exv10w4



 





EXHIBIT 10.4




LAUREATE PHARMA, INC.




LOAN AND SECURITY AGREEMENT




 









 





     This LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of
February 28, 2008, by and between COMERICA BANK (“Bank”) and LAUREATE PHARMA, INC., a
Delaware corporation (“Borrower”).



RECITALS




     Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend
credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to
Borrower, and Borrower will repay the amounts owing to Bank.



AGREEMENT




     The parties agree as follows:



     1. DEFINITIONS AND CONSTRUCTION.



          1.1 Definitions. As used in this Agreement, the following terms shall have the following
definitions:




               “Accounts” means all presently existing and hereafter arising accounts, contract rights,
payment intangibles, and all other forms of obligations owing to Borrower arising out of the sale
or lease of goods (including, without limitation, the licensing of software and other technology)
or the rendering of services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.



               “Advance” or “Advances” means a cash advance or cash advances under the Revolving Facility.



               “Affiliate” means, with respect to any Person, any Person that owns or controls directly or
indirectly such Person, any Person that controls or is controlled by or is under common control
with such Person, and each of such Person’s senior executive officers, directors, and partners.



               “Bank Expenses” means all: reasonable costs or expenses (including reasonable attorneys’ fees
and expenses) incurred in connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable
attorneys’ fees and expenses incurred in amending, enforcing or defending the Loan Documents
(including fees and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.



               “Borrower’s Books” means all of Borrower’s books and records including: ledgers; records
concerning Borrower’s assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment, containing such
information.



               “Borrowing Base” means an amount equal to the sum of (i) eighty percent (80%) of Eligible
Accounts, plus (ii) the lesser of (A) twenty-five percent (25%) of Eligible Inventory or
(B) $750,000, as determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrower.



               “Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in
the State of California are authorized or required to close.



               “Change in Control” shall mean a transaction in which any “person” or “group” (within the
meaning of Section 13(d) and l4(d)(2) of the Securities Exchange Act of 1934) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of a sufficient number of shares of all classes of stock then
outstanding of Borrower ordinarily entitled to vote in the



 









 







election of directors, empowering such “person” or “group” to elect a majority of the Board of
Directors of Borrower, who did not have such power before such transaction.



               “Closing Date” means the date of this Agreement.



               “Code” means the California Uniform Commercial Code as in effect from time to time.



               “Collateral” means the property described on Exhibit A attached hereto.



               “Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any
Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges,
determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring
items of income.



               “Consolidated Total Interest Expense” means with respect to any Person for any period, the
aggregate amount of interest required to be paid or accrued by a Person and its Subsidiaries during
such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any
part of such period, whether such interest was or is required to be reflected as an item of expense
or capitalized, including payments consisting of interest in respect of any capitalized lease or
any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency
fees and similar fees or expenses in connection with the borrowing of money.



               “Contingent Obligation” means, as applied to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend,
letter of credit or other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any
obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services
issued or provided for the account of that Person; and (iii) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate
collar agreement, or other agreement or arrangement designed to protect such Person against
fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that
the term “Contingent Obligation” shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the obligations under the guarantee
or other support arrangement.



               “Copyrights” means any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held.



               “Credit Card Services Sublimit” means a sublimit for corporate credit cards and e-commerce or
merchant account services under the Revolving Line not to exceed $25,000.



               “Credit Extension” means each Advance, or any other extension of credit by Bank for the
benefit of Borrower hereunder.



               “Current Assets” means, as of any applicable date, all amounts that should, in accordance with
GAAP, be included as current assets on the consolidated balance sheet of Borrower and its
Subsidiaries as at such date.



               “Current Liabilities” means, as of any applicable date, all amounts that should, in accordance
with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its
Subsidiaries, as at such date, plus, to the extent not already included therein, and Borrower’s
maximum potential obligations under the Credit Card Services Sublimit, if any, but specifically
excluding any cash-secured Obligations.



 









 





               “Daily Balance” means the amount of the Obligations owed at the end of a given day.



