**Exhibit 10.2**

 

**Silicon Valley Bank**

 

**Loanand Security Agreement**

 
| **Borrower:** | **Endocardial Solutions, Inc.** |
|---------------|---------------------------------|
| **Address:**  | **1350 Energy Lane, Suite 110** |
|          | **St. Paul, MN  55108**    |
|          |                            |
| **Date:**     | **September 24, 2003**          |

 

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

 

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

 

# ***1.***     LOANS.

 

***1.1  Loans.*** Silicon will make loans to Borrower (the“Loans”) up to the amounts (the “Credit Limit”) shown on the Schedule, providedno Default or Event of Default has occurred and is continuing, and subject todeduction of Reserves for accrued interest and such other Reserves as Silicondeems proper from time to time in its good faith business judgment.

 

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

 

***1.3  Overadvances.*** If at any time or for any reason the total ofall outstanding Loans and all other monetary Obligations exceeds the CreditLimit (an “Overadvance”), Borrower shall immediately pay the amount of theexcess to Silicon, without notice or demand, provided that under ordinarycircumstances, but without any obligation to do so, Silicon will use its bestefforts to contact the Borrower regarding the payment of any suchOveradvance.  Without limitingBorrower’s obligation to repay to Silicon the amount of any Overadvance,Borrower agrees to pay Silicon interest on the outstanding amount of anyOveradvance, on demand, at the Default Rate.

 

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

 

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

 

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***1.6  Letters ofCredit.***   At the request of Borrower, Silicon may, inits good faith business judgment, issue or arrange for the issuance of lettersof credit for the account of Borrower, in each case in form and substancesatisfactory to Silicon in its sole discretion (collectively, “Letters ofCredit”).  The aggregate face amount ofall Letters of Credit from time to time outstanding shall not exceed the amountshown on the Schedule (the “Letter of Credit Sublimit”), and shall be reservedagainst Loans which would otherwise be available hereunder, and in the event atany time there are insufficient Loans available to Borrower for such reserve,Borrower shall deposit and maintain with Silicon cash collateral in an amountat all times equal to such deficiency, which shall be held as Collateral forall purposes of this Agreement. Borrower shall pay all bank charges (includingcharges of Silicon) for the issuance of Letters of Credit, together with suchadditional fee as shall represent the standard charges of Silicon’s letter ofcredit department in connection with the issuance of the Letters ofCredit.  Any payment by Silicon under orin connection with a Letter of Credit shall constitute a Loan hereunder on thedate such payment is made.  Each Letterof Credit shall have an expiry date no later than 364 days from the date ofissuance.  Borrower hereby agrees toindemnify and hold Silicon harmless from any loss, cost, expense, or liability,including payments made by Silicon, expenses, and reasonable attorneys’ feesincurred by Silicon arising out of or in connection with any Letters ofCredit.  Borrower agrees to be bound bythe regulations and interpretations of the issuer of any Letters of Creditguarantied by Silicon and opened for Borrower’s account or by Silicon’s goodfaith interpretations of any Letter of Credit issued by Silicon for Borrower’saccount, and Borrower understands and agrees that Silicon shall not be liablefor any error, negligence, or mistake, whether of omission or commission, infollowing Borrower’s instructions or those contained in the Letters of Creditor any modifications, amendments, or supplements thereto, other than forSilicon’s gross negligence or willful misconduct.  Borrower understands that Letters of Credit may require Siliconto indemnify the issuing bank for certain costs or liabilities arising out ofclaims by Borrower against such issuing bank. Borrower hereby agrees to indemnify and hold Silicon harmless withrespect to any loss, cost, expense, or liability incurred by Silicon under anyLetter of Credit issued for the account of Borrower, as a result of Silicon’sindemnification of any such issuing bank, unless such loss was caused bySilicon’s gross negligence or willful misconduct.  The provisions of this Loan Agreement, as it pertains to Lettersof Credit, and any other Loan Documents relating to Letters of Credit arecumulative.

 

# ***2.  SECURITY INTEREST.***To secure thepayment and performance of all of the Obligations when due, Borrower herebygrants to Silicon a security interest in all of the following (collectively, the“Collateral”):  all right, title andinterest of Borrower in and to all of the following, whether now owned orhereafter arising or acquired and wherever located: all Accounts; allInventory; all Equipment; all Deposit Accounts; all General Intangibles (includingwithout limitation all Intellectual Property); all Investment Property; allOther Property; and any and all claims, rights and interests in any of theabove, and all guaranties and security for any of the above, and allsubstitutions and replacements for, additions, accessions, attachments,accessories, and improvements to, and proceeds (including proceeds of any insurance policies, proceeds of proceeds andclaims against third parties) of, any and all of the above, and all Borrower’sbooks relating to any and all of the above. Silicon agrees to enter into subordination agreements with respect toequipment financing transactions of the Borrower entered into on or after thedate hereof, with respect to equipment being purchased or acquired substantiallyconcurrently with such financing transactions, provided that (i) the form ofsaid agreement is acceptable to Silicon in its good faith business judgment,and (ii) the liens to which Silicon’s security interest is to be subordinatedare confined solely to the equipment so financed and the proceeds thereof andotherwise constitute Permitted Liens.

 

# ***3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OFBORROWER.***

 

In order to induceSilicon to enter into this Agreement and to make Loans, Borrower represents andwarrants to Silicon as follows, and Borrower covenants that the followingrepresentations will continue to be true, and that Borrower will at all timescomply with all of the following covenants, throughout the term of thisAgreement and until all Obligations have been paid and performed in full (otherthan inchoate indemnity obligations of Borrower hereunder that survive anytermination of this Agreement):

 

***3.1  CorporateExistence and Authority.*** Borrower is and will continue to be, duly organized, validly existingand in good standing under the laws of the jurisdiction of itsincorporation.  Borrower is and willcontinue to be qualified and licensed to do business in all jurisdictions inwhich any failure to do so would result in a Material Adverse Change.  The execution, delivery and performance byBorrower of this Agreement, and all other documents contemplated hereby (i)have been duly and validly authorized, (ii) are enforceable against Borrower inaccordance with their terms (except as enforcement may be limited by equitableprinciples and by bankruptcy, insolvency, reorganization, moratorium or similarlaws relating to creditors’ rights generally), and (iii) do not violateBorrower’s articles or certificate of incorporation, or Borrower’s by-laws, orany law or any  material agreement orinstrument which is binding upon Borrower or its property, and (iv) do notconstitute grounds for acceleration of any material indebtedness or obligationunder any agreement or instrument which is binding upon Borrower or itsproperty.

 

***3.2  Name; TradeNames and Styles.*** The name of Borrower set forth in the heading to this Agreement is itscorrect name.  Listed in theRepresentations are all prior names of Borrower and all of Borrower’s presentand prior trade names.  Borrower shallgive Silicon 30 days’ prior written notice before changing its name or doingbusiness under any other name.  Borrower

 

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

 

***3.3  Place ofBusiness; Location of Collateral.*** The address set forth in the heading to thisAgreement is Borrower’s chief executive office.  In addition, Borrower has places of business and Collateral islocated only at the locations set forth in the Representations.  Borrower will give Silicon at least 30 daysprior written notice before opening any additional place of business, changingits chief executive office, or moving any of the Collateral to a location otherthan Borrower’s Address or one of the locations set forth in theRepresentations, except that Borrower may maintain sales offices in theordinary course of business at which not more than a total of $10,000 fairmarket value of Equipment is located.

 

***3.4  Title toCollateral; Perfection; Permitted Liens.***

 

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

 

(b)   Borrower hasset forth in the Representations all of Borrower’s Deposit Accounts, andBorrower will give Silicon five Business Days advance written notice beforeestablishing any new Deposit Accounts and will cause the institution where anysuch new Deposit Account is maintained to execute and deliver to Silicon acontrol agreement in form sufficient to perfect Silicon’s security interest inthe Deposit Account and otherwise satisfactory to Silicon in its good faithbusiness judgment.  Nothing hereinlimits any requirements which may be set forth in the Schedule as to whereDeposit Accounts will be maintained.

