**Exhibit 10.8**

**LOAN AND SECURITY AGREEMENT**

**THIS LOANAND SECURITY AGREEMENT** (this “**Agreement**”)dated as of the Effective Date between **SILICON VALLEY BANK**,a California corporation (“**Bank**”), on theone side, and **EV3 ENDOVASCULAR, INC.**, a Delawarecorporation, **EV3 INTERNATIONAL, INC.**, aDelaware corporation, and **MICRO THERAPEUTICS, INC.**,a Delaware corporation (collectively and jointly and severally referred to as “**Borrowers**”), provides the terms on which Bank shall lend toBorrowers and Borrowers shall repay Bank. The parties agree as follows:

# **1****                                         ACCOUNTINGAND OTHER TERMS**

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

# **2****                                         LOANAND TERMS OF PAYMENT**

## **2.1****                               Promiseto Pay.** Borrowers hereby unconditionally promise to pay Bank theoutstanding principal amount of all Credit Extensions and accrued and unpaidinterest thereon as and when due in accordance with this Agreement.

### **2.1.1****                     Revolving Advances**.

#### (a)                                  Availability.Subject to the terms and conditions of this Agreement, Bank shall make Advancesnot exceeding the Availability Amount. Amounts borrowed under the RevolvingLine may be repaid and, prior to the Revolving Line Maturity Date, reborrowed,subject to the applicable terms and conditions precedent herein.

#### (b)                                 Termination;Repayment. The Revolving Line terminates on the Revolving Line MaturityDate, when the principal amount of all Advances, the unpaid interest thereon,and all other Obligations relating to the Revolving Line shall be immediatelydue and payable.

### **2.1.2****                     Letters of Credit Sublimit**.

#### (a)                                  Aspart of the Revolving Line, Bank shall issue or have issued Letters of Creditfor Borrowers’ account. The face amount of outstanding Letters of Credit(including drawn but unreimbursed Letters of Credit and any Letter of CreditReserve) may not exceed the Overall Ancillary Sublimit set forth inSection 2.1.6. Such aggregate amounts utilized hereunder shall at alltimes reduce the amount otherwise available for Credit Extensions under theRevolving Line. If, on the Revolving Maturity Date or any earlier date oftermination of the Revolving Line, there are any outstanding Letters of Credit,then on such date Borrowers shall provide to Bank cash collateral in an amountequal to 100% of the face amount of all such Letters of Credit plus allinterest, fees, and costs due or to become due in connection therewith (asestimated by Bank in its good faith business judgment), to secure all of theObligations relating to said Letters of Credit. All Letters of Credit shall bein form and substance acceptable to Bank in its sole discretion and shall besubject to the terms and conditions of Bank’s standard Application and Letterof Credit Agreement (the “**Letter of CreditApplication**”). Borrowers agree to execute any further documentationin connection with the Letters of Credit as Bank may reasonably request. Borrowersfurther agree to be bound by the regulations and interpretations of the issuerof any Letters of Credit guarantied by Bank and opened for any Borrower’saccount or by Bank’s interpretations of any Letter of Credit issued by Bank forany Borrower’s account, and Borrowers understand and agree that Bank shall notbe liable for any error, negligence, or mistake, whether of omission orcommission, in following any Borrower’s instructions or those contained in theLetters of Credit or any modifications, amendments, or supplements thereto.

#### (b)                                 Theobligation of Borrowers to immediately reimburse Bank for drawings made underLetters of Credit shall be absolute, unconditional, and irrevocable, and shallbe performed strictly in accordance with the terms of this Agreement, suchLetters of Credit, and the Letter of Credit Application.

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#### (c)                                  Borrowersmay request that Bank issue a Letter of Credit payable in a Foreign Currency. Ifa demand for payment is made under any such Letter of Credit, Bank shall treatsuch demand as an Advance to Borrowers of the equivalent of the amount thereof(plus fees and charges in connection therewith such as wire, cable, SWIFT orsimilar charges) in Dollars at the then-prevailing rate of exchange in SanFrancisco, California, for sales of the Foreign Currency for transfer to thecountry issuing such Foreign Currency.

#### (d)                                 Toguard against fluctuations in currency exchange rates, upon the issuance of anyLetter of Credit payable in a Foreign Currency, Bank shall create a reserve(the “**Letter of Credit Reserve**”)under the Revolving Line in an amount equal to ten percent (10%) of the faceamount of such Letter of Credit. The amount of the Letter of Credit Reserve maybe adjusted by Bank from time to time to account for fluctuations in theexchange rate. The availability of funds under the Revolving Line shall bereduced by the amount of such Letter of Credit Reserve for as long as suchLetter of Credit remains outstanding.

### **2.1.3****                     Foreign Exchange Sublimit**. Aspart of the Revolving Line, Borrowers may enter into foreign exchange contractswith Bank under which Borrowers commit to purchase from or sell to Bank a specificamount of Foreign Currency (each, a “**FXForward Contract**”) on a specified date (the “**Settlement Date**”). FX Forward Contractsshall have a Settlement Date of at least one (1) FX Business Day after thecontract date and shall be subject to a reserve of ten percent (10%) of eachoutstanding FX Forward Contract in a maximum aggregate amount equal to$7,000,000 (the “**FX Reserve**”). Subjectto the Overall Ancillary Sublimit set forth in Section 2.1.6, theaggregate amount of FX Forward Contracts at any one time may not exceed ten(10) times the amount of the FX Reserve.

### **2.1.4****                     Cash Management Services Sublimit**.Subject to the Overall Ancillary Sublimit set forth in Section 2.1.6,Borrowers may use up to the Availability Amount of the Revolving Line for Bank’scash management services which may include merchant services, direct deposit ofpayroll, business credit card, and check cashing services identified in Bank’svarious cash management services agreements (collectively, the “**Cash Management Services**”). Such aggregateamounts utilized hereunder shall at all times reduce the amount otherwiseavailable for Credit Extensions under the Revolving Line. Any amounts Bank payson behalf of any Borrower or any amounts that are not paid by Borrowers for anyCash Management Services will be treated as Advances under the Revolving Lineand will accrue interest at the interest rate applicable to Advances.

### **2.1.5****                     Equipment Advances**.

#### (a)                                  Availability.Subject to the terms and conditions of this Agreement, during the Draw Period,Bank shall make advances (each, an “**EquipmentAdvance**” and, collectively, “**EquipmentAdvances**”) not exceeding the Equipment Line.

#### (i)                                     QualifyingInitial Equipment Advance. If the initial Equipment Advance is requested byBorrowers in time for funding on or before July 7, 2006, then Borrowers mayrequest such Equipment Advance in an amount of up to $7,500,000 (the “**Qualifying Initial Equipment Advance**”) tofinance Eligible Equipment purchased on or after December 31, 2004 and on orbefore December 30, 2006 (determined based upon the applicable invoice date ofsuch Eligible Equipment) (the “**EligibleEquipment Purchase Period**”). Concurrently with Borrowers’ requestfor the Qualifying Initial Equipment Advance, Borrowers shall deliver to Bankcopies of all invoices for Eligible Equipment to be financed by the QualifyingInitial Equipment Advance that has been purchased during the Eligible EquipmentPurchase Period but before or at the time of such request, and going forwardBorrowers shall deliver to Bank copies of all invoices for Eligible Equipmentto be financed by the Qualifying Initial Equipment Advance that is purchasedduring the Eligible Equipment Purchase Period but after such request. If onDecember 30, 2006 the outstanding amount of the Qualifying Initial EquipmentAdvance exceeds the aggregate Eligible Equipment Invoice Amounts for whichBorrowers have delivered invoices to Bank for purchases of Eligible Equipmentmade during the Eligible Equipment Purchase Period that are to be financed bythe Qualifying Initial Equipment Advance, then Borrowers shall immediately paythe amount of such excess (the “**ExcessInitial Equipment Advance**”) to Bank.

#### (ii)                                  Non-QualifyingEquipment Advances. Borrowers may request Equipment Advances other than theQualifying Initial Equipment Advance (a **“SubsequentEquipment Advance”**) to finance Eligible Equipment purchased withinninety (90) days (determined based upon the applicable invoice date of suchEligible Equipment) before the date of each such Equipment Advance, and no suchEquipment Advance may exceed the Eligible Equipment Invoice Amount(s) of theEligible Equipment being financed. Borrowers may not finance

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#### the same Eligible Equipment with both the Qualifying Initial EquipmentAdvance and a Subsequent Equipment Advance.

#### (iii)                               EligibleEquipment Invoice Amount; No Reborrowing. As used herein, “**Eligible Equipment Invoice Amount**” shallmean 100% of the total invoice for Eligible Equipment (excluding taxes,shipping, warranty charges, freight discounts and installation expensesrelating to such Eligible Equipment except to the extent such are allowed to befinanced pursuant hereto as Other Equipment), provided that, unless otherwiseagreed to by Bank, not more than 25% of the proceeds of the Equipment Lineshall be used to finance Other Equipment. After repayment, no Equipment Advancemay be reborrowed.

#### (b)                                 Repayment.Equipment Advances outstanding on December 31, 2006 (other than any ExcessInitial Equipment Advance) are payable in 42 consecutive equal monthlyinstallments of principal, beginning on January 31, 2007 and continuing on thelast day of each month thereafter until June 30, 2010, on which date allremaining outstanding principal and all accrued unpaid interest with respect tosuch Equipment Advances shall be due. Equipment Advances made after December31, 2006 and outstanding on the last day of the Draw Period are payable in 42consecutive equal monthly installments of principal, beginning on July 31, 2007and continuing on the last day of each month thereafter until December 31,2010, on which date all remaining outstanding principal and all accrued unpaidinterest with respect to such Equipment Advances shall be due.

#### (c)                                  PrepaymentUpon an Event of Loss. Borrowers shall bear the risk of any loss, theft,destruction, or damage of or to the Financed Equipment. If, during the term ofthis Agreement, any item of Financed Equipment becomes obsolete or is lost,stolen, destroyed, damaged beyond repair, rendered permanently unfit for use,or seized by a governmental authority for any reason for a period equal to atleast the remainder of the term of this Agreement (an “**Event of Loss**”), then, within ten (10) daysfollowing the later of (i) the date of such Event of Loss or (ii) thesettlement of any insurance claim relating thereto, but not later than onehundred ten (110) days following the Event of Loss, Borrowers shall either (i)pay to Bank on account of the Obligations all outstanding principal that hadbeen advanced with respect to the Financed Equipment subject to the Event ofLoss, plus all accrued interest relating to such principal; or, if no Event ofDefault has occurred and is continuing, at Borrowers’ option,  (ii) repair or replace any Financed Equipmentsubject to the Event of Loss provided (x) the repaired or replaced FinancedEquipment is of equal or like value to the Financed Equipment subject to anEvent of Loss, (y) Bank has a first priority perfected security interest insuch repaired or replaced Financed Equipment, and (z) the Borrowers shall besubject to any limit on the use of insurance proceeds contained in thisAgreement. Principal prepayments pursuant to this subsection shall be appliedto the principal payments due on the Equipment Advances in the inverse order ofmaturity.

### **2.1.6****                     Overall Ancillary Sublimit**. Anythingherein to the contrary notwithstanding, the sum of the aggregate amount of alloutstanding Letters of Credit (including drawn but unreimbursed Letters ofCredit), plus any Letter of Credit Reserve, plus the FX Reserve, plus theaggregate amount used for Cash Management Services, shall not at any timeexceed $7,000,000 (the “**Overall AncillarySublimit**”).

### **2.1.7****                     Voluntary Prepayment; Reduction ofthe Revolving Line; Termination of the Credit Facility by the Borrowers**. Borrowersmay prepay the Equipment Advances (in addition to any payments made inaccordance with Section 2.1.5(c)) in whole or part at any time by writtennotice to Bank without premium, penalty or charge whatsoever. Any principalprepayment of Equipment Advances shall be applied to the principal payments dueon the Equipment Advances in the inverse order of maturity. Borrowers mayterminate the Revolving Line at any time effective three Business Days afterwritten notice to Bank without premium, penalty or charge whatsoever, except asset forth in Section 2.4(e). Upon any such termination of the Revolving Line,Borrowers shall pay and perform the principal amount of all Advances, theunpaid interest thereon, and all other Obligations relating to the RevolvingLine (including, without limitation, any prepayment fee that may be duepursuant to Section 2.4(e)).

### **2.1.8****                     [Omitted.]**

## **2.2****                               Overadvances.**If, at any time, the Credit Extensions under Sections 2.1.1, 2.1.2, 2.1.3 and2.1.4 exceed the lesser of either (a) the Revolving Line or (b) the greater of(i) $12,000,000 or (ii) the Borrowing Base less applicable reserves, Borrowersshall immediately pay to Bank in cash such excess.

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## **2.3****                               Paymentof Interest on the Credit Extensions.**

#### (a)                                  InterestRate.

#### (i)                                     Advances.Subject to Section 2.3(b), the principal amount outstanding under the RevolvingLine shall accrue interest at a floating per annum rate equal to the PrimeRate, which interest shall be payable monthly in accordance with Section 2.3(f)below.

(ii)                                  EquipmentAdvances. Subject to Section 2.3(b), the principal amount outstanding foreach Equipment Advance shall accrue interest at a floating per annum rate equalto one (1.0) percentage point above the Prime Rate, which interest shall bepayable monthly.

#### (b)                                 DefaultRate. Immediately upon the occurrence and during the continuance of anEvent of Default, Obligations shall bear interest at a rate per annum which isfive percentage points above the rate that is otherwise applicable thereto (the“**Default Rate**”). Payment oracceptance of the increased interest rate provided in this Section 2.3(b)is not a permitted alternative to timely payment and shall not constitute awaiver of any Event of Default or otherwise prejudice or limit any rights orremedies of Bank.

#### (c)                                  Adjustmentto Interest Rate. Changes to the interest rate of any Credit Extensionbased on changes to the Prime Rate shall be effective on the effective date ofany change to the Prime Rate and to the extent of any such change.

#### (d)                                 360-DayYear. Interest shall be computed on the basis of a 360-day year for theactual number of days elapsed.

#### (e)                                  Debitof Accounts. Bank may debit any deposit account of any Borrower, includingthe Designated Deposit Account, for principal and interest payments or anyother amounts that any Borrower owes Bank when due. These debits shall notconstitute a set-off.

#### (f)                                    Payments.Unless otherwise provided, interest is payable monthly on the last calendar dayof each month. Payments of principal and/or interest received after 12:00 p.m.Pacific time are considered received at the opening of business on the nextBusiness Day. When a payment is due on a day that is not a Business Day, thepayment is due the next Business Day and additional fees or interest, asapplicable, shall continue to accrue.

