SAN JOSE NATIONAL BANK









Exhibit

10.53




 








	
		





 




 




 




 




 









LOAN AND

SECURITY AGREEMENT




	

  Borrower Name:


  	

  VERSANT

  CORPORATION


  	

  Date


  	

  April

  18, 2002


  	

   


  
	

  Borrow Address:


  	

  6539

  Dumbarton Circle, Fremont, CA 94555


  





 




THIS

LOAN AND SECURITY AGREEMENT is entered into on the above date between Pacific

Business Funding, a division of Cupertino National Bank (“Lender”), whose

address is 20195 Stevens Creek Blvd., Cupertino, California 95014 and the

borrower (s) named above (jointly and severally, the “Borrower”), whose chief

executive office is located at the above address (“Borrower’s Address”).   Schedules 1, 2 and 3 to this Agreement (the

“Schedules”) shall for all purposes be deemed to be a part of this Agreement

and are incorporated herein. 

(Definitions of certain terms used in this Agreement are set forth in

Section 8 below.)




1.             LOANS




1.1          Loans.  During the term of this Agreement, and subject to the

covenants, terms and conditions contained herein,  Lender will make loans to

Borrower (the “Loans”), in amounts determined by Lender in its sole discretion,

up to the amounts (the “Credit Limit”) shown on Schedule 1; provided, no

Default or Event of Default has occurred and is continuing. Lender is hereby

authorized to extend Loans and make advances of credit provided for in this

Agreement based upon telephonic or other instructions received from anyone

purporting to be an authorized representative of Borrower or, at the discretion

of Lender, if said Loans and/or advances of credit are necessary to satisfy any

Obligations.  Lender shall have no duty

to make inquiry or verify the authority of any such party and Borrower shall

hold Lender harmless from any damages, claims, or liability by reason of

Lender’s honor, or failure to honor, any such instructions.




1.2          Interest.  All loans and all other monetary Obligations shall

bear interest at the rate shown on Schedule 1, except where expressly set forth

to the contrary in this Agreement. Interest shall be payable by Borrower to

Lender in arrears every Wednesday, and on the Maturity Date, and shall be

calculated on the daily outstanding Obligations. Interest may, in Lender’s

discretion, be charged to Borrower’s loan account, and the same shall

thereafter bear interest at the same rate as the other Loans. Borrower hereby

authorizes Lender to charge, and Lender may, in its discretion, but without

obligation, charge interest to Borrower’s Deposit Accounts maintained with

Lender. Regardless of the amount of Obligations that may be outstanding from

time to time, Borrower shall pay Lender minimum monthly interest during the term

of this Agreement in the amount set forth on Schedule 1 (the “Minimum Monthly

Interest”).




1.3          Overadvances.  If at any time or for any reason the total of all

outstanding Loans and all other Obligations exceeds the Credit Limit (an

“Overadvance”), Borrower shall immediately pay the amount of the excess to

Lender, without notice or demand. Borrower shall not have any right to obtain

Overadvances under this Agreement nor shall Lender have any obligation or duty

to fund or provide Overadvances hereunder. Without limiting Borrower’s

obligation to repay to Lender on demand the amount of any Overadvance, Borrower

agrees to pay Lender interest on the outstanding amount of any Overadvance, on

demand, at a rate equal to the interest rate that would otherwise be applicable

to the obligations, plus an additional 2% per annum.




1.4          Fees.  Borrower shall pay Lender the fee(s) shown on Schedule

1, which are in addition to all interest and other sums payable to Lender and

are not refundable and constitute(s) the consideration payable to Lender for

entering into this Agreement.




1.5          Letters

of Credit.  At the request of Borrower, Lender may in

its sole discretion, issue or arrange for the issuance of letters of credit for

the account of Borrower, in each case in form and substance satisfactory to

Lender in its sole discretion (collectively, “Letters of Credit”). The

aggregate face amount of all outstanding Letters of Credit from time to time

shall not exceed the amount shown on Schedule 1 (the “Letter of Credit

Sublimit”), and the Letter of Credit Obligations shall reduce the amount of

Loans which would otherwise be available hereunder. Borrower shall pay all bank

charges (including charges of Lender) for the issuance of Letters of Credit,

together with such additional fee as Lender’s letter of credit department shall

charge in connection with the issuance of the Letters of Credit. All Letter of

Credit Obligations including advances made, all Letters of Credit issued, and

all other financial accommodations extended by Lender to or for the account or

benefit of Borrower shall be added to and deemed part of the Obligations when

made, issued, created and/or extended. 

Any payment by Lender  under or in connection with a Letter of

Credit shall constitute a Loan hereunder on the date such payment is made. Each

Letter of Credit shall have an expiry date no later than thirty days prior to

the Maturity Date. Borrower hereby agrees to indemnify, save, and hold Lender

harmless from any loss, cost, expense, or liability, including payments made by

Lender, expenses, and reasonable attorneys’ fees incurred by Lender arising out

of or in connection with any Letters of Credit. Borrower agrees to be bound by

the regulations and interpretations of the issuer of any Letters of Credit

guarantied by Lender and opened for Borrower’s account or by Lender’s

interpretations of the issuer of any Letters of Credit issued by Lender for

Borrower’s account, and Borrower understands and agrees that Lender shall not

be liable for any error, negligence, or mistake, whether of omission or

commission, in following Borrower’s instructions or those contained in the

Letters of Credit or any modifications, amendments, or supplements

thereto.  Borrower understands that

Letters of Credit may require Lender to indemnify the issuing bank for certain

costs or liabilities arising out of claims by Borrower against such issuing

bank. Borrower hereby agrees to indemnify and hold Lender harmless with respect

to any loss, cost expense, or liability incurred by Lender under any Letter of

Credit as a result of Lender’s indemnification of any such issuing bank. The

provisions of this Loan Agreement, as it pertains to Letters of Credit, and any

other present or future documents or agreements between Borrower and Lender

relating to Letters of Credit are cumulative.




2.             SECURITY INTEREST.




2.1             Security Interest.  To secure the payment and performance of all of the

Obligations when due, Borrower hereby grants to Lender a continuing lien upon

and security interest in, and right of offset with respect to, all of

Borrower’s right, title or interest in and to the following, whether now owned

or hereafter acquired, and wherever located (collectively, the “Collateral”):




(a)           All Receivables;




(b)           All Equipment;




(c)           All Fixtures;




(d)           All General Intangibles;




(e)           All Inventory;




(f)            All Investment Property;




(g)           All Deposit Accounts;




(h)           All Cash;




(i)            All commercial tort claims described

on Schedule 1;




(j)                                     All other goods and tangible and

intangible personal property of Borrower whether now or hereafter owned or

existing, leased, consigned by or to, or acquired by, Borrower and wherever

located; and




(k)                                  To the extent not otherwise included, all

Proceeds of each of the foregoing and all accessions to, substitutions and

replacements for, and rents, profits and products of each of the foregoing.




2.2          Other

Agreements Regarding Collateral; Attorney In Fact.




(a)           Borrower hereby irrevocably

authorizes the Lender at any time and from time to time to file in any filing

office in any Uniform Commercial Code jurisdiction any initial financing

statements and amendments thereto that (a) indicate the Collateral (i) as all

assets of Borrower or words of similar effect, regardless of whether any

particular asset comprised in the Collateral falls within the scope of Article

9 of the UCC of such jurisdiction, or (ii) as being of an equal or lesser




 




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scope or with greater detail, and (b) contain any

other information required by part 5 of Article 9 of the UCC for the sufficiency

or filing office acceptance of any financing statement or amendment, including

(i) whether Borrower is an organization, the type of organization and any

organization identification number issued to Borrower, and (ii) in the case of

a financing statement filed as a fixture filing or indicating Collateral

as-extracted collateral or timber to be cut, a sufficient description of real

property to which the Collateral relates. 

Borrower agrees to furnish any such information to Lender promptly upon

request.  Borrower also ratifies its

authorization for Lender to have filed in any Uniform Commercial Code

jurisdiction any initial financing statements or amendments thereto if filed

prior to the date hereof.




(b)           Borrower shall sign and deliver to

Lender UCC financing statements, in form acceptable to Lender as to those

jurisdictions that are not Uniform Commercial Code jurisdictions.




(c)           At the request of Lender, Borrower

shall deliver to Lender the originals of all instruments, certificated

securities, chattel paper and documents evidencing or related to Collateral.




(d)           At the request of Lender, Borrower

shall obtain signed acknowledgments of Lender’s security interests from bailees

having possession of Borrower’s goods that they hold for the benefit of Lender.




(e)           At the request of Lender, Borrower

shall obtain authenticated control letters from each issuer of uncertificated

securities, securities intermediary, or commodities intermediary issuing or

holding any financial assets or commodities to or for Borrower.




(f)            Borrower shall take all steps

necessary to grant the Lender control of all electronic chattel paper in

accordance with the UCC and all “transferable records” as defined in each of

the Uniform Electronic Transactions Act and the Electronic Signatures in Global

and National Commerce Act.




(g)             Borrower shall execute and deliver, or

cause to be executed and delivered, to Lender, concurrent with Borrower’s

execution of this Agreement, and at any time or times hereafter at the request

of Lender, landlord waivers, security agreements, chattel mortgages,

assignments, deeds of trust, assignments of leases, endorsements of

certificates of title, affidavits, reports, notices, schedules of Receivables,

schedules of Inventory, and letters of authority and all other documents that

Lender may reasonably request, in form satisfactory to Lender, to perfect and

maintain perfected Lender’s security interests in the Collateral and in order

to fully consummate all of the transactions contemplated under this Agreement.

Borrower hereby irrevocably makes, constitutes and appoints Lender (and any of

Lender’s officers, employees or agents designated by Lender to act on Lender’s

behalf) as Borrower’s true and lawful attorney with power to sign the name of

Borrower on any of the above-described documents or on any other similar

documents which need to be executed, recorded, and/or filed in order to perfect

or continue perfected Lender’s security interest in the Collateral. The

appointment of Lender as Borrower’s attorney, and each and every one of

Lender’s rights and powers, being coupled with an interest, are irrevocable so

long as any Obligations remain unpaid or unperformed.




To protect or perfect any security interest granted to

Lender hereunder, Lender may, in its sole discretion, discharge any lien or

encumbrance or bond the same, pay any insurance, fees or charges, maintain

guards, warehousemen or any personnel to protect the Collateral, pay any

services bureau or obtain any records, and all costs for the same shall be due

and payable to Lender on demand or shall constitute a Loan under this Agreement

and shall comprise one of the Obligations.




3.             REPRESENTATIONS, WARRANTIES AND

COVENANTS OF THE BORROWER.




In order to induce Lender to enter into this Agreement

and to make Loans, Borrower represents and warrants to Lender as follows, and

Borrower covenants that the following representations will continue to be true,

and that Borrower will at all times comply with all of the covenants,

representations and warranties set forth in this Article 3. Each warranty,

representation and agreement contained in this Agreement shall be automatically

deemed repeated with each Loan and/or advance and shall be true, accurate and

correct at each such time and shall be conclusively presumed to have been

relied on by Lender regardless of any investigation made or information

possessed by Lender. The warranties, representations and agreements set forth

herein shall be cumulative and in addition to any and all other warranties,

representations and agreements which Borrower shall give, or cause to be given,

to Lender, either now or hereafter.