 

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

 

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

 

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

 

***3.6  Books andRecords.*** Borrower has maintained and will maintain at Borrower’s Address completeand accurate books and records, comprising an accounting system in accordancewith GAAP.

 

***3.7  FinancialCondition, Statements and Reports.***  All financial statements now or in thefuture delivered to Silicon have been, and will be, prepared in conformity withGAAP and now and in the future will fairly present the results of operationsand financial condition of Borrower, in accordance with GAAP, at the times andfor the periods therein stated, provided that, interim financial statements maybe subject to year end adjustments, although the lack of any such adjustmentsin any such interim financial statements shall not, in the reasonable judgmentof the certifying officer at the time, render the interim financial statementsmisleading or reflect anything other than a fair presentation of such resultsof operations and the financial condition of Borrower.  Between the last date covered by any suchstatement provided to Silicon and the date hereof, there has been no MaterialAdverse Change.

 

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

 

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

 

***3.9  Compliance withLaw.***  Borrower has, tothe best of its knowledge, complied, and will comply, in all material respects,with all provisions of all foreign, federal, state and local laws andregulations applicable to Borrower, including, but not limited to, thoserelating to Borrower’s ownership of real or personal property, the conduct andlicensing of Borrower’s business, and all environmental matters.

 

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

 

***3.11  Use ofProceeds.*** All proceeds of all Loans shall be used solely for lawful businesspurposes.  Borrower is not purchasing orcarrying any “margin stock” (as defined in Regulation U of the Board ofGovernors of the Federal Reserve System) and no part of the proceeds of anyLoan will be used to purchase or carry any “margin stock” or to extend creditto others for the purpose of purchasing or carrying any “margin stock.”

 

# ***4.  ACCOUNTS.***

 

***4.1  RepresentationsRelating to Accounts.***** **Borrowerrepresents and warrants to Silicon as follows: Each Account with respect to which Loans are requested by Borrowershall, on the date each Loan is requested and made, (i) represent an undisputedbona fide existing unconditional obligation of the Account Debtor created bythe sale, delivery, and per Borrower’s contracts, the deemed acceptance ofgoods (which Borrower sends FOB point of shipping) or the rendition ofservices, or the non-exclusive licensing of Intellectual Property, in theordinary course of Borrower’s business, and (ii) meet the Minimum EligibilityRequirements set forth in  Section 8below.

 

***4.2  RepresentationsRelating to Documents and Legal Compliance. ***Borrower represents and warrants toSilicon as follows:  To the best ofBorrower’s knowledge, all statements made and all unpaid balances appearing inall invoices, instruments and other documents evidencing the Accounts are andshall be true and correct and all such invoices, instruments and otherdocuments and all of Borrower’s books and records are and shall be genuine andin all respects what they purport to be. To the best of Borrower’s knowledge, all sales and other transactionsunderlying or giving rise to each Account shall comply in all material respectswith all applicable laws and governmental rules and regulations.  To the best of Borrower’s knowledge, allsignatures and endorsements on all documents, instruments, and agreementsrelating to all Accounts are and shall be genuine, and all such documents,instruments and agreements are and shall be legally enforceable in accordancewith their terms.

 

***4.3  Schedules andDocuments relating to Accounts.***** **Borrowershall deliver to Silicon transaction reports and schedules of collections, asprovided in the Schedule, on Silicon’s standard forms; provided, however, thatBorrower’s failure to execute and deliver the same shall not affect or limitSilicon’s security interest and other rights in all of Borrower’s Accounts, norshall Silicon’s failure to advance or lend against a specific Account affect orlimit Silicon’s security interest and other rights therein. If requested bySilicon, Borrower shall furnish Silicon with copies (or, at Silicon’s request,originals) of all contracts, orders, invoices, and other similar documents, andall shipping instructions, delivery receipts, bills of lading, and otherevidence of delivery, for any goods the sale or disposition of which gave riseto such Accounts, and Borrower warrants the genuineness of all of the foregoing(to the best of its knowledge). Borrower shall also furnish to Silicon an aged accounts receivable trialbalance as provided in the Schedule.  Inaddition, Borrower shall deliver to Silicon, on its reasonable request, theoriginals of all instruments, chattel paper, security agreements, guaranteesand other documents and property evidencing or securing any Accounts, in thesame form as received, with all necessary indorsements, and copies of allcredit memos.

 

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

 

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

 

***4.5.  Remittance ofProceeds.***** **All proceedsarising from the disposition of any Collateral shall be delivered, in kind, byBorrower to Silicon in the original form in which received by Borrower notlater than the following Business Day after receipt by Borrower, to be appliedto the Obligations in such order as Silicon shall determine; provided that, ifno Default or Event of Default has occurred and is continuing, Borrower shallnot be obligated to remit to Silicon the proceeds of the sale of worn out orobsolete Equipment disposed of by Borrower in good faith in an arm’s lengthtransaction for an aggregate purchase price of $25,000 or less (for all suchtransactions in any fiscal year). Borrower agrees that it will not commingle proceeds of Collateral withany of Borrower’s other funds or property, but will hold such proceeds separateand apart from such other funds and property and in an express trust forSilicon.  Nothing in this Section limitsthe restrictions on disposition of Collateral set forth elsewhere in thisAgreement.

 

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

 

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

 

***4.8  Verification.***  Silicon may, from time to time, verifydirectly with the respective Account Debtors the validity, amount and other mattersrelating to the Accounts, by means of mail, telephone or otherwise, either inthe name of Borrower or Silicon or such other name as Silicon may choose.

 

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

 

# ***5.  ADDITIONAL DUTIES OF BORROWER.***

 

***5.1  Financial andOther Covenants.*** Borrower shall at all times comply with the financial and othercovenants set forth in the Schedule.

 

***5.2  Insurance.***  Borrower shall, at all times insure all ofthe tangible personal property Collateral and carry such other businessinsurance, with insurers reasonably acceptable to Silicon, in such form andamounts as Silicon may reasonably require and that are customary and inaccordance with standard practices for Borrower’s industry and locations, andBorrower shall provide evidence of such insurance to Silicon.  All such property insurance policies shallname Silicon as an additional loss payee, and shall contain a lenders losspayee endorsement in form reasonably acceptable to Silicon.  Upon receipt of the proceeds of any suchinsurance, Silicon shall promptly apply such proceeds in reduction of the Obligationsin accordance with Silicon’s standard procedures, except that, provided noDefault or Event of Default has occurred and is continuing, Silicon shallrelease to Borrower insurance proceeds with respect to Equipment totaling lessthan $100,000, which shall be utilized by Borrower for the replacement of theEquipment assets with respect to which the insurance proceeds were paid.  Silicon may require reasonable assurancethat the insurance proceeds so released will be so used.  If Borrower fails to provide or pay for anyinsurance as described in this Section 5.2 or as may be otherwise requiredunder the Loan Documents, Silicon may, but is not obligated to, obtain the sameat Borrower’s expense.  Borrower shallpromptly deliver to Silicon copies of all material reports made to insurancecompanies.  Silicon hereby acknowledgesthat existing insurance policies are acceptable and comport with Section 5.2.

 

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

 

***5.4  Access toCollateral, Books and Records.*** At reasonable times, and on one Business Day’s prior notice, Silicon, orits agents, shall have the right to inspect the Collateral, and the right toaudit and copy Borrower’s books and records. The parties contemplate that suchaudits will be performed no more frequently than quarterly, but nothing hereinrestricts Silicon’s right to conduct such audits more frequently if (i) Siliconbelieves that it is advisable to do so in Silicon’s good faith businessjudgment, or (ii) Silicon believes in good faith that an event of default or anevent which, with notice or passage of time or both would constitute an eventof default, has occurred and is continuing. Silicon shall take reasonable stepsto keep confidential all information obtained in any such inspection or audit,but Silicon shall have the right to disclose any such information to itsauditors, regulatory agencies, and attorneys, and pursuant to any subpoena orother legal process.  The foregoinginspections and audits shall be at Borrower’s expense and the charge thereforshall be $750 per person per day (or such higher amount as shall representSilicon’s then current standard charge for the same), plus reasonableout-of-pocket expenses. In the event Borrower and Silicon schedule an auditmore than 10 days in advance, and Borrower seeks to reschedule the audit withless than five days’ written notice to Silicon, then (without limiting any ofSilicon’s rights or remedies), Borrower shall pay Silicon a cancellation fee of$1,000 plus any out-of-pocket expenses incurred by Silicon, to compensateSilicon for the anticipated costs and expenses of the cancellation.