## **2.4****                               Fees.**Borrowers shall pay to Bank:

#### (a)                                  EquipmentLine Facility Fee. On July 10, 2006, a fully earned, non-refundablefacility fee of $18,750 with respect to the Equipment Advance facility,provided that the Bank shall waive the $18,750 fee with respect to the EquipmentAdvance facility if Borrowers take the Qualifying Initial Equipment Advance byJuly 7, 2006 in the full amount of $7,500,000;

#### (b)                                 Letterof Credit Fee. Bank’s customary fees and expenses for the issuance orrenewal of Letters of Credit, including, without limitation, a Letter of CreditFee of one percent (1.00%) per annum of the face amount of each Letter ofCredit issued, upon the issuance, each anniversary of the issuance, and therenewal of such Letter of Credit;

#### (c)                                  UnusedRevolving Line Fee. A fee (the “**UnusedRevolving Line Fee**”), payable quarterly, in arrears, on a calendaryear basis, in an amount equal to three-eighths of one percent (0.375%) perannum of the average unused portion of the Revolving Line, as determined byBank. For purposes of computing the Unused Revolving Line Fee, the followingshall not be considered as uses of the Revolving Line: the amount of anyoutstanding Letters of Credit (including drawn but unreimbursed Letters ofCredit), any Letter of Credit Reserve, any amounts used for Cash ManagementServices, and any FX Reserve. Borrowers shall not be entitled to any credit,rebate or repayment of any Unused Revolving Line Fee previously earned by Bankpursuant to this Section notwithstanding any termination of the Agreement orthe suspension or termination of Bank’s obligation to make loans and advanceshereunder;

#### (d)                                 RevolvingLine Facility Fee. A fee, payable quarterly, in arrears, on a calendar yearbasis, in an amount equal to $46,875 per quarter less one-half of one percent(0.5%) per annum of the average used portion of the Revolving Line, asdetermined by Bank;

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#### (e)                                  PrepaymentFee. If the Revolving Line is terminated by Borrowers, or by Bank duringthe existence of an Event of Default, prior to June 26, 2007, then Borrowersshall pay Bank a prepayment fee equal to $150,000 less the amount paid pursuantto Section 2.4(d) during the period from the Effective Date through theeffective date of such termination, but in no event shall said fee be less thanzero. If the Revolving Line is terminated by Borrowers, or by Bank during theexistence of an Event of Default, on or after June 26, 2007 but prior to theRevolving Line Maturity Date, then Borrowers shall pay Bank a prepayment feeequal to $150,000 less the amount paid pursuant to Section 2.4(d) during theperiod from June 26, 2007 through the effective date of such termination, butin no event shall said fee be less than zero. For purposes of computing suchprepayment fee, the following shall not be considered as uses of the RevolvingLine: the amount of any outstanding Letters of Credit (including drawn butunreimbursed Letters of Credit), any Letter of Credit Reserve, any amounts usedfor Cash Management Services, and any FX Reserve; and

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

# **3****                                         CONDITIONSOF LOANS**

## **3.1****                               ConditionsPrecedent to Initial Credit Extension.** Bank’s obligation to make theinitial Advance Credit Extension is subject to the condition precedent thatBank shall have received, in form and substance satisfactory to Bank, suchdocuments, and completion of such other matters, as Bank may reasonably deem necessaryor appropriate, including, without limitation:

#### (a)                                  Borrowersshall have delivered duly executed original signatures to the Loan Documents;

#### (b)                                 Borrowersshall have delivered the Operating Documents of each Borrower and the OperatingDocuments of Parent and good standing certificates of each Borrower and ofParent certified by the Secretary of States of Delaware and Minnesota as of adate no earlier than thirty (30) days prior to the Effective Date;

#### (c)                                  Borrowersshall have delivered duly executed original signatures to (i) completedBorrowing Resolutions for each Borrower and (ii) completed Guaranty Resolutionsfor each Guarantor (other than Borrowers);

#### (d)                                 Bankshall have received certified copies, dated as of a recent date, of financingstatement searches, as Bank shall request, accompanied by written evidence(including any UCC termination statements) that the Liens indicated in any suchfinancing statements either constitute Permitted Liens or have been or, inconnection with the initial Credit Extension, will be terminated or released;

#### (e)                                  Borrowersshall have delivered Perfection Certificates executed by each Borrower andParent, the substance of which shall be acceptable to Bank in its discretion;

#### (f)                                    Borrowersshall have delivered a legal opinion of Borrower’s, Parent’s, and Guarantor’scounsel dated as of the Effective Date together with the duly executed originalsignatures thereto;

#### (g)                                 Borrowersshall have delivered to Bank (i) a cross-guaranty by each Borrower of theobligations of the others and (ii) guaranties and security agreements fromParent and all of Parent’s Domestic Subsidiaries (excluding Borrowers), andBank shall have a first-priority perfected security interest in the collateralof Parent and all such Domestic Subsidiaries, subject to permitted liens, allsatisfactory to Bank;

#### (h)                                 Borrowersshall have delivered evidence satisfactory to Bank that the insurance policiesrequired by Section 6.5 hereof are in full force and effect, together withappropriate evidence showing loss payable and/or additional insured clauses orendorsements in favor of Bank;

#### (i)                                     Borrowersshall have paid the fees and Bank Expenses then due as specified in Section 2.4hereof; and

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#### (j)                                     Bankhas approved in writing, in its discretion, all schedules which Borrowers’ arepermitted or required to deliver to Bank prior to the initial Credit Extensionunder the terms of this Agreement.

## **3.2****                               ConditionsPrecedent to all Credit Extensions.** Bank’s obligations to make each CreditExtension, including the initial Credit Extension, is subject to the following:

#### (a)                                  exceptas otherwise provided in Section 3.4(a), timely receipt of an executedPayment/Advance Form;

#### (b)                                 therepresentations and warranties in Section 5 shall be true in all materialrespects on the date of the Payment/Advance Form and on the Funding Date ofeach Credit Extension; provided, however, that such materiality qualifier shallnot be applicable to any representations and warranties that already arequalified or modified by materiality in the text thereof; and provided, furtherthat those representations and warranties expressly referring to a specificdate shall be true, accurate and complete in all material respects as of suchdate, and no Default or Event of Default shall have occurred and be continuingor result from the Credit Extension. Each Credit Extension is Borrowers’representation and warranty on that date that the representations andwarranties in Section 5 remain true in all material respects; provided,however, that such materiality qualifier shall not be applicable to anyrepresentations and warranties that already are qualified or modified bymateriality in the text thereof; and provided, further that thoserepresentations and warranties expressly referring to a specific date shall betrue, accurate and complete in all material respects as of such date; and

#### (c)                                  inBank’s sole discretion, there has not been any material impairment in thegeneral affairs, management, results of operation, financial condition or theprospect of repayment of the Obligations, or there has not been any materialadverse deviation by Parent or any Borrower from the most recent business planof Parent (or any Borrower, if applicable) presented to and accepted by Bank.

## **3.3****                               Covenantto Deliver.**

Borrowers agree todeliver to Bank each item required to be delivered to Bank under this Agreementas a condition to any Credit Extension. Borrowers expressly agree that theextension of a Credit Extension prior to the receipt by Bank of any such itemshall not constitute a waiver by Bank of any Borrower’s obligation to deliversuch item, and any such extension in the absence of a required item shall be inBank’s sole discretion.

## **3.4****                               Proceduresfor Borrowing.**

#### (a)                                  Advances.Subject to the prior satisfaction of all other applicable conditions to themaking of an Advance set forth in this Agreement, to obtain an Advance (otherthan Advances under Sections 2.1.2 or 2.1.4), Borrowers shall notify Bank(which notice shall be irrevocable) by electronic mail, facsimile, or telephoneby 12:00 p.m. Pacific time on the Funding Date of the Advance. Together withany such electronic or facsimile notification, Borrowers shall deliver to Bankby electronic mail or facsimile a completed Payment/Advance Form executed by aResponsible Officer of each Borrower or his or her designee. Bank may rely onany telephone notice given by a person whom Bank believes is a ResponsibleOfficer or designee. Bank shall credit Advances to the Designated DepositAccount. Bank may make Advances under this Agreement based on instructions froma Responsible Officer or his or her designee or without instructions if theAdvances are necessary to meet Obligations which have become due.

#### (b)                                 EquipmentAdvances. Subject to the prior satisfaction of all other applicableconditions to the making of an Equipment Advance set forth in this Agreement,to obtain an Equipment Advance, Borrowers must notify Bank (which notice shallbe irrevocable) by electronic mail or facsimile no later than 12:00 p.m.Pacific time one (1) Business Day before the proposed Funding Date. The noticeshall be a Payment/Advance Form, must be signed by a Responsible Officer ofeach Borrower or designee, and (except as otherwise provided inSection 2.1.5(a)(i) with respect to the Qualifying Initial EquipmentAdvance) shall include a copy of the invoice for the Equipment being financed. IfBorrowers satisfy the conditions of each Equipment Advance, Bank shall disbursesuch Equipment Advance by transfer to the Designated Deposit Account.

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#### **4****                                         CREATION OFSECURITY INTEREST**

## **4.1****                               Grantof Security Interest.** Each Borrower hereby grants Bank, to secure thepayment and performance in full of all of the Obligations, a continuingsecurity interest in, and pledges to Bank, the Collateral, wherever located,whether now owned or hereafter acquired or arising, and all proceeds andproducts thereof. Each Borrower represents, warrants, and covenants that thesecurity interest granted herein is and shall at all times continue to be afirst priority perfected security interest in the Collateral (subject only toPermitted Liens that may have superior priority to Bank’s Lien under thisAgreement). If any Borrower shall acquire a commercial tort claim, Borrowersshall promptly notify Bank in a writing signed by Borrowers of the generaldetails thereof and grant to Bank in such writing a security interest thereinand in the proceeds thereof, all upon the terms of this Agreement, with suchwriting to be in form and substance reasonably satisfactory to Bank.

If this Agreement is terminated, Bank’s Lien in theCollateral shall continue until the Obligations (other than inchoate indemnityobligations) are repaid in full in cash. Upon payment in full in cash of theObligations and at such time as Bank’s obligation to makeCredit Extensions has terminated, Bank shall, at Borrowers’ sole cost andexpense, release its Liens in the Collateral and all rights therein shallrevert to Borrowers.

## **4.2****                               Authorizationto File Financing Statements.** Each Borrower hereby authorizes Bank to filefinancing statements, without notice to Borrowers, with all appropriatejurisdictions to perfect or protect Bank’s interest or rights hereunder,including a notice that any disposition of the Collateral, by either Borrowersor any other Person, shall be deemed to violate the rights of Bank under theCode.

# **5****                                         REPRESENTATIONSAND WARRANTIES**

Borrowers represent and warrant as follows as of thedate of the initial Credit Extension and thereafter:

## **5.1****                               DueOrganization and Authorization.** Each Borrower, Parent and each of Parent’sSubsidiaries are duly existing and in good standing in their respectivejurisdictions of formation and are qualified and licensed to do business andare in good standing in any jurisdiction in which the conduct of their businessor their ownership of property requires that they be qualified except where thefailure to do so could not reasonably be expected to have a material adverseeffect on any Borrower’s or Parent’s business. Pursuant to Section 3.1(e), eachBorrower shall deliver to Bank a completed “Perfection Certificate”, in theform previously provided by Bank, signed by Borrower and Parent. Each Borrowerrepresents and warrants to Bank that (a) such Borrower’s exact legal name isthat indicated on its Perfection Certificate and on the signature page hereof;(b) such Borrower is an organization of the type and is organized in thejurisdiction set forth in its Perfection Certificate; (c) its PerfectionCertificate accurately sets forth such Borrower’s organizational identificationnumber or accurately states that such Borrower has none; (d) its PerfectionCertificate accurately sets forth such Borrower’s place of business, or, ifmore than one, its chief executive office as well as such Borrower’s mailingaddress (if different than its chief executive office); (e) such Borrower(and each of its predecessors) has not, in the past five (5) years, changed itsstate of formation, organizational structure or type, or any organizationalnumber assigned by its jurisdiction; and (f) all other information set forth onits Perfection Certificate pertaining to such Borrower and each of itsSubsidiaries is accurate and complete.

The execution,delivery and performance of the Loan Documents have been duly authorized, anddo not conflict with such Borrower’s organizational documents, nor constitutean event of default under any material agreement by which such Borrower isbound. Neither such Borrower nor Parent nor any of Parent’s Subsidiaries is indefault under any agreement to which it is a party or by which it is bound inwhich the default could reasonably be expected to have a material adverseeffect on any Borrower’s or Parent’s business.

## **5.2****                               Collateral.**Each Borrower has good title to, has rights in, and the power to transfer eachitem of the Collateral upon which it purports to grant a Lien hereunder, freeand clear of any and all Liens except Permitted Liens. None of the Borrowers,Parent or any of Parent’s Domestic Subsidiaries have any deposit accounts otherthan the deposit accounts with Bank, the deposit accounts, if any, described inthe Perfection Certificates of Borrowers and Parent that were delivered to Bankin connection herewith, or of which Borrowers have given Bank notice and takensuch actions as are necessary to give Bank a perfected security interest therein(subject to Section 6.6 hereof). The Accounts are bona fide, existingobligations of the Account Debtors.

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## The Collateral is not in the possession ofany third party bailee (such as a warehouse) except as otherwise provided inthe Perfection Certificate. None of the components of the Collateral (otherthan Inventory in the possession of consignees of such Inventory and TrunkInventory) shall be maintained at locations other than as provided in thePerfection Certificate or new locations of Borrowers within the United Statesfor which Borrowers have given Bank 30 days’ prior written notice. In the eventthat any Borrower, after the date hereof, intends to store or otherwise deliverany portion of the Collateral to a bailee, then Borrowers will first receivethe written consent of Bank and such bailee must execute and deliver a baileeagreement in form and substance satisfactory to Bank in its sole discretion.

All FinancedEquipment is new, except for such Financed Equipment that has been disclosed inwriting to Bank by Borrowers as “used”. All Inventory is in all materialrespects of good and marketable quality, free from material defects.

Each Borrower,Parent and each of Parent’s Subsidiaries is the sole owner of its intellectualproperty, except for non-exclusive licenses granted to its customers in theordinary course of business. Each patent is valid and enforceable to the bestof each Borrower’s knowledge, and no part of such intellectual property hasbeen judged invalid or unenforceable, in whole or in part, and to the best ofeach Borrower’s knowledge, except as may be set forth in a schedule hereto, noclaim has been made that any part of such intellectual property violates therights of any third party except to the extent such claim could not reasonablybe expected to have a material adverse effect on any Borrower’s or Parent’sbusiness. Except as noted on the Perfection Certificate, neither any Borrowernor Parent nor any Subsidiary of Parent is a party to, nor is bound by, anymaterial license or other agreement with respect to which such Person is thelicensee, including without limitation any material license or agreement (a)for which a default under or termination could interfere with the right to sellCollateral, or (b) that prohibits or otherwise restricts such Person fromgranting a security interest in such Person’s interest in such license oragreement or any other property. Borrowers shall provide written notice to Bankwithin ten (10) days of any such Person entering or becoming bound by any suchlicense or agreement (other than over-the-counter software that is commerciallyavailable to the public). Each Borrower shall take such steps as Bank requeststo obtain the consent of, or waiver by, any person whose consent or waiver isnecessary for Bank to have the ability in the event of a liquidation of theCollateral to dispose of the Collateral in accordance with Bank’s rights andremedies under this Agreement and the Loan Documents.

## **5.3****                               AccountsReceivable.** For any Eligible Account in any Borrowing Base Certificate, allstatements made and all unpaid balances appearing in all invoices, instrumentsand other documents evidencing such Eligible Account are and shall be true andcorrect and all such invoices, instruments and other documents, and all of eachBorrower’s Books are genuine and in all respects what they purport to be. Allsales and other transactions underlying or giving rise to each Eligible Accountshall comply in all material respects with all applicable laws and governmentalrules and regulations. No Borrower has any knowledge of any actual or imminentInsolvency Proceeding of any Account Debtor with an account that is included asan Eligible Account in any Borrowing Base Certificate. To the best of eachBorrower’s knowledge, all signatures and endorsements on all documents,instruments, and agreements relating to all Eligible Accounts are genuine, andall such documents, instruments and agreements are legally enforceable inaccordance with their terms.

