exv10w11





Exhibit
10.11



TERM LOAN AGREEMENT




     This Term Loan Agreement is entered into as of the 6th day of September, 2006 (the “Effective
Date”), by and between XStream Systems, Inc., a Delaware corporation (“Borrower”) and Kimball
International, Inc., an Indiana corporation (“Kimball”).



Agreement




     WHEREAS, Borrower and Kimball have entered into a Memorandum of Understanding dated June 14,
2006 pursuant to which Kimball agreed to loan certain funds to Borrower;



     WHEREAS, Borrow and Kimball Electronics, Inc., have entered into a Supply Agreement (defined
below) dated September 6, 2006;



     WHEREAS, the parties desire to commit their agreement to writing.



     NOW, THEREFORE, in consideration of the mutual covenants and agreements herein, and each act
performed and to be performed hereunder, Borrower and Kimball agree as follows:



ARTICLE I

 Definition of Terms




     Section 1.01. Definitions. All capitalized terms used in this Agreement are used
with the meanings ascribed to those terms where they first appear in bold type.



     Agreement. The term “Agreement” shall mean this Term Loan Agreement (including all
exhibits hereto), as the same hereafter may be amended, restated, modified or supplemented from
time to time and at any time.



     Business Day. The term “Business Day” shall mean a day on which banks in
Indianapolis, Indiana, are open for business.



     Change of Control. The term “Change of Control” shall mean the occurrence of any of
the following:




     (a) the failure of Mayo Group at all times to own, directly and free and clear of
all liens, at least 8% of the issued and outstanding shares of capital stock or
equity interests of Borrower calculated on a fully diluted basis.




     (b) any transaction or series of related transactions resulting in the sale or
issuance of securities or any rights to securities of Borrower by Mayo Group, or any
transaction or series of related transactions resulting in the sale, transfer,
assignment or other conveyance or disposition of any securities or any rights to
securities of Borrower by any holder or holders thereof and, as a result thereof in
either case, Mayo Group holds less than 8% of the shares of Borrower initially



 









 






held by Mayo Group as of the date hereof (as such number of units may be adjusted
from time to time for unit splits, reverse unit splits, unit dividends,
recapitalizations or similar events);




     (c) a merger, consolidation, reorganization, recapitalization or
exchange of equity interests in which the Mayo Group’s equity interest of Borrower
immediately prior to such transaction receive, in exchange for securities of Borrower
owned by them, cash, property, or securities of the resulting or surviving entity and
as a result thereof persons of the Mayo Group who were holders of voting securities
of Borrower (and any affiliates of such persons) hold, in the aggregate, less than 8%
of the voting capital stock or other voting ownership interests, calculated on a
fully diluted basis, of the resulting legal entity entitled to vote in the election
of directors or managers;




     (d) any action, happening or event by which Brian T. Mayo ceases to be President
and Chief Executive Officer of Borrower;




     (e) a sale, transfer or other disposition of all or substantially all of the
assets of Borrower;



     Default Rate. The term “Default Rate” shall mean Nine Percent (9%) per annum.



     Indebtedness. The term “Indebtedness” shall mean all present and future
indebtedness, obligations and liabilities and all renewals and extensions thereof, now or
hereafter owed to Kimball by Borrower evidenced by or arising under, with respect to, pursuant to,
in connection with or by virtue of this Agreement and the Loan Instruments, together with all
interest accruing thereon and all costs, expenses and reasonable attorneys’ fees incurred by
Kimball in the enforcement thereof.



     Loan Instruments. The term “Loan Instruments” shall mean collectively: (i) this
Agreement; (ii) the Term Note as defined in Section 3.01(b) hereof; and (iii) any and all other
instruments, agreements and documents delivered or to be delivered to Kimball pursuant to or by
virtue of this Agreement, as each of the foregoing may be amended, modified, extended, renewed,
supplemented and/or restated from time to time and at any time.



     Mayo Group. The term “Mayo Group” means Brian T. Mayo, his wife Liz Mayo, his son
Zach Mayo, and his brother Dr. William Mayo.