               “EBITDA” means with respect to any fiscal period an amount equal to the sum of (a)
Consolidated Net Income of the Borrower and its Subsidiaries for such fiscal period, plus (b) in
each case to the extent deducted in the calculation of the Borrower’s Consolidated Net Income and
without duplication, (i) depreciation and amortization for such period, plus (ii) income tax
expense for such period, plus (iii) Consolidated Total Interest Expense paid or accrued during such
period, plus (iv) non-cash expense associated with granting stock options, and minus, to the extent
added in computing Consolidated Net Income, and without duplication, all extraordinary and
non-recurring revenue and gains (including income tax benefits) for such period, all as determined
in accordance with GAAP.



               “Eligible Accounts” means those net billed Accounts (which Accounts do not include Accounts
where deposits exist) that arise in the ordinary course of Borrower’s business that comply with all
of Borrower’s representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in Bank’s reasonable
judgment and upon notification thereof to Borrower in accordance with the provisions hereof.
Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:



               (a) Accounts that the account debtor has failed to pay within ninety (90) days of invoice
date;



               (b) Accounts with respect to an account debtor, twenty-five percent (25%) of whose Accounts
the account debtor has failed to pay within ninety (90) days of invoice date;



               (c) Credit balances over ninety (90) days from invoice date;



               (d) Accounts with respect to which the account debtor is an officer, employee, or agent of
Borrower;



               (e) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the payment by the
account debtor may be conditional;



               (f) Accounts with respect to which the account debtor is an Affiliate of Borrower;



               (g) Accounts with respect to which the account debtor does not have its principal place of
business in the United States, except for Eligible Foreign Accounts;



               (h) Accounts with respect to which the account debtor is the United States or any department,
agency, or instrumentality of the United States;



               (i) Accounts with respect to which Borrower is liable to the account debtor for goods sold or
services rendered by the account debtor to Borrower or for deposits or other property of the
account debtor held by Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;



               (j) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose
total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, to the extent such
obligations exceed the aforementioned percentage, except as approved in writing by Bank on a case
by case basis;



               (k) Accounts with respect to which the account debtor disputes liability or makes any claim
with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis
for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject
to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and



 









 





               (l) Accounts the collection of which Bank reasonably determines to be doubtful.



               “Eligible Foreign Accounts” means Accounts with respect to which the account debtor does not
have its principal place of business in the United States and that (i) are supported by one or more
letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to
Bank, or (ii) that Bank approves on a case-by-case basis.



               “Eligible Inventory” shall mean Borrower’s raw materials and finished goods Inventory, as may
be adjusted by Bank, in Bank’s discretion, for age and seasonality or other factors affecting the
value of such Inventory, and that have been validly pledged to Bank and strictly comply with all of
Borrower’s warranties and representations to Bank; but Eligible Inventory shall not include the
following: (a) raw materials or purchased parts not in saleable form; (b) work in process; (c)
Inventory consigned to sales representatives or consigned to Borrower by a vendor; (d) obsolete
Inventory; (e) Inventory reserve amounts; (f) finished goods with no/low liquidation value; (g)
Inventory located or stored with a bailee, warehouseman or other third party without Bank’s prior
written consent and unless a bailment agreement in form and substance satisfactory to Bank is in
place; (h) defective or Inventory under repair; (i) Inventory not insured naming Bank as loss
payee; and (j) all other Inventory deemed ineligible by Bank.



               “Equipment” means all present and future machinery, equipment, tenant improvements, furniture,
fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.



               “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder.



               “Event of Default” has the meaning assigned in Article 8.



               “GAAP” means generally accepted accounting principles as in effect from time to time.



               “Guaranteed Loan Agreement” means the Amended and Restated Loan and Security Agreement of even
date between Borrower and Bank, supported by an unconditional guaranty and a deficiency guaranty of
Safeguard Delaware, Inc. and Safeguard Scientifics (Delaware), Inc.



               “Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of
property or services, including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.



               “Insolvency Proceeding” means any proceeding commenced by or against any person or entity
under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy
or insolvency law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief



               “Intellectual Property Collateral” means all of Borrower’s right, title, and interest in and



               (a) Copyrights, Trademarks and Patents;



               (b) Any and all trade secrets, and any and all intellectual property rights in computer
software and computer software products now or hereafter existing, created, acquired or held;



               (c) Any and all design rights which may be available to Borrower now or hereafter existing,
created, acquired or held;



               (d) Any and all claims for damages by way of past, present and future infringement of any of
the rights included above, with the right, but not the obligation, to sue for and collect such
damages for said use or infringement of the intellectual property rights identified above;



 









 





               (e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all
license fees and royalties arising from such use to the extent permitted by such license or rights;
or Patents; and



               (f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents;
and



               (g) All proceeds and products of the foregoing, including without limitation all payments
under insurance or any indemnity or warranty payable in respect of any of the foregoing.



