**EXHIBIT 10.40****AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT**     **THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT**(this “**Agreement**”) dated as of theEffective Date between **SILICON VALLEY BANK**, a California corporation with its principal place ofbusiness at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production officelocated at 380 Interlocken Crescent, Suite 600, Broomfield, CO 80021 (“**Bank**”), and **QUALMARKCORPORATION**, a Colorado corporation, with its chief executive office at 4580 Florence Street,Denver, CO 80238 (“**QualMark**”) and each of the other Persons executing this Agreement as a Borrower(together with QualMark, each a “**Borrower**” and collectively and jointly and severally, the“**Borrowers**”), provides the terms on which Bank shall lend to Borrowers and Borrowers shall repayBank.     The Borrowers and the Bank are party to that certain Loan and Security Agreement dated as ofDecember 8, 2005 (as amended and in effect, the “**Existing Loan Agreement**”). The parties heretoagree that the Existing Loan Agreement is hereby amended and restated in its entirety to read asfollows:      ACCOUNTING AND OTHER TERMS     Accounting terms not defined in this Agreement shall be construed following GAAP.Calculations and determinations must be made following GAAP. Capitalized terms not otherwisedefined in this Agreement shall have the meanings set forth in Section 13. All other termscontained in this Agreement, unless otherwise indicated, shall have the meaning provided by theCode to the extent such terms are defined therein.      LOAN AND TERMS OF PAYMENT     Promise to Pay**. Borrowers hereby jointly and severally unconditionally promise to pay Bankthe outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereonas and when due in accordance with this Agreement.**      ***Revolving Advances****.*          Availability. Subject to the terms and conditions of this Agreement and to deduction ofReserves, Bank will make Advances to each Borrower up to the Availability Amount. Amountsborrowed under the Revolving Line may be repaid, and prior to the Revolving Line Maturity Date,reborrowed, subject to the applicable terms and conditions precedent herein.          Termination; Repayment. The Revolving Line terminates on the Revolving Line MaturityDate, when the principal amount of all Advances, the unpaid interest thereon, and all otherObligations relating to the Revolving Line shall be immediately due and payable.     ***Letters of Credit Sublimit****.*          As part of the Revolving Line and subject to deduction of Reserves, Bank shall issue orhave issued Letters of Credit for each Borrower’s account. The face amount of outstanding Lettersof Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) maynot exceed $200,000. Such aggregate amounts utilized hereunder shall at all times reduce theamount otherwise available for Advances under the Revolving Line. If, on the Revolving LineMaturity Date, there are any outstanding Letters of Credit, then on such date Borrowers shallprovide to Bank cash collateral in an amount equal to 105% of the face amount of all such Lettersof Credit plus all interest, fees, and costs due or to become due in connection therewith (asestimated by Bank in its good faith business judgment), to secure all of the Obligations relatingto said Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bankin its sole discretion and shall be subject to the terms and conditions of Bank’s standardApplication and Letter of Credit Agreement (the “**Letter of Credit Application**”). Each Borroweragrees to execute any further documentation in connection with the Letters of Credit as Bank mayreasonably request. Each Borrower further agrees to be bound by the regulations andinterpretations of the issuer of any Letters of Credit guarantied by Bank and opened for suchBorrower’s account or by Bank’s interpretations of any Letter of Credit issued by Bank for suchBorrower’s account, and each Borrower understands and agrees that Bank shall not be liable for anyerror, 
 

 
negligence, or mistake, whether of omission or commission, in following any Borrower’sinstructions or those contained in the Letters of Credit or any modifications, amendments, orsupplements thereto.          The obligation of Borrowers to immediately reimburse Bank for drawings made under Lettersof Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly inaccordance with the terms of this Agreement, such Letters of Credit, and the Letter of CreditApplication.           Borrowers may request that Bank issue a Letter of Credit payable in a Foreign Currency.If a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as anAdvance to Borrowers of the equivalent of the amount thereof (plus fees and charges in connectiontherewith such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate ofexchange in San Francisco, California, for sales of the Foreign Currency for transfer to thecountry issuing such Foreign Currency.          To guard against fluctuations in currency exchange rates, upon the issuance of any Letterof Credit payable in a Foreign Currency, Bank shall create a reserve (the “**Letter of CreditReserve**”) under the Revolving Line in an amount equal to ten percent (10%) of the face amount ofsuch Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank fromtime to time to account for fluctuations in the exchange rate. The availability of funds under theRevolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as suchLetter of Credit remains outstanding.          All Letters of Credit outstanding under the Existing Loan Agreement shall be deemedLetters of Credit as if issued under this Agreement.     ***Foreign Exchange Sublimit****. As part of the Revolving Line and subject to deduction ofReserves, each Borrower may enter into foreign exchange contracts with Bank under which suchBorrower commits to purchase from or sell to Bank a specific amount of Foreign Currency (each, a“****FX Forward Contract****”) on a specified date (the “****Settlement Date****”). FX Forward Contracts shallhave a Settlement Date of at least one (1) FX Business Day after the contract date and shall besubject to a reserve of ten percent (10%) of each outstanding FX Forward Contract (the “****FXReserve****”). The aggregate amount of the FX Reserve at any one time may not exceed $200,000. Theamount otherwise available for Credit Extensions under the Revolving Line shall be reduced by anamount equal to ten percent (10%) of each outstanding Forward Contract. Any amounts needed tofully reimburse Bank will be treated as Advances under the Revolving Line and will accrue interestat the interest rate applicable to Advances.*     ***Cash Management Services Sublimit****. Borrowers may use up to $200,000 (the “****Cash ManagementServices Sublimit****”) of the Revolving Line for Bank’s cash management services which may includemerchant services, direct deposit of payroll, business credit card, and check cashing servicesidentified in Bank’s various cash management services agreements (collectively, the “****CashManagement Services****”). The dollar amount of any Cash Management Services provided under thissublimit will reduce the amount otherwise available under the Revolving Line. Any amounts used orreserved by Borrowers for any Cash Management Services will reduce the amount otherwise availablefor Credit Extensions under the Revolving Line. Any amounts Bank pays on behalf of any Borrowerfor any Cash Management Services will be treated as Advances under the Revolving Line and willaccrue interest at the interest rate applicable to Advances.*     Overadvances**. If at any time or for any reason the total of all outstanding Advances and allother monetary Obligations exceeds the Availability Amount (an “**Overadvance**”), Borrowers shallimmediately pay the amount of the excess to Bank, without notice or demand. Without limitingBorrowers’ obligation to repay to Bank the amount of any Overadvance, each Borrower agrees to payBank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.**     Payment of Interest on the Credit Extensions**.**          Interest Rate; Advances.      **Formula Borrowings****. Subject to Section 2.****3(b)****, the principal amountoutstanding under the Revolving Line based upon Formula Borrowings shall accrueinterest at a floating per annum rate equal to the greater of (x) the aggregate ofthe Prime Rate plus the Applicable Margin or (y) 8.75%, which interest in allinstances shall be payable monthly.**
 

 
     **Non-Formula Borrowings****. Subject to Section 2.****3(b)****, the principalamount outstanding under the Revolving Line based upon the Non-Formula Borrowingsshall accrue interest at afloating per annum rate equal to the greater of (x) the aggregate of the PrimeRate plus 3.00% or (y) 8.75%, which interest in all instances shall be payablemonthly.**          Default Rate. Immediately upon the occurrence and during the continuance of an Event ofDefault, Obligations shall bear interest at a rate per annum which is three percentage points abovethe rate effective immediately before the Event of Default (the “**Default Rate**”). Payment oracceptance of the increased interest rate provided in this Section 2.3(b) is not a permittedalternative to timely payment and shall not constitute a waiver of any Event of Default orotherwise prejudice or limit any rights or remedies of Bank.          Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension basedon changes to the Prime Rate shall be effective on the effective date of any change to the PrimeRate and to the extent of any such change.           360-Day Year. Interest shall be computed on the basis of a 360-day year for the actualnumber of days elapsed.          Debit of Accounts. Bank may debit any of Borrowers’ deposit accounts, including theDesignated Deposit Account, for principal and interest payments or any other amounts Borrowers oweBank when due. These debits shall not constitute a set-off.          Payment; Interest Computation; Float Charge. Interest is payable monthly on the lastcalendar day of each month. In computing interest on the Obligations, all Payments received after12:00 p.m. Pacific time on any day shall be deemed received on the next Business Day. In addition,Bank shall be entitled to charge Borrowers a “float” charge in an amount equal to two (2) BusinessDays interest, at the interest rate applicable to the Advances, on all Payments received by Bank.The float charge for each month shall be payable on the last day of the month. Bank shall not,however, be required to credit any Borrower’s account for the amount of any item of payment whichis unsatisfactory to Bank in its good faith business judgment, and Bank may charge Borrowers’Designated Deposit Account for the amount of any item of payment which is returned to Bankunpaid.     Fees**. Borrowers shall pay to Bank (without duplication of fees that may be due and payableunder the EXIM Loan Agreement):**          (a)Commitment Fee. A fully earned, non-refundable commitment fee of $27,500,on the Effective Date;          (b)Letter of Credit Fee. Bank’s customary fees and expenses for the issuanceor renewal of Letters of Credit, upon the issuance or renewal of such Letter of Credit byBank;          (c)Termination Fee. Subject to the terms of Section 4.1, a terminationfee;          (d)Unused Revolving Line Facility Fee. A fee (the “**Unused Revolving LineFacility Fee**”), which fee shall be paid monthly, in arrears, on the last day of each month, in anamount equal to 0.25% per annum of the average unused portion of the Revolving Line, asdetermined by Bank. Borrowers shall not be entitled to any credit, rebate or repayment of anyUnused Revolving Line Facility Fee previously earned by Bank pursuant to this Sectionnotwithstanding any termination of the within Agreement, or suspension or termination of Bank’sobligation to make loans and advances hereunder;          (e) Collateral Monitoring Fee. A monthly collateral monitoring fee of (i) $1,250 atany such time when Credit Extensions are outstanding under the Revolving Line, and (ii) $750 at anysuch time when there are no Credit Extensions outstanding under the Revolving Line for the entiremonth, in either case payable in arrears on the last day of each month (prorated for any partialmonth) at the beginning and upon termination of this Agreement; and          (f)Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees andexpenses for documentation and negotiation of this Agreement) incurred through and after theEffective Date, when due.     CONDITIONS OF LOANS
 