 

***5.5  NegativeCovenants.*** Except as may be permitted in the Schedule, Borrower shall not, withoutSilicon’s prior written consent (which shall be a matter of its good faithbusiness judgment), do any of the following: (i) merge or consolidate with another corporation or entity; (ii)acquire any assets, except in the ordinary course of business; (iii) enter intoany other transaction outside the ordinary course of business; (iv) sell ortransfer any Collateral, except for the sale of finished Inventory in theordinary course of Borrower’s business, and except for the sale of obsolete orunneeded Equipment in the ordinary course of business and non-exclusivelicenses and similar non-exclusive arrangements for the use of IntellectualProperty; (v) store any Inventory or other Collateral with any warehouseman orother third party which has not executed and delivered to Silicon a baileeagreement or other similar agreement acceptable to Silicon in its good faithbusiness judgment with respect to finished goods inventory, except when anysuch Collateral or Inventory is in transit or located at a subcontractor’sfacility; (vi) sell any Inventory on a sale-or-return, guaranteed sale,consignment, or other contingent basis other than for such customary andordinary course return transactions arising from Borrower’s product warranties;(vii) make any loans of any money or other assets, other than (a) traveladvances to Borrower’s employees in the ordinary course of business consistentwith past business practices (including without limitation, for travelentertainment and relocation expenses) and in aggregate amounts consistent withpast ordinary course business practices of Borrower; (b) extension of tradecredit in the ordinary course of business to non-affiliated entities; (c) otherloans and advances to employees, officers and directors, in the ordinary courseof business in an aggregate principal amount not to exceed $25,000, at any timeoutstanding for all such loans to all employees, officers and directors,provided, no new such loans and advances shall be made while any Default orEvent of Default is then occurring; (viii) incur any debts, outside theordinary course of business, which results in a Material Adverse Change; (ix)guarantee or otherwise become liable with respect to the obligations of anotherparty or entity; (x) pay or declare any dividends on Borrower’s stock (exceptfor dividends payable solely in stock of Borrower); (xi) redeem, retire,purchase or otherwise acquire, directly or indirectly, any of Borrower’s stock,except that Borrower may repurchase its stock in accordance with Borrower’semployee stock option plan, provided that the aggregate amount of considerationpaid by Borrower for such repurchases shall not exceed $100,000 in theaggregate in any fiscal year, and before and after giving effect to any suchrepurchase no Default or Event of Default has occurred and is continuing; (xii)make any change in Borrower’s capital structure which would result in aMaterial Adverse Change; or (xiii) engage, directly or indirectly, in anybusiness other than the businesses currently engaged in by Borrower or reasonablyrelated thereto; or (xiv) dissolve or elect to dissolve.  Transactions permitted by the foregoingprovisions of this Section are only permitted if no Default or Event of Defaultwould occur as a result of such transaction.

 

***5.6  LitigationCooperation.*** Should any third-party suit or proceeding be instituted by or againstSilicon with respect to any Collateral or relating to Borrower, Borrower shall,upon reasonable notice, without expense to Silicon, make available Borrower andits officers, employees and agents and Borrower’s books and records, to theextent that Silicon may deem them reasonably necessary in order to prosecute ordefend any such suit or proceeding.

 

***5.7  FurtherAssurances.*** Borrower agrees, at its expense, on request by Silicon, to execute alldocuments and take all actions, as Silicon, may, in its good faith businessjudgment, deem reasonably necessary or useful in order to perfect and maintainSilicon’s perfected first-priority security interest in the Collateral (subjectto Permitted Liens), and in order to fully consummate the transactionscontemplated by this Agreement.

 

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# ***6.   TERM.***

 

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

 

***6.2  EarlyTermination.*** This Agreement may be terminated prior to the Maturity Date asfollows:  (i) by Borrower, effectivethree Business Days after written notice of termination is given to Silicon; or(ii) by Silicon at any time after the occurrence and during the continuance ofan Event of Default, without notice, effective immediately.  If this Agreement is terminated by Borroweror by Silicon under this Section 6.2, Borrower shall pay to Silicon atermination fee in an amount equal to $40,000 plus one percent (1.0%) of theaggregate outstanding principal balance of the Term Loans, provided that notermination fee shall be charged if the credit facility hereunder is replacedwith a new facility from another division of Silicon Valley Bank.  The termination fee shall be due and payableon the effective date of termination and thereafter shall bear interest at arate equal to the highest rate applicable to any of the Obligations.

 

***6.3  Payment ofObligations.*** On the Maturity Date or on any earlier effective date of termination,Borrower shall pay and perform in full all Obligations (other than for anyinchoate indemnity obligations of Borrower hereunder that survive terminationof this Agreement), whether evidenced by installment notes or otherwise, andwhether or not all or any part of such Obligations are otherwise then due andpayable.  Without limiting thegenerality of the foregoing, if on the Maturity Date, or on any earlier effectivedate of termination, there are any outstanding Letters of Credit issued bySilicon or issued by another institution based upon an application, guarantee,indemnity or similar agreement on the part of Silicon, then on such dateBorrower shall provide to Silicon cash collateral in an amount equal to 105% ofthe face amount of all such Letters of Credit plus all interest, fees and costdue or to become due in connection therewith (as estimated by Silicon in itsgood faith business judgment, taking into account the excess of cash collateralover 100% of the face amount of such Letters of Credit), to secure all of theObligations relating to said Letters of Credit, pursuant to Silicon’s thenstandard form cash pledge agreement. Notwithstanding any termination of this Agreement, all of Silicon’ssecurity interests in all of the Collateral and all of the terms and provisionsof this Agreement shall continue in full force and effect until all Obligationshave been paid and performed in full; provided that Silicon may, in its solediscretion, refuse to make any further Loans after termination.  No termination shall in any way affect orimpair any right or remedy of Silicon, nor shall any such termination relieveBorrower of any Obligation to Silicon, until all of the Obligations (other thanfor any inchoate indemnity obligations of Borrower hereunder that survivetermination of this Agreement) have been paid and performed in full.  Upon payment and performance in full of allthe Obligations and termination of this Agreement, Silicon shall promptlyterminate its financing statements with respect to the Borrower and deliver toBorrower such other documents as may be required to fully terminate Silicon’ssecurity interests and Silicon shall further reassign and redeliver (or causeto be reassigned or redelivered) to Borrower, or to such person as Borrowershall designate, against receipt, such of the Borrower’s assets delivered toSilicon as shall have not been sold or otherwise applied by Silicon pursuant tothe terms of the Loan Documents that are still then held by Silicon.