               Notwithstanding any of the foregoing, “Intellectual Property Collateral” shall not include (i)
intellectual property owned by a client of Borrower or (ii) any rights of Borrower’s clients in and
to intellectual property under Borrower’s agreements with such clients.



               “Inventory” means all present and future inventory in which Borrower has any interest,
including merchandise, raw materials, parts, supplies, packing and shipping materials, work in
process and finished products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is temporarily out of
its custody or possession or in transit and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and Borrower’s Books relating
to any of the foregoing.



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



               “IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.



               “Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.



               “Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower,
and any other agreement entered into in connection with this Agreement, all as amended or extended
from time to time.



               “Material Adverse Effect” means a material adverse effect on (i) the business operations or
condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the
ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan
Documents or (iii) the value or priority of Bank’s security interests in the Collateral.



               “Negotiable Collateral” means all of Borrower’s present and future letters of credit of which
it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper,
and Borrower’s Books relating to any of the foregoing.



               “Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to
Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent,
due or to become due, now existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.



               “Patents” means all patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.



 









 





               “Periodic Payments” means all installments or similar recurring payments that Borrower may now
or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any
instrument, or agreement now or hereafter in existence between Borrower and Bank.



               “Permitted Indebtedness” means:



               (a) Indebtedness of Borrower in favor of Bank arising under this Agreement, the Guaranteed
Loan Agreement, or any other Loan Document;



               (b) Indebtedness in favor of a Safeguard entity in an amount not to exceed $2,500,000;
provided that no Event of Default shall occur and be continuing at the time of, or after giving
effect to such Indebtedness; provided further, that such Indebtedness shall be repaid upon receipt
of an audit satisfactory to Bank and may be repaid by Advances requested hereunder;



               (c) Indebtedness of Borrower or any Subsidiary existing on the Closing Date and disclosed in
the Schedule;



               (d) Indebtedness of Borrower or any Subsidiary secured by a lien described in clause (c) of
the defined term “Permitted Liens,” provided (i) such Indebtedness does not exceed the lesser of
the cost or fair market value of the equipment financed with such Indebtedness and (ii) such
Indebtedness does not exceed $250,000 in the aggregate at any given time;



               (e) Subordinated Debt;



               (f) Indebtedness of Borrower to any Subsidiary and of any Subsidiary to any other Subsidiary;



               (g) Indebtedness of Borrower to an Affiliate (provided that such indebtedness to an Affiliate
is subject to a separate subordination agreement between Affiliate and Bank) or any Subsidiary to
trade creditors and with respect to surety bonds and similar obligations incurred in the ordinary
course of business; and



               (h) Extensions, refinancings, modifications, amendments and restatements of any item of
Permitted Indebtedness described in clauses (a) through (f) above; provided that the principal
amount thereof is not increased or the terms thereof are not modified to impose more burdensome
terms upon Borrower.



               “Permitted Investment” means:



               (a) Investments of Borrower or any Subsidiary existing on the Closing Date and disclosed in
the Schedule;



               (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United
States of America or any agency or any State thereof maturing within one (1) year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s
Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing no more than one
(1) year from the date of investment therein issued by Bank and (iv) Bank’s money market accounts;



               (c) Investments of Borrower or any Subsidiary consisting of travel advances and employee
relocation loans and advances made in the ordinary course of business;



               (d) loans or advances made by any Subsidiary to Borrower or any other Subsidiary; and



 









 





               (e) Investments of Borrower or any Subsidiary (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary
course of business.



               “Permitted Liens” means the following:



               (a) Any Liens of Borrower or any Subsidiary existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;



               (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings, provided the same have no
priority over any of Bank’s security interests;



               (c) Liens (i) upon or in any equipment which was not financed by Bank acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on
such equipment at the time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such equipment;



               (d) Liens incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that
any extension, renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced
does not increase;



               (e) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens
impose by law, arising in the ordinary course of business and securing obligations that are not
overdue by more than 30 days or are being contested in good faith by appropriate proceedings;



               (f) pledges and deposits made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or regulations; and



               (g) Liens arising from judgments, decrees or attachments in circumstances not constituting an
Event of Default under Sections 8.4 or 8.8.