 
     Conditions Precedent to Initial Credit Extension**. Bank’s obligation to make the initialCredit Extension is subject to the condition precedent that Bank shall have received, in form andsubstance satisfactory to Bank, such documents, and completion of such other matters, as Bank mayreasonably deem necessary or appropriate, including, without limitation:**          Each Borrower shall have delivered duly executed original signatures to the Loan Documentsto which it is a party;          Each Borrower shall have delivered its Operating Documents and a good standing certificateof such Borrower certified by the Secretary of State of the State of Colorado as of a date noearlier than thirty (30) days prior to the Effective Date;           Each Borrower shall have delivered duly executed original signatures to the completedBorrowing Resolutions for such Borrower;          Bank shall have received certified copies, dated as of a recent date, of updated financingstatement searches, as Bank shall request, accompanied by written evidence (including any UCCtermination statements) that the Liens indicated in any such financing statements either constitutePermitted Liens or have been or, in connection with the initial Credit Extension, will beterminated or released;          QualMark, on behalf of the Borrowers, shall have delivered a Perfection Certificateexecuted by QualMark;          Borrowers shall have delivered a legal opinion of Borrowers’ counsel dated as of theEffective Date together with the duly executed original signatures thereto;          Borrowers shall have delivered evidence satisfactory to Bank that the insurance policiesrequired by Section 6.7 hereof are in full force and effect, together with appropriate evidenceshowing loss payable and/or additional insured clauses or endorsements in favor of Bank;           Borrowers shall have entered into the EXIM Loan and shall have delivered the EXIM LoanAgreement and all other documents executed in connection therewith to Bank;          Bank shall have received a written report regarding the results of a field examination ofthe Borrowers’ Collateral, which shall be satisfactory to Bank;          Borrowers shall have delivered to Bank such other assurances, certificates, documents,consents or opinions as Bank reasonably may require; and          Borrowers shall have paid the fees and Bank Expenses then due as specified in Section 2.4hereof.          Conditions Precedent to all Credit Extensions**. Bank’s obligations to make each CreditExtension, including the initial Credit Extension, is subject to the following:**          timely receipt of an executed Transaction Report;           the representations and warranties in Section 5 shall be true in all material respects onthe date of the Transaction Report and on the Funding Date of each Credit Extension; provided,however, that such materiality qualifier shall not be applicable to any representations andwarranties that already are qualified or modified by materiality in the text thereof; and provided,further that those representations and warranties expressly referring to a specific date shall betrue, accurate and complete in all material respects as of such date, and no Default or Event ofDefault shall have occurred and be continuing or result from the Credit Extension. Each CreditExtension is each Borrower’s representation and warranty on that date that the representations andwarranties in Section 5 remain true in all material respects; provided, however, that suchmateriality qualifier shall not be applicable to any representations and warranties that alreadyare qualified or modified by materiality in the text thereof; and provided, further that thoserepresentations and warranties expressly referring to a specific date shall be true, accurate andcomplete in all material respects as of such date; and          in Bank’s good faith business judgment, there has not been a Material Adverse Change.
 

 
     Covenant to Deliver**.**     Borrowers agree to deliver to Bank each item required to be delivered to Bank under thisAgreement as a condition to any Credit Extension. Borrowers expressly agree that the extension ofa Credit Extension prior to the receipt by Bank of any such item shall not constitute a waiver byBank of any Borrower’s obligation to deliver such item, and any such extension in the absence of arequired item shall be in Bank’s sole discretion.     Procedures for Borrowing**. Subject to the prior satisfaction of all other applicableconditions to the making of an Advance set forth in this Agreement, to obtain an Advance (otherthan Advances under Sections 2.1.2 or 2.1.4), QualMark, on behalf of the relevant Borrower, shallnotify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by12:00 p.m. Pacific time on the Funding Date of the Advance. Together with such notification,QualMark, on behalf of the relevant Borrower, must promptly deliver to Bank by electronic mail orfacsimile a completed Transaction Report executed by a Responsible Officer or his or her designee.Bank shall credit Advances to the Designated Deposit Account. Bank may make Advances under thisAgreement based on instructions from a Responsible Officer or his or her designee or withoutinstructions if the Advances are necessary to meet Obligations which have become due. Bank mayrely on any telephone notice given by a person whom Bank believes is a Responsible Officer ordesignee.**      CREATION OF SECURITY INTEREST     Grant of Security Interest**. Each Borrower hereby grants Bank, to secure the payment andperformance in full of all of the Obligations, a continuing security interest in, and pledges toBank, the Collateral of such Borrower, wherever located, whether now owned or hereafter acquired orarising, and all proceeds and products thereof. Each Borrower represents, warrants, and covenantsthat the security interest granted herein is and shall at all times continue to be a first priorityperfected security interest in the Collateral of such Borrower (subject only to Permitted Liensthat may have superior priority to Bank’s Lien under this Agreement). If any Borrower shallacquire a commercial tort claim, such Borrower shall promptly notify Bank in a writing signed bysuch Borrower of the general details thereof and grant to Bank in such writing a security interesttherein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to bein form and substance reasonably satisfactory to Bank.**     Notwithstanding the foregoing, it is expressly acknowledged and agreed that the securityinterest created in this Agreement only with respect to Export-Related Accounts Receivable,Export-Related Inventory and Export-Related General Intangibles (as such terms are defined in theEXIM Loan Agreement) is subject to and subordinate to the security interest granted to Bank in theEXIM Loan Agreement with respect to such Export-Related Accounts Receivable, Export-RelatedInventory and Export-Related General Intangibles.     This Agreement may be terminated prior to the Revolving Line Maturity Date by Borrowers,effective three (3) Business Days after written notice of termination is given to Bank or ifBank’s obligation to fund Credit Extensions terminates pursuant to the terms of Section2.1.1(c). Notwithstanding any such termination, Bank’s lien and security interest in theCollateral shall continue until Borrowers fully satisfies the Obligations. If suchtermination is at Borrowers’ election or at Bank’s election due to the occurrence andcontinuance of an Event of Default, Borrowers shall pay to Bank, in addition to the paymentof any other expenses or fees then-owing, a termination fee in an amount equal to one percent(1.00%) of the Revolving Line provided that no termination fee shall be charged if the creditfacility hereunder is replaced with a new facility from another division of Silicon ValleyBank. Upon payment in full of the Obligations and at such time as Bank’s obligation to makeCredit Extensions has terminated, Bank shall release its liens and security interests in theCollateral and all rights therein shall revert to Borrowers.          Authorization to File Financing Statements**. Each Borrower hereby authorizes Bank to filefinancing statements, without notice to Borrowers, with all appropriate jurisdictions to perfect orprotect Bank’s interest or rights hereunder, including a notice that any disposition of theCollateral, by either such Borrower or any other Person, shall be deemed to violate the rights ofBank under the Code. Without limiting the foregoing, each Borrower hereby authorizes Bank to filefinancing statements which describe the collateral as “all assets” and/or “all personal property”of such Borrower or words of similar import.**
 

 
     REPRESENTATIONS AND WARRANTIES          Each Borrower represents and warrants as follows:     Due Organization and Authorization**. Each Borrower and each of its Subsidiaries are dulyexisting and in good standing as Registered Organizations in their respective jurisdictions offormation and are qualified and licensed to do business and are in good standing in anyjurisdiction in which the conduct of their business or their ownership of property requires thatthey be qualified except where the failure to do so could not reasonably be expected to have amaterial adverse effect on such Borrower’s business. In connection with this Agreement, QualMark,on behalf of all Borrowers, has delivered to Bank a completed certificate substantially in the formattached hereto as****Exhibit C****signed by QualMark, entitled “Perfection Certificate”. EachBorrower represents and warrants to Bank that (a) such Borrower’s exact legal name is thatindicatedon the Perfection Certificate and on the signature page hereof; (b) such Borrower is anorganization of the type and is organized in the jurisdiction set forth in the PerfectionCertificate; (c) the Perfection Certificate accurately sets forth such Borrower’s organizationalidentification number or accurately states that such Borrower has none; (d) the PerfectionCertificate accurately sets forth such Borrower’s place of business, or, if more than one, itschief executive office as well as such Borrower’s mailing address (if different than its chiefexecutive office); (e) such Borrower (and each of its predecessors) has not, in the past five (5)years, changed its jurisdiction of formation, organizational structure or type, or anyorganizational number assigned by its jurisdiction; and (f) all other information set forth on thePerfection Certificate pertaining to such Borrower and each of its Subsidiaries is accurate andcomplete. If any Borrower is not now a Registered Organization but later becomes one, suchBorrower shall promptly notify Bank of such occurrence and provide Bank with such Borrower’sorganizational identification number.**     The execution, delivery and performance of the Loan Documents have been duly authorized, anddo not conflict with any Borrower’s organizational documents, nor constitute an event of defaultunder any material agreement by which any Borrower is bound. No Borrower is in default under anyagreement to which it is a party or by which it is bound in which the default could have a materialadverse effect on such Borrower’s business.     Collateral**. Each Borrower has good title to, has rights in, and the power to transfer eachitem of Collateral upon which it purports to grant a Lien hereunder, free and clear of any and allLiens except Permitted Liens. No Borrower has any deposit accounts other than the deposit accountswith Bank and deposit accounts described in the Perfection Certificate delivered to Bank inconnection herewith, of which such Borrower has given Bank notice and taken such actions as arenecessary to give Bank a perfected security interest therein. The Accounts are bona fide, existingobligations of the Account Debtors.**     **The Collateral is not in the possession of any third party bailee (such as a warehouse) exceptas otherwise provided in the Perfection Certificate. None of the components of the Collateralshall be maintained at locations other than as provided in the Perfection Certificate or as therelevant Borrower has given Bank notice pursuant to Section 7.2. In the event that any Borrower,after the date hereof, intends to store or otherwise deliver any portion of the Collateral to abailee, then such Borrower will first receive the written consent of Bank and such bailee mustexecute and deliver a bailee agreement in form and substance satisfactory to Bank in its solediscretion.**     **All Inventory is in all material respects of good and marketable quality, free from materialdefects.**     **Each Borrower is the sole owner of its intellectual property, except as noted on thePerfection Certificate and except for non-exclusive licenses granted to its customers in theordinary course of business. Each patent is valid and enforceable and no part of the intellectualproperty has been judged invalid or unenforceable, in whole or in part, and to the best of therelevant Borrower’s knowledge, no claim has been made that any part of the Intellectual Propertyviolates the rights of any third party except to the extent such claim could not reasonably beexpected to have a material adverse effect on such Borrower’s business.**     **Except as noted on the Perfection Certificate, no Borrower is a party to, or is bound by, anymaterial license or other agreement with respect to which such Borrower is the licensee thatprohibits or otherwise restricts such Borrower from granting a security interest in such Borrower’sinterest in such license or agreement or any other property. Each Borrower shall provide writtennotice to Bank within thirty (30) days of entering or becoming bound by any such license oragreement which is reasonably likely to have a material impact on such Borrower’s business orfinancial condition (other than over-the-counter software that is commercially available to thepublic). Each Borrower shall take such steps as Bank requests to obtain the consent of, or waiverby, any person whose consent or waiver is necessary for all such licenses or contract rights to bedeemed “Collateral” and for Bank to have a security interest in it that might otherwise berestricted or prohibited by law or by the terms of any such license or agreement (such consent orauthorization may include a licensor’s agreement to a contingent assignment of the license to Bankif Bank**
 

