ex102.htm


    
      
        	
                Exhibit
      10.2

              	
                Loan
      and Security Agreement (Accounts Receivable Line of Credit) dated as of
      October 30, 2009 between the Company and Silicon Valley
    Bank

              


      

       

       

      

       

      


      (Accounts
Receivable Line of Credit)

       

      LOAN
AND SECURITY AGREEMENT

       

      This LOAN AND SECURITY AGREEMENT
(this “Agreement”) dated as of October 30, 2009 (the “Effective Date”) is among
(a) SILICON VALLEY BANK,
a California corporation, with its principal place of business at 3003 Tasman
Drive, Santa Clara, California 95054 with a loan production office located at
8020 Towers Crescent Drive, Suite 475, Vienna, Virginia 22182 (FAX 703-356-7643)
(“Bank”) and (b) BRAINTECH,
INC., a Nevada corporation, with offices located at 1750 Tyson’s
Boulevard, Suite 350, McLean, Virginia 22102 (FAX 703-637-9772) (“Braintech,
Inc.”), BRAINTECH INDUSTRIAL,
INC., a Delaware corporation, with offices located at 1002 Centerpoint
Parkway, Suite 103, Pontiac, Michigan 48341 (FAX 703-637-9772) (“Braintech
Industrial”), and BRAINTECH
GOVERNMENT & DEFENSE, INC., a Delaware corporation, with offices
located at 1750 Tyson’s Boulevard, Suite 350, McLean, Virginia 22102 (FAX
703-637-9772) (“Braintech Government”) (hereinafter, Braintech, Inc., Braintech
Industrial and Braintech Government are jointly and severally, individually and
collectively, referred to as “Borrower”), and provides the terms on which Bank
shall lend to Borrower, and Borrower shall repay Bank.  The parties
agree as follows:

       

      1           ACCOUNTING AND OTHER
TERMS

       

      Accounting
terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following
GAAP.  Unless otherwise noted herein, all financial calculations
(whether for pricing, covenants, or otherwise) shall be made with regard to
Borrower only and not on a consolidated basis. The term “financial statements”
includes the notes and schedules.  The terms “including” and
“includes” always mean “including (or includes) without limitation,” in this or
any Loan Document.  Capitalized terms not otherwise defined in this
Agreement shall have the meanings set forth in Section 13.  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.

       

      2           LOAN AND TERMS OF
PAYMENT

       

      2.1           Promise
to Pay.  Borrower hereby unconditionally promises to pay Bank
the unpaid principal amount of all Advances hereunder with all interest, fees
and finance charges due thereon as and when due in accordance with this
Agreement.

       

      2.1.1           Financing
of Accounts.

       

      (a)           Availability.  Subject
to the terms of this Agreement, Borrower may request that Bank finance specific
Eligible Accounts.  Bank may, in its sole discretion in each instance,
finance such Eligible Accounts by extending credit to Borrower in an amount
equal to the result of the Advance Rate multiplied by the face amount of the
Eligible Account (the “Advance”).  Bank may, in its sole discretion,
change the percentage of the Advance Rate for a particular Eligible Account on a
case by case basis.  When Bank makes an Advance, the Eligible Account
becomes a “Financed Receivable.”

       

      (b)           Maximum
Advances.  The aggregate face amount of all Financed
Receivables outstanding at any time may not exceed the Facility
Amount.  In addition and notwithstanding the foregoing, the aggregate
amount of Advances outstanding at any time may not exceed Eight Hundred Thousand
Dollars ($800,000.00).

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


                     
(c)           Borrowing
Procedure.  Borrower will deliver an Invoice Transmittal for
each Eligible Account it offers.  Bank may rely on information set
forth in or provided with the Invoice Transmittal.

       

      (d)           Credit Quality;
Confirmations.  Bank may, at its option, conduct a credit check
of the Account Debtor for each Account requested by Borrower for financing
hereunder in order to approve any such Account Debtor’s credit before agreeing
to finance such Account.  Bank may also verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Accounts (including confirmations of Borrower’s representations in Section
5.3) by means of mail, telephone or otherwise, either in the name of Borrower or
Bank from time to time in its sole discretion.

       

      (e)           Accounts
Notification/Collection.  Bank may notify any Person owing
Borrower money of Bank’s security interest in the funds and verify and/or
collect the amount of the Account.

       

      (f)           Maturity.  This
Agreement shall terminate and all Obligations outstanding hereunder shall be
immediately due and payable on the Maturity Date.

       

      (g)           Bank’s
Discretion. Notwithstanding anything
to the contrary contained herein, this Agreement may be terminated by Borrower
or Bank at any time, and Bank is not obligated to finance any Eligible
Accounts.  Bank and Borrower hereby acknowledge and agree that Bank’s
agreement to finance Eligible Accounts hereunder is discretionary in each
instance.  Accordingly, there shall not be any recourse to Bank, nor
liability of Bank, on account of any delay in Bank’s making of, and/or any
decline by Bank to make, any loan or advance requested hereunder.

       

      2.2           Collections,
Finance Charges, Remittances and Fees.  The Obligations shall
be subject to the following fees and Finance Charges.  Unpaid fees and
Finance Charges may, in Bank’s discretion, accrue interest and fees as described
in Section 9.2 hereof.

       

      2.2.1           Collections.  Collections
will be credited to the Financed Receivable Balance for such Financed
Receivable, but if there is an Event of Default, Bank may apply Collections to
the Obligations in any order it chooses.  If Bank receives a payment
for both a Financed Receivable and a non-Financed Receivable, the funds will
first be applied to the Financed Receivable and, if there is no Event of Default
then existing, the excess will be remitted to Borrower, subject to Section
2.2.7.

       

      2.2.2           Facility
Fee.  A fully earned, non-refundable facility fee of Seven
Thousand Five Hundred Dollars ($7,500.00) (the “Facility Fee”) is earned upon
execution of this Agreement and is due and payable as follows: (a) Three
Thousand Seven Hundred Fifty Dollars ($3,750.00) is due and payable upon
execution of this Agreement; and (b) Three Thousand Seven Hundred Fifty Dollars
($3,750.00) is due and payable upon the earlier to occur of (i) one (1) year
from the Effective Date, (ii) the occurrence of an Event of Default, and (iii)
the early termination of this Agreement.

       

      2.2.3           Finance
Charges.  In computing Finance Charges on the Obligations under
this Agreement, all Collections received by Bank shall be deemed applied by Bank
on account of the Obligations two (2) Business Days after receipt of the
Collections.  Borrower will pay a finance charge (the “Finance
Charge”) on the Financed Receivable Balance which is equal to the Applicable
Rate divided by
360 multiplied
by the number of days each such Financed Receivable is outstanding multiplied by the
outstanding Financed Receivable Balance.  The Finance Charge is
payable when the Advance made based on such Financed Receivable is payable in
accordance with Section 2.3 hereof.  After an Event of Default, the
Applicable Rate will increase an additional five percent (5.0%) per annum
effective immediately upon the occurrence of such Event of Default.

       

      2.2.4           Collateral
Handling Fee.  Borrower will pay to Bank a collateral handling fee
equal to 0.25% per month of the Financed Receivable Balance for each Financed
Receivable outstanding based upon a 360 day year (the “Collateral Handling
Fee”).  This fee is charged on a daily basis which is equal to the
Collateral Handling Fee divided by 30, multiplied by the number of days each
such Financed Receivable is outstanding, multiplied by the outstanding Financed
Receivable Balance.  The Collateral Handling Fee is payable when the
Advance made based on such Financed Receivable is payable in accordance with
Section 2.3 hereof.  In computing Collateral Handling Fees under this
Agreement, all Collections received by Bank shall be deemed applied by Bank on
account of


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      Obligations
two (2) Business Days after receipt of the Collections.  After an Event of
Default, the Collateral Handling Fee will increase an additional 0.50% effective
immediately upon such Event of Default.

      


      2.2.5           Accounting.  After
each Reconciliation Period, Bank will provide an accounting of the transactions
for that Reconciliation Period, including the amount of all Financed
Receivables, all Collections, Adjustments, Finance Charges, Collateral Handling
Fees and the Facility Fee.  If Borrower does not object to the
accounting in writing within thirty (30) days it shall be considered
accurate.  All Finance Charges and other interest and fees are
calculated on the basis of a 360 day year and actual days elapsed.

       

      2.2.6           Deductions.  Bank
may deduct fees, Finance Charges, Advances which become due pursuant to Section
2.3, and other amounts due pursuant to this Agreement from any Advances made or
Collections received by Bank.

       

      2.2.7           Lockbox;
Account Collection Services.

       

      (a)           Borrower
shall direct each Account Debtor (and each depository institution where proceeds
of Accounts are on deposit) to remit payments with respect to the Accounts to a
lockbox account established with Bank or to wire transfer payments to a cash
collateral account that Bank controls (collectively, the “Lockbox”).  It will
be considered an immediate Event of Default if the Lockbox is not set-up and
operational on the Effective Date.

