
any such law or laws, and covenants that it will not invoke or utilize any such
law or laws or otherwise hinder, delay or impede the execution of any power
herein granted and delegated to Collateral Agent or Lender, but will suffer and
permit the execution of every such power as though no such power, law or laws
had been made or enacted. Any sale, whether under any power of sale hereby given
or by virtue of judicial proceedings, shall operate to divest all right, title,
interest, claim and demand whatsoever, either at law or in equity, of each
Co-Borrower in and to the Property sold, and shall be a perpetual bar, both at
law and in equity, against each Co-Borrower, its successors and assigns, and
against any and all Persons claiming the Property sold or any part thereof
under, by or through each Co-Borrower, its successors or assigns.

 

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9.4     Power of Attorney in Respect of the Collateral. Each Co-Borrower does
hereby irrevocably appoint Collateral Agent, on behalf of Lender (which
appointment is coupled with an interest) the true and lawful attorney in fact of
such Co-Borrower, with full power of substitution and in its name to file any
notices of security interests, financing statements and continuations and
amendments thereof pursuant to the Code or federal law, as may be necessary to
perfect or to continue the perfection of Collateral Agent’s and Lender’s
security interests in the Collateral. Each Co-Borrower does hereby irrevocably
appoint Collateral Agent, on behalf of Lender (which appointment is coupled with
an interest) upon the occurrence of an Event of Default that has not been waived
by Lender, the true and lawful attorney in fact of such Co-Borrower, with full
power of substitution and in its name: (a) to ask, demand, collect, receive,
receipt for, sue for, compound and give acquittance for any and all rents,
issues, profits, avails, distributions, income, payment draws and other sums in
which a security interest is granted under Section 4 with full power to settle,
adjust or compromise any claim thereunder as fully as if Collateral Agent or
Lender were such Co-Borrower itself; (b) to receive payment of and to endorse
the name of such Co-Borrower to any items of Collateral (including checks,
drafts and other orders for the payment of money) that come into Collateral
Agent’s or Lender’s possession or under Collateral Agent’s or Lender’s control;
(c) to make all demands, consents and waivers, or take any other action with
respect to, the Collateral; (d) in Collateral Agent’s or Lender’s discretion to
file any claim or take any other action or proceedings, either in its own name
or in the name of such Co-Borrower or otherwise, which Collateral Agent or
Lender may reasonably deem necessary or appropriate to protect and preserve the
right, title and interest of Collateral Agent and Lender in and to the
Collateral; (e) endorse such Co-Borrower’s name on any checks or other forms of
payment or security; (f) sign such Co-Borrower’s name on any invoice or bill of
lading for any account or drafts against account debtors; (g) make, settle, and
adjust all claims under such Co-Borrower’s insurance policies; (h) settle and
adjust disputes and claims about the accounts directly with account debtors, for
amounts and on terms Collateral Agent or Lender determine reasonable; (i)
transfer the Collateral into the name of Collateral Agent, Lender or a third
party as the Code permits; and (j) to the extent permitted by applicable law, to
otherwise act with respect thereto as though Collateral Agent or Lender were the
outright owner of the Collateral.

 

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9.5     Lender’s Expenses. If any Co-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 Collateral Agent or Lender may
do any or all of the following: (a) make payment of the same or any part
thereof; or (b) obtain and maintain insurance policies of the type discussed in
Section 6.8 of this Agreement, and take any action with respect to such policies
as Collateral Agent or Lender deems prudent. Any amounts paid or deposited by
Collateral Agent or Lender shall constitute Lender’s Expenses, shall be promptly
paid by Co-Borrowers after written demand therefor, and shall bear interest at
the Default Rate and shall be secured by the Collateral. Any payments made by
Collateral Agent or Lender shall not constitute an agreement by Collateral Agent
or Lender to make similar payments in the future or a waiver by Collateral Agent
or Lender of any Event of Default under this Agreement. Co-Borrowers shall pay
all reasonable fees and expenses, including Lender’s Expenses, incurred by
Collateral Agent or Lender in the enforcement or attempt to enforce any of the
Obligations hereunder not performed when due.

 

9.6     Remedies Cumulative; Independent Nature of Lender’s Rights. Collateral
Agent’s and Lender’s rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Collateral Agent and
Lender shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No failure on the part of
Collateral Agent or Lender to exercise, and no delay in exercising, any right or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right or remedy preclude any other or further
exercise thereof or the exercise of any other right. The Obligations of each
Co-Borrower to Lender or Collateral Agent may be enforced by Lender or
Collateral Agent against each Co-Borrower in accordance with the terms of this
Agreement and the other Loan Documents and, to the fullest extent permitted by
applicable law, it shall not be necessary for Collateral Agent or Lender, as
applicable, to be joined as an additional party in any proceeding to enforce
such Obligations.

 

9.7     Application of Collateral Proceeds. The proceeds and/or avails of the
Collateral, or any part thereof, and the proceeds and the avails of any remedy
hereunder (as well as any other amounts of any kind held by Collateral Agent or
Lender, at the time of or received by Collateral Agent or Lender after the
occurrence of an Event of Default hereunder) shall be paid to and applied as
follows:

 

(a)     First, to the payment of out-of-pocket costs and expenses, including all
amounts expended to preserve the value of the Collateral, of foreclosure or
suit, if any, and of such sale and the exercise of any other rights or remedies,
and of all proper fees, expenses, liability and advances, including reasonable
legal expenses and attorneys’ fees, incurred or made hereunder by Collateral
Agent or Lender, including Lender’s Expenses;

 

(b)     Second, to the payment to Lender of the amount then owing or unpaid on
the Loans for any accrued and unpaid interest, the amounts which would have
otherwise come due under Section 2.3(b)(ii), if the Loans had been voluntarily
prepaid, the principal balance of the Loans, and all other Obligations with
respect to the Loans (provided, however, if such proceeds shall be insufficient
to pay in full the whole amount so due, owing or unpaid upon the Loans, then
first, to the unpaid interest thereon ratably, second, to the amounts which
would have otherwise come due under Section 2.3(b)(ii) ratably, if the Loans had
been voluntarily prepaid, third, to the principal balance of the Loans ratably,
and fourth, to the ratable payment of other amounts then payable to Lender under
any of the Loan Documents); and

 

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(c)     Third, to the payment of the surplus, if any, to Co-Borrowers, their
successors and assigns or to the Persons lawfully entitled to receive the same.