## **5.4****                               Litigation.**Except as may be set forth on a schedule hereto, there is no action orproceeding (or series of related actions or proceedings) pending or, to theknowledge of the Responsible Officers of each Borrower, threatened in writingby or against any Borrower, Parent or any of Parent’s Subsidiaries involvingmore than $500,000.

## **5.5****                               NoMaterial Deviation in Financial Statements.** All consolidated financialstatements for Parent and its Subsidiaries delivered to Bank fairly present inall material respects Parent’s consolidated financial condition and Parent’sconsolidated results of operations. There has not been any materialdeterioration in Parent’s consolidated financial condition since the date ofthe most recent financial statements submitted to Bank.

## **5.6****                               Solvency.**The fair salable value of each Borrower’s assets (including goodwill minusdisposition costs) exceeds the fair value of its liabilities; no Borrower isleft with unreasonably small capital after the transactions in this Agreement;and each Borrower is able to pay its debts (including trade debts) as theymature.

## **5.7****                               RegulatoryCompliance.** No Borrower is an “investment company” or a company “controlled”by an “investment company” under the Investment Company Act. No Borrower isengaged as one of its important

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## activities in extending credit for margin stock (under Regulations Tand U of the Federal Reserve Board of Governors). Each Borrower has complied inall material respects with the Federal Fair Labor Standards Act. No Borrowerhas violated any laws, ordinances or rules, the violation of which couldreasonably be expected to have a material adverse effect on any Borrower’s orParent’s business. No Borrower’s, Parent’s or any of Parent’s Subsidiaries’properties or assets has been used by such Persons or, to the best of eachBorrower’s knowledge, by previous Persons, in disposing, producing, storing,treating, or transporting any hazardous substance other than legally. Borrowers,Parent and all of Parent’s Subsidiaries have obtained all consents, approvalsand authorizations of, made all declarations or filings with, and given allnotices to, all government authorities that are necessary to continue itsbusiness as currently conducted.

## **5.8****                               Subsidiaries;Investments.** No Borrower owns any stock, partnership interest or otherequity securities except for Permitted Investments.

## **5.9****                               TaxReturns and Payments; Pension Contribution.** Each Borrower, Parent andSubsidiary of Parent has timely filed all required material tax returns andreports, and each Borrower, Parent and Subsidiary of Parent has timely paid allmaterial foreign, federal, state and local taxes, assessments, deposits andcontributions owed by such Person. Any of such Persons may defer payment of anycontested taxes, provided that such Person (a) in good faith contests itsobligation to pay the taxes by appropriate proceedings promptly and diligentlyinstituted and conducted, (b) notifies Bank in writing of the commencement of,and any material development in, the proceedings, (c) posts bonds or takes anyother steps required to prevent the governmental authority levying suchcontested taxes from obtaining a Lien upon any of the Collateral that is otherthan a “Permitted Lien”. Each Borrower is unaware of any claims or adjustmentsproposed for any of such Person’s prior tax years which could result inadditional taxes becoming due and payable by such Persons. Each Borrower,Parent and Subsidiary of Parent has paid all amounts necessary to fund allpresent pension, profit sharing and deferred compensation plans in accordancewith their terms, and no such Person has withdrawn from participation in, andhas not permitted partial or complete termination of, or permitted theoccurrence of any other event with respect to, any such plan which couldreasonably be expected to result in any liability of such any such Persons,including any liability to the Pension Benefit Guaranty Corporation or itssuccessors or any other governmental agency.

## **5.10****                        Useof Proceeds.** Borrowers shall use the proceeds of the Credit Extensionssolely as working capital, to purchase Eligible Equipment, and to fund itsgeneral business requirements and not for personal, family, household oragricultural purposes.

## **5.11****                        Assetsof Foreign Subsidiaries.** As of March 31, 2006, $746,000 of the Accounts,$595,000 of the Inventory, $625,000 of the net Equipment, and $6,050,000 of thecash and Cash Equivalents listed on Parent’s consolidated financial statementsare owned by foreign Subsidiaries of Parent (as opposed to being owned byBorrowers, Parent or Domestic Subsidiaries of Parent).

## **5.12****                        FullDisclosure.** No written representation, warranty or other statement of anyBorrower, Parent or any Subsidiary of Parent in any certificate or writtenstatement given to Bank, as of the date such representations, warranties, orother statements were made, taken together with all such written certificatesand written statements given to Bank, contains any untrue statement of amaterial fact or omits to state a material fact necessary to make thestatements contained in the certificates or statements not misleading (it beingrecognized by Bank that the projections and forecasts provided in good faithand based upon reasonable assumptions are not viewed as facts and that actualresults during the period or periods covered by such projections and forecastsmay differ from the projected or forecasted results).

# **6****                                         AFFIRMATIVECOVENANTS**

Borrowers shall doall of the following:

## **6.1****                               GovernmentCompliance.** Each Borrower shall, and shall cause Parent and each of Parent’sSubsidiaries to, maintain its legal existence and good standing in itsjurisdiction of formation and each jurisdiction in which the nature of itsbusiness requires them to be so qualified, except where the failure to takesuch action would not reasonably be expected to have a material adverse effecton such Borrower’s or Parent’s business or operations; provided, that(a) the legal existence of any Subsidiary that is not a Guarantor may beterminated or permitted to lapse, and any qualification of such Subsidiary todo business may be terminated or permitted to lapse, if, in the good faithjudgment of Borrowers, such termination or lapse is in the best interests ofBorrowers, and (b) no

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## Borrower or Parent may permit its qualification to do business in thejurisdiction of its chief executive office to terminate or lapse; and provided,further, that this Section 6.1 shall not be construed to prohibit anyother transaction that is otherwise expressly permitted in Section 7 of thisAgreement.

Each Borrower shall comply, and shall have Parent andeach Subsidiary of Parent comply, with all laws, ordinances and regulations towhich it is subject, noncompliance with which could have a material adverseeffect on any Borrower’s or Parent’s business.

## **6.2****                               FinancialStatements, Reports, Certificates.**

#### (a)                                  Deliverto Bank: (i) as soon as available, but no later than thirty (30) days after thelast day of each month, a company prepared consolidated balance sheet andincome statement covering Parent’s consolidated operations for such month certifiedby a Responsible Officer of Parent and in a form acceptable to Bank (ii) Parent’s10K, 10Q, and 8K reports as soon as available, but no later than the earlier of(x) five (5) days after filing with the Securities Exchange Commission or (y)in the case of 10Ks with respect to a fiscal year, 120 days after the last dayof such fiscal year or (z) in the case of 10Qs with respect to a FiscalQuarter, forty-five (45) days after the last day of such Fiscal Quarter; (iii)a duly completed Compliance Certificate signed by a Responsible Officer ofParent and each Borrower (which, among other things, shall****set forth (y) calculations showingcompliance with the financial covenants set forth in this Agreement and (z) theamount and locations of Parent’s, Borrower’s and each Guarantor’s cash and CashEquivalents) together with delivery of Parent’s 10K and 10Q reports and themonthly financial statements; (iv) prior to the end of each fiscal year, annualfinancial projections (including profit and loss, balance sheet and cash flow)for the following fiscal year (on a Fiscal Quarter basis) as approved by Parent’sboard of directors; (v) a prompt report of any legal action (or series ofrelated legal actions) pending or threatened against Parent or any Subsidiaryof Parent that could result in damages or costs to Parent or any Subsidiary ofParent of $500,000 or more; (vi) a copy of the monthly financial informationthat is provided to Parent’s Board of Directors by Parent, Borrowers and Parent’sSubsidiaries, within five (5) days of providing the same to Parent’s Board ofDirectors; and (vii) as the Bank shall from time to time reasonably request,budgets, sales projections, and operating plans used in the preparation of theannual financial projections required by clause “iv” above, and other financialinformation normally prepared by Parent including, without limitation,consolidating financial statements.

#### (b)                                 Withinthirty (30) days after the last day of each Fiscal Quarter, deliver to Bank(i) aged listings of accounts receivable and accounts payable (by invoicedate), (ii) perpetual inventory reports for the Inventory valued on afirst-in, first-out basis at the lower of cost or market (in accordance withGAAP), or such other inventory reports as are requested by Bank in its goodfaith business judgment and are reasonably available to Borrowers, (iii) a cashbalance report, including account statements detailing cash management types ofinvestments held and maturity dates, and (iv) if at any time during such FiscalQuarter the sum of the Credit Extensions under Sections 2.1.1, 2.1.2, 2.1.3 and2.1.4 exceeds $12,000,0000, a duly completed Borrowing Base Certificate signedby a Responsible Officer of each Borrower and Parent.

#### (c)                                  AllowBank to audit each Borrower’s Collateral at Borrowers’ expense. (Withoutlimitation on the foregoing, Borrowers shall cooperate with Bank completing,within 90 days after the Effective Date, an audit of each Borrower’s Collateraland books and records.)

#### (d)                                 Ifduring a Fiscal Quarter Borrowers desire to obtain Credit Extensions underSections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 that aggregate in excess of $12,000,000,and previously during such Fiscal Quarter Borrowers have not provided Bank witha duly completed Borrowing Base Certificate signed by a Responsible Officer ofeach Borrower and Parent, then Borrowers’ shall first provide Bank with such aBorrowing Base Certificate.

## **6.3****                               Inventory;Returns.** Keep all Inventory in good and marketable condition, free frommaterial defects. Returns and allowances between any Borrower and its AccountDebtors shall follow such Borrower’s customary practices as they exist at theEffective Date. Borrowers must promptly notify Bank of all returns, recoveries,disputes and claims that involve more than Five Hundred Thousand Dollars($500,000) and (i) relate to a single customer or (ii) relate to returns of asingle product within a Fiscal Quarter.

## **6.4****                               Taxes;Pensions.** Make, and cause Parent and each of Parent’s Subsidiaries to make,timely payment of all material foreign, federal, state, and local taxes orassessments (other than taxes and assessments

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## which such Person is contesting pursuant to the terms of Section 5.9hereof) and shall deliver to Bank, on demand, appropriate certificatesattesting to such payments, and pay all amounts necessary to fund all presentpension, profit sharing and deferred compensation plans in accordance (in allmaterial respects) with their terms.

## **6.5          Insurance.**Keep its business and the Collateral insured for risks and in amounts standardfor companies in Borrowers’ industry and location and as Bank may reasonablyrequest. Insurance policies shall be in a form and with companies that aresatisfactory to Bank. On and after the date of the initial Credit Extension,all property policies shall have a lender’s loss payable endorsement showingBank as the lender loss payee and waive subrogation against Bank, and allliability policies shall show, or have endorsements showing, Bank as anadditional insured. On and after the date of the initial Credit Extension, allpolicies (or the loss payable and additional insured endorsements) shallprovide that the insurer must give Bank at least twenty (20) days notice beforecanceling, decreasing the policy limits under, or declining to renew its policy.Borrowers shall provide Bank with written notice of any material amendment toany insurance policy (including, without limitation, any material decrease inpolicy limits, exclusion or increase in deductible) at the later of twenty (20)days before such amendment is to take effect or when any Borrower first learnsof such amendment. At Bank’s request, Borrowers shall deliver certified copiesof policies and evidence of all premium payments. Except as otherwise providedin Section 2.1.5(c), proceeds payable under any policy shall, at Bank’s option,be payable to Bank on account of the Obligations. Notwithstanding theforegoing, (a)(x) so long as no Event of Default has occurred and iscontinuing, Borrowers shall have the option of applying the proceeds of anycasualty policy up to $3,000,000 with respect to any loss, but not exceeding anaggregate of $3,000,000 for all losses under all casualty policies in any oneyear, toward the replacement or repair of destroyed or damaged property;provided that any such replaced or repaired property (i) shall be of equal orlike value as the replaced or repaired Collateral and (ii) shall be deemedCollateral in which Bank has been granted a first priority security interest,and (b)(y) after the occurrence and during the continuance of an Event ofDefault, all proceeds payable under all casualty policies shall, at the optionof Bank, be payable to Bank on account of the Obligations. If any Borrowerfails to obtain insurance as required under this Section 6.5 or to pay anyamount or furnish any required proof of payment to third persons and Bank, Bankmay make all or part of such payment or obtain such insurance policies requiredin this Section 6.5, and take any action under the policies Bank deems prudent.

## **6.6          OperatingAccounts.**

#### (a)           Commencingon the date of the initial Credit Extension and continuing thereafter (i)Maintain an operating account with Bank and (ii) cause to be maintained inaccounts of Parent, Borrower or Secured Guarantors held with Bank and Bank’saffiliates the lesser of $15,000,000 or an amount equal to 50% of the aggregatecash and Cash Equivalents of Borrowers, Parent and Subsidiaries of Parent.

#### (b)           ProvideBank five (5) days prior written notice before Parent, any Borrower or anyDomestic Subsidiary of Parent establishes any Collateral Account at or with anybank or financial institution other than Bank or its Affiliates. In addition,for each Collateral Account that Parent, any Borrower or any DomesticSubsidiary of Parent at any time maintains, Borrowers shall cause theapplicable bank or financial institution (other than Bank) at or with which anysuch Collateral Account is maintained to execute and deliver a ControlAgreement or other appropriate instrument with respect to such CollateralAccount to perfect Bank’s Lien in such Collateral Account in accordance withthe terms hereunder. The provisions of the previous sentence shall not apply todeposit accounts exclusively used for payroll, payroll taxes and other employeewage and benefit payments to or for the benefit of the employees of Parent,Borrowers or such Subsidiary and identified to Bank by Borrowers as such. Notwithstandingthe foregoing, Borrowers shall have until the expiration of sixty (60) daysfollowing the Effective Date to provide such Control Agreements with respect toCollateral Accounts in existence on the Effective Date.

## **6.7          FinancialCovenants.**

Parent shall maintain at all times, to be tested as ofthe last day of each month, unless otherwise noted, on a consolidated basiswith respect to Parent and its Subsidiaries:

#### (a)           QuickRatio. A ratio of Quick Assets to Current Liabilities of at least 1.3 to1.0.

#### (b)           TangibleNet Worth. A Tangible Net Worth of at least (i) $90,000,000 during theperiod beginning with the Effective Date through November 30, 2006, (ii)$95,000,000 during the period beginning with December 1, 2006 through May 31,2007, (iii) $105,000,000 during the period beginning with June 1, 2007 through

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#### August 31, 2007, (iv) $108,000,000 during the period beginning withSeptember 1, 2007 through November 30, 2007 and (v) $115,000,000 beginning withDecember 1, 2007 and continuing thereafter; in each of the foregoing cases (y)the minimum Tangible Net Worth requirements will be increased by 50% of NetIncome and 50% of issuances of equity (except that, for such purpose, increasesin equity due to equity issued upon exercise of options granted under a stockoption plan of Parent, a Borrower or any predecessor thereof shall not beincluded for purposes of computing such increase unless the amount of suchincrease in equity in a Fiscal Quarter exceeds $500,000, in which case theentire amount of such increase (i.e., not just the excess over $500,000) in theFiscal Quarter shall be included) after the Effective Date, in accordance withthis Section 6.7(b), and (z) if after the Effective Date Parent or a Subsidiaryof Parent makes a payment for a purchase or other acquisition of an asset orcompany (provided that such purchase or acquisition occurred prior to theEffective Date or is allowed under the terms of this Agreement) and because ofgoodwill, intangibles or in-process research and development that were acquiredin such purchase or acquisition the Tangible Net Worth decreases, the minimumTangible Net Worth requirements will be decreased by the same amount. Increasesin the minimum Tangible Net Worth requirements based on consideration receivedfor equity securities shall be effective as of the end of the month in whichsuch consideration is received, and shall continue in effect thereafter;provided that (aa) increases due to equity issued upon the exercise of optionsgranted under a stock option plan as described above, shall be effective as ofthe end of the month during which the aggregate amount of such increases forthe Fiscal Quarter containing such month first exceeds $500,000, and (bb) allsuch increases which occur in any subsequent month during such Fiscal Quartershall be effective as of the end of such month. Increases in the minimumTangible Net Worth requirements based on Net Income shall be effective on thelast day of the month in which said Net Income is realized, and shall continuein effect thereafter. Decreases in the minimum Tangible Net Worth requirementsbased on goodwill, etc. associated with payments for purchases or acquisitionsshall be effective on the last day of the month in which such payments areaccrued in accordance with GAAP, and shall continue in effect thereafter. Exceptas described in this subsection with respect to purchases and acquisitions, inno event shall the minimum Tangible Net Worth requirements be decreased.