     Person. The term “Person” means any individual, firm, corporation, association,
partnership, joint venture or other entity.



     Supply
Agreement. The term “Supply Agreement” means the definitive supply agreement,
dated September 6, 2006, entered into by and between Borrower and Kimball Electronics, Inc., a
subsidiary of Kimball, as the same hereafter may be amended, modified or supplemented from time to
time and at any time.



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     Term Maturity Date. The term “Term Maturity Date” shall mean the earlier of: (i)
September 5, 2008; or (ii) the date to which payment of the Term Loan is accelerated pursuant to
and in accordance with me terms of Section 7.01 of this
Agreement.



ARTICLE
II
 Representations and Warranties of Borrower




     Section 2.01. Full Disclosure-Survival of Representations and Warranties.
Borrower warrants to Kimball that none of the written statements, representations or warranties
furnished by Borrower to Kimball in connection with this Agreement or any of the other Loan
Instruments (a) contain or will contain any untrue statement or (b) omits or will omit a material
fact necessary to make the statements contained therein or herein, in light of the circumstances
when made, not misleading.



     Section 2.02. Representations and Warranties of Borrower. To induce Kimball
to enter
into this Agreement and to make the Term Loan, the Borrower hereby makes the following warranties
and representations:




     (a) Binding Agreement. This Agreement and the Loan Instruments and the
documents to be delivered pursuant hereto are, and will be valid and binding against
Borrower in accordance with their terms, and the execution, delivery and performance
of this Agreement and the Loan Instruments are not in contravention of law or of any
undertaking to which any Borrower is a party or by which it is bound.




     (b) Consents. No consent, approval or authorization of or declaration or
filing with any governmental authority on the part of Borrower is required in
connection with the execution and delivery of this Agreement or the
consummation of any transactions contemplated hereby.




     (c)
Financial Statements. The financial statements and
other information of Borrower delivered to Kimball are, and when delivered will be
complete and accurate in all respects and present fairly the financial condition of
Borrower as of the dates indicated. There has been no material adverse change in the
condition of Borrower, financial or otherwise, since the date of said financial
statements.




     (d) Tax Returns. Borrower has filed all federal, state and local tax
returns and other reports that are required by law to be filed prior to the date
hereof and has paid or has caused to be paid all taxes, assessments and other
governmental charges that are due and payable prior to the date hereof and has made
adequate provision for the payment of such taxes, assessments or other charges
accruing but not yet payable.




     (e) Litigation. No litigation or administrative proceeding of or before
any court, tribunal or governmental body or agency is currently pending, or to the



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knowledge of the Borrower is threatened, against Borrower or any of his properties which,
if adversely determined, could have a material adverse impact on the financial condition
of Borrower or the transactions contemplated by this Agreement.




     (f) Enterprise Value. Borrower’s enterprise valuation (the “Enterprise
Valuation”) set forth on Exhibit A is true and accurate in all respects.



 ARTICLE III
Borrowing Terms




     Section 3.01. Term Loan.




     (a) Term Loan. The initial indebtedness in the amount of $2,000,000 (referred
to herein as the “Term Loan”), shall be evidenced by the Term Note.




     (b)
Term Note. Borrower’s obligation to pay the principal of, and interest
on, the Term Loan shall be evidenced by a promissory note, dated as of the Closing Date,
executed and delivered by Borrower to Kimball payable to the order of Kimball in the
principal amount of Two Million and No/100 Dollars ($2,000,000.00), and otherwise in the
form attached hereto as Exhibit B (referred to herein, together with all extensions,
replacements and renewals thereof, as the same may be amended and/or restated from time to
time and at any time as the “Term Note”). Kimball shall retain the Term Note until the Term
Loan is paid in full.




     (c) Interest on the Term Loan. The principal balance of the Term Loan, as
evidenced by the Term Note, outstanding from time to time from and after the Closing Date
shall bear interest (computed on the basis of a year consisting of 360 days and the actual
number of days elapsed) from and after the Closing Date until the Term Maturity Date, and
so long as no Event of Default has occurred and remains uncured, at five percent (5%) per
annum.