 

9.8     Reinstatement of Rights. If Collateral Agent or Lender shall have
proceeded to enforce any right under this Agreement or any other Loan Document
by foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then and in every such case (unless otherwise ordered by a court of
competent jurisdiction), Collateral Agent and Lender shall be restored to their
former position and rights hereunder with respect to the Property subject to the
security interest created under this Agreement.

 

10.     Waivers; Indemnification.

 

10.1     Demand; Protest. Each Co-Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Collateral Agent or Lender on which any
Co-Borrower may in any way be liable.

 

10.2     Lender’s Liability for Collateral. So long as Collateral Agent and
Lender comply with their obligations, if any, under the Code, neither Collateral
Agent nor Lender shall in any way or manner be liable or responsible for:
(a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause other than Collateral Agent’s
or Lender’s gross negligence or willful misconduct; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person whomsoever. All risk of loss, damage or
destruction of the Collateral shall be borne by Co-Borrowers.

 

10.3     Indemnification and Waiver. Whether or not the transactions
contemplated hereby shall be consummated:

 

(a)     General Indemnity. Each Co-Borrower agrees upon written demand to pay or
reimburse Collateral Agent and Lender for all liabilities, obligations and
out-of-pocket expenses, including Lender’s Expenses and reasonable fees and
expenses of counsel for Collateral Agent and Lender from time to time arising in
connection with the enforcement or collection of sums due under the Loan
Documents, and in connection with any amendment or modification of the Loan
Documents or any “work-out” in connection with the Loan Documents. Each
Co-Borrower shall indemnify, reimburse and hold Collateral Agent, Lender, and
each of their respective successors, assigns, agents, attorneys, officers,
directors, equity holders, servants, agents and employees (each an “Indemnified
Person”) harmless from and against all liabilities, losses, damages, actions,
suits, demands, claims of any kind and nature (including claims relating to
environmental discharge, cleanup or compliance), all costs and expenses
whatsoever to the extent they may be incurred or suffered by such Indemnified
Person in connection therewith (including reasonable attorneys’ fees and
expenses), fines, penalties (and other charges of any applicable Governmental
Authority), licensing fees relating to any item of Collateral, damage to or loss
of use of property (including consequential or special damages to third parties
or damages to any Co-Borrower’s property), or bodily injury to or death of any
person (including any agent or employee of any Co-Borrower) (each, a “Claim”),
directly or indirectly relating to or arising out of the use of the proceeds of
the Loans or otherwise, the falsity of any representation or warranty of any
Co-Borrower or any Co-Borrower’s failure to comply with the terms of this
Agreement or any other Loan Document. The foregoing indemnity shall cover,
without limitation, (i) any Claim in connection with a design or other defect
(latent or patent) in any item of equipment or product included in the
Collateral, (ii) any Claim for infringement of any patent, copyright, trademark
or other intellectual property right, (iii) any Claim resulting from the
presence on or under or the escape, seepage, leakage, spillage, discharge,
emission or release of any Hazardous Materials on the premises owned, occupied
or leased by any Co-Borrower, including any Claims asserted or arising under any
Environmental Law, (iv) any Claim for negligence or strict or absolute liability
in tort or (v) any Claim asserted as to or arising under any Account Control
Agreement or any Landlord Agreement; provided, however, Co-Borrowers shall not
indemnify any Indemnified Person for any liability incurred by such Indemnified
Person as a direct and sole result of such Indemnified Person’s gross negligence
or willful misconduct. Such indemnities shall continue in full force and effect,
notwithstanding the expiration or termination of this Agreement. Upon Collateral
Agent’s or Lender’s written demand, Co-Borrowers shall assume and diligently
conduct, at their sole cost and expense, the entire defense of Collateral Agent
and Lender, each of their members, partners, and each of their respective,
agents, employees, directors, officers, equity holders, successors and assigns
against any indemnified Claim described in this Section 10.3(a). No Co-Borrower
shall settle or compromise any Claim against or involving Collateral Agent or
Lender without first obtaining Collateral Agent’s or Lender’s written consent
thereto, which consent shall not be unreasonably withheld.

 

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(b)     Waiver. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT OR ANYWHERE ELSE, EACH CO-BORROWER AGREES THAT IT SHALL NOT SEEK FROM
COLLATERAL AGENT OR LENDER UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY
IN TORTS), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.

 

(c)     Survival; Defense. The obligations in this Section 10.3 shall survive
payment of all other Obligations pursuant to Section 12.8. At the election of
any Indemnified Person, Co-Borrowers shall defend such Indemnified Person using
legal counsel satisfactory to such Indemnified Person in such Person’s
reasonable discretion, at the sole cost and expense of Co-Borrowers. All amounts
owing under this Section 10.3 shall be paid within thirty (30) days after
written demand.

 

11.     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 certified mail,
postage prepaid, return receipt requested, by prepaid nationally recognized
overnight courier, or by prepaid facsimile to Borrower Representative or to
Lender, as the case may be, at their respective addresses set forth below:

 

If to Borrower

Representative:

Catasys, Inc.