3.1          Corporate

Existence and Authority.  Borrower, if a corporation,

limited partnership, limited liability company or other business organization

formed under the laws of any governmental agency having jurisdiction over

Borrower, is and will continue to be, duly organized, validly existing and in

good standing under the laws of the jurisdiction of its incorporation or

formation. Borrower is the type of organization set forth on Schedule 1, and

Borrower’s current state of incorporation or other formation is as set forth on

Schedule 1.  Borrower is and will

continue to be qualified and licensed to do business in all jurisdictions in which

any failure to do so would have a material adverse effect on Borrower. The

execution, delivery and performance by Borrower of this Agreement and all other

documents contemplated hereby (i) have been duly and validly authorized, (ii)

are enforceable against Borrower in accordance with their terms (except as

enforcement may be limited by equitable principles and by bankruptcy,

insolvency, reorganization, moratorium or similar laws relating to creditors’

rights generally), (iii) do not violate Borrower’s articles or certificate of

incorporation, Borrower’s partnership agreement, or Borrower’s by-laws, or

Borrower’s operating agreement (as the case may be), or any law or any material

agreement or instrument which is binding upon Borrower or its property, and

(iv) do not constitute grounds for acceleration of any material indebtedness or

obligation under any material agreement or instrument which is binding upon

Borrower or its property.




3.2          Name;

Trade Names and Styles.  The name of Borrower set forth in the

heading to this Agreement is its correct name as it appears in official filings

in the official filing in the state of its incorporation or other formation.

Listed on Schedule 1 are all prior names of Borrower and all of Borrower’s

present and prior trade names, and the organizational identification number

issued by Borrower’s state of incorporation or organization or a statement that

no such number has been issued. Borrower shall not change its name or do

business under any other name without the prior written consent of Lender,

which consent shall not be unreasonably withheld. Borrower has complied, and

will in the future comply, with all laws relating to the conduct of business

under a fictitious business name.




3.3          Place

of Business; Location of Collateral.  The address set forth in the heading to

this Agreement is Borrower’s chief executive office. In addition, Borrower has

places of business and Collateral is located only at the locations set forth on

Schedule 1.  Borrower will give Lender

at least 30 days prior written notice before opening any additional place of

business, changing its chief executive office, or moving any of the Collateral

to a location other than Borrower’s Address or one of the locations set forth

on Schedule 1.




3.4          No

Reincorporation.  Borrower shall not reincorporate or

reorganize itself under the laws of any jurisdiction other than the

jurisdiction in which it is incorporated or organized as of the date hereof

without the prior written consent of Lender, which consent shall not be

unreasonably withheld.




3.5          Title

to Collateral; Permitted Liens.  Borrower is now, and will at all times in

the future be, the sole owner of all the Collateral, and has and at all times

will have good, marketable and indefeasible title to the Collateral.  The Collateral now is and will remain free

and clear of any and all liens, charges, security interests, encumbrances and

adverse claims, except for Permitted Liens. 

The Collateral is and shall, at all times, remain of good and of

merchantable quality, free from defects. 

Lender now has, and will continue to have, a first-priority perfected

and enforceable security interest in all of the Collateral, subject only to the

Permitted Liens, and Borrower will at all times defend Lender and the

Collateral against all claims of others. None of the Collateral now is or will

be affixed to any real property in such a manner, or with such intent, as to

become a fixture. Borrower is not and will not become a lessee under any real

property lease pursuant to which the lessor may obtain any rights in any of the

Collateral and no such lease now prohibits, restrains, impairs or will

prohibit, restrain or impair Borrower’s right to remove any Collateral from the

leased premises.  Whenever any

Collateral is located upon premises in which any third party has an interest

(whether as owner, mortgagee, beneficiary under a deed of trust, lien or

otherwise), Borrower shall, whenever requested by Lender, use its best efforts

to cause such third party to execute and deliver to Lender, in form acceptable

to Lender, such waivers and subordinations as Lender shall specify, so as to

ensure that Lender’s rights in the Collateral are, and will continue to be,

superior to the rights of any such third party. Borrower will keep in full

force and effect, and will comply with all the terms of, any lease of real

property where any of the Collateral now or in the future may be located.




3.6          Maintenance

of Collateral.  Borrower will maintain the Collateral in

good working condition, and Borrower will not use the Collateral for any unlawful

purpose. Borrower will immediately advise Lender in writing of any material

loss or damage to the Collateral.




3.7          Books

and Records.  Borrower has maintained and will maintain at

Borrower’s Address complete and accurate books and records, comprising an

accounting system in accordance with generally accepted accounting principles.




 




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3.8          Financial

Condition, Statements and Reports.  All financial statements now or in the

future delivered to Lender have been, and will be prepared in conformity with

generally accepted accounting principles and now and in the future will

completely and accurately reflect the financial condition of Borrower, at the

times and for the periods therein stated. Between the last date covered by any

such statement provided to Lender and the date hereof, there has been no

material adverse change in the financial condition or business of Borrower.

Borrower is now and will continue to be solvent.




3.9          Tax

Returns and Payments; Pension Contributions. 

Borrower

has timely filed, and will timely file, all tax returns and reports required by

foreign, federal, state and local law, and Borrower has timely paid, and will

timely pay, all foreign, federal, state and local taxes, assessments, deposits

and contributions now or in the future owed by Borrower. Borrower may, however,

defer payment of any contested taxes, provided that Borrower (i) in good faith

and with diligence contests Borrower’s obligation to pay the taxes by

appropriate proceedings promptly and diligently instituted and conducted, (ii)

notifies Lender in writing of the commencement of, and any material development

in, the proceedings, and (iii) posts bonds or takes any other steps required to

keep the contested taxes from becoming a lien upon any of the Collateral.

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. If Borrower fails to pay any such assessment, tax, contribution,

or make such deposit, or furnish the required proof, Lender may, in Lender’s

sole and absolute discretion and without notice to Borrower: (a) make payment

of the same or any part thereof, or (b) set up such reserves against the

Obligations, or otherwise reduce the loans and advances for which Borrower is

eligible under this Agreement, as Lender deems necessary to satisfy the

liability therefor, or both. Borrower has paid, and shall continue to pay all

amounts necessary to fund all present and future pension, profit sharing and

deferred compensation plans in accordance with their terms, and Borrower has

not and will not withdraw from participation in, permit partial or complete

termination of or permit the occurrence of any other event with respect to, any

such plan which could result in any liability of Borrower, including any

liability to the Pension Benefit Guaranty Corporation or its successors or any

other governmental agency. Borrower shall, at all times, utilize the services

of an outside payroll service providing for the automatic deposit of all

payroll taxes payable by Borrower.




3.10        Compliance

with Law.  Borrower has complied, and will comply,

in all material respects, with all provisions of all foreign, federal, state

and local laws and regulations relating to Borrower, including those relating

to Borrower’s ownership of real or personal property, the conduct and licensing

of Borrower’s business, and all environmental matters.




3.11        Litigation.  Except as disclosed in Schedule 1, there is no claim,

suit, litigation, proceeding or investigation pending or, to best of Borrower’s

knowledge, threatened by or against or affecting Borrower, any shareholders,

partners, members, managers or principals of Borrower, or any guarantor of the

Obligations in any court or before any governmental agency (or any basis

therefor known to Borrower). Borrower will promptly inform Lender in writing of

any claim, proceeding, litigation or investigation in the future threatened or

instituted by or against Borrower involving any single claim or more in the

aggregate as shown on Schedule 1.




3.12        Use

of Proceeds.  All proceeds of all Loans shall be used

solely for lawful business purposes. Borrower is not purchasing or carrying any

“margin stock” (as defined in Regulation U of the Board of Governors of the

Federal Reserve System) and no part of the proceeds of any Loan will be used to

purchase or carry any “margin stock” or to extend credit to others for the

purpose of purchasing or carrying any “margin stock”.




3.13        Intellectual

Property.  Schedule 2 to this Agreement contains a

true, correct and complete list of all copyrights, patents, trademarks, and

licenses of the same owned or used by Borrower as of the date of this

Agreement, together with application or registration numbers, where applicable.

Borrower owns, or is licensed to use, all intellectual property necessary to

conduct its business as currently conducted. Borrower will maintain the

patenting and registration of all intellectual property with the United States

Patent and Trademark Office, the United States Copyright Office, or other

appropriate governmental authority and Borrower will promptly patent or

register, as the case may be, all new patents, copyrights and trademarks and

notify Lender in writing five Business Days prior to filing any such new patent

or registration.




3.14        Deposit

Accounts and Investment Property.  Schedule 3 to this Agreement contains a

true, correct and complete list of (a) all banks and other financial

institutions at which Borrower maintains any deposit accounts, including any

checking account, savings account, or certificate of deposit, and (b)

institutions at which Borrower maintains accounts holding investment property

owned by Borrower, including any certificated security, uncertificated

security, money market funds, bonds, mutual funds, and U.S. Treasury bills and

notes, and such Schedule 3 correctly identifies the name, address and telephone

number of each bank or other institution, the name in which the account is held,

a description of the purpose of the account, and the complete account number

therefore.




4.             RECEIVABLES.




4.1          Representations

Relating to Receivables.  In order to induce Lender to enter into

this Agreement and to make Loans, Borrower represents and warrants to

Lender as follows, and Borrower covenants that the following representations

will continue to be true, and that Borrower will at all times comply with all

of the covenants, representations and warranties set forth in this Article 4.

Each warranty, representation and agreement contained in this Agreement shall

be automatically deemed repeated with each Loan and/or advance and shall be

true, accurate and correct at each such time and shall be conclusively presumed

to have been relied on by Lender regardless of any investigation made or

information possessed by Lender. The warranties, representations and agreements

set forth herein shall be cumulative and in addition to any and all other

warranties, representations and agreements which Borrower shall give, or cause

to be given, to Lender, either now or hereafter:




(a)           The

information contained in each Schedule of Receivables is true and correct;




(b)           Each

Schedule of Receivables is signed by an authorized representative of Borrower,

and Lender shall have the right to rely on such signature as an authorized

signature of Borrower;




(c)           Borrower

is the sole and absolute owner of each Receivable described in each Schedule of

Receivables and has the legal right to assign such Receivable to Lender;




(d)           Each

Account Debtor identified on each Schedule of Receivables is liable for the

amount set forth on such Schedule of Receivables and will not object to the

payment for, or the quality or the quantity of the goods or services to which

any Receivable described on such Schedule of Receivables relates;




(e)           Borrower

has not, as of the time Borrower includes such Receivable on any Schedule of

Receivables, filed or had filed against it a petition for relief under the

United States Bankruptcy Code;




(f)            Each

Receivable is free and clear of any and all liens, security interests and

encumbrances of any kind, other than those in favor of Lender or consented to

in writing by Lender, and Borrower will not assign, transfer, or grant any lien

or security interest in any Receivables to any other party, without Lender’s

prior written consent;




(g)           Borrower

has not sold, assigned, transferred, pledged or otherwise conveyed any

Receivables to any party, and Borrower shall not sell, assign, transfer, pledge

or otherwise convey any Collateral without Lender’s prior consent, except for

the sale of finished inventory in Borrower’s normal course of business; and




(h)           Each

Receivable submitted to Lender meets each of the eligibility requirements in

the definition of Eligible Receivable, except as disclosed in writing to Lender

at the time Borrower submits such Receivable to Lender.  Each Receivable, including Eligible and

non-Eligible Receivables, (i) is a bona fide account, (ii) represents indebtedness

owed to Borrower, and (iii) is in all respects what it purports to be.  All statements made and all unpaid balances

and other information appearing in the invoices, agreements, proofs of

rendition of services and delivery of goods and other documentation relating to

the Receivables, and all confirmatory assignments, schedules, statements of

account and books and records with respect thereto, are true and correct and in

all respects what they purport to be.