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



               “Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank,
as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.



               “Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer,
the Chief Technical Officer and the Chief Financial Officer of Borrower.



               “Revolving Facility” means the facility under which Borrower may request Bank to issue
Advances, as specified in Section 2.1(a) hereof.



               “Revolving Line” means a credit extension of up to Four Million Dollars ($4,000,000).



               “Revolving Maturity Date” means February 26, 2009.



               “Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.



 









 





               “Subordinated Debt” means any debt incurred by Borrower that is subordinated to the debt owing
by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and
Bank).



               “Subsidiary” means any corporation, company or partnership in which (i) any general
partnership interest or (ii) more than 50% of the stock or other units of ownership which by the
terms thereof has the ordinary voting power to elect the Board of Directors, managers or trustees
of the entity, at the time as of which any determination is being made, is owned by Borrower,
either directly or through an Affiliate.



               “Trademarks” means any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and the entire
goodwill of the business of Borrower connected with and symbolized by such trademarks.



          1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed
in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP.
When used herein, the terms “financial statements” shall include the notes and schedules thereto.




     2. LOAN AND TERMS OF PAYMENT.



          2.1 Credit Extensions.




               Borrower promises to pay to the order of Bank, in lawful money of the United States of
America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower
hereunder. Borrower shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.



               (a) Revolving Advances.



                    (i) Subject to and upon the terms and conditions of this Agreement, Borrower may request
Advances in an aggregate outstanding amount not to exceed the lesser of (A) the Revolving Line or
(B) the Borrowing Base, less any amounts outstanding under the Credit Card Services Sublimit.
Borrower may not request Advances based on the Borrowing Base until such time as Bank has received
(Y) the results of a Collateral audit which shall be satisfactory to Bank; and (Z) a signed
(Landlord Waiver/Bailee/Warehouseman’s Agreement and Inventory Appraisal); provided Borrower may
request Advances based on the Borrowing Base without satisfying (Z) if the Borrowing Base does not
include Eligible Inventory; provided further Borrower may request Credit Card Services without
satisfying (Y) or (Z). Subject to the terms and conditions of this Agreement, amounts borrowed
pursuant to this Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving
Maturity Date, at which time all Advances under this Section 2.1(a) shall be immediately due and
payable. Borrower may prepay any Advances without penalty or premium. The Advances shall be used
for general working capital purposes.



                    (ii) Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission
or telephone no later than 3:00 p.m. Eastern time, on the Business Day prior to the Business Day
that the Advance is to be made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a Responsible Officer or a
designee of a Responsible Officer, or without instructions if in Bank’s discretion such Advances
are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled
to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages
or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances
made under this Section 2.1(a) to Borrower’s deposit account.



                    (iii) Credit Card Services Sublimit. Subject to the terms and conditions of this Agreement,
Borrower may request corporate credit cards and standard and e-commerce merchant account services
from Bank (collectively, the “Credit Card Services”). The aggregate limit of the corporate credit
cards and merchant credit card processing reserves shall not exceed the Credit Card Services
Sublimit, provided that



 









 








availability under the Revolving Line shall be reduced by the aggregate limits of the
corporate credit cards issued to Borrower and merchant credit card processing reserves. In
addition, Bank may, in its sole discretion, charge as Advances any amounts that become due or owing
to Bank in connection with the Credit Card Services. The terms and conditions (including repayment
and fees) of such Credit Card Services shall be subject to the terms and conditions of the Bank’s
standard forms of application and agreement for the Credit Card Services, which Borrower hereby
agrees to execute.



                    (iv) Collateralization of Obligations Extending Beyond Maturity. If Borrower has not secured
to Bank’s satisfaction its obligations with respect to any Credit Card Services by the Revolving
Maturity Date, then, effective as of such date, the balance in any deposit accounts held by Bank
and the certificates of deposit or time deposit accounts issued by Bank in Borrower’s name (and any
interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or
liquidation of such certificates or accounts), shall automatically secure such obligations to the
extent of the then continuing or outstanding Credit Card Services. Borrower authorizes Bank to
hold such balances in pledge and to decline to honor any drafts thereon or any requests by Borrower
or any other Person to pay or otherwise transfer any part of such balances for so long as the
Credit Card Services are outstanding or continue.