 
**determines that is necessary in its good faith judgment), whether now existing or enteredinto in the future.**     Accounts Receivable**. For any Eligible Account in any Borrowing Base Certificate, allstatements made and all unpaid balances appearing in all invoices, instruments and other documentsevidencing the Accounts are and shall be true and correct and all such invoices, instruments andother documents, and all of each Borrower’s Books are genuine and in all respects what they purportto be. All sales and other transactions underlying or giving rise to each Account shall comply inall material respects with all applicable laws and governmental rules and regulations. No Borrowerhas any knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whoseaccounts are an Eligible Accounts in any Borrowing Base Certificate. To the best of eachBorrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreementsrelating to all Accounts are genuine, and all such documents, instruments and agreements arelegally enforceable in accordance with their terms.**     Litigation**. There are no actions or proceedings pending or, to the knowledge of theResponsible Officers, threatened in writing by or against any Borrower or any of its Subsidiariesinvolving more than $100,000, except as shown in the Perfection Certificate.**     No Material Deviation in Financial Statements**. All consolidated financial statements forQualMark and any of its Subsidiaries delivered to Bank fairly present in all material respectsQualMark’s consolidated financial condition and QualMark’s consolidated results of operations.There has not been any material deterioration in QualMark’s consolidated financial condition sincethe date of the most recent financial statements submitted to Bank.**     Solvency**. The fair salable value of each Borrower’s assets (including goodwill minusdisposition costs) exceeds the fair value of its liabilities; no Borrower is left with unreasonablysmall capital after the transactions in this Agreement; and Borrowers are able to pay their debts(including trade debts) as they mature.**     Regulatory Compliance**. No Borrower is an “investment company” or a company “controlled” by an“investment company” under the Investment Company Act. No Borrower is engaged as one of itsimportant activities in extending credit for margin stock (under Regulations T and U of the FederalReserve Board of Governors). Each Borrower has complied in all material respects with the FederalFair Labor Standards Act. No Borrower has violated any laws, ordinances or rules, the violation ofwhich could reasonably be expected to have a material adverse effect on its business. NoBorrower’s or any of its Subsidiaries’ properties or assets has been used by any Borrower or anySubsidiary or, to the best of each Borrower’s knowledge, by previous Persons, in disposing,producing, storing, treating, or transporting any hazardous substance other than legally. EachBorrower 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 thatare necessary to continue its business as currently conducted.**     Subsidiaries; Investments**. No Borrower owns any stock, partnership interest or other equitysecurities except for Permitted Investments.**     Tax Returns and Payments; Pension Contributions**. Each Borrower has timely filed all requiredtax returns and reports, and such Borrower has timely paid all foreign, federal, state and localtaxes, assessments, deposits and contributions owed by such Borrower. Each Borrower may deferpayment of any contested taxes, provided that such Borrower (a) in good faith contests itsobligation to pay the taxes by appropriate proceedings promptly and diligently instituted andconducted, (b) notifies Bank in writing of the commencement of, and any material development in,the proceedings, (c) posts bonds or takes any other steps required to prevent the governmentalauthority levying such contested taxes from obtaining a Lien upon any of the Collateral that isother than a “Permitted Lien”. Each Borrower is unaware of any claims or adjustments proposed forany of such Borrower’s prior tax years which could result in additional taxes becoming due andpayable by such Borrower. Each Borrower has paid all amounts necessary to fund all presentpension, profit sharing and deferred compensation plans in accordance with their terms, and suchBorrower has not withdrawn from participation in, and has not permitted partial or completetermination of, or permitted the occurrence of any other event with respect to, any such plan whichcould reasonably be expected to result in any liability of such Borrower, including any liabilityto the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.**
 

 
     Use of Proceeds**. Borrowers shall use the proceeds of the Credit Extensions solely to repayexisting obligations owed under the Existing Loan Agreement, as working capital, and to fund theirgeneral business requirements and not for personal, family, household or agricultural purposes.**     Full Disclosure**. No written representation, warranty or other statement of any Borrower inany certificate or written statement given to Bank, as of the date such representations,warranties, or other statements were made, taken together with all such written certificates andwritten statements given to Bank, contains any untrue statement of a material fact or omits tostate a material fact necessary to make the statements contained in the certificates or statementsnot misleading (it being recognized by Bank that the projections and forecasts provided byBorrowers in good faith and based upon reasonable assumptions are not viewed as facts and thatactual results during the period or periods covered by such projections and forecasts may differfrom the projected or forecasted results).**     AFFIRMATIVE COVENANTS     Each Borrower shall do all of the following as long as this Agreement has not been terminated:     Government Compliance**. Maintain its and all its Subsidiaries’ legal existence and goodstanding in their respective jurisdictions of formation and maintain qualification in eachjurisdiction in which the failure to so qualify would reasonably be expected to have a materialadverse effect on such Borrower’s business or operations. Each Borrower shall comply, and haveeach Subsidiary comply, with all laws, ordinances and regulations to which it is subject, thenoncompliance with which could have a material adverse effect on such Borrower’s business.**     Financial Statements, Reports, Certificates**.**          (a) Borrowers shall provide Bank with the following:          (i) weekly, and upon each request for a Credit Extension, a Transaction Report;          (ii) within fifteen (15) days after the end of each month, a duly completed Borrowing BaseCertificate of such Borrower signed by a Responsible Officer, with (A) monthly accounts receivableagings, aged by invoice date, (B) monthly Export-Related Accounts Receivable (as such term isdefined in the EXIM Loan Agreement), aged by invoice date, (C) monthly accounts payable agings,aged by invoice date, and outstanding or held check registers, if any, and (D) monthlyreconciliations of accounts receivable agings (aged by invoice date), transaction reports,deferred revenue report and general ledger;          (iii) as soon as available, and in any event within thirty (30) days after the end of eachmonth, monthly unaudited financial statements covering the consolidated operations of QualMark andits Subsidiaries during the period certified by a Responsible Officer and in a form acceptable toBank;          (iv) within thirty (30) days after the end of each month a monthly Compliance Certificatesigned by a Responsible Officer, certifying that as of the end of such month, Borrowers were infull compliance with all of the terms and conditions of this Agreement, and setting forthcalculations showing compliance with the financial covenants set forth in this Agreement;          (v) within fifteen (15) days after the end of each fiscal quarter of QualMark, a quarterlysample of outstanding invoices representing at least ten (10%) percent of the Export-RelatedAccounts Receivable (as such term is defined in the EXIM Loan Agreement) for the immediatelypreceding fiscal quarter;          (vi) within thirty (30) days prior to the end of each fiscal year of QualMark, (A) annualoperating budgets (including income statements, balance sheets and cash flow statements, by month)for the upcoming fiscal year of QualMark, and (B) annual financial projections for the followingfiscal year (on a quarterly basis) as approved by QualMark’s board of directors, including incomestatements, balance sheets and cash flow statements on a consolidated and consolidating basis,together with any related business forecasts used in the preparation of such annual financialprojections; and          (vii) as soon as available, and in any event within one hundred twenty (120) days followingthe end of QualMark’s fiscal year, QualMark’s audited consolidated financial statements preparedunder GAAP, consistently applied, certified by, and with an unqualified opinion of, independentcertified public accountants acceptable to Bank in its reasonable discretion.
 

 
          (b) In the event that any Borrower is or becomes subject to the reporting requirements underthe Securities Exchange Act of 1934, as amended, within five (5) days after filing, all reports onForm 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission or a link thereto onsuch Borrower’s or another website on the Internet.          (c) Prompt written notice of (i) any material change in the composition of the IntellectualProperty, (ii) the registration of any Copyright, including any subsequent ownership right of anyBorrower in or to any Copyright, Patent or Trademark not previously disclosed to Bank, or (iii)any Borrower’s knowledge of an event that materially adversely affects the value of theIntellectual Property.          (d) Within five (5) days of delivery, copies of all statements, reports and notices madeavailable to QualMark’s security holders or to any holders of Subordinated Debt.          (e) A prompt report of any legal actions pending or threatened against any Borrower or any ofits Subsidiaries that could result in damages or costs to such Borrower or any of its Subsidiariesof $100,000 or more.     Accounts Receivable and Inventory**.**          (a) Schedules and Documents Relating to Accounts*.*Each Borrower shall deliver to Banktransaction reports and schedules of collections, as provided in Section 6.2, on Bank’s standardforms; provided, however, that such Borrower’s failure to execute and deliver the same shall notaffect or limit Bank’s Lien and other rights in all of such Borrower’s Accounts, nor shall Bank’sfailure to advance or lend against a specific Account affect or limit Bank’s Lien and other rightstherein. If requested by Bank, each Borrower shall furnish Bank with copies (or, at Bank’srequest, originals) of all contracts, orders, invoices, and other similar documents, and allshipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for anygoods the sale or disposition of which gave rise to such Accounts. In addition, each Borrowershall deliver to Bank, on its request, the originals of all instruments, chattel paper, securityagreements, guarantees and other documents and property evidencing or securing any Accounts, in thesame form as received, with all necessary indorsements, and copies of all credit memos.          (b) Disputes. Each Borrower shall promptly notify Bank of all disputes or claimsrelating to Accounts. Each Borrower may forgive (completely or partially), compromise, or settleany Account for less than payment in full, or agree to do any of the foregoing so long as (i) suchBorrower does so in good faith, in a commercially reasonable manner, in the ordinary course ofbusiness, in arm’s-length transactions, and reports the same to Bank in the regular reportsprovided to Bank; (ii) no Default or Event of Default has occurred and is continuing; and (iii)after taking into account all such discounts, settlements and forgiveness, the total outstandingAdvances will not exceed the Availability Amount.          (c) Collection of Accounts. Borrowers shall have the right to collect all Accounts,unless and until a Default or an Event of Default has occurred and is continuing. Whether or notan Event of Default has occurred and is continuing, each Borrower shall hold all Payments on, andproceeds of, Accounts in trust for Bank, and such Borrower shall immediately deliver all suchpayments and proceeds to Bank in their original form, duly endorsed, to be applied to theObligations pursuant to the terms of Section 9.4 hereof. Accounts shall be deposited by eachBorrower into a lockbox account, or such other “blocked account” as Bank may specify, pursuant to ablocked account agreement in such form as Bank may specify in its good faith business judgment.          (d) Inventory; Returns*.*Each Borrower shall keep all Inventory in good and marketablecondition, free from material defects. Provided no Event of Default has occurred and iscontinuing, if any Account Debtor returns any Inventory to any Borrower, such Borrower shallpromptly (i) determine the reason for such return, (ii) issue a credit memorandum to the AccountDebtor in the appropriate amount, and (iii) provide a copy of such credit memorandum to Bank, uponrequest from Bank. In the event any attempted return occurs after the occurrence and during thecontinuance of any Event of Default, such Borrower shall hold the returned Inventory in trust forBank, and immediately notify Bank of the return of the Inventory.          (e) Verification*.*Bank may, from time to time, verify directly with the respectiveAccount Debtors the validity, amount and other matters relating to the Accounts, either in the nameof a Borrower or Bank or such other name as Bank may choose.
 