 

# ***7.  EVENTS OF DEFAULT AND REMEDIES.***

 

***7.1  Events ofDefault.*** The occurrence of any of the following events shall constitute an “Eventof Default” under this Agreement, and Borrower shall give Silicon immediatewritten notice thereof: (a) Any warranty, representation, statement, report orcertificate made or delivered to Silicon by Borrower or any of Borrower’sofficers, employees or agents, now or in the future, shall be untrue ormisleading in a material respect when made or deemed to be made; or (b)Borrower shall fail to pay when due any Loan or any interest thereon or anyother monetary Obligation; or (c) the total Loans and other Obligationsoutstanding at any time shall exceed the Credit Limit provided, however, if anOveradvance results directly from a change by Silicon of either the amount ofReserves or of the “Minimum Eligibility Requirements”, then if Borrower failsto pay such Overadvance within three Business Days of the occurrence of theOveradvance; or (d) Borrower shall fail to comply with any of the financialcovenants set forth in the Schedule, or shall fail to perform any othernon-monetary Obligation which by its nature cannot be cured, or shall fail topermit Silicon to conduct an inspection or audit as specified in Section 5.4hereof; or (e) Borrower shall fail to perform any other non-monetaryObligation, which failure is not cured within five Business Days after the datedue; or (f) any levy, assessment, attachment, seizure, lien or encumbrance(other than a Permitted Lien) is made on all or any part of the Collateralwhich is not cured within 10 days after the occurrence of the same; or (g) anydefault or event of default occurs under any obligation in excess of $100,000,secured by a Permitted Lien, which is not cured within any applicable cureperiod or waived in writing by the holder of the Permitted Lien; or (h)Borrower breaches any material contract or obligation, which has resulted ormay reasonably be expected to result in a Material Adverse Change; or (i)Dissolution, termination of existence, insolvency or business failure ofBorrower; or appointment of a receiver, trustee or custodian, for all or anypart of the property of, assignment for the benefit of creditors by, or thecommencement of any proceeding by Borrower under any reorganization,bankruptcy, insolvency, arrangement, readjustment of debt, dissolution orliquidation law or statute of any jurisdiction, now or in the future in effect,which is not dismissed within 45 days after the date commenced; or (j) thecommencement of any proceeding against Borrower or any guarantor of any of theObligations under any reorganization, bankruptcy, insolvency, arrangement,readjustment of debt, dissolution or liquidation law or statute of anyjurisdiction, now or in the future in effect, which is not cured by thedismissal thereof within 45 days after the date

 

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commenced; or (k) revocation or termination of, or limitation or denialof liability upon, any guaranty of the Obligations or any attempt to do any ofthe foregoing, or commencement of proceedings by any guarantor of any of theObligations under any bankruptcy or insolvency law; or (l) revocation ortermination of, or limitation or denial of liability upon, any pledge of anycertificate of deposit, securities or other property or asset of any kindpledged by any third party to secure any or all of the Obligations, or anyattempt to do any of the foregoing, or commencement of proceedings by oragainst any such third party under any bankruptcy or insolvency law; or (m)Borrower makes any payment on account of any indebtedness or obligation whichhas been subordinated to the Obligations other than as permitted in the applicablesubordination agreement, or if any Person who has subordinated suchindebtedness or obligations terminates or in any way limits his subordinationagreement; or (n) if a Person or group of affiliated Persons shall acquire,beneficially or of record, more than 30% of the outstanding shares of stock ofBorrower, in one or more transactions, and such Person or group of affiliatedPersons has “control” of the Borrower (which shall mean the effective abilityto elect a majority of the Board of Directors of Borrower) (such acquisitionand control referred to herein as a “Change in Control”), then Borrower shallnotify Silicon of the Change in Control within five Business Days afterBorrower has actual knowledge of the Change in Control, and if Silicon shall givewritten notice to Borrower that, in the exercise of its good faith businessjudgment it does not consent to the Change in Control then the same shallconstitute an Event of Default; or (o) Borrower shall generally not pay itsdebts as they become due, or Borrower shall conceal, remove or transfer anypart of its property, with intent to hinder, delay or defraud its creditors, ormake or suffer any transfer of any of its property which may be fraudulentunder any bankruptcy, fraudulent conveyance or similar law; or (p) a MaterialAdverse Change shall occur.  Silicon maycease making any Loans hereunder during any of the above cure periods, andthereafter if an Event of Default has occurred and is continuing.

 

***7.2  Remedies.***  Upon the occurrence and during thecontinuance of any Event of Default, and at any time thereafter, Silicon, atits option, and without notice or demand of any kind (all of which are herebyexpressly waived by Borrower, to the extent permitted by law), may do any oneor more of the following: (a) Cease making Loans or otherwise extending creditto Borrower under this Agreement or any other Loan Document; (b) Accelerate anddeclare all or any part of the Obligations to be immediately due, payable, andperformable, notwithstanding any deferred or installment payments allowed byany instrument evidencing or relating to any Obligation; (c) Take possession ofany or all of the Collateral wherever it may be found, and for that purposeBorrower hereby authorizes Silicon without judicial process (subject to therights of any landlord regarding any of Borrower’s leased premises) to enteronto any of Borrower’s premises without interference to search for, takepossession of, keep, store, or remove any of the Collateral, and remain on thepremises or cause a custodian to remain on the premises in exclusive controlthereof, without charge for so long as Silicon deems it necessary, in its goodfaith business judgment, in order to complete the enforcement of its rightsunder this Agreement or any other agreement; provided, however, that shouldSilicon seek to take possession of any of the Collateral by court process,Borrower hereby irrevocably waives: (i) any bond and any surety or securityrelating thereto required by any statute, court rule or otherwise as anincident to such possession; (ii) any demand for possession prior to thecommencement of any suit or action to recover possession thereof; and (iii) anyrequirement that Silicon retain possession of, and not dispose of, any suchCollateral until after trial or final judgment; (d) Require Borrower toassemble any or all of the Collateral and make it available to Silicon atplaces designated by Silicon which are reasonably convenient to Silicon andBorrower, and to remove the Collateral to such locations as Silicon may deemadvisable; (e) Complete the processing, manufacturing or repair of anyCollateral prior to a disposition thereof and, for such purpose and for thepurpose of removal, Silicon shall have the right to use Borrower’s premises,vehicles, hoists, lifts, cranes, and other Equipment and all other propertywithout charge; (f) Sell, lease or otherwise dispose of any of the Collateral,in its condition at the time Silicon obtains possession of it or after furthermanufacturing, processing or repair, at one or more public and/or privatesales, in lots or in bulk, for cash, exchange or other property, or on credit,and to adjourn any such sale from time to time without notice other than oralannouncement at the time scheduled for sale. Silicon shall have the right to conduct such disposition on Borrower’spremises (subject to the rights of any landlord regarding any of Borrower’sleased premises) without charge, for such time or times as Silicon deemsreasonable, or on Silicon’s premises, or elsewhere and the Collateral need notbe located at the place of disposition. Silicon may directly or through any affiliated company purchase or leaseany Collateral at any such public disposition, and if permissible underapplicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve Borrowerof any liability Borrower may have if any Collateral is defective as to titleor physical condition or otherwise at the time of sale; (g) Demand payment of,and collect any Accounts and General Intangibles comprising Collateral and, inconnection therewith, Borrower irrevocably authorizes Silicon to endorse orsign Borrower’s name on all collections, receipts, instruments and otherdocuments, to take possession of and open mail addressed to Borrower and removetherefrom payments made with respect to any item of the Collateral or proceedsthereof, and, in Silicon’s good faith business judgment, to grant extensions oftime to pay, compromise claims and settle Accounts and the like for less thanface value; (h) Offset against any sums in any of Borrower’s general, specialor other Deposit Accounts with Silicon against any or all of the Obligations;and (i) Demand and receive possession of any of Borrower’s federal and stateincome tax returns and the books and records utilized in the preparationthereof or referring thereto.  Allreasonable attorneys’ fees, expenses, costs, liabilities and obligationsincurred by Silicon with respect to the foregoing shall be added to and becomepart of the Obligations, shall be due on demand, and shall bear interest at arate equal to the highest interest rate applicable to any of theObligations.  Without limiting any ofSilicon’s rights and remedies,

 

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

 

***7.3  Standards forDetermining Commercial Reasonableness.***  Borrower and Silicon agree that a sale orother disposition (collectively, “sale”) of any Collateral which complies withthe following standards will conclusively be deemed to be commerciallyreasonable:  (i) Notice of the sale isgiven to Borrower at least ten days prior to the sale, and, in the case of apublic sale, notice of the sale is published at least five days before the salein a newspaper of general circulation in the county where the sale is to beconducted; (ii) Notice of the sale describes the collateral in general,non-specific terms; (iii) The sale is conducted at a place designated bySilicon, with or without the Collateral being present; (iv) The sale commencesat any time between 8:00 a.m. and 6:00 p.m. (in the time zone where collateralis located);  (v) Payment of thepurchase price in cash or by cashier’s check or wire transfer is required; (vi)With respect to any sale of any of the Collateral, Silicon may (but is notobligated to) direct any prospective purchaser to ascertain directly fromBorrower any and all information concerning the same.  Silicon shall be free to employ other methods of noticing andselling the Collateral, in its discretion, if they are commercially reasonable.