## **6.8          Protectionof Intellectual Property Rights.** Borrowers shall andshall cause Parent and the Subsidiaries of Parent to:  (a) protect, defend and maintain the validityand enforceability of the intellectual property that is material to Borrower’sand/or Parent’s business; (b) promptly advise Bank in writing of materialinfringements of the intellectual property that is material to Borrower’sand/or Parent’s business; and (c) not allow any intellectual property that, toany Borrower’s knowledge, is material to any Borrower’s and/or Parent’sbusiness to be abandoned, forfeited or dedicated to the public without Bank’swritten consent.

## **6.9          LitigationCooperation.** From the date hereof and continuingthrough the termination of this Agreement, make available to Bank, without expenseto Bank, Borrowers and their officers, employees and agents and each Borrower’sbooks and records, to the extent that Bank may deem them reasonably necessaryto prosecute or defend any third-party suit or proceeding instituted by oragainst Bank with respect to any Collateral or relating to any Borrower.

## **6.10        LandlordConsents.** At Bank’s request Borrowers shall obtain forBank landlord consents with respect to locations at which Collateral is locatedin form acceptable to Bank in its good faith discretion.

## **6.11        FurtherAssurances.** Borrowers shall execute any furtherinstruments and take further action as Bank reasonably requests to perfect orcontinue Bank’s Lien in the Collateral or to effect the purposes of thisAgreement.

# **7              NEGATIVE COVENANTS**

No Borrower shalldo any of the following without Bank’s prior written consent:

## **7.1          Dispositions.**Convey, sell, lease, transfer or otherwise dispose of (collectively “Transfer”),or permit Parent or any of the Subsidiaries of Parent to Transfer, all or anypart of such Person’s business or property, except for:

#### (a)           Transfers in the ordinary course ofbusiness (excluding Transfers of Accounts, but including Transfers of usedFinanced Equipment subject to the limit set forth below in this Section 7.1)for reasonably equivalent consideration;

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#### (b)           Transfers (i) from any Borrower toParent or to any other Borrower, (ii) from any Subsidiary of Parent (other thana Borrower) to Parent, any Borrower or any Secured Guarantor, or (iii) from anyforeign Subsidiary of Parent to Parent, any Borrower or any other Subsidiary ofParent;

#### (c)           Transfers of property (excludingTransfers of Inventory outside the ordinary course of business and Transfers ofAccounts, but including Transfers of used Financed Equipment subject to the limitset forth below in this Section 7.1 and including licenses of intellectualproperty) for fair market value;

#### (d)           Transfers of property (other thanAccounts, Inventory outside the ordinary course of business, FinancedEquipment, or intellectual property) in connection with sale-leasebacktransactions;

#### (e)           Transfers of property (other thanAccounts, Inventory outside the ordinary course of business, FinancedEquipment, or intellectual property) to the extent such property is exchangedfor credit against, or proceeds are promptly applied to, the purchase price ofother property used or useful in the business of a Borrower or the transferor;

#### (f)            Transfers constituting non-exclusivelicenses and similar arrangements for the use of the property of the transferorin the ordinary course of business and other non-perpetual licenses that may beexclusive in some respects other than territory (and/or that may be exclusiveas to territory only in discreet geographical areas outside of the UnitedStates), but that could not result in a legal transfer of transferor’s title inthe licensed property;

#### (g)           Transfers otherwise expresslypermitted by the Loan Documents;

#### (h)           sales or discounting of delinquentaccounts in the ordinary course of business;

#### (i)            Transfers associated with the makingor disposition of a Permitted Investment; and

#### (j)            Provided no Event of Default existsor will occur as a result thereof, any exclusive or non-exclusive license(other than to Accounts, Inventory or Financed Equipment) granted in considerationof or to settle any claim or dispute.

#### Notwithstanding the foregoing, Transfers ofused Financed Equipment shall not be permitted under “a” or “c” of this Section7.1 in a Fiscal Quarter of Borrower to the extent that the aggregate fairmarket value of all used Financed Equipment transferred in such Fiscal Quarterfor all Borrowers exceeds $150,000.

## **7.2          Changes in Business; Change inControl; Jurisdiction of Formation.** Engage in anymaterial line of business other than those lines of business conducted byBorrowers and their Subsidiaries on the date hereof and any businessesreasonably related, complementary or incidental thereto or reasonableextensions thereof; permit or suffer any Change in Control. No Borrower will,without prior written notice, change its jurisdiction of formation.

## **7.3          Mergers or Acquisitions.**Merge or consolidate, or permit Parent or any Subsidiary of Parent to merge orconsolidate, with any Person other than a merger of (a) any Subsidiary into anyBorrower with such Borrower being the surviving Person, (b) any Subsidiary ofParent (other than a Borrower) into a Secured Guarantor, with such SecuredGuarantor being the surviving Person, (c) any foreign Subsidiary of Parent intoanother foreign Subsidiary of Parent, (d) ev3 Santa Rosa, Inc. into ev3International, Inc., with ev3 International, Inc. being the surviving Person,and (e) any of EndiCOR Medical, Incorporated, ev3 Sunnyvale, Inc. or ev3Technologies, Inc into ev3 Peripherals, Inc., with ev3 Peripherals being thesurvivor; provided in each case that no Event of Default then exists or shallresult therefrom.

## **7.4          Indebtedness.**Create, incur, assume, or be liable for any Indebtedness, or permit Parent orany Subsidiary of Parent to do so, other than Permitted Indebtedness.

## **7.5          Encumbrance.**Create, incur, or allow any Lien on any of its property, or assign or conveyany right to receive income, including the sale of any Accounts, or permitParent or any of its Subsidiaries to do so, except for Permitted Liens; permitany Collateral not to be subject to the first priority security interestgranted herein, permit any collateral provided by any Guarantor not to besubject to the first priority security interest granted in the Loan Documentsby such Guarantor; or enter or allow Parent or any Subsidiary of Parent toenter into any

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## agreement, document, instrument or other arrangement (except with or infavor of Bank) with any Person which directly or indirectly prohibits or hasthe effect of prohibiting any Borrower, Parent or any Subsidiary of Parent fromassigning, mortgaging, pledging, granting a security interest in or upon, orencumbering any of Borrower’s, Parent’s or any of such Subsidiarys’intellectual property, except as is otherwise permitted in Section 7.1 hereofand the definition of “Permitted Lien” herein.

## **7.6          Maintenanceof Collateral Accounts.** Maintain any CollateralAccount except pursuant to the terms of Section 6.6.(b) hereof.

## **7.7          Distributions;Investments.** (a) Directly or indirectly acquireor own any Person, or make any Investment in any Person, other than PermittedInvestments, or permit Parent or any of Parent’s Subsidiaries to do so; or (b)pay any dividends or make any distribution or payment or redeem, retire orpurchase any capital stock other than Permitted Distributions, or permit Parentor any of Parent’s Subsidiaries to do so.

## **7.8          Transactionswith Affiliates.** Directly or indirectly enter into orpermit to exist any material transaction with any Affiliate of any Borrowerexcept for (a) transactions that are in the ordinary course of business, uponfair and reasonable terms (when viewed in the context of any series oftransactions of which it may be a part, if applicable) that are no lessfavorable to Borrowers than would be obtained in an arm’s length transactionwith a non-affiliated Person; or (b) transactions with Parent or any ofParent’s Subsidiaries so long as no Event of Default exists or could resulttherefrom.

## **7.9          Compliance.**Become an “investment company” or a company controlled by an “investmentcompany”, under the Investment Company Act of 1940 or undertake as one of itsimportant activities extending credit to purchase or carry margin stock (asdefined in Regulation U of the Board of Governors of the Federal ReserveSystem), or use the proceeds of any Credit Extension for that purpose; fail tomeet the minimum funding requirements of ERISA, permit a Reportable Event orProhibited Transaction, as defined in ERISA, to occur; fail to comply with theFederal Fair Labor Standards Act or violate any other law or regulation, if theviolation could reasonably be expected to have a material adverse effect on anyBorrower’s or Parent’s business, or permit Parent or any of Parent’sSubsidiaries to do so; withdraw or permit Parent or any Subsidiary of Parent towithdraw from participation in, permit partial or complete termination of, orpermit the occurrence of any other event with respect to, any present pension,profit sharing and deferred compensation plan which could reasonably beexpected to result in any liability of such Person, including any liability tothe Pension Benefit Guaranty Corporation or its successors or any othergovernmental agency.

# **8              EVENTS OF DEFAULT**

Any one of thefollowing shall constitute an event of default (an “Event of Default”) underthis Agreement:

## **8.1          Payment Default.**Any Borrower fails within three (3) Business Days of when due to make anypayment of principal or interest on any Credit Extension or other Obligation. Duringthe cure period, the failure to cure the payment default is not an Event ofDefault (but no Credit Extension will be made during the cure period);

## **8.2          Covenant Default.**

#### (a)           Any Borrower fails or neglects toperform any obligation in Sections 6.2, 6.6, or 6.7 or violates any covenant inSection 7; or

#### (b)           Any Borrower fails or neglects toperform, keep, or observe any other term, provision, condition, covenant oragreement contained in this Agreement or any Loan Documents, and as to anydefault (other than those specified in this Section 8) under such other term,provision, condition, covenant or agreement that can be cured, has failed tocure the default within ten (10) days after the occurrence thereof; provided,however, that if the default cannot by its nature be cured within the ten (10)day period or cannot after diligent attempts by such Borrower be cured withinsuch ten (10) day period, and such default is likely to be cured within areasonable time, then such Borrower shall have an additional period (whichshall not in any case exceed thirty (30) days) to attempt to cure such default,and within such reasonable time period the failure to cure the default shallnot be deemed an Event of Default (but no Credit Extensions shall be madeduring such cure period). Grace periods provided under this section shall notapply, among other things, to financial covenants or any other covenants setforth in subsection (a) above;

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#### **8.3          MaterialAdverse Change.** A Material Adverse Change occurs;

## **8.4          Attachment.** (a)Any material portion of the assets of any Borrower, Parent or any Subsidiary ofParent is attached, seized, levied on, or comes into possession of a trustee orreceiver and the attachment, seizure or levy is not removed in ten (10) days;(b) the service of process upon Bank seeking to attach, by trustee orsimilar process, any funds of any Borrower, Parent or any Subsidiary of Parenton deposit with Bank; (c) any Borrower, Parent or any Subsidiary of Parent isenjoined, restrained, or prevented by court order from conducting a materialpart of its business; (d) a judgment or other claim in excess of $100,000becomes a Lien on any of the assets of any Borrower, Parent or any Subsidiaryof Parent; or (e) a notice of lien, levy, or assessment is filed against any ofthe assets of any Borrower, Parent or any Subsidiary of Parent by anygovernment agency and not paid within ten (10) days after any Borrower, Parentor any Subsidiary of Parent receives notice. These are not Events of Default ifstayed or if a bond is posted pending contest by such Borrower, Parent or suchSubsidiary of Parent (as applicable). No Credit Extensions shall be made duringany cure period, notwithstanding any stay or bond;

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

## **8.6          Other Agreements.**If any Borrower, Parent or any Subsidiary of Parent fails to (a) make anypayment that is due and payable with respect to any Material Indebtedness andsuch failure continues after the applicable grace or notice period, if any,specified in the agreement or instrument relating thereto, or (b) performor observe any other condition or covenant, or any other event shall occur orcondition exist under any agreement or instrument relating to any MaterialIndebtedness, and such failure continues after the applicable grace or noticeperiod, if any, specified in the agreement or instrument relating thereto andthe effect of such failure, event or condition is to cause the holder orholders of such Material Indebtedness to accelerate the maturity of suchMaterial Indebtedness or cause the mandatory repurchase of any Material Indebtedness;

## **8.7          Judgments.** Ajudgment or judgments for the payment of money in an amount, individually or inthe aggregate, of at least One Hundred Thousand Dollars ($100,000) (not coveredby independent third-party insurance) shall be rendered against any Borrower,Parent or any Subsidiary of Parent and shall remain unsatisfied and unstayedfor a period of ten (10) days after the entry thereof (provided that no CreditExtensions will be made prior to the satisfaction or stay of such judgment);

## **8.8          Misrepresentations.**Any Borrower, Parent or any Subsidiary of Parent or any Person acting thereformakes any representation, warranty, or other statement now or later in thisAgreement, any Loan Document or in any writing delivered to Bank or to induceBank to enter this Agreement or any Loan Document, and such representation,warranty, or other statement is incorrect in any material respect when made;

## **8.9          Subordinated Debt.**A default or breach occurs under any agreement between any Borrower, Parent orany Subsidiary of Parent and any creditor of Borrower, Parent or any Subsidiaryof Parent that signed a subordination, intercreditor, or other similaragreement with Bank, or any creditor that has signed such an agreement withBank breaches any terms of such agreement; or

## **8.10        Cross-Default.** Adefault or breach occurs under any agreement between or by a Guarantor, with orin favor of Bank, which default or breach shall not have been cured or waivedwithin any applicable grace period.

# **9              BANK’SRIGHTS AND REMEDIES**

## **9.1          Rights and Remedies.**While an Event of Default occurs and continues Bank may, without notice ordemand, do any or all of the following:

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

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#### (b)           stop advancing money or extendingcredit for Borrowers’ benefit under this Agreement or under any other agreementbetween any Borrower and Bank, including, without limitation, by terminatingthe Revolving Line effective immediately;

#### (c)           demandthat Borrowers (i) deposits cash with Bank in an amount equal to the aggregateamount of any Letters of Credit remaining undrawn, as collateral security forthe repayment of any future drawings under such Letters of Credit, andBorrowers shall forthwith deposit and pay such amounts, and (ii) pay in advanceall Letter of Credit fees scheduled to be paid or payable over the remainingterm of any Letters of Credit;

#### (d)           terminateany FX Forward Contracts;

#### (e)           settleor adjust disputes and claims directly with Account Debtors for amounts onterms and in any order that Bank considers advisable, notify any Person owingany Borrower money of Bank’s security interest in such funds, and verify theamount of such account;

#### (f)            makeany payments and do any acts it considers necessary or reasonable to protectthe Collateral and/or its security interest in the Collateral. Borrowers shallassemble the Collateral if Bank requests and make it available as Bank designates.Bank may enter premises where the Collateral is located, take and maintainpossession of any part of the Collateral, and pay, purchase, contest, orcompromise any Lien which appears to be prior or superior to its securityinterest and pay all expenses incurred. Each Borrower grants Bank a license toenter and occupy any of its premises, without charge, to exercise any of Bank’srights or remedies;

#### (g)           applyto the Obligations any (i) balances and deposits of any Borrower it holds, or(ii) any amount held by Bank owing to or for the credit or the account of anyBorrower;

#### (h)           ship,reclaim, recover, store, finish, maintain, repair, prepare for sale, advertisefor sale, and sell the Collateral. Bank is hereby granted a non-exclusive,royalty-free license or other right to use, without charge, each Borrower’slabels, patents, copyrights, mask works, rights of use of any name, tradesecrets, trade names, trademarks, service marks, and advertising matter, or anysimilar property as it pertains to the Collateral, in completing production of,advertising for sale, and selling any Collateral and, in connection with Bank’sexercise of its rights under this Section, each Borrower’s rights under alllicenses and all franchise agreements inure to Bank’s benefit;

#### (i)            placea “hold” on any account maintained with Bank and/or deliver a notice ofexclusive control, any entitlement order, or other directions or instructionspursuant to any Control Agreement or similar agreements providing control ofany Collateral;

#### (j)            demandand receive possession of each Borrower’s Books; and

#### (k)           exerciseall rights and remedies available to Bank under the Loan Documents or at law orequity, including all remedies provided under the Code (including disposal ofthe Collateral pursuant to the terms thereof).