 
          **(f)****No Liability*****.*****Bank shall not be responsible or liable for any shortage ordiscrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition ofwhich gives rise to an Account, or for any error, act, omission, or delay of any kind occurring inthe settlement, failure to settle, collection or failure to collect any Account, or for settlingany Account in good faith for less than the full amount thereof, nor shall Bank be deemed to beresponsible for any of any Borrower’s obligations under any contract or agreement giving rise to anAccount. Nothing herein shall, however, relieve Bank from liability for its own gross negligenceor willful misconduct.**     Remittance of Proceeds**. Except as otherwise provided in Section 6.****3(c)****, deliver, in kind, allproceeds arising from the disposition of any Collateral to Bank in the original form in whichreceived by such Borrower not later than the following Business Day after receipt by such Borrower,to be applied to the Obligations pursuant to the terms of Section 9.4 hereof; provided that, if noDefault or Event of Default has occurred and is continuing, such Borrower shall not be obligated toremit to Bank the proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower ingood faith in an arm’s length transaction for an aggregate purchase price of $25,000 or less (forall such transactions in any fiscal year). Each Borrower agrees that it will not commingleproceeds of Collateral with any of such Borrower’s other funds or property, but will hold suchproceeds separate and apart from such other funds and property and in an express trust for Bank.Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere inthis Agreement.**     **6.5 Taxes; Pensions**. Make, and cause each of its Subsidiaries, if any, to make, timelypayment of all foreign, federal, state and local taxes or assessments (other than taxes andassessment which such Borrower is contesting pursuant to the terms of Section 5.9 hereof, and shalldeliver to Bank, on demand, appropriate certificates attesting to such payments, and pay allamounts necessary to fund all present pension, profit sharing and deferred compensation plans inaccordance with their terms.     6.6 Access to Collateral; Books and Records**. At reasonable times, on one (1) Business Day’snotice (provided no notice is required if an Event of Default has occurred and is continuing),Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copyBorrowers’ Books;****provided that****, unless an Event of Default has occurred and is continuing,Bank shall conduct not more than two (2) such inspections of the Collateral in any twelve monthperiod. The foregoing inspections and audits shall be at Borrowers’ expense, and the chargetherefor shall be $750 per person per day (or such higher amount as shall represent Bank’sthen-current standard charge for the same), plus reasonable out-of-pocket expenses. In the eventBorrowers and Bank schedule an audit more than ten (10) days in advance, and Borrowers cancel orseek to reschedule the audit with less than ten (10) days written notice to Bank, then (withoutlimiting any of Bank’s rights or remedies), Borrowers shall pay Bank a fee of $1,000 plus anyout-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expensesof the cancellation or rescheduling.**     6.7 Insurance**. Keep its business and the Collateral insured for risks and in amounts standardfor companies in such 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 toBank. All property policies shall have a lender’s loss payable endorsement showing Bank as alender loss payee and waive subrogation against Bank, and all liability policies shall show, orhave endorsements showing, Bank as an additional insured. All policies (or the loss payable andadditional 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, eachBorrower shall deliver certified copies of policies and evidence of all premium payments. Proceedspayable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations.If any Borrower fails to obtain insurance as required under this Section 6.7 or to pay any amountor furnish any required proof of payment to third persons and Bank, Bank may make all or part ofsuch payment or obtain such insurance policies required in this Section 6.7, and take any actionunder the policies Bank deems prudent in its good faith business judgment.**     Operating Accounts**.**          Maintain its and its Subsidiaries’ depository, operating accounts and securities accountswith Bank and Bank’s affiliates which accounts shall represent at least 85% of the dollar value ofsuch Borrower’s and such Subsidiaries accounts at all financial institutions located in the UnitedStates of America.          Provide Bank five (5) days prior written notice before establishing any Collateral Accountat or with any bank or financial institution other than Bank or its Affiliates. In addition, foreach Collateral Account that such Borrower at any time maintains, such Borrower shall cause theapplicable bank or financial institution (other than Bank) at or with which any Collateral Accountis maintained to execute and deliver a Control Agreement or other appropriate instrument withrespect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordancewith the terms hereunder. The provisions of the previous sentence shall not apply to depositaccounts 
 

 
exclusively used for payroll, payroll taxes and other employee wage and benefit paymentsto or for the benefit of a Borrower’s employees and identified to Bank by such Borrower assuch.     Tangible Net Worth**.**          Borrowers shall maintain at all times, to be tested as of the last day of each month, on aconsolidated basis with respect to QualMark and its Subsidiaries, a Tangible Net Worth of at least$2,500,000, increasing by (i) on a quarterly basis, 50% of Net Income after the Effective Date and(ii) on a monthly basis, 50% of the sum of (x) issuances of equity after the Effective Date plus(y) the principal amount of Subordinated Debt.     Protection and Registration of Intellectual Property Rights**. Each 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) notallow any intellectual property material to such Borrower’s business to be abandoned, forfeited ordedicated to the public without Bank’s written consent. If any Borrower decides to register anycopyrights or mask works in the United States Copyright Office, such Borrower shall: (x) provideBank with at least fifteen (15) days prior written notice of its intent to register such copyrightsor mask works together with a copy of the application it intends to file with the United StatesCopyright Office (excluding exhibits thereto); (y) execute an intellectual property securityagreement or such other documents as Bank may reasonably request to maintain the perfection andpriorityof Bank’s security interest in the copyrights or mask works intended to be registered with theUnited States Copyright Office; and (z) record such intellectual property security agreement withthe United States Copyright Office contemporaneously with filing the copyright or mask workapplication(s) with the United States Copyright Office. Each Borrower shall promptly provide toBank a copy of the application(s) filed with the United States Copyright Office together withevidence of the recording of the intellectual property security agreement necessary for Bank tomaintain the perfection and priority of its security interest in such copyrights or mask works.Each Borrower shall provide written notice to Bank of any application filed by such Borrower in theUnited States Patent and Trademark Office for a patent or to register a trademark or service markwithin 30 days after any such filing.**     Litigation Cooperation**. From the date hereof and continuing through the termination of thisAgreement, make available to Bank, without expense to Bank, the relevant Borrower and its officers,employees and agents and such Borrower’s books and records, to the extent that Bank may deem themreasonably necessary to prosecute or defend any third-party suit or proceeding instituted by oragainst Bank with respect to any Collateral or relating to Borrower.**     Further Assurances**. Each Borrower shall execute any further instruments and take furtheraction as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or toeffect the purposes of this Agreement.**     NEGATIVE COVENANTS     No Borrower shall do any of the following without Bank’s prior written consent (which shall bea matter of its good faith business judgment, unless otherwise stated) as long as this Agreementhas not been terminated:     Dispositions**. Convey, sell, lease, transfer or otherwise dispose of (collectively,“**Transfer**”), or permit any of its Subsidiaries to Transfer, all or any part of its business orproperty, except for Transfers of (a) of Inventory in the ordinary course of business; (b) ofnon-exclusive licenses and similar arrangements for the use of the property of such Borrower or itsSubsidiaries in the ordinary course of business; (c) of worn-out or obsolete Equipment; (d) inconnection with Permitted Liens and Permitted Investments; and (e) of other assets not exceeding$50,000 in any one instance.**     Changes in Business, Management, Ownership, Control, or Business Locations**. (a) Engage in orpermit any of its Subsidiaries to engage in any business other than the businesses currentlyengaged in by such Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b)liquidate or dissolve; or (c) (i) have a change in management or (ii) enter into any transaction orseries of related transactions in which there is a change in ownership of more than 25% (other thanby the sale of such Borrower’s equity securities in a public offering or to venture capitalinvestors so long as such Borrower identifies to Bank the venture capital investors prior to theclosing of the transaction). No Borrower shall, without at least thirty (30) days prior writtennotice to Bank: (1) add any new offices or business locations, including warehouses**
 

 
**(unless suchnew offices or business locations contain less than Ten Thousand Dollars ($10,000) in suchBorrower’s assets or property), (2) change its jurisdiction of organization, (3) change itsorganizational structure or type, (4) change its legal name, or (5) change any organizationalnumber (if any) assigned by its jurisdiction of organization.**     Mergers or Acquisitions**. Merge or consolidate, or permit any of its Subsidiaries to merge orconsolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, allor substantially all of the capital stock or property of another Person, except where (a) suchtransaction would not result in a decrease of more than 25% of Tangible Net Worth of QualMark, (b)no Event of Default has occurred and is continuing or would exist after giving effect to thetransaction, and (c) either such Borrower or QualMark is the surviving legal entity. A Subsidiarymay merge or consolidate into another Subsidiary or into any Borrower.**     Indebtedness**. Create, incur, assume, or be liable for any Indebtedness, or permit anySubsidiary to do so, other than Permitted Indebtedness.**     Encumbrance**. Create, incur, or allow any Lien on any of its property, or assign or conveyany right to receive income, including the sale of any Accounts, or permit any of its Subsidiariesto do so, except for Permitted Liens, permit any Collateral not to be subject to the first prioritysecurity interest granted herein, or enter into any agreement, document, instrument or otherarrangement (except with or in favor of Bank)with any Person which directly or indirectly prohibits or has the effect of prohibiting suchBorrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in orupon, or encumbering any of such Borrower’s or any Subsidiary’s intellectual property, except as isotherwise permitted in Section 7.1 hereof and the definition of “Permitted Lien” herein.**     Maintenance of Collateral Accounts**. Maintain any Collateral Account except pursuant to theterms of Section 6.****8(b)****hereof.**     Investments; Distributions**. (a) Directly or indirectly make any Investment other thanPermitted Investments, or permit any of its Subsidiaries to do so; or (b) pay any dividends or makeany distribution or payment or redeem, retire or purchase any capital stock****.**     Transactions with Affiliates**. Directly or indirectly enter into or permit to exist anymaterial transaction with any Affiliate of such Borrower, except for transactions that are in theordinary course of such Borrower’s business, upon fair and reasonable terms that are no lessfavorable to such Borrower than would be obtained in an arm’s length transaction with anon-affiliated Person.**     Subordinated Debt**. (a) Make or permit any payment on any Subordinated Debt, except under theterms of the subordination, intercreditor, or other similar agreement to which such SubordinatedDebt is subject, or (b) amend any provision in any document relating to the Subordinated Debt whichwould increase the amount thereof or adversely affect the subordination thereof to Obligations owedto Bank.**     Compliance**. Become an “investment company” or a company controlled by an “investmentcompany”, under the Investment Company Act of 1940 or undertake as one of its important activitiesextending credit to purchase or carry margin stock (as defined in Regulation U of the Board ofGovernors of the Federal Reserve System), or use the proceeds of any Credit Extension for thatpurpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event orProhibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair LaborStandards Act or violate any other law or regulation, if the violation could reasonably be expectedto have a material adverse effect on such Borrower’s business, or permit any of its Subsidiaries todo so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial orcomplete termination of, or permit the occurrence of any other event with respect to, any presentpension, profit sharing and deferred compensation plan which could reasonably be expected to resultin any liability of such Borrower, including any liability to the Pension Benefit GuarantyCorporation or its successors or any other governmental agency.**
 