          2.2 Overadvances. If the aggregate amount of the outstanding Advances (including any Credit
Card Services) exceeds the lesser of the Revolving Line or the Borrowing Base at any time, Borrower
shall immediately pay to Bank, in cash, the amount of such excess.




          2.3 Interest Rates, Payments, and Calculations.




               (a) Interest Rates. Except as set forth in Section 2.3(b), the Advances shall bear interest,
on the outstanding Daily Balance thereof, at a rate equal to one percent (1.00%) plus the Prime
Rate.



               (b) Late Fee; Default Rate. If any payment is not made within ten (10) days after the date
such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent
(5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under
applicable law. All Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to five (5) percentage points above the
interest rate applicable immediately prior to the occurrence of the Event of Default.



               (c) Payments. Interest hereunder shall be due and payable on the first (1st) calendar day of
each month during the term hereof. Bank shall, at its option, charge such interest, all Bank
Expenses, and all Periodic Payments against any of Borrower’s deposit accounts or against the
Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Bank shall notify Borrower when it charges any amounts against Borrower’s
deposit accounts or against the Revolving Line. Any interest not paid within three (3) days after
the date such interest is due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable hereunder. All payments
shall be free and clear of any taxes, withholdings, duties, impositions or other charges, to the
end that Bank will receive the entire amount of any Obligations payable hereunder, regardless of
source of payment.



               (d) Computation. In the event the Prime Rate is changed from time to time hereafter, the
applicable rate of interest hereunder shall be increased or decreased, effective as of the day the
Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.


          
2.4     Crediting Payments.  Bank shall credit a wire transfer of funds, check
or other item of payment to such deposit account or Obligation as Borrower specifies.  After the occurrence and during the continuance of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment.  Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 3:00 noon Eastern time shall be deemed to have been received by



 












 




Bank as of
the opening of business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that
is not a Business Day, such payment shall instead be due on the next Business Day, and additional
fees or interest, as the case may be, shall accrue and be payable for the period of such extension.




          2.5 Fees. Borrower shall pay to Bank the following:




               (a) Facility Fee. On or prior to the Closing Date, a Facility Fee equal to $15,000, which
shall be nonrefundable; and



               (b) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date,
including reasonable attorneys’ fees and expenses and, after the Closing Date, all Bank Expenses,
including reasonable attorneys’ fees and expenses, as and when they become due.



          2.6 Additional Costs. In case any law, regulation, treaty or official directive or the
interpretation or application thereof by any court or any governmental authority charged with the
administration thereof or the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):




               (a) subjects Bank to any tax with respect to payments of principal or interest or any other
amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated
hereby (except for taxes on the overall net income of Bank imposed by the United States of America
or any political subdivision thereof);



               (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or
similar requirement against assets held by, or deposits in or for the account of, or loans by,
Bank; or



               (c) imposes upon Bank any other condition with respect to its performance under this
Agreement,


and the result of any of the foregoing is to increase the cost to Bank, reduce the income
receivable by Bank or impose any expense upon Bank with respect to the Obligations, Bank shall
notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost,
reduction in income or additional expense as and when such cost, reduction or expense is incurred
or determined, upon presentation by Bank of a statement of the amount and setting forth Bank’s
calculation thereof, all in reasonable detail, which statement shall be deemed true and correct
absent manifest error.




          2.7 Term. This Agreement shall become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for so long as any Obligations remain outstanding or
Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the
foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice upon the occurrence and during the continuance of an
Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.




     3. CONDITIONS OF LOANS.



          3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the
initial Credit Extension is subject to the condition precedent that Bank shall have received, in
form and substance reasonably satisfactory to Bank, the following:




               (a) this Agreement executed by Borrower;



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



 









 





               (c) an agreement to provide insurance;



               (d) a UCC financing statement;



               (e) payment of the fees and Bank Expenses then due as specified in Section 2.5 hereof;



               (f) current financial statements of Borrower; and



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



          3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit
Extension, including the initial Credit Extension, is further subject to the following conditions:




               (a) timely receipt by Bank of a Payment/Advance Form as provided in Section 2.1; and



               (b) the representations and warranties contained in Section 5 shall be true and correct in all
material respects on and as of the date of such Payment/Advance Form and on the effective date of
each Credit Extension as though made at and as of each such date, and no Event of Default shall
have occurred and be continuing, or would exist after giving effect to such Credit Extension
(provided, however, that those representations and warranties expressly referring to another date
shall be true, correct and complete in all material respects as of such date). The making of each
Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of
such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.