       

      (b)           For
any time at which such Lockbox is not established, the proceeds of the Accounts
shall be paid by the Account Debtors to an address consented to by
Bank.  Upon receipt by Borrower of such proceeds, Borrower shall
immediately transfer and deliver same to Bank, along with a detailed cash
receipts journal.  Provided no Event of Default exists or an event
that with notice or lapse of time will be an Event of Default, within three (3)
days of receipt of such amounts by Bank, Bank will turn over to Borrower the
proceeds of the Accounts other than Collections with respect to Financed
Receivables and the amount of Collections in excess of the amounts for which
Bank has made an Advance to Borrower, less any amounts due to Bank, such as the
Finance Charge, the Facility Fee, payments due to Bank, other fees and expenses,
or otherwise; provided, however, Bank may hold such excess amount with respect
to Financed Receivables as a reserve until the end of the applicable
Reconciliation Period if Bank, in its discretion, determines that other Financed
Receivable(s) may no longer qualify as an Eligible Account at any time prior to
the end of the subject Reconciliation Period.  This Section does not
impose any affirmative duty on Bank to perform any act other than as
specifically set forth herein.  All Accounts and the proceeds thereof
are Collateral and if an Event of Default occurs, Bank may apply the proceeds of
such Accounts to the Obligations.

       

      2.2.8           Bank
Expenses.  Borrower shall pay all Bank Expenses (including
reasonable attorneys’ fees and expenses, plus expenses, for documentation and
negotiation of this Agreement) incurred through and after the Effective Date,
when due.

       

      2.2.9           Good
Faith Deposit.  Borrower has paid to Bank a deposit of Five
Thousand Four Hundred Dollars ($5,400.00) (the “Good Faith Deposit”) to
initiate Bank’s due diligence review process.  The Good Faith Deposit
will be applied to the portion of the Facility Fee which is due upon the
execution of this Agreement.

       

      2.3           Repayment of Obligations;
Adjustments.

       

      2.3.1           Repayment.  Borrower
will repay each Advance on the earliest of: (a) the date on which payment is
received of the Financed Receivable with respect to which the Advance was made,
(b) the date on which the Financed Receivable is no longer an Eligible Account,
(c) the date on which any Adjustment is asserted to the Financed Receivable (but
only to the extent of the Adjustment if the Financed Receivable remains
otherwise an Eligible Account), (d) the date on which there is a breach of any
warranty or representation set forth in Section 5.3, or a breach of any covenant
in this Agreement or (e) the Maturity Date (including any early termination).
Each payment will also include all accrued Finance Charges and Collateral
Handling Fees with respect to such Advance and all other amounts then due and
payable hereunder.

       

      2.3.2           Repayment
on Event of Default.  When there is an Event of Default,
Borrower will, if Bank demands (or, upon the occurrence of an Event of Default
under Section 8.5, immediately without notice or demand from Bank) repay all of
the Advances.  The demand may, at Bank’s option, include the Advance
for each Financed

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      Receivable
then outstanding and all accrued Finance Charges, Collateral Handling Fees,
attorneys’ and professional fees, court costs and expenses, and any other
Obligations.

       

      2.3.3           Debit of
Accounts.  Bank may debit any of Borrower’s deposit accounts
for payments or any amounts Borrower owes Bank hereunder.  Bank shall
promptly notify Borrower when it debits Borrower’s accounts.  These
debits shall not constitute a set-off.

       

      2.3.4           Adjustments.  If,
at any time during the term of this Agreement, any Account Debtor asserts an
Adjustment, Borrower issues a credit memorandum, or any of the representations
and warranties in Section 5.3 or covenants in this Agreement are no longer true
in all material respects, Borrower will promptly advise Bank.

       

      2.4           Power of
Attorney.  Borrower irrevocably appoints Bank and its
successors and assigns as attorney-in-fact and authorizes Bank, regardless of
whether there has been an Event of Default, to: (a) sell, assign, transfer,
pledge, compromise, or discharge all or any part of the Financed Receivables;
(b) demand, collect, sue, and give releases to any Account Debtor for monies due
and compromise, prosecute, or defend any action, claim, case or proceeding about
the Financed Receivables, including filing a claim or voting a claim in any
bankruptcy case in Bank’s or Borrower’s name, as Bank chooses; (c) prepare, file
and sign Borrower’ s name on any notice, claim, assignment, demand, draft, or
notice of or satisfaction of lien or mechanics’ lien or similar document; (d)
notify all Account Debtors to pay Bank directly; (e) receive, open, and dispose
of mail addressed to Borrower; (f) endorse Borrower’s name on checks or other
instruments (to the extent necessary to pay amounts owed pursuant to this
Agreement); and (g) execute on Borrower’s behalf any instruments, documents,
financing statements to perfect Bank ’s interests in the Financed Receivables
and Collateral and do all acts and things necessary or expedient, as determined
solely and exclusively by Bank, to protect, preserve, and otherwise enforce
Bank’s rights and remedies under this Agreement, as directed by
Bank.

       

      3           CONDITIONS OF
LOANS

       

      3.1           Conditions
Precedent to Initial Advance.  Bank’s agreement to make the
initial Advance is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, such documents, and
completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation:

       

      (a)           delivery
of the Term Loan Agreement and completion of all of the conditions precedent in
connection therewith;

       

      (b)           a
certificate of the Secretary of each Borrower with respect to articles, bylaws,
incumbency and resolutions authorizing the execution and delivery of this
Agreement;

       

      (c)           the
IP Agreement;

       

      (d)           Perfection
Certificate by Borrower;

       

      (e)           a
legal opinion of Borrower’s counsel (authority/enforceability), in form and
substance acceptable to Bank;

       

      (f)           a
payoff letter from Royal Bank of Canada;

       

      (g)           evidence
that (i) the Liens securing Indebtedness owed by Borrower to Royal Bank of
Canada will be terminated and (ii) the documents and/or filings evidencing the
perfection of such Liens, including without limitation any financing statements
and/or control agreements, have or will, concurrently with the initial Advance,
be terminated;

       

      (h)           Account
Control Agreement/ Investment Account Control Agreement;

       

      (i)           evidence
satisfactory to Bank that the insurance policies required by Section 6.4 hereof
are in full force and effect, together with appropriate evidence showing lender
loss payable and/or additional insured clauses or endorsements in favor of
Bank;

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      (j)           payment
of the fees and Bank Expenses then due and payable;

       

      (k)           Certificate
of Foreign Qualification (if applicable);

       

      (l)           Certificate
of Good Standing/Legal Existence; and

       

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

       

      3.2           Conditions
Precedent to all Advances.  Bank’s agreement to make each
Advance, including the initial Advance, is subject to the
following:

       

      (a)           receipt
of the Invoice Transmittal;

       

      (b)           a
Deferred Revenue report, in form acceptable to Bank

       

      (c)           Bank
shall have (at its option) conducted the confirmations and verifications as
described in Section 2.1.1(d); and

       

      (d)           each
of the representations and warranties in Section 5 shall be true on the date of
the Invoice Transmittal and on the effective date of each Advance and no Event
of Default shall have occurred and be continuing, or result from the
Advance.  Each Advance is Borrower’s representation and warranty on
that date that the representations and warranties in Section 5 remain
true.

       

      4           CREATION OF SECURITY
INTEREST

       

      4.1           Grant of
Security Interest.  Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations and the performance of
each of Borrower’s duties under the Loan Documents, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products
thereof.  Borrower represents, warrants, and covenants that the
security interest granted herein shall be a first priority security interest in
the Collateral.  If Borrower shall at any time, acquire a commercial
tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower
of the general details thereof and grant to Bank in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance satisfactory to
Bank.

       

      If this
Agreement is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in
cash.  Upon payment in full in cash of the Obligations and at such
time this Agreement has been terminated, Bank shall, at Borrower’s sole cost and
expense, release its Liens in the Collateral and all rights therein shall revert
to Borrower.

       

      4.2           Authorization
to File Financing Statements.  Borrower hereby authorizes Bank
to file financing statements, without notice to Borrower, with all appropriate
jurisdictions to perfect or protect Bank’s interest or rights hereunder,
including a notice that any disposition of the Collateral, by either Borrower or
any other Person, shall be deemed to violate the rights of Bank under the
Code.  Any such financing statements may indicate the Collateral as
“all assets of the Debtor” or words of similar effect, or as being of an equal
or lesser scope, or with greater detail, all in Bank’s discretion.

       

      5           REPRESENTATIONS AND
WARRANTIES

       

      Borrower
represents and warrants as follows:

       

      5.1           Due
Organization and Authorization.  Except for Shafi, Inc. and
Shafi Innovation, Inc., Borrower and each of its Subsidiaries are duly existing
and in good standing as Registered Organizations in their respective
jurisdictions of formation and are qualified and licensed to do business and are
in good standing in any jurisdiction in which the conduct of their respective
business or ownership of property requires that they be qualified except where
the failure to do so could not reasonably be expected to have a material adverse
effect on Borrower’s

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      business.  In
connection with this Agreement, Borrower has delivered to Bank a completed
certificate signed by Borrower (the “Perfection
Certificate”).  Borrower represents and warrants to Bank that (a)
Borrower’s exact legal name is that indicated on the Perfection Certificate and
on the signature page hereof; (b) Borrower is an organization of the type
and is organized in the jurisdiction set forth in the Perfection Certificate;
(c) the Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate accurately sets forth Borrower’s place of business, or,
if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) Borrower (and
each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries (except for Shafi, Inc. and Shafi Innovation, Inc.) is
accurate and complete (it being understood and agreed that Borrower may from
time to time update certain information in the Perfection Certificate after the
Effective Date to the extent permitted by one or more specific provisions in
this Agreement).  If Borrower is not now a Registered Organization but
later becomes one, Borrower shall promptly notify Bank of such occurrence and
provide Bank with Borrower’s organizational identification number.

       

      The
execution, delivery and performance by Borrower of the Loan Documents to which
it is a party have been duly authorized, and do not (i) conflict with any of
Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any its Subsidiaries or any of their property or assets may be
bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect), or (v) constitute an event of default under any
material agreement by which Borrower is bound.  Borrower is not in
default under any agreement to which it is a party or by which it is bound in
which the default could have a material adverse effect on Borrower’s
business.

       

      5.2           Collateral.  Borrower
has good title, has rights in, and the power to transfer each item of the
Collateral upon which it purports to grant a Lien hereunder, free and clear of
any and all Liens except Permitted Liens.  Borrower has no deposit
accounts other than the deposit accounts with Bank, the deposit accounts, if
any, described in the Perfection Certificate delivered to Bank in connection
herewith, or of which Borrower has given Bank notice and taken such actions as
are necessary to give Bank a perfected security interest therein.  The
Accounts are bona fide, existing obligations of the Account
Debtors.  All Inventory is in all material respects of good and
marketable quality, free from material defects.

       

      The
Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection
Certificate.  None of the components of the Collateral shall be
maintained at locations other than as provided in the Perfection Certificate or
as permitted pursuant to Section 7.2.  In the event that Borrower,
after the date hereof, intends to store or otherwise deliver any portion of the
Collateral to a bailee, then Borrower will first receive the written consent of
Bank and such bailee must execute and deliver a bailee agreement in form and
substance satisfactory to Bank in its sole discretion.

       

      Borrower
is the sole owner of its intellectual property, except for non-exclusive
licenses granted to its customers in the ordinary course of
business.  Each patent is valid and enforceable, and no part of the
intellectual property has been judged invalid or unenforceable, in whole or in
part, and to the best of Borrower’s knowledge, no claim has been made that any
part of the intellectual property violates the rights of any third party except
to the extent such claim could not reasonably be expected to have a material
adverse effect on Borrower’s business.  Except as noted on the
Perfection Certificate, Borrower is not a party to, nor is bound by, any
material license or other agreement with respect to which Borrower is the
licensee (a) that prohibits or otherwise restricts Borrower from granting a
security interest in Borrower’s interest in such license or agreement or any
other property, or (b) for which a default under or termination of could
interfere with Bank’s right to sell any Collateral.  Without prior
consent from Bank, Borrower shall not enter into, or become bound by, any such
license or agreement which is reasonably likely to have a material impact on
Borrower’s business or financial condition.  Borrower shall take such
steps as Bank requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for all such licenses or contract rights to be
deemed “Collateral” and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such license
or agreement, whether now existing or entered into in the future.

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      5.3           Financed
Receivables.  Borrower represents and warrants for each
Financed Receivable:

       

      (a)           Such
Financed Receivable is an Eligible Account;

       

      (b)           Borrower
is the owner of and has the legal right to sell, transfer, assign and encumber
such Financed Receivable;

       

      (c)           The
correct amount is on the Invoice Transmittal and is not disputed;

       

      (d)           Payment
is not contingent on any obligation or contract and Borrower has fulfilled all
its obligations as of the Invoice Transmittal date;

       

      (e)           Such
Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted
Liens;

       

      (f)           There
are no defenses, offsets, counterclaims or agreements for which the Account
Debtor may claim any deduction or discount;

       

      (g)           Borrower
reasonably believes no Account Debtor is insolvent or subject to any Insolvency
Proceedings;

       

      (h)           Borrower
has not filed or had filed against it Insolvency Proceedings and does not
anticipate any filing;

       

      (i)           Bank
has the right to endorse and/ or require Borrower to endorse all payments
received on Financed Receivables and all proceeds of Collateral;
and

       

      (j)           No
representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained in
the certificates or statement not misleading.

       

      5.4           Litigation.  Except
as set forth on the Perfection Certificate, there are no actions or proceedings
pending or, to the knowledge of Borrower’s Responsible Officers, threatened in
writing by or against Borrower or any Subsidiary in which an adverse decision
could reasonably be expected to cause a Material Adverse Change.

       

      5.5           No
Material Deterioration in Financial Statements.  All
consolidated financial statements for Borrower and any Subsidiaries delivered to
Bank fairly present in all material respects Borrower’s consolidated financial
condition and Borrower’s consolidated results of operations.  There
has not been any material deterioration in Borrower’s consolidated financial
condition since the date of the most recent financial statements submitted to
Bank.

       

      5.6           Solvency.  The
fair salable value of Borrower’s assets (including goodwill minus disposition
costs) exceeds the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions in this Agreement; and
Borrower is able to pay its debts (including trade debts) as they
mature.

       

      5.7           Regulatory
Compliance.  Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended.  Borrower is not engaged as one of its important
activities in extending credit for margin stock (under Regulations X, T and U of
the Federal Reserve Board of Governors).  Neither Borrower nor any of
its Subsidiaries is a “holding company” or an “affiliate” of a “holding company”
or a “subsidiary company” of a “holding company” as each term is defined and
used in the Public Utility Holding Company Act of 2005.  Borrower has
complied in all material respects with the Federal Fair Labor Standards
Act.  Borrower has not violated any laws, ordinances or rules, the
violation of which could reasonably be expected to cause a Material Adverse
Change.  None of Borrower’s or any Subsidiary’s properties or assets
has been used by Borrower or any Subsidiary or, to the best of Borrower’s
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally.  Borrower and
each of its Subsidiaries have obtained all consents, approvals and
authorizations of, made all declarations or filings

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      with, and
given all notices to, all Government Authorities that are necessary to continue
their respective businesses as currently conducted.

       

      5.8           Subsidiaries;
Investments.  Except for Shafi, Inc. and Shafi Innovation,
Inc., Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

       

      5.9           Tax
Returns and Payments; Pension Contributions.  Except for Shafi,
Inc. and Shafi Innovation, Inc., Borrower and each Subsidiary have timely filed
all required tax returns and reports, and Borrower and each Subsidiary have
timely paid all foreign, federal, state and local taxes, assessments, deposits
and contributions owed by Borrower and each Subsidiary.  Borrower may
defer payment of any contested taxes, provided that Borrower (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, (b) notifies Bank in writing of the
commencement of, and any material development in, the proceedings, and (c) posts
bonds or takes any other steps required to prevent the governmental authority
levying such contested taxes from obtaining a Lien upon any of the Collateral
that is other than a “Permitted Lien”.  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 all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance with their
terms, and Borrower has not withdrawn from participation in, and has not
permitted partial or complete termination of, or permitted 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.

       

      5.10           Inactive
Subsidiary.  Braintech Consumer & Service, Inc., Borrower’s
Subsidiary, does not and will not conduct any business or own any assets and
will remain an inactive entity.  Bank hereby reserves the right to
require that such entity be joined as a co-borrower or guarantor in the future,
and Borrower hereby agrees to execute all documentation required by Bank in
connection with such joinder.

       

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

       

      6           AFFIRMATIVE
COVENANTS

       

      Borrower
shall do all of the following:

       

      6.1           Government
Compliance.

       

      (a)           Except
for Shafi, Inc. and Shafi Innovation, Inc., maintain its and all its
Subsidiaries’ legal existence and good standing in their respective
jurisdictions of formation and maintain qualification in each jurisdiction in
which the failure to so qualify would reasonably be expected to have a material
adverse effect on Borrower’s business or operations.  Borrower shall
comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower’s business.

       

      (b)           Obtain
all of the Governmental Approvals necessary for the performance by Borrower of
its obligations under the Loan Documents to which it is a party and the grant of
a security interest to Bank in all of its property.  Borrower shall
promptly provide copies of any such obtained Governmental Approvals to
Bank.

       

      6.2           Financial
Statements, Reports, Certificates.

       

      (a)           Deliver
to Bank:  (i) as soon as available, but no later than thirty (30)
days after the last
day of each month, a company prepared unconsolidated balance sheet and income
statement covering Borrower’s operations during the period certified by a
Responsible Officer and in a form acceptable to Bank; (ii) as soon
as

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      available,
but no later than the earlier to occur of ninety (90) days after the last day of
Borrower’s fiscal year and the due date with the Securities and Exchange
Commission, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm reasonably
acceptable to Bank; (iii) within ten (10) days of filing, copies of all filings
made with the Securities and Exchange Commission including, without limitation,
statements, reports and notices made available to Borrower’s security holders or
to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K;
(iv) a prompt report of any legal actions pending or threatened against Borrower
or any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary (except for Shafi, Inc. and Shafi Innovation, Inc.) of One Hundred
Thousand Dollars ($100,000.00) or more; (v) as soon as available, but no later
than ten (10) days following board approval, and contemporaneously with any
updates thereto, board-approved projections; (vi) prompt notice of any material
change in the composition of the Intellectual Property Collateral, or the
registration of any copyright, including any subsequent ownership right of
Borrower in or to any copyright, patent or trademark not shown in the IP
Agreement or knowledge of an event that materially adversely affects the value
of the Intellectual Property Collateral; and (vii) budgets, sales
projections, operating plans or other financial
information reasonably requested by Bank.

       

      (b)           Within
thirty (30) days
after the last day of each month, deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in the form
of Exhibit
B.

       

      (c)           Allow
Bank to audit Borrower’s Collateral, including, but not limited to, Borrower’s
Accounts at Borrower’s expense, upon reasonable notice to Borrower; provided,
however, prior to the occurrence of an Event of Default, Borrower shall be
obligated to pay for not more than one (1) audit per year.  After the
occurrence of an Event of Default, Bank may audit Borrower’s Collateral,
including, but not limited to, Borrower’s Accounts at Borrower’s expense and at
Bank’s sole and exclusive discretion and without notification and authorization
from Borrower.

       

      (d)           Upon
Bank’s request, provide a written report respecting any Financed Receivable, if
payment of any Financed Receivable does not occur by its due date and include
the reasons for the delay.

       

      (e)           Provide
Bank with, as soon as available, but no later than thirty (30) days following each
Reconciliation Period, an aged listing of accounts receivable and accounts
payable by invoice date, in form acceptable to Bank.

       

      6.3           Taxes.  Borrower
shall make, and cause each Subsidiary (except for Shafi, Inc. and Shafi
Innovation, Inc.) to make, timely payment of all federal, state, and local taxes
or assessments (other than taxes and assessments which Borrower is contesting in
good faith, with adequate reserves maintained in accordance with GAAP) and will
deliver to Bank, on demand, appropriate certificates attesting to such
payments.

       

      6.4           Insurance.  Keep
its business and the Collateral insured for risks and in amounts standard for
companies in Borrower’s industry and location, and as Bank may reasonably
request.  Insurance policies shall be in a form, with companies, and
in amounts that are satisfactory to Bank.  All property policies shall
have a lender’s loss payable endorsement showing Bank as the sole lender loss
payee and waive subrogation against Bank, and all liability policies shall show,
or have endorsements showing, Bank as an additional insured.  All
policies (or the loss payable and additional insured endorsements) shall provide
that the insurer must give Bank at least twenty (20) days notice before
canceling, amending, or declining to renew its policy.  At Bank’s
request, Borrower shall deliver certified copies of policies and evidence of all
premium payments. Proceeds payable under any policy shall, at Bank’s option, be
payable to Bank on account of the Obligations.  If Borrower fails to
obtain insurance as required under this Section 6.4 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section 6.4, and take any action under the policies Bank deems
prudent.

       

      6.5           Accounts.

       

      (a)           To
permit Bank to monitor Borrower’s financial performance and condition, Borrower,
and all Borrower’s Subsidiaries, shall maintain all of Borrower’s and such
Subsidiaries’, depository and operating accounts and securities accounts with
Bank and Bank’s affiliates.  Any Guarantor
shall maintain all depository and
operating accounts with Bank, and, with respect to securities accounts, with an
affiliate of Bank.

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      (b)           Borrower
shall identify to Bank, in writing, any deposit or securities account opened by
Borrower with any institution other than Bank.  In addition, for each
such account that Borrower or Guarantor at any time opens or maintains, Borrower
shall, at Bank’s request and option, pursuant to an agreement in form and
substance acceptable to Bank, cause the depository bank or securities
intermediary to agree that such account is the collateral of Bank pursuant to
the terms hereunder, which control agreement may not be terminated without the
prior written consent of Bank.  The provisions of the previous
sentence shall not apply to deposit accounts exclusively used for payroll,
payroll taxes and other employee wage and benefit payments to or for the benefit
of Borrower’s employees.

       

      6.6           Inventory;
Returns.  Keep all Inventory in good and marketable condition,
free from material defects.  Returns and allowances between Borrower
and its Account Debtors shall follow Borrower’s customary practices as they
exist at the Effective Date.  Borrower must promptly notify Bank of
all returns, recoveries, disputes and claims that involve more than One Hundred
Thousand Dollars ($100,000.00).

       

      6.7           Financial
Covenants.

       

      Borrower
shall maintain at all times, to be tested as of the last day of each month on a
consolidated basis with respect to Borrower and its Subsidiaries:

       

      (a) EBITDA.  EBITDA
for the three-month period ending on the last day of such month of at least
$1.00 for the three-month periods ending on March 31, 2010, April 30, 2010, May
31, 2010, June 30, 2010, July 31, 2010 and August 31, 2010.

       

      (b) Net
Income.  Net Income for the three-month period ending on the
last day of such month of at least $1.00 for the three-month period ending on
September 30, 2010 and for the three-month period ending on the last day of each
month thereafter.

       

      6.8           Protection
and Registration of Intellectual Property Rights.  Borrower
shall:  (a) protect, defend and maintain the validity and
enforceability of its intellectual property; (b) promptly advise Bank in writing
of material infringements of its intellectual property; and (c) not allow any
intellectual property material to Borrower’s business to be abandoned, forfeited
or dedicated to the public without Bank’s written consent.  If
Borrower (i) obtains any patent, registered trademark or servicemark, registered
copyright, registered mask work, or any pending application for any of the
foregoing, whether as owner, licensee or otherwise, or (ii) applies for any
patent or the registration of any trademark or servicemark, then Borrower shall
promptly provide written notice thereof to Bank and shall execute such
intellectual property security agreements and other documents and take such
other actions as Bank shall request in its good faith business judgment to
perfect and maintain a first priority perfected security interest in favor of
Bank in such property.  If Borrower decides to register any copyrights
or mask works in the United States Copyright Office, Borrower shall:
(x) provide Bank with at least fifteen (15) days prior written notice of
Borrower’s intent to register such copyrights or mask works together with a copy
of the application it intends to file with the United States Copyright Office
(excluding exhibits thereto); (y) execute an intellectual property security
agreement and such other documents and take such other actions as Bank may
request in its good faith business judgment to perfect and maintain a first
priority perfected security interest in favor of Bank in the copyrights or mask
works intended to be registered with the United States Copyright Office; and
(z) record such intellectual property security agreement with the United
States Copyright Office contemporaneously with filing the copyright or mask work
application(s) with the United States Copyright Office.  Borrower
shall promptly provide to Bank copies of all applications that it files for
patents or for the registration of trademarks, servicemarks, copyrights or mask
works, together with evidence of the recording of the intellectual property
security agreement necessary for Bank to perfect and maintain a first priority
perfected security interest in such property.

       

      6.9           Litigation
Cooperation.  From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.

       

      6.10           Further
Assurances.  Execute any further instruments and take further
action as Bank reasonably requests to perfect or continue Bank’s Lien in the
Collateral or to effect the purposes of this Agreement.

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      7           NEGATIVE
COVENANTS

       

      Borrower
shall not do any of the following without Bank’s prior written
consent.

       

      7.1           Dispositions.  Convey,
sell, lease, transfer, assign, or otherwise dispose of (collectively a
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, except for Transfers (a) of Inventory in the ordinary
course of business; (b) of worn-out or obsolete Equipment; and (c) in connection
with Permitted Liens and Permitted Investments.

       

      7.2           Changes
in Business, Ownership, Management or Business
Locations.  Engage in or permit any of its Subsidiaries to
engage in any business other than the businesses currently engaged in by
Borrower or reasonably related thereto, or have a material change in its
ownership (other than by the sale of Borrower’s equity securities in a public
offering or to venture capital investors so long as Borrower identifies to Bank
the venture capital investors prior to the closing of the investment), or have a
change in management such that any Key Person ceases to hold such office with
Borrower and a replacement reasonably satisfactory to Bank is not made within
ninety (90) days after such Key Person’s departure from
Borrower.  Borrower shall not, without at least thirty (30) days prior
written notice to Bank: (a) relocate its chief executive office, or add any new
offices or business locations, including warehouses  (unless such new
offices or business locations contain less than Fifty Thousand Dollars
($50,000.00) in Borrower’s assets or property), or (b) change its jurisdiction
of organization, or (c) change its organizational structure or type, or (d)
change its legal name, or (e) change any organizational number (if any) assigned
by its jurisdiction of organization.

       

      7.3           Mergers
or Acquisitions.  Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person.  A Subsidiary may merge
or consolidate into another Subsidiary or into Borrower.

       

      7.4           Indebtedness.  Create,
incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do
so, other than (a) Permitted Indebtedness, and (b) with respect to Shafi, Inc.
and Shafi Innovation, Inc., Indebtedness existing on the Effective Date and
disclosed on the Perfection Certificate.

       

      7.5           Encumbrance.  Create,
incur, allow, or suffer any Lien on any of its property, or assign or convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries to do so, except for (a) Permitted Liens and (b) with respect
to Shafi, Inc. and Shafi Innovation, Inc., Liens existing on the Effective Date
and disclosed on the Perfection Certificate, or permit any Collateral not to be
subject to the first priority security interest granted herein, or enter into
any agreement, document, instrument or other arrangement (except with or in
favor of Bank) with any Person which directly or indirectly prohibits or has the
effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging,
pledging, granting a security interest in or upon, or encumbering any of
Borrower’s or any Subsidiary’s intellectual property, except as is otherwise
permitted in Section 7.1 hereof and the definition of “Permitted Liens”
herein.

       

      7.6           Distributions;
Investments.  (a) Directly or indirectly acquire or own any
Person, or make any Investment in any Person, other than Permitted Investments,
or permit any of its Subsidiaries to do so; or (b) pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital
stock.

       

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

       

      7.8           Subordinated
Debt.  (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof or adversely affect the subordination thereof to Obligations owed
to Bank.

       

      7.9           Compliance.  Become
an “investment company” or a company controlled by an “investment company”,
under the Investment Company Act of 1940, as amended, or undertake as one of its
important activities

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      extending
credit to purchase or carry margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System), or use the proceeds of any
Advance for that purpose; fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, each as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, if the violation could reasonably be
expected to have a material adverse effect on Borrower’s business, or permit any
of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation 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.

       

      8           EVENTS OF
DEFAULT

       

      Any one
of the following shall constitute an event of default (an “Event of Default”)
under this Agreement:

       

      8.1           Payment
Default.  Borrower fails to pay any of the Obligations when
due;

       

      8.2           Covenant
Default.  Borrower fails or neglects to perform any obligation
in Section 6 or violates any covenant in Section 7 or fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant or agreement contained in this Agreement, any Loan Documents, or in any
present or future agreement between Borrower and Bank;

       

      8.3           Material
Adverse Change.  A Material Adverse Change occurs;

       

      8.4           Attachment;
Levy; Restraint on Business.  (a) (i) The service of process
seeking to attach, by trustee or similar process, any funds of Borrower or of
any entity under control of Borrower (including a Subsidiary except for Shafi,
Inc. and Shafi Innovation, Inc.) on deposit with Bank or any Bank Affiliate, or
(ii) a notice of lien, levy, or assessment is filed against any of Borrower’s
assets by any government agency, and the same under subclauses (i) and (ii)
hereof are not, within ten (10) days after the occurrence thereof, discharged or
stayed (whether through the posting of a bond or otherwise); provided, however,
no Credit Extensions shall be made during any ten (10) day cure period; and (b)
(i) any material portion of Borrower’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver, or (ii) any court order
enjoins, restrains, or prevents Borrower from conducting any part of its
business;

       

      8.5           Insolvency.  (a)
Borrower is unable to pay its debts (including trade debts) as they become due
or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or
(c) an Insolvency Proceeding is begun against Borrower and not dismissed or
stayed within thirty (30) days (but no Advances shall be made while of any of
the conditions described in clause (a) exist and/or until any Insolvency
Proceeding is dismissed);

       

      8.6           Other
Agreements.  If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000.00) or that could result in a Material Adverse Change;

       

      8.7           Judgments.  One
or more judgments, orders, or decrees for the payment of money in an amount,
individually or in the aggregate, of at least One Hundred Thousand Dollars
($100,000.00) (not covered by independent third-party insurance as to which
liability has been accepted by such insurance carrier) shall be rendered against
Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of
ten (10) days after the entry thereof (provided that no Advances will be made
prior to the satisfaction, vacation, or stay of such judgment, order, or
decree);

       

      8.8           Misrepresentations.  Borrower
or any Person acting for Borrower makes any representation, warranty, or other
statement now or later  in this Agreement, any Loan Document or in
writing delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document, and such representation, warranty, or other statement is incorrect in
any material respect when made;

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      8.9           Subordinated
Debt.  A default or breach occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination agreement,
intercreditor agreement, or other similar agreement with Bank, or any creditor
that has signed such an agreement with Bank breaches any terms of the
agreement;

       

      8.10           Guaranty.  (a) Any guaranty
of any Obligations terminates or ceases for any reason to be in full force and
effect; (b) any Guarantor does not perform any obligation or covenant under any
guaranty of the Obligations; (c) any circumstance described in Sections 8.3,
8.4, 8.5, 8.7, or 8.8. occurs with respect to any Guarantor; (d) the
liquidation, winding up, or termination of existence of any Guarantor; or
(e) (i) a material impairment in the perfection or priority of Bank’s
Lien in the collateral provided by Guarantor or in the value of such collateral
or (ii) a material adverse change in the general affairs, management,
results of operation, condition (financial or otherwise) or the prospect of
repayment of the Obligations occurs with respect to any Guarantor;

       

      8.11           Governmental
Approvals.  Any Governmental
Approval shall have been (a) revoked, rescinded, suspended, modified in an
adverse manner or not renewed in the ordinary course for a full term or
(b) subject to any decision by a Governmental Authority that designates a
hearing with respect to any applications for renewal of any of such Governmental
Approval or that could result in the Governmental Authority taking any of the
actions described in clause (a) above, and such decision or such revocation,
rescission, suspension, modification or non-renewal (i) has, or could reasonably
be expected to have, a Material Adverse Change, or (ii) adversely affects
the legal qualifications of Borrower or any of its Subsidiaries (except for
Shafi, Inc. and Shafi Innovation, Inc.) to hold such Governmental Approval in
any applicable jurisdiction and such revocation, rescission, suspension,
modification or non-renewal could reasonably be expected to affect the status of
or legal qualifications of Borrower or any of its Subsidiaries (except for
Shafi, Inc. and Shafi Innovation, Inc.) to hold any Governmental Approval in any
other jurisdiction; or

       

      8.12           Term Loan
Agreement.  An Event of Default (as such term is defined in the
Term Loan Agreement) occurs under the Term Loan Agreement.

       

      9                
BANK’S RIGHTS AND
REMEDIES

       

      9.1             
Rights
and Remedies.  When an Event of Default occurs and continues
Bank may, without notice or demand, do any or all of the following:

       

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

       

      (b)           stop
advancing money or extending credit for Borrower’s benefit under this Agreement
or under any other agreement between Borrower and Bank;

       

      (c)           settle
or adjust disputes and claims directly with Account Debtors for amounts, on
terms and in any order that Bank considers advisable and notify any Person owing
Borrower money of Bank’s security interest in such funds and verify the amount
of such account.  Borrower shall collect all payments in trust for
Bank and, if requested by Bank, immediately deliver the payments to Bank in the
form received from the Account Debtor, with proper endorsements for
deposit;

       

      (d)           make
any payments and do any acts it considers necessary or reasonable to protect its
security interest in the Collateral.  Borrower shall assemble the
Collateral if Bank requests and make it available as Bank
designates.  Bank may enter premises where the Collateral is located,
take and maintain possession of any part of the Collateral, and pay, purchase,
contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred.  Borrower grants Bank
a license to enter and occupy any of its premises, without charge, to exercise
any of Bank’s rights or remedies;

       

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

       

      (f)           ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral.  Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names,

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      trademarks,
service marks, and advertising matter, or any similar property as it pertains to
the Collateral, in completing production of, advertising for sale, and selling
any Collateral and, in connection with Bank’s exercise of its rights under this
Section, Borrower’s rights under all licenses and all franchise agreements inure
to Bank’s benefit;

       

      (g)           place
a “hold” on any account maintained with Bank and/or deliver a notice of
exclusive control, any entitlement order, or other directions or instructions
pursuant to any control agreement or similar agreements providing control of any
Collateral;

       

      (h)           demand
and receive possession of Borrower’s Books; and

       

      (i)           exercise
all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of
the Collateral pursuant to the terms thereof).

       

      9.2           Protective
Payments.  If Borrower fails to obtain insurance called for by
Section 6.4 or fails to pay any premium thereon or fails to pay any other amount
which Borrower is obligated to pay under this Agreement or by any other Loan
Document, Bank may obtain such insurance or make such payment, and all amounts
so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest applicable rate, and secured by the
Collateral.  Bank will make reasonable effort to provide Borrower with
notice of Bank obtaining such insurance at the time it is obtained or within a
reasonable time thereafter. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank’s waiver of any Event of
Default.

       

      9.3           Bank’s
Liability for Collateral.  So long as Bank complies with
reasonable banking practices regarding the safekeeping of Collateral in
possession or under the control of Bank, Bank shall not be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other
Person.  Borrower bears all risk of loss, damage or destruction of the
Collateral.

       

      9.4           Remedies
Cumulative.  Bank’s failure, at any time or times, to require
strict performance by Borrower of any provision of this Agreement or any other
Loan Document shall not waive, affect, or diminish any right of Bank thereafter
to demand strict performance and compliance herewith or therewith.  No
waiver hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it is
given.  Bank’s rights and remedies under this Agreement and the other
Loan Documents are cumulative.  Bank has all rights and remedies
provided under the Code, by law, or in equity.  Bank’s exercise of one
right or remedy is not an election, and Bank’s waiver of any Event of Default is
not a continuing waiver.  Bank’s delay in exercising any remedy is not
a waiver, election, or acquiescence.

       

      9.5           Demand
Waiver.  Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

       

      10           NOTICES.

       

      All
notices, consents, requests, approvals, demands, or other communication by any
party to this Agreement or any other Loan Document must be in writing and shall
be deemed to have been validly served, given, or delivered: (a) upon the earlier
of actual receipt and three (3) Business Days after deposit in the U.S. mail,
first class, registered or certified mail return receipt requested, with proper
postage prepaid; (b) upon transmission, when sent by facsimile transmission; (c)
one (1) Business Day after deposit with a reputable overnight courier with all
charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of
which shall be addressed to the party to be notified and sent to the address or
facsimile number provided at the beginning of this Agreement.  Bank or
Borrower may change its address or facsimile number by giving the other party
written notice thereof in accordance with the terms of this Section
10.

       

      11           CHOICE OF LAW, VENUE AND
JURY TRIAL WAIVER

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      MASSACHUSETTS LAW GOVERNS
THE LOAN DOCUMENTS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.  BORROWER AND BANK EACH SUBMIT TO THE EXCLUSIVE JURISDICTION OF
THE STATE AND FEDERAL COURTS IN MASSACHUSETTS; PROVIDED, HOWEVER, THAT IF FOR
ANY REASON BANK CANNOT AVAIL ITSELF OF SUCH COURTS IN THE COMMONWEALTH OF
MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA
CLARA COUNTY, CALIFORNIA.  NOTWITHSTANDING THE FOREGOING, NOTHING IN
THIS AGREEMENT SHALL BE DEEMED TO OPERATE TO PRECLUDE BANK FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF BANK.  BORROWER EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH
COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT.  BORROWER HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINTS, AND OTHER PROCESS ISSUED IN SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS, AND OTHER PROCESS MAY BE MADE
BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH
IN THE PREAMBLE OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER TO OCCUR OF BORROWER’S ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.

       

      BORROWER AND BANK EACH WAIVE THEIR
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS
COUNSEL.

       

      12         GENERAL
PROVISIONS

       

      12.1           Successors
and Assigns.  This Agreement binds and is for the benefit of
the successors and permitted assigns of each party.  Borrower may not
assign this Agreement or any rights or obligations under it without Bank’s prior
written consent which may be granted or withheld in Bank’s
discretion.  Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank’s obligations, rights and benefits under this
Agreement, the Loan Documents or any related agreement.

       

      12.2           Indemnification.  Borrower
agrees to indemnify, defend, and hold Bank and its officers, directors,
employees, agents, attorneys or any other Person affiliated with or representing
Bank (each, an “Indemnified Person”) harmless against:  (a) all
obligations, demands, claims, and liabilities (collectively, “Claims”) asserted
by any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses incurred, or paid by such
Indemnified Person from, following, or arising from transactions between Bank
and Borrower (including reasonable attorneys’ fees and expenses), except for
Claims and/or losses directly caused by such Indemnified Person’s gross
negligence or willful misconduct.

       

      12.3           Right of
Set-Off.  Borrower hereby grants to Bank, a lien, security
interest and right of setoff as security for all Obligations to Bank, whether
now existing or hereafter arising upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of Bank
(including a Bank subsidiary) or in transit to any of them.  At any
time after the occurrence and during the continuance of an Event of Default,
without demand or notice, Bank may set off the same or any part thereof and
apply the same to any liability or obligation of Borrower even though unmatured
and regardless of the adequacy of any other collateral securing the
Obligations.  ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS
RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE
OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

       

      12.4           Time of
Essence.  Time is of the essence for the performance of all
Obligations in this Agreement.

       

      12.5           Severability
of Provisions.  Each provision of this Agreement is severable
from every other provision in determining the enforceability of any
provision.

       

      12.6           Correction
of Loan Documents.  Bank may correct patent errors and fill in
any blanks in this Agreement and the other Loan Documents consistent with the
agreement of the parties.

       

      12.7           Amendments
in Writing; Integration.  All amendments to this Agreement must
be in writing signed by both Bank and Borrower.  This Agreement and
the Loan Documents represent the entire agreement about this subject matter, and
supersede prior negotiations or agreements.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.

       

      12.8           Counterparts.  This
Agreement may be executed in any number of counterparts and by different parties
on separate counterparts, each of which, when executed and delivered, are an
original, and all taken together, constitute one Agreement.

       

      12.9           Borrower
Liability.  Any Borrower may, acting singly, request Advances
hereunder.  Each Borrower hereby appoints the others as agent for the
other for all purposes hereunder, including with respect to requesting Advances
hereunder.  Each Borrower hereunder shall be obligated to repay all
Advances made hereunder, regardless of which Borrower actually receives said
Advance, as if each Borrower hereunder directly received all
Advances.  Notwithstanding any other provision of this Agreement or
other related document, each Borrower irrevocably waives all rights that it may
have at law or in equity (including, without limitation, any law subrogating
Borrower to the rights of Bank under this Agreement) to seek contribution,
indemnification or any other form of reimbursement from any other Borrower, or
any other Person now or hereafter primarily or secondarily liable for any of the
Obligations, for any payment made by Borrower with respect to the Obligations in
connection with this Agreement or otherwise and all rights that it might have to
benefit from, or to participate in, any security for the Obligations as a result
of any payment made by  Borrower with respect to the Obligations in
connection with this Agreement or otherwise.  Any agreement providing
for indemnification, reimbursement or any other arrangement prohibited under
this Section shall be null and void.  If any payment is made to a
Borrower in contravention of this Section, such Borrower shall hold such payment
in trust for Bank and such payment shall be promptly delivered to Bank for
application to the Obligations, whether matured or unmatured.

       

      Each
Borrower waives any suretyship defenses available to it under the Code or any
other applicable law.  Each Borrower waives any right to require Bank to:
(a) proceed against any Borrower or any other person; (b) proceed against
or exhaust any security; or (c) pursue any other remedy.  Bank may exercise
or not exercise any right or remedy it has against any Borrower or any security
it holds (including the right to foreclose by judicial or non-judicial sale)
without affecting any Borrower’s liability.

       

      12.10           Survival.  All
covenants, representations and warranties made in this Agreement continue in
full force until this Agreement has terminated pursuant to its terms and all
Obligations (other than inchoate indemnity obligations and any other obligations
which, by their terms, are to survive the termination of this Agreement) have
been satisfied.  The obligation of Borrower in Section 12.2 to
indemnify Bank shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.

       

      12.11           Confidentiality.  In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any
interest in the Advances (provided, however, Bank shall use commercially
reasonable efforts to obtain such prospective transferee’s or purchaser’s
agreement to the terms of this provision); (c) as required by law,
regulation, subpoena, or other order; (d) to Bank’s regulators or as
otherwise required in connection with Bank’s examination or audit; (e) as Bank
considers appropriate in exercising remedies under the Loan Documents; and (f)
to third-party service providers of Bank so

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      long as
such service providers have executed a confidentiality agreement with Bank with
terms no less restrictive than those contained herein.  Confidential
information does not include information that either: (i) is in the public
domain or in Bank’s possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (ii) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.

       

      Bank may
use confidential information for any purpose, including, without limitation, for
the development of client databases, reporting purposes, and market analysis, so
long as Bank does not disclose Borrower’s identity or the identity of any person
associated with Borrower unless otherwise expressly permitted by this
Agreement.  The provisions of the immediately preceding sentence shall
survive the termination of this Agreement.

      


      13           DEFINITIONS

       

      13.1           Definitions.  In
this Agreement:

       

      “Account” is any “account” as
defined in the Code with such additions to such term as may hereafter be made,
and includes, without limitation, all accounts receivable and other sums owing
to Borrower.

       

      “Account Debtor” is as defined
in the Code and shall include, without limitation, any person liable on any
Financed Receivable, such as, a guarantor of the Financed Receivable and any
issuer of a letter of credit or banker’s acceptance.

       

      “Adjustments” are all
discounts, allowances, returns, disputes, counterclaims, offsets, defenses,
rights of recoupment, rights of return, warranty claims, or short payments,
asserted by or on behalf of any Account Debtor for any Financed
Receivable.

       

      “Advance” is defined in Section
2.1.1.

       

      “Advance Rate” is eighty
percent (80.0%), net of any offsets related to each specific Account Debtor,
including, without limitation, Deferred Revenue, or such other percentage as
Bank establishes under Section 2.1.1.

       

      “Affiliate” of any Person is a
Person that owns or controls directly or indirectly the Person, any Person that
controls or is controlled by or is under common control with the Person, and
each of that Person’s senior executive officers, directors, partners, and, for
any Person that is a limited liability company, that Person’s managers and
members.

       

      “Applicable Rate” is a per
annum rate equal to the Prime Rate plus two and one-half of one percent
(2.50%).

       

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

       

      “Borrower’s Books” are all
Borrower’s books and records including ledgers, federal and state tax returns,
records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or any
equipment containing such information.

       

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

       

      “Claims” are defined in Section
12.2.

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

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

       

      “Collateral Handling Fee” is defined in Section
2.2.4.

       

      “Collections” are all funds received
by Bank from or on behalf of an Account Debtor for Financed
Receivables.

       

      “Compliance Certificate” is
attached as Exhibit
B.

       

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

       

      “Deferred Revenue” is all
amounts received or invoiced, as appropriate, in advance of performance under
contracts and not yet recognized as revenue.

       

      “EBITDA” means earnings before
(a) interest, taxes, depreciation and amortization, each in accordance with
GAAP, and (b) non-cash expense items.

       

      “Effective Date” is defined in
the preamble of this Agreement.

       

      “Eligible Accounts” are billed
Accounts in the ordinary course of Borrower’s business that meet all Borrower’s
representations and warranties in Section 5.3, have been, at the option of Bank,
confirmed in accordance with Section 2.1.1(d), and are due and owing from
Account Debtors deemed creditworthy by Bank in its sole
discretion.  Without limiting the fact that the determina­tion of
which Accounts are eligible hereunder is a matter of Bank discretion in each
instance, Eligible Accounts shall not include the following Accounts (which
listing may be amended or changed in Bank’s discretion with notice to
Borrower):

       

      (a)           Accounts
that the Account Debtor has not paid within ninety (90) days of invoice date
regardless of invoice payment period terms;

       

      (b)           Accounts
owing from an Account Debtor which does not have its principal place of business
in the United States, unless otherwise approved by Bank in writing on a
case-by-case basis in its sole discretion;

       

      (c)           Accounts
billed and/or payable outside of the United States, unless otherwise approved by
Bank in writing on a case-by-case basis in its sole discretion;

       

      (d)           Accounts
owing from an Account Debtor to the extent that Borrower is indebted or
obligated in any manner to the Account Debtor (as creditor, lessor, supplier or
otherwise - sometimes called “contra” accounts, accounts payable, customer
deposits or credit accounts), with the exception of customary credits,
adjustments and/or discounts given to an Account Debtor by Borrower in the
ordinary course of its business;

       

      (e)           Accounts
for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (f)           Accounts
owing from an Account Debtor which is a United States government entity or any
department, agency, or instrumentality thereof unless Borrower has assigned its
payment rights to Bank and the assignment has been acknowledged under the
Federal Assignment of Claims Act of 1940, as amended;

       

      (g)           Accounts
for demonstration or promotional equipment, or in which goods are consigned, or
sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other
terms if Account Debtor’s payment may be conditional;

       

      (h)           Accounts
owing from an Account Debtor that has not been invoiced or where goods or
services have not yet been rendered to the Account Debtor (sometimes called memo
billings or pre-billings);

       

      (i)           Accounts
subject to contractual arrangements between Borrower and an Account Debtor where
payments shall be scheduled or due according to completion or fulfillment
requirements where the Account Debtor has a right of offset for damages suffered
as a result of Borrower’s failure to perform in accordance with the contract
(sometimes called contracts accounts receivable, progress billings, milestone
billings, or fulfillment contracts);

       

      (j)           Accounts
owing from an Account Debtor the amount of which may be subject to withholding
based on the Account Debtor’s satisfaction of Borrower’s complete performance
(but only to the extent of the amount withheld; sometimes called retainage
billings);

       

      (k)           Accounts
subject to trust provisions, subrogation rights of a bonding company, or a
statutory trust;

       

      (l)           Accounts
owing from an Account Debtor that has been invoiced for goods that have not been
shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have
entered into an agreement acceptable to Bank in its sole discretion wherein the
Account Debtor acknowledges that (i) it has title to and has ownership of the
goods wherever located, (ii) a bona fide sale of the goods has occurred, and
(iii) it owes payment for such goods in accordance with invoices from Borrower
(sometimes called “bill and hold” accounts);

       

      (m)           Accounts
for which the Account Debtor has not been invoiced;

       

      (n)           Accounts
that represent non-trade receivables or that are derived by means other than in
the ordinary course of Borrower’s business;

       

      (o)           Accounts
subject to chargebacks or other payment deductions taken by an Account Debtor
(but only to the extent the chargeback is determined invalid and subsequently
collected by Borrower);

       

      (p)           Accounts
owing from an Account Debtor with respect to which Borrower has received
Deferred Revenue (but only to the extent of such Deferred Revenue);

       

      (q)           Accounts
in which the Account Debtor disputes liability or makes any claim (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
and

       

      (r)           Accounts
for which Bank in its good faith business judgment determines collection to be
doubtful.

       

      “ERISA” is the Employee
Retirement Income Security Act of 1974, and its regulations.

       

      “Events of Default” are set
forth in Article 8.

       

      “Facility Amount” is One
Million Dollars ($1,000,000.00).

       

      “Facility Fee” is defined in
Section 2.2.2.

       

      “Finance Charges” is defined in
Section 2.2.3.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      “Financed Receivables” are all
those Eligible Accounts, including their proceeds which Bank finances and makes
an Advance, as set forth in Section 2.1.1.  A Financed Receivable
stops being a Financed Receivable (but remains Collateral) when the Advance made
for the Financed Receivable has been fully paid.

       

      “Financed Receivable
Balance” is
the total outstanding gross face amount, at any time, of any Financed
Receivable.

       

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

       

      “General Intangibles” is all
“general intangibles” as defined in the Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work, whether published or unpublished, any patents, trademarks, service marks
and, to the extent permitted under applicable law, any applications therefor,
whether registered or not, any trade secret rights, including any rights to
unpatented inventions, payment intangibles, royalties, contract rights,
goodwill, franchise agreements, purchase orders, customer lists, route lists,
telephone numbers, domain names, claims, income and other tax refunds, security
and other deposits, options 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 Deposit” is defined in Section
2.2.9.

       

      “Governmental Approval” is any
consent, authorization, approval, order, license, franchise, permit,
certificate, accreditation, registration, filing or notice, of, issued by, from
or to, or other act by or in respect of, any Governmental
Authority.

       

      “Governmental Authority” is any
nation or government, any state or other political subdivision thereof, any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities exchange
and any self-regulatory organization.

       

      “Guarantor” is any present or
future guarantor of the Obligations.

       

      “Indebtedness” is (a)
indebtedness for borrowed money or the deferred price of property or services,
such as reimbursement and other obligations for surety bonds and letters of
credit, (b) obligations evidenced by notes, bonds, debentures or similar
instruments, (c) capital lease obligations and (d) Contingent
Obligations.

       

      “Indemnified Person” is defined
in Section 12.2.

       

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

       

      “Intellectual Property
Collateral” is defined in the IP Agreement.

       

      “Inventory” is all “inventory”
as defined in the 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” is any beneficial
ownership of (including stock, partnership interest or other securities) any
Person, or any loan, advance or capital contribution to any Person.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      “Invoice Transmittal” shows
Eligible Accounts which Bank may finance and, for each such Account, includes
the Account Debtor’s, name, address, invoice amount, invoice date and invoice
number.

       

      “IP Agreement” is (a) that
certain Intellectual Property Security Agreement dated as of the Effective Date
between Bank and Braintech, Inc., (b) that certain Intellectual Property
Security Agreement dated as of the Effective Date between Bank and Braintech
Industrial, and (c) that certain Intellectual Property Security Agreement dated
as of the Effective Date between Bank and Braintech Government.

       

      “Key Person” is either of
Borrower’s Chief Executive Officer or Chief Financial Officer.

       

      “Lien” is a claim, mortgage,
deed of trust, levy, charge, pledge, security interest or other encumbrance of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise against any property.

       

      “Loan Documents” are,
collectively, this Agreement, the Term Loan Agreement, the Perfection
Certificate, the IP Agreement, any subordination agreements, any note, or notes
or guaranties executed by Borrower or any Guarantor, and any other present or
future agreement between Borrower any Guarantor and/or for the benefit of Bank
in connection with this Agreement, all as amended, restated, or otherwise
modified.

       

      “Lockbox” is defined in Section
2.2.7.

       

      “Material Adverse Change” is: (a) a material
impairment in the perfection or priority of Bank’s security interest in the
Collateral or in the value of such Collateral; (b) a material adverse change in
the business, operations, or condition (financial or otherwise) of Borrower;
(c) a material
impairment of the prospect of repayment of any portion of the Obligations; or
(d) Bank determines, based upon information available to it and in its
reasonable judgment, that there is a reasonable likelihood that Borrower shall
fail to comply with one or more of the financial covenants in Section 6 during
the next succeeding financial reporting period.

       

      “Maturity Date” is April 30,
2011.

       

      “Net Income” is determined
according to GAAP but shall not include non-cash expense items.

       

      “Obligations” are Borrower’s
obligation to pay when due any debts, principal, interest, Bank Expenses, and
other amounts Borrower owes Bank now or later, whether under this Agreement, the
Term Loan Agreement, the Loan Documents, or otherwise, including, without
limitation, any interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank, and the performance of
Borrower’s duties under the Loan Documents.

       

      “Perfection Certificate” is
defined in Section 5.1.

       

      “Permitted Indebtedness”
is:

       

      (a)           Borrower’s
indebtedness to Bank under this Agreement, the Term Loan Agreement, or the Loan
Documents;

       

      (b)           Subordinated
Debt;

       

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

       

      (d)           Indebtedness
secured by Permitted Liens.