 
     EVENTS OF DEFAULT     Any one of the following shall constitute an event of default (an “**Event of Default**”) underthis Agreement:     Payment Default**. Any Borrower fails to (a) make any payment of principal or interest on anyCredit Extension on its due date, or (b) pay any other Obligations within three (3) Business Daysafter such Obligations are due and payable. During the cure period, the failure to cure thepayment default is not an Event of Default (but no Credit Extension will be made during the cureperiod);**     Covenant Default**.**          (a) Any Borrower fails or neglects to perform any obligation in Sections 6.2, 6.8, or 6.9 orviolates any covenant in Section 7; or          **(b) Any Borrower fails or neglects to perform, keep, or observe any other term, provision,condition, covenant or agreement contained in this Agreement, any Loan Documents, and as to anydefault (other than those specified in Sections 8.1 or 8.****2(a)****above) under such other term,provision, condition, covenant or agreement that can be cured, has failed to cure the defaultwithin ten (10) days after the occurrence thereof; provided, however, that if the default cannot byits nature be cured within the ten (10) day period or cannot after diligent attempts by suchBorrower be cured within such ten (10) day period, and such default is likely to be cured within areasonable time, then Borrowers shall have an additional period (which shall not in any case exceedthirty (30) days) to attempt to cure such default, and within such reasonable time period thefailure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shallbe made during such cure period). Grace periods provided under this section shall not apply, amongother things, to financial covenants or any other covenants set forth in subsection (a) above;**     Material Adverse Change**. A Material Adverse Change occurs;**     Attachment**. (a) Any material portion of any Borrower’s assets is attached, seized, levied on,or comes into possession of a trustee or receiver and the attachment, seizure or levy is notremoved in ten (10) days; (b) the service of process upon Bank (or Bank’s Affiliate) seeking toattach, by trustee or similar process, any funds of any Borrower, or of any entity under control ofsuch Borrower (including a Subsidiary) on deposit with Bank; (c) any Borrower is enjoined,restrained, or prevented by court order from conducting a material part of its business; (d) ajudgment or other claim in excess of $100,000 becomes a Lien on any of any Borrower’s assets; or(e) a notice of lien, levy, or assessment is filed against any of any Borrower’s assets by anygovernment agency and not paid within ten (10) days after such Borrower receives notice. These arenot Events of Default if stayed or if a bond is posted pending contest by any Borrower (but noCredit Extensions shall be made during the cure period);**     Insolvency**. Any Borrower is unable to pay its debts (including trade debts) as they becomedue or otherwise becomes insolvent; (b) any Borrower begins an Insolvency Proceeding; or (c) anInsolvency Proceeding is begun against any Borrower and not dismissed or stayed within thirty (30)days (but no Credit Extensions shall be made while of any of the conditions described in clause (a)exist and/or until any Insolvency Proceeding is dismissed);**     Other Agreements**. There is a default in any agreement to which any Borrower or any Guarantoris a party with Bank or with a third party or parties resulting in a right by Bank or such thirdparty or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in anamount in excess of One Hundred Thousand Dollars ($100,000) or that could have a material adverseeffect on any Borrower’s or any Guarantor’s business;**     Judgments**. A judgment or judgments for the payment of money in an amount, individually or inthe aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independentthird-party insurance) shall be rendered against any Borrower and shall remain unsatisfied andunstayed for a period of ten (10) days after the entry thereof (provided that no Credit Extensionswill be made prior to the satisfaction or stay of such judgment);**     Misrepresentations**. Any Borrower or any Person acting for such Borrower makes anyrepresentation, warranty, or other statement now or later in this Agreement, any Loan Document orin any**
 

 
**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 whenmade;**     Subordinated Debt**. A default or breach occurs under any agreement between any Borrower andany creditor of such Borrower that signed a subordination, intercreditor, or other similaragreement with Bank, or any creditor that has signed such an agreement with Bank breaches any termsof such agreement; or**     Guaranty. **(a) Any guaranty of any Obligations terminates or ceases for any reason to be infull force and effect; (b) any Guarantor does not perform any obligation or covenant under anyguaranty 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.**     Exim Default**. After the effective date of the EXIM Loan Agreement, the occurrence of an Eventof Default under the EXIM Loan Agreement.**     BANK’S RIGHTS AND REMEDIES     Rights and Remedies**. While an Event of Default occurs and continues Bank may, without noticeor demand, do any or all of the following:**          declare all Obligations immediately due and payable (but if an Event of Default describedin Section 8.5 occurs all Obligations are immediately due and payable without any action byBank);          stop advancing money or extending credit for Borrowers’ benefit under this Agreement orunder any other agreement between any Borrower and Bank;          demand that any Borrower (i) deposits cash with Bank in an amount equal to 105% of theaggregate amount of any Letters of Credit remaining undrawn, as collateral security for therepayment of any future drawings under such Letters of Credit, and such Borrower shall forthwithdeposit and pay such amounts, and (ii) pay in advance all Letter of Credit fees scheduled to bepaid or payable over the remaining term of any Letters of Credit;          terminate any FX Contracts;          settle or adjust disputes and claims directly with Account Debtors for amounts on termsand in any order that Bank considers advisable in its good faith business judgment, notify anyPerson owing any Borrower money of Bank’s security interest in such funds, and verify the amount ofsuch account;           make any payments and do any acts it considers necessary or reasonable to protect theCollateral and/or its security interest in the Collateral. Each Borrower shall assemble theCollateral if Bank requests and make it available as Bank designates. Bank may enter premiseswhere the Collateral is located, take and maintain possession of any part of the Collateral, andpay, purchase, contest, or compromise any Lien which appears to be prior or superior to itssecurity interest and pay all expenses incurred. Each Borrower grants Bank a license to enter andoccupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;          apply to the Obligations any (i) balances and deposits of any Borrower it holds, or (ii)any amount held by Bank owing to or for the credit or the account of any Borrower;          ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise forsale, and sell the Collateral. Without limiting its rights as a holder of a Lien on IntellectualProperty, Bank is hereby granted a non-exclusive, royalty-free license or other right to use,without charge, each 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 similarproperty as it pertains to the Collateral, in completing production of, advertising for sale, andselling any Collateral and, in connection with Bank’s exercise of its rights under this Section,each Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;          place a “hold” on any account maintained with Bank and/or deliver a notice of exclusivecontrol, any entitlement order, or other directions or instructions pursuant to any ControlAgreement or similar agreements providing control of any Collateral;
 

 
          demand and receive possession of each Borrower’s Books; and          exercise all rights and remedies available to Bank under the Loan Documents or at law orequity, including all remedies provided under the Code (including disposal of the Collateralpursuant to the terms thereof).     Power of Attorney**. Each Borrower hereby irrevocably appoints Bank as its lawfulattorney-in-fact, exercisable upon the occurrence and during the continuance of an Event ofDefault, to: (a) endorse such Borrower’s name on any checks or other forms of payment or security;(b) sign such Borrower’s name on any invoice or bill of lading for any Account or drafts againstAccount Debtors; (c) settle and adjust disputes and claims about the Accounts directly with AccountDebtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust allclaims under such Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment basedthereon, or otherwise take any action to terminate or discharge the same; and (f) transfer theCollateral into the name of Bank or a third party as the Code permits. Each Borrower herebyappoints Bank as its lawful attorney-in-fact to sign such Borrower’s name on any documentsnecessary to perfect or continue the perfection of any security interest created hereunderregardless of whether an Event of Default has occurred until all Obligations have been satisfied infull and Bank is under no further obligation to make Credit Extensions hereunder. Bank’s foregoingappointment as each Borrower’s attorney in fact, and all ofBank’s rights and powers, coupled with an interest, are irrevocable until all Obligations havebeen fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.**     Protective Payments**. If any Borrower fails to obtain the insurance called for by Section 6.7or fails to pay any premium thereon or fails to pay any other amount which such Borrower isobligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance ormake such payment, and all amounts so paid by Bank are Bank Expenses and immediately due andpayable, bearing interest at the then highest applicable rate, and secured by the Collateral. Bankwill make reasonable efforts to provide such Borrower with notice of Bank obtaining such insuranceat the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemedan agreement to make similar payments in the future or Bank’s waiver of any Event of Default.**     Application of Payments and Proceeds**. Unless an Event of Default has occurred and iscontinuing, Bank shall apply any funds in its possession, whether from Borrower account balances,payments, or proceeds realized as the result of any collection of Accounts or other disposition ofthe Collateral, first, to Bank Expenses, including without limitation, the reasonable costs,expenses, liabilities, obligations and attorneys’ fees incurred by Bank in the exercise of itsrights under this Agreement; second, to the interest due upon any of the Obligations; third, to theprincipal of the Obligations (other than the Non-Formula Borrowings) and any applicable fees andother charges, in such order as Bank shall determine in its sole discretion; and fourth, to theprincipal of the Non-Formula Borrowings and any applicable fees and other charges, in such order asBank shall determine in its sole discretion. Any surplus shall be paid to the relevant Borrower orother Persons legally entitled thereto; Borrowers shall remain liable to Bank for any deficiency.If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession,whether from Borrower account balances, payments, proceeds realized as the result of any collectionof Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such orderas Bank shall determine in its sole discretion. Any surplus shall be paid to the relevant Borroweror to other Persons legally entitled thereto; Borrowers shall remain liable to Bank for anydeficiency. If Bank, in its good faith business judgment, directly or indirectly enters into adeferred payment or other credit transaction with any purchaser at any sale of Collateral, Bankshall have the option, exercisable at any time, of either reducing the Obligations by the principalamount of the purchase price or deferring the reduction of the Obligations until the actual receiptby Bank of cash therefor.**     Bank’s Liability for Collateral**. So long as Bank complies with reasonable banking practicesregarding the safekeeping of the Collateral in the possession or under the control of Bank, Bankshall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss ordamage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act ordefault of any carrier, warehouseman, bailee, or other Person. Borrowers bear all risk of loss,damage or destruction of the Collateral.**     No Waiver; Remedies Cumulative**. Bank’s failure, at any time or times, to require strictperformance by any Borrower of any provision of this Agreement or any other Loan Document shall notwaive, affect, or diminish any right of Bank thereafter to demand strict performance and complianceherewith or therewith. No waiver hereunder shall be effective unless signed by Bank and then isonly effective for the specific**
 