11601 Wilshire Blvd., Suite 1100

Los Angeles, CA 90025

Attention: Christopher Shirley, Chief Financial Officer

Fax: (888) 975-7712

Ph: (310) 444-4317

   

If to Horizon:

Horizon Technology Finance Corporation
312 Farmington Avenue

Farmington, CT 06032

Attention: Legal Department
Fax: (860) 676-8655
Ph: (860) 676-8654

 

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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.

 

12.     General Provisions.

 

12.1     Successors and Assigns. This Agreement and the Loan Documents shall
bind and inure to the benefit of the respective successors and permitted assigns
of each of the parties; provided, however, neither this Agreement nor any rights
hereunder may be assigned by any Co-Borrower without Lender’s prior written
consent, which consent may be granted or withheld in Lender’s sole discretion.
Lender shall have the right without the consent of or notice to any Co-Borrower
to sell, transfer, assign, negotiate, or grant participations in all or any part
of, or any interest in Lender’s rights and benefits hereunder. Collateral Agent
and Lender may disclose the Loan Documents and any other financial or other
information relating to any Co-Borrower to any potential participant or assignee
of any of the Loans; provided that such participant or assignee agrees for the
benefit of such Co-Borrower to protect the confidentiality of such documents and
information using the same measures that it uses to protect its own confidential
information.

 

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

 

12.3     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.

 

12.4     Entire Agreement; Construction; Amendments and Waivers.

 

(a)     Entire Agreement. This Agreement and each of the other Loan Documents,
taken together, constitute and contain the entire agreement among Co-Borrowers,
Collateral Agent and Lender and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications between the
parties, whether written or oral, respecting the subject matter hereof. Each
Co-Borrower acknowledges that it is not relying on any representation or
agreement made by Collateral Agent, Lender or any employee, attorney or agent
thereof, other than the specific agreements set forth in this Agreement and the
Loan Documents.

 

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(b)     Construction. This Agreement is the result of negotiations between and
has been reviewed by each Co-Borrower, Collateral Agent and Lender as of the
date hereof and their respective counsel; accordingly, this Agreement shall be
deemed to be the product of the parties hereto, and no ambiguity shall be
construed in favor of or against any Co-Borrower, Collateral Agent or Lender.
Each Co-Borrower, Collateral Agent and Lender agree that they intend the literal
words of this Agreement and the other Loan Documents and that no parol evidence
shall be necessary or appropriate to establish each Co-Borrower’s, Collateral
Agent’s or Lender’s actual intentions.

 

(c)     Amendments and Waivers. Any and all discharges or waivers of, or
consents to any departures from any provision of this Agreement or of any of the
other Loan Documents shall not be effective without the written consent of
Lender; provided that no such discharge, waiver or consent affecting the rights
or duties of the Collateral Agent under this Agreement or any other Loan
Document shall be effective without the written consent of the Collateral Agent.
Any and all amendments and modifications of this Agreement or of any of the
other Loan Documents shall not be effective without the written consent of
Lender and each Co-Borrower; provided that no such amendment or modification
affecting the rights or duties of the Collateral Agent under this Agreement or
any other Loan Document shall be effective without the written consent of the
Collateral Agent. Any waiver or consent with respect to any provision of the
Loan Documents shall be effective only in the specific instance and for the
specific purpose for which it was given. No notice to or demand on any
Co-Borrower in any case shall entitle any Co-Borrower to any other or further
notice or demand in similar or other circumstances. Any amendment, modification,
waiver or consent affected in accordance with this Section 12.4 shall be binding
upon Collateral Agent, Lender and on each Co-Borrower.

 

12.5     Reliance by Lender. All covenants, agreements, representations and
warranties made herein by each Co-Borrower shall be deemed to be material to and
to have been relied upon by Collateral Agent and Lender, notwithstanding any
investigation by Collateral Agent or Lender.

 

12.6     No Set-Offs by any Co-Borrower. All sums payable by any Co-Borrower
pursuant to this Agreement or any of the other Loan Documents shall be payable
without notice or demand and shall be payable in United States Dollars without
set-off or reduction of any manner whatsoever.

 

12.7    Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts (including
signatures delivered by facsimile or other electronic means), 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.

 

12.8     Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations or
commitment to fund remain outstanding. The obligations of each Co-Borrower to
indemnify Collateral Agent and Lender with respect to the expenses, damages,
losses, costs and liabilities described in Section 10.3 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Collateral Agent or Lender have run.

 

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13.     Relationship of Parties. Co-Borrowers and Lender acknowledge, understand
and agree that the relationship between each Co-Borrower, on the one hand, and
Lender, on the other, is, and at all times shall remain solely that of a
borrower and lender. Lender shall not, under any circumstances, be construed to
be a partner or a joint venturer of any Co-Borrower or any of its Affiliates;
nor shall Lender, under any circumstances, be deemed to be in a relationship of
confidence or trust or a fiduciary relationship with any Co-Borrower or any of
its Affiliates, or to owe any fiduciary duty or any other duty to any
Co-Borrower or any of its Affiliates. Neither Collateral Agent nor Lender
undertakes or assumes any responsibility or duty to any Co-Borrower or any of
its Affiliates to select, review, inspect, supervise, pass judgment upon or
otherwise inform any Co-Borrower or any of its Affiliates of any matter in
connection with its or their Property, any Collateral held by Collateral Agent
or Lender or the operations of any Co-Borrower or any of its Affiliates. Each
Co-Borrower and each of its Affiliates shall rely entirely on their own judgment
with respect to such matters, and any review, inspection, supervision, exercise
of judgment or supply of information undertaken or assumed by Collateral Agent
or Lender in connection with such matters is solely for the protection of
Collateral Agent and Lender and no Co-Borrower nor any Affiliate is entitled to
rely thereon.