     4. CREATION OF SECURITY INTEREST.



          4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing security
interest in all presently existing and hereafter acquired or arising Collateral in order to secure
prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower
of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule,
such security interest constitutes a valid, first priority security interest in the presently
existing Collateral, and will constitute a valid, first priority security interest in
later-acquired Collateral. Notwithstanding any termination, Bank’s Lien on the Collateral shall
remain in effect so long as any Obligations are outstanding.




          4.2 Perfection of Security Interest. Borrower authorizes Bank to file at any time financing
statements, continuation statements, and amendments thereto that (i) either specifically describe
the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder,
and (ii) contain any other information required by the Code for the sufficiency of filing office
acceptance of any financing statement, continuation statement, or amendment, including whether
Borrower is an organization, the type of organization and any organizational identification number
issued to Borrower, if applicable. Any such financing statements may be signed by Bank on behalf
of Borrower, as provided in the Code, and may be filed at any time in any jurisdiction whether or
not Revised Article 9 of the Code is then in effect in that jurisdiction. Borrower shall from time
to time
endorse and deliver to Bank, at the request of Bank, all Negotiable Collateral and other
documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank’s security interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents. Borrower shall have possession of the
Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to
perfect its security interest by possession in addition to the filing of a financing statement.
Where Collateral is in possession of third party bailee, Borrower shall take such steps as Bank
reasonably requests for Bank to (i) obtain an acknowledgment, in form and substances satisfactory
to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, (ii) obtain
“control” of any Collateral consisting of investment property, deposit accounts, letter-of-credit
rights or electronic chattel paper (as such items and the term “control” are defined in Revised
Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing
bank to execute a control agreement in form and substance satisfactory to Bank. Borrower will not
create any


 









 







          chattel paper without placing a legend on the chattel paper acceptable to Bank
indicating that Bank has a security interest in the chattel paper. Borrower from time to time may
deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank
to hold such specific balances in pledge and to decline to honor any drafts thereon or any request
by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long
as the specific Obligations are outstanding.




          4.3 Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the
right, upon reasonable prior notice, from time to time during Borrower’s usual business hours but
no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect
Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower’s financial condition or the amount, condition of, or any other matter
relating to, the Collateral.




     5. REPRESENTATIONS AND WARRANTIES.



          Borrower represents and warrants as follows:




          5.1 Due Organization and Qualification. Borrower and each Subsidiary is a corporation duly
existing under the laws of its state of incorporation and qualified and licensed to do business in
any state in which the conduct of its business or its ownership of property requires that it be so
qualified, except where the failure to be so qualified or licensed could not reasonably be expected
to have a Material Adverse Effect.




          5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan
Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor
constitute a breach of any provision contained in Borrower’s Amended and Restated Certificate of
Incorporation or Bylaws, nor will they constitute an event of default under any material agreement
to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any
material agreement to which it is a party or by which it is bound.




          5.3 No Prior Encumbrances. Borrower has good and marketable title to its property, free and
clear of Liens, except for Permitted Liens.




          5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide existing obligations.
The property and services giving rise to such Eligible Accounts has been delivered or rendered to
the account debtor or to the account debtor’s agent for immediate and unconditional acceptance by
the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding
of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account,




          5.5 Merchantable Inventory. All Inventory is in all material respects of good and marketable
quality, free from all material defects, except for Inventory for which adequate reserves have been
made.




          5.6 Intellectual Property Collateral. Borrower is the sole owner of the Intellectual Property
Collateral, except for non-exclusive licenses granted by Borrower to its customers in the ordinary
course of business. Each of the Patents is valid and enforceable, and no part of the Intellectual
Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has
been made that any part of the Intellectual
Property Collateral violates the rights of any third party. Except as set forth in the
Schedule, Borrower is not a party to any license of intellectual property that constitutes a
material part of any product or is necessary for the provision of any service, the sale, licensing
or provision of which generates revenue to Borrower. Except as set forth in the Schedule, Borrower
is not a party to, or bound by, any agreement that restricts the grant by Borrower of a security
interest in Borrower’s rights under such agreement.