 

***7.4  Power ofAttorney.*** Upon the occurrence and during the continuance of any Event of Default,without limiting Silicon’s other rights and remedies, Borrower grants toSilicon an irrevocable power of attorney coupled with an interest, authorizingand permitting Silicon (acting through any of its employees, attorneys oragents) at any time, at its option, but without obligation, with or withoutnotice to Borrower, and at Borrower’s expense, to do any or all of thefollowing, in Borrower’s name or otherwise, but Silicon agrees that if it exercisesany right hereunder, it will do so in good faith and in a commerciallyreasonable manner:  (a) Execute onbehalf of Borrower any documents that Silicon may, in its good faith businessjudgment, deem advisable in order to perfect and maintain Silicon’s securityinterest in the Collateral, or in order to exercise a right of Borrower orSilicon, or in order to fully consummate all the transactions contemplatedunder this Agreement, and all other Loan Documents; (b) Execute on behalf ofBorrower, any invoices relating to any Account, any draft against any AccountDebtor and any notice to any Account Debtor, any proof of claim in bankruptcy,any Notice of Lien, claim of mechanic’s, materialman’s or other lien, orassignment or satisfaction of mechanic’s, materialman’s or other lien; (c) Takecontrol in any manner of any cash or non-cash items of payment or proceeds ofCollateral; endorse the name of Borrower upon any instruments, or documents,evidence of payment or Collateral that may come into Silicon’s possession; (d)Endorse all checks and other forms of remittances received by Silicon; (e) Pay,contest or settle any lien, charge, encumbrance, security interest and adverseclaim in or to any of the Collateral, or any judgment based thereon, or otherwisetake any action to terminate or discharge the same; (f) Grant extensions oftime to pay, compromise claims and settle Accounts and General Intangibles forless than face value and execute all releases and other documents in connectiontherewith; (g) Pay any sums required on account of Borrower’s taxes or tosecure the release of any liens therefor, or both; (h) Settle and adjust, andgive releases of, any insurance claim that relates to any of the Collateral andobtain payment therefor; (i) Instruct any third party having custody or controlof any books or records belonging to, or relating to, Borrower to give Siliconthe same rights of access and other rights with respect thereto as Silicon hasunder this Agreement; and (j) Take any action or pay any sum required ofBorrower pursuant to this Agreement and any other Loan Documents.  Any and all reasonable sums paid and any andall reasonable costs, expenses, liabilities, obligations and attorneys’ feesincurred by Silicon with respect to the foregoing shall be added to and becomepart of the Obligations, shall be payable on demand, and shall bear interest ata rate equal to the highest interest rate applicable to any of theObligations.  In no event shallSilicon’s rights under the foregoing power of attorney or any of Silicon’sother rights under this Agreement be deemed to indicate that Silicon is incontrol of the business, management or properties of Borrower.  The foregoing power of attorney shall expireupon payment in full of the Obligations (other than for inchoate indemnityobligations which survive the termination of this Agreement) and thetermination of this Agreement.

 

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

 

***7.6  RemediesCumulative.*** In addition to the rights and remedies set forth in this Agreement,Silicon shall have all the other rights and remedies accorded a secured partyunder the California Uniform Commercial Code and under all other applicablelaws, and under any other instrument or agreement now or in the future enteredinto between Silicon and Borrower, and all of such rights and remedies arecumulative and none is exclusive. Exercise or partial exercise by Silicon of one or more of its rights orremedies shall not be deemed an election, nor bar Silicon from subsequentexercise or partial exercise of

 

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any other rights or remedies. The failure or delay of Silicon to exercise any rights or remedies shallnot operate as a waiver thereof, but all rights and remedies shall continue infull force and effect until all of the Obligations have been fully paid andperformed.

 

# ***8.***     DEFINITIONS. As used in this Agreement, the following terms have the followingmeanings:

 

“Account Debtor”means the obligor on an Account.

 

“Accounts” meansall present and future “accounts” as defined in the California UniformCommercial Code in effect on the date hereof with such additions to such termas may hereafter be made, and includes without limitation all accountsreceivable and other sums owing to Borrower.

 

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

 

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

 

“Code” means theUniform Commercial Code as adopted and in effect in the State ofCalifornia  from time to time.

 

“Collateral” hasthe meaning set forth in Section 2 above.

 

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

 

“Default” meansany event which with notice or passage of time or both, would constitute anEvent of Default.

 

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

 

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

 

“Eligible Inventory”[Not Applicable]

 

“Eligible Accounts”means Accounts and General Intangibles arising in the ordinary course ofBorrower’s business from the sale of goods or the rendition of services, or thenon-exclusive licensing of Intellectual Property, which Silicon, in its goodfaith business judgment, shall deem eligible for borrowing.  Without limiting the fact that thedetermination of which Accounts are eligible for borrowing is a matter ofSilicon’s good faith business judgment, the following (the “MinimumEligibility Requirements”) are the minimum requirements for a Account to bean Eligible Account:  (i) the Accountmust not be outstanding for more than 90 days from its invoice date (the “EligibilityPeriod”), (ii) the Account must not represent progress billings, or be dueunder a fulfillment or requirements contract with the Account Debtor, (iii) theAccount must not be subject to any contingencies (including Accounts arisingfrom sales on consignment, guaranteed sale or other terms pursuant to whichpayment by the Account Debtor may be conditional) other than for potentialcustomary and ordinary course returns arising from Borrower’s productwarranties, (iv) the Account must not be owing from an Account Debtor with whomBorrower has any dispute (whether or not relating to the particular Account),(v) the Account must not be owing from an Affiliate of Borrower, (vi) theAccount must not be owing from an Account Debtor which is subject to anyinsolvency or bankruptcy proceeding, or whose financial condition is notacceptable to Silicon, or which, fails or goes out of a material portion of itsbusiness, (vii) the Account must not be owing from the United States or anydepartment, agency or instrumentality thereof (unless there has beencompliance, to Silicon’s satisfaction, with the United States Assignment ofClaims Act), (viii) the Account must not be owing from an Account Debtorlocated outside the United States or Canada (unless pre-approved by Silicon inits discretion in writing, or backed by a letter of credit satisfactory toSilicon, or FCIA insured satisfactory to Silicon),  (ix) the Account must not be owing from an Account Debtor to whomBorrower is or may be liable for goods purchased from such Account Debtor orotherwise (but, in such case, the Account will be deemed not eligible only tothe extent of any amounts owed by Borrower to such Account Debtor). Accountsowing from one Account Debtor will not be deemed Eligible Accounts to theextent they exceed 25% of the total Accounts outstanding.  In addition, if more than 50% of theAccounts owing from an Account Debtor are outstanding for a period longer thantheir Eligibility Period (without regard to unapplied credits) or are otherwisenot eligible Accounts, then all Accounts owing from that Account Debtor will bedeemed ineligible for borrowing. Silicon may, from time to time, in its good faith business judgment,revise the Minimum Eligibility Requirements, upon written notice to Borrower.

 

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

 

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

 

“GAAP” meansgenerally accepted accounting principles consistently applied.

 

“General Intangibles”means all present and future “general intangibles” as defined in the CaliforniaUniform Commercial Code in effect on the date hereof with such additions tosuch term as may hereafter be made, and includes without limitation all IntellectualProperty, payment intangibles, royalties, contract rights, goodwill, franchiseagreements, purchase orders, customer lists, route lists, telephone numbers,domain names, claims, income tax refunds, security and other deposits, optionsto purchase or sell real or personal property, rights in all litigationpresently 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 paymentof any kind.