 

14.     Confidentiality. All information (other than periodic reports filed by
any Co-Borrower with the Securities and Exchange Commission) disclosed by any
Co-Borrower to Collateral Agent or Lender in writing or through inspection
pursuant to this Agreement shall be considered confidential. Collateral Agent
and Lender agrees to use the same degree of care to safeguard and prevent
disclosure of such confidential information as Collateral Agent and Lender uses
with its own confidential information, but in any event no less than a
reasonable degree of care. Neither Collateral Agent nor Lender shall disclose
such information to any third party (other than (a) to another party hereto, (b)
to Collateral Agent’s or Lender’s members, partners, attorneys, governmental
regulators (including any self-regulatory authority) or auditors, (c) to
Collateral Agent’s or Lender’s subsidiaries and affiliates, (d) on a
confidential basis, to any rating agency, (e) to prospective transferees and
purchasers of the Loans or any actual or prospective party (or its Affiliates)
to any swap, derivative or other transaction under which payments are to be made
by reference to the Obligations, any Co-Borrower, any Loan Document or any
payment thereunder, all subject to the same confidentiality obligation set forth
herein or (f) as required by law, regulation, subpoena or other order to be
disclosed) and shall use such information only for purposes of evaluation of the
creditworthiness of any Co-Borrower and the exercise of Collateral Agent’s or
Lender’s rights and the enforcement of its remedies under this Agreement and the
other Loan Documents. The obligations of confidentiality shall not apply to any
information that (i) was known to the public prior to disclosure by any
Co-Borrower under this Agreement, (ii) becomes known to the public through no
fault of Collateral Agent or Lender, (iii) is disclosed to Collateral Agent or
Lender on a non-confidential basis by a third party or (iv) is independently
developed by Collateral Agent or Lender. Notwithstanding the foregoing,
Collateral Agent’s and Lender’s agreement of confidentiality shall not apply if
Collateral Agent or Lender has acquired indefeasible title to any Collateral or
in connection with any enforcement or exercise of Collateral Agent’s or Lender’s
rights and remedies under this Agreement following an Event of Default,
including the enforcement of Collateral Agent’s and Lender’s security interest
in the Collateral.

 

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15.    CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF CONNECTICUT. EACH CO-BORROWER, COLLATERAL AGENT AND LENDER HEREBY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN THE STATE OF CONNECTICUT. EACH CO-BORROWER, COLLATERAL AGENT AND
LENDER HEREBY WAIVES THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.

 

16.     Cross-Guaranty of Co-Borrowers.

 

16.1     Cross-Guaranty. Each Co-Borrower hereby agrees that such Co-Borrower is
jointly and severally liable for, and hereby absolutely and unconditionally
guarantees to Lender and its successors and assigns, the full and prompt payment
(whether at stated maturity, by acceleration or otherwise) and performance of,
all Obligations owed or hereafter owing to Lender by each other Co-Borrower.
Each Co-Borrower agrees that its guaranty obligation hereunder is a continuing
guaranty of payment and performance and not of collection, that its obligations
under this Section 16 shall not be discharged until payment and performance, in
full, of the Obligations has occurred, and that its obligations under this
Section 16 shall be absolute and unconditional, irrespective of, and unaffected
by:

 

(a)     the genuineness, validity, regularity, enforceability or any future
amendment of, or change in, this Agreement, any other Loan Document or any other
agreement, document or instrument to which any Co-Borrower is or may become a
party;

 

(b)     the absence of any action to enforce this Agreement (including this
Section 16) or any other Loan Document, or the waiver or consent by Lender with
respect to any of the provisions hereof or thereof;

 

(c)     the existence, value or condition of, or failure to perfect its Lien
against, any security for the Obligations or any action, or the absence of any
action, by Lender in respect thereof (including the release of any such
security);

 

(d)     the insolvency of any Co-Borrower or any other Person; or

 

(e)     any other action or circumstances that might otherwise constitute a
legal or equitable discharge or defense of a surety or guarantor.

 

Each Co-Borrower shall be regarded, and shall be in the same position, as
principal debtor with respect to the Obligations guaranteed hereunder.

 

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16.2     Waivers by Co-Borrowers. Each Co-Borrower expressly waives all rights
it may have now or in the future under any statute, at common law, at law, in
equity or otherwise, to compel Lender to marshal assets or to proceed in respect
of the Obligations guaranteed hereunder against any other Co-Borrower, any other
party or against any security for the payment and performance of the Obligations
before proceeding against, or as a condition to proceeding against, such
Co-Borrower. Each Co-Borrower and the Lender agrees that the foregoing waivers
are of the essence of the transaction contemplated by this Agreement and the
other Loan Documents and that, but for the provisions of this Section 16 and
such waivers, Lender would decline to enter into this Agreement.

 

16.3     Benefit of Guaranty. Each Co-Borrower agrees that the provisions of
this Section 16 are for the benefit of Lender and its successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between any
other Co-Borrower and the Lender, the obligations of such other Co-Borrower
under the Loan Documents.

 

16.4     Waiver of Subrogation, Etc. Notwithstanding anything to the contrary in
this Agreement or in any other Loan Document, and except as set forth in
Section 16.7, each Co-Borrower hereby expressly and irrevocably waives any and
all rights at law or in equity to subrogation, reimbursement, exoneration,
contribution, indemnification or set off and any and all defenses available to a
surety, guarantor or accommodation co-obligor until the Obligations are
indefeasibly paid in full in cash. Each Co-Borrower acknowledges and agrees that
this waiver is intended to benefit Lender and shall not limit or otherwise
affect such Co-Borrower’s liability hereunder or the enforceability of this
Section 16, and that Lender and its successors and assigns are intended third
party beneficiaries of the waivers and agreements set forth in this Section 16.