       

      “Permitted Investments” are:
(i)  marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any state maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard &
Poor’s Corporation or Moody’s Investors Service, Inc., (iii) Bank’s certificates
of deposit issued maturing no more than 1 year after issue, (iv) any other
investments administered through Bank, and (v) investments made on or prior to
December 31, 2010 in Braintech Canada, Inc. for the ordinary and necessary
current operating expenses of such entity in an aggregate amount not to exceed
(a) Two Hundred Thousand Dollars ($200,000.00) from September 1, 2009 through
and including December 31, 2009, and (b) One Hundred Thousand Dollars
($100,000.00) from January 1, 2010 through and including December 31,
2010.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      “Permitted Liens”
are:

       

      (a)           Liens
arising under this Agreement, the Term Loan Agreement, or other Loan
Documents;

       

      (b)           Liens
in favor of the Pledgors so long as such liens are in respect of Subordinated
Debt (Bank acknowledges that, as of the Effective Date, such liens are in
respect of Subordinated Debt and shall continue to be in respect of Subordinated
Debt so long as the applicable subordination agreements executed as of the
Effective Date remain in full force and effect);

       

      (c)           Liens
for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which Borrower maintains
adequate reserves on its Books, if they have no priority over any of Bank’s
security interests;

       

      (d)           Purchase
money Liens securing no more than One Hundred Thousand Dollars ($100,000.00) in
the aggregate amount outstanding (i) on equipment acquired or held by Borrower
incurred for financing the acquisition of the equipment, or (ii) existing
on equipment when acquired, if the Lien is
confined to the property and improvements and the proceeds of the
equipment;

       

      (e)           Leases
or subleases and non-exclusive licenses or sublicenses granted in the ordinary
course of Borrower’s business, if the leases,
subleases, licenses and sublicenses permit granting Bank a security interest;
and

       

      (f)           Liens
incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (e), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not
increase.

       

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

       

      “Pledgors” is defined in the
Term Loan Agreement.

       

      “Prime Rate” is the greater of
(a) four percent (4.0%) and (b) Bank’s most recently announced “prime rate,”
even if it is not Bank’s lowest rate.

       

      “Reconciliation Period” is each
calendar month.

       

      “Registered Organization” is
any “registered organization” as defined in the Code with such additions to such
term as may hereafter be made.

       

      “Requirement of Law” is as to
any Person, the organizational or governing documents of such Person, and any
law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

       

      “Responsible Officer” is any of
the Chief Executive Officer, President, Chief Financial Officer, Controller and
Manager of Accounting of Borrower.

       

      “Subordinated Debt” is
indebtedness incurred by Borrower subordinated to all of Borrower’s now or
hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or
other similar agreement in form and substance satisfactory to Bank entered into
between Bank and the other creditor), on terms acceptable to
Bank.  For the avoidance of doubt, “Subordinated Debt” includes
amounts owed at any time by Borrower to the Pledgors in connection with the
Pledgors’ issuing, maintaining and/or extending the Letter of Credit (as defined
in the Term Loan Agreement) or Pledged Accounts (as defined in the Term Loan
Agreement), and such amounts shall continue to be Subordinated Debt so long as
the applicable subordination agreements executed as of the Effective Date remain
in full force and effect.

       

      “Subsidiary” is, with respect
to any Person, any Person of which more than fifty percent (50.0%) of the voting
stock or other equity interests (in the case of Persons other than corporations)
is owned or controlled directly or indirectly by such Person or one or more of
Affiliates of such Person.

       

      “Term Loan Agreement” is that
certain Loan and Security Agreement (Term Loan) between Borrower and Bank dated
as of the Effective Date, together with all documents delivered in connection
therewith, as amended from time to time.

       

      [Signature
page follows.]

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as
a sealed instrument under the laws of the Commonwealth of Massachusetts as of
the Effective Date.

       

      BORROWER:

       

      


       

      BRAINTECH,
INC.

       

      


       

      By:_________________________________________

       

      Name:______________________________________

       

      Title:_______________________________________

       

      


       

      BRAINTECH
INDUSTRIAL, INC.

       

      


       

      By:_________________________________________

       

      Name:______________________________________

       

      Title:_______________________________________

       

      


       

      BRAINTECH
GOVERNMENT & DEFENSE, INC.

       

      


       

      By:_________________________________________

       

      Name:______________________________________

       

      Title:_______________________________________

       

      


       

      BANK:

       

      


       

      SILICON
VALLEY BANK

       

      


       

      By:_________________________________________

       

      Name:______________________________________

       

      Title:_______________________________________

       

      



      
        
           


        

        
           


          
            

          

        

        
           


        

      


      EXHIBIT
A

      


      The
Collateral consists of all of Borrower’s right, title and interest in and to the
following:

       

      All
goods, equipment, inventory, contract rights or rights to payment of money,
leases, license agreements, franchise agreements, general intangibles (including
payment intangibles) accounts (including health-care receivables), documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), commercial tort claims,
securities, and all other investment property, supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located; and
any copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, now owned or later acquired; any patents, trademarks, service marks
and applications therefor; trade styles, trade names, any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing; and

       

      All
Borrower’s books relating to the foregoing and any and all claims, rights and
interests in any of the above and all substitutions for, additions, attachments,
accessories, accessions and improvements to and replacements, products, proceeds
and insurance proceeds of any or all of the foregoing.

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      EXHIBIT
B

       

      


      SPECIALTY
FINANCE DIVISION

      Compliance
Certificate

      


      I, an authorized officer of BRAINTECH,
INC., BRAINTECH INDUSTRIAL, INC. and BRAINTECH GOVERNMENT & DEFENSE, INC.
(individually and collectively, jointly and severally, “Borrower”) certify under
the Loan and Security Agreement (as amended, the “Agreement”) between Borrower
and Silicon Valley Bank (“Bank”) as follows (all capitalized terms used herein
shall have the meaning set forth in the Agreement):

      


      Borrower
represents and warrants for each Financed Receivable:

      


      Each
Financed Receivable is an Eligible Account.

      


      Borrower
is the owner with legal right to sell, transfer, assign and encumber such
Financed Receivable;

      


      The
correct amount is on the Invoice Transmittal and is not disputed;

      


      Payment
is not contingent on any obligation or contract and Borrower has fulfilled all
its obligations as of the Invoice Transmittal date;

      


      Each
Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted
Liens;

      


      There are
no defenses, offsets, counterclaims or agreements for which the Account Debtor
may claim any deduction or discount;

      


      It
reasonably believes no Account Debtor is insolvent or subject to any Insolvency
Proceedings;

      


      It has
not filed or had filed against it Insolvency Proceedings and does not anticipate
any filing;

      


      Bank has
the right to endorse and/ or require Borrower to endorse all payments received
on Financed Receivables and all proceeds of Collateral.

      


      No
representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained in
the certificates or statement not misleading.

      


      Additionally,
Borrower represents and warrants as follows:

      


      Borrower
and each Subsidiary (except for Shafi, Inc. and Shafi Innovation, Inc.) is duly
existing and in good standing in its state of formation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected to
cause a Material Adverse Change.  The execution, delivery and
performance of the Loan Documents have been duly authorized, and do not conflict
with Borrower’s organizational documents, nor constitute an event of default
under any material agreement by which Borrower is bound.  Borrower is
not in default under any agreement to which or by which it is bound in which the
default could reasonably be expected to cause a Material Adverse
Change.

      


      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      Borrower
has good title to the Collateral, free of Liens except Permitted
Liens.  All inventory is in all material respects of good and
marketable quality, free from material defects.

      


      Borrower
is not an “investment company” or a company “controlled” by an “investment
company” under the Investment Company Act of 1940, as
amended.  Neither Borrower nor any of its Subsidiaries is a “holding
company” or an “affiliate” of a “holding company” or a “subsidiary company” of a
“holding company” as each term is defined and used in the Public Utility Holding
Company Act of 2005.  Borrower is not engaged as one of its important
activities in extending credit for margin stock (under Regulations X, T and U of
the Federal Reserve Board of Governors).  Borrower has complied in all
material respects with the Federal Fair Labor Standards Act.  Borrower
has not violated any laws, ordinances or rules, the violation of which could
reasonably be expected to cause a Material Adverse Change.  None of
Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally.  Borrower and each Subsidiary (except for Shafi,
Inc. and Shafi Innovation, Inc.) has timely filed all required tax returns and
paid, or made adequate provision to pay, all material taxes, except those being
contested in good faith with adequate reserves under GAAP.  Borrower
and each Subsidiary has obtained all consents, approvals and authorizations of,
made all declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted
except where the failure to obtain or make such consents, declarations, notices
or filings would not reasonably be expected to cause a Material Adverse
Change.

      


      Borrower
is in compliance with the financial covenant(s) set forth in Section 6.7 of the
Agreement.

      


      All
representations and warranties in the Agreement are true and correct in all
material respects on this date, and Borrower represents that there is no
existing Event of Default.

      


      Financial
Covenants

      


      Required                          Actual                                Compliance

      


      EBITDA
(three-month)                                                   $______*                        $_____                                Yes   No   N/A

      


      Net
Income
(three-month)                                              $______**                      $_____                                Yes   No   N/A

      


      *As set
forth in Section 6.7(a) of the Agreement

      **As set
forth in Section 6.7(b) of the Agreement

      


      


      Sincerely,

       

      


      BRAINTECH,
INC.

      BRAINTECH
INDUSTRIAL, INC.

      BRAINTECH
GOVERNMENT & DEFENSE, INC.

      


      ________________________

      Signature

       

      ________________________

      Title

       

      ________________________

      Date