     (d) Payments Required. On the Term Maturity Date the entire principal balance
of the Term Loan and all accrued, unpaid interest thereon shall be due and payable in
full. After the Term Maturity Date, interest shall be due and payable as it accrues,
without demand. Kimball may convert some or all of such repayment amount to common stock
of Borrower (“Conversion Right”). If Kimball elects to convert some or all of such
repayment amount to Borrower common stock, then the conversion price shall be the fair
market value of Borrower’s common stock at the time of conversion and Kimball shall enter
into Borrower’s standard form of Stock Restriction Agreement. Such Conversion Right shall
not be exercisable if Kimball or Kimball Electronics, Inc. is in breach of this Agreement
or the Supply Agreement.



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     (e) Prepayment of the Term Loan. Borrower may prepay all or any portion
of the outstanding principal balance of the Term Loan at any time without premium or
penalty.




     (f)
Application of Payments. All payments, as received, shall be
applied first, to the payment of any amounts then owed by Borrower to Kimball under
or pursuant to the Loan Instruments, other than Term Loan interest or principal
second, to the payment of interest accrued to the date of receipt of payment; and the
balance, if any, to principal.




     (g) Timing of Payments. All payments by Borrowers under this
Agreement and the Term Note shall be made to Kimball at 1600 Royal Street, Jasper,
Indiana 47549 on the date when due in each case in lawful money of the United States
of America and in immediately available funds. If any payment hereunder becomes due
and payable on a day other than a Business Day, such payment shall be extended to the
next succeeding Business Day and, with respect to payments of principal and interest
thereon, interest thereon shall be payable at the then applicable rate during such
extension.



Article IV 
Letter of Credit




     Section 4.01. Letter of Credit. $1,000,000 of the Term Loan shall be used by Borrower
to issue a 24-month irrevocable, standby letter of credit of equal amount for the benefit of
Kimball Electronics Group, Inc. (“KEG”). KEG shall be
entitled to draw upon the letter of credit
as and when KEG presents invoices on behalf of Kimball Electronics, Inc., as contemplated under
the Supply Agreement, for (a) engineering and/or manufacturing design services rendered to
Borrower (“Services”), (b) tooling and equipment used solely in connection with the Borrower’s
XT250 system (collectively, “Tooling”) at its standard billing rates in support of the XT250
system, and/or (c) the shipment of XT250 prototype and/or production units to Borrower or its
designee. The letter of credit issuing bank shall be Sun Trust Bank. All draws upon the letter of
credit by KEG shall only be made for previously quoted Services and Tooling that were pre-approved
by Borrower.



ARTICLE V

Borrowing Conditions




     Section 5.01. Conditions Precedent to Term Loan. The obligations of Kimball to enter
into this Agreement, and to enter into the other Loan Instruments, shall be subject to
satisfaction of each of the conditions precedent set forth herein, and shall be subject to the
condition that on or prior to the Closing Date, Kimball shall have received the Term Note, duly
authorized and executed by Borrower, and in compliance with the provisions of Article III of this
Agreement.




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ARTICLE VI 
Affirmative and Negative Covenants of Borrower




     Section 6.01. Affirmative Covenants of Borrower. Until payment in full of all of the
Indebtedness and the performance by Borrower of all of its other obligations under the Loan
Instruments, Borrower covenants and agrees that, unless Kimball shall otherwise consent in writing
as provided in Section 8.05 hereof:




     (a) Payment of Taxes. Borrower shall pay and discharge all taxes,
assessments and governmental charges or levies imposed upon Borrower or on income or
profits or upon property belonging to Borrower prior to the date on which penalties
attach thereto and all lawful claims and debts which, if unpaid, might become a lien
or charge upon the property of Borrower, provided that Borrower shall not be required
to pay any such tax, assessment, charge, levy or claim for which Borrower has obtained
a bond or insurance, or for which Borrower has established a reserve and the payment
of which is being contested in good faith and by appropriate proceedings which are
being reasonably and diligently pursued.