 

16.5     Election of Remedies. If Lender may, under applicable law, proceed to
realize its benefits under any of the Loan Documents giving Lender a Lien upon
any Collateral, whether owned by any Co-Borrower or by any other Person, either
by judicial foreclosure or by non-judicial sale or enforcement, Lender may, at
its sole option, determine which of its remedies or rights it may pursue without
affecting any of its rights and remedies under this Section 16. If, in the
exercise of any of its rights and remedies, Lender shall forfeit any of its
rights or remedies (including, without limitation, its right to enter a
deficiency judgment against any Co-Borrower or any other Person), whether
because of any applicable laws pertaining to “election of remedies” or the like,
each Co-Borrower hereby consents to such action by Lender and waives any claim
based upon such action, even if such action by Lender shall result in a full or
partial loss of any rights of subrogation that each Co-Borrower might otherwise
have had but for such action by Lender. Any election of remedies that results in
the denial or impairment of the right of Lender to seek a deficiency judgment
against any Co-Borrower shall not impair any other Co-Borrower’s obligation to
pay the full amount of the Obligations. In the event Lender shall bid at any
foreclosure or trustee’s sale or at any private sale permitted by law or the
Loan Documents, Lender may bid all or less than the amount of the Obligations
and the amount of such bid need not be paid by Lender but shall be credited
against the Obligations. The amount of the successful bid at any such sale,
whether a Lender or any other party is the successful bidder, shall be
conclusively deemed to be the fair market value of the Collateral and the
difference between such bid amount and the remaining balance of the Obligations
shall be conclusively deemed to be the amount of the Obligations guaranteed
under this Section 16, notwithstanding that any present or future law or court
decision or ruling may have the effect of reducing the amount of any deficiency
claim to which Lender might otherwise be entitled but for such bidding at any
such sale.

 

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16.6     Limitation. Notwithstanding any provision herein contained to the
contrary, each Co-Borrower’s liability under this Section 16 (which liability is
in any event in addition to amounts for which such Co-Borrower is primarily
liable under this Agreement) shall be limited to an amount not to exceed as of
any date of determination the lesser of:

 

(a)     the net amount of all Loans advanced to any other Co-Borrower under this
Agreement and then re-loaned or otherwise transferred to, or for the benefit of,
such Co-Borrower; and

 

(b)     the amount that could be claimed by Lender from such Co-Borrower under
this Section 16 without rendering such claim voidable or avoidable under
Section 548 of the Bankruptcy Code or under any applicable state Uniform
Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or
common law after taking into account, among other things, such Co-Borrower’s
right of contribution and indemnification from each other Co-Borrower under
Section 16.7.

 

16.7     Contribution with Respect to Guaranty Obligations.

 

(a)     To the extent that any Co-Borrower shall make a payment under this
Section 16 of all or any of the Obligations (other than Loans made to such
Co-Borrower for which it is primarily liable) (a “Guarantor Payment”) that,
taking into account all other Guarantor Payments then previously or concurrently
made by any other Co-Borrower, exceeds the amount that such Co-Borrower would
otherwise have paid if each Co-Borrower had paid the aggregate Obligations
satisfied by such Guarantor Payment in the same proportion that such
Co-Borrower’s “Allocable Amount” (as defined below) (as determined immediately
prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each
of the Co-Borrowers as determined immediately prior to the making of such
Guarantor Payment, then, following indefeasible payment in full in cash of the
Obligations and termination of the commitments to lend hereunder, such
Co-Borrower shall be entitled to receive contribution and indemnification
payments from, and be reimbursed by, each other Co-Borrower for the amount of
such excess, pro rata based upon their respective Allocable Amounts in effect
immediately prior to such Guarantor Payment.

 

(b)     As of any date of determination, the “Allocable Amount” of any
Co-Borrower shall be equal to the maximum amount of the claim that could then be
recovered from such Co-Borrower under this Section 16 without rendering such
claim voidable or avoidable under Section 548 of the Bankruptcy Code or under
any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.

 

(c)     This Section 16.7 is intended only to define the relative rights of
Co-Borrowers and nothing set forth in this Section 16.7 is intended to or shall
impair the obligations of Co-Borrowers, jointly and severally, to pay any
amounts as and when the same shall become due and payable in accordance with the
terms of this Agreement. Nothing contained in this Section 16.7 shall limit the
liability of any Co-Borrower to pay the Loans made directly or indirectly to
such Co-Borrower and accrued interest, fees and expenses with respect thereto
for which such Co-Borrower shall be primarily liable.

 

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(d)     The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of the Co-Borrowers to which
such contribution and indemnification is owing.

 

(e)     The rights of the indemnifying Co-Borrowers against other Co-Borrowers
under this Section 16 shall be exercisable upon the full and indefeasible
payment of the Obligations and the termination of the commitments to lend
hereunder.

 

16.8     Liability Cumulative. The liability of Co-Borrowers under this
Section 16 is in addition to and shall be cumulative with all liabilities of
each Co-Borrower to the Lender under this Agreement and the other Loan Documents
to which such Co-Borrower is a party or in respect of any Obligations or
obligation of the other Co-Borrower, without any limitation as to amount, unless
the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.

 

 

 

[Remainder of page intentionally left blank.]

 

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

 

 

BORROWER REPRESENTATIVE and CO-BORROWER:

CATASYS, INC.

 

By: /s/ Christopher Shirley                   

Name: Christopher Shirley                   

Title: CFO                                               

CO-BORROWER:

ANXIOLITIX, INC.

 

By: /s/ Christopher Shirley                      

Name: Christopher Shirley                      

Title: CFO                                                  

 

CO-BORROWER:

CATASYS HEALTH, INC.