4.2          Representations

Relating to Documents and Legal Compliance. 

Borrower

represents and warrants to Lender as follows: 

All statements made and all unpaid balances appearing in all invoices,

instruments and other documents evidencing the Receivables are and shall be

true and correct and all such invoices, instruments and other documents and all

of Borrower’s books and records are and shall be genuine and in all respects

what they purport to be, and all signatories and endorsers have the capacity to

contract. All sales and other transactions underlying or giving rise to each

Receivable shall fully comply with all applicable laws and governmental rules

and regulations. All signatures and endorsements on all documents, instruments,

and agreements relating to all Receivables are and shall be genuine, and all

such documents, instruments and agreements are and shall be legally enforceable

in accordance with their terms.




 




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4.3          Schedules

and Documents relating to Receivables.  Borrower shall deliver to Lender

transaction reports and loan requests, schedules and assignments of all

Receivables, and schedules of collections, all on Lender’s standard forms;

provided, however, that Borrower’s failure to execute and deliver the same

shall not affect or limit Lender’s security interest and other rights in all of

Borrower’s Receivables, nor shall Lender’s failure to advance or lend against a

specific Receivable affect or limit Lender’s security interest and other rights

therein. Borrower shall deliver to Lender on each date funds are requested from

Lender, (i) a Schedule of Receivables describing all Receivables of Borrower

(each, a “Schedule of Receivables”), and (ii) by email to Lender, a report of

all sales for which Borrower has not received payment from Account Debtors,

including all sales that have occurred since the previous report, including the

invoice number for such sales and any other information requested by Lender.

Each Schedule of Receivables shall describe in detail all Receivables,

including, (a) the name of the Account Debtor of each such Receivable, (b) the

amount owed by the Account Debtor of each Receivable, and (c) the date and

number of the invoice evidencing each such Receivable. Each Schedule of

Receivables shall be signed by an authorized representative of Borrower.  Notwithstanding the foregoing, Borrower

shall deliver to Lender a Schedule of Receivables and a Transaction Report no

less frequently than weekly, regardless of whether Borrower is requesting an

Advance for such week.  If Borrower

desires that Advances be made on a given day, Lender must receive the Schedule

of Receivables with supporting documentation by 12:00 P.M. at least one

Business Day prior to any requested Advance. Furthermore, if Borrower requests

that an Advance be made on a date other than the next following Business Day,

Borrower shall deliver to Lender on the date immediately prior to the date for

which the Advance is requested, an updated Transaction Report. Together with

each Schedule of Receivables, or later if requested by Lender, Borrower shall

furnish Lender with copies (or, at Lender’s request, originals) of all

contracts, orders, invoices, and other similar documents, and  all

original shipping instructions, delivery receipts, bills of lading, and other

evidence of delivery, for any goods the sale or disposition of which gave rise

to such Receivables, and Borrower warrants the genuineness of all of the

foregoing. Borrower shall also furnish to Lender an aged accounts receivable

trial balance in such form and at such intervals as Lender shall request. In

addition, Borrower shall deliver to Lender the originals of all instruments,

chattel paper, security agreements, guarantees and other documents and property

evidencing or securing any Receivables, immediately upon receipt thereof and in

the same form as received, with all necessary endorsements, all of which shall

be with recourse. Borrower shall also provide Lender with copies of all credit

memos within two days after the date issued.




4.4          Collection

of Receivables; Lockbox.  Borrower shall instruct each Account

Debtor to make all payments owed to Borrower in Borrower’s name or properly

registered trade name directly to the following lockbox of Lender: Dept. 33376,

P.O. Box 39000, San Francisco, CA (the “Lockbox”). All Borrower’s invoices

shall bear the address of the Lockbox as the “Remit To” address, and Borrower

agrees that all remittances for payment of all Receivables and proceeds of all

other Collateral shall be made to the Lockbox or such other address authorized

in writing by Lender.  Such instructions

shall not be changed without Lender’s prior written consent. Payments on all

Borrower’s Receivables and all other proceeds of Collateral shall be made

directly to the Lockbox, whether or not Lender is providing financing for such

Receivables. Borrower shall not take or permit any action to change or revoke

any “Remit To” address or notification without Lender’s prior written consent

and shall not request any Account Debtor to pay any Receivable to Borrower.




4.5          Payment-In-Kind;

Delivery to Lender. Notwithstanding

the foregoing, if Borrower receives any payments of any Receivables, Borrower

shall immediately notify Lender of such payments and hold all payments on, and

proceeds of, Receivables in trust for Lender, and Borrower shall immediately

deliver all such payments and proceeds to Lender in their original form, duly

endorsed in blank, to be applied to the Obligations in such order as Lender

shall determine.  Lender may, in its

discretion, require that all proceeds of Collateral be deposited by Borrower

into the Lockbox or such other account as Lender may specify if a Default or

Event of Default occurs and is continuing. 

Lender or its designee may, at any time, notify Account Debtors that the

Receivables have been assigned to Lender, and to collect Receivables directly

in Lender’s name.




4.6          Remittance

of Other Collateral Proceeds.  All proceeds arising from the disposition

of any other Collateral shall be delivered, in kind, by Borrower to Lender in

the original form in which received by Borrower not later than the following

Business Day after receipt by Borrower, to be applied to the Obligations in

such order as Lender shall determine; provided that, if no Default or Event of

Default has occurred, Borrower shall not be obligated to remit to Lender the proceeds

of the sale of worn out or obsolete equipment disposed of by Borrower in good

faith in an arm’s length transaction, except as shown on Schedule 1. Borrower

agrees that it will not commingle proceeds of Collateral with any of Borrower’s

other funds or property, but will hold such proceeds separate and apart from

such other funds and property and in an express trust for Lender. Nothing in

this Section limits the restrictions on disposition of Collateral set forth

elsewhere in this Agreement.




4.7          Disputes.  Borrower shall notify Lender promptly of all disputes

or claims relating to Receivables. Borrower shall not forgive (completely or

partially), compromise or settle any Receivables for less than payment in full,

or agree to do any of the foregoing without the consent of Lender Without

limiting or prejudicing any other rights or remedies available to Lender under

this Agreement, Lender may, at any time after the occurrence of an Event of

Default, settle or adjust disputes or claims directly with Account Debtors for

amounts and upon terms which Lender considers advisable in its reasonable

credit judgment and, in all cases, Lender shall credit Borrower’s Loan Account

with only the net amounts received by Lender in payment of any Receivables.




4.8          Returns.  Provided no Event of Default has occurred and is

continuing, if any Account Debtor returns any Inventory to Borrower in the

ordinary course of its business, Borrower shall promptly determine the reason

for such return and promptly issue a credit memorandum to the Account Debtor in

the appropriate amount, and send a copy to Lender. In the event any attempted

return occurs after the occurrence of any Event of Default, Borrower shall (i)

hold the returned Inventory in trust for Lender, (ii) segregate all returned

Inventory from all of Borrower’s other property, (iii) conspicuously label the

returned Inventory as Lender’s property, and (iv) immediately notify Lender of

the return of any Inventory, specifying the reason for such return, the

location and condition of the returned Inventory, and on Lender’s request

deliver such returned Inventory to Lender.




4.9          Verification.  Lender may, from time to time, verify directly with

the respective Account Debtors the validity, amount and other matters relating

to the Receivables, by means of mail, telephone or otherwise, either in the

name of Borrower or Lender or such other name as Lender may choose. Lender may

notify any Account Debtor that the Receivables and other Collateral that

includes a monetary obligation have been assigned to Lender by Borrower and

that payment thereof is to be made directly to the Lockbox and Lender may

demand, collect or enforce payment of any Accounts or such other Collateral.

Upon Lender’s request, Borrower shall assist Lender in connection with any

request, notification or demand hereunder.




4.10        No

Liability.  Lender shall not under any circumstances

be responsible or liable for any shortage or discrepancy in, damage to, or loss

or destruction of, any goods, the sale or other disposition of which gives rise

to a Receivable, or for any error, act, omission, or delay of any kind

occurring in the settlement, failure to settle, collection, or failure to

collect any Receivable, or for settling any Receivable in good faith for less

than the full amount thereof, nor shall Lender be deemed to be responsible for

any of Borrower’s obligations under any contract or agreement giving rise to a

Receivable. Nothing herein shall, however, relieve Lender from liability for

its own gross negligence or willful misconduct.




5.             ADDITIONAL DUTIES OF THE BORROWER.




5.1          Financial

and Other Covenants.  Borrower shall at all times comply with

the financial and other covenants set forth in Schedule 1.




5.2          Insurance.  Borrower shall, at all times insure all of the tangible

personal property Collateral and carry such other business insurance, with

insurers reasonably acceptable to Lender, in such form and amounts as Lender

may reasonably require, and Borrower shall provide evidence of such insurance

to Lender, so that Lender is satisfied that such insurance is, at all times, in

full force and effect. All such insurance policies shall name Lender as the

additional loss payee, and shall contain a lenders loss payee endorsement in

form reasonably acceptable to Lender. At Lender’s option Borrower shall also

provide evidence of sufficient insurance coverage respecting worker’s

compensation liability, products liability claims and other liability claims

and naming Lender as an additional insured in connection therewith.  All such insurance policies shall be in such

form, substance, amounts and coverage satisfactory to Lender and shall provide

for thirty (30) days’ prior written notice to Lender of cancellation or

reduction of coverage.  Borrower shall

deliver to Lender, in kind, all payments or instruments representing proceeds

of insurance received by Borrower. Upon receipt of the proceeds of any such

insurance, Lender shall apply such proceeds in reduction of the Obligations as

Lender shall determine in its sole discretion, except that, provided no Default

or Event of Default has occurred and is continuing, Lender shall release to

Borrower insurance proceeds with respect to Equipment totaling less than

$25,000, which shall be utilized by Borrower for the replacement of the Equipment

with respect to which the insurance proceeds were paid. Lender may require

reasonable assurance that the insurance proceeds so released will be so used.

If Borrower fails to provide or pay for




 




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any insurance, Lender may, but is not obligated to, obtain the same at

Borrower’s expense and at Lender’s election the amount so advanced shall be due

and payable on demand or shall constitute a Loan under this Agreement and shall

comprise one of the Obligations. 

Borrower shall promptly deliver to Lender copies of all reports made to

insurance companies.




5.3          Reports.  Borrower, at its expense, shall provide Lender with

the written reports set forth in Schedule 1, and such other written reports

with respect to Borrower (including budgets, sales projections, operating plans

and other financial documentation), as Lender shall from time to time

reasonably specify.