 

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

 

“including” meansincluding (but not limited to).

 

 “Intellectual Property” means allpresent and future (a) copyrights, copyright rights, copyright applications,copyright registrations and like protections in each work of authorship andderivative work thereof, whether published or unpublished, (b) trade secretrights, including all rights to unpatented inventions and know-how, andconfidential information; (c) mask work or similar rights available for theprotection of semiconductor chips; (d) patents, patent applications and likeprotections including without limitation improvements, divisions,continuations, renewals, reissues, extensions and continuations-in-part of thesame; (e) trademarks, servicemarks, trade styles, and trade names, whether ornot any of the foregoing are registered, and all applications to register andregistrations of the same and like protections, and the entire goodwill of thebusiness of Borrower connected with and symbolized by any such trademarks; (f)computer software and computer software products; (g) designs and design rights;(h) technology; (i) all claims for damages by way of past, present and futureinfringement of any of the rights included above; (j) all licenses or otherrights to use any property or rights of a type described above.

 

“Inventory” meansall present and future “inventory” as defined in the California UniformCommercial Code in effect on the date hereof with such additions to such termas may hereafter be made, and includes without limitation all merchandise, rawmaterials, parts, supplies, packing and shipping materials, work in process andfinished products, including without limitation such inventory as istemporarily out of Borrower’s custody or possession or in transit and includingany returned goods and any documents of title representing any of the above.

 

“Investment Property”means all present and future investment property, securities, stocks, bonds,debentures, debt securities, partnership interests, limited liability companyinterests, options, security entitlements, securities accounts, commoditycontracts, commodity accounts, and all financial assets held in any securitiesaccount or otherwise, and all options and warrants to purchase any of theforegoing, wherever located, and all other securities of every kind, whethercertificated or uncertificated.

 

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

 

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

 

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

 

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

 

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 “Permitted Liens” means thefollowing:  (i) purchase money securityinterests in specific items of Equipment; (ii) leases of specific items ofEquipment; (iii) liens for taxes not yet payable; (iv) additional securityinterests and liens consented to in writing by Silicon, which consent may bewithheld in its good faith business judgment; (v) security interests beingterminated substantially concurrently with this Agreement; (vi) liens ofmaterialmen, mechanics, warehousemen, carriers, or other similar liens arisingin the ordinary course of business and securing obligations which are notdelinquent; (vii) liens incurred in connection with the extension, renewalor refinancing of the indebtedness secured by liens of the type described abovein clauses (i) or (ii) above, provided that any extension, renewal orreplacement lien is limited to the property encumbered by the existing lien andthe principal amount of the indebtedness being extended, renewed or refinanceddoes not increase; (viii) Liens in favor of customs and revenue authoritieswhich secure payment of customs duties in connection with the importation ofgoods.  Silicon will have the right torequire, as a condition to its consent under subparagraph (iv) above, that theholder of the additional security interest or lien sign an intercreditoragreement on Silicon’s then standard form, acknowledge that the securityinterest is subordinate to the security interest in favor of Silicon, and agreenot to take any action to enforce its subordinate security interest so long asany Obligations remain outstanding, and that Borrower agree that any uncureddefault in any obligation secured by the subordinate security interest shallalso constitute an Event of Default under this Agreement.

 

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

 

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

 

“Reserves” means,as of any date of determination, such amounts as Silicon may from time to timeestablish and revise in its good faith business judgment, reducing the amountof Loans, Letters of Credit and other financial accommodations which wouldotherwise be available to Borrower under the lending formula(s) provided in theSchedule:  (a) to reflect events,conditions, contingencies or risks which, as determined by Silicon in its goodfaith business judgment, do or may adversely affect (i) the Collateral or anyother property which is security for the Obligations or its value (includingwithout limitation any increase in delinquencies of Accounts), (ii) the assets,business or prospects of Borrower or any Guarantor, or (iii) the securityinterests and other rights of Silicon in the Collateral (including theenforceability, perfection and priority thereof); or (b) to reflect Silicon’sgood faith belief that any collateral report or financial information furnishedby or on behalf of Borrower or any Guarantor to Silicon is or may have beenincomplete, inaccurate or misleading in any material respect; or (c) in respectof any state of facts which Silicon determines in good faith constitutes anEvent of Default or may, with notice or passage of time or both, constitute anEvent of Default.

 

OtherTerms.  All accountingterms used in this Agreement, unless otherwise indicated, shall have themeanings given to such terms in accordance with GAAP, consistentlyapplied.  All other terms contained inthis Agreement, unless otherwise indicated, shall have the meanings provided bythe Code, to the extent such terms are defined therein.

 

# ***9.***     GENERAL PROVISIONS.

 

***9.1  InterestComputation. ***In computinginterest on the Obligations, all checks, wire transfers and other items ofpayment received by Silicon (including proceeds of Accounts and payment of theObligations in full) shall be deemed applied by Silicon on account of theObligations two Business Days after receipt by Silicon of immediately availablefunds, and, for purposes of the foregoing, any such funds received after 12:00Noon on any day shall be deemed received on the next Business Day.  Silicon shall not, however, be required tocredit Borrower’s account for the amount of any item of payment which isunsatisfactory to Silicon in its good faith business judgment, and Silicon maycharge Borrower’s loan account for the amount of any item of payment which isreturned to Silicon unpaid.

 

***9.2  Application ofPayments. ***All paymentswith respect to the Obligations shall be promptly applied in accordance withthis Agreement and Silicon’s standard procedures may be applied, and inSilicon’s good faith business judgment may be reversed and re-applied, to theObligations, in such order and manner as Silicon shall determine in its goodfaith business judgment.

 

***9.3  Charges toAccounts. ***Silicon may,in its discretion, require that Borrower pay monetary Obligations in cash toSilicon, or charge them to Borrower’s Loan account, in which event they willbear interest at the same rate applicable to the Loans.  Silicon may also, in its discretion, chargeany monetary Obligations to Borrower’s Deposit Accounts maintained withSilicon.

 

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

 

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***9.5  Notices.***  All notices to be given under this Agreementshall be in writing and shall be given either personally or by reputableprivate delivery service or by regular first-class mail, or certified mailreturn receipt requested, addressed to Silicon or Borrower at the addressesshown in the heading to this Agreement, or at any other address designated inwriting by one party to the other party. Notices to Silicon shall be directed to the Commercial Finance Division,to the attention of the Division Manager or the Division Credit Manager.  All notices shall be deemed to have beengiven upon delivery in the case of notices personally delivered, or at theexpiration of one Business Day following delivery to the private deliveryservice, or two Business Days following the deposit thereof in the UnitedStates mail, with postage prepaid.

 

***9.6  Severability.***  Should any provision of this Agreement beheld by any court of competent jurisdiction to be void or unenforceable, suchdefect shall not affect the remainder of this Agreement, which shall continuein full force and effect.