 

By: /s/ Christopher Shirley                       

Name: Christopher Shirley                       

Title: CFO                                                   

LENDER:

HORIZON TECHNOLOGY FINANCE CORPORATION

 

 

By: /s/ Robert D. Pomeroy, Jr.              

Name: Robert D. Pomeroy, Jr.

Title: Chief Executive Officer

 

 

 

[SIGNATURE PAGE TO VENTURE LOAN AND SECURITY AGREEMENT]

 

 

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LIST OF EXHIBITS AND SCHEDULES

 

 

Exhibit A Disclosure Schedule Exhibit B Funding Certificate Exhibit C Form of
Note Exhibit D Form of Legal Opinion Exhibit E Form of Officer’s Certificate

     

 

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EXHIBIT A

 

DISCLOSURE SCHEDULE

 

 

[Provided separately]

 

 

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EXHIBIT B

 

FUNDING CERTIFICATE

 

Dated: [_], 20[_]

 

The undersigned, being the duly elected and acting                       of
CATASYS, INC., a Delaware corporation (“Borrower Representative”), does hereby
certify to HORIZON TECHNOLOGY FINANCE CORPORATION (“Horizon” or “Lender”) in
connection with that certain Venture Loan and Security Agreement dated as of
[_], 20[_] by and among Borrower Representative, Anxiolitix, Inc.
(“Anxiolitix”), Catasys Health, Inc. (“Catasys Health” and collectively with
Borrower Representative, Catasys Minnesota and Anxiolitix, “Co-Borrowers”),
Lender and Horizon as Collateral Agent (the “Loan Agreement”; with other
capitalized terms used below having the meanings ascribed thereto in the Loan
Agreement) that:

 

1.     The representations and warranties made by each Co-Borrower in Section 5
of the Loan Agreement and in the other Loan Documents are true and correct as of
the date hereof. (except to the extent that such representations are made as of
a specific date (such as “as of the date hereof”), in which event they shall
only be required to remain true and correct in all material respects as of such
date (or if such representation or warranty is already qualified as to
materiality, in all respects)).

 

2.     No event or condition has occurred that would constitute a Default or an
Event of Default under the Loan Agreement or any other Loan Document.

 

3.     Each Co-Borrower is in compliance with the covenants and requirements
contained in Sections 4, 6 and 7 of the Loan Agreement.

 

4.     All conditions referred to in Section 3 of the Loan Agreement to the
making of the Loan to be made on or about the date hereof have been satisfied.

 

5.     No material adverse change in the general affairs, management, results of
operations, or condition (financial or otherwise) of any Co-Borrower, whether or
not arising from transactions in the ordinary course of business, has occurred.

 

6.     The proceeds for Loans A and B shall be disbursed as follows:

 

Disbursement from Horizon:   Loan Amount $ Less: $ Legal Fees $ Balance of
Commitment Fee $     Net Proceeds due from Horizon:  $

 

 

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7.     The aggregate net proceeds of the Loans in the amount of
$_________________ shall be transferred by Horizon to Borrower Representative’s
account as follows:

 

Account Name:

Bank Name:

Bank Address:

Attention:

Telephone:

Account Number:

ABA Number:

 

 

 

BORROWER REPRESENTATIVE:

 

CATASYS, INC.

 

By: __________________________

 

Name: ________________________

 

Title: _________________________

 

 

[Signature page to Funding Certificate]

 

 

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EXHIBIT C

 

SECURED PROMISSORY NOTE

 

(Loan A/B/C)

 

$____________________ Dated: [_______, 20__]

     

FOR VALUE RECEIVED, the undersigned, CATASYS, INC., a Delaware corporation,
(“Borrower Representative”), ANXIOLITIX, INC. (“Anxiolitix”), CATASYS HEALTH,
INC. (“Catasys Health” and collectively with Borrower Representative, Catasys
Minnesota and Anxiolitix, “Co-Borrowers”), HEREBY JOINTLY AND SEVERALLY PROMISE
TO PAY to HORIZON TECHNOLOGY FINANCE CORPORATION, a Delaware corporation
(“Lender”) the principal amount of ____________ Dollars ($__________) or such
lesser amount as shall equal the outstanding principal balance of Loan [_] (the
“Loan”) made to any Co-Borrower by Lender pursuant to the Loan Agreement (as
defined below), and to pay all other amounts due with respect to the Loan on the
dates and in the amounts set forth in the Loan Agreement. Capitalized terms used
but not defined herein shall have the meaning ascribed thereto in the Loan
Agreement.

 

Interest on the principal amount of this Note from the date of this Note shall
accrue from the applicable Funding Date at the Loan Rate or, if applicable, the
Default Rate, each as established in accordance with the Loan Agreement (as
defined below). Interest shall be computed on the basis of a 360-day year for
the actual number of days elapsed. If the Funding Date is not the first day of
the month, interim interest accruing from the Funding Date through the last day
of that month shall be paid on the first calendar day of the next calendar
month. Commencing [_], 201[_], through and including September 1, 2019, on the
first day of each month (each an “Initial Interest Payment Date”) Co-Borrowers
shall make payments of accrued interest only on the outstanding principal amount
of the Loan. Commencing on October 1, 2019, and continuing on the first day of
each month thereafter (each an “Initial Principal and Interest Payment Date”),
Co-Borrowers shall make to Lender thirty (30) equal payments of principal in the
amount of [______________] plus accrued interest on the then outstanding
principal amount due hereunder. On the earliest to occur of (i) [_], 201[_],
(ii) payment in full of the principal balance of the Loan or (iii) an Event of
Default and demand by Lender of payment in full of the Loan, Co-Borrowers shall
make a payment of One Hundred Fifty Thousand and 00/100 Dollars ($150,000) to
Lender (the “Final Payment”). If not sooner paid, all outstanding amounts
hereunder and under the Loan Agreement shall become due and payable on [_],
201[_].