 
**instance and purpose for which it is given. Bank’s rights andremedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights andremedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy isnot an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’sdelay in exercising any remedy is not a waiver, election, or acquiescence.**     Demand Waiver**. Each Borrower waives demand, notice of default or dishonor, notice of paymentand nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement,extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held byBank on which any Borrower is liable.**     NOTICES     All notices, consents, requests, approvals, demands, or other communication (collectively,“**Communication**”), other than Advance requests made pursuant to Section 3.4, by any party to thisAgreement or any other Loan Document must be in writing and be delivered or sent by facsimile atthe addresses or facsimile numbers listed below. Bank or any Borrower may change its noticeaddress by giving the other party written notice thereof. Each such Communication shall be deemedto 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, registered or certified mail, returnreceipt requested, with proper postage prepaid; (b) upon transmission, when sent by facsimiletransmission (with such facsimile promptly confirmed by delivery of a copy by personal delivery orUnited States mail as otherwise provided in this Section 10); (c) one (1) Business Day afterdeposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, ifhand-delivered by messenger, all of which shall be addressed to the party to be notified and sentto the address or facsimile number indicated below. Advance requests made pursuant to Section 3.4must be in writing and may be in the form of electronic mail, delivered to Bank by Borrowers at thee-mail address of Bank provided below and shall be deemed to have been validly served, given, ordelivered when sent (with such electronic mail promptly confirmed by delivery of a copy by personaldelivery or United States mail as otherwise provided in this Section 10). Bank or any Borrower maychange its address, facsimile number, or electronic mail address by giving the other party writtennotice thereof in accordance with the terms of this Section 10.     If to any Borrower: QUALMARK CORPORATION    4580 Florence Street    Denver, CO 80238    Attn: Anthony Scalese    Fax: 303-254-8343    Email: ascalese@qualmark.com   If to Bank: Silicon Valley Bank    380 Interlocken Crescent, Suite 600    Broomfield, CO 80021    Attn: Ryan C. Lee    Fax: 303-469-9088    Email:rlee3@svb.com   with a copy to: Riemer & Braunstein LLP    Three Center Plaza    Boston, Massachusetts 02108    Attn: Charles W. Stavros, Esquire    Fax: (617) 880-3456    Email: CStavros@riemerlaw.com  CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER AND JUDICIAL REFERENCE     Colorado law governs the Loan Documents without regard to principles of conflicts of law.Each Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts inCity and County of Denver, State of Colorado; provided, however, that nothing in this Agreementshall be deemed to operate to preclude Bank from bringing suit or taking other legal action in anyother jurisdiction to realize on the Collateral or any other security for the Obligations, or toenforce a judgment or other court order in favor of Bank. Each Borrower expressly submits andconsents in advance to such jurisdiction in any action or suit commenced in any such court,
 

 
andeach Borrower hereby waives any objection that it may have based upon lack of personaljurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of suchlegal or equitable relief as is deemed appropriate by such court. Each Borrower hereby waivespersonal service of the summons, complaints, and other process issued in such action or suit andagrees that service of such summons, complaints, and other process may be made by registered orcertified mail addressed to such Borrower at the address set forth in Section 10 of this Agreementand that service so made shall be deemed completed upon the earlier to occur of such Borrower’sactual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE, BANK SHALL SPECIFICALLY HAVE THERIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR ITS PROPERTY IN THE COURTS OF ANYOTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERALOR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS PROPERTY.     **TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURYTRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOANDOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHERCLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACHPARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL**.     GENERAL PROVISIONS     Successors and Assigns**. This Agreement binds and is for the benefit of the successors andpermitted assigns of each party. No Borrower may assign this Agreement or any rights orobligations under it without Bank’s prior written consent (which may be granted or withheld inBank’s discretion). Bank has the right, without the consent of or notice to Borrowers, to sell,transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’sobligations, rights, and benefits under this Agreement and the other Loan Documents.**     Indemnification**. Each Borrower agrees to indemnify, defend and hold Bank and its directors,officers, employees, agents, attorneys, or any other Person affiliated with or representing Bankharmless 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 Bank from, following, or arising fromtransactions between Bank and Borrowers (including reasonable attorneys’ fees and expenses), exceptfor Claims and/or losses directly caused by Bank’s gross negligence or willful misconduct.**     Limitation of Actions**. Any claim or cause of action by any Borrower against Bank, itsdirectors, officers, employees, agents, accountants, attorneys, or any other Person affiliated withor representing Bank based upon, arising from, or relating to this Loan Agreement or any other LoanDocument, or any other transaction contemplated hereby or thereby or relating hereto or thereto, orany other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done byBank, its directors, officers, employees, agents, accountants or attorneys, shall be barred unlessasserted by such Borrower by the commencement of an action or proceeding in a court of competentjurisdiction by (a) the filing of a complaint within one year from the date any Borrower’s officersor directors had knowledge of the first act, the occurrence or omission upon which such claim orcause of action, or any part thereof, is based, and (b) the service of a summons and complaint onan officer of Bank, or on any other person authorized to accept service on behalf of Bank, withinthirty (30) days thereafter. Each Borrower agrees that such one-year period is a reasonable andsufficient time for such Borrower to investigate and act upon any such claim or cause of action.The one-year period provided herein shall not be waived, tolled, or extended except by the writtenconsent of Bank in its sole discretion. This provision shall survive any termination of this LoanAgreement or any other Loan Document.**     Time of Essence**. Time is of the essence for the performance of all Obligations in thisAgreement.**     Severability of Provisions**. Each provision of this Agreement is severable from every otherprovision in determining the enforceability of any provision.**     Amendments in Writing; Integration**. All amendments to this Agreement must be in writingsigned by both Bank and Borrowers. This Agreement and the Loan Documents represent the entireagreement about**
 

 
**this subject matter and supersede prior negotiations or agreements. All prioragreements, understandings, representations, warranties, and negotiations between the parties aboutthe subject matter of this Agreement and the Loan Documents merge into this Agreement and the LoanDocuments.**     Counterparts**. This Agreement may be executed in any number of counterparts and by differentparties on separate counterparts, each of which, when executed and delivered, are an original, andall taken together, constitute one Agreement.**     Survival**. All covenants, representations and warranties made in this Agreement continue infull force until this Agreement has terminated pursuant to its terms and all Obligations (otherthan inchoate indemnity obligations and any other obligations which, by their terms, are to survivethe termination of this Agreement) have been satisfied. The obligation of Borrowers in Section12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim orcause of action shall have run.**     Confidentiality**. In handling any confidential information, Bank shall exercise the samedegree of care that it exercises for its own proprietary information, but disclosure of informationmay be made: (a) to Bank’s Subsidiaries or Affiliates in connection with their business withBorrowers; (b) to prospective transferees or purchasers of any interest in the Credit Extensions(provided, however, Bank shall use commercially reasonable efforts to obtain such prospectivetransferee’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 regulatorsor as otherwise required in connection with Bank’s examination or audit; and (e) as Bankconsiders appropriate in exercising remedies under this Agreement. Confidential information doesnot include information that either: (i) is in the public domain or in Bank’s possession whendisclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (ii) isdisclosed to Bank by a third party, if Bank does not know that the third party is prohibited fromdisclosing the information.**     Attorneys’ Fees, Costs and Expenses**. In any action or proceeding between any Borrower andBank arising out of or relating to the Loan Documents, Bank shall be entitled to recover itsreasonable attorneys’ fees and other costs and expenses incurred, in addition to any other reliefto which it may be entitled.**     Borrower Liability. **Each Borrower hereby appoints QualMark as agent for the Borrowers for allpurposes hereunder, including with respect to requesting Credit Extensions hereunder. Each Borrowerhereunder shall be obligated to repay all Credit Extensions made hereunder, regardless of whichBorrower actually receives said Credit Extension, as if each Borrower hereunder directly received****all****Credit Extensions. Each Borrower waives any suretyship defenses available to it underthe Code or any other applicable law. Each Borrower waives any right to require Bank to: (i)proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or(iii) pursue any other remedy. Bank may exercise or not exercise any right or remedy it hasagainst any Borrower or any security it holds (including the right to foreclose by judicial ornon-judicial sale) without affecting any Borrower’s liability. Notwithstanding any other provisionof this Agreement or other related document, each Borrower irrevocably waives all rights that itmay have at law or in equity (including, without limitation, any law subrogating Borrower to therights of Bank under this Agreement) to seek contribution, indemnification or any other form ofreimbursement from any other Borrower, or any other Person now or hereafter primarily orsecondarily liable for any of the Obligations, for any payment made by Borrower with respect to theObligations in connection with this Agreement or otherwise and all rights that it might have tobenefit from, or to participate in, any security for the Obligations as a result of any paymentmade by Borrower with respect to the Obligations in connection with this Agreement or otherwise.Any agreement providing for indemnification, reimbursement or any other arrangement prohibitedunder this Section shall be null and void. If any payment is made to a Borrower in contraventionof this Section, such Borrower shall hold such payment in trust for Bank and such payment shall bepromptly delivered to Bank for application to the Obligations, whether matured or unmatured.Notwithstanding anything to the contrary contained in this Agreement, all of Borrowers’representations and warranties, indebtedness, liabilities and other Obligations of any kinddescribed in this Agreement and any other Loan Document shall be joint and several in nature andaffect their jointly and/or severally owned property.**     Right of Set Off**. Each Borrower hereby grants to Bank, a lien, security interest and rightof set off as security for all Obligations to Bank, whether now existing or hereafter arising uponand 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 Banksubsidiary) or in transit to any of them. At any time after the occurrence and during thecontinuance of an Event of Default, without demand or**
 

 
**notice, Bank may set off the same or any partthereof and apply the same to any liability or obligation of such Borrower even though unmaturedand regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALLRIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERALWHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCHDEPOSITS, CREDITS OR OTHER PROPERTY OF ANY BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY ANDIRREVOCABLY WAIVED.**     Amended and Restated Loan and Security Agreement**. This Agreement amends and restates in itsentirety the Existing Loan Agreement, as previously amended.**     Waiver of Default**. Without limiting Section 12.13 hereof or any other provision of thisAgreement, the Borrowers and the Bank hereby acknowledge that the Borrowers have failed to maintaina Minimum Debt Service Coverage Ratio of at least 2:00 to 1.00, as required pursuant to Section6.****7(b)****of the Existing Loan Agreement, for the month ending October 31, 2007, and such failure isan Event of Default under the Existing Loan Agreement (the “Existing Default”). Bank hereby agreesthat upon execution of the Borrowers and the Bank of this Agreement and the Loan Documents, theExisting Default shall be waived,****provided that****such waiver shall not constitute a waiverof any other Event of Default which may occur hereunder.**     DEFINITIONS     Definitions**. As used in this Agreement, the following terms have the following meanings:**     “**Account**” is any “account” as defined in the Code with such additions to such term as mayhereafter be made, and includes, without limitation, all accounts receivable and other sums owingto such Borrower.     “**Account Debtor**” is any “account debtor” as defined in the Code with such additions to suchterm as may hereafter be made.     “**Adjustment Date**” is the first Business Day following the date Bank receives the monthlyfinancial statements required by Section 6.2 commencing with the financial statements for the monthending November 30, 2007.     “**Advance**” or “**Advances**” means an advance (or advances) under the Revolving Line.     “**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 eachof that Person’s senior executive officers, directors, partners and, for any Person that is alimited liability company, that Person’s managers and members.     “**Agreement**” is defined in the preamble hereof.     “**Applicable Margin**” is:          (a) From and after the Effective Date until the first Adjustment Date, the percentages setforth in Tier III of the pricing grid below; and          (b) From and after the first Adjustment Date, the Applicable Margin shall be determined fromthe following pricing grid based upon the Quick Ratio as of the month ended immediately precedingsuch Adjustment Date; provided, however, that notwithstanding anything to the contrary setforth herein, upon the occurrence of an Event of Default, Bank may immediately increase theApplicable Margin to that set forth in Tier III (even if the Quick Ratio requirements for adifferent Tier have been met) and interest shall accrue at the Default Rate; providedfurther if the foregoing financial statements are at any time restated or otherwise revised(including as a result of an audit) or if the information set forth in such financial statementsotherwise proves to be false or incorrect such that the Applicable Margin would have been higherthan was otherwise in effect during any period, without constituting a waiver of any Default orEvent of Default arising as a result thereof, interest due under this Agreement shall beimmediately recalculated at such higher rate for any applicable periods and shall be due andpayable on demand.
 