## **9.2          Powerof Attorney.** Each Borrower hereby irrevocably appointsBank as its lawful attorney-in-fact, exercisable upon the occurrence and duringthe continuance of an Event of Default, to: (a) endorse such Borrower’s name on any checks or other forms of paymentor security; (b) sign such Borrower’s name on any invoice or bill of lading forany Account or drafts against Account Debtors; (c) settle and adjust disputesand claims about the Accounts directly with Account Debtors, for amounts and onterms Bank determines reasonable; (d) make, settle, and adjust all claims undersuch Borrower’s insurance policies; (e) pay, contest or settle any Lien,charge, encumbrance, security interest, and adverse claim in or to theCollateral, or any judgment based thereon, or otherwise take any action toterminate or discharge the same; and (f) transfer the Collateral into the nameof Bank or a third party as the Code permits. Each Borrower hereby appointsBank as its lawful attorney-in-fact to sign such Borrower’s name on anydocuments necessary to perfect or continue the perfection of any securityinterest regardless of whether an Event of Default has occurred until allObligations have been satisfied in full and Bank is under no further obligationto make Credit Extensions hereunder. Bank’s foregoing appointment as suchBorrower’s attorney in fact, and all of Bank’s rights and powers, coupled withan interest, are irrevocable until all Obligations have been fully repaid andperformed and Bank’s obligation to provide Credit Extensions terminates.

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## **9.3          AccountsVerification; Collection.** Whether or not an Event ofDefault has occurred and is continuing, Bank may notify any Person owing anyBorrower money of Bank’s security interest in such funds and verify the amountof such account. After the occurrence of an Event of Default, any amountsreceived by any Borrower shall be held in trust by such Borrower for Bank, and,if requested by Bank, such Borrower shall immediately deliver such receipts toBank in the form received from the Account Debtor, with proper endorsements fordeposit.

## **9.4          ProtectivePayments.** If any Borrower fails to obtain theinsurance called for by Section 6.5 or fails to pay any premium thereon orfails to pay any other amount which such Borrower is obligated to pay underthis Agreement or any other Loan Document, Bank may obtain such insurance ormake such payment, and all amounts so paid by Bank are Bank Expenses andimmediately due and payable, bearing interest at the then highest applicablerate, and secured by the Collateral. Bank will make reasonable efforts toprovide such Borrower with notice of Bank obtaining such insurance at the timeit is obtained or within a reasonable time thereafter. No payments by Bank aredeemed an agreement to make similar payments in the future or Bank’s waiver ofany Event of Default.

## **9.5          Applicationof Payments and Proceeds.** Unless an Event of Defaulthas occurred and is continuing, Bank shall apply any funds in its possession,whether from Borrower account balances, payments, or proceeds realized as theresult of any collection of Accounts or other disposition of the Collateral,first, to Bank Expenses, including without limitation, the reasonable costs,expenses, liabilities, obligations and attorneys’ fees incurred by Bank in theexercise of its rights under this Agreement; second, to the interest due uponany of the Obligations; and third, to the principal of the Obligations and anyapplicable fees and other charges, in such order as Bank shall determine in itssole discretion. Any surplus shall be paid to Borrowers or other Personslegally entitled thereto; Borrowers shall remain liable to Bank for anydeficiency. If an Event of Default has occurred and is continuing, Bank mayapply any funds in its possession, whether from Borrower account balances,payments, proceeds realized as the result of any collection of Accounts orother disposition of the Collateral, or otherwise, to the Obligations in suchorder as Bank shall determine in its sole discretion. Any surplus shall be paidto Borrowers or other Persons legally entitled thereto; Borrowers shall remainliable to Bank for any deficiency. If Bank, in its good faith businessjudgment, directly or indirectly enters into a deferred payment or other credittransaction with any purchaser at any sale of Collateral, Bank shall have theoption, exercisable at any time, of either reducing the Obligations by theprincipal amount of the purchase price or deferring the reduction of theObligations until the actual receipt by Bank of cash therefor.

## **9.6          Bank’sLiability for Collateral.** So long as Bank complieswith reasonable banking practices regarding the safekeeping of the Collateralin the possession or under the control of Bank, Bank shall not be liable orresponsible for: (a) the safekeeping of the Collateral; (b) any loss or damageto the Collateral; (c) any diminution in the value of the Collateral; or (d)any act or default of any carrier, warehouseman, bailee, or other Person. Borrowersbear all risk of loss, damage or destruction of the Collateral.

## **9.7          NoWaiver; Remedies Cumulative.** Bank’s failure, at anytime or times, to require strict performance by any Borrower of any provisionof this Agreement or any other Loan Document shall not waive, affect, or diminishany right of Bank thereafter to demand strict performance and complianceherewith or therewith. No waiver hereunder shall be effective unless signed byBank and then is only effective for the specific instance and purpose for whichit is given. Bank’s rights and remedies under this Agreement and the other LoanDocuments are cumulative. Bank has all rights and remedies provided under theCode, by law, or in equity. Bank’s exercise of one right or remedy is not anelection, and Bank’s waiver of any Event of Default is not a continuing waiver.Bank’s delay in exercising any remedy is not a waiver, election, oracquiescence.

## **9.8          DemandWaiver.** Each Borrower waives demand, notice of defaultor dishonor, notice of payment and nonpayment, notice of any default, nonpaymentat maturity, release, compromise, settlement, extension, or renewal ofaccounts, documents, instruments, chattel paper, and guarantees held by Bank onwhich any Borrower is liable.

# **10           NOTICES**

All notices,consents, requests, approvals, demands, or other communication (collectively, “**Communication**”) by any party to this Agreement or any otherLoan Document must be in writing and shall be deemed to have been validlyserved, given, or delivered: (a) upon the earlier of actual receipt and three(3) Business

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Days after deposit in the U.S. mail, first class,registered or certified mail return receipt requested, with proper postageprepaid; (b) upon transmission, when sent by electronic mail or facsimiletransmission; (c) one (1) Business Day after deposit with a reputable overnightcourier with all charges prepaid; or (d) when delivered, if hand-delivered bymessenger, all of which shall be addressed to the party to be notified and sentto the address, facsimile number, or email address indicated below. Bank orBorrowers may change their address or facsimile number by giving the otherparty written notice thereof in accordance with the terms of this Section 10. Asingle Communication made by Bank pursuant to one of the foregoing methods tothe address for Borrowers below shall be deemed a Communication to any and allBorrowers.
|        | If to any  Borrower or all Borrowers: |                |
|--------|---------------------------------------|---------------------|
|   |                                  |                |
|   | c/o ev3 Inc.                          |                |
|   | 9600 54th Avenue North           |                |
|   | Plymouth, MN  55442                   |                |
|   | Attn: Chief  Financial Officer        |                |
|   | Fax:  763.398.7647                    |                |
|   | Email:  pspangler@ev3.net   |                |
|   |                                  |                |
|   | If to Bank:                           | Silicon Valley Bank |   |
|   | 301 Carlson Parkway, Suite 255        |                |
|   | Minnetonka, MN 55305                  |                |
|   | Attn: Mr. Jay McNeil                  |                |
|   | Fax:  952.475.8471               |                |
|   | Email: jmcneil@svbank.com             |                |

 

# **11           CHOICE OF LAW, VENUE, JURY TRIALWAIVER AND JUDICIAL REFERENCE**

California lawgoverns the Loan Documents without regard to principles of conflicts of law. EachBorrower and Bank submit to the exclusive jurisdiction of the State and Federalcourts in Santa Clara County, California; provided, however, that nothing inthis Agreement shall be deemed to operate to preclude Bank from bringing suitor taking other legal action in any other jurisdiction to realize on theCollateral or any other security for the Obligations, or to enforce a judgmentor other court order in favor of Bank. Each Borrower expressly submits andconsents in advance to such jurisdiction in any action or suit commenced in anysuch court, and each Borrower hereby waives any objection that it may havebased upon lack of personal jurisdiction, improper venue, or forum nonconveniens and hereby consents to the granting of such legal or equitablerelief as is deemed appropriate by such court. Each Borrower hereby waivespersonal service of the summons, complaints, and other process issued in suchaction or suit and agrees that service on Borrower of such summons, complaints,and other process may be made by registered or certified mail addressed as setforth in Section 10 of this Agreement and that service so made shall be deemedcompleted upon the earlier to occur of actual receipt thereof or three (3) daysafter deposit in the U.S. mails, proper postage prepaid.

**TO THEFULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND BANK WAIVE THEIRRIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASEDUPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS AMATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTYHAS REVIEWED THIS WAIVER WITH ITS COUNSEL**.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the abovewaiver of the right to a trial by jury is not enforceable, the parties heretoagree that any and all disputes or controversies of any nature between themarising at any time shall be decided by a reference to a private judge,mutually selected by the parties (or, if they cannot agree, by the PresidingJudge of the Santa Clara County, California Superior Court) appointed inaccordance with California Code of Civil Procedure Section 638 (or pursuant tocomparable provisions of federal law if the dispute falls within the exclusivejurisdiction of the federal courts), sitting without a jury, in Santa ClaraCounty, California; and the parties hereby submit to the jurisdiction of suchcourt. The reference proceedings shall be conducted pursuant to and in

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accordance withthe provisions of California Code of Civil Procedure §§ 638 through 645.1,inclusive. The private judge shall have the power, among others, to grantprovisional relief, including without limitation, entering temporaryrestraining orders, issuing preliminary and permanent injunctions andappointing receivers. All such proceedings shall be closed to the public andconfidential and all records relating thereto shall be permanently sealed. Ifduring the course of any dispute, a party desires to seek provisional relief,but a judge has not been appointed at that point pursuant to the judicialreference procedures, then such party may apply to the Santa Clara County,California Superior Court for such relief. The proceeding before the privatejudge shall be conducted in the same manner as it would be before a court underthe rules of evidence applicable to judicial proceedings. The parties shall beentitled to discovery which shall be conducted in the same manner as it wouldbe before a court under the rules of discovery applicable to judicialproceedings. The private judge shall oversee discovery and may enforce alldiscovery rules and order applicable to judicial proceedings in the same manneras a trial court judge. The parties agree that the selected or appointedprivate judge shall have the power to decide all issues in the action orproceeding, whether of fact or of law, and shall report a statement of decisionthereon pursuant to the California Code of Civil Procedure § 644(a). Nothing inthis paragraph shall limit the right of any party at any time to exerciseself-help remedies, foreclose against collateral, or obtain provisionalremedies. The private judge shall also determine all issues relating to theapplicability, interpretation, and enforceability of this paragraph.

# **12           GENERALPROVISIONS**

## **12.1        Successors and Assigns.**This Agreement binds and is for the benefit of the successors and permittedassigns of each party. No Borrower may assign this Agreement or any rights orobligations under it without Bank’s prior written consent (which may be grantedor withheld in Bank’s discretion). Bank has the right, without the consent ofor notice to any Borrower, to sell, transfer, negotiate, or grant participationin all or any part of, or any interest in, Bank’s obligations, rights, andbenefits under this Agreement and the other Loan Documents.

## **12.2        Indemnification.**Borrowers agree to indemnify, defend and hold Bank and its directors, officers,employees, agents, attorneys, or any other Person affiliated with orrepresenting Bank harmless against: (a) all obligations, demands, claims, and liabilities(collectively, “Claims”) asserted by any other party in connection with thetransactions contemplated by the Loan Documents; and (b) all losses or BankExpenses incurred, or paid by Bank from, following, or arising fromtransactions between Bank and any Borrower (including reasonable attorneys’fees and expenses), except for Claims and/or losses directly caused by Bank’sgross negligence or willful misconduct.

## **12.3        Limitation of Actions.**Any claim or cause of action by any Borrower against Bank, its directors,officers, employees, agents, accountants, attorneys, or any other Personaffiliated with or representing Bank based upon, arising from, or relating tothis Loan Agreement or any other Loan Document, or any other transactioncontemplated hereby or thereby or relating hereto or thereto, or any othermatter, cause or thing whatsoever, occurred, done, omitted or suffered to bedone by Bank, its directors, officers, employees, agents, accountants orattorneys, shall be barred unless asserted by such Borrower by the commencementof an action or proceeding in a court of competent jurisdiction by (a) thefiling of a complaint within one year from the earlier of (i) the date any ofsuch Borrower’s officers or directors had knowledge of the first act, theoccurrence or omission upon which such claim or cause of action, or any partthereof, is based, or (ii) the date this Agreement is terminated, and (b) theservice of a summons and complaint on an officer of Bank, or on any otherperson authorized to accept service on behalf of Bank, within thirty (30) daysthereafter. Each Borrower agrees that such one-year period is a reasonable andsufficient time for such Borrower to investigate and act upon any such claim orcause of action. The one-year period provided herein shall not be waived,tolled, or extended except by the written consent of Bank in its solediscretion. This provision shall survive any termination of this Loan Agreementor any other Loan Document.

## **12.4        Time of Essence.**Time is of the essence for the performance of all Obligations in thisAgreement.

## **12.5        Severability of Provisions.**Each provision of this Agreement is severable from every other provision indetermining the enforceability of any provision.

## **12.6        Amendments in Writing; Integration.**All amendments to this Agreement must be in writing signed by both Bank and theBorrowers. This Agreement and the Loan Documents represent the entire agreementabout this subject matter and supersede prior negotiations or agreements. Allprior agreements, understandings,

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## representations, warranties, and negotiationsbetween the parties about the subject matter of this Agreement and the LoanDocuments merge into this Agreement and the Loan Documents.

## **12.7        Counterparts.** ThisAgreement may be executed in any number of counterparts and by differentparties on separate counterparts, each of which, when executed and delivered,are an original, and all taken together, constitute one Agreement.

## **12.8        Survival.** Allcovenants, representations and warranties made in this Agreement continue infull force until this Agreement has terminated pursuant to its terms and allObligations (other than inchoate indemnity obligations and any otherobligations which, by their terms, are to survive the termination of thisAgreement) have been satisfied. The obligation of each Borrower in Section 12.2to indemnify Bank shall survive until the statute of limitations with respectto such claim or cause of action shall have run.