5.4          Access

to Collateral, Books and Records.  At reasonable times, and on one Business

Day’s notice, Lender, or its agents, shall have the right to inspect the

Collateral and the right to audit and copy Borrower’s books and records. Lender

may use such of Borrower’s personnel equipment, including computer equipment,

programs, printed output and computer readable media, supplies and premises for

the collection of accounts and realization on other Collateral as Lender deems

appropriate. Lender shall have the right to disclose any such information to

its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena

or other legal process. The foregoing inspections and audits shall be at

Borrower’s expense as reflected on Schedule 1 and at Lender’s election the

amount so advanced shall be due and payable on demand or shall constitute a

Loan under this Agreement and shall comprise one of the Obligations. Borrower

will not enter into any agreement with any accounting firm, service bureau or

third party to store Borrower’s books or records at any location other than

Borrower’s Address, without first obtaining Lender’s written consent, which may

be conditioned upon such accounting firm, service bureau or other third party

agreeing to give Lender the same rights with respect to access to books and

records and related rights as Lender has under this Agreement. Borrower waives

the benefit of any accountant-client privilege or other evidentiary privilege

precluding or limiting the disclosure, divulgence or delivery of any of its

books and records (except that Borrower does not waive any attorney-client privilege).




5.5          Negative

Covenants.  Except as may be permitted in Schedule 1,

Borrower shall not, without Lender’s prior written consent, do any of the

following:  (i) merge or consolidate

with or into another corporation or entity; (ii) form or acquire and interest

in any corporation or other entity; (iii) acquire any assets, except in the

ordinary course of business; (iv) enter into any other transaction outside the

ordinary course of business; (v) sell or transfer any Collateral, except for

the sale of finished Inventory in the ordinary course of Borrower’s business,

and except for the sale of obsolete or unneeded Equipment in the ordinary

course of business in an amount not to exceed, in any year, the amount set

forth on Schedule 1; (vi) store any Inventory or other Collateral with any

warehouseman or other third party; (vii) sell any Inventory on a

sale-or-return, guaranteed sale, consignment, or other contingent basis; (viii)

make any loans of any money or other assets; (ix)  incur any debts, outside the ordinary course of business, which

would have a material, adverse effect on Borrower or on the prospect of

repayment of the Obligations; (x) guarantee or otherwise become liable with

respect to the obligations of another party or entity; (xi)  pay or declare any dividends on Borrower’s

stock (except for dividends payable solely in stock of Borrower); (xii) redeem,

retire, purchase or otherwise acquire, directly or indirectly, any of

Borrower’s stock; (xiii) make any change in Borrower’s capital structure  which could have a material adverse effect

on Borrower or on the prospect of repayment of the Obligations; or (xiv) pay

total compensation, including salaries, fees, bonuses, commissions, and all

other payments whether directly or indirectly, in money or otherwise, to

Borrower’s executives, officers and directors (or any relative thereof) in an

amount in excess of the amount set forth on Schedule 1; or (xv) dissolve or

elect to dissolve.




5.6          Litigation

Cooperation.  Should any third-party suit or proceeding

be instituted by or against Lender with respect to any Collateral or in any

manner relating to Borrower, Borrower shall, without expense to Lender, make

available Borrower and its officers, employees and agents and Borrower’s books

and records, to the extent that Lender may deem them reasonably necessary in

order to prosecute or defend any such suit or proceeding.




5.7          Deposit

Accounts.  Unless otherwise agreed to in writing by

Lender, Borrower shall maintain all of its deposit accounts with Lender.   If Lender agrees that Borrower may maintain

bank accounts with any entity other than Lender, Borrower shall, on or before

the date of this Agreement, enter into an account control agreement with Lender

and such other entity, in form and substance satisfactory to Lender.




5.8          Letter

of Credit Beneficiary.  If Borrower is or becomes the

beneficiary of a letter of credit, Borrower shall promptly, and in any event

within two (2) Business Days after becoming a beneficiary, notify Lender

thereof and enter into a tri-party agreement with Lender and the issuer and/or

confirmation bank with respect to letter-of-credit rights assigning such

letter-of-credit rights to Lender.




5.9          Electronic

Chattel Paper.  Borrower shall take all steps necessary

to grant the Lender control of all electronic chattel paper in accordance with

the UCC and all “transferable records” as defined in each of the Uniform

Electronic Transactions Act and the Electronic Signatures in Global and

National Commerce Act.




5.10        Commercial

Tort Claim.   Borrower shall promptly, and in any event

within two (2) Business Days after the same is acquired by it, notify Lender of

any commercial tort claim (as defined in the UCC) acquired by it and unless

otherwise consented by Lender, Borrower shall enter into a supplement to this

Agreement, granting to Lender a security interest in such commercial tort claim




5.11        Intellectual

Property.  Borrower shall deliver to Lender on or

before the date of this Agreement separate collateral assignments of

intellectual property for recordation in the United States Patent and Trademark

Office, the United States Copyright Office, or other appropriate governmental

authority, as appropriate, with respect to the patents, trademarks copyrights

and licenses listed on Schedule 2.




5.12         urther

Assurances.  Borrower agrees,

at its expense, on request by Lender, to execute all documents and take all

actions, as Lender, may deem reasonably necessary or useful in order to perfect

and maintain Lender’s perfected security interest in the Collateral, and in

order to fully consummate the transactions contemplated by this Agreement.




6.             TERM.




6.1          Maturity

Date.  This Agreement shall continue in effect until the

maturity date set forth on Schedule 1 (the “Maturity Date”); provided that the

Maturity Date shall automatically be extended and this Agreement shall

automatically and continuously renew, for successive additional terms of one

year each, unless one party gives written notice to the other, not less than

sixty days prior to the next Maturity Date, that such party elects to terminate

this Agreement effective on the next Maturity Date. Notwithstanding the

foregoing, upon the occurrence of an Event of Default, Lender may terminate its

obligations under this Agreement without notice.




6.2          Early

Termination by Borrower.   This Agreement may be terminated prior to

the Maturity Date by Borrower, effective three Business Days after written

notice of termination is given to Lender; provided, however, that Borrower’s

right to terminate this Agreement prior to the date set forth in Section 6.1

shall be conditioned upon Borrower’s payment of  a termination fee to Lender as set forth in Schedule 1 (the

“Termination Fee”). The Termination Fee stated for the final year of the

contract shall be extended as the Termination Fee during any automatic or

continuous renewal period.  The

Termination Fee shall be due and payable concurrently with Borrower’s service

of written notice on Lender electing early termination and payment of the

Termination Fee shall be a condition precedent to the effectiveness of such

early termination.




6.3          Payment

of Obligations.  On the Maturity Date or on any earlier

effective date of termination, Borrower shall pay and perform in full all

Obligations, whether evidenced by installment notes or otherwise, and whether

or not all or any part of such Obligations are otherwise then due and payable.

Without limiting the generality of the foregoing, if on the Maturity Date, or

on any earlier effective date of termination, there are any outstanding Letters

of Credit issued by Lender or issued by another institution based upon an

application, guarantee, indemnity or similar agreement on the part of Lender,

then on such date Borrower shall provide to Lender cash collateral in an amount

equal to the face amount of all such Letters of Credit plus all interest, fees

and cost due or to become due in connection therewith, to secure all of the

Obligations relating to said Letters of Credit, pursuant to Lender’s then

standard form cash pledge agreement. Notwithstanding any termination of this

Agreement, all of Lender’s security interests in all of the Collateral and all

of the terms and provisions of this Agreement shall continue in full force and

effect until all Obligations have been paid and performed in full; provided

that, without limiting the fact that Loans are subject to the discretion of

Lender, Lender may, in its sole discretion, refuse to make any further Loans

after termination. No termination shall in any way affect or impair any right

or remedy of Lender, nor shall any such termination relieve Borrower of any

Obligation to Lender, until all of the Obligations have been paid and performed

in full. Upon payment and performance in full of all the Obligations and

termination of this Agreement, Lender shall promptly deliver to Borrower

termination statements, requests for reconveyances and such other documents as

may be required to fully terminate Lender’s security interest.




 




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7.             EVENTS OF DEFAULT AND REMEDIES.




7.1          Events

of Default.  The occurrence of any of the following

events shall constitute an “Event of Default” under this Agreement, and

Borrower shall give Lender immediate written notice thereof:  (a) Any warranty, representation, statement,

report or certificate made or delivered to Lender by Borrower or any of

Borrower’s officers, employees or agents, now or in the future, shall be untrue

or misleading in a material respect; or (b) Borrower shall fail to pay when due

any Loan or any interest thereon or any other monetary Obligation; or (c) the

total Loans and other Obligations outstanding at any time shall exceed the

Credit Limit; or (d) Borrower shall fail to comply with or shall breach any of

the financial covenants set forth in Schedule 1 or shall fail to perform any

other non-monetary Obligation which by its nature cannot be cured; or (e)

Borrower shall fail to perform any other non-monetary Obligation, which failure

is not cured within 5 Business Days after the date due; or (f) Any levy assessment,

attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made

on all or any part of the Collateral which is not cured within 10 days after

the occurrence of the same; or (g) any default or event of default occurs under

any obligation secured by a Permitted Lien, which is not cured within any

applicable cure period or waived in writing by the holder of the Permitted

Lien; or (h) Borrower breaches any material 

contract or obligation, which has or may reasonably be expected to have

a material adverse effect on Borrower’s business or financial condition; or (i)

Dissolution, termination of existence, insolvency or business failure of

Borrower (if Borrower is a business organization)  or appointment of a receiver, trustee or custodian, for all or

any part of the property of, assignment for the benefit of creditors by, or the

commencement of any proceeding by Borrower under any reorganization,

bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or

liquidation law or statute of any jurisdiction, now or in the future in effect;

or (j) Borrower (if Borrower is an individual or sole proprietor) or one or

more of the Borrowers (if Borrower is comprised of a partnership or two or more

individuals), any shareholders, partners, members, managers or principals of

Borrower, or any guarantor of the Obligations dies, becomes incapacitated,

becomes insolvent, suffers a business failure, or ceases the active involvement

in the conduct of Borrower’s business, or is the subject of the appointment of

a receiver, trustee or custodian for all or any part of his/her/its property,

enters into an assignment for the benefit of creditors, or is the subject of

the commencement of any proceeding under any reorganization, bankruptcy,

insolvency, arrangement, adjustment, readjustment of debt, dissolution or

liquidation law or statute of any jurisdiction, now or in the future in effect;

or (k) the commencement of any proceeding against Borrower, any shareholders,

partners, members, managers or principals of Borrower, or any guarantor of any

of the Obligations under any reorganization, bankruptcy, insolvency,

arrangement, readjustment  or debt,

dissolution or liquidation law or statute of any jurisdiction, now or in the

future in effect, which is not cured by the dismissal thereof within 30 days

after the date commenced; or (l) revocation or termination of, or limitation or

denial of liability upon, any guaranty of the Obligations or any attempt to do

any of the foregoing, or commencement of proceedings by any guarantor of any of

the Obligations under any bankruptcy or insolvency law; or (m) revocation or

termination of, or limitation or denial of liability upon, any pledge of any

certificate of deposit, securities or other property or asset of any kind

pledged by any third party to secure any or all of the Obligations, or any

attempt to do any of the foregoing, or commencement of proceedings by or

against any such third party under any bankruptcy or insolvency law; or (n)

Borrower makes any payment on account of any indebtedness or obligation which

has been subordinated to the Obligations other than as permitted in the

applicable subordination agreement, or if any Person who has subordinated such

indebtedness or obligations terminates or in any way limits such Person’s

subordination agreement; or (o) there shall be a change in the record or

beneficial ownership of the outstanding shares of stock, partnership interests,

membership, or other ownership of Borrower or any guarantor of the Obligations,

without the prior written consent of Lender; or (p) Borrower shall generally

not pay its debts as they become due, or Borrower shall conceal, remove or

transfer any part of its property which may be fraudulent under any bankruptcy,

fraudulent conveyance or similar law: or (q) there shall be a material adverse

change in Borrower’s business or financial condition; or (r) Lender acting in

good faith and in a commercially reasonable manner, deems itself insecure

because of the occurrence of an event prior to the effective date hereof of

which Lender had no knowledge on the effective date or because of the

occurrence of an event on or subsequent to the effective date; or (s) Lender

ceases to conduct business the way that it conducts business as of the date of

this Agreement; or (t) The indictment of Borrower, or any principal of

Borrower, or any guarantor, under any criminal statute, or commencement of

criminal or civil proceedings against Borrower or any guarantor, pursuant to

which statute or proceedings the penalties or remedies sought or available

include forfeiture of any of the property of Borrower or such guarantor.