 

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

 

***9.8  Waivers; Indemnity.***  The failure of Silicon at any time or timesto require Borrower to strictly comply with any of the provisions of thisAgreement or any other Loan Document shall not waive or diminish any right ofSilicon later to demand and receive strict compliance therewith.  Any waiver of any default shall not waive oraffect any other default, whether prior or subsequent, and whether or notsimilar.  None of the provisions of thisAgreement or any other Loan Document shall be deemed to have been waived by anyact or knowledge of Silicon or its agents or employees, but only by a specificwritten waiver signed by an authorized officer of Silicon and delivered toBorrower.  Borrower waives the benefitof all statutes of limitations relating to any of the Obligations or thisAgreement or any other Loan Document, and Borrower waives demand, protest,notice of protest and notice of default or dishonor, notice of payment andnonpayment, release, compromise, settlement, extension or renewal of anycommercial paper, instrument, account, General Intangible, document or guarantyat any time held by Silicon on which Borrower is or may in any way be liable,and notice of any action taken by Silicon, unless expressly required by thisAgreement. Borrower hereby agrees to indemnify Silicon and its affiliates,subsidiaries, parent, directors, officers, employees, agents, and attorneys,and to hold them harmless from and against any and all claims, debts,liabilities, demands, obligations, actions, causes of action, penalties, costs andexpenses (including reasonable attorneys’ fees), of every kind, which they maysustain or incur based upon or arising out of any of the Obligations, or anyrelationship or agreement between Silicon and Borrower, or any other matter,relating to Borrower or the Obligations; provided that this indemnityshall  not extend to damages proximatelycaused by the indemnitee’s own gross negligence or willful misconduct.  A Person seeking to be indemnified underthis Section 9.8 shall make commercially reasonable efforts to notify Borrowerof any event requiring indemnification within a reasonable time following suchPerson’s receipt of notice of commencement of any action or proceeding givingrise to a claim for indemnification hereunder, provided that (i) there shall beno obligation to so notify Borrower if an Event of Default has occurred and iscontinuing, (ii) neither Silicon nor any such Person shall have any liabilityor obligation for any inadvertent failure to provide such notice, (iii) nofailure to provide such notice shall affect Borrower’s obligation to provideindemnity hereunder and (iv) in any event, nothing herein shall impose onSilicon any duty or obligation to impair the confidentiality or sanctity of itsattorney client relationship.  In suchproceeding, such Person shall use commercially reasonable efforts to keepBorrower reasonably informed of its defense and any settlement of any suchaction or proceeding and negotiations to settle or otherwise resolve any claim,provided that (i) such Person shall have the exclusive right to decide toaccept or reject any settlement offer, (ii) there shall be no obligation tokeep Borrower so informed if an Event of Default has occurred and iscontinuing, (iii) neither Silicon nor any such Person shall have any liabilityor obligation for any inadvertent failure to keep Borrower so informed, (iv) nofailure to keep Borrower so informed shall affect Borrower’s obligation toprovide indemnity hereunder and (v) in any event, nothing herein shall imposeon Silicon any duty or obligation to impair the confidentiality or sanctity ofits attorney client relationship. Notwithstanding any provision in this Agreement to the contrary, theindemnity agreement set forth in this Section shall survive any termination ofthis Agreement and shall for all purposes continue in full force and effect.

 

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

 

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

 

***9.11  Time ofEssence.*** Time is of the essence in the performance by Borrower of each and everyobligation under this Agreement.

 

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***9.12  Attorneys Feesand Costs.*** Borrower shall reimburse Silicon for all reasonable attorneys’ fees andall filing, recording, search, title insurance, appraisal, audit, and otherreasonable costs incurred by Silicon, pursuant to, or in connection with, orrelating to this Agreement (whether or not a lawsuit is filed), including, butnot limited to, any reasonable attorneys’ fees and costs Silicon incurs inorder to do the following: prepare and negotiate this Agreement and all presentand future documents relating to this Agreement; obtain legal advice inconnection with this Agreement or Borrower; enforce, or seek to enforce, any ofits rights; prosecute actions against, or defend actions by, Account Debtors;commence, intervene in, or defend any action or proceeding; initiate anycomplaint to be relieved of the automatic stay in bankruptcy; file or prosecuteany probate claim, bankruptcy claim, third-party claim, or other claim;examine, audit, copy, and inspect any of the Collateral or any of Borrower’sbooks and records; protect, obtain possession of, lease, dispose of, orotherwise enforce Silicon’s security interest in, the Collateral; and otherwiserepresent Silicon in any litigation relating to Borrower.  In satisfying Borrower’s obligationhereunder to reimburse Silicon for attorneys fees, Borrower may, forconvenience, issue checks directly to Silicon’s attorneys, Levy, Small &Lallas, but Borrower acknowledges and agrees that Levy, Small & Lallas isrepresenting only Silicon and not Borrower in connection with thisAgreement.  If either Silicon orBorrower files any lawsuit against the other predicated on a breach of thisAgreement, the prevailing party in such action shall be entitled to recover itsreasonable costs and attorneys’ fees, including (but not limited to) reasonableattorneys’ fees and costs incurred in the enforcement of, execution upon ordefense of any order, decree, award or judgment.  All attorneys’ fees and costs to which Silicon may be entitledpursuant to this Paragraph shall immediately become part of Borrower’sObligations, shall be due on demand, and shall bear interest at a rate equal tothe highest interest rate applicable to any of the Obligations.

 

***9.13  Benefit ofAgreement.*** The provisions of this Agreement shall be binding upon and inure to thebenefit of the respective successors, assigns, heirs, beneficiaries andrepresentatives of Borrower and Silicon; provided, however, that Borrower maynot assign or transfer any of its rights under this Agreement without the priorwritten consent of Silicon, and any prohibited assignment shall be void.  No consent by Silicon to any assignmentshall release Borrower from its liability for the Obligations.

 

***9.14  Joint andSeveral Liability.*** If Borrower consists of more than one Person, their liability shall bejoint and several, and the compromise of any claim with, or the release of, anyBorrower shall not constitute a compromise with, or a release of, any otherBorrower.

 

***9.15  Limitation ofActions.**** *Any claim orcause of action by Borrower against Silicon, its directors, officers,employees, agents, accountants or attorneys, based upon, arising from, orrelating to this Loan Agreement, or any other Loan Document, or any othertransaction contemplated hereby or thereby or relating hereto or thereto, orany other matter, cause or thing whatsoever, occurred, done, omitted orsuffered to be done by Silicon, its directors, officers, employees, agents,accountants or attorneys, shall be barred unless asserted by Borrower by thecommencement of an action or proceeding in a court of competent jurisdiction bythe filing of a complaint within one year after the first act, occurrence oromission upon which such claim or cause of action, or any part thereof, isbased, and the service of a summons and complaint on an officer of Silicon, oron any other person authorized to accept service on behalf of Silicon, withinthirty (30) days thereafter.  Borroweragrees that such one-year period is a reasonable and sufficient time forBorrower to investigate and act upon any such claim or cause of action.  The one-year period provided herein shallnot be waived, tolled, or extended except by the written consent of Silicon inits sole discretion.  This provisionshall survive any termination of this Loan Agreement or any other LoanDocument.

 

***9.16  ParagraphHeadings; Construction.*** Paragraph headings are only used in this Agreement for convenience.  Borrower and Silicon acknowledge that theheadings may not describe completely the subject matter of the applicableparagraph, and the headings shall not be used in any manner to construe, limit,define or interpret any term or provision of this Agreement. This Agreement hasbeen fully reviewed and negotiated between the parties and no uncertainty orambiguity in any term or provision of this Agreement shall be construedstrictly against Silicon or Borrower under any rule of construction orotherwise.

 

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

 

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

 

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**SILICON OR BORROWER OR ANY OF THEIRDIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONSAFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHERSOUNDING IN CONTRACT OR TORT OR OTHERWISE.**

 
| **Borrower:** | **Silicon:**                          |
|---------------|---------------------------------------|
|          |                                  |
|          | **ENDOCARDIAL SOLUTIONS, INC.**       | **SILICON  VALLEY BANK** |
|          |                                  |
|          | **By**                                | ** /s/ J. Robert Paulson, Jr.** |   | **By** | ** /s/ J. Anthony Clarkson** |   |
|          | **Vice President, CFO**               | **Title** | **Vice  President Market Manager** |   |
|          |                                  |
|          |                                  |
|          | **By**                                | ** /s/ J. Robert Paulson, Jr.** |   |   |
|          | **Secretary or Ass’t Secretary** |   |
|               |                                       |  |  |  |  |  |  |  |  |

 

 

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**Silicon Valley Bank**

 

**Scheduleto**

 

**Loanand Security Agreement**

*** ***

** **
| **Borrower:** | **Endocardial  Solutions, Inc.** |
|---------------|----------------------------------|
| **Address:**  | **1350 Energy Lane,  Suite 110** |
|          | **St. Paul, MN  55108**     |
|          |                             |
|          |                             |
| **Date:**     | **September 24, 2003**           |

** **

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

 

**1.     CREDIT LIMIT**

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

 

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

 

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

 

plus

 

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

 

plus

 

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

 

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Borrowerin a total amount not to exceed **$1,000,000** for the purchase by Borrower ofnew or used Equipment acceptable to Silicon in its sole discretion, includingcomputer equipment, office equipment, lab equipment, test equipment andfurnishings.  To evidence each of the2003 Term Loans, Borrower shall deliver to Silicon, at the time of each 2003Term Loan request, an invoice for the Equipment (a) to be purchased or (b)which was previously purchased by the Borrower.  The Loan request with respect to any particular Equipment must bemade within 90 days of the date such Equipment was purchased.  The 2003 Term Loans shall be used only to(a) purchase Equipment or (b) reimburse the Borrower for previously purchasedEquipment and shall not exceed **100%** of the invoice amount of suchEquipment approved from time to time by Silicon; provided that the aggregateamount of the Equipment Loans for (i) the purchase or license of software, (ii)leasehold improvements and (iii) other soft costs, including sales tax, freightand installation expenses shall not exceed **35%** of each 2003 Term Loan.  Subject to and upon the terms and conditionsof this Agreement, 2003 Term Loans shall be available through the followingperiods: (i) from the date of this Agreement through November 30, 2003 (“DrawPeriod #1); (ii) from December 1, 2003 through February 29, 2004 (“Draw Period#2”); (iii) from March 1, 2004 through May 30, 2004 (“Draw Period #3) and (iv)from June 1, 2004 through August 31, 2004 (“Draw Period #4).  The 2003 Term Loans outstanding as of theend of each Draw Period shall be repaid as provided for herein.  Interest shall accrue from the date of each 2003Term Loan at the rate provided for herein and is payable monthly as providedfor herein.  2003 Term Loans shall bemade in disbursements of not less than $100,000.

 

The Term Loans, once repaid, cannot bereborrowed.

 

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

 

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

 

**Letterof Credit Sublimit**

(Section 1.6):                                         **$750,000.**

** **

**EximAgreement;**

**Cross-Collateralization;**

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

 

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the Exim Agreement are cumulative.  The term “Obligations” as used in thisAgreement and in the Exim Agreement shall include without limitation theobligation to pay when due all Loans made pursuant to this Agreement (the“Non-Exim Loans”) and all interest thereon and the obligation to pay when dueall Loans made pursuant to the Exim Agreement (the “Exim Loans”) and allinterest thereon.  Without limiting thegenerality of the foregoing, all “Collateral” as defined in this Agreement andas defined in the Exim Agreement shall secure all Exim Loans and all Non-EximLoans and all interest thereon, and all other Obligations.  Any Event of Default under this Agreementshall also constitute an Event of Default under the Exim Agreement, and anyEvent of Default under the Exim Agreement shall also constitute an Event ofDefault under this Agreement.  In theevent Silicon assigns its rights under the Exim Agreement and/or under any Noteevidencing Exim Loans and/or its rights under this Agreement and/or under anyNote evidencing Non-Exim Loans, to any third party, including withoutlimitation the Export-Import Bank of the United States (“Exim Bank”), whetherbefore or after the occurrence of any Event of Default, Silicon shall have theright (but not any obligation), in its sole discretion, to allocate andapportion Collateral to the Agreement and/or Note assigned and to specify thepriorities of the respective security interests in such Collateral betweenitself and the assignee, all without notice to or consent of the Borrower.

** **

**2. INTEREST.**

 

**Interest Rate**(Section 1.2):

 

With respect to all Loans:

 

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

 

**Minimum Monthly**

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

 

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**3.  FEES** (Section 1.4):

** **

Loan Fee:                                                       Withrespect to the Revolving Loans and Exim Loans:

 

$25,000, payable concurrently herewith.

 

With respect to the 2003 Term Loans:

 

$5,000, payable concurrently herewith.

 

Collateral Monitoring

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

 

**4.  MATURITY DATE**

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

 

Notwithstanding the foregoing, with respectto Existing Term Loan #1:  Theoutstanding principal balance of Existing Term Loan #1 shall continue to berepaid by Borrower to Silicon as provided for in the Existing Term LoanDocumentation in equal monthly payments of principal, on the 30th day of eachmonth and continuing until the earlier of the following dates:  (i) June 30, 2004, or (ii) the date ExistingTerm Loan #1 has been indefeasibly paid in full, or (iii) the date theRevolving Loans are terminated, or (iv) the date this Agreement terminates byits terms or is terminated by either party in accordance with its terms.  On the earlier to occur of the foregoingdates, the entire unpaid principal balance of Existing Term Loan #1, plus allaccrued and unpaid interest thereon, shall be due and payable.  Interest on Existing Term Loan #1 shall bepayable monthly as provided in Section 1.2 of this Agreement.

 

Notwithstanding the foregoing, with respectto Existing Term Loan #2:  Theoutstanding principal balance of Existing Term Loan #2 shall continue to berepaid by Borrower to Silicon as provided for in the Existing Term LoanDocumentation in equal monthly payments of principal, on the 30th day of eachmonth and continuing until the earlier of the following dates:  (i) March 30, 2005, or (ii) the dateExisting Term Loan #2 has been indefeasibly paid in full, or (iii) the date theRevolving Loans are terminated, or (iv) the date this Agreement terminates byits terms or is terminated by either party in accordance with its terms.  On the earlier to occur of the foregoingdates, the entire unpaid principal balance of Existing Term Loan #2, plus allaccrued and unpaid interest thereon, shall be due and payable.

 

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

 

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

 

**5.  FINANCIAL COVENANTS**

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

 

**  MinimumTangible**

**  NetWorth:****                                                  **Borrowershall maintain a Tangible Net Worth of not less than **$9,000,000**.

 

**  Definitions.****                                                  **Forpurposes of the foregoing financial covenants, the following term shall havethe following meaning:

 

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

 

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

 

(A) there shall be excluded from assets:  (i) notes, accounts receivable and otherobligations owing to Borrower from its officers or other Affiliates, and (ii)all assets which would be classified as intangible assets under GAAP, includingwithout limitation goodwill, licenses, patents, trademarks, trade names,copyrights, capitalized software and organizational costs, licenses andfranchises

 

(B) there shall be excluded fromliabilities:  all indebtedness which issubordinated to the Obligations under a subordination agreement

 

5

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

 

**6. REPORTING.**

(Section 5.3):

 

Borrower shall provide Silicon with the following:

 

1.     Transaction reports andschedules of collections, each week and at the time of each Loan request, onSilicon’s standard form

 

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

 

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

 

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

 

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

 

6.     Monthly unaudited financialstatements, as soon as available, and in any event within thirty days after theend of each month.

 

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

 

8.     Quarterly unaudited financialstatements, as soon as available, and in any event within forty-five days afterthe end of each fiscal quarter of Borrower.

 

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

 

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

 

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

 

**7.  BORROWER INFORMATION:**

 

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

** **

**8.  ADDITIONAL PROVISIONS**

 

**(1)****   BankingRelationship. **Borrower shall at alltimes maintain its primary banking relationship, including without limitationits primary operating account, with Silicon. Without limiting the generality of the foregoing, Borrower shall, at alltimes, maintain not less than 100% of its total cash and investments on depositwith Silicon.

 

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

 
| Borrower:                    | Silicon:                          |
|------------------------------|-----------------------------------|
|                         |                              |
| ENDOCARDIAL SOLUTIONS,  INC. | SILICON  VALLEY BANK              |
|                         |                              |
|                         |                              |
| By                           |   /s/ J. Robert Paulson, Jr. |   | By |   /s/ J. Anthony Clarkson |   |
|                         | Vice President, CFO               | Title |  Vice President Market Manager |   |
|                         |                              |
|                         |                              |
| By                           |   /s/ J. Robert Paulson, Jr. |   |   |
|                         | Ass’t Secretary              |   |
|                              |                                   |  |  |  |  |  |  |

 

Form:  -3 (3/7/02)

Version-4

 

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