## **12.9        Confidentiality.**In handling any confidential information, Bank shall exercise the same degreeof care that it exercises for its own proprietary information, but disclosureof information may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) toprospective transferees or purchasers of any interest in the Credit Extensions(provided, however, Bank shall use commercially reasonable efforts to obtainsuch prospective transferee’s or purchaser’s agreement to the terms of thisprovision); (c) as required by law, regulation, subpoena, or other order;(d) to Bank’s regulators or as otherwise required in connection with Bank’sexamination or audit; and (e) as Bank considers appropriate in exercisingremedies under this Agreement. Confidential information does not includeinformation that either: (i) is in the public domain or in Bank’s possessionwhen disclosed to Bank, or becomes part of the public domain after disclosureto Bank; or (ii) is disclosed to Bank by a third party, if Bank does not knowthat the third party is prohibited from disclosing the information.

## **12.10      Attorneys’ Fees, Costs and Expenses.**In any action or proceeding between any Borrower and Bank arising out of orrelating to the Loan Documents, the prevailing party shall be entitled torecover its reasonable attorneys’ fees and other costs and expenses incurred,in addition to any other relief to which it may be entitled.

## **12.11      Joint and Several Liability*.*****Borrowers’ liability for the Obligationsshall be joint and several, and the compromise of any claim with, or the releaseof, any Borrower shall not constitute a compromise with, or a release of, anyother Borrower.

# **13           DEFINITIONS**

## **13.1        Definitions.**As used in this Agreement, the following terms have the following meanings:

“**Account**” is any “account” as defined in the Code with suchadditions to such term as may hereafter be made, and includes, withoutlimitation, all accounts receivable and other sums owing to any Borrower.

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

“**Advance**” or “**Advances**” meansan advance (or advances) under the Revolving Line.

“**Affiliate**” of any Person is a Person that owns or controlsdirectly or indirectly the Person, any Person that controls or is controlled byor is under common control with the Person, and each of that Person’s seniorexecutive officers, directors, partners and, for any Person that is a limitedliability company, that Person’s managers and members.

“**Agreement**” is defined in the preamble hereof.

“**Availability Amount**” is (a) the lesser of (i) the RevolvingLine or (ii) the greater of $12,000,000 or the Borrowing Base; minus(b) the amount of all outstanding Letters of Credit (including drawn butunreimbursed Letters of Credit) plus an amount equal to the Letter of CreditReserves, minus (c) the amounts used for Cash Management Services, minus(d) the FX Reserve, and minus (e) the outstanding principal balance of anyAdvances.

“**Bank**” is defined in the preamble hereof.

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

“**Borrowers**” is defined in the preamble hereof.

“**Borrower’s Books**” are all of each Borrower’s books andrecords including ledgers, federal and state tax returns, records regardingsuch Borrower’s assets or liabilities, the Collateral, business operations orfinancial condition, and all computer programs or storage or any equipmentcontaining such information.

“**Borrowing Base**” is (a) 80% of Eligible Accounts plus (b) thelesser of (i) 30% of the value of Borrowers Eligible Inventory (valued at thelower of cost or wholesale fair market value), (ii) 33% of an amount equal to80% of Eligible Accounts, or (iii) $7,500,000, as determined by Bank fromBorrowers’ most recent Borrowing Base Certificate; provided, however, that Bankmay decrease the foregoing percentages in its good faith business judgment,effective upon written notice to Borrowers, based on events, conditions,contingencies, or risks which, as determined by Bank, may adversely affectCollateral.

“**Borrowing Base Certificate**” is that certain certificate inthe form attached hereto as Exhibit C.

“**Borrowing Resolutions**” are, with respect to any Person,those resolutions adopted by such Person’s Board of Directors and delivered bysuch Person to Bank approving the Loan Documents to which such Person is aparty and the transactions contemplated thereby, together with a certificateexecuted by its secretary on behalf of such Person certifying that(a) such Person has the authority to execute, deliver, and perform itsobligations under each of the Loan Documents to which it is a party,(b) that attached as Exhibit A to such certificate is a true, correct, andcomplete copy of the resolutions then in full force and effect authorizing andratifying the execution, delivery, and performance by such Person of the LoanDocuments to which it is a party, (c) the name(s) of the Person(s) authorizedto execute the Loan Documents on behalf of such Person, together with a sampleof the true signature(s) of such Person(s), and (d) that Bank mayconclusively rely on such certificate unless and until such Person shall havedelivered to Bank a further certificate canceling or amending such priorcertificate.

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

“**Cash Equivalents**” means marketable securities as defined byGAAP.

“**Cash Management Services**”****isdefined in Section 2.1.4.

“**Change in Control**” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “**Exchange Act**”)), other than a trustee or other fiduciary holding securities under an employee benefit plan of Parent, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Parent, representing fifty-one percent (51%) or more of the combined voting power of Parent’s then outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Board of Directors of Parent (together with any new directors whose election by the Board of Directors of Parent was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; or (c) any Borrower is no longer a wholly-owned subsidiary of Parent, or a wholly-owned subsidiary of a wholly-owned subsidiary of Parent, or a wholly-owned subsidiary of a wholly-owned subsidiary of a wholly-owned subsidiary of Parent.

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

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jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

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

“**Collateral Account**” is any Deposit Account, SecuritiesAccount, or Commodity Account.

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

“**Communication**” is defined in Section 10.

“**Compliance Certificate**” is that certain certificate in theform attached hereto as Exhibit D.

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

“**Control Agreement**” is any control agreement entered intoamong the depository institution at which a Person maintains a Deposit Accountor the securities intermediary or commodity intermediary at which a Personmaintains a Securities Account or a Commodity Account, such Person, and Bankpursuant to which Bank obtains control (within the meaning of the Code) oversuch Deposit Account, Securities Account, or Commodity Account.

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

“**Current Liabilities**” are (a) all obligations and liabilitiesof Parent and its Subsidiaries, on a consolidated basis, to Bank that maturewithin one (1) year, plus, (b) without duplication, all uses of the RevolvingLine (including, without limitation, (i) the amount of all outstandingLetters of Credit (including drawn but unreimbursed Letters of Credit) plus anamount equal to the Letter of Credit Reserves, (ii) the amounts used forCash Management Services, (iii) the FX Reserve, and (iv) the outstandingprincipal balance of any Advances under the Revolving Line (including anyamounts used for Cash Management Services)), plus, (c) without duplication, theaggregate amount of Parent’s and its Subsidiaries’ Total Liabilities, on a consolidatedbasis, that mature within one (1) year and the current portion of anySubordinated Debt permitted by Bank to be paid by any Borrower.

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

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

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

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

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

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

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“**Domestic Subsidiary**” means a Subsidiary organized under thelaws of the United States or any state or territory thereof or the District ofColumbia.

“**Draw Period**” is the period of time from the Effective Datethrough the earliest to occur of (a) June 26, 2007, (b) any Event ofDefault, or (c) any Default.

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

“**Eligible Accounts**” are, collectively, Eligible DomesticAccounts and Eligible Foreign Accounts.

“**Eligible Domestic Accounts**” are Accounts which arise in theordinary course of the applicable Borrower’s business that meet all Borrowers’representations and warranties in Section 5.3. Bank reserves the right at anytime and from time to time after the Effective Date upon written notice toBorrowers, to adjust any of the criteria set forth below and to establish newcriteria in its good faith business judgment. Unless Bank agrees otherwise inwriting, Eligible Domestic Accounts shall not include:

#### (a)           Accountsfor which the Account Debtor has not been invoiced;

#### (b)           Accountsthat the Account Debtor has not paid within 120 days of invoice date;

#### (c)           Accountsowing from an Account Debtor, fifty percent (50%) or more of whose Accountshave not been paid within 120 days of invoice date;

#### (d)           Creditbalances over 120 days from invoice date;

#### (e)           Accountsowing from an Account Debtor, including Affiliates, whose total obligations toBorrowers exceed twenty-five percent (25%) of all Accounts, for the amountsthat exceed that percentage, unless Bank approves in writing;

#### (f)            Accountsowing from an Account Debtor which does not have its principal place ofbusiness in the United States;

#### (g)           Accountsowing from an Account Debtor which is a federal, state or local governmententity or any department, agency, or instrumentality thereof, that Bankdetermines in its good faith business judgment are ineligible for loan purposeshereunder (without limiting the generality of the foregoing, Bank may in itsgood faith business judgment require that Borrowers assign to Bank their rightto payment of Accounts owing from an Account Debtor which is a federal entity,pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.));

#### (h)           Accountsowing from an Account Debtor to the extent that any Borrower is indebted orobligated in any manner to the Account Debtor (as creditor, lessor, supplier orotherwise - sometimes called “contra” accounts, accounts payable, customerdeposits or credit accounts), with the exception of customary credits,adjustments and/or discounts given to an Account Debtor by such Borrower in theordinary course of its business;

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

#### (j)            Accountsfor which the Account Debtor is any Borrower’s Affiliate, officer, employee, oragent;

#### (k)           Accountsin which the Account Debtor disputes liability or makes any claim (but only upto the disputed or claimed amount), or if the Account Debtor is subject to anInsolvency Proceeding, or becomes insolvent, or goes out of business;

#### (l)            Accountsowing from an Account Debtor with respect to which any Borrower has receiveddeferred revenue (but only to the extent of such deferred revenue);

#### (m)          Accountsfor which Bank in its good faith business judgment determines collection to bedoubtful;

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#### (n)           Accountswhich arise from the licensing or sale of registered copyrights or areotherwise proceeds of registered copyrights; and

#### (o)           otherAccounts Bank deems ineligible in the exercise of its good faith businessjudgment.

“**Eligible Equipment**” is the following to the extent that itcomplies with all of Borrowers’ representations and warranties to Bank, isacceptable to Bank in all respects and is subject to a first priority Lien infavor of Bank: (a) all of Borrowers’ general purpose new or used equipment usedin the manufacture, storage and distribution, of the products of Parent,Borrowers or Subsidiaries of Parent, including lasers, computer equipment,office equipment, test and laboratory equipment and furnishings, subject to thelimitations set forth herein, and (b) Other Equipment.

“**Eligible Equipment Purchase Period**” is defined inSection 2.1.5(a).

“**Eligible Foreign Accounts**” are Accounts for which theAccount Debtor does not have its principal place of business in the UnitedStates but are otherwise Eligible Accounts that Bank has not disapproved in itsgood faith business judgment.

“**Eligible Inventory**” means, at any time, the aggregate ofBorrowers’ Inventory that (a) consists of raw materials or finished goods, ingood, new, and salable condition, which is not perishable, returned, obsolete,not sellable, damaged, or defective, and is not comprised of demonstrative orcustom inventory, works in progress, packaging or shipping materials, orsupplies; (b) meets all applicable governmental standards; (c) has beenmanufactured in compliance with the Fair Labor Standards Act; (d) is notsubject to any Liens, except the first priority Liens granted or in favor ofBank under this Agreement or any of the other Loan Documents; (e) is TrunkInventory or is located at (i) the locations of Borrowers designated inBorrowers’ Perfection Certificates, (ii) new locations of Borrowers within theUnited States for which Borrowers have given Bank 30 days’ prior writtennotice, or (ii) the premises of consignees of such Inventory; and (f) isotherwise acceptable to Bank in its good faith business judgment.

“**Equipment**” is all “equipment” as defined in the Code withsuch additions to such term as may hereafter be made, and includes withoutlimitation all machinery, fixtures, goods, vehicles (including motor vehiclesand trailers), and any interest in any of the foregoing.

“**Equipment Advance**”****is defined inSection 2.1.5.

“**Equipment Line**”****is anEquipment Advance or Equipment Advances in an aggregate amount of up to$7,500,000.

“**ERISA**” is the Employment Retirement Income Security Act of1974, and its regulations.

“**Event of Default**” is defined in Section 8.

“**Event of Loss**” is defined in Section 2.1.5(c).

“**Excess Initial Equipment Advance**” is defined in Section2.1.5(a)(i).

“**Financed Equipment**” is all present and future EligibleEquipment in which any Borrower has any interest, the purchase of which isfinanced by an Equipment Advance.

“**Fiscal Quarter**” means one of the four 13-week periods duringeach fiscal year of Parent, each consisting of one five-week and two four-weekperiods.

“**Foreign Currency**” means lawful money of a country other thanthe United States.

“**Foreign Subsidiary**” means any Subsidiary which is not aDomestic Subsidiary.

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

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

“**FX Forward Contract**”****is defined inSection 2.1.3.

“**FX Reserve**”****is defined inSection 2.1.3.

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

“**General Intangibles**” is all “general intangibles” as definedin the Code in effect on the date hereof with such additions to such term asmay hereafter be made, and includes without limitation, all copyright rights,copyright applications, copyright registrations and like protections in eachwork of authorship and derivative work, whether published or unpublished, anypatents, trademarks, service marks and, to the extent permitted underapplicable law, any applications therefor, whether registered or not, any tradesecret rights, including any rights to unpatented inventions, paymentintangibles, royalties, contract rights, goodwill, franchise agreements,purchase orders, customer lists, route lists, telephone numbers, domain names,claims, income and other tax refunds, security and other deposits, options topurchase or sell real or personal property, rights in all litigation presentlyor hereafter pending (whether in contract, tort or otherwise), insurancepolicies (including without limitation key man, property damage, and businessinterruption insurance), payments of insurance and rights to payment of anykind.

“**Guarantor**” is any present or future guarantor of theObligations.

“**Indebtedness**” is (a) indebtedness for borrowed money or thedeferred price of property or services, such as reimbursement and otherobligations for surety bonds and letters of credit, (b) obligations evidencedby notes, bonds, debentures or similar instruments, (c) capital leaseobligations, and (d) Contingent Obligations.

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

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

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

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

“**Letter of Credit Application**” is defined in Section2.1.2(a).

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

“**Lien**” is a mortgage, lien, deed of trust, charge, pledge, securityinterest or other encumbrance.

“**Loan Amount**” in respect of each Equipment Advance is theoriginal principal amount of such Equipment Advance.

“**Loan Documents**” are, collectively, this Agreement, thePerfection Certificates, any note, or notes, or guaranties, or securityagreements, or pledge agreements executed by any Borrower or any Guarantor, andany other

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present or future agreement between any Borrower anyGuarantor and/or for the benefit of Bank in connection with this Agreement, allas amended, restated, or otherwise modified.

“**Material Adverse Change**” is (a) a material impairment in theperfection or priority of Bank’s Lien in the Collateral or in the value of suchCollateral; or (b) a material adverse change in the business, operations, financialor other conditions of any Borrower, Parent or any Subsidiary of Parent thatcould reasonably be expected to impact the ability of the Borrowers to repaythe Obligations or otherwise perform any of their Obligations under the LoanDocuments.

“**Material Indebtedness**” is any Indebtedness the principalamount of which is equal to or greater than $1,000,000.

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

“**Non-cash Stock Compensation Expense**” shall mean what isreported therefor by Parent in its financial statements.

“**Obligations**” are the aggregate of each Borrower’s obligationto pay when due any debts, principal, interest, Bank Expenses and other amountsBorrowers and each of them owes Bank now or later, whether under thisAgreement, the Loan Documents, or otherwise, including, without limitation, allobligations relating to letters of credit, cash management services, andforeign exchange contracts, if any, and including interest accruing afterInsolvency Proceedings begin and debts, liabilities, or obligations of any Borrowerassigned to Bank, and the performance of each Borrower’s duties under the LoanDocuments.

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

“**Other Equipment**” is leasehold improvements, intangibleproperty such as transferable computer software and transferable softwarelicenses, equipment specifically designed or manufactured for any Borrower,other intangible property, limited use property and other similar property andsoft costs approved by Bank, including taxes, shipping, warranty charges,freight discounts and installation expenses.

“**Overall Ancillary Sublimit**” is defined in Section 2.1.6.