7.2          Remedies.  Upon the occurrence of any Event of Default, and at

any time thereafter, Lender, at its option, and without notice or demand of any

kind (all of which are hereby expressly waived by Borrower), may do any one or

more of the following:  (a) Cease making

Loans or otherwise extending credit to Borrower under this Agreement or any

other document or agreement; (b) Accelerate and declare all or any part of the

Obligations to be immediately due, payable, and performable, notwithstanding

any deferred or installment payments allowed by any instrument evidencing or

relating to any Obligation; (c) Take possession of any or all of the Collateral

wherever it may be found, and for that purpose Borrower hereby authorized

Lender without judicial process to enter onto any of Borrower’s premises

without interference to search for, take possession of, keep, store, or remove

any of the Collateral, and remain on the premises or cause a custodian to

remain on the premises in exclusive control thereof, without charge for so long

as Lender deems it reasonably necessary in order to complete the enforcement of

its rights under this Agreement or any other agreement; provided, however, that

should Lender seek to take possession of any of the Collateral by Court

process, Borrower hereby irrevocably waives: (i) any bond and any surety or

security relating thereto required by any statute, court rule or otherwise as

an incident to such possession; (ii) any demand for possession prior to the

commencement of any suit or action to recover possession thereof; and (iii) any

requirement that Lender retain possession of, and not dispose of, any such

Collateral until after trial or final judgment; (d) Require Borrower to

assemble any or all of the Collateral and make it available to Lender at places

designated by Lender which are reasonably convenient to Lender and Borrower,

and to remove the Collateral to such locations as Lender may deem advisable;

(e) Complete the processing, manufacturing or repair of any Collateral prior to

a disposition thereof and, for such purpose and for the purpose of removal,

Lender shall have the right to use Borrower’s premises, vehicles, hoists,

lifts, cranes, equipment and all other property without charge; (f) Sell,

lease, license or otherwise dispose of any of the Collateral, in its condition

at the time Lender obtains possession of it or after further manufacturing,

processing or repair, at one or more public and/or private sales, in lots or in

bulk, for cash, exchange or other property, or on credit, and to adjourn any

such sale from time to time without notice other than oral announcement at the

time scheduled for sale. Borrower agrees that, to the extent notice of sale

shall be required by law, at least ten days’ notice to Grantor of the time and

place of any public sale or the time after which any private sale is to be made

shall constitute reasonable notification. 

Secured Party shall not be obligated to make any sale of Collateral

regardless of notice of sale having been given.  Secured Party may adjourn any public or private sale from time to

time by announcement at the time and place fixed therefor, and such sale may,

without further notice, be made at the time and place to which it was so

adjourned; (g) Demand payment of, and collect any Receivables and General

Intangibles comprising Collateral and, in connection therewith, Borrower

irrevocably authorizes Lender to directly notify all Account Debtors that the

Receivables have been assigned to Lender and to collect Receivables directly in

Lender’s own name and to endorse or sign Borrower’ name on all collections,

receipts, instruments and other documents, to take possession of and open mail

addressed to Borrower and remove therefrom payments made with respect to any

item of the Collateral or proceeds thereof, and, in Lender’ sole  discretion, to grant extensions of time to

pay, compromise claims and settle Receivables and the like for less than face

value; (h) Offset against any sums in any of Borrower’s general, special or

other Deposit Accounts with Lender; and (i) Demand and receive possession of

any of Borrower’s federal and state income tax returns and the books and

records utilized in the preparation thereof or referring thereto. All

reasonable attorneys’ fees, expenses, costs, liabilities and obligations

incurred by Lender with respect to the foregoing shall be added to and become

part of the Obligations, shall be due on demand, and shall bear interest at a

rate equal to the highest interest rate applicable to any of the Obligations.

Without limiting any of Lender’s rights and remedies, from and after the

occurrence of any Default or Event of Default, and during the continuation

thereof, the Obligations shall bear interest, calculated daily on the basis of

a 360-day year for the actual days elapsed, at the per annum rate set forth on

Schedule 1, plus four (4%) per annum (the “Default Rate”).




7.3          Grant

of License to Use Intellectual Property. 

To enable

Lender to exercise rights and remedies under Section 7.2 hereof Borrower hereby

grants to Lender an irrevocable, non-exclusive license (exercisable without

payment of royalty or other compensation to Borrower) to use, license or

sublicense any patent, trademark, trade secret, or copyright now owned or

hereafter acquired by Borrower, and including in such license reasonable access

to all media in which any of the licensed items may be recorded or stored and

to all computer and automatic machinery software and programs used for the

compilation or printout thereof.




7.4          Power

of Attorney.  Upon the occurrence of any Event of

Default, without limiting Lender’s other rights and remedies, Borrower grants

to Lender an irrevocable power of attorney coupled with an interest,

authorizing and permitting Lender (acting through any of its employees,

attorneys or agents) at any time, at its option, but without obligation, with

or without notice to Borrower, and at Borrower’s expense, to do any or all of

the following, in Borrower’s name or otherwise, but




 




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Lender agrees to exercise the following powers in a

commercially reasonable manner:  (a)

Execute on behalf of Borrower any documents that Lender may, in its sole

discretion, deem advisable in order to perfect and maintain Lender’s security

interest in the Collateral, or in order to exercise a right of Borrower or

Lender, or in order to fully consummate all the transactions contemplated under

this Agreement, and all other present and future agreements; (b) Execute on

behalf of Borrower any document exercising, transferring or assigning any

option to purchase, sell or otherwise dispose of or to lease (as lessor or

lessee) any real or personal property which is part of Lender’s Collateral or

in which Lender has a interest; (c) Execute on behalf of Borrower, any invoices

relating to any Receivable, any draft against any Account Debtor and any notice

to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien,

claim of mechanic’s, materialman’s or other lien, or assignment or satisfaction

of mechanic’s, materialman’s or other lien; (d) Take control in any manner of

any cash or non-cash items of payment or proceeds of Collateral; endorse the

name of Borrower upon any instruments, or documents, evidence of payment or

Collateral that may come into Lender’s possession; (e) Endorse all checks and

other forms of remittances received by Lender; (f) Pay, contest or settle any

lien, charge, encumbrance, security interest and adverse claim in or to any of

the Collateral, or any judgment based thereon, or otherwise take any action to

terminate or discharge the same; (g) Grant extensions of time to pay,

compromise claims and settle Receivables and General Intangibles for less than

face value and execute all releases and other documents in connection

therewith; (h) Pay any sums required on account of Borrower’s taxes or to

secure the release of any liens therefor, or both; (i) Settle and adjust, and

give releases of, any insurance claim that relates to any of the Collateral and

obtain payment therefor; (j) Instruct any third party having custody or control

of any books or records belonging to, or relating to, Borrower to give Lender

the same rights of access and other rights with respect thereto as Lender has

under this Agreement;  (k) Take any

action or pay any sum required of Borrower pursuant to this Agreement and any

other present or future agreements; and (l) take any other actions that are

authorized under Section 4.4. Any and all reasonable sums paid and any and all

reasonable costs, expenses, liabilities, obligations and attorneys’ fees

incurred by Lender with respect to the foregoing shall be added to and become

part of the Obligations, shall be payable on demand, and shall bear interest at

a rate equal to the highest interest rate applicable to any of the Obligations.

In no event shall Lender’s rights under the foregoing power of attorney or any

of Lender’s other rights under this Agreement be deemed to indicate that Lender

is in control of the business, management or properties of Borrower.




7.5          Application

of Proceeds.  All proceeds realized as the result of

any sale of the Collateral shall be applied by Lender first to the reasonable

costs, expenses, liabilities, obligations and attorneys’ fees incurred by

Lender in the exercise of its rights under this Agreement, second to the

interest due upon any of the Obligations, and third to the principal of the

Obligations, in such order as Lender shall determine in its sole discretion.

Any surplus shall be paid to Borrower or other persons legally entitled

thereto; and Borrower shall remain liable to Lender for any deficiency. If,

Lender in its sole discretion, directly or indirectly enters into a deferred

payment or other credit transaction with any purchaser at any sale of

Collateral, Lender shall have the option, exercisable at any time, in its sole

discretion, of either reducing the Obligations by the principal amount of

purchase price or deferring the reduction of the Obligations until the actual

receipt by Lender of the cash there from.




7.6          Remedies

Cumulative.  In addition to the rights and remedies

set forth in this Agreement, Lender shall have all the other rights and

remedies accorded a secured party under the California Uniform Commercial Code

and under all other applicable laws, and under any other instrument or

agreement now or in the future entered into between Lender and Borrower, and

all of such rights and remedies are cumulative and none is exclusive. Exercise

or partial exercise by Lender of one or more of its rights or remedies shall

not be deemed an election, nor bar Lender from subsequent exercise or partial

exercise of any other rights or remedies. The failure or delay of Lender to

exercise any rights or remedies shall not operate as a waiver thereof, but all

rights and remedies shall continue in full force and effect until all of the

Obligations have been fully paid and performed.




8.             DEFINITIONS.  As used in this Agreement, the following terms have

the following meanings:




“Account” means any “account,” as such term is

defined in the UCC, now owned or hereafter acquired by Borrower or in which

Borrower now holds or hereafter acquires any interest and, in any event, shall

include all accounts receivable, book debts, rights to payment, and other forms

of obligations now owned or hereafter received or acquired by or belonging or

owing to Borrower (including under any trade name, style or division thereof),

whether or not arising out of goods or software sold or services rendered by

Borrower or from any other transaction (including any such obligation that may

be characterized as an account or contract right under the UCC), and all of

Borrower’s rights in, to and under all purchase orders or receipts now owned or

hereafter acquired by it for goods or services, and all of Borrower’s rights to

any goods represented by any of the foregoing (including unpaid seller’s rights

of rescission, replevin, reclamation and stoppage in transit and rights to

returned, reclaimed or repossessed goods), and all monies due or to become due

to Borrower under all purchase orders and contracts for the sale of goods or

the performance of services or both by Borrower or in connection with any other

transaction (whether or not yet earned by performance on the part of Borrower),

now in existence or hereafter occurring, including the right to receive the

proceeds of said purchase orders and contracts, and all collateral security and

guarantees of any kind given by any Person with respect to any of the

foregoing.




“Account Debtor” shall have the meaning set

forth in the UCC and shall include any person liable on any Account or

Receivable, including any guarantor of the Account or Receivable and any issuer

of a letter of credit or banker’s acceptance.




“Affiliate” means, with respect to any Person,

a relative, partner, shareholder, director, officer, or employee of such

Person, or any parent or subsidiary of such Person, or any Person controlling,

controlled by or under common control with such Person.