     (b) Litigation. Borrower shall notify Kimball in writing, promptly upon
learning thereof, of any action, litigation or proceeding pending or threatened
against or involving Borrower in any court or before or by any agency or regulatory
body which could result in a judgment or liability against Borrower in excess of
$10,000 or which could adversely affect any material asset of Borrower, or the income
of Borrower or the right of Borrower to carry on its business as now conducted.




     (c) Notices. Borrower shall immediately inform Kimball by written
notice of the occurrence of any event or condition of any nature which may
constitute or may lead to or result in an Event of Default.




     (d) Payment of Debt. Borrower shall pay, as and when due, all
indebtedness, liabilities and obligations of Borrower payable to any Person; provided,
however, that Borrower shall be permitted to assert, in good faith, any defense to any
such liability or obligation without the same being considered a
breach hereof.




     (e) Comply With Laws. Borrower shall perform and promptly comply,
and cause all property of Borrower to be maintained, used and operated in accordance,
in each case in all material respects, with all: (i) present and future laws,
ordinances, rules, regulations, orders and requirements (including, without
limitation, zoning ordinances, building codes and environmental laws, and the
regulations adopted pursuant thereto and any other similar applicable federal, state
or local laws, rules, regulations or ordinances) of every duly constituted
governmental or quasi-governmental authority or agency applicable to Borrowers, or any
of the properties of Borrower; (ii) similarly applicable orders, rules and



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regulations of any regulatory, licensing, accrediting, insurance underwriting or
rating organization or other body exercising similar functions, to the extent
usually complied with by a Person owning similar properties in the same general
areas in which such properties are located; and (iii) similarly applicable duties
or obligations of any kind imposed under any certificate of occupancy or otherwise
by law, covenant, conditions, agreement or easement, public or private.




     (f) Access to Information. At all reasonable times and as often as
Kimball may reasonably request, permit authorized representatives of Kimball to: (a)
have access to the financial records of Borrower and other records relating to the
operations and procedures of Borrower; and (b) discuss the affairs, finances and
accounts of Borrower with, and be advised as to the same by, the officers of
Borrower, all as shall be relevant to the performance or observance of the terms,
covenants and conditions of this Agreement or the other Loan Instruments or the
financial condition of Borrower.




     (g) Enterprise Valuation. On the first day of each calendar quarter
Borrower shall deliver to Kimball a detailed description of Borrower’s capital
structure as well as the details of Borrower’s Enterprise Valuation in a format
substantially similar to that shown on Exhibit A.




     (h) Financial Reports. As soon as possible following the end of each
quarter and year, quarterly or annual financial statements of Borrower for the
applicable period, certified by Borrower’s chief executive or chief financial
officer as fairly presenting the information in the statements in all material
respects in accordance with GAAP shall be delivered to Kimball.



ARTICLE VII 
 Events of Default—Acceleration




     Section 7.01. Acceleration of Indebtedness. Upon the happening of any Event of
Default, or at any time thereafter during the continuance of such Event of Default, Kimball shall
be entitled, by written notice to Borrower, to declare the entire unpaid balances of principal and
interest of the Term Note and all other payments required to be made by Borrower under the Term
Note or under any of the Loan Instruments to be immediately due and payable, without
presentation, demand, protest, notice of protest, or other notice of dishonor of any kind, all of
which are hereby expressly waived. Upon the occurrence of an Event of Default and Kimball’s
election to accelerate the maturity of the Term Note, Kimball shall be entitled to enforce any and
all of his rights under the Loan Instruments.