“**Parent**” shall mean ev3 Inc., a Delaware corporation.

“**Payment/Advance Form**” is that certain form attached heretoas Exhibit B.

“**Perfection Certificate**” is defined in Section 5.1.

“**Permitted Distributions**” means:

#### (a)           purchasesof Parent’s capital stock from former employees, consultants and directorspursuant to repurchase agreements or other similar agreements in an aggregateamount not to exceed $500,000 for all such purchases by Parent and Parent’sSubsidiaries in any fiscal year, provided that at the time of such purchase noDefault or Event of Default has occurred and is continuing;

#### (b)           distributionsor dividends consisting solely of Parent’s capital stock;

#### (c)           purchasesfor value of any rights distributed in connection with any stockholder rightsplan;

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#### (d)           purchasesof capital stock or options to acquire such capital stock with the proceedsreceived from a substantially concurrent issuance of capital stock orconvertible securities;

#### (e)           purchasesof capital stock pledged as collateral for loans to employees;

#### (f)            purchasesof capital stock in connection with the exercise of stock options or stockappreciation rights by way of cashless exercise or in connection with thesatisfaction of withholding tax obligations;

#### (g)           purchasesof fractional shares of capital stock arising out of stock dividends, splits orcombinations or business combinations; and

#### (h)           thesettlement or performance of such Person’s obligations under any equityderivative transaction, option contract or similar transaction or combinationof transactions.

“**Permitted Indebtedness**” is:

#### (a)           Borrowers’Indebtedness to Bank under this Agreement or any other Loan Document;

#### (b)           anyIndebtedness set forth in Parents last 10Q report;

#### (c)           unsecuredIndebtedness of a Person to that Person’s trade creditors incurred in theordinary course of business;

#### (d)           Indebtednessincurred as a result of endorsing negotiable instruments received in theordinary course of business;

#### (e)           Indebtednessof a Person consisting of interest rate, currency, or commodity swapagreements, interest rate cap or collar agreements or arrangements designatedto protect such Person or any Borrower against fluctuations in interest rates,currency exchange rates, or commodity prices;

#### (f)            capitalizedleases and purchase money Indebtedness not creating any Lien on Accounts,Inventory or Financed Equipment;

#### (g)           Indebtednessof entities acquired in any permitted merger or acquisition transaction; and

#### (h)           refinancedPermitted Indebtedness, provided that the amount of such Indebtedness is notincreased except by an amount equal to a reasonable premium or other reasonableamount paid in connection with such refinancing and by an amount equal to anyexisting, but unutilized, commitment thereunder**.**

“**PermittedInvestments**” are:

#### (a)           Investmentsexisting on the Effective Date;

#### (b)           (i) marketabledirect obligations issued or unconditionally guaranteed by the United States orits agencies or any State maturing within 1 year from its acquisition, (ii)commercial paper maturing no more than 2 years after its creation and having arating of “A-2” or higher from Standard & Poor’s Rating Group or a ratingof “Prime-2” or higher from Moody’s Investors Service, Inc., and (iii) Bank’scertificates of deposit maturing no more than 2 years after issue;

#### (c)           Investmentsof a Person approved by such Person’s Board of Directors or the Board ofDirectors of Parent, or otherwise pursuant to an investment policy approved bysuch Person’s Board of Directors or the Board of Directors of Parent;

#### (d)           (i)Investments by a Borrower or Parent consisting of Collateral Accounts in thename of such Borrower or Parent (as applicable) so long as Bank has a firstpriority, perfected security interest in such Collateral Accounts, and (ii)Investments by any Subsidiary of Parent consisting of Collateral Accounts inthe name of such Subsidiary so long as (y) if it is a Domestic Subsidiary, Bankhas a first priority, perfected security interest in such

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#### Collateral Accounts or (z) if it is a foreign Subsidiary, the aggregatevalue of all Collateral Accounts of all foreign Subsidiaries of Parent shallnot at any time exceed a value of $12,000,000;

#### (e)           Investmentsby a Person consisting of extensions of credit to such Person’s customers inthe nature of accounts receivable, prepaid royalties or notes receivablearising from the sale or lease of goods, provision of services or licensingactivities of such Person;

#### (f)            Investmentsreceived in satisfaction or partial satisfaction of obligations owed byfinancially troubled obligors;

#### (g)           Investmentsacquired in exchange for any other Investments in connection with or as aresult of a bankruptcy, workout, reorganization or recapitalization;

#### (h)           Investmentsacquired as a result of a foreclosure with respect to any secured Investment;

#### (i)            Investmentsby a Person consisting of interest rate, currency, or commodity swapagreements, interest rate cap or collar agreements or arrangements designatedto protect such Person or a Borrower against fluctuations in interest rates,currency exchange rates, or commodity prices; Investments acquired as a resultof a foreclosure with respect to any secured Investment;

#### (j)            Investmentsby a Person consisting of loans and advances to such Person’s employees,provided that the aggregate amount of all such loans and advances of eachBorrower, Parent, and Parent’s Subsidiaries, does not at any time exceed$500,000; and

#### (k)           Investmentsconsisting of intercompany loans and advances made in the ordinary course ofbusiness between or among Parent and its Subsidiaries.

“**PermittedLiens**” are:

#### (a)           Liens in favor of Bank arising underthis Agreement or other Loan Documents;

#### (b)           Liens with respect to the assets of aPerson for taxes, fees, assessments or other government charges or levies,either not delinquent or being contested in good faith and for which suchPerson maintains adequate reserves on its Books, if they have no priority overany of Bank’s Liens;

#### (c)           Liens (including with respect tocapital leases) (i) on property (including accessions, additions, parts,replacements, fixtures, improvements and attachments thereto, and the proceedsthereof) acquired or held by a Person incurred for financing such property(including accessions, additions, parts, replacements, fixtures, improvementsand attachments thereto, and the proceeds thereof), or (ii) existing onproperty (and accessions, additions, parts, replacements, fixtures,improvements and attachments thereto, and the proceeds thereof) when acquired,if the Lien is confined to such property (including accessions, additions,parts, replacements, fixtures, improvements and attachments thereto, and theproceeds thereof);

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

#### (e)           leases or subleases of real propertygranted in the ordinary course of business, and leases, subleases,non-exclusive licenses or sublicenses of property (other than real property orintellectual property) granted in the ordinary course of business, if theleases, subleases, licenses and sublicenses do not prohibit granting Bank asecurity interest;

#### (f)            non-exclusive license of a Person’sintellectual property granted to third parties in such Person’s ordinary courseof business;

#### (g)           leases or subleases with respect toassets of a Person granted in such Person’s ordinary course of business,including in connection with leased premises or leased property;

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#### (h)           Liens in favor of custom and revenueauthorities arising as a matter of law to secure the payment of custom dutiesin connection with the importation of goods;

#### (i)            Liens on insurance proceeds securingthe payment of financed insurance premiums;

#### (j)            Liens on assets acquired in mergersand acquisitions not prohibited by Section 7 of this Agreement;

#### (k)           Liens consisting of pledges of cash,cash equivalents or government securities to secure swap or foreign exchangecontracts or letters of credit;

#### (l)            Liens arising from judgments,decrees or attachments in circumstances not constituting an Event of Default underSections 8.4 or 8.7;

#### (m)          Liens with respect to the assets of aPerson in favor of other financial institutions arising in connection with suchPerson’s deposit or securities accounts held at such institutions;

#### (n)           carriers’, warehousemen’s, mechanics’,materialmen’s, repairmen’s or other like Liens arising in the ordinary courseof business which are not overdue for a period of more than 30 days or whichare being contested in good faith and by appropriate proceeding if adequatereserves with respect thereto are maintained on the books of the applicablePerson;

#### (o)           pledges or deposits in the ordinarycourse of business in connection with workers’ compensation, unemploymentinsurance and compliance with other social security requirements applicable tothe applicable Person; and

#### (p)           Liens listed on any schedule approvedin writing by Bank in its discretion prior to the initial Credit Extension.

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

“**Prime Rate**” is Bank’s most recently announced “prime rate,”even if it is not Bank’s lowest rate.

“**Qualifying Initial Equipment Advance**” is defined inSection 2.1.5(a).

“**Quick Assets**” is, on any date, Parent’s and its Subsidiaries’consolidated, unrestricted cash, unrestricted Cash Equivalents, and net billedtrade accounts receivable determined according to GAAP.

“**Responsible Officer**” with respect to a Person is any of theChief Executive Officer, President, Chief Financial Officer and Controller ofsuch Person.

“**Revolving Line**” is an Advance or Advances in an aggregateamount of up to $30,000,000 outstanding at any time.

“**Revolving Line Maturity Date**”****isJune 26, 2008.

“**Secured Guarantor**” shall mean a Guarantor who has provided afirst-priority perfected security interest in all of its assets to secure itsguaranty, satisfactory to Bank.

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

“**Settlement Date**”****is defined inSection 2.1.3.

“**Subordinated Debt**” is (a) Indebtedness incurred by anyBorrower subordinated to Borrowers’ Indebtedness owed to Bank and which isreflected in a written agreement in a manner and form reasonably

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acceptable to Bank and approved by Bank in writing,and (b) to the extent the terms of subordination do not change adversely toBank, refinancings, refundings, renewals, amendments or extensions of any ofthe foregoing.

“**Subsequent Equipment Advance**” is defined inSection 2.1.5(a).

 “**Subsidiary**”means, with respect to any Person, any Person of which more than 50% of thevoting stock or other equity interests is owned or controlled, directly orindirectly, by such Person or one or more Affiliates of such Person. By way ofexample and not limitation, each Borrower shall be considered a Subsidiary ofParent.

“**Tangible Net Worth**” is, on any date, the consolidated totalassets of Parent and its Subsidiaries minus (a) any amounts attributableto (i) goodwill, (ii) intangible items including unamortized debt discount andexpense, patents, trade and service marks and names, copyrights and researchand development expenses except prepaid expenses, (iii) notes, accountsreceivable and other obligations owing to a Person from its officers or otherAffiliates, and (iv) reserves not already deducted from assets, minus(b) Total Liabilities of Parent and its Subsidiaries, plus (c) theaggregate amount of Non-cash Stock Compensation Expense for non-cash stockcompensation provided by Parent and its Subsidiaries to their employees duringthe period from June 30, 2006 to December 31, 2007.

“**Total Liabilities**” is on any day, obligations that should,under GAAP, be classified as liabilities on the consolidated balance sheet ofParent and its Subsidiaries, including all Indebtedness, and current portion ofSubordinated Debt permitted by Bank to be paid by Borrowers, but excluding allother Subordinated Debt.

“**Transfer**” is defined in Section 7.1.

“**Trunk Inventory**” shall mean Inventory in the possession ofsalesmen of Borrowers for purposes of marketing or supplying products toBorrowers’ customers.

“**Unused Revolving Line Fee**” is defined inSection 2.4(c).

**[**Signature page follows.**]**

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

 

BORROWERS:
| **EV3 ENDOVASCULAR, INC.**     | **EV3 INTERNATIONAL, INC.**    |
|--------------------------------|--------------------------------|
| ** **                     | ** **                     |
| By:                            | /s/ Patrick D. Spangler        |   | By: | /s/ Patrick D. Spangler |   |
| Name: Patrick D. Spangler      | Name: Patrick D. Spangler      |
| Title: Chief Financial Officer | Title: Chief Financial Officer |
| ** **                     | ** **                     |
| ** **                     | ** **                     |
| **MICRO THERAPEUTICS, INC.**   |                           |
| ** **                     |                           |
| By:                            | /s/ Patrick D. Spangler        |   |   |
| Name: Patrick D. Spangler      |                           |
| Title: Chief Financial Officer |                           |

 

 
| BANK:                         |
|-------------------------------|
|                          |
| **SILICON VALLEY BANK**       |
| ** **                    |
| By                            | /s/ |   |
| Name:                         |   |   |
| Title:                        |   |   |
| Effective Date: June 28, 2006 |
|                               |  |  |  |

 

[Signature page to Loanand Security Agreement]

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**EXHIBIT A**

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

All goods, Accounts (including health-carereceivables), Equipment, Inventory, contract rights or rights to payment ofmoney, leases, license agreements, franchise agreements, General Intangibles(except as provided below), commercial tort claims, documents, instruments(including any promissory notes), chattel paper (whether tangible orelectronic), cash, deposit accounts, certificates of deposit, fixtures, lettersof credit rights (whether or not the letter of credit is evidenced by awriting), securities, and all other investment property, supportingobligations, and financial assets, whether now owned or hereafter acquired, whereverlocated; and

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

Notwithstanding theforegoing, the Collateral does not include any of the following, whether nowowned, licensed from others, or otherwise held or hereafter acquired, licensedfrom others, or otherwise held:  anycopyright rights, copyright applications, copyright registrations and likeprotections in each work of authorship and derivative work, whether publishedor unpublished, any patents, patent applications and like protections, includingimprovements, divisions, continuations, renewals, reissues, extensions, andcontinuations-in-part of the same, trademarks, service marks and, to the extentpermitted under applicable law, any applications therefor, whether registeredor not, and the goodwill of the business of such Borrower connected with andsymbolized thereby, know-how, operating manuals, prototypes, trade secretrights, rights to unpatented inventions, and any claims for damage by way ofany past, present, or future infringement of any of the foregoing; provided,however, the Collateral shall include all Accounts, license and royalty feesand other revenues, proceeds, or income arising out of or relating to any ofthe foregoing.

Pursuant to the termshereof, each Borrower has agreed not to encumber any of its copyright rights,copyright applications, copyright registrations and like protections in eachwork of authorship and derivative work, whether published or unpublished, anypatents, patent applications and like protections, including improvements,divisions, continuations, renewals, reissues, extensions, andcontinuations-in-part of the same, trademarks, service marks and, to the extentpermitted under applicable law, any applications therefor, whether registeredor not, and the goodwill of the business of such Borrower connected with andsymbolized thereby, know-how, operating manuals, prototypes, trade secretrights, rights to unpatented inventions, and any claims for damage by way ofany past, present, or future infringement of any of the foregoing, whether anyof the foregoing is now owned, licensed from others, or otherwise held orhereafter acquired, licensed from others, or otherwise held, without Bank’sprior written consent.

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**EXHIBIT B**

**LoanPayment/Advance Request Form**

**DEADLINE FOR SAME DAY PROCESSING IS NOON P.S.T.***
| Fax To:  952-475-8471 | Date: |   |   |
|----------------------------|-------|--------|--------|

 
| **LOAN PAYMENT:**         |             |
|---------------------------|------------------|
| [Insert Borrower  name]   |
| ** **                |             |
| From Account #            | ** **       | ** ** | To Account # |   |   |
| (Deposit Account  #)      | (Loan Account #) |
| Principal $               |             |   | and/or Interest $ |   |   |
|                      |             |
| **Authorized Signature:** |             |   | Phone Number: |   |   |
| Print Name/Title:         |             |   |   |
|                           |                  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| **LOAN ADVANCE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                |
| Complete *Outgoing Wire Request*  section below if all or a portion of the funds from this loan advance are for  an outgoing wire.                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                |
| From Account #                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** **          | ** ** | To Account # |   |   |
| (Loan Account #)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | (Deposit Account #) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                |
| Amount of Advance $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                |
| All Borrower’s representations and warranties in the  Loan and Security Agreement are true, correct and complete in all material  respects on the date of the request for an advance; provided, however, that  such materiality qualifier shall not be applicable to any representations and  warranties that already are qualified or modified by materiality in the text  thereof; and provided, further that those representations and warranties  expressly referring to a specific date shall be true, accurate and complete  in all material respects as of such date: |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                     |  |  |  |  |  |

 
| **Authorized Signature:** |   |   | Phone Number: |   |   |
|---------------------------|--------|--------|---------------|--------|--------|
| Print Name/Title:         |   |   |          |
|                           |        |        |               |        |        |  |

 

 
| **OUTGOING WIRE REQUEST:**                                                                                                                                                                                                                                                                                       |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Complete only if all or a portion of funds from  the loan advance above is to be wired.**                                                                                                                                                                                                                      |
| Deadline for same day processing is noon, P.S.T.                                                                                                                                                                                                                                                                 |
| ** **                                                                                                                                                                                                                                                                                                       |       |
| Beneficiary Name:                                                                                                                                                                                                                                                                                                | ** ** | ** ** | Amount of Wire:  $ |   |   |
| Beneficiary Bank:                                                                                                                                                                                                                                                                                                | ** ** | ** ** | Account Number: |   |   |
| City and State:                                                                                                                                                                                                                                                                                                  | ** ** | ** ** |   |
|                                                                                                                                                                                                                                                                                                             | ** ** | ** ** |   |
| Beneficiary Bank Transit (ABA) #:                                                                                                                                                                                                                                                                                | ** ** | ** ** | Beneficiary Bank Code (Swift, Sort, Chip, etc.): |   |   |
|                                                                                                                                                                                                                                                                                                             | ** ** | **(For  International Wire Only)** |
|                                                                                                                                                                                                                                                                                                             | ** ** | ** ** |
| Intermediary Bank:                                                                                                                                                                                                                                                                                               |       | ** ** | Transit (ABA) #: | ** ** | ** ** |
| For Further Credit to:                                                                                                                                                                                                                                                                                           |       | ** ** |   |
|                                                                                                                                                                                                                                                                                                             | ** ** |   |
| Special Instruction:                                                                                                                                                                                                                                                                                             | ** ** |   |
|                                                                                                                                                                                                                                                                                                             | ** ** |   |
| *By signing below, I (we) acknowledge and agree  that my (our) funds transfer request shall be processed in accordance with  and subject to the terms and conditions set forth in the agreements(s) covering  funds transfer service(s), which agreements(s) were previously received and  executed by me (us).* |
| * *                                                                                                                                                                                                                                                                                                         |
| Authorized Signature:                                                                                                                                                                                                                                                                                            | ** ** | ** ** | 2nd Signature (if required): |   |   |
| Print Name/Title:                                                                                                                                                                                                                                                                                                | ** ** | ** ** | Print  Name/Title: |   |   |
| Telephone #:                                                                                                                                                                                                                                                                                                     | ** ** | ** ** | Telephone #: |   |   |
|                                                                                                                                                                                                                                                                                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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*Unless otherwise provided for an Advance bearing interest at LIBOR, ifapplicable.

1

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**EXHIBIT C**

**BORROWINGBASE CERTIFICATE**

Borrower:Lender:     Silicon Valley BankCommitment Amount:  $
| ACCOUNTS RECEIVABLE                                   |                                                                                                                                                           |   |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 1.                                                    | Accounts  Receivable Book Value as of                                                                                                                          |   | $ |   |
| 2.                                                    | Additions  (please explain on reverse)                                                                                                                         |   | $ |   |
| 3.                                                    | TOTAL  ACCOUNTS RECEIVABLE                                                                                                                                     |   | $ |   |
|                                                  |                                                                                                                                                           |   |   |
| ACCOUNTS  RECEIVABLE DEDUCTIONS (without duplication) |                                                                                                                                                           |   |
| 4.                                                    | Un-invoiced  Accounts                                                                                                                                          |   | $ |   |
| 5.                                                    | Amounts  over 120 days due                                                                                                                                     |   | $ |   |
| 6.                                                    | Balance  of 50% over 120 day accounts                                                                                                                          |   | $ |   |
| 7.                                                    | Credit  balances over 120 days                                                                                                                                 |   | $ |   |
| 8.                                                    | Concentration  Limits                                                                                                                                          |   | $ |   |
| 9.                                                    | Foreign  Accounts determined ineligible by SVB                                                                                                                 |   | $ |   |
| 10.                                                   | Governmental  Accounts determined ineligible by SVB                                                                                                            |   | $ |   |
| 11.                                                   | Contra  Accounts                                                                                                                                               |   | $ |   |
| 12.                                                   | Promotion  or Demo Accounts                                                                                                                                    |   | $ |   |
| 13.                                                   | Intercompany/Employee  Accounts                                                                                                                                |   | $ |   |
| 14.                                                   | Disputed  Accounts                                                                                                                                             |   | $ |   |
| 15.                                                   | Deferred  Revenue                                                                                                                                              |   | $ |   |
| 16.                                                   | Other  (please explain on reverse)                                                                                                                             |   | $ |   |
| 17.                                                   | TOTAL  ACCOUNTS RECEIVABLE DEDUCTIONS                                                                                                                          |   | $ |   |
| 18.                                                   | Eligible  Accounts (#3 minus #17)                                                                                                                              |   | $ |   |
| 19.                                                   | ELIGIBLE  AMOUNT OF ACCOUNTS (    % of #18)                                                                                                |   | $ |   |
|                                                  |                                                                                                                                                           |   |   |
| INVENTORY                                             |                                                                                                                                                           |   |
| 20.                                                   | Eligible  Inventory Value as of                                                                                                                                |   | $ |   |
| 21.                                                   | ELIGIBLE  AMOUNT OF INVENTORY (     % of #20 but not more than  the lesser of (i) $7,500,000 or (ii) 33% of 80% of Eligible Accounts) |   | $ |   |
|                                                  |                                                                                                                                                           |   |   |
| BALANCES                                              |                                                                                                                                                           |   |
| 22.                                                   | Maximum  Loan Amount                                                                                                                                           |   | $ |   |
| 23.                                                   | Total  Funds Available [Lesser of #22 or (#19 plus #21)]                                                                                                       |   | $ |   |
| 24.                                                   | Present  balance owing on Line of Credit                                                                                                                       |   | $ |   |
| 25.                                                   | Outstanding  under Sublimits                                                                                                                                   |   | $ |   |
| 26.                                                   | RESERVE POSITION (#23  minus #24 and #25)                                                                                                                      |   | $ |   |

 

*The undersigned represents and warrants that thisis true, complete and correct, and that the information in this Borrowing BaseCertificate complies with the representations and warranties in the Loan andSecurity Agreement between the undersigned and Silicon Valley Bank.*
|           | **BANK  USE ONLY**                                                                                    |
|-----------|-------------------------------------------------------------------------------------------------------|
| COMMENTS: | Received by:                                                                                          | * * | * * |
|      | AUTHORIZED  SIGNER                                                                                    |
|      | Date:                                                                                                 | * * | * * |
| By:       |                                                                                                  |   | Verified: | * * | * * |
|      | Authorized  Signer                                                                                    |   | AUTHORIZED  SIGNER |
| Date:     |                                                                                                  |   | Date: | * * | * * |
|      | Compliance Status:      Yes       No |
|           |                                                                                                       |  |  |  |  |  |  |  |

 

1

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**EXHIBIT D**

**COMPLIANCECERTIFICATE**
| TO:   | SILICON VALLEY BANK                                                                                                                                                     | Date: |   |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------|--------|
| FROM: | ev3 Endovascular, Inc.; ev3 International, Inc.;  Micro Therapeutics, Inc. (the foregoing are referred to as “Borrowers”); and ev3  Inc. (“Parent”) |

 

The undersigned authorized officers of Borrowers andParent certify that under the terms and conditions of the Loan and SecurityAgreement between Borrowers and Bank (the “Agreement”), (1) Borrowers arein complete compliance for the period ending                           with all required covenants except as noted below, (2) there are no Eventsof Default, (3) all representations and warranties in the Agreement aretrue and correct in all material respects on this date except as noted below; provided,however, that such materiality qualifier shall not be applicable to anyrepresentations and warranties that already are qualified or modified bymateriality in the text thereof; and provided further that thoserepresentations and warranties expressly referring to a specific date shall betrue, accurate and complete in all material respects as of such date,(4) Borrowers, Parent, and each of its Subsidiaries have timely filed allrequired tax returns and reports, and Borrowers, Parent, and each of itsSubsidiaries have timely paid all foreign, federal, state and local taxes,assessments, deposits and contributions owed by them except as otherwisepermitted pursuant to the terms of Section 5.9 of the Agreement, and(5) no Liens have been levied or claims made against Borrowers, Parent, orany of its Subsidiaries relating to unpaid employee payroll or benefits ofwhich Borrowers have not previously provided written notification to Bank.  Attached are the required documentssupporting the certification.  Theundersigned certify that these are prepared in accordance with GAAPconsistently applied from one period to the next except as explained in anaccompanying letter or footnotes.  Theundersigned acknowledge that no borrowings may be requested at any time or dateof determination that Borrowers are not in compliance with any of the terms ofthe Agreement, and that compliance is determined not just at the date thiscertificate is delivered.  Capitalizedterms used but not otherwise defined herein shall have the meanings given themin the Agreement.

**Please indicate compliance statusby circling Yes/No under “Complies” column.**
| Reporting Covenant                                                                                         | ** ** | **Required**                                              | ** ** | **Complies**            |
|------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-------------------------|
| Monthly financial statements with Compliance  Certificate                                                  |       | Monthly within 30 days                                    |       | Yes   No |
| 10-K with Compliance Certificate                                                                           |       | Within 5 days of filing with SEC but within 120 days  FYE |       | Yes   No |
| 10-Q with Compliance Certificate                                                                           |       | Within 5 days of filing with SEC but within 45 days  FQE  |       | Yes   No |
| 8-K                                                                                                        |       | Within 5 days after filing with SEC                       |       | Yes   No |
| Borrowing Base Certificate (if applicable), A/R  & A/P Agings, cash balance reports, inventory reports |       | Quarterly within 30 days                                  |       | Yes   No |
| Annual financial projections                                                                               |       | Prior to FYE for following year                           |       | Yes   No |

r
| Financial Covenant                     | ** ** | **Required** | ** ** | **Actual**                                                                   | ** ** | **Complies**            |
|----------------------------------------|------------|--------------|------------|------------------------------------------------------------------------------|------------|-------------------------|
| Maintain at all times, tested monthly: | ** ** | ** **   | ** ** | ** **                                                                   | ** ** | ** **              |
| Minimum Quick  Ratio                   |       | 1.3:1.0      |       |             :1.0 |       | Yes   No |
| Minimum Tangible  Net Worth            |       | $*           |       | $                          |       | Yes   No |

 

----

*         $90,000,000 from Effective Date through11/30/06; $95,000,000 from 12/1/06 through 5/31/07; $105,000,000 from 6/1/07through 8/31/07; $108,000,000 from 9/1/07 through 11/30/07; $115,000,000 from12/1/07 and thereafter.

1

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Amountand locations of cash and Cash Equivalents:                                                                                .

Other(*e.g.*, legal actions):                                                                                .

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

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

 

 

 
| EV3 ENDOVASCULAR, INC.   | **BANK USE ONLY** |
|--------------------------|-------------------|
|                     |              |
| By:                      |              |   | Received by: |   |   |
| Name:                    |              |   | AUTHORIZED SIGNER |
| Title:                   |              |   | Date: |   |   |
|                     |              |
|                     | Verified:         |   |   |
| EV3 INTERNATIONAL, INC.  | AUTHORIZED SIGNER |
|                     |              |
|                     | Date:             |   |   |
| By:                      |              |   |   |
| Name:                    |              |   |   |
| Title:                   |              |   | Compliance Status:      Yes     No |
|                     |              |
|                     |              |
| MICRO THERAPEUTICS, INC. |              |
|                     |              |
|                     |              |
| By:                      |              |   |   |
| Name:                    |              |   |   |
| Title:                   |              |   |   |
|                     |              |
|                     |              |
| EV3 INC.                 |              |
|                     |              |
|                     |              |
| By:                      |              |   |   |
| Name:                    |              |   |   |
| Title:                   |              |   |   |
|                          |                   |  |  |  |  |  |  |  |  |  |  |

 

2

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**Schedule 1 to Compliance Certificate**

**Financial Covenants of Borrower**

| Dated: |   |   |
|--------|--------|--------|

 

**I.**                                         **Quick Ratio** (Section 6.7(a))

Required:                                             1.3:1.00

Actual:
| A.     |   | Aggregate value of the unrestricted cash and  unrestricted Cash Equivalents of Parent and its Subsidiaries on a  consolidated basis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $      |   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| B.     |   | Aggregate value of the net billed trade accounts  receivable of Parent and its Subsidiaries on a                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | $      |   |
|   |   | consolidated basis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| C.     |   | Quick Assets: the sum of lines A through B                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | $      |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| D.     |   | Current Liabilities: (a) all obligations and  liabilities of Parent and its Subsidiaries, on a consolidated basis, to Bank  that mature within one (1) year, plus, (b) without duplication, all uses of  the Revolving Line (including, without limitation, (i) the amount of all  outstanding Lettersof Credit (including drawn but unreimbursed Letters of  Credit) plus an amount equal to the Letter of Credit Reserves, (ii) the  amounts used for Cash Management Services, (iii) the FX Reserve, and  (iv) the outstanding principal balance of any Advances under the Revolving  Line (including any amounts used for Cash Management Services)), plus, (c)  without duplication, the aggregate amount of Parent’s and its Subsidiaries’  Total Liabilities, on a consolidated basis, that mature within one (1) year  and the current portion of any Subordinated Debt permitted by Bank to be paid  by any Borrower | $      |   |
|   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| E.     |   | Quick Ratio (line C divided by line D)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |

 

Is line E equal to orgreater than 1.3:1:00?
|  |   |           |  No, not in compliance |   | Yes, in compliance |   |   |
|--|--------|--------------------------------------------------------|-----------------------------|--------|--------------------|--------|--------|

 

**II.**                                     **Tangible Net Worth** (Section 6.7(b))

Required:                                             $           

Actual:
| A.     |   | Consolidated value of total assets of Parent and its  Subsidiaries                                                                                        | $      |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                      |   |   |
| B.     |   | Consolidated value of goodwill of Parent and its  Subsidiaries                                                                                            | $      |   |
|   |   |                                                                                                                                                      |   |   |
| C.     |   | Consolidated value of intangible assets of Parent  and its Subsidiaries and obligations owed to Parent and its Subsidiaries from  officers and Affiliates | $      |   |
|   |

 

3

----

 
| D.     |   | Consolidated value of any reserves not already deducted  from assets                                                                                                                                                    | $      |   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                                                                                    |   |   |
| E.     |   | Consolidated value of liabilities of Parent and its  Subsidiaries (including all Indebtedness) and current portion of any  Subordinated Debt permitted by Bank to be paid by Borrower (but no other  Subordinated Debt) | $      |   |
|   |
|   |   |                                                                                                                                                                                                                    |   |   |
| F.     |   | Aggregate non-cash stock compensation from Parent  and its Subsidiaries to their employees from 6/30/06 to 12/31/07                                                                                                     | $      |   |
|   |
|   |   |                                                                                                                                                                                                                    |   |   |
| G.     |   | Tangible Net Worth (line A minus line B minus line C  minus line D minus line E plus line F)                                                                                                                            | $      |   |

 

Is line G equal to orgreater than the Required amount?
|  |   |           |  No, not in compliance |   | Yes, in compliance |   |   |
|--|--------|--------------------------------------------------------|-----------------------------|--------|--------------------|--------|--------|

 

4

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