“Borrower’s Address” shall have the meaning

assigned to it in the preamble to this Agreement.




“Business Day” means a day on which Lender is

open for business.




“Cash” means all cash, money, currency, and

liquid funds, wherever held, in which Borrower now or hereafter acquires any

right, title, or interest.




“Chattel Paper” means any “chattel paper,” as

such term is defined in the UCC, now owned or hereafter acquired by Borrower or

in which Borrower now holds or hereafter acquires any interest.




“Collateral” has the meaning set forth in

Section 2.1 above.




“Credit Limit” has the meaning set forth in

Schedule 1.




“Default” means any event which with notice or

passage of time or both, would constitute an Event of Default.




“Default Rate” has the meaning set forth in

Section 7.2 above




“Deposit Accounts”  means any “deposit accounts,” as such term is defined in the UCC,

and includes any checking account, savings account, or certificate of deposit

now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter

acquires any interest.




“Documents” means any “documents,” as such term

is defined in the UCC, now owned or hereafter acquired by Borrower or in which

Borrower now holds or hereafter acquires any interest.




“Event of Default” means any of the events set

forth in Section 7.1 of this Agreement.




“Eligible Inventory” means Inventory, which

Lender, in its sole judgment, deems eligible for borrowing, based on such

considerations as Lender may from time to time deem appropriate. Without

limiting the fact that the determination of which Inventory is eligible for

borrowing is a matter of Lender’s discretion, Inventory which does not meet the

following requirements will not be deemed to be Eligible Inventory: Inventory

which (i) consists of finished goods, in good, new and salable condition which

is not perishable, not obsolete or unmerchantable, and is not comprised of raw

materials, work in process, packaging materials or supplies; (ii) meets all

applicable governmental standards; (iii) has been manufactured in compliance

with the Fair Labor Standards Act; (iv) conforms in all respects to the

warranties and representations set forth in this Agreement: (v) is at all times

subject to Lender’s duly perfected, first priority security interest; and (vi)

is situated at one of the locations set forth on Schedule 1. Notwithstanding

the foregoing, Lender shall have the right, from time to time and in its sole

and absolute discretion, to waive one or more of the foregoing requirements

without creating any express or implied obligation to accept non-conforming

Inventory as Eligible Inventory in the future.




“Eligible Receivables” means Receivables

arising in the ordinary course of Borrower’s business from the sale of goods or

rendition of services, which Lender, in its sole judgment, shall deem eligible

for borrowing, based on such considerations as Lender may from time to time

deem appropriate. Without limiting the fact that the determination of which

Receivables are eligible for borrowing is a matter of Lender’s discretion, the

following (the “Minimum Eligibility 

Requirements”) are the minimum requirements for a Receivable to be

an Eligible Receivable:  (i) the

Receivable must not be outstanding for more than 90 days from its invoice date,

(ii) the Receivable must not represent progress billings, or be due under a

fulfillment or requirements contract with the Account Debtor, (iii) the




 




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Receivable must not be subject to any contingencies (including

Receivables  arising from sales on

consignment, guaranteed sale or other terms pursuant to which payment by the

Account Debtor may be conditional), (iv) the Receivable must not be owing from

an Account Debtor with whom the Borrower has any dispute (whether or not

relating to the particular Receivable), (v) the Receivable must not be owing

from an Affiliate of Borrower, (vi) the Receivable must not be owing from an

Account Debtor which is subject to any insolvency or bankruptcy proceeding, or

whose financial condition is not acceptable to Lender, or which, fails or goes

out of a material portion of its business, (vii) (viii) the Receivable must not

be owing from an Account Debtor located outside the United States or Canada

(unless pre-approved by Lender in its discretion in writing, or backed by a

letter of credit satisfactory to Lender, or FICA insured satisfactory to

Lender), (ix) the Receivable must not be owing from an Account Debtor to whom

Borrower is or may be liable for goods purchased from such Account Debtor or

otherwise. Lender may, from time to time, in its discretion, revise the Minimum

Eligibility requirements, upon written notice to the Borrower. Notwithstanding

the foregoing, Lender shall have the right, from time to time and in its sole

and absolute discretion, to waive one or more of the foregoing requirements

without creating any express or implied obligation to accept Receivables not

satisfying the Minimum Eligibility Requirements as Eligible Receivables in the

future.




“Equipment” means any “equipment,” as such term

is defined in the UCC, and, in any event, shall include, all of Borrower’s

present and hereafter acquired machinery, molds, machine tools, motors,

furniture, equipment, furnishings, 

trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and

other tangible personal property (other than Inventory) of every kind and

description used in Borrower’s operations or owned by Borrower and any interest

in any of the foregoing, and all 

additions, upgrades, substitutions, and replacements of the foregoing,

together with all attachments, components, parts, accessions, and accessories

installed thereon or affixed thereto, now owned or hereafter acquired by

Borrower or in which Borrower now holds or hereafter acquires any interest.




“Event of Default” shall have the meaning

assigned to it in Section 7.1.




“Fixtures” means any “fixtures,” as such term

is defined in the UCC, together with all right, title and interest of Borrower

in and to all extensions, improvements, betterments, accessions, renewals,

substitutes, and replacements of, and all additions and appurtenances to any of

the foregoing property, and all conversions of the security constituted

thereby, immediately upon any acquisition or release thereof or any such

conversion, as the case may be, now owned or hereafter acquired by Borrower or

in which Borrower now holds or hereafter acquires any interest.




“General Intangibles”  means any “general intangibles,” as such term is defined in the

UCC, and, in any event, shall include all right, title and interest which

Borrower may now or hereafter have in or under any rights to payment, payment

intangibles, software, proprietary or confidential information, business

records and materials, customer lists, interests in partnerships, joint

ventures, business associations, corporations, and limited liability companies,

permits, rights to receive tax refunds and other payments, all choses in

action, causes of action, inventions, designs, drawings, blueprints, patents,

patent applications, trademarks and the goodwill of the business associated

therewith, names, trade names, trade secrets, goodwill, copyrights,

registrations, licenses, franchises, 

security and other deposits, rights in all litigation presently or

hereafter pending for any cause or claim (whether in contract, tort or

otherwise), and all judgments now or hereafter arising therefrom, all claims of

Borrower against Lender, rights to purchase or sell real or personal property,

rights as a licensor or licensee of any kind, royalties, telephone numbers,

proprietary information, purchase orders, all insurance policies (including

life insurance, key man insurance, credit insurance, liability insurance,

property insurance and other insurance) and claims in or under insurance

policies (including unearned premiums and retrospective premium adjustments),

rights to receive tax refunds and claims, computer programs, discs, tapes and

tape files, claims under guaranties, security interests or other security held

by or granted to Borrower, all rights to indemnification and all other

intangible property of every kind and nature, other than Receivables.




“Instruments” means any “instruments,” as such

term is defined in the UCC, now owned or hereafter acquired by Borrower or in

which Borrower now holds or hereafter acquires any interest.




“Inventory” means any “inventory,” as such term

is defined in the UCC, now owned or hereafter acquired by Borrower or in which

Borrower now holds or hereafter acquires any interest, and, in any event, shall

include all right, title and interest which Borrower may now or hereafter have

in all goods, merchandise or other personal property, wherever located, to be

furnished under any contract of service or held for sale or lease (including

without limitation all raw materials, work in process, finished goods and goods

in transit), and all materials and supplies of every kind, nature and

description which are or might be used or consumed in Borrower’s business or

used in connection with the manufacture, packing, shipping, advertising,

selling or finishing of such goods, merchandise or other personal property, and

all warehouse receipts, documents or title and other documents representing any

of the foregoing.




“Investment Property” means any “investment

property,” as such term is defined in the UCC, and includes any certificated

security, uncertificated security, money market funds, bonds, mutual funds, and

U.S. Treasury bills or notes, now owned or hereafter acquired by Borrower or in

which Borrower now holds or hereafter acquires any interest.




“Lender” shall have the meaning assigned to it

in the preamble to this Agreement and shall include all successors and assigns

of Pacific Business Funding.




“Letter of Credit Rights” means any “letter of

credit rights,” as such term is defined in the UCC, now owned or hereafter

acquired by Borrower or in which Borrower now holds or hereafter acquires any

interest, including any right to payment or performance under any letter of

credit.




“Letter of Credit Obligations”  mean all outstanding obligations incurred by

Lender at the request of Borrower, whether direct or indirect, contingent or

otherwise, due or not due, in connection with the issuance of a reimbursement

agreement or guaranty by Lender with respect to any Letter of Credit.  The amount of such Letter of Credit Obligations

shall equal the maximum amount that may be payable by  Lender thereupon or pursuant thereto.




“Letters of Credit” shall have the meaning

assigned to it in Section 1.5.




“Loans” shall have the meaning assigned to it

in Section 1.1.




“Lockbox” shall have the meaning assigned to it

in Section 4.4.




“Maturity Date” has the meaning set forth in

Schedule 1.




“Minimum Monthly Interest” has the meaning set

forth in Section 1.2 above.




“Obligations” means all present and future

Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties

and indebtedness at any time owing by Borrower to Lender, whether evidenced by

this Agreement or any note or other instrument or document whether arising from

an extension of credit, opening of a letter or credit, banker’s acceptance,

loan, guaranty, indemnification, or otherwise, whether direct or indirect

(including those acquired by assignment and any participation by Lender in

Borrower’s debts owing to others), absolute or contingent, due or to become

due, including all interest, charges, expenses, fees, attorney’s fees, expert

witness fees, audit fees, letter or credit fees, collateral monitoring fees,

closing fees, facility fees, termination fees, minimum interest charges and any

other sums chargeable to Borrower under this Agreement or under any other

present or future instrument or agreement between Borrower and Lender.




“Permitted Liens” means the following:  (i) purchase money security interests in

specific items of Equipment to secure the purchase price for such specific

items and not any other Equipment; (ii) leases of specific items of Equipment;

(iii) liens for taxes not yet payable; (iv) additional security interests and

liens consented to in writing by Lender, which consent Lender may withhold in

its sole and absolute discretion; (v) liens incurred in connection with the

extension, renewal or refinancing of the indebtedness secured by liens of the

type described above in clauses (i) or (ii) above, provided that any extension,

renewal or replacement lien is limited to the property encumbered by the

existing lien and the principal amount of the indebtedness being extended,

renewed or refinanced does not increase; (vi) Liens in favor of customs and

revenue authorities which secure payment of customs duties in connection with

the importation of goods. Without creating any expressed or implied duty on

Lender’s part to grant its approval to any other liens on the Collateral,

Lender will have the right to require, as a condition to its consent under

subparagraph (iv) above, that the holder of the additional security interest or

lien sign an intercreditor agreement on Lender’s then standard form,

acknowledge that the security interest is subordinate to the security interest

in favor of Lender, and agree not to take any action to enforce its subordinate

security interest so long as any Obligations remain




 




8





























 




outstanding, and that Borrower agrees that any uncured default in any

obligation secured by the subordinate security interest shall also constitute

an Event of Default under this Agreement. A full, true and complete list of the

Permitted Liens existing on the Collateral as of the date of this Agreement and

of the secured parties/equipment lessors under such Permitted Liens is set

forth in  Schedule 1.




“Person” means any individual, sole

proprietorship, partnership, joint venture, trust, unincorporated organization,

association, corporation, government, or any agency or political division

thereof, or any other entity.




“Proceeds” means “proceeds,” as such term is

defined in the UCC and, in any event, shall include (a) any and all Accounts,

Chattel Paper, Instruments, Cash, proceeds of letters of credit, Letter of

Credit Rights, Supporting Obligations, or other proceeds payable to Borrower

from time to time in respect of the Collateral, (b) any and all proceeds of any

insurance, indemnity, warranty or guaranty payable to Borrower from time to

time with respect to any of the Collateral, (c) any and all payments (in any form

whatsoever) made or due and payable to Borrower from time to time in connection

with any requisition, confiscation, condemnation, seizure or forfeiture of all

or any part of the Collateral by any governmental authority (or any Person

acting under color of governmental authority), (d) the proceeds, damages, or

recovery based on any claim of Borrower against third parties (i) for past,

present or future infringement of any copyright, copyright license, patent or

patent license or (ii) for past, present or future infringement or dilution of

any trademark or trademark license or for injury to the goodwill associated

with any trademark, trademark registration or trademark licensed under any

trademark License, and (e) any and all other amounts from time to time paid or

payable under or in connection with any of the Collateral.




“Receivables” “Receivables” means (i) all of

Borrower’s Accounts, Instruments, Documents, Chattel Paper, Supporting

Obligations, letters of credit, proceeds of any letter of credit, and Letter of

Credit Rights, and (ii) all customer lists, software, and business records

related thereto.




“Schedule of Receivables” shall have the

meaning assigned to it in Section 4.3.




“Schedules” shall have the meaning assigned to

it in the preamble to this Agreement.




“Supporting Obligations” means any “supporting

obligations,” as such term is defined in the UCC, now owned or hereafter

acquired by Borrower or in which Borrower now holds or hereafter acquires any

interest.




“Termination Fee” has the meaning assigned to

it in Schedule 1.




“UCC” means the Uniform Commercial Code as the

same is, from time to time, in effect in the State of California; provided,

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,

Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as

the same is, from time to time, in effect in a jurisdiction other than the

State of California, then the term “UCC” shall mean the Uniform Commercial Code

as in effect, from time to time, in such other jurisdiction solely for purposes

of the provisions thereof relating to such attachment, perfection, priority or

remedies and for purposes of definitions related to such provisions.  Unless otherwise defined herein or in the

other Loan Documents, terms that are defined in the UCC and used herein or in

the other Loan Documents shall, unless the context indicates otherwise, have

the meanings given to them in the UCC.




Other Terms All accounting terms used in this

Agreement, unless otherwise indicated, shall have the meanings given to such

terms in accordance with generally accepted accounting principles, consistently

applied.




9.             GENERAL PROVISIONS.




9.1 

Interest Computation. In computing interest on the Obligations, all checks,

wire transfers and other items of payment received by Lender (including

proceeds of Receivables and payment of the Obligations if full) shall be deemed

applied by Lender on account of the Obligations three Business Days after

receipt by Lender of immediately available funds, and, for purposes of the

foregoing, any such funds received after 12:00 PM, California time, on any day

shall be deemed received on the next Business Day. Lender shall not, however,

be required to credit Borrower’s account for the amount of any item of payment

which is unsatisfactory to Lender in its sole discretion, and Lender may charge

Borrower’s loan account for the amount of any item of payment which is returned

to Lender unpaid. If Lender is required to return or refund any payment

received either from Borrower or any Account Debtor (including any return

required under the United States Bankruptcy Code, any similar state law

debtor-creditor legislation, or any successor statute), such payment shall be

treated the same as if it were never received and interest shall continue to

accrue from and after the date that such payment was originally credited by

Lender.




9.2          Application

of Payments.   All payments with respect to the

Obligations may be applied, and in Lender’s sole discretion reversed and

re-applied, to the Obligations, in such order and manner as Lender shall

determine in its sole discretion.




9.3          Charges

to Accounts.  Lender may, in its discretion, require

that Borrower pay monetary Obligations in cash to Lender, or charge them to

Borrower’s Loan account, in which event they will bear interest at the same

rate applicable to the Loans. Lender may also, in its discretion, charge any

monetary Obligations to Borrower’s Deposit Accounts maintained with Lender.




9.5          Notices.  All notices to be given under this Agreement shall be

in writing and shall be given either personally or by reputable private

delivery service or by regular first-class mail, or certified mail return

receipt requested, addressed to Lender or Borrower at the addresses shown in

the heading to this Agreement, or at any other address designated in writing by

one party to the other party. Notices to Lender shall be directed to the

Division President or the Division Credit Manager.  All notices shall be deemed to have been given upon delivery in

the case of notices personally delivered, or at the expiration of one Business

Day following delivery to the private delivery service, or two Business Days

following the deposit thereof in the United States mail, with postage prepaid.




9.6          Severability.  Should any provision of this Agreement be held by any

court of competent jurisdiction to be void or unenforceable, such defect shall

not affect the remainder of this Agreement, which shall continue in full force

and effect.




9.7          Integration.   This Agreement

and such other written agreements, documents and instruments as may be executed

in connection herewith are the final, entire and complete agreement between

Borrower and Lender and supersede all prior and contemporaneous negotiations

and oral representations and agreements, all of which are merged and integrated

in this Agreement. There are no oral understandings, representations or

agreements between the parties which are not set forth in this Agreement or in

other written agreements signed by the parties in connection herewith.




9.8          Waivers.  The failure of Lender at any time or times to require

Borrower to strictly comply with any of the provisions of this Agreement or any

other present or future agreement between Borrower and Lender shall not waive

or diminish any right of Lender later to demand and receive strict compliance

therewith. Any waiver of any default shall not waive or affect any other

default, whether prior or subsequent, and whether or not similar. None of the

provisions of this Agreement or any other agreement now or in the future

executed by Borrower and delivered to Lender shall be deemed to have been

waived by any act or knowledge of Lender or its agents or employees, but only by

a specific written waiver signed by an authorized officer of Lender and

delivered to Borrower. Borrower waives demand, protest, notice of protest and

notice of default or dishonor, notice of payment and nonpayment, release,

compromise, settlement, extension or renewal of any commercial paper,

instrument, account, General Intangible, document or guaranty at any time held

by Lender on which Borrower is or may in any way be liable, and notice of any

action taken by Lender, unless expressly required by this Agreement.




9.9          No

Liability for Ordinary Negligence.  Neither Lender, nor any of its directors,

officers, employees, agents, attorneys or any other Person affiliated with or

representing Lender shall be liable for any claims, demands, losses or damages,

of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any

other party through the ordinary negligence of Lender, or any of its directors,

officers, employees, agents, attorneys or any other Person affiliated with or

representing Lender but nothing herein shall relieve Lender from liability for

its own gross negligence or willful misconduct.




 




9





























 




9.10        Amendment.  The terms and provisions of this Agreement may not be

waived or amended, except in a writing executed by Borrower and a duly

authorized officer of Lender.




9.11        Time

of Essence.  Time is of the essence in the performance

by Borrower of each and every obligation under this Agreement.




9.12        Attorneys’

Fees, Costs and Other Expenses.  Borrower shall reimburse Lender for all

reasonable attorneys’ fees and all filing, recording, search, title insurance,

appraisal, audit and other reasonable costs incurred by Lender, pursuant to, or

in connection with, or relating to this Agreement (whether or not a lawsuit is

filed), including any reasonable attorneys’ fees and costs Lender incurs in

order to do the following: prepare and negotiate this Agreement and amendments,

modifications or supplements to this Agreement, and the documents relating to this

Agreement; obtain legal advice in connection with this Agreement or Borrower;

enforce, or seek to enforce, any of its rights; prosecute actions against, or

defend actions by, Account Debtors; commence, intervene in, or defend any

action or proceeding including the initiation or defense of any claim,

including any third party claim; 

represent Lender in connection with any bankruptcy case or insolvency

proceeding involving Borrower, any guarantor, any Receivable, any other

Collateral or any Account Debtor; examine, audit, copy and inspect any of the

Collateral or any of Borrower’s books and records; protect, obtain possession

of, lease, dispose of, or otherwise enforce Lender’s security interest in, the

Collateral; and otherwise represent Lender in any litigation relating to

Borrower, any shareholders, partners, members, managers or principals of

Borrower, or any guarantor of the Obligations. 

All attorneys’ fees and costs to which Lender may be entitled pursuant to

this Section shall immediately become part of Borrower’s Obligations, shall be

due on demand, and shall bear interest at a rate equal to the highest interest

rate applicable to any of the Obligations.




9.13        Benefit

of Agreement.  The provisions of this Agreement shall be

binding upon and inure to the benefit of the respective successors, assigns,

heirs, beneficiaries and representatives of Borrower and Lender; provided,

however, that Borrower may not assign or transfer any of its rights under this

Agreement without the prior written consent of Lender, and any prohibited

assignment shall be void.  No consent by

Lender to any assignment shall release Borrower from its liability for the

Obligations.




9.14        Joint

and Several Liability.  If Borrower consists of more than one

Person, their liability shall be joint and several, and the compromise of any

claim with, or the release of, any Borrower shall not constitute a compromise

with, or a release of, any other Borrower.




9.15        Limitations

of Actions.  Any claim or cause of action by Borrower

against Lender, its directors, officers, employees, agents, accountants or

attorneys, based upon, arising from, or relating to this Loan Agreement, or any

other present or future document or agreement, or any other transaction

contemplated hereby or thereby or relating hereto or thereto, or any other

matter, cause or thing whatsoever, occurred, done, omitted or suffered to be

done by Lender, its directors, officers, employees, agents, accountants or

attorneys, shall be barred unless asserted by Borrower by the commencement of

an action or proceeding in a court of competent jurisdiction by the filing of a

complaint within one year after the first act, occurrence or omission upon

which such claim or cause or action, or any part thereof, is based, and the

service of a summons and complaint on an officer of Lender, or on any other

person authorized to accept service on behalf of Lender, within thirty (30)

days thereafter. Borrower agrees that such one-year period is a reasonable and

sufficient time for Borrower to investigate and act upon any such claim or

cause of action. The one-year period provided herein shall not be waived,

tolled, or extended except by the written consent of Lender in its sole

discretion. This provision shall survive any termination of this Loan Agreement

or any other present or future agreement.




9.16        Paragraph

Headings; Construction.  Paragraph headings are only used in this

Agreement for convenience. Borrower and Lender acknowledge that the headings

may not describe completely the subject matter of the applicable paragraph, and

the headings shall not be used in any manner to construe, limit, define or

interpret any term or provision of this Agreement. The term “including”,

whenever used in this Agreement, shall mean “including (but not limited to)”.  This Agreement has been fully reviewed and

negotiated between the parties and no uncertainty or ambiguity in any term or

provision of this Agreement shall be construed strictly against Lender or

Borrower under any rule of construction or otherwise.




9.17        Governing

Law; Jurisdiction; Venue.  This Agreement and all acts and

transactions hereunder and all rights and obligations of Lender and Borrower

shall be governed by the laws of the State of California. As a material part of

the consideration to Lender to enter into this Agreement, Borrower (i) agrees

that all actions and proceedings relating directly or indirectly to this

Agreement shall, at Lender’s option, be litigated in courts located within

California, and that the exclusive venue therefor shall be Santa Clara County;

(ii) consents to the jurisdiction and venue of any such court and consents to

service of process in any such action or proceeding by personal delivery or any

other method permitted by law; and (iii) waives any and all rights Borrower may

have to object to the jurisdiction of any such court, or to transfer or change

the venue of any such action or proceeding.




9.18        Mutual

Waiver of Jury Trial.  BORROWER AND

LENDER EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING

BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY

OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN LENDER AND BORROWER, OR

ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR BORROWER OR ANY OF THEIR DIRECTORS,

OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH

LENDER OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT

OR TORT OR OTHERWISE.













 




	

  Borrower:


  	

   


  	

   


  	

  Lender:


  	

  Pacific

  Business Funding, a division of Cupertino National Bank


  
	

   


  	

  By:


  	

   


  	

   


  	

   


  	

   


  
	

   


  	

  Print Name:


  	

   


  	

   


  	

   


  	

  By:


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  
	

   


  	

  By:


  	

   


  	

   


  	

   


  	

  Print Name:


  	

   


  	

   


  
	

   


  	

  Print Name:


  	

   


  	

   


  	

   


  	

   


  
										





 




10






















 













 








	
		





 




 




 




 




 




 




 









SCHEDULE 1 TO




 




LOAN AND

SECURITY AGREEMENT




 








	

  Borrower Name:


  	

  VERSANT CORPORATION


  	

   


  	

  Date:

  April 18, 2002


  
	

   


  	

   


  	

   


  	

   


  
	

  Borrow Address:


  	

  6539 Dumbarton Circle, Fremont, CA

  94555


  	

   


  	

   


  










 




This Schedule forms an integral part of the Loan and Security Agreement

between Lender and the above Borrower of even date.  All references in this Schedule 1 to Sections shall be references

to Sections of the Loan and Security Agreement unless otherwise indicated.  All defined terms used in this Schedule 1

shall have the definitions assigned to such terms in the Loan and Security

Agreement unless otherwise indicated.




 




1.             CREDIT LIMIT.  (Section 1.1): 

The "Credit Limit" shall be an amount not to exceed the lesser

of a total of $5,000,000.00 ("Maximum

Credit Amount") at any one time outstanding, or the sum of 80% of the

amount of Borrower's Eligible Receivables.




 




2.             INTEREST.  (Section

1.2):  Interest

Rate:  A rate equal to the

"Prime Rate" in effect from time to time, plus 4.00% per annum.  Interest shall be calculated on the basis of

a 360-day year for the actual number of days elapsed.  "Prime Rate" means the variable per annum rate of

interest publicly listed by the Western Edition of the Wall Street Journal as

the prime rate of interest.  In the

event the prime rate listed by the Wall Street Journal is a range, the highest

rate in the range shall be the "prime Rate".  The interest rate applicable to the

Obligations shall change on each date there is a change in the Prime Rate.




 




Minimum

Monthly Interest  (Section 1.2):  $N/A per month,

payable monthly.




 




3.             FEES.  (Section 1.4):




	

  Commitment Fee:


  	

  $50,000.00, payable concurrently herewith, (Any

  Due Dilligence Fee previously paid by the Borrower in connection with this

  loan shall be credited against this Fee.)


  
	

  Collateral Monitoring Fee:


  	

  $N/A per month, payable monthly in arrears

  (prorated for any partial month at the beginning of this Agreement and for

  the month in which all Obligations are paid in full).


  
	

  Transaction Charge:


  	

  $.05 per invoice entered. (invoice volume

  and verification process)


  $.05 per payment posted.

  (payment processing)


  
	

  Audit Fees:   (Section 5.1)


  	

  $500.00 per person, per day, (or such higher

  amount as shall represent Lender's then current standard charge for the same)

  plus reasonable out of pocket expenses shall be charged.  Lender will conduct one audit per year,

  unless a Default or Event of Default has occurred, or Lender has reason to

  believe that a Default or Event of Default has occurred, in which event the

  number of audits will be in Lender's sole discretion.


  





 




4.             MATURITY DATE.  (Section 6.1): 

One years from the execution date of the Loan and Security Agreement,

subject to automatic renewal as provided in Section 6.1, and early termination

as provided in Section 6.2.




 




5.             EARLY

TERMINATION FEE.  (Section 6.2):  




                N/A




 




	

  6.


  	

  COMMERCIAL TORT CLAIMS.  (Section 2.1): 

  Describe and identify by case number all commercial tort claims:


  
	

   


  	

   


  





 




7.             FINANCIAL COVENANTS.  (Section 5.1): 

Borrower shall comply with all of the following covenants.  Compliance shall be determined as of the end

of each month, except as otherwise specifically provided below:


There are no financial covenants.




 




8.




 




Definitions:  For purposes of the foregoing financial covenants, the

following terms shall have the following meanings:




"Current assets", "current

liabilities" and "liabilities" shall have the meanings ascribed

to them by generally accepted accounting priniciples.




"Tangible New Worth" shall mean the excess

of total assets over total liabilities, determined in accordance with generally

accepted accounting principles, with the following adjustments:




(A)          there shall be excluded from assets:

(i) notes, accounts receivable and other obligations owing to the Borrower from

its officers or other Affiliates, and (ii) all assets which would be classified

as intangble assets under generally accepted accounting principles, including

without limitation goodwill, licenses, patents, trademarks, trade names,

copyrights, capitalized software and orgizational costs, licenses and

franchises.




(B)           there shall be excluded from

liabilities: all indebtedness which is subordinated to the Obligations under a

subordination agreement in form specified by Lender or by language in the

instrument evidencing the indebtedness which is acceptable to Lender in its

discretion.




"Net Profit after

Taxes" shall mean the net profits as determined in accordance with

generally accepted accounting principles.




 




	

  9.


  	

  REPORTING.  (Section 5.3): 

  Borrower shall provide Lender with the following:


  
	

   


  	

  1.


  	

   


  
	

   


  	

  2.


  	

  Monthly Receivable agings, aged by invoice date,

  within twenty days after the end of each month.  The data may be transmitted electronically by email in the

  Lender's standard formats.


  
	

   


  	

  3.


  	

  Monthly accounts payable agings, aged by invoice

  date, and outstanding or held check registers within twenty days after the

  end of each month.  The data may be

  transmitted electronically by email in the Lender's standard formats.


  
	

   


  	

  4.


  	

  Monthly reconciliations of Receivable agings (aged

  by invoice date), transaction reports, and general ledger, within twenty days

  after the end of each month.


  
	

   


  	

  5.


  	

  Monthly unaudited financial statements, as soon as

  available, and in any event within thirty days after the end of each month.


  





 




11





























 




6.             Monthly

Compliance Certificates, within thirty days after the end of each month, in

such form as Lender shall reasonably specify, signed by the Chief Financial

Officer of Borrower, certifying that as of the end of such month Borrower was

in full compliance with all of the terms and conditions of this Agreement, and

setting forth calculations showing compliance with the financial covenants set

forth in this Agreement and such other information as Lender shall reasonably

request.




7.             Annual

operating budgets (including income statements, balance sheets and cash flow

statements, by month) for the upcoming fiscal year of Borrower within thirty

days prior to the end of each fiscal year of Borrower.




8.             Annual

financial statements, as soon as available, and in any event within 120 days

following the end of Borrower's fiscal year, certified by independent certified

public accountants acceptable to Lender.




9.             Quarterly

prepared balance sheets and income statement within 30 days following the end

of each of Borrower's quarter certified by independent certified public

accountants acceptable to Lender.




 




10.          COMPENSATION.  (Section 5.5): 

Without Lender's prior written consent, Borrower shall not pay total

compensation, including salaries, withdrawals, fees, bonuses, commissions,

drawing accounts and other payments, whether directly or indirectly, in money

or otherwise, during any fiscal year to all of Borrower's executives, officers

and directors (or any relative thereof) as a group in excess of n/a% of the total amount thereof in the

prior fiscal year.




 




	

  11.          LITIGATION. 

  (Section 3.11):  Describe all

  Litigation:


  	

   


  
	

   


  





Borrower will promptly inform Lender in writing of any claim,

proceeding, litigation or investigation in the future threatened or instituted

by or against Borrower involving any single claim of $                                                                

or more, involving $                                                                  or more in the aggregate.




 




12.          COMMERCIAL

TORT CLAIMS.  (Section 2.1):  Describe and identify by case number all commercial tort claims:




 








 









 




13.          REMITTANCE OF PROCEEDS. 

(Section 4.6):  If no Default or

Event of Default has occurred, Borrower shall not be obligated to remit to

Lender the proceeds of the sale of worn out or obsolete equipment disposed of

by Borrower in good faith in an arm's length transaction for an aggregate

purchase price of $                                                                

or less for all such transactions in any fiscal year.




 




14.          BORROWER

INFORMATION:




	

  Type of Organization of Borrower:


  	

   


  	

  Existing Trade Names of Borrower


  
	

  (Section 3.1):


  	

   


  	

   


  	

  (Section 3.2):


  	

   


  
	

  State of incorporation or other

  formation


  	

   


  	

   


  
	

  (Section 3.1):


  	

   


  	

   


  	

   


  	

   


  
	

  Borrower's corporate or formation

  identification number:


  	

   


  	

   


  	

   


  
	

  (Section 3.2):


  	

   


  	

   


  	

   


  	

   


  
	

  Prior Names of Borrower:


  	

   


  	

  Other Locations And Addresses:


  
	

  (Section 3.2):


  	

   


  	

   


  	

  (Section 3.3):


  	

   


  
	

   


  	

   


  	

   


  
	

  Prior Trade Names of Borrower


  	

   


  	

   


  
	

  (Section 3.2):


  	

   


  	

   


  	

   


  





 




 




	

  15.


  	

  OTHER COVENANTS. 

  (Section 5.1): Borrower shall at all time comply with all of the

  following additional covenants:


  
	

  (1)


  	

  Banking Relationship (Section

  5.7).  Borrower shall at all times maintain its banking

  relationship (to include Borrower's general checking account, payroll account

  and other Deposit Accounts) with Greater Bay Bancorp.


  
	

  (2)


  	

  Insurance  (Section

  5.2).  Borrower shall, at

  all times insure all of the tangible personal property Collateral and carry

  such other business insurance, with insurers reasonably acceptable to Lender.  All insurance policies shall name Lender

  as the additional loss payee, and shall contain a lenders loss payee

  endorsement in form reasonably acceptable to Lender.


  
	

  (3)


  	

  Permitted Liens (Section 8). 

  The Permitted Liens on the Collateral are of the type and in favor of

  the secured parties/equipment lessors whose names, addresses and telephone

  numbers are set forth below:


  
	

   


  	

   


  
	

   


  	

   


  
	

  (4)


  	

   


  
	

  (5)


  	

   


  
	

  (6)


  	

   


  
	

   


  	

   


  
	

  (7)


  	

   


  





 




 




	

  Borrow:


  	

   


  	

  Lender


  
	

   


  	

  Company Name:


  	

  VERSANT


  	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

  Pacific Funding Corporation,


  
	

   


  	

  By:


  	

  /s/ Nick Ordon


  	

   


  	

   


  	

  a division of Cupertino National Bank


  
	

   


  	

   


  	

  President


  	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

  By:


  	

   


  
	

   


  	

  By:


  	

  /s/ Lee McGrath


  	

   


  	

   


  	

  President


  
	

   


  	

   


  	

  Secretary or Ass't Secretary


  	

   


  	

   


  	

   


  	

   


  
										





 




 




12