Exhibit 10.2


 


Silicon Valley Bank


 


Loan
and Security Agreement


 


	
  Borrower:

  	
  Endocardial Solutions, Inc.

  
	
  Address:

  	
  1350 Energy Lane, Suite 110

  
	
   

  	
  St. Paul, MN  55108

  
	
   

  	
   

  
	
  Date:

  	
  September 24, 2003

  



 


THIS LOAN AND SECURITY
AGREEMENT is entered into on the above date between SILICON VALLEY
BANK (“Silicon”), whose address is 3003 Tasman Drive, Santa Clara,
California  95054 and the borrower(s)
named above (jointly and severally, the “Borrower”), whose chief executive
office is located at the above address (“Borrower’s Address”). The Schedule to
this Agreement (the “Schedule”) shall for all purposes be deemed to be a part
of this Agreement, and the same is an integral part of this Agreement.  (Definitions of certain terms used in this
Agreement are set forth in Section 8 below.)*


 












*As set forth in the Amendment
to Loan Documents of even date between Silicon and the Borrower, this Loan
Agreement amends and restates in its entirety the Loan and Security Agreement
dated June 28, 2001 (as amended from time to time) between Silicon and
Borrower.


 


1.     LOANS.


 


1.1  Loans.  Silicon will make loans to Borrower (the
“Loans”) up to the amounts (the “Credit Limit”) shown on the Schedule, provided
no Default or Event of Default has occurred and is continuing, and subject to
deduction of Reserves for accrued interest and such other Reserves as Silicon
deems proper from time to time in its good faith business judgment.


 


1.2  Interest.  All Loans and all other monetary Obligations
shall bear interest at the rate shown on the Schedule, except where expressly
set forth to the contrary in this Agreement. 
Interest shall be payable monthly, on the last day of the month.  Interest may, in Silicon’s discretion, be
charged as a Loan hereunder to Borrower’s loan account, and the same shall thereafter
bear interest at the same rate as the other Loans.  Silicon may alternatively, in its discretion, charge interest to
Borrower’s Deposit Accounts maintained with Silicon.  Regardless of the amount of Obligations that may be outstanding
from time to time, Borrower shall pay Silicon minimum monthly interest during
the term of this Agreement in the amount set forth on the Schedule (the
“Minimum Monthly Interest”).


 


1.3  Overadvances.  If at any time or for any reason the total of
all outstanding Loans and all other monetary Obligations exceeds the Credit
Limit (an “Overadvance”), Borrower shall immediately pay the amount of the
excess to Silicon, without notice or demand, provided that under ordinary
circumstances, but without any obligation to do so, Silicon will use its best
efforts to contact the Borrower regarding the payment of any such
Overadvance.  Without limiting
Borrower’s obligation to repay to Silicon the amount of any Overadvance,
Borrower agrees to pay Silicon interest on the outstanding amount of any
Overadvance, on demand, at the Default Rate.


 


1.4  Fees.  Borrower shall pay Silicon the fees shown on
the Schedule, which are in addition to all interest and other sums payable to
Silicon and are not refundable.


 


1.5 Loan Requests. To obtain a
Loan, Borrower shall make a request to Silicon by facsimile or telephone. Loan
requests received after 12:00 Noon will not be considered by Silicon until the
next Business Day. Silicon may rely on any telephone request for a Loan given
by a person whom Silicon believes is an authorized representative of Borrower,
and Borrower will indemnify Silicon for any loss Silicon suffers as a result of
that reliance.


 


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1.6  Letters of
Credit.   At the request of Borrower, Silicon may, in
its good faith business judgment, issue or arrange for the issuance of letters
of credit for the account of Borrower, in each case in form and substance
satisfactory to Silicon in its sole discretion (collectively, “Letters of
Credit”).  The aggregate face amount of
all Letters of Credit from time to time outstanding shall not exceed the amount
shown on the Schedule (the “Letter of Credit Sublimit”), and shall be reserved
against Loans which would otherwise be available hereunder, and in the event at
any time there are insufficient Loans available to Borrower for such reserve,
Borrower shall deposit and maintain with Silicon cash collateral in an amount
at all times equal to such deficiency, which shall be held as Collateral for
all purposes of this Agreement. Borrower shall pay all bank charges (including
charges of Silicon) for the issuance of Letters of Credit, together with such
additional fee as shall represent the standard charges of Silicon’s letter of
credit department in connection with the issuance of the Letters of
Credit.  Any payment by Silicon under or
in connection with a Letter of Credit shall constitute a Loan hereunder on the
date such payment is made.  Each Letter
of Credit shall have an expiry date no later than 364 days from the date of
issuance.  Borrower hereby agrees to
indemnify and hold Silicon harmless from any loss, cost, expense, or liability,
including payments made by Silicon, expenses, and reasonable attorneys’ fees
incurred by Silicon arising out of or in connection with any Letters of
Credit.  Borrower agrees to be bound by
the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower’s account or by Silicon’s good
faith interpretations of any Letter of Credit issued by Silicon for Borrower’s
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower’s instructions or those contained in the Letters of Credit
or any modifications, amendments, or supplements thereto, other than for
Silicon’s gross negligence or willful misconduct.  Borrower understands that Letters of Credit may require Silicon
to indemnify the issuing bank for certain costs or liabilities arising out of
claims by Borrower against such issuing bank. 
Borrower hereby agrees to indemnify and hold Silicon harmless with
respect to any loss, cost, expense, or liability incurred by Silicon under any
Letter of Credit issued for the account of Borrower, as a result of Silicon’s
indemnification of any such issuing bank, unless such loss was caused by
Silicon’s gross negligence or willful misconduct.  The provisions of this Loan Agreement, as it pertains to Letters
of Credit, and any other Loan Documents relating to Letters of Credit are
cumulative.


 


2.  SECURITY INTEREST. To secure the
payment and performance of all of the Obligations when due, Borrower hereby
grants to Silicon a security interest in all of the following (collectively, the
“Collateral”):  all right, title and
interest of Borrower in and to all of the following, whether now owned or
hereafter arising or acquired and wherever located: all Accounts; all
Inventory; all Equipment; all Deposit Accounts; all General Intangibles (including
without limitation all Intellectual Property); all Investment Property; all
Other Property; and any and all claims, rights and interests in any of the
above, and all guaranties and security for any of the above, and all
substitutions and replacements for, additions, accessions, attachments,
accessories, and improvements to, and proceeds 
(including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties) of, any and all of the above, and all Borrower’s
books relating to any and all of the above. 
Silicon agrees to enter into subordination agreements with respect to
equipment financing transactions of the Borrower entered into on or after the
date hereof, with respect to equipment being purchased or acquired substantially
concurrently with such financing transactions, provided that (i) the form of
said agreement is acceptable to Silicon in its good faith business judgment,
and (ii) the liens to which Silicon’s security interest is to be subordinated
are confined solely to the equipment so financed and the proceeds thereof and
otherwise constitute Permitted Liens.


 


3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BORROWER.


 


In order to induce
Silicon to enter into this Agreement and to make Loans, Borrower represents and
warrants to Silicon as follows, and Borrower covenants that the following
representations will continue to be true, and that Borrower will at all times
comply with all of the following covenants, throughout the term of this
Agreement and until all Obligations have been paid and performed in full (other
than inchoate indemnity obligations of Borrower hereunder that survive any
termination of this Agreement):


 


3.1  Corporate
Existence and Authority. 
Borrower is and will continue to be, duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation.  Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would result in a Material Adverse Change.  The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (i)
have been duly and validly authorized, (ii) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors’ rights generally), and (iii) do not violate
Borrower’s articles or certificate of incorporation, or Borrower’s by-laws, or
any law or any  material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any agreement or instrument which is binding upon Borrower or its
property.


 


3.2  Name; Trade
Names and Styles. 
The name of Borrower set forth in the heading to this Agreement is its
correct name.  Listed in the
Representations are all prior names of Borrower and all of Borrower’s present
and prior trade names.  Borrower shall
give Silicon 30 days’ prior written notice before changing its name or doing
business under any other name.  Borrower


 


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has complied, and will in the future comply, in all material respects,
with all laws relating to the conduct of business under a fictitious business
name, except where the failure to so comply would not reasonably be expected to
result in a Material Adverse Change.


 


3.3  Place of
Business; Location of Collateral.  The address set forth in the heading to this
Agreement is Borrower’s chief executive office.  In addition, Borrower has places of business and Collateral is
located only at the locations set forth in the Representations.  Borrower will give Silicon at least 30 days
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower’s Address or one of the locations set forth in the
Representations, except that Borrower may maintain sales offices in the
ordinary course of business at which not more than a total of $10,000 fair
market value of Equipment is located.


 


3.4  Title to
Collateral; Perfection; Permitted Liens.


 


(a)   Borrower is
now, and will at all times in the future be, the sole owner of all the
Collateral, except for items of Equipment which are leased to Borrower.  The Collateral now is and will remain free
and clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens. 
Silicon now has, and will continue to have, a first-priority perfected
and enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and Borrower will at all times defend Silicon and the Collateral
against all claims of others (other than for rightful claims pertaining to the
holders of Permitted Liens).


 


(b)   Borrower has
set forth in the Representations all of Borrower’s Deposit Accounts, and
Borrower will give Silicon five Business Days advance written notice before
establishing any new Deposit Accounts and will cause the institution where any
such new Deposit Account is maintained to execute and deliver to Silicon a
control agreement in form sufficient to perfect Silicon’s security interest in
the Deposit Account and otherwise satisfactory to Silicon in its good faith
business judgment.  Nothing herein
limits any requirements which may be set forth in the Schedule as to where
Deposit Accounts will be maintained.


 


(c)   In the event
that Borrower shall at any time after the date hereof have any commercial tort
claims against others, which it is asserting or intends to assert, and in which
the potential recovery exceeds $100,000, Borrower shall promptly notify Silicon
thereof in writing and provide Silicon with such information regarding the same
as Silicon shall request (unless providing such information would waive the
Borrower’s attorney-client privilege). 
Such notification to Silicon shall constitute a grant of a security
interest in the commercial tort claim and all proceeds thereof to Silicon, and
Borrower shall execute and deliver all such documents and take all such actions
as Silicon shall reasonably request in connection therewith.


 


(d)   None of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. 
Borrower is not and will not become a lessee under any real property
lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will
prohibit, restrain or impair Borrower’s right to remove any Collateral from the
leased premises.  Whenever any
Collateral is located upon premises in which any third party has an interest,
Borrower shall, whenever requested by Silicon, use its best efforts to cause
such third party to execute and deliver to Silicon, in form acceptable to
Silicon in its good faith business judgment, such waivers and subordinations as
Silicon shall specify in its good faith business judgment, except when any such
Collateral is in transit or located at any subcontractor’s facility.  Borrower will keep in full force and effect,
and will comply with all material terms of, any lease of real property where
any of the Collateral now or in the future may be located.


 


3.5  Maintenance of
Collateral.  Borrower will not use the Collateral for any unlawful purpose and
will maintain the Collateral in good working condition (ordinary wear and tear
excepted), subject, however, to any dispositions of Collateral that are
otherwise specifically permitted and authorized hereunder.  Borrower will immediately advise Silicon in
writing of any material loss or damage in excess of $150,000 to the Collateral.


 


3.6  Books and
Records. 
Borrower has maintained and will maintain at Borrower’s Address complete
and accurate books and records, comprising an accounting system in accordance
with GAAP.


 


3.7  Financial
Condition, Statements and Reports.  All financial statements now or in the
future delivered to Silicon have been, and will be, prepared in conformity with
GAAP and now and in the future will fairly present the results of operations
and financial condition of Borrower, in accordance with GAAP, at the times and
for the periods therein stated, provided that, interim financial statements may
be subject to year end adjustments, although the lack of any such adjustments
in any such interim financial statements shall not, in the reasonable judgment
of the certifying officer at the time, render the interim financial statements
misleading or reflect anything other than a fair presentation of such results
of operations and the financial condition of Borrower.  Between the last date covered by any such
statement provided to Silicon and the date hereof, there has been no Material
Adverse Change.


 


3.8  Tax Returns and
Payments; Pension Contributions.  Borrower has timely filed, and will timely
file, all required tax returns and reports, and Borrower has timely paid, and
will timely pay, all foreign, federal, state and local taxes, assessments,


 


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deposits and contributions now or in the future owed by Borrower.  Borrower may, however, defer payment of any
contested taxes, provided that Borrower (i) in good faith contests Borrower’s
obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (ii) notifies Silicon in writing of the commencement
of, and any material development in, any such proceedings involving more than
$100,000, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral.  Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result
in additional taxes becoming due and payable by Borrower.  Borrower has paid, and shall continue to pay
all amounts necessary to fund all present and future pension, profit sharing
and deferred compensation plans in accordance with their terms, and Borrower
has not and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation
or its successors or any other governmental agency.


 


3.9  Compliance with
Law.  Borrower has, to
the best of its knowledge, complied, and will comply, in all material respects,
with all provisions of all foreign, federal, state and local laws and
regulations applicable to Borrower, including, but not limited to, those
relating to Borrower’s ownership of real or personal property, the conduct and
licensing of Borrower’s business, and all environmental matters.


 


3.10  Litigation.  There is no claim, suit, litigation,
proceeding or investigation pending or (to best of Borrower’s knowledge)
threatened against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which could
reasonably be expected to result, either separately or in the aggregate, in any
Material Adverse Change.  Borrower will
promptly inform Silicon in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted against Borrower involving
any single claim of $50,000 or more, or involving $100,000 or more in the
aggregate.


 


3.11  Use of
Proceeds. 
All proceeds of all Loans shall be used solely for lawful business
purposes.  Borrower is not purchasing or
carrying any “margin stock” (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) and no part of the proceeds of any
Loan will be used to purchase or carry any “margin stock” or to extend credit
to others for the purpose of purchasing or carrying any “margin stock.”


 


4.  ACCOUNTS.


 


4.1  Representations
Relating to Accounts.  Borrower
represents and warrants to Silicon as follows: 
Each Account with respect to which Loans are requested by Borrower
shall, on the date each Loan is requested and made, (i) represent an undisputed
bona fide existing unconditional obligation of the Account Debtor created by
the sale, delivery, and per Borrower’s contracts, the deemed acceptance of
goods (which Borrower sends FOB point of shipping) or the rendition of
services, or the non-exclusive licensing of Intellectual Property, in the
ordinary course of Borrower’s business, and (ii) meet the Minimum Eligibility
Requirements set forth in  Section 8
below.


 


4.2  Representations
Relating to Documents and Legal Compliance. 
Borrower represents and warrants to
Silicon as follows:  To the best of
Borrower’s knowledge, all statements made and all unpaid balances appearing in
all invoices, instruments and other documents evidencing the Accounts are and
shall be true and correct and all such invoices, instruments and other
documents and all of Borrower’s books and records are and shall be genuine and
in all respects what they purport to be. 
To the best of Borrower’s knowledge, all sales and other transactions
underlying or giving rise to each Account shall comply in all material respects
with all applicable laws and governmental rules and regulations.  To the best of Borrower’s knowledge, all
signatures and endorsements on all documents, instruments, and agreements
relating to all Accounts are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.


 


4.3  Schedules and
Documents relating to Accounts.  Borrower
shall deliver to Silicon transaction reports and schedules of collections, as
provided in the Schedule, on Silicon’s standard forms; provided, however, that
Borrower’s failure to execute and deliver the same shall not affect or limit
Silicon’s security interest and other rights in all of Borrower’s Accounts, nor
shall Silicon’s failure to advance or lend against a specific Account affect or
limit Silicon’s security interest and other rights therein. If requested by
Silicon, Borrower shall furnish Silicon with copies (or, at Silicon’s request,
originals) of all contracts, orders, invoices, and other similar documents, and
all shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Accounts, and Borrower warrants the genuineness of all of the foregoing
(to the best of its knowledge). 
Borrower shall also furnish to Silicon an aged accounts receivable trial
balance as provided in the Schedule.  In
addition, Borrower shall deliver to Silicon, on its reasonable request, the
originals of all instruments, chattel paper, security agreements, guarantees
and other documents and property evidencing or securing any Accounts, in the
same form as received, with all necessary indorsements, and copies of all
credit memos.


 


4.4  Collection of
Accounts.  Borrower shall have the right to collect all Accounts, unless and
until a Default or an Event of Default has occurred and is continuing.  Whether or not an Event of Default has
occurred and is continuing, Borrower shall


 


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hold all payments on, and proceeds of, Accounts in trust for Silicon,
and Borrower shall immediately (with term “immediately” meaning in this context
within One Business Day) deliver all such payments and proceeds to Silicon in
their original form, duly endorsed, by depositing the same into the lockbox or
“blocked account” referred to below, to be applied to the Obligations in such
order as Silicon shall determine. 
Silicon will require that all proceeds of Collateral be deposited by
Borrower into a lockbox account, or such other “blocked account” as Silicon may
specify, pursuant to a blocked account agreement in such form as Silicon may
specify in its good faith business judgment.


 


4.5.  Remittance of
Proceeds.  All proceeds
arising from the disposition of any Collateral shall be delivered, in kind, by
Borrower to Silicon in the original form in which received by Borrower not
later than the following Business Day after receipt by Borrower, to be applied
to the Obligations in such order as Silicon shall determine; provided that, if
no Default or Event of Default has occurred and is continuing, Borrower shall
not be obligated to remit to Silicon the proceeds of the sale of worn out or
obsolete Equipment disposed of by Borrower in good faith in an arm’s length
transaction for an aggregate purchase price of $25,000 or less (for all such
transactions in any fiscal year). 
Borrower agrees that it will not commingle proceeds of Collateral with
any of Borrower’s other funds or property, but will hold such proceeds separate
and apart from such other funds and property and in an express trust for
Silicon.  Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.


 


4.6  Disputes.  Borrower shall notify Silicon promptly of all
disputes or claims in excess of $35,000 relating to Accounts.  Borrower shall not forgive (completely or
partially), compromise or settle any Account for less than payment in full, or
agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm’s length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts, settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit.


 


4.7  Returns.  Provided no Event of Default has occurred
and is continuing, if any Account Debtor returns any Inventory to Borrower,
Borrower shall promptly determine the reason for such return and if such return
is customarily acceptable to Borrower under the circumstances, then Borrower
shall promptly issue a credit memorandum to the Account Debtor in the
appropriate amount.  In the event any
attempted return occurs after the occurrence and during the continuance of any
Event of Default, Borrower shall hold the returned Inventory in trust for
Silicon, and immediately notify Silicon of the return of the Inventory.


 


4.8  Verification.  Silicon may, from time to time, verify
directly with the respective Account Debtors the validity, amount and other matters
relating to the Accounts, by means of mail, telephone or otherwise, either in
the name of Borrower or Silicon or such other name as Silicon may choose.


 


4.9  No Liability.  Silicon shall not be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to an Account,
or for any error, act, omission, or delay of any kind occurring in the
settlement, failure to settle, collection or failure to collect any Account, or
for settling any Account in good faith for less than the full amount thereof,
nor shall Silicon be deemed to be responsible for any of Borrower’s obligations
under any contract or agreement giving rise to an Account.  Nothing herein shall, however, relieve
Silicon from liability for its own gross negligence or willful misconduct.


 


5.  ADDITIONAL DUTIES OF BORROWER.


 


5.1  Financial and
Other Covenants. 
Borrower shall at all times comply with the financial and other
covenants set forth in the Schedule.


 


5.2  Insurance.  Borrower shall, at all times insure all of
the tangible personal property Collateral and carry such other business
insurance, with insurers reasonably acceptable to Silicon, in such form and
amounts as Silicon may reasonably require and that are customary and in
accordance with standard practices for Borrower’s industry and locations, and
Borrower shall provide evidence of such insurance to Silicon.  All such property insurance policies shall
name Silicon as an additional loss payee, and shall contain a lenders loss
payee endorsement in form reasonably acceptable to Silicon.  Upon receipt of the proceeds of any such
insurance, Silicon shall promptly apply such proceeds in reduction of the Obligations
in accordance with Silicon’s standard procedures, except that, provided no
Default or Event of Default has occurred and is continuing, Silicon shall
release to Borrower insurance proceeds with respect to Equipment totaling less
than $100,000, which shall be utilized by Borrower for the replacement of the
Equipment assets with respect to which the insurance proceeds were paid.  Silicon may require reasonable assurance
that the insurance proceeds so released will be so used.  If Borrower fails to provide or pay for any
insurance as described in this Section 5.2 or as may be otherwise required
under the Loan Documents, Silicon may, but is not obligated to, obtain the same
at Borrower’s expense.  Borrower shall
promptly deliver to Silicon copies of all material reports made to insurance
companies.  Silicon hereby acknowledges
that existing insurance policies are acceptable and comport with Section 5.2.


 


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5.3  Reports.  Borrower, at its expense, shall provide
Silicon with the written reports set forth in the Schedule, and such other
written reports with respect to Borrower (including budgets, sales projections,
operating plans and other financial documentation), as Silicon shall from time
to time specify in its good faith business judgment.


 


5.4  Access to
Collateral, Books and Records. 
At reasonable times, and on one Business Day’s prior notice, Silicon, or
its agents, shall have the right to inspect the Collateral, and the right to
audit and copy Borrower’s books and records. The parties contemplate that such
audits will be performed no more frequently than quarterly, but nothing herein
restricts Silicon’s right to conduct such audits more frequently if (i) Silicon
believes that it is advisable to do so in Silicon’s good faith business
judgment, or (ii) Silicon believes in good faith that an event of default or an
event which, with notice or passage of time or both would constitute an event
of default, has occurred and is continuing. Silicon shall take reasonable steps
to keep confidential all information obtained in any such inspection or audit,
but Silicon shall have the right to disclose any such information to its
auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or
other legal process.  The foregoing
inspections and audits shall be at Borrower’s expense and the charge therefor
shall be $750 per person per day (or such higher amount as shall represent
Silicon’s then current standard charge for the same), plus reasonable
out-of-pocket expenses. In the event Borrower and Silicon schedule an audit
more than 10 days in advance, and Borrower seeks to reschedule the audit with
less than five days’ written notice to Silicon, then (without limiting any of
Silicon’s rights or remedies), Borrower shall pay Silicon a cancellation fee of
$1,000 plus any out-of-pocket expenses incurred by Silicon, to compensate
Silicon for the anticipated costs and expenses of the cancellation.


 


5.5  Negative
Covenants. 
Except as may be permitted in the Schedule, Borrower shall not, without
Silicon’s prior written consent (which shall be a matter of its good faith
business judgment), do any of the following: 
(i) merge or consolidate with another corporation or entity; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter into
any other transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral, except for the sale of finished Inventory in the
ordinary course of Borrower’s business, and except for the sale of obsolete or
unneeded Equipment in the ordinary course of business and non-exclusive
licenses and similar non-exclusive arrangements for the use of Intellectual
Property; (v) store any Inventory or other Collateral with any warehouseman or
other third party which has not executed and delivered to Silicon a bailee
agreement or other similar agreement acceptable to Silicon in its good faith
business judgment with respect to finished goods inventory, except when any
such Collateral or Inventory is in transit or located at a subcontractor’s
facility; (vi) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis other than for such customary and
ordinary course return transactions arising from Borrower’s product warranties;
(vii) make any loans of any money or other assets, other than (a) travel
advances to Borrower’s employees in the ordinary course of business consistent
with past business practices (including without limitation, for travel
entertainment and relocation expenses) and in aggregate amounts consistent with
past ordinary course business practices of Borrower; (b) extension of trade
credit in the ordinary course of business to non-affiliated entities; (c) other
loans and advances to employees, officers and directors, in the ordinary course
of business in an aggregate principal amount not to exceed $25,000, at any time
outstanding for all such loans to all employees, officers and directors,
provided, no new such loans and advances shall be made while any Default or
Event of Default is then occurring; (viii) incur any debts, outside the
ordinary course of business, which results in a Material Adverse Change; (ix)
guarantee or otherwise become liable with respect to the obligations of another
party or entity; (x) pay or declare any dividends on Borrower’s stock (except
for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower’s stock,
except that Borrower may repurchase its stock in accordance with Borrower’s
employee stock option plan, provided that the aggregate amount of consideration
paid by Borrower for such repurchases shall not exceed $100,000 in the
aggregate in any fiscal year, and before and after giving effect to any such
repurchase no Default or Event of Default has occurred and is continuing; (xii)
make any change in Borrower’s capital structure which would result in a
Material Adverse Change; or (xiii) engage, directly or indirectly, in any
business other than the businesses currently engaged in by Borrower or reasonably
related thereto; or (xiv) dissolve or elect to dissolve.  Transactions permitted by the foregoing
provisions of this Section are only permitted if no Default or Event of Default
would occur as a result of such transaction.


 


5.6  Litigation
Cooperation. 
Should any third-party suit or proceeding be instituted by or against
Silicon with respect to any Collateral or relating to Borrower, Borrower shall,
upon reasonable notice, without expense to Silicon, make available Borrower and
its officers, employees and agents and Borrower’s books and records, to the
extent that Silicon may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.


 


5.7  Further
Assurances. 
Borrower agrees, at its expense, on request by Silicon, to execute all
documents and take all actions, as Silicon, may, in its good faith business
judgment, deem reasonably necessary or useful in order to perfect and maintain
Silicon’s perfected first-priority security interest in the Collateral (subject
to Permitted Liens), and in order to fully consummate the transactions
contemplated by this Agreement.


 


6

















 


6.   TERM.


 


6.1  Maturity Date.  This Agreement shall continue in effect
until the maturity date set forth on the Schedule (the “Maturity Date”),
subject to Section 6.3 below.


 


6.2  Early
Termination. 
This Agreement may be terminated prior to the Maturity Date as
follows:  (i) by Borrower, effective
three Business Days after written notice of termination is given to Silicon; or
(ii) by Silicon at any time after the occurrence and during the continuance of
an Event of Default, without notice, effective immediately.  If this Agreement is terminated by Borrower
or by Silicon under this Section 6.2, Borrower shall pay to Silicon a
termination fee in an amount equal to $40,000 plus one percent (1.0%) of the
aggregate outstanding principal balance of the Term Loans, provided that no
termination fee shall be charged if the credit facility hereunder is replaced
with a new facility from another division of Silicon Valley Bank.  The termination fee shall be due and payable
on the effective date of termination and thereafter shall bear interest at a
rate equal to the highest rate applicable to any of the Obligations.


 


6.3  Payment of
Obligations. 
On the Maturity Date or on any earlier effective date of termination,
Borrower shall pay and perform in full all Obligations (other than for any
inchoate indemnity obligations of Borrower hereunder that survive termination
of this Agreement), whether evidenced by installment notes or otherwise, and
whether or not all or any part of such Obligations are otherwise then due and
payable.  Without limiting the
generality of the foregoing, if on the Maturity Date, or on any earlier effective
date of termination, there are any outstanding Letters of Credit issued by
Silicon or issued by another institution based upon an application, guarantee,
indemnity or similar agreement on the part of Silicon, then on such date
Borrower shall provide to Silicon cash collateral in an amount equal to 105% of
the face amount of all such Letters of Credit plus all interest, fees and cost
due or to become due in connection therewith (as estimated by Silicon in its
good faith business judgment, taking into account the excess of cash collateral
over 100% of the face amount of such Letters of Credit), to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon’s then
standard form cash pledge agreement. 
Notwithstanding any termination of this Agreement, all of Silicon’s
security interests in all of the Collateral and all of the terms and provisions
of this Agreement shall continue in full force and effect until all Obligations
have been paid and performed in full; provided that Silicon may, in its sole
discretion, refuse to make any further Loans after termination.  No termination shall in any way affect or
impair any right or remedy of Silicon, nor shall any such termination relieve
Borrower of any Obligation to Silicon, until all of the Obligations (other than
for any inchoate indemnity obligations of Borrower hereunder that survive
termination of this Agreement) have been paid and performed in full.  Upon payment and performance in full of all
the Obligations and termination of this Agreement, Silicon shall promptly
terminate its financing statements with respect to the Borrower and deliver to
Borrower such other documents as may be required to fully terminate Silicon’s
security interests and Silicon shall further reassign and redeliver (or cause
to be reassigned or redelivered) to Borrower, or to such person as Borrower
shall designate, against receipt, such of the Borrower’s assets delivered to
Silicon as shall have not been sold or otherwise applied by Silicon pursuant to
the terms of the Loan Documents that are still then held by Silicon.


 


7.  EVENTS OF DEFAULT AND REMEDIES.


 


7.1  Events of
Default. 
The occurrence of any of the following events shall constitute an “Event
of Default” under this Agreement, and Borrower shall give Silicon immediate
written notice thereof: (a) Any warranty, representation, statement, report or
certificate made or delivered to Silicon by Borrower or any of Borrower’s
officers, employees or agents, now or in the future, shall be untrue or
misleading in a material respect when made or deemed to be made; or (b)
Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation; or (c) the total Loans and other Obligations
outstanding at any time shall exceed the Credit Limit provided, however, if an
Overadvance results directly from a change by Silicon of either the amount of
Reserves or of the “Minimum Eligibility Requirements”, then if Borrower fails
to pay such Overadvance within three Business Days of the occurrence of the
Overadvance; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule, or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured, or shall fail to
permit Silicon to conduct an inspection or audit as specified in Section 5.4
hereof; or (e) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within five Business Days after the date
due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral
which is not cured within 10 days after the occurrence of the same; or (g) any
default or event of default occurs under any obligation in excess of $100,000,
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has resulted or
may reasonably be expected to result in a Material Adverse Change; or (i)
Dissolution, termination of existence, insolvency or business failure of
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect,
which is not dismissed within 45 days after the date commenced; or (j) the
commencement of any proceeding against Borrower or any guarantor of any of the
Obligations under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 45 days after the date


 


7

















 


commenced; or (k) revocation or termination of, or limitation or denial
of liability upon, any guaranty of the Obligations or any attempt to do any of
the foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or (l) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or (m)
Borrower makes any payment on account of any indebtedness or obligation which
has been subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or (n) if a Person or group of affiliated Persons shall acquire,
beneficially or of record, more than 30% of the outstanding shares of stock of
Borrower, in one or more transactions, and such Person or group of affiliated
Persons has “control” of the Borrower (which shall mean the effective ability
to elect a majority of the Board of Directors of Borrower) (such acquisition
and control referred to herein as a “Change in Control”), then Borrower shall
notify Silicon of the Change in Control within five Business Days after
Borrower has actual knowledge of the Change in Control, and if Silicon shall give
written notice to Borrower that, in the exercise of its good faith business
judgment it does not consent to the Change in Control then the same shall
constitute an Event of Default; or (o) Borrower shall generally not pay its
debts as they become due, or Borrower shall conceal, remove or transfer any
part of its property, with intent to hinder, delay or defraud its creditors, or
make or suffer any transfer of any of its property which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or (p) a Material
Adverse Change shall occur.  Silicon may
cease making any Loans hereunder during any of the above cure periods, and
thereafter if an Event of Default has occurred and is continuing.


 


7.2  Remedies.  Upon the occurrence and during the
continuance of any Event of Default, and at any time thereafter, Silicon, at
its option, and without notice or demand of any kind (all of which are hereby
expressly waived by Borrower, to the extent permitted by law), may do any one
or more of the following: (a) Cease making Loans or otherwise extending credit
to Borrower under this Agreement or any other Loan Document; (b) Accelerate and
declare all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process (subject to the
rights of any landlord regarding any of Borrower’s leased premises) to enter
onto any of Borrower’s premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain on the
premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge for so long as Silicon deems it necessary, in its good
faith business judgment, in order to complete the enforcement of its rights
under this Agreement or any other agreement; provided, however, that should
Silicon seek to take possession of any of the Collateral by court process,
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to
assemble any or all of the Collateral and make it available to Silicon at
places designated by Silicon which are reasonably convenient to Silicon and
Borrower, and to remove the Collateral to such locations as Silicon may deem
advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Silicon shall have the right to use Borrower’s premises,
vehicles, hoists, lifts, cranes, and other Equipment and all other property
without charge; (f) Sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on credit,
and to adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. 
Silicon shall have the right to conduct such disposition on Borrower’s
premises (subject to the rights of any landlord regarding any of Borrower’s
leased premises) without charge, for such time or times as Silicon deems
reasonable, or on Silicon’s premises, or elsewhere and the Collateral need not
be located at the place of disposition. 
Silicon may directly or through any affiliated company purchase or lease
any Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition. 
Any sale or other disposition of Collateral shall not relieve Borrower
of any liability Borrower may have if any Collateral is defective as to title
or physical condition or otherwise at the time of sale; (g) Demand payment of,
and collect any Accounts and General Intangibles comprising Collateral and, in
connection therewith, Borrower irrevocably authorizes Silicon to endorse or
sign Borrower’s name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Silicon’s good faith business judgment, to grant extensions of
time to pay, compromise claims and settle Accounts and the like for less than
face value; (h) Offset against any sums in any of Borrower’s general, special
or other Deposit Accounts with Silicon against any or all of the Obligations;
and (i) Demand and receive possession of any of Borrower’s federal and state
income tax returns and the books and records utilized in the preparation
thereof or referring thereto.  All
reasonable attorneys’ fees, expenses, costs, liabilities and obligations
incurred by Silicon with respect to the foregoing shall be added to and become
part of the Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the
Obligations.  Without limiting any of
Silicon’s rights and remedies,


 


8

















 


from and after the occurrence and during the continuance of any Event
of Default, the interest rate applicable to the Obligations shall be increased
by an additional four percent per annum (the “Default Rate”).


 


7.3  Standards for
Determining Commercial Reasonableness.  Borrower and Silicon agree that a sale or
other disposition (collectively, “sale”) of any Collateral which complies with
the following standards will conclusively be deemed to be commercially
reasonable:  (i) Notice of the sale is
given to Borrower at least ten days prior to the sale, and, in the case of a
public sale, notice of the sale is published at least five days before the sale
in a newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m. (in the time zone where collateral
is located);  (v) Payment of the
purchase price in cash or by cashier’s check or wire transfer is required; (vi)
With respect to any sale of any of the Collateral, Silicon may (but is not
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.  Silicon shall be free to employ other methods of noticing and
selling the Collateral, in its discretion, if they are commercially reasonable.


 


7.4  Power of
Attorney. 
Upon the occurrence and during the continuance of any Event of Default,
without limiting Silicon’s other rights and remedies, Borrower grants to
Silicon an irrevocable power of attorney coupled with an interest, authorizing
and permitting Silicon (acting through any of its employees, attorneys or
agents) at any time, at its option, but without obligation, with or without
notice to Borrower, and at Borrower’s expense, to do any or all of the
following, in Borrower’s name or otherwise, but Silicon agrees that if it exercises
any right hereunder, it will do so in good faith and in a commercially
reasonable manner:  (a) Execute on
behalf of Borrower any documents that Silicon may, in its good faith business
judgment, deem advisable in order to perfect and maintain Silicon’s security
interest in the Collateral, or in order to exercise a right of Borrower or
Silicon, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other Loan Documents; (b) Execute on behalf of
Borrower, any invoices relating to any Account, any draft against any Account
Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy,
any Notice of Lien, claim of mechanic’s, materialman’s or other lien, or
assignment or satisfaction of mechanic’s, materialman’s or other lien; (c) Take
control in any manner of any cash or non-cash items of payment or proceeds of
Collateral; endorse the name of Borrower upon any instruments, or documents,
evidence of payment or Collateral that may come into Silicon’s possession; (d)
Endorse all checks and other forms of remittances received by Silicon; (e) Pay,
contest or settle any lien, charge, encumbrance, security interest and adverse
claim in or to any of the Collateral, or any judgment based thereon, or otherwise
take any action to terminate or discharge the same; (f) Grant extensions of
time to pay, compromise claims and settle Accounts and General Intangibles for
less than face value and execute all releases and other documents in connection
therewith; (g) Pay any sums required on account of Borrower’s taxes or to
secure the release of any liens therefor, or both; (h) Settle and adjust, and
give releases of, any insurance claim that relates to any of the Collateral and
obtain payment therefor; (i) Instruct any third party having custody or control
of any books or records belonging to, or relating to, Borrower to give Silicon
the same rights of access and other rights with respect thereto as Silicon has
under this Agreement; and (j) Take any action or pay any sum required of
Borrower pursuant to this Agreement and any other Loan Documents.  Any and all reasonable sums paid and any and
all reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Silicon with respect to the foregoing shall be added to and become
part of the Obligations, shall be payable on demand, and shall bear interest at
a rate equal to the highest interest rate applicable to any of the
Obligations.  In no event shall
Silicon’s rights under the foregoing power of attorney or any of Silicon’s
other rights under this Agreement be deemed to indicate that Silicon is in
control of the business, management or properties of Borrower.  The foregoing power of attorney shall expire
upon payment in full of the Obligations (other than for inchoate indemnity
obligations which survive the termination of this Agreement) and the
termination of this Agreement.


 


7.5  Application of
Proceeds. 
All proceeds realized as the result of any sale of the Collateral shall
be applied by Silicon first to the reasonable costs, expenses, liabilities,
obligations and attorneys’ fees incurred by Silicon in the exercise of its
rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Silicon shall determine in its sole discretion.  Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Silicon for any deficiency.  If, Silicon, in its good faith business
judgment, directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Silicon shall have
the option, exercisable at any time, in its good faith business judgment, of
either reducing the Obligations by the principal amount of purchase price or
deferring the reduction of the Obligations until the actual receipt by Silicon
of the cash therefor.


 


7.6  Remedies
Cumulative. 
In addition to the rights and remedies set forth in this Agreement,
Silicon shall have all the other rights and remedies accorded a secured party
under the California Uniform Commercial Code and under all other applicable
laws, and under any other instrument or agreement now or in the future entered
into between Silicon and Borrower, and all of such rights and remedies are
cumulative and none is exclusive. 
Exercise or partial exercise by Silicon of one or more of its rights or
remedies shall not be deemed an election, nor bar Silicon from subsequent
exercise or partial exercise of


 


9

















 


any other rights or remedies. 
The failure or delay of Silicon to exercise any rights or remedies shall
not operate as a waiver thereof, but all rights and remedies shall continue in
full force and effect until all of the Obligations have been fully paid and
performed.


 


8.     DEFINITIONS. 
As used in this Agreement, the following terms have the following
meanings:


 


“Account Debtor”
means the obligor on an Account.


 


“Accounts” means
all present and future “accounts” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all accounts
receivable and other sums owing to Borrower.


 


 “Affiliate” means, with respect to any
Person, a relative, partner, shareholder, director, officer, or employee of
such Person, or any parent or subsidiary of such Person, or any Person
controlling, controlled by or under common control with such Person.


 


“Business Day”
means a day on which Silicon is open for business.


 


“Code” means the
Uniform Commercial Code as adopted and in effect in the State of
California  from time to time.


 


“Collateral” has
the meaning set forth in Section 2 above.


 


“continuing” and
“during the continuance of” when used with reference to a Default or
Event of Default means that the Default or Event of Default has occurred and
has not been either waived in writing by Silicon or cured within any applicable
cure period.


 


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


 


“Default Rate”
has the meaning set forth in Section 7.2 above.


 


“Deposit Accounts”
means all present and future “deposit accounts” as defined in the California
Uniform Commercial Code in effect on the date hereof with such additions to
such term as may hereafter be made, and includes without limitation all general
and special bank accounts, demand accounts, checking accounts, savings accounts
and certificates of deposit.


 


“Eligible Inventory”
[Not Applicable]


 


“Eligible Accounts”
means Accounts and General Intangibles arising in the ordinary course of
Borrower’s business from the sale of goods or the rendition of services, or the
non-exclusive licensing of Intellectual Property, which Silicon, in its good
faith business judgment, shall deem eligible for borrowing.  Without limiting the fact that the
determination of which Accounts are eligible for borrowing is a matter of
Silicon’s good faith business judgment, the following (the “Minimum
Eligibility Requirements”) are the minimum requirements for a Account to be
an Eligible Account:  (i) the Account
must not be outstanding for more than 90 days from its invoice date (the “Eligibility
Period”), (ii) the Account must not represent progress billings, or be due
under a fulfillment or requirements contract with the Account Debtor, (iii) the
Account must not be subject to any contingencies (including Accounts arising
from sales on consignment, guaranteed sale or other terms pursuant to which
payment by the Account Debtor may be conditional) other than for potential
customary and ordinary course returns arising from Borrower’s product
warranties, (iv) the Account must not be owing from an Account Debtor with whom
Borrower has any dispute (whether or not relating to the particular Account),
(v) the Account must not be owing from an Affiliate of Borrower, (vi) the
Account must not be owing from an Account Debtor which is subject to any
insolvency or bankruptcy proceeding, or whose financial condition is not
acceptable to Silicon, or which, fails or goes out of a material portion of its
business, (vii) the Account must not be owing from the United States or any
department, agency or instrumentality thereof (unless there has been
compliance, to Silicon’s satisfaction, with the United States Assignment of
Claims Act), (viii) the Account must not be owing from an Account Debtor
located outside the United States or Canada (unless pre-approved by Silicon in
its discretion in writing, or backed by a letter of credit satisfactory to
Silicon, or FCIA insured satisfactory to Silicon),  (ix) the Account must not be owing from an Account Debtor to whom
Borrower is or may be liable for goods purchased from such Account Debtor or
otherwise (but, in such case, the Account will be deemed not eligible only to
the extent of any amounts owed by Borrower to such Account Debtor). Accounts
owing from one Account Debtor will not be deemed Eligible Accounts to the
extent they exceed 25% of the total Accounts outstanding.  In addition, if more than 50% of the
Accounts owing from an Account Debtor are outstanding for a period longer than
their Eligibility Period (without regard to unapplied credits) or are otherwise
not eligible Accounts, then all Accounts owing from that Account Debtor will be
deemed ineligible for borrowing. 
Silicon may, from time to time, in its good faith business judgment,
revise the Minimum Eligibility Requirements, upon written notice to Borrower.


 


“Equipment” means
all present and future “equipment” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all machinery,
fixtures, goods, vehicles (including motor vehicles and trailers), and any
interest in any of the foregoing.


 


10

















 


“Event of Default”
means any of the events set forth in Section 7.1 of this Agreement.


 


“GAAP” means
generally accepted accounting principles consistently applied.


 


“General Intangibles”
means all present and future “general intangibles” as defined in the California
Uniform Commercial Code in effect on the date hereof with such additions to
such term as may hereafter be made, and includes without limitation all Intellectual
Property, payment intangibles, royalties, contract rights, goodwill, franchise
agreements, purchase orders, customer lists, route lists, telephone numbers,
domain names, claims, income tax refunds, security and other deposits, options
to purchase or sell real or personal property, rights in all litigation
presently or hereafter pending (whether in contract, tort or otherwise),
insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment
of any kind.


 


“good faith business
judgment” means honesty in fact and good faith (as defined in Section 1201
of the Code) in the exercise of Silicon’s business judgment.


 


“including” means
including (but not limited to).


 


 “Intellectual Property” means all
present and future (a) copyrights, copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished, (b) trade secret
rights, including all rights to unpatented inventions and know-how, and
confidential information; (c) mask work or similar rights available for the
protection of semiconductor chips; (d) patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same; (e) trademarks, servicemarks, trade styles, and trade names, whether or
not any of the foregoing are registered, and all applications to register and
registrations of the same and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by any such trademarks; (f)
computer software and computer software products; (g) designs and design rights;
(h) technology; (i) all claims for damages by way of past, present and future
infringement of any of the rights included above; (j) all licenses or other
rights to use any property or rights of a type described above.


 


“Inventory” means
all present and future “inventory” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all merchandise, raw
materials, parts, supplies, packing and shipping materials, work in process and
finished products, including without limitation such inventory as is
temporarily out of Borrower’s custody or possession or in transit and including
any returned goods and any documents of title representing any of the above.


 


“Investment Property”
means all present and future investment property, securities, stocks, bonds,
debentures, debt securities, partnership interests, limited liability company
interests, options, security entitlements, securities accounts, commodity
contracts, commodity accounts, and all financial assets held in any securities
account or otherwise, and all options and warrants to purchase any of the
foregoing, wherever located, and all other securities of every kind, whether
certificated or uncertificated.


 


“Loan Documents”
means, collectively, this Agreement, the Representations, and all other present
and future documents, instruments and agreements between Silicon and Borrower,
including, but not limited to those relating to this Agreement, and all
amendments and modifications thereto and replacements therefor.


 


“Material
Adverse Change” means any of the following: (i) a material adverse change
in the business, operations, or financial or other condition of the Borrower,
or (ii) a material impairment of the prospect of repayment of any portion of
the Obligations; or (iii) a material impairment of the value or priority of
Silicon’s security interests in the Collateral.


 


“Obligations”
means all present and future Loans, advances, debts, liabilities, obligations,
guaranties, covenants, duties and indebtedness at any time owing by Borrower to
Silicon, whether evidenced by this Agreement or any note or other instrument or
document, or otherwise, whether arising from an extension of credit, opening of
a letter of credit, banker’s acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by Silicon in Borrower’s debts
owing to others), absolute or contingent, due or to become due, including,
without limitation, all interest, charges, expenses, fees, attorney’s fees,
expert witness fees, audit fees, letter of credit fees, collateral monitoring
fees, closing fees, facility fees, termination fees, minimum interest charges
and any other sums chargeable to Borrower under this Agreement or under any
other Loan Documents.


 


“Other Property”
means the following as defined in the California Uniform Commercial Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and all rights relating thereto: all present and future “commercial tort
claims” (including without limitation any commercial tort claims identified in
the Representations), “documents”, “instruments”, “promissory notes”, “chattel
paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm
products” and “money”; and all other goods and personal property of every kind,
tangible and intangible, whether or not governed by the California Uniform
Commercial Code.


 


11

















 


 “Permitted Liens” means the
following:  (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Silicon, which consent may be
withheld in its good faith business judgment; (v) security interests being
terminated substantially concurrently with this Agreement; (vi) liens of
materialmen, mechanics, warehousemen, carriers, or other similar liens arising
in the ordinary course of business and securing obligations which are not
delinquent; (vii) liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by liens of the type described above
in clauses (i) or (ii) above, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien and
the principal amount of the indebtedness being extended, renewed or refinanced
does not increase; (viii) Liens in favor of customs and revenue authorities
which secure payment of customs duties in connection with the importation of
goods.  Silicon will have the right to
require, as a condition to its consent under subparagraph (iv) above, that the
holder of the additional security interest or lien sign an intercreditor
agreement on Silicon’s then standard form, acknowledge that the security
interest is subordinate to the security interest in favor of Silicon, and agree
not to take any action to enforce its subordinate security interest so long as
any Obligations remain outstanding, and that Borrower agree that any uncured
default in any obligation secured by the subordinate security interest shall
also constitute an Event of Default under this Agreement.


 


“Person” means
any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.


 


“Representations”
means the written Representations and Warranties provided by Borrower to
Silicon referred to in the Schedule.


 


“Reserves” means,
as of any date of determination, such amounts as Silicon may from time to time
establish and revise in its good faith business judgment, reducing the amount
of Loans, Letters of Credit and other financial accommodations which would
otherwise be available to Borrower under the lending formula(s) provided in the
Schedule:  (a) to reflect events,
conditions, contingencies or risks which, as determined by Silicon in its good
faith business judgment, do or may adversely affect (i) the Collateral or any
other property which is security for the Obligations or its value (including
without limitation any increase in delinquencies of Accounts), (ii) the assets,
business or prospects of Borrower or any Guarantor, or (iii) the security
interests and other rights of Silicon in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Silicon’s
good faith belief that any collateral report or financial information furnished
by or on behalf of Borrower or any Guarantor to Silicon is or may have been
incomplete, inaccurate or misleading in any material respect; or (c) in respect
of any state of facts which Silicon determines in good faith constitutes an
Event of Default or may, with notice or passage of time or both, constitute an
Event of Default.


 


Other
Terms.  All accounting
terms used in this Agreement, unless otherwise indicated, shall have the
meanings given to such terms in accordance with GAAP, consistently
applied.  All other terms contained in
this Agreement, unless otherwise indicated, shall have the meanings provided by
the Code, to the extent such terms are defined therein.


 


9.     GENERAL PROVISIONS.


 


9.1  Interest
Computation.  In computing
interest on the Obligations, all checks, wire transfers and other items of
payment received by Silicon (including proceeds of Accounts and payment of the
Obligations in full) shall be deemed applied by Silicon on account of the
Obligations two Business Days after receipt by Silicon of immediately available
funds, and, for purposes of the foregoing, any such funds received after 12:00
Noon on any day shall be deemed received on the next Business Day.  Silicon shall not, however, be required to
credit Borrower’s account for the amount of any item of payment which is
unsatisfactory to Silicon in its good faith business judgment, and Silicon may
charge Borrower’s loan account for the amount of any item of payment which is
returned to Silicon unpaid.


 


9.2  Application of
Payments.  All payments
with respect to the Obligations shall be promptly applied in accordance with
this Agreement and Silicon’s standard procedures may be applied, and in
Silicon’s good faith business judgment may be reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its good
faith business judgment.


 


9.3  Charges to
Accounts.  Silicon may,
in its discretion, require that Borrower pay monetary Obligations in cash to
Silicon, or charge them to Borrower’s Loan account, in which event they will
bear interest at the same rate applicable to the Loans.  Silicon may also, in its discretion, charge
any monetary Obligations to Borrower’s Deposit Accounts maintained with
Silicon.


 


9.4  Monthly
Accountings. 
Silicon shall provide Borrower monthly with an account of advances,
charges, expenses and payments made pursuant to this Agreement.  Such account shall be deemed correct, accurate
and binding on Borrower and an account stated (except for reverses and
reapplications of payments made and corrections of errors discovered by
Silicon), unless Borrower notifies Silicon in writing to the contrary within 90
days after such account is rendered, describing the nature of any alleged
errors or omissions.


 


12

















 


9.5  Notices.  All notices to be given under this Agreement
shall be in writing and shall be given either personally or by reputable
private delivery service or by regular first-class mail, or certified mail
return receipt requested, addressed to Silicon or Borrower at the addresses
shown in the heading to this Agreement, or at any other address designated in
writing by one party to the other party. 
Notices to Silicon shall be directed to the Commercial Finance Division,
to the attention of the Division Manager or the Division Credit Manager.  All notices shall be deemed to have been
given upon delivery in the case of notices personally delivered, or at the
expiration of one Business Day following delivery to the private delivery
service, or two Business Days following the deposit thereof in the United
States mail, with postage prepaid.


 


9.6  Severability.  Should any provision of this Agreement be
held by any court of competent jurisdiction to be void or unenforceable, such
defect shall not affect the remainder of this Agreement, which shall continue
in full force and effect.


 


9.7  Integration.  This Agreement and such other written
agreements, documents and instruments as may be executed in connection herewith
are the final, entire and complete agreement between Borrower and Silicon and
supersede all prior and contemporaneous negotiations and oral representations
and agreements, all of which are merged and integrated in this Agreement.  There are no oral understandings,
representations or agreements between the parties which are not set forth in
this Agreement or in other written agreements signed by the parties in
connection herewith.


 


9.8  Waivers; Indemnity.  The failure of Silicon at any time or times
to require Borrower to strictly comply with any of the provisions of this
Agreement or any other Loan Document shall not waive or diminish any right of
Silicon later to demand and receive strict compliance therewith.  Any waiver of any default shall not waive or
affect any other default, whether prior or subsequent, and whether or not
similar.  None of the provisions of this
Agreement or any other Loan Document shall be deemed to have been waived by any
act or knowledge of Silicon or its agents or employees, but only by a specific
written waiver signed by an authorized officer of Silicon and delivered to
Borrower.  Borrower waives the benefit
of all statutes of limitations relating to any of the Obligations or this
Agreement or any other Loan Document, and Borrower waives demand, protest,
notice of protest and notice of default or dishonor, notice of payment and
nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by Silicon on which Borrower is or may in any way be liable,
and notice of any action taken by Silicon, unless expressly required by this
Agreement. Borrower hereby agrees to indemnify Silicon and its affiliates,
subsidiaries, parent, directors, officers, employees, agents, and attorneys,
and to hold them harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, causes of action, penalties, costs and
expenses (including reasonable attorneys’ fees), of every kind, which they may
sustain or incur based upon or arising out of any of the Obligations, or any
relationship or agreement between Silicon and Borrower, or any other matter,
relating to Borrower or the Obligations; provided that this indemnity
shall  not extend to damages proximately
caused by the indemnitee’s own gross negligence or willful misconduct.  A Person seeking to be indemnified under
this Section 9.8 shall make commercially reasonable efforts to notify Borrower
of any event requiring indemnification within a reasonable time following such
Person’s receipt of notice of commencement of any action or proceeding giving
rise to a claim for indemnification hereunder, provided that (i) there shall be
no obligation to so notify Borrower if an Event of Default has occurred and is
continuing, (ii) neither Silicon nor any such Person shall have any liability
or obligation for any inadvertent failure to provide such notice, (iii) no
failure to provide such notice shall affect Borrower’s obligation to provide
indemnity hereunder and (iv) in any event, nothing herein shall impose on
Silicon any duty or obligation to impair the confidentiality or sanctity of its
attorney client relationship.  In such
proceeding, such Person shall use commercially reasonable efforts to keep
Borrower reasonably informed of its defense and any settlement of any such
action or proceeding and negotiations to settle or otherwise resolve any claim,
provided that (i) such Person shall have the exclusive right to decide to
accept or reject any settlement offer, (ii) there shall be no obligation to
keep Borrower so informed if an Event of Default has occurred and is
continuing, (iii) neither Silicon nor any such Person shall have any liability
or obligation for any inadvertent failure to keep Borrower so informed, (iv) no
failure to keep Borrower so informed shall affect Borrower’s obligation to
provide indemnity hereunder and (v) in any event, nothing herein shall impose
on Silicon any duty or obligation to impair the confidentiality or sanctity of
its attorney client relationship. 
Notwithstanding any provision in this Agreement to the contrary, the
indemnity agreement set forth in this Section shall survive any termination of
this Agreement and shall for all purposes continue in full force and effect.


 


9.9  No Liability for
Ordinary Negligence. 
Neither Silicon, nor any of its directors, officers, employees, agents,
attorneys or any other Person affiliated with or representing Silicon shall be
liable for any claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by Borrower or any other party through the
ordinary negligence of Silicon, or any of its directors, officers, employees,
agents, attorneys or any other Person affiliated with or representing Silicon,
but nothing herein shall relieve Silicon from liability for its own gross
negligence or willful misconduct.


 


9.10  Amendment.  The terms and provisions of this Agreement
may not be waived or amended, except in a writing executed by Borrower and a
duly authorized officer of Silicon.


 


9.11  Time of
Essence. 
Time is of the essence in the performance by Borrower of each and every
obligation under this Agreement.


 


13

















 


9.12  Attorneys Fees
and Costs. 
Borrower shall reimburse Silicon for all reasonable attorneys’ fees and
all filing, recording, search, title insurance, appraisal, audit, and other
reasonable costs incurred by Silicon, pursuant to, or in connection with, or
relating to this Agreement (whether or not a lawsuit is filed), including, but
not limited to, any reasonable attorneys’ fees and costs Silicon incurs in
order to do the following: prepare and negotiate this Agreement and all present
and future documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim;
examine, audit, copy, and inspect any of the Collateral or any of Borrower’s
books and records; protect, obtain possession of, lease, dispose of, or
otherwise enforce Silicon’s security interest in, the Collateral; and otherwise
represent Silicon in any litigation relating to Borrower.  In satisfying Borrower’s obligation
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon’s attorneys, Levy, Small &
Lallas, but Borrower acknowledges and agrees that Levy, Small & Lallas is
representing only Silicon and not Borrower in connection with this
Agreement.  If either Silicon or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys’ fees, including (but not limited to) reasonable
attorneys’ fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment.  All attorneys’ fees and costs to which Silicon may be entitled
pursuant to this Paragraph shall immediately become part of Borrower’s
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.


 


9.13  Benefit of
Agreement. 
The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective successors, assigns, heirs, beneficiaries and
representatives of Borrower and Silicon; provided, however, that Borrower may
not assign or transfer any of its rights under this Agreement without the prior
written consent of Silicon, and any prohibited assignment shall be void.  No consent by Silicon to any assignment
shall release Borrower from its liability for the Obligations.


 


9.14  Joint and
Several Liability. 
If Borrower consists of more than one Person, their liability shall be
joint and several, and the compromise of any claim with, or the release of, any
Borrower shall not constitute a compromise with, or a release of, any other
Borrower.


 


9.15  Limitation of
Actions.  Any claim or
cause of action by Borrower against Silicon, its directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Loan Agreement, or any other Loan Document, or any other
transaction contemplated hereby or thereby or relating hereto or thereto, or
any other matter, cause or thing whatsoever, occurred, done, omitted or
suffered to be done by Silicon, its directors, officers, employees, agents,
accountants or attorneys, shall be barred unless asserted by Borrower by the
commencement of an action or proceeding in a court of competent jurisdiction by
the filing of a complaint within one year after the first act, occurrence or
omission upon which such claim or cause of action, or any part thereof, is
based, and the service of a summons and complaint on an officer of Silicon, or
on any other person authorized to accept service on behalf of Silicon, within
thirty (30) days thereafter.  Borrower
agrees that such one-year period is a reasonable and sufficient time for
Borrower to investigate and act upon any such claim or cause of action.  The one-year period provided herein shall
not be waived, tolled, or extended except by the written consent of Silicon in
its sole discretion.  This provision
shall survive any termination of this Loan Agreement or any other Loan
Document.


 


9.16  Paragraph
Headings; Construction. 
Paragraph headings are only used in this Agreement for convenience.  Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed
strictly against Silicon or Borrower under any rule of construction or
otherwise.


 


9.17  Governing Law;
Jurisdiction; Venue. 
This Agreement and all acts and transactions hereunder and all rights
and obligations of Silicon and Borrower shall be governed by the laws of the
State of California.  As a material part
of the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon’s option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change the
venue of any such action or proceeding.


 


9.18  Mutual Waiver
of Jury Trial.  BORROWER AND SILICON EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT
OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT,
ACTS OR OMISSIONS OF


 


14

















 


SILICON OR BORROWER OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.


 


	
  Borrower:

  	
  Silicon:

  
	
   

  	
   

  
	
   

  	
  ENDOCARDIAL SOLUTIONS, INC.

  	
  SILICON
  VALLEY BANK

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ J. Robert Paulson, Jr.

  	
   

  	
  By

  	
   /s/ J. Anthony Clarkson

  	
   

  
	
   

  	
  Vice President, CFO

  	
  Title

  	
  Vice
  President Market Manager

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ J. Robert Paulson, Jr.

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  
										



 


 


15

















 


Silicon Valley Bank


 


Schedule
to


 


Loan
and Security Agreement


 


 


	
  Borrower:

  	
  Endocardial
  Solutions, Inc.

  
	
  Address:

  	
  1350 Energy Lane,
  Suite 110

  
	
   

  	
  St. Paul, MN  55108

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  September 24, 2003

  



 


This Schedule forms an integral part of the Loan and Security Agreement
between Silicon Valley Bank and the above-borrower of even date.


 


1.     CREDIT LIMIT


(Section 1.1):                                 An
amount not to exceed the sum of 1, 2 and 3 below:


 


1.             Revolving
Loans. An amount equal to:  (A) the
lesser of:  (i) $3,000,000 at any one time
outstanding (the “Maximum Credit Limit”), or (ii) 75% (an “Advance Rate”) of
the amount of Borrower’s Eligible Accounts (as defined in Section 8 above) minus
(B) the Term Loans (as defined below).


 


Silicon may, from time to
time, modify the Advance Rate, in its good faith business judgment, upon notice
to the Borrower, based on changes in collection experience with respect to
Accounts or other issues or factors relating to the Accounts or other
Collateral.


 


plus


 


2.             Existing
Term Loans. 
An amount equal to the aggregate unpaid principal balance from time to time
outstanding of the Existing Term Loans (the “Existing Term Loans”).  The outstanding principal amount of Existing
Term Loan #1 as of the date hereof is $114,000. 
The outstanding principal balance amount of Existing Term Loan #2 as of
the date hereof is $426,400. 
No additional Existing Term Loans will be made.  The Existing Term Loans shall continue to be
repaid as provided for herein.


 


plus


 


3.
            2003 Term
Loans.  An amount equal to
the aggregate unpaid principal balance from time to time outstanding of the
Loans (“2003 Term Loans”) made from time to time by Silicon to


 


1

















 


Borrower
in a total amount not to exceed $1,000,000 for the purchase by Borrower of
new or used Equipment acceptable to Silicon in its sole discretion, including
computer equipment, office equipment, lab equipment, test equipment and
furnishings.  To evidence each of the
2003 Term Loans, Borrower shall deliver to Silicon, at the time of each 2003
Term Loan request, an invoice for the Equipment (a) to be purchased or (b)
which was previously purchased by the Borrower.  The Loan request with respect to any particular Equipment must be
made within 90 days of the date such Equipment was purchased.  The 2003 Term Loans shall be used only to
(a) purchase Equipment or (b) reimburse the Borrower for previously purchased
Equipment and shall not exceed 100% of the invoice amount of such
Equipment approved from time to time by Silicon; provided that the aggregate
amount of the Equipment Loans for (i) the purchase or license of software, (ii)
leasehold improvements and (iii) other soft costs, including sales tax, freight
and installation expenses shall not exceed 35% of each 2003 Term Loan.  Subject to and upon the terms and conditions
of this Agreement, 2003 Term Loans shall be available through the following
periods: (i) from the date of this Agreement through November 30, 2003 (“Draw
Period #1); (ii) from December 1, 2003 through February 29, 2004 (“Draw Period
#2”); (iii) from March 1, 2004 through May 30, 2004 (“Draw Period #3) and (iv)
from June 1, 2004 through August 31, 2004 (“Draw Period #4).  The 2003 Term Loans outstanding as of the
end of each Draw Period shall be repaid as provided for herein.  Interest shall accrue from the date of each 2003
Term Loan at the rate provided for herein and is payable monthly as provided
for herein.  2003 Term Loans shall be
made in disbursements of not less than $100,000.


 


The Term Loans, once repaid, cannot be
reborrowed.


 


Notwithstanding the foregoing, all
Obligations relating to the Term Loans shall be reserved against the Revolving
Loans which would otherwise be available to Borrower as set forth above.


 


As used in this Agreement, the term “Term
Loans” includes the Existing Term Loans and the 2003 Term Loans, and the term
“Loans” includes the Revolving Loans and the Term Loans.


 


Letter
of Credit Sublimit


(Section 1.6):                                         $750,000.


 


Exim
Agreement;


Cross-Collateralization;


Cross-Default:                                      Silicon
and the Borrower are parties to that certain Loan and Security Agreement (Exim
Program) of even date (the “Exim Agreement”). 
Both this Agreement and the Exim Agreement shall continue in full force
and effect, and all rights and remedies under this Agreement and


 


2

















 


the Exim Agreement are cumulative.  The term “Obligations” as used in this
Agreement and in the Exim Agreement shall include without limitation the
obligation to pay when due all Loans made pursuant to this Agreement (the
“Non-Exim Loans”) and all interest thereon and the obligation to pay when due
all Loans made pursuant to the Exim Agreement (the “Exim Loans”) and all
interest thereon.  Without limiting the
generality of the foregoing, all “Collateral” as defined in this Agreement and
as defined in the Exim Agreement shall secure all Exim Loans and all Non-Exim
Loans and all interest thereon, and all other Obligations.  Any Event of Default under this Agreement
shall also constitute an Event of Default under the Exim Agreement, and any
Event of Default under the Exim Agreement shall also constitute an Event of
Default under this Agreement.  In the
event Silicon assigns its rights under the Exim Agreement and/or under any Note
evidencing Exim Loans and/or its rights under this Agreement and/or under any
Note evidencing Non-Exim Loans, to any third party, including without
limitation the Export-Import Bank of the United States (“Exim Bank”), whether
before or after the occurrence of any Event of Default, Silicon shall have the
right (but not any obligation), in its sole discretion, to allocate and
apportion Collateral to the Agreement and/or Note assigned and to specify the
priorities of the respective security interests in such Collateral between
itself and the assignee, all without notice to or consent of the Borrower.


 


2. 
INTEREST.


 


Interest Rate
(Section 1.2):


 


With respect to all Loans:


 


A rate equal to the “Prime Rate” in effect from time to time, plus 1.50%
per annum, provided that the interest rate in effect on any day shall not be
less than 5.75%
per annum.  Interest shall be calculated
on the basis of a 360-day year for the actual number of days elapsed.  As used in this Agreement, “Prime Rate”
means the interest rate announced from time to time by Silicon as its “prime
rate” (which is a base rate upon which other rates charged by Silicon are
based, and it is not necessarily the best rate available at Silicon).  The interest rate applicable to the
Obligations shall change on each date there is a change in the Prime Rate.


 


Minimum Monthly


Interest
(Section 1.2):                                  $5,000
per month in the aggregate as between this Agreement and the Exim Agreement.


 


3

















 


3.  FEES (Section 1.4):


 


Loan Fee:                                                       With
respect to the Revolving Loans and Exim Loans:


 


$25,000, payable concurrently herewith.


 


With respect to the 2003 Term Loans:


 


$5,000, payable concurrently herewith.


 


Collateral Monitoring


Fee:                                                                   $1,250,
per month in the aggregate as between this Agreement and the Exim Agreement,
payable in arrears (prorated for any partial month at the beginning and at
termination of this Agreement).


 


4.  MATURITY DATE


(Section 6.1):                                                 The
first anniversary of the date of this Agreement.


 


Notwithstanding the foregoing, with respect
to Existing Term Loan #1:  The
outstanding principal balance of Existing Term Loan #1 shall continue to be
repaid by Borrower to Silicon as provided for in the Existing Term Loan
Documentation in equal monthly payments of principal, on the 30th day of each
month and continuing until the earlier of the following dates:  (i) June 30, 2004, or (ii) the date Existing
Term Loan #1 has been indefeasibly paid in full, or (iii) the date the
Revolving Loans are terminated, or (iv) the date this Agreement terminates by
its terms or is terminated by either party in accordance with its terms.  On the earlier to occur of the foregoing
dates, the entire unpaid principal balance of Existing Term Loan #1, plus all
accrued and unpaid interest thereon, shall be due and payable.  Interest on Existing Term Loan #1 shall be
payable monthly as provided in Section 1.2 of this Agreement.


 


Notwithstanding the foregoing, with respect
to Existing Term Loan #2:  The
outstanding principal balance of Existing Term Loan #2 shall continue to be
repaid by Borrower to Silicon as provided for in the Existing Term Loan
Documentation in equal monthly payments of principal, on the 30th day of each
month and continuing until the earlier of the following dates:  (i) March 30, 2005, or (ii) the date
Existing Term Loan #2 has been indefeasibly paid in full, or (iii) the date the
Revolving Loans are terminated, or (iv) the date this Agreement terminates by
its terms or is terminated by either party in accordance with its terms.  On the earlier to occur of the foregoing
dates, the entire unpaid principal balance of Existing Term Loan #2, plus all
accrued and unpaid interest thereon, shall be due and payable.


 


4

















 


Interest on Existing Term Loan #2 shall be
payable monthly as provided in Section 1.2 of this Agreement.


 


Notwithstanding the foregoing, with respect
to the 2003 Term Loans:  The outstanding
principal balance of the 2003 Term Loans as of the end of each applicable Draw
Period shall be repaid by Borrower to Silicon in thirty-three (33) equal
monthly payments of principal, commencing on the last day of the calendar month
in which the applicable Draw Period ends and continuing on the same day of each
subsequent month until the earlier of the following dates:  (i) the date such 2003 Term Loan has been
indefeasibly paid in full, or (ii) the date the Revolving Loans are terminated,
or (iii) the date this Agreement terminates by its terms or is terminated by
either party in accordance with its terms. 
On the earlier to occur of the foregoing dates, the entire unpaid principal
balance of the 2003 Term Loans, plus all accrued and unpaid interest thereon,
shall be due and payable.  Interest on
each 2003 Term Loan shall be payable monthly as provided in Section 1.2 of this
Agreement.


 


5.  FINANCIAL COVENANTS


(Section 5.1):                                                     Borrower
shall comply with each of the following covenants.  Compliance shall be determined as of the end of each month,
except as otherwise specifically provided below:


 


  Minimum
Tangible


  Net
Worth:                                                  Borrower
shall maintain a Tangible Net Worth of not less than $9,000,000.


 


  Definitions.                                                  For
purposes of the foregoing financial covenants, the following term shall have
the following meaning:


 


“Current assets”, “current liabilities” and
“liabilities” shall have the meaning ascribed thereto by GAAP.


 


“Tangible Net Worth” shall mean the excess of
total assets over total liabilities, determined in accordance with GAAP, with
the following adjustments:


 


(A) there shall be excluded from assets:  (i) notes, accounts receivable and other
obligations owing to Borrower from its officers or other Affiliates, and (ii)
all assets which would be classified as intangible assets under GAAP, including
without limitation goodwill, licenses, patents, trademarks, trade names,
copyrights, capitalized software and organizational costs, licenses and
franchises


 


(B) there shall be excluded from
liabilities:  all indebtedness which is
subordinated to the Obligations under a subordination agreement


 


5

















 


in form specified by Silicon or by language
in the instrument evidencing the indebtedness which Silicon agrees in writing
is acceptable to Silicon in its good faith business judgment.


 


6. 
REPORTING.


(Section 5.3):


 


Borrower shall provide Silicon with the following:


 


1.     Transaction reports and
schedules of collections, each week and at the time of each Loan request, on
Silicon’s standard form


 


2.     Monthly accounts receivable
agings, aged by invoice date, within twenty days after the end of each month.


 


3.     Monthly accounts payable
agings, aged by invoice date, and outstanding or held check registers, if any,
within twenty days after the end of each month.


 


4.     Monthly reconciliations of
accounts receivable agings (aged by invoice date), transaction reports, and
general ledger, within twenty days after the end of each month.


 


5.     A copy of the Board of
Director’s Report each time a Board of Director’s meeting is held and, in any
event, within thirty days of the date of such meeting.


 


6.     Monthly unaudited financial
statements, as soon as available, and in any event within thirty days after the
end of each month.


 


7.     Monthly Compliance
Certificates, within thirty days after the end of each month, in such form as
Silicon shall reasonably specify, signed by the Chief Financial Officer of
Borrower, certifying that as of the end of such month Borrower was in full
compliance with all of the terms and conditions of this Agreement, and setting
forth calculations showing compliance with the financial covenants set forth in
this Agreement and such other information as Silicon shall reasonably request,
including, without limitation, a statement that at the end of such month there
were no held checks.


 


8.     Quarterly unaudited financial
statements, as soon as available, and in any event within forty-five days after
the end of each fiscal quarter of Borrower.


 


9.     Annual operating budgets
(including income statements, balance sheets and cash flow statements, by
month) for the upcoming fiscal year of Borrower within thirty days prior to the
end of each fiscal year of Borrower.


 


10.   Annual financial statements, as
soon as available, and in any event within 120 days following the end of
Borrower’s fiscal year,


 


6

















 


certified by, and with an unqualified opinion of, independent certified
public accountants acceptable to Silicon.


 


7.  BORROWER INFORMATION:


 


Borrower represents and warrants that the information set forth in the
Representations and Warranties of the Borrower dated July 27, 2003, previously
submitted to Silicon (the “Representations”) is true and correct as of the date
hereof.


 


8.  ADDITIONAL PROVISIONS


 


(1)   Banking
Relationship.  Borrower shall at all
times maintain its primary banking relationship, including without limitation
its primary operating account, with Silicon. 
Without limiting the generality of the foregoing, Borrower shall, at all
times, maintain not less than 100% of its total cash and investments on deposit
with Silicon.


 


(2)   Subordination of Inside Debt.  All present and future indebtedness of
Borrower to its officers, directors and shareholders (“Inside Debt”) shall, at
all times, be subordinated to the Obligations pursuant to a subordination
agreement on Silicon’s standard form. 
Borrower represents and warrants that there is no Inside Debt presently
outstanding, except for the following: None. 
Prior to incurring any Inside Debt in the future, Borrower shall cause
the person to whom such Inside Debt will be owed to execute and deliver to
Silicon a subordination agreement on Silicon’s standard form.


 


	
  Borrower:

  	
  Silicon:

  
	
   

  	
   

  
	
  ENDOCARDIAL SOLUTIONS,
  INC.

  	
  SILICON
  VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
    /s/ J. Robert Paulson, Jr.

  	
   

  	
  By

  	
    /s/ J. Anthony Clarkson

  	
   

  
	
   

  	
  Vice President, CFO

  	
  Title

  	
   Vice President Market Manager

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
    /s/ J. Robert Paulson, Jr.

  	
   

  	
   

  
	
   

  	
  Ass’t Secretary

  	
   

  
								



 


Form:  -3 (3/7/02)


Version
-4


 


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