 
       **Tier** **Quick Ratio** **Prime Rate Margin**III Less than 1.25  2.00%II Equal to or greater than 1.25 but less than or equal to 1.50   1.50%I Greater than 1.50  1.00%     “**Availability Amount**” is (a) the lesser of (i) the Revolving Line or (ii) the Borrowing Baseminus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Lettersof Credit) plus an amount equal to the Letter of Credit Reserves, minus (c) the FX Reserve, andminus (d) the outstanding principal balance of any Advances (including any amounts used for CashManagement Services). Notwithstanding the foregoing, the aggregate amount of all Credit Extensionsunder this Agreement outstanding at any time together with all Credit Extensions (as defined in theEXIM Loan Agreement) under the EXIM Loan Agreement shall not exceed $2,500,000.     “**Bank**” is defined in the preamble hereof.     “**Bank Expenses**” are all reasonable audit fees and expenses, and reasonable costs, and expenses(including reasonable attorneys’ fees and expenses) for preparing, negotiating, administering,defending and enforcing the Loan Documents (including, without limitation, those incurred inconnection with appeals or Insolvency Proceedings) or otherwise incurred with respect to anyBorrower.     “**Borrower(s)**” is defined in the preamble hereof.     “**Borrowers’ Books**” are all Borrowers’ books and records including ledgers, federal and statetax returns, records regarding Borrowers’ assets or liabilities, the Collateral, businessoperations or financial condition, and all computer programs or storage or any equipment containingsuch information.     “**Borrowing Base**” is (a) 80% of Eligible Accounts, as determined by Bank from Borrowers’ mostrecent Borrowing Base Certificate (the “**Formula Borrowings”**), provided, however, that Bank maydecrease the foregoing percentage in its good faith business judgment after performing any audit ofBorrowers’ Collateral or based on events, conditions, contingencies, or risks which, as determinedby Bank, may adversely affect Collateral plus (b) during the Draw Period, $250,000 (the“**Non-Formula Borrowings**”). Borrowers, without notice or demand from Bank, shall repay allNon-Formula Borrowings upon expiration of the Draw Period. Once repaid, Non-Formula Borrowings maynot be reborrowed.     “**Borrowing Base Certificate**” is that certain certificate included within each TransactionReport.     “**Borrowing Resolutions**” are, with respect to any Person, those resolutions substantiallyattached hereto as Exhibit E.     “**Business Day**” is any day that is not a Saturday, Sunday or a day on which Bank is closed.     **“Cash Equivalents”**means (a) marketable direct obligations issued or unconditionallyguaranteed by the United States or any agency or any State thereof having maturities of not morethan one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1)year after its creation and having the highest rating from either Standard & Poor’s Ratings Groupor Moody’s Investors Service, Inc., (c) Bank’s certificates of deposit issued maturing no more thanone (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of theassets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) ofthis definition.
 

 
     **“Cash Management Services”**is defined in Section 2.1.4.     “**Cash Management Services Sublimit**” is defined in Section 2.1.4.     “**Code**” is the Uniform Commercial Code, as the same may, from time to time, be enacted and ineffect in the State of Colorado; provided, that, to the extent that the Code is used to define anyterm herein or in any Loan Document and such term is defined differently in different Articles orDivisions 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 ofthe attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on anyCollateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than theState of Colorado, the term “**Code**” shall mean the Uniform Commercial Code as enacted and in effectin such other jurisdiction solely for purposes on the provisions thereof relating to suchattachment, perfection, priority, or remedies and for purposes of definitions relating to suchprovisions.     “**Collateral**” is any and all properties, rights and assets of the relevant Borrower describedon Exhibit A.     “**Collateral Account**” is any Deposit Account, Securities Account, or Commodity Account.     “**Commodity Account**” is any “commodity account” as defined in the Code with such additions tosuch term as may hereafter be made.     “**Communication**” is defined in Section 10.     “**Compliance Certificate**” is that certain certificate in the form attached hereto asExhibit D.     “**Contingent Obligation**” is, for any Person, any direct or indirect liability, contingent ornot, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligationof another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discountedor 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) allobligations from any interest rate, currency or commodity swap agreement, interest rate cap orcollar agreement, or other agreement or arrangement designated to protect a Person againstfluctuation in interest rates, currency exchange rates or commodity prices; but “ContingentObligation” does not include endorsements in the ordinary course of business. The amount of aContingent Obligation is the stated or determined amount of the primary obligation for which theContingent Obligation is made or, if not determinable, the maximum reasonably anticipated liabilityfor it determined by the Person in good faith; but the amount may not exceed the maximum of theobligations under any guarantee or other support arrangement.     “**Control Agreement**” is any control agreement entered into among the depository institution atwhich any Borrower maintains a Deposit Account or the securities intermediary or commodityintermediary at which such Borrower maintains a Securities Account or a Commodity Account, suchBorrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) oversuch Deposit Account, Securities Account, or Commodity Account.     “**Credit Extension**” is any Advance, Letter of Credit, EXIM Loan, FX Forward Contract, amountutilized for Cash Management Services, or any other extension of credit by Bank for a Borrower’sbenefit.     **“Current Liabilities”**are all obligations and liabilities of Borrowers to Bank, plus, withoutduplication, the aggregate amount of Borrowers’ Total Liabilities that mature within one (1) year.     “**Default**” means any event which with notice or passage of time or both, would constitute anEvent of Default.     “**Default Rate**” is defined in Section 2.3(b).     “**Deferred Revenue**” is all amounts received or invoiced in advance of performance undercontracts and not yet recognized as revenue.     “**Deposit Account**” is any “deposit account” as defined in the Code with such additions to suchterm as may hereafter be made.
 

 
     “**Designated Deposit Account**” is QualMark’s deposit account, account number 360027070,maintained with Bank.     “**Dollars***,*” “**dollars**” and “**$**” each mean lawful money of the United States.     **“Draw Period”**is the period of time from the Effective Date through the earliest to occur of(a) April 30, 2008, (b) an Event of Default, or (c) the existence of any Default.     “**Effective Date**” is the date Bank executes this Agreement and as indicated on the signaturepage hereof.     “**Eligible Accounts**” are Accounts which arise in the ordinary course of the relevant Borrower’sbusiness that meet all such Borrower’s representations and warranties in Section 5.3. Bankreserves the right at any time and from time to time after the Effective Date, to adjust any of thecriteria set forth below and to establish new criteria in its good faith business judgment bygiving such Borrower notice. Unless Bank agrees otherwise in writing, Eligible Accounts shall notinclude:     (a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date;     (b) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts havenot been paid within ninety (90) days of invoice date;     (c) Credit balances over ninety (90) days from invoice date;     (d) Accounts owing from an Account Debtor, including Affiliates, whose total obligations tosuch Borrower exceed twenty-five (25%) of all Accounts, for the amounts that exceed thatpercentage, unless Bank approves in writing;     (e) Accounts owing from an Account Debtor which does not have its principal place of businessin the United States;     (f) Accounts owing from the United States or any department, agency, or instrumentalitythereof except for Accounts of the United States if Borrower has assigned its payment rights toBank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940,as amended;     (g) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligatedin 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 ofcustomary credits, adjustments and/or discounts given to an Account Debtor by Borrower in theordinary course of its business;     (h) Accounts for demonstration or promotional equipment, or in which goods are consigned, orsold on a “sale guaranteed”, “sale or return”, “sale on approval”, “bill and hold”, or other termsif Account Debtor’s payment may be conditional;     (i) Accounts for which the Account Debtor is Borrower’s Affiliate (including any otherBorrower), officer, employee, or agent;     (j) Accounts in which the Account Debtor disputes liability or makes any claim and Bankbelieves, in its good faith business judgment, there may be a basis for dispute (but only up to thedisputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, orbecomes insolvent, or goes out of business; and     (k) Accounts for which Bank in its good faith business judgment determines collection to bedoubtful.     “**Equipment**” is all “equipment” as defined in the Code with such additions to such term as mayhereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles(including motor vehicles and trailers), and any interest in any of the foregoing.     “**ERISA**” is the Employment Retirement Income Security Act of 1974, and its regulations.     “**Event of Default**” is defined in Section 8.
 

 
     **“EXIM Loan”**is any loan, advance or other financial accommodation made under or pursuant tothe EXIM Loan Agreement.     **“EXIM Loan Agreement”**is a certain Export-Import Bank Loan and Security Agreement dated on orabout the Effective Date by and between Bank and Borrowers, and all documents, instruments andagreements executed in connection therewith, as each may be amended from time to time.     **“Foreign Currency”**means lawful money of a country other than the United States.     **“Formula Borrowings”**is defined in the defined term “Borrowing Base”.     “**Funding Date**” is any date on which a Credit Extension is made to or on account of anyBorrower which shall be a Business Day.     “**FX Business Day**” is any day when (a) Bank’s Foreign Exchange Department is conducting itsnormal business and (b) the Foreign Currency being purchased or sold by any Borrower is availableto Bank from the entity from which Bank shall buy or sell such Foreign Currency.     “**FX Forward Contract**” is defined in Section 2.1.3.     “**FX Reserve**” is defined in Section 2.1.3.     “**GAAP**” is generally accepted accounting principles set forth in the opinions andpronouncements of the Accounting Principles Board of the American Institute of Certified PublicAccountants and statements and pronouncements of the Financial Accounting Standards Board or insuch other statements by such other Person as may be approved by a significant segment of theaccounting 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 thedate hereof with such additions to such term as may hereafter be made, and includes withoutlimitation, all copyright rights, copyright applications, copyright registrations and likeprotections in each work of authorship and derivative work, whether published or unpublished, anypatents, trademarks, service marks and, to the extent permitted under applicable law, anyapplications therefor, whether registered or not, any trade secret rights, including any rights tounpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchiseagreements, 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 orpersonal property, rights in all litigation presently or hereafter pending (whether in contract,tort or otherwise), insurance policies (including without limitation key man, property damage, andbusiness interruption insurance), payments of insurance and rights to payment of any kind.     “**Guarantor**” is any present or future guarantor of the Obligations.     “**Indebtedness**” is (a) indebtedness for borrowed money or the deferred price of property orservices, 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 leaseobligations, and (d) Contingent Obligations.     “**Insolvency Proceeding**” is any proceeding by or against any Person under the United StatesBankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefitof creditors, compositions, extensions generally with its creditors, or proceedings seekingreorganization, arrangement, or other relief.     “**Inventory**” is all “inventory” as defined in the Code in effect on the date hereof with suchadditions to such term as may hereafter be made, and includes without limitation all merchandise,raw materials, parts, supplies, packing and shipping materials, work in process and finishedproducts, including without limitation such inventory as is temporarily out of Borrower’s custodyor possession or in transit and including any returned goods and any documents of titlerepresenting any of the above.     “**Investment**” is any beneficial ownership interest in any Person (including stock, partnershipinterest or other securities), and any loan, advance or capital contribution to any Person.
 