 

Notwithstanding, and in lieu of, the foregoing, if Co-Borrowers satisfy the
Interest Only Extension Milestone (as defined in the Loan Agreement), then
commencing [_], 201[_], through and including March 1, 2020, on the first day of
each month (each an “Extended Interest Payment Date”), Co-Borrowers shall make
payments of accrued interest only on the outstanding principal amount of the
Loan. Commencing on April 1, 2020, and continuing on the first day of each month
thereafter (each an “Extended Principal and Interest Payment Date”, and
collectively with each Initial Interest Payment Date, each Initial Principal and
Interest Payment Date and each Extended Interest Payment date, each a “Payment
Date”), Co-Borrowers shall make to Lender twenty-four (24) equal payments of
principal in the amount of [______________] plus accrued interest on the then
outstanding principal amount due hereunder. On the earliest to occur of (i) [_],
201[_], (ii) payment in full of the principal balance of the Loan or (iii) an
Event of Default and demand by Lender of payment in full of the Loan,
Co-Borrowers shall make a payment of One Hundred Fifty Thousand and 00/100
Dollars ($150,000) to Lender (the “Final Payment”). If not sooner paid, all
outstanding amounts hereunder and under the Loan Agreement shall become due and
payable on [_], 201[_].

 

 

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Principal, interest and all other amounts due with respect to the Loan, are
payable in lawful money of the United States of America to Lender as set forth
in the Loan Agreement. The principal amount of this Note and the interest rate
applicable thereto, and all payments made with respect thereto, shall be
recorded by Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Note.

 

This Note is referred to in, and is entitled to the benefits of, the Venture
Loan and Security Agreement dated as of the date hereof (the “Loan Agreement”),
among Co-Borrowers, Lender, and Lender as Collateral Agent. The Loan Agreement,
among other things, (a) provides for the making of a secured Loan to
Co-Borrowers, and (b) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events.

 

This Note may not be prepaid, except as set forth in Section 2.3 of the Loan
Agreement.

 

This Note and the obligation of each Co-Borrower to repay the unpaid principal
amount of the Loan, interest on the Loan and all other amounts due Lender under
the Loan Agreement is secured under the Loan Agreement.

 

Presentment for payment, demand, notice of protest and all other demands and
notices of any kind in connection with the execution, delivery, performance and
enforcement of this Note are hereby waived.

 

Co-Borrowers shall pay all fees and expenses, including reasonable attorneys’
fees and costs, incurred by Lender in the enforcement or attempt to enforce any
Co-Borrower’s obligations hereunder not performed when due.

 

Any reference herein to Lender shall be deemed to include and apply to every
subsequent holder of this Note. Reference is made to the Loan Agreement for
provisions concerning optional and mandatory prepayments, Collateral,
acceleration and other material terms affecting this Note.

 

This Note shall be governed by and construed under the laws of the State of
Connecticut. Each Co-Borrower agrees that any action or proceeding brought to
enforce or arising out of this Note may be commenced in the state or federal
courts located within the State of Connecticut.

 

 

 

[Remainder of page intentionally blank. Signature page follows.]

 

 

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IN WITNESS WHEREOF, each Co-Borrower has caused this Note to be duly executed by
one of its officers thereunto duly authorized on the date hereof.

 

 

BORROWER REPRESENTATIVE and

CO-BORROWER:

CATASYS, INC.

 

By: ______________________________

Name: ____________________________

Title: _____________________________

CO-BORROWER:

ANXIOLITIX, INC.

 

By: ______________________________

Name: ____________________________

Title: _____________________________

     

CO-BORROWER:

CATASYS HEALTH, INC.

 

By: ______________________________

Name: ____________________________

Title: _____________________________

 

 

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EXHIBIT D

 

ITEMS TO BE COVERED BY OPINION OF EACH CO-BORROWER’S COUNSEL

 

1.     Each Co-Borrower is a corporation, duly organized, validly existing and
in good standing under the laws of the state of its incorporation, and is duly
qualified and authorized to do business in the State of California.

 

2.     Each Co-Borrower has the full corporate power, authority and legal right,
and has obtained all necessary approvals, consents and given all notices to
execute and deliver the Loan Documents and perform the terms thereof.

 

3.     The Loan Documents have been duly authorized, executed and delivered by
each Co-Borrower.

 

4.     To our knowledge, there is no action, suit, audit, investigation,
proceeding or patent claim pending or threatened against any Co-Borrower in any
court or before any governmental commission, agency, board or authority which
might have a Material Adverse Effect.

 

5.     The execution and delivery of the Loan Documents are not inconsistent
with any Co-Borrower’s Certificate of Incorporation, as amended, or Bylaws, do
not and will not contravene (i) any of the laws of the state of New York or any
related New York governmental rule or regulation, judgment or order applicable
to any Co-Borrower (ii) the General Corporation Law of the State of Delaware, or
(iii) certain federal laws (which shall not include any federal securities laws)
(collectively, such laws set forth in clauses (i) through and including (iii)
shall be the “Applicable Laws”); and do not and will not conflict with or
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other agreement or instrument of which any Co-Borrower is
a party or by which it is bound or require the consent or approval of, the
giving of notice to, the registration or filing with or the taking of any action
in respect of or by, any federal, state or local government authority or agency
or other person under any of the Applicable Laws.