     Section
7.02. Events of Default. Each of the following events shall constitute an
“Event of Default” for purposes of this Agreement and each such Event of Default shall be deemed
to exist and continue so long as, but only so long as, it shall not
have been remedied:



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     (a) Any amount payable under the Term Note or any of the other Indebtedness remains unpaid
for more than ten (10) days after the due date thereof;




     (b) Borrower defaults in the due observance or performance of any other covenant, condition
or agreement on the part of Borrower to be observed or performed pursuant to the terms of this
Agreement or any other of the Loan Instruments and such default remains uncured for thirty (30)
days from the date of Borrower’s receipt of notice from Kimball as to the existence of such
default;




     (c) Any representations, warranty, statement, affidavit or certificate given or furnished at
any time by Borrower to Kimball proves to be incorrect as of the date as of which the
representation, warranty, statement, affidavit or facts was given, stated or certified and the same
remains uncured for thirty (30) days from the date of
Borrower’s receipt of notice from Kimball as
to the existence of such inaccuracy;




     (d) Borrower makes an assignment for the benefit of creditors, becomes insolvent, or admits
in writing inability to pay its debts as they become due;




     (e) A decree or order for relief by a court having jurisdiction in the premises in respect of
Borrower is entered in an involuntary case under the United States Bankruptcy Code, as now
constituted or hereafter amended, or any other applicable Federal or state bankruptcy, insolvency
or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of Borrower or for all or substantially all the property of
Borrower or ordering the winding up or liquidation of the affairs of Borrower and the continuance
of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days;




     (f) A voluntary case is commenced by Borrower under the United States Bankruptcy Code, as now
constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency
or other similar law, or Borrower shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of
Borrower or for all or substantially all the property of Borrower;




     (g) There occurs an “Event of Default” or “Default,” as such terms are defined in any of the
Loan Instruments, or any other default in the due observance or performance of any other covenant,
condition or agreement to be observed or performed pursuant to the terms of this Agreement or any
other of the Loan Documents on the part of Borrower;




     (h) The outstanding Indebtedness shall exceed at any time exceed 50% of the fair market
value of Borrower’s equity (valued at such time by the



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Borrower’s most recent common stock offering as per the Enterprise Valuation) and
subordinated debt as determined by Kimball in Kimball’s reasonable discretion;




     (i) Any event shall occur which has a material adverse effect upon Borrower’s
financial condition, or Kimball shall reasonably determine that the prospect of
payment or performance of the Term Loan has been impaired;




     (j) Any suit, action or other proceeding shall be commenced against Borrower
with respect to the assets of Borrower, which shall threaten to have a material and
adverse effect on the future operations of Borrower; any final judgment or
settlement shall be entered in or agreed to with respect to an such suit, action or
proceeding, unless, pending further proceedings, execution has been effectively
stayed or bonded against; or a judgment creditor of Borrower shall obtain possession
of the material portion of the assets of Borrower;




     (k) Any financial statement, representation, warranty, certification or other
statement or writing contained herein or otherwise furnished on behalf of Borrower
to Kimball is false or shall at any time prove to have been false, incorrect or
incomplete when made or effective or reaffirmed as the case may be;




     (l) Borrower shall breach the terms of the Supply Agreement or terminate the
Supply Agreement without cause; or




     (m)
A Change of Control occurs.



ARTICLE VIII
 Miscellaneous




     Section 8.01.
Notices. Any and all notices or other communications required or
permitted under this Agreement or any other of the Loan Instruments shall be in writing and shall
be sufficiently given if delivered in person to, or sent by certified or registered mail, postage
prepaid, addressed as follows:



	 	 	 	 	 
	 

	 	To Kimball:
	 	Kimball International, Inc.
	 

	 	 	 	1600 Royal Street
	 

	 	 	 	Jasper, Indiana 47549
	 

	 	 	 	Attn: Donald D. Charron
	 
	 	 	 	 
	 

	 	To the Borrower:
	 	XStream Systems, Inc.
	 

	 	 	 	3873 39th Square
	 

	 	 	 	Vero Beach, Florida 32960
	 

	 	 	 	Attn: Brian T. Mayo






or to
such other address or person as shall be designated from time to time by notice.




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     Section 8.02. Choice of Law. The laws of the State of Indiana shall govern this
Agreement and the other Loan Instruments, in all aspects, including execution, interpretation,
performance and enforcement, without regard to principles of conflicts of law. BORROWER HEREBY
AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT OR THE LOAN
INSTRUMENTS, WHETHER BASED UPON CONTRACT OR TORT, SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE STATE OF INDIANA.



     Section 8.03. Modification of Agreement. Unless otherwise specifically provided in
this Agreement, a modification, amendment or waiver of any provision of this Agreement, or any
other of the Loan Instruments, or a consent to any departure by Borrower therefrom, shall be
effective only when the same shall be in writing and signed by Kimball and Borrower, and then such
waiver of consent shall be effective only in the specific instance and for the purpose for which
given. No amendment, modification or waiver shall extend the maturity of the Term Note, extend the
time for, or reduce the amount of, any scheduled payment or any interest due and
payable pursuant to the terms hereof, or reduce the rate of interest payable with respect to the
Term Loan without the express and specific written consent of Kimball.



     Section 8.04. No Reliance/Disclaimer. Any reports, appraisals, inspections or studies
commissioned by or undertaken by Kimball in connection with the Term Loan are for internal
lending purposes only and are not to be relied upon by Borrower, directly or indirectly, in any
way.



     Section 8.05.
No Waiver—Remedies Cumulative. Neither failure nor delay on the part of
Kimball in exercising any right, power or privilege hereunder or under the Term Note, or any
extensions or renewals thereof, or under any other of the Loan Instruments shall operate as a
waiver of such right, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other right, power or
privilege. No notice to or demand on Borrower in any case shall entitle Borrower to any other or
further notices or demands in similar or other circumstances, or constitute a waiver of any of
Kimball’s rights or powers to take other or further action in any circumstances without notice or
demand. No remedy conferred in this Agreement or in any of the other Loan Instruments upon Kimball
is intended to be exclusive of any other remedy and each shall be
cumulative and shall be in
addition to every other remedy now or hereafter existing at law or in equity or by statute or
otherwise.



     Section 8.06.
Binding on Successors and Assigns. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective
successors, assigns and legal representatives. Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the successors and assigns of
such party.



     Section 8.07. Further Assurances. Borrower shall, at its expense, upon request of
Kimball, duly execute and deliver, or cause to be executed and delivered, such further
instruments and perform or cause to be performed such further acts as may be necessary or




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proper in
the reasonable opinion of Kimball to carry out the provisions and purposes of this
Agreement.



     Section 8.08. Entire Agreement. This Agreement constitutes and expresses the entire
understanding between the parties hereto with respect to the subject matter hereof, and supersedes
all prior agreements and understandings, commitments, inducements or conditions, whether express
or implied, oral or written. Neither this Agreement nor any portion or provisions hereof may be
changed, waived or amended orally or in any manner other than by an agreement in writing
signed by Kimball and Borrower.



     Section 8.9. Nonassignability. The rights of Borrower under this Agreement may not be
assigned without the prior written consent of Kimball.



     Section 8.10.
Severability. In case any one or more of the provisions contained in
this Agreement or in any other of the Loan Instruments, shall be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired thereby.



     Section 8.11. Section Headings and Construction. The section headings used herein are
for convenience only and shall not be read or construed as limiting the substance or generality of
such sections of this Agreement. Each covenant contained in this Agreement shall be construed
(absent an express contrary provision contained herein) as being independent of each other covenant
contained herein and compliance with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with any or all other covenants.



     Section 8.12.
Survival. All covenants, agreements, undertakings, representations, and
warranties made in any of the Loan Instruments shall survive all closings under the Loan
Instruments and, except as otherwise indicated, shall not be affected by any investigation made by
any party.



     IN WITNESS WHEREOF, Borrower and Kimball each have executed this Agreement as of the day and
year first above written.



	 	 	 	 	 
	 	Kimball International, Inc., an Indiana corporation

 	 
	 	By:  	/s/
Donald D. Charron	 
	 	Its: Executive  Vice President 	 
	 	 	              
      (“Kimball”) 	 
	 
	 	XStream Systems, Inc., a Florida corporation

 	 
	 	By:  	/s/
Brian T. Mayo	 
	 	Its: President & Chief Executive Officer 	 
	 	 	              
      (“Borrower”) 	 
	 




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