 
     “**Letter of Credit”**means a letter of credit issued by Bank or another institution based uponan application, guarantee, indemnity or similar agreement on the part of Bank as set forth inSection 2.1.2.     “**Letter of Credit Application**” is defined in Section 2.1.2(a).     “**Letter of Credit Reserve**” has the meaning set forth in Section 2.1.2(d).     “**Lien**” is a mortgage, lien, deed of trust, charge, pledge, security interest or otherencumbrance.     “**Loan Documents**” are, collectively, this Agreement, the Perfection Certificate, theRatification of IP Agreement, the Ratification of Subordination Agreement, the EXIM Loan Agreement,any note, or notes or guaranties executed by any Borrower or any Guarantor, and any other presentor future agreement between any Borrower, any Guarantor and/or for the benefit of Bank inconnection with this Agreement, all as amended, restated, or otherwise modified.     **“Material Adverse Change”**is (a) a material impairment in the perfection or priority of Bank’sLien in the Collateral or in the value of such Collateral; (b) a material adverse change in thebusiness, operations, or condition (financial or otherwise) of Borrowers; (c) a material impairmentof the prospect of repayment of any portion of the Obligations or (d) Bank determines, based uponinformation available to it and in its reasonable judgment, that there is a reasonable likelihoodthat QualMark shall fail to comply with Section 6.9 during the next succeeding financial reportingperiod.     **“Net Income”**means, as calculated on a consolidated basis for QualMark and its Subsidiaries,for any period as at any date of determination, the net profit (or loss), after provision fortaxes, of QualMark and its Subsidiaries for such period taken as a single accounting period.     **“Non-Formula Borrowings”**is defined in the defined term “Borrowing Base”.     “**Obligations**” are Borrowers’ obligation to pay when due any debts, principal, interest, BankExpenses and other amounts Borrowers owe Bank now or later, whether under this Agreement, the EXIMLoan Agreement, the Loan Documents, or otherwise, including, without limitation, all obligationsrelating to letters of credit, cash management services, and foreign exchange contracts, if any,and including interest accruing after Insolvency Proceedings begin and debts, liabilities, orobligations of any Borrower assigned to Bank, and the performance of each Borrower’s duties underthe Loan Documents.     **“Operating Documents”**are, for any Person, such Person’s formation documents, as certifiedwith the Secretary of State of such Person’s state of formation on a date that is no earlier than30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws incurrent form, (b) if such Person is a limited liability company, its limited liability companyagreement (or similar agreement), and (c) if such Person is a partnership, its partnershipagreement (or similar agreement), each of the foregoing with all current amendments ormodifications thereto.     “**Overadvance**” is defined in Section 2.2.     **“Payment”**means all checks, wire transfers and other items of payment received by Bank(including proceeds of Accounts and payment of all the Obligations in full) for credit toBorrowers’ outstanding Credit Extensions or, if the balance of the Credit Extensions has beenreduced to zero, for credit to its Deposit Accounts.     “**Perfection Certificate**” is defined in Section 5.1.     “**Permitted Indebtedness**” is:     (a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents(including the EXIM Loan Agreement);     (b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;     (c) Subordinated Debt;
 

 
     (d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;     (e) Indebtedness incurred as a result of endorsing negotiable instruments received in theordinary course of business;     (f) Indebtedness secured by Permitted Liens;     (g) extensions, refinancings, modifications, amendments and restatements of any items ofPermitted Indebtedness (a) through (f) above, provided that the principal amount thereof is notincreased or the terms thereof are not modified to impose more burdensome terms upon any Borroweror its Subsidiary, as the case may be.     “**Permitted Investments**” are:     (a) Investments shown on the Perfection Certificate and existing on the Effective Date;     (b) (i) Cash Equivalents, and (ii) any Investments permitted by any Borrower’s investmentpolicy, as amended from time to time, provided that such investment policy (and any such amendmentthereto) has been approved by Bank;     (c) Investments consisting of the endorsement of negotiable instruments for deposit orcollection or similar transactions in the ordinary course of a Borrower;     (d) Investments consisting of deposit accounts in which Bank has a perfected securityinterest;     (e) Investments accepted in connection with Transfers permitted by Section 7.1;     (f) Investments consisting of (i) travel advances and employee relocation loans and otheremployee loans and advances in the ordinary course of business, and (ii) loans to employees,officers or directors relating to the purchase of equity securities of a Borrower or itsSubsidiaries pursuant to employee stock purchase plans or agreements approved by such Borrower’sBoard of Directors;     (g) Investments (including debt obligations) received in connection with the bankruptcy orreorganization of customers or suppliers and in settlement of delinquent obligations of, and otherdisputes with, customers or suppliers arising in the ordinary course of business;     (h) Investments consisting of notes receivable of, or prepaid royalties and other creditextensions, to customers and suppliers who are not Affiliates, in the ordinary course of business;provided that this paragraph (h) shall not apply to Investments of such Borrower in any Subsidiary;and     (i) joint ventures or strategic alliances in the ordinary course of a Borrower’s businessconsisting of the non-exclusive licensing of technology, the development of technology or theproviding of technical support, provided that any cash investments by such Borrower do not exceed$100,000 in the aggregate in any fiscal year.     “**Permitted Liens**” are:     (a) Liens existing on the Effective Date and shown on the Perfection Certificate or arisingunder this Agreement and the other Loan Documents;     (b) Liens for taxes, fees, assessments or other government charges or levies, either notdelinquent or being contested in good faith and for which a Borrower maintains adequate reserves onits Books, if they have no priority over any of Bank’s Liens;     (c) purchase money Liens (i) on Equipment acquired or held by a Borrower incurred forfinancing the acquisition of the Equipment, or (ii) existing on Equipment when acquired, ifthe Lien is confined to the property and improvements and the proceeds of the Equipment;     (d) statutory Liens securing claims or demands of materialmen, mechanics, carriers,warehousemen, landlords and other Persons imposed without action of such parties, provided, theyhave no priority over any of
 

 
Bank’s Lien, and the aggregate amount of the Indebtedness secured bysuch Liens does not at any time exceed $50,000;     (e) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions,social security and other like obligations incurred in the ordinary course of business, provided,they have no priority over any of Bank’s Liens and the aggregate amount of the Indebtedness securedby such Liens does not at any time exceed $50,000;     (f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured byLiens described in (a) through (c), but any extension, renewal or replacement Lien must belimited to the property encumbered by the existing Lien and the principal amount of theindebtedness may not increase;     (g) leases or subleases of real property granted in the ordinary course of business, andleases, subleases, non-exclusive licenses or sublicenses of property (other than real property orintellectual property) granted in the ordinary course of a Borrower’s business, if theleases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest;     (h) non-exclusive license of intellectual property granted to third parties in the ordinarycourse of business, and licenses of intellectual property that could not result in a legal transferof title of the licensed property that may be exclusive in respects other than territory and thatmay be exclusive as to territory only as to discreet geographical areas outside of the UnitedStates;     (i) Liens arising from judgments, decrees or attachments in circumstances not constituting anEvent of Default under Section 8.4 or 8.7; and     (j) Liens in favor of other financial institutions arising in connection with a Borrower’sdeposit and/or securities accounts held at such institutions, provided that Bank has a perfectedsecurity interest in the amounts held in such deposit and/or securities accounts.     “**Person**” is any individual, sole proprietorship, partnership, limited liability company, jointventure, company, trust, unincorporated organization, association, corporation, institution, publicbenefit corporation, firm, joint stock company, estate, entity or government agency.     “**Prime Rate**” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowestrate.     “**Quick Assets”**is, on any date, Borrowers’ consolidated, unrestricted cash, Cash Equivalents,net billed accounts receivable and investments with maturities of fewer than 12 months determinedaccording to GAAP.     **“Quick Ratio”**is the ratio of Quick Assets to Current Liabilities.     **“Ratification of IP Agreement”**is that certain Ratification of Intellectual Property SecurityAgreement executed and delivered by Borrowers to Bank dated as of the Effective Date.     **“Ratification of Subordination Agreement”**is that certain Ratification of SubordinationAgreement executed and delivered by Partners for Growth, L.P. to Bank dated as of the EffectiveDate.     “**Registered Organization**” is any “registered organization” as defined in the Code with suchadditions to such term as may hereafter be made.     **“Reserves”**means, as of any date of determination, such amounts as Bank may from time to timeestablish and revise in good faith reducing the amount of Advances, Letters of Credit and otherfinancial accommodations which would otherwise be available to Borrowers under the lendingformulas: (a) to reflect events, conditions, contingencies or risks which, as determined by Bankin good faith, do or may affect (i) the Collateral or any other property which is security for theObligations or its value (including without limitation any increase in delinquencies of Accounts),(ii) the assets or business of Borrowers or any guarantor, or (iii) the security interests andother rights of Bank in the Collateral (including the enforceability, perfection and prioritythereof); or (b) to reflect Bank’s good faith belief that any collateral report or financialinformation furnished by or on behalf of any Borrower or any guarantor to Bank is or may have beenincomplete, inaccurate or misleading in any material respect; or (c) in respect
 

 
of any state offacts which Bank determines in good faith constitutes an Event of Default or may, with notice orpassage of time or both, constitute an Event of Default.     “**Responsible Officer**” is any of the Chief Executive Officer, President, Chief FinancialOfficer and Controller of QualMark.     “**Revolving Line**” is an Advance or Advances in an aggregate amount of up to $2,500,000outstanding under this Agreement and the EXIM Loan Agreement at any time.     **“Revolving Line Maturity Date”**is December      , 2008.     “**Securities Account**” is any “securities account” as defined in the Code with such additions tosuch term as may hereafter be made.     “**Settlement Date**” is defined in Section 2.1.3.     “**Subordinated Debt**” is indebtedness incurred by any Borrower subordinated to all of Borrowers’now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similaragreement in form and substance satisfactory to Bank in its good faith business judgment andentered into between Bank and the other creditor), on terms acceptable to Bank, including, withoutlimitation, debt incurred or to be incurred by Borrowers to Partners for Growth, L.P. up to amaximum aggregate amount of $2,000,000.     “**Subsidiary**” means, with respect to any Person, any Person of which more than 50% of thevoting stock or other equity interests is owned or controlled, directly or indirectly, by suchPerson or one or more Affiliates of such Person.     “**Tangible Net Worth**” is, on any date, the consolidated total assets of QualMark and itsSubsidiaries minus (a) any amounts attributable to (i) goodwill, (ii) intangible itemsincluding unamortized debt discount and expense, patents, trade and service marks and names,copyrights and research and development expenses except prepaid expenses, (iii) notes, accountsreceivable and other obligations owing to QualMark from its officers or other Affiliates, and (iv)reserves not already deducted from assets, minus (b) Total Liabilities.     “**Total Liabilities**” is on any day, obligations that should, under GAAP, be classified asliabilities on Borrowers’ consolidated balance sheet, including all Indebtedness, and currentportion of Subordinated Debt permitted by Bank to be paid by Borrowers, but excluding all otherSubordinated Debt.     **“Transaction Report”**is that certain form attached hereto as Exhibit B.     **“Transfer**” is defined in Section 7.1.     **“Unused Revolving Line Facility Fee”**is defined in Section 2.4(d).**[**Signature page follows.**]**
 

 
     **IN WITNESS WHEREOF**, the parties hereto have caused this Agreement to be executed as of theEffective Date.       BORROWERS:         **QUALMARK CORPORATION**, a Colorado corporation         By             Name:             Title:                  **QUALMARK ACG CORPORATION**, a Colorado corporation         By             Name:             Title:                  **QUALMARK LING CORPORATION**, a Colorado corporation         By             Name:             Title:           BANK:         **SILICON VALLEY BANK**         By             Name:             Title:             Effective Date: