Exhibit 10.1


 





 


(Accounts
Receivable Line of Credit)


 


AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT


 


This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”)
dated as of October 20, 2008 (the “Effective Date”) is among (a) SILICON VALLEY BANK, a California corporation (“Bank”), with
its principal place of business at 3003 Tasman Drive, Santa Clara, California
95054 with a loan production office located at One Newton Executive Park, Suite 200,
2221 Washington Street, Newton, Massachusetts 02462 (FAX 617-969-5965), and (b) MICROFLUIDICS INTERNATIONAL CORPORATION, a
Delaware corporation, with its principal place of business at 30 Ossipee Road,
Newton, Massachusetts 02464 (FAX 617-965-1213) (“Microfluidics International”)
and MICROFLUIDICS CORPORATION, a
Delaware corporation, with its principal place of business at 30 Ossipee Road,
Newton, Massachusetts 02464 (FAX 617-965-1213) (“Microfluidics”) (individually
and collectively, jointly and severally, “Borrower”) and
provides the terms on which Bank shall lend to Borrower, and Borrower shall
repay Bank.  This Agreement amends and
restates, in its entirety, that certain Loan and Security Agreement dated as of
June 30, 2008, among Borrower and Bank, as amended from time to time.  The parties agree as follows:


 


1              ACCOUNTING AND OTHER TERMS


 


Accounting
terms not defined in this Agreement shall be construed following GAAP.  Calculations and determinations must be made
following GAAP.  The term “financial
statements” includes the notes and schedules. 
The terms “including” and “includes” always mean “including (or
includes) without limitation,” in this or any Loan Document.  Capitalized terms not otherwise defined in
this Agreement shall have the meanings set forth in Section 13.  All other terms contained in this Agreement,
unless otherwise indicated, shall have the meanings provided by the Code, to
the extent such terms are defined therein.


 


2              LOAN AND TERMS OF PAYMENT


 


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


 


2.1.1       Financing of Accounts.


 


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


 


(b)           Maximum
Advances.  The aggregate face amount
of all Financed Receivables outstanding at any time may not exceed the Facility
Amount.  In addition, the aggregate
amount of all Advances outstanding hereunder together with all Advances (as
defined in the Exim Agreement) outstanding under the Exim Agreement shall not
exceed Two Million Dollars ($2,000,000.00) at any time.


 


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


 


(d)           Credit
Quality; Confirmations.  Bank may, at
its option, conduct a credit check of the Account Debtor for each Account
requested by Borrower for financing hereunder in order to approve any such Account
Debtor’s credit before agreeing to finance such Account.  Bank may also verify directly with the
respective 


 

















 


Account Debtors
the validity, amount and other matters relating to the Accounts (including
confirmations of Borrower’s representations in Section 5.3) by means of
mail, telephone or otherwise, either in the name of Borrower or Bank from time
to time in its sole discretion.


 


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


 


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


 


(g)           Bank’s Discretion. 
Notwithstanding anything to the contrary contained herein, this
Agreement may be terminated by Borrower or Bank at any time, and Bank is not
obligated to finance any Eligible Accounts. 
Bank and Borrower hereby acknowledge and agree that Bank’s agreement to
finance Eligible Accounts hereunder is discretionary in each instance.  Accordingly, there shall not be any recourse
to Bank, nor liability of Bank, on account of any delay in Bank’s making of,
and/or any decline by Bank to make, any loan or advance requested
hereunder.  If this Agreement and the
Exim Agreement are terminated by Bank or Borrower for any reason, Borrower
shall pay to Bank a termination fee in an amount equal to (i) for a
termination that occurs on or prior to the date that is six (6) months
after the Effective Date, Twenty Thousand Dollars ($20,000.00), (ii) for a
termination that occurs after the date that is six (6) months after the
Effective Date, Ten Thousand Dollars ($10,000.00) (the “Early Termination Fee”)
(the “Early Termination Fee”).  The Early
Termination Fee shall be due and payable on the effective date of such
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations. 
Notwithstanding the foregoing, Bank agrees to waive the Early Termination
Fee if Bank agrees to refinance and redocument this Agreement under another
division of Bank (in its sole and exclusive discretion) prior to the Maturity
Date.


 


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


 


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


 


2.2.2       Intentionally
omitted.


 


2.2.3       Finance
Charges.  In computing Finance
Charges on the Obligations under this Agreement, all Collections received by
Bank shall be deemed applied by Bank on account of the Obligations three (3) Business
Days after  receipt of the Collections.  Borrower will pay a finance charge (the “Finance
Charge”) on the Financed Receivable Balance which is equal to the Applicable
Rate divided by 360 multiplied by the number of days each such
Financed Receivable is outstanding multiplied by the outstanding
Financed Receivable Balance.  The Finance
Charge is payable when the Advance made based on such Financed Receivable is
payable in accordance with Section 2.3 hereof.  After an Event of Default, the Applicable
Rate will increase an additional five percent (5.0%) per annum effective
immediately upon the occurrence of such Event of Default.  In the event that the aggregate
amount of Finance Charges and Collateral Handling Fees earned by Bank in any
fiscal quarter under this Agreement and the Exim Agreement is less than the
Minimum Finance Charge, Borrower shall pay to Bank an additional Finance Charge
equal to (i) the Minimum Finance Charge minus (ii) the aggregate
amount of all Finance Charges and Collateral Handling Fees earned by Bank in
such fiscal quarter.   Such additional
Finance Charge shall be payable on the first day of the next fiscal quarter.


 


2.2.4       Collateral Handling Fee.  Borrower will pay to Bank a
collateral handling fee equal to 0.50% per month of the Financed Receivable
Balance for each Financed Receivable outstanding based upon a 360 day year (the
“Collateral Handling Fee”).  This fee is
charged on a daily basis which is equal to the Collateral Handling Fee divided
by 30, multiplied by the number of days each such Financed Receivable is
outstanding, multiplied by the outstanding Financed Receivable Balance.  The Collateral Handling Fee is payable when
the Advance made based on such Financed Receivable is payable in accordance
with Section 2.3 hereof.  In
computing Collateral Handling 


 


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Fees under this Agreement, all Collections received
by Bank shall be deemed applied by Bank on account of Obligations three (3) Business
Days after receipt of the Collections. 
After an Event of Default, the Collateral Handling Fee will increase an
additional 0.50% effective immediately upon such Event of Default.


 


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


 


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


 


2.2.7       Lockbox;
Account Collection Services.


 


(a)           As
and when directed by Bank from time to time, at Bank’s option and at the sole
and exclusive discretion of Bank (regardless of whether an Event of Default has
occurred), Borrower shall direct each Account Debtor (and each depository
institution where proceeds of Accounts are on deposit) to remit payments with
respect to the Accounts to a lockbox account established with Bank or to wire
transfer payments to a cash collateral account that Bank controls
(collectively, the “Lockbox”).  It will be considered an immediate Event of
Default if the Lockbox is not set-up and operational on the Effective Date.


 


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


 


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


 


2.3          Repayment
of Obligations; Adjustments.


 


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


 


2.3.2       Repayment
on Event of Default.  When there
is an Event of Default, Borrower will, if Bank demands (or, upon the occurrence
of an Event of Default under Section 8.5, immediately without notice or
demand from Bank) repay all of the Advances. 
The demand may, at Bank’s option, include the Advance for each Financed
Receivable then outstanding and all accrued Finance Charges, the Early
Termination Fee, Collateral Handling Fee, attorneys’ and professional fees,
court costs and expenses, and any other Obligations.


 


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


 


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


 


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


 


3              CONDITIONS
OF LOANS


 


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


 


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


 


(b)           the
Exim Agreement and all of the conditions precedent thereto;


 


(c)           the
IP Agreement;


 


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


 


(e)           a
landlord’s consent executed by the applicable landlord in favor of Bank for
each of Borrower’s locations;


 


(f)            Account
Control Agreements/Investment Account Control Agreements;


 


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


 


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


 


(i)            UCC
termination statements in respect of all UCC financing statements filed in
favor of TD Bank, N.A.;


 


(j)            Certificates
of Foreign Qualification (Massachusetts, and others, applicable);


 


(k)           long
form Certificate of Good Standing/Legal Existence (Delaware); and


 


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


 


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


 


(a)           receipt
of the Invoice Transmittal;


 


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


 


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


 


4              CREATION
OF SECURITY INTEREST


 


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


 


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


 


Notwithstanding
the foregoing, it is expressly acknowledged and agreed that the security
interest created in this Agreement only with respect to Export-Related Accounts
Receivable, Export-Related Inventory and Export-Related General Intangibles (as
such terms are defined in the Exim Agreement) is subject to and subordinate to
the security interest granted to Bank in the Exim Agreement with respect to
such Export-Related Accounts Receivable, Export-Related Inventory and
Export-Related General Intangibles.


 


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


 


5              REPRESENTATIONS
AND WARRANTIES


 


Borrower
represents and warrants as follows:


 


5.1          Due Organization and
Authorization.  Borrower and each
of its Subsidiaries are duly existing and in good standing as Registered
Organizations in their respective jurisdictions of formation and are qualified
and licensed to do business and are in good standing in any jurisdiction in
which the conduct of their respective business or ownership of property
requires that they be qualified except where the failure to do so would not
reasonably be expected to have a material adverse effect on Borrower’s
business.  Borrower has delivered to Bank
the Perfection Certificate.  Borrower
represents and warrants to Bank that (a) Borrower’s exact legal name is
that indicated on the Perfection Certificate and on the signature page hereof;
(b) Borrower is an organization of the type and is organized 


 


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


 


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


 


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


 


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


 


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


 


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


 


(a)           Such
Financed Receivable is an Eligible Account;


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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5.8          Subsidiaries.  Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.


 


5.9          Tax Returns and
Payments; Pension Contributions. 
Borrower and each Subsidiary have timely filed all required tax returns
and reports, and Borrower and each Subsidiary have timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each Subsidiary.  Borrower
may defer payment of any contested taxes, provided that Borrower (a) in
good faith contests its obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (b) notifies Bank in
writing of the commencement of, and any material development in, the
proceedings, (c) posts bonds or takes any other steps required to prevent
the governmental authority levying such contested taxes from obtaining a Lien
upon any of the Collateral that is other than a “Permitted Lien”.  Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result
in additional taxes becoming due and payable by Borrower.  Borrower has paid all amounts necessary to
fund all present pension, profit sharing and deferred compensation plans in
accordance with their terms, and Borrower has not withdrawn from participation
in, and has not permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could
reasonably be expected to result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.


 


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


 


6              AFFIRMATIVE
COVENANTS


 


Borrower
shall do all of the following:


 


6.1          Government
Compliance.


 


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


 


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


 


6.2          Financial
Statements, Reports, Certificates.


 


(a)           Deliver
to Bank:  (i) as soon as available,
but no later than thirty (30) days  after the last
day of each month, a company prepared consolidated and consolidating balance
sheet and income statement covering Borrower’s and each of its Subsidiary’s
operations during the period certified by a Responsible Officer and in a form
acceptable to Bank; (ii) as soon as available, but no later than one
hundred fifty (150)  days after the
last day of Borrower’s fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting
firm reasonably acceptable to Bank; (iii) in the event that Borrower’s
stock becomes publicly held, within five (5) days of filing, copies of all
statements, reports and notices made available to Borrower’s security holders
or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q
and 8-K filed with the Securities and Exchange Commission; (iv) a prompt
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of One Hundred Thousand Dollars ($100,000.00) or more; (v) prompt notice
of any material change in the composition of the Intellectual Property
Collateral, or the registration of any copyright, including any subsequent
ownership right of Borrower in or to any copyright, patent or 


 


8

















 


trademark not
shown in the IP Agreement or knowledge of an event that materially adversely
affects the value of the Intellectual Property Collateral; (vi) annually,
no later than thirty (30) days after Borrower’s fiscal year end, and
contemporaneously with any updates thereto, board-approved projections for the
then current fiscal year; and (vii) budgets, sales projections, operating
plans or  other financial information reasonably
requested by Bank.


 


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


 


(c)           Allow
Bank to audit Borrower’s Collateral, including, but not limited to, Borrower’s
Accounts at Borrower’s expense, upon reasonable notice to Borrower; provided,
however, prior to the occurrence of an Event of Default, Borrower shall be
obligated to pay for not more than two (2) audits per year.  Borrower hereby acknowledges that the first
such audit will be conducted within ninety (90) days after the Effective Date.  After the occurrence
of an Event of Default, Bank may audit Borrower’s Collateral, including, but
not limited to, Borrower’s Accounts at Borrower’s expense and at Bank’s sole
and exclusive discretion and without notification and authorization from
Borrower.


 


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


 


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


 


                (f)            Provide Bank with, as
soon as available, but no later than thirty (30) days following each
Reconciliation Period, a Deferred Revenue report, in form acceptable to Bank.


 


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


 


6.4          Insurance.  Keep its business and the Collateral insured
for risks and in amounts standard for companies in Borrower’s industry and
location, and as Bank may reasonably request. 
Insurance policies shall be in a form, with companies, and in amounts
that are satisfactory to Bank.  All
property policies shall have a lender’s loss payable endorsement showing Bank
as the sole lender loss payee and waive subrogation against Bank, and all
liability policies shall show, or have endorsements showing, Bank as an
additional insured.  All policies (or the
loss payable and additional insured endorsements) shall provide that the
insurer must give Bank at least twenty (20) days notice before canceling, amending,
or declining to renew its policy.  At
Bank’s request, Borrower shall deliver certified copies of policies and
evidence of all premium payments. Proceeds payable under any policy shall, at
Bank’s option, be payable to Bank on account of the Obligations.  Notwithstanding the foregoing, (a) so
long as no Event of Default has occurred and is continuing, Borrower shall have
the option of applying the proceeds of any casualty policy up to Two Hundred
Fifty Thousand Dollars ($250,000) in the aggregate toward the replacement or
repair of destroyed or damaged property; provided that any such replaced or
repaired property (i) shall be of equal or like value as the replaced or
repaired Collateral and (ii) shall be deemed Collateral in which Bank has
been granted a first priority security interest, and (b) after the
occurrence and during the continuance of an Event of Default, all proceeds
payable under such casualty policy shall, at the option of Bank, be payable to
Bank on account of the Obligations.  If
Borrower fails to obtain insurance as required under this Section 6.4 or
to pay any amount or furnish any required proof of payment to third persons and
Bank, Bank may make all or part of such payment or obtain such insurance
policies required in this Section 6.4, and take any action under the policies
Bank deems prudent.


 


6.5          Accounts.


 


(a)           To
permit Bank to monitor Borrower’s financial performance and condition, subject
to the following, Borrower, and all Borrower’s Subsidiaries, shall maintain
Borrower’s and such Subsidiaries’, depository and operating accounts and
securities accounts with Bank and Bank’s affiliates:


 


9

















 


(i)            Borrower is permitted to maintain the
existing Bank of America, N.A. account number 0006827055 and the existing TD
Bank, N.A. account number 8242351851 (collectively, the “Borrower Bank Accounts”), provided  that
(A) such Borrower Bank Accounts shall be closed within ninety (90) days of
the Effective Date, and (B) any amounts in such Borrower Bank Accounts
shall be transferred on a daily basis for deposit into an account at Bank.  In any event, Borrower shall promptly notify
its Account Debtors to remit payments to the Lockbox as of the Effective Date;
and


 


(ii)           Borrower
is permitted to maintain its Certificate of Deposit number 8731024878 (the “CD”)
at TD Bank, N.A.; provided  that, (A) the CD shall not have a
value in excess of Twenty-One Thousand Dollars ($21,000.00) at any time, and (B) on
or prior to July 31, 2009, such CD shall either (1) be transferred to
an account at Bank or Bank’s Affiliate (and if transferred to Bank’s Affiliate,
Borrower will execute an account control agreement with such Bank Affiliate in
favor of Bank), or (2) be liquidated, and the proceeds therefrom shall be
deposited at an account with Bank.


 


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


 


(c)           Notwithstanding
the foregoing, Borrower is permitted to maintain its existing deposit account
#5800495 00 located at Deutsche Bank – Adenauerplatz 1 69115 Heidelberg,
Germany; provided that such deposit account shall not maintain a balance in
excess of Seventy-Five Thousand Dollars ($75,000) at any time outstanding.


 


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


 


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


 


10
















 


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


 


6.9          Further
Assurances.  Borrower shall
execute any further instruments and take further action as Bank reasonably
requests to perfect or continue Bank’s security interest in the Collateral or
to effect the purposes of this Agreement.


 


7              NEGATIVE
COVENANTS


 


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


 


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


 


7.2          Changes
in Business, Ownership, Management or Business Locations.  Engage in or permit any of its Subsidiaries
to engage in any business other than the businesses currently engaged in by
Borrower or reasonably related thereto, or have a material change in its
ownership (other than by the sale of Borrower’s equity securities in a public
offering or to venture capital investors so long as Borrower identifies to Bank
the venture capital investors prior to the closing of the investment), or
management.  Borrower shall not, without
at least thirty (30) days prior written notice to Bank: (a) relocate its
chief executive office, or add any new offices or business locations, including
warehouses  (unless such new offices or
business locations contain less than Five Thousand Dollars ($5,000.00) in
Borrower’s assets or property), or (b) change its jurisdiction of organization,
or (c) change its organizational structure or type, or (d) change its
legal name, or (e) change any organizational number (if any) assigned by
its jurisdiction of organization.


 


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


 


7.4          Indebtedness.  Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.


 


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


 


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


 


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


 


11

















 


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


 


7.9          Compliance.  Become an “investment company” or a company
controlled by an “investment company”, under the Investment Company Act of
1940, as amended, or undertake as one of its important activities extending
credit to purchase or carry margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System), or use the proceeds of any
Advance for that purpose; fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, each as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, if the violation could reasonably be expected
to have a material adverse effect on Borrower’s business, or permit any of its
Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental
agency.


 


8              EVENTS
OF DEFAULT


 


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


 


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


 


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


 


8.3          Material
Adverse Change.  A Material
Adverse Change occurs;


 


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


 


8.5          Insolvency.  (a) Borrower is unable to pay its debts
(including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within forty-five (45) days (but
no Advances shall be made while of any of the conditions described in clause (a) exist
and/or until any Insolvency Proceeding is dismissed);


 


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


 


8.7          Judgments.  One or more judgments, orders, or decrees for
the payment of money in an amount, individually or in the aggregate, of at
least Fifty Thousand Dollars ($50,000.00) (not covered by independent
third-party insurance as to which liability has been accepted by such insurance
carrier) shall be rendered against Borrower and shall remain unsatisfied,
unvacated, or unstayed for a period of ten (10) days after the entry
thereof (provided that no Advances will be made prior to the satisfaction,
vacation, or stay of such judgment, order, or decree);


 


8.8          Misrepresentations.  Borrower or any Person acting for Borrower
makes any representation, warranty, or other statement now or later  in this Agreement, any Loan Document or in
writing delivered to Bank or 


 


12

















 


to induce Bank to
enter this Agreement or any Loan Document, and such representation, warranty,
or other statement is incorrect in any material respect when made;


 


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


 


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


 


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


 


8.12        Exim Default.  The
occurrence of an Event of Default (as defined in the Exim Agreement) under the
Exim Agreement.


 


9              BANK’S
RIGHTS AND REMEDIES


 


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


 


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


 


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


 


(c)           demand
that Borrower (i) deposits cash with Bank in an amount equal to the
aggregate amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letter of Credit fees scheduled to be paid or payable over the
remaining term of any Letters of Credit;


 


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


 


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


 


13

















 


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


 


(g)           ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral.  Bank
is hereby granted a non-exclusive, royalty-free license or other right to use,
without charge, Borrower’s labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any similar property as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and, in connection with Bank’s exercise of its rights under this Section,
Borrower’s rights under all licenses and all franchise agreements inure to Bank’s
benefit;


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


10           NOTICES.


 


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


 


14

















 


Borrower
may change its address or facsimile number by giving the other party written
notice thereof in accordance with the terms of this Section 10.


 


11           CHOICE
OF LAW, VENUE AND JURY TRIAL WAIVER


 


Massachusetts
law governs the Loan Documents without regard to principles of conflicts of
law.  Borrower and Bank each submit to
the exclusive jurisdiction of the State and Federal courts in Massachusetts;
provided, however, that if for any reason Bank cannot avail itself of such
courts in the Commonwealth of Massachusetts, Borrower accepts jurisdiction of
the courts and venue in Santa Clara County, California.  Notwithstanding the foregoing, nothing in
this Agreement shall be deemed to operate to preclude Bank from bringing suit
or taking other legal action in any other jurisdiction to realize on the
Collateral or any other security for the Obligations, or to enforce a judgment
or other court order in favor of Bank. 
Borrower expressly submits and consents in advance to such jurisdiction
in any action or suit commenced in any such court, and Borrower hereby waives
any objection that it may have based upon lack of personal jurisdiction,
improper venue, or forum non conveniens and hereby consents to the granting of
such legal or equitable relief as is deemed appropriate by such court.  Borrower hereby waives personal service of
the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower’s actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.


 


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


 


12           GENERAL
PROVISIONS


 


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


 


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


 


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


 


15

















 


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


 


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


 


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


 


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


 


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


 


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


 


12.9        Confidentiality.  In handling any confidential information,
Bank shall exercise the same degree of care that it exercises for its own
proprietary information, but disclosure of information may be made: (a) to
Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or
purchasers of any interest in the Advances (provided, however, Bank shall use
commercially reasonable efforts to obtain such prospective transferee’s or
purchaser’s agreement to the terms of this provision); (c) as required by
law, regulation, subpoena, or other order; (d) to Bank’s regulators or as
otherwise required in connection with Bank’s examination or audit; (e) as
Bank considers appropriate in exercising remedies under the Loan Documents; and
(f) to third-party service providers of Bank so long as such service
providers have executed a confidentiality agreement with Bank with terms no
less restrictive than those contained herein. 
Confidential information does not include information that either: (i) is
in the public domain or in Bank’s possession when disclosed to Bank, or becomes
part of the public domain after disclosure to Bank; or (ii) is disclosed
to Bank by a third party, if Bank does not know that the third party is prohibited
from disclosing the information.


 


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


 


12.10      Ratification
of Intellectual Property Security Agreement.


 


(a)           Microfluidics International hereby ratifies, confirms and reaffirms,
all and singular, the terms and conditions of a certain Intellectual Property
Security Agreement dated as of June 27, 2008, between Microfluidics International
and Bank (the “Microfluidics International IP Agreement”), and acknowledges,
confirms and agrees that said Microfluidics International IP Agreement contains
an accurate and complete listing of all Intellectual Property Collateral as
defined in said Microfluidics International IP Agreement, shall remain in full
force and effect.  In addition,
Microfluidics International hereby acknowledges and agrees that all references
in the Microfluidics International IP Agreement to “Loan and Security Agreement”
and to “Loan Agreement” shall mean this Agreement and the Exim Agreement.


 


(b)           Microfluidics hereby ratifies, confirms and reaffirms, all and
singular, the terms and conditions of a certain Intellectual Property Security
Agreement dated as of June 27, 2008, between Microfluidics and Bank (the “Microfluidics
IP Agreement”), and acknowledges, confirms and agrees that 


 


16

















 


said Microfluidics IP
Agreement contains an accurate and complete listing of all Intellectual
Property Collateral as defined in said Microfluidics IP Agreement, shall remain
in full force and effect.  In addition,
Microfluidics hereby acknowledges and agrees that all references in the
Microfluidics IP Agreement to “Loan and Security Agreement” and to “Loan
Agreement” shall mean this Agreement and the Exim Agreement.


 


12.11      Ratification of Perfection
Certificate.


 


(a)           Microfluidics International hereby ratifies, confirms and reaffirms,
all and singular, the terms and disclosures contained in a certain Perfection
Certificate dated as of June 27, 2008 between Microfluidics International
and Bank (the “Microfluidics International Perfection Certificate”), and
acknowledges, confirms and agrees the disclosures and information Microfluidics
International provided to Bank in the Perfection Certificate have not changed,
as of the date hereof.  In addition,
Microfluidics International hereby acknowledges and agrees that all references
in the Perfection Certificate to “Loan and Security Agreement” shall mean this
Agreement and the Exim Agreement.


 


(b)           Microfluidics hereby ratifies, confirms and reaffirms, all and
singular, the terms and disclosures contained in a certain Perfection
Certificate dated as of June 27, 2008 between Microfluidics and Bank (the “Microfluidics
Perfection Certificate”), and acknowledges, confirms and agrees the disclosures
and information Microfluidics provided to Bank in the Perfection Certificate
have not changed, as of the date hereof. 
In addition, Microfluidics hereby acknowledges and agrees that all
references in the Perfection Certificate to “Loan and Security Agreement” shall
mean this Agreement and the Exim Agreement.


 


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


 


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


 


13           DEFINITIONS


 


13.1        Definitions.  In this Agreement:


 


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


 


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


 


17

















 


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


 


“Advance” is defined in Section 2.1.1.


 


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


 


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


 


“Applicable Rate” is a per annum rate equal to the greater of
(a) the Prime Rate plus two percent (2.0%), and (b) six percent
(6.0%).


 


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


 


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


 


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


 


“Claims” are defined in Section 12.2.


 


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


 


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


 


“Collateral Handling Fee”  is defined in Section 2.2.4.


 


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


 


“Compliance Certificate” is attached as Exhibit B.


 


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


 


18

















 


primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under any
guarantee or other support arrangement.


 


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


 


“Early Termination Fee” is defined in Section 2.1.1.


 


“EBITDA”
means earnings before interest, taxes, depreciation and amortization in
accordance with GAAP.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


19
















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


“Exim Agreement”
is a certain Amended and Restated Export-Import Bank Loan and Security
Agreement dated as of the Effective Date by and among Bank and Borrower, and
all documents, instruments and agreements executed in connection therewith, as
each may be amended from time to time.


 


“Facility Amount” is Two Million Five Hundred Thousand
Dollars ($2,500,000.00).


 


“Finance Charges” is defined in Section 2.2.3.


 


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


 


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


 


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


 


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


 


20

















 


and
other deposits, options to purchase or sell real or personal property, rights
in all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.


 


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


 


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


 


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


 


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


 


“Indemnified Person” is defined in Section 12.2.


 


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


 


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


 


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


 


“Investment” is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.


 


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


 


“IP Agreement” is, collectively, (a) the Microfluidics
International IP Agreement, and (b) the Microfluidics IP Agreement.


 


“Letter of Credit” means a standby letter of credit issued by
Bank or another institution based upon an application, guarantee, indemnity or
similar agreement on the part of Bank.


 


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


 


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


 


“Lockbox”  is defined in Section 2.2.7.


 


“Material Adverse Change”  is: (a) a
material impairment in the perfection or priority of Bank’s security interest
in the Collateral or in the value of such Collateral; (b) a material
adverse change in the business, operations, 


 


21

















 


or
condition (financial or otherwise) of Borrower; (c) a material impairment
of the prospect of repayment of any portion of the Obligations; or (d) Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower shall fail to
comply with one or more of the financial covenants in Section 6 during the
next succeeding financial reporting period.


 


“Maturity
Date” is 364 days from the Effective Date.


 


“Microfluidics
IP Agreement” is defined in Section 12.10.


 


“Microfluidics
Perfection Certificate” is defined in Section 12.11.


 


“Microfluidics
International IP Agreement” is defined in Section 12.10.


 


“Microfluidics
International Perfection Certificate” is defined in Section 12.11.


 


“Minimum Finance
Charge”  is an
amount equal to the Finance Charges and Collateral Handling Fees Bank would
have earned during a particular fiscal quarter if the Financed Receivable
Balance pursuant to this Agreement during such fiscal quarter was an amount
equal to thirty percent (30.0%) of the Facility Amount at all times.


 


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


 


“Perfection Certificate” is, collectively, (a) the
Microfluidics International Perfection Certificate, and (b) the
Microfluidics Perfection Certificate.


 


“Permitted Indebtedness” is:


 


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


 


(b)           Subordinated Debt;


 


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


 


(d)           Indebtedness secured by
Permitted Liens.


 


“Permitted Investments” are: (i)  marketable direct
obligations issued or unconditionally guaranteed by the United States or its
agency or any state maturing within 1 year from its acquisition, (ii) commercial
paper maturing no more than 1 year after its creation and having the highest
rating from either Standard & Poor’s Corporation or Moody’s Investors
Service, Inc., (iii) Bank’s certificates of deposit issued maturing
no more than 1 year after issue, and (iv) any other investments
administered through Bank.


 


“Permitted Liens” are:


 


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


 


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


 


(c)           Purchase money Liens
securing no more than Fifty Thousand Dollars ($50,000.00) in the aggregate
amount outstanding  (i) on equipment
acquired or held by Borrower incurred for financing the acquisition of the
equipment, or (ii) existing on equipment when acquired, if the Lien
is confined to the property and improvements and the proceeds of the equipment;


 


22

















 


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


 


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


 


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


 


“Prime Rate” is Bank’s most recently announced “prime rate,”
even if it is not Bank’s lowest rate.


 


“Reconciliation Period” is each calendar month.


 


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


 


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


 


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


 


“Subordinated Debt” is indebtedness incurred by Borrower
subordinated to all of Borrower’s now or hereafter indebtedness to Bank
(pursuant to a subordination, intercreditor, or other similar agreement in form
and substance satisfactory to Bank entered into between Bank and the other
creditor), on terms acceptable to Bank.


 


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


 


[signature page follows]


 


23

















 


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


 


BORROWER:


 


MICROFLUIDICS INTERNATIONAL
CORPORATION


 


	
  By:

  	
  /s/ Brian E.
  LeClair

  	
   

  
	
  Name:

  	
  Brian E. LeClair

  	
   

  
	
  Title:

  	
  Exec. VP
  & CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  MICROFLUIDICS CORPORATION

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian E.
  LeClair

  	
   

  
	
  Name:

  	
  Brian E. LeClair

  	
   

  
	
  Title:

  	
  Exec. VP
  & CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  BANK:

  	
   

  
	
   

  	
   

  
	
  SILICON VALLEY BANK

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Kate Leland

  	
   

  
	
  Name:

  	
  Kate Leland

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  
					



 


24

















 


EXHIBIT A


 


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


 


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


 


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


 


1

















 


EXHIBIT B


 





 


SPECIALTY FINANCE DIVISION


Compliance Certificate


 


I, an authorized officer of MICROFLUIDICS INTERNATIONAL CORPORATION and MICROFLUIDICS CORPORATION
(individually and collectively, jointly and severally, “Borrower”) certify
under the Amended and Restated Loan and Security Agreement (as amended, the “Agreement”)
between Borrower and Silicon Valley Bank (“Bank”) as follows (all capitalized
terms used herein shall have the meaning set forth in the Agreement):


 


Borrower represents and warrants for each Financed Receivable:


 


Each Financed Receivable is an Eligible Account.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


Additionally, Borrower represents and warrants as follows:


 


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


 


1

















 


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


 


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


 


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


 


	
  Sincerely,

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Signature

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Title

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date

  	
   

  



 


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