 

 

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EXHIBIT E

 

FORM OF OFFICER’S CERTIFICATE

 

 

TO:

HORIZON TECHNOLOGY FINANCE CORPORATION, as Lender

       

FROM:

CATASYS, INC., as Borrower Representative

 

The undersigned authorized officer (“Officer”) of CATASYS, INC., on behalf of
itself and all other Borrowers under and as defined in the Loan Agreement (as
defined herein below) (individually and collectively, jointly and severally,
“Borrower”), hereby certifies that in accordance with the terms and conditions
of the Venture Loan and Security Agreement dated as of [_________] by and among
Borrower, Collateral Agent, and the Lender from time to time party thereto (the
“Loan Agreement;” capitalized terms used but not otherwise defined herein shall
have the meanings given them in the Loan Agreement),

 

(a)     Borrower is in complete compliance for the period ending _______________
with all required covenants except as noted below;

 

(b)     There are no Events of Default, except as noted below;

 

(c)     Except as noted below, all representations and warranties of Borrower
stated in the Loan Documents are true and correct in all material respects on
this date and for the period described in (a), above; provided, however, that
such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date.

 

(d)     Borrower, and each of Borrower’s Subsidiaries, has timely filed all
required tax returns and reports, Borrower, and each of Borrower’s Subsidiaries,
has timely paid all foreign, federal, state, and local taxes, assessments,
deposits and contributions owed by Borrower, or Subsidiary, except as otherwise
permitted pursuant to the terms of Section 5.8 of the Loan Agreement;

 

(e)     No Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Collateral Agent and the
Lender.

 

Attached are the required documents, if any, supporting our certification(s).
The Officer, on behalf of Borrower, further certifies that the attached
financial statements are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) and are consistently applied from one period to the
next except as explained in an accompanying letter or footnotes and except, in
the case of unaudited financial statements, for the absence of footnotes and
subject to year-end audit adjustments as to the interim financial statements.

 

 

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

 

 

Please indicate compliance status since the last Officer’s Certificate by
circling Yes, No, or N/A under “Complies” column.

 

 

Reporting Covenant

Requirement

Actual

Complies

1)

Financial statements

Quarterly within 45 days

 

Yes

No

N/A

2)

Borrowing Base Certificate

Monthly within 30 days

 

Yes

No

N/A

3)

Annual (CPA Audited) statements

Within 90 days after FYE

 

Yes

No

N/A

4)

Annual Financial Projections/Budget (prepared on a monthly basis)

Annually (within 30 days of the earlier of (i) FYE or (ii) BoD approval), and
when revised

 

Yes

No

N/A

5)

A/R & A/P agings

Monthly within 30 days

 

Yes

No

N/A

6)

8-K, 10-K and 10-Q Filings

Within 5 days of filing

 

Yes

No

N/A

7)

Officer’s Certificate

Quarterly within 45 days

 

Yes

No

N/A

8)

IP Report

When required due to new IP filings

 

Yes

No

N/A

9)

Net Revenue of Texas

Integrated Health during the

most recent measurement

period

$___________________

       

10)

Management Fee paid to

Borrower Representative

pursuant to the Management

Services Agreement dated as of

April 2, 2018

$___________________

       

11)

Net Revenue of California

Integrated Health during the

most recent measurement

period

$___________________

       

12)

Management Fee paid to

Borrower Representative

pursuant to the Management

Services Agreement dated as of

[__________]

$___________________

       

13)

Total amount of Borrower’s

cash and cash equivalents at the

last day of the measurement

period

$___________________

       

14)

Total amount of Borrower’s

Subsidiaries’ cash and cash

equivalents at the last day of

the measurement period

$___________________

       

 

 

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Deposit and Securities Accounts: (Please list all accounts; attach separate
sheet if additional space needed)

 

 

Institution Name

Account Number

New Account?

Account Control Agreement in place?

1)

   

Yes

No

Yes

No

2)

   

Yes

No

Yes

No

3)

   

Yes

No

Yes

No

4)

   

Yes

No

Yes

No

 

Financial Covenants

 

 

Covenant

Previous Quarter

Billings

Current Quarter

Billings

Compliance

 

Increasing Billings Quarter over Quarter

[$_________]

[$________]

Yes

No

 

Other Matters

 

If the response to any of the below is “Yes”, please provide an explanation of
the circumstances giving rise to such “Yes” response on an attachment hereto.

 

1)

Have there been any changes in senior management since the last Officer’s
Certificate?

Yes

No

2)

Has there been any transfers/sales/disposals/retirement or relocation of
Collateral or IP prohibited by the Loan Agreement?

Yes

No

3)

Have there been any new or pending claims or causes of action against Borrower
that involve more than One Hundred Thousand Dollars ($100,000.00)?

Yes

No

 

 

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

 

 

4)

Has any IP been abandoned, forfeited or dedicated to the public since the last
Officer’s Certificate?

Yes

No

5)

Has any Default or Event of Default occurred since the last Officer’s
Certificate?

Yes

No

6)

Has Borrower sold new shares of equity or made adjustments to existing shares of
equity? If yes, please provide applicable supporting documentation.

Yes

No

7)

Has any direct or indirect Subsidiary been formed since the last Officer’s
Certificate?

Yes

No

8)

Has any piece of a Borrower’s property been subject to a Lien (other than the
lien of Lender pursuant to the Loan Agreement) since the date of the last
Officer’s Certificate?

Yes

No

9)

Has any Borrower or any Subsidiary incurred any Indebtedness since the date of
the last Officer’s Certificate?

Yes

No

10)

Has Borrower or any Subsidiary made any Investment since the date of the last
Officer’s Certificate?

Yes

No

 

Exceptions: Please explain any exceptions with respect to the certification
above: (If no exceptions exist, state “No exceptions.” Attach separate sheet if
additional space needed.)

 

CATASYS, INC., on behalf of itself and all other Borrowers

 

 

By                                                        

 

Name:                                                  

 

Title:                                                    

 

Date: ___________________