          5.7 Name; Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower
has not done business under any name other than that specified on the signature page hereof. The
chief executive office of Borrower is located at the address indicated in Section 10 hereof and
Borrower has paid for and owns all Equipment financed by Bank. All Borrower’s Inventory and
Equipment is located only at the location set forth in Section 10 hereof.


 









 







           5.8 Litigation. Except as set forth in the Schedule, there are no actions or proceedings
pending by or against Borrower or any Subsidiary before any court or administrative agency in which
an adverse decision could have a Material Adverse Effect, or a material adverse effect on
Borrower’s interest or Bank’s security interest in the Collateral.




          5.9 No Material Adverse Change in Financial Statements. All consolidated financial statements
related to Borrower and any Subsidiary that Bank has received fairly present in all material
respects Borrower’s consolidated financial condition as of the date thereof and Borrower’s
consolidated results of operations for the period then ended. There has not been a material
adverse change in the consolidated financial condition of Borrower since the date of the most
recent of such financial statements submitted to Bank.




          5.10 Solvency, Payment of Debts. Borrower is able to pay its debts (including trade debts) as
they mature.




          5.11 Regulatory Compliance. Borrower and each Subsidiary have met the minimum funding
requirements of ERISA with respect to any employee benefit plans of Borrower or any Subsidiary
subject to ERISA, and no event has occurred resulting from Borrower’s failure to comply with ERISA
that could result in Borrower’s incurring any material liability. Borrower is not an “investment
company” or a company “controlled” by an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. Borrower is not engaged principally, or as one of the important
activities, in the business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied in all material respects with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.




          5.12 Environmental Condition. Except as disclosed in the Schedule, none of Borrower’s or any
Subsidiary’s properties or assets has ever been used by Borrower or any Subsidiary or, to the best
of Borrower’s knowledge, by previous owners or operators, in the disposal of, or to produce, store,
handle, treat, release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; to the best of Borrower’s knowledge, none of Borrower’s properties
or assets has ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for
closure pursuant to any environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal property owned by
Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any other federal, state
or other governmental agency concerning any action or omission by Borrower or any Subsidiary
resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into
the environment.




          5.13 Taxes. Borrower and each Subsidiary have filed or caused to be filed all tax returns
required to be filed, and have paid, or have made adequate provision for the payment of, all taxes
reflected therein.




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




          5.15 Government Consents. Borrower and each Subsidiary have obtained all consents, approvals
and authorizations of, made all declarations or filings with, and given all notices to, all
governmental authorities that are necessary for the continued operation of Borrower’s business as
currently conducted, the failure to obtain which could have a Material Adverse Effect.




          5.16 Investment Accounts. None of Borrower’s property is maintained or invested with a Person
other than Bank.




          5.17 Full Disclosure. No representation, warranty or other statement made by Borrower in any
certificate or written statement furnished to Bank contains any untrue statement of a material fact
or omits to


 









 







          state a material fact necessary in order to make the statements contained in such
certificates or statements, in light of the circumstances in which they were made, not misleading.




     6. AFFIRMATIVE COVENANTS.



          Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and
for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do
all of the following:




          6.1 Good Standing. Borrower shall maintain its and each of its Subsidiaries’ corporate
existence and good standing in its jurisdiction of incorporation and maintain qualification in each
jurisdiction in which the failure to so qualify could reasonably be expected to have a Material
Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in
force all licenses, approvals and agreements, the loss of which could have a Material Adverse
Effect.




          6.2 Government Compliance. Borrower shall meet, and shall cause each Subsidiary to meet, the
minimum funding requirements of ERISA with respect to any employee benefit plans of Borrower or any
Subsidiary subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply,
with all statutes, laws, ordinances and government rules and regulations to which it is subject,
noncompliance with which could have a Material Adverse Effect.




          6.3 Financial Statements, Reports, Certificates. Borrower shall deliver the following to Bank
(a) as soon as available, but in any event within thirty (30) days after the end of each calendar
month, a Borrower prepared consolidated balance sheet, income, and cash flow statement covering
Borrower’s consolidated operations during such period, prepared in accordance with GAAP,
consistently applied, in a form reasonably acceptable to Bank and certified by a Responsible
Officer; (b) as soon as available, but in any event within one hundred twenty (120) days after the
end of Borrower’s fiscal year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) if
applicable, copies of all statements, reports and notices sent or made available generally by
Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission; (d) promptly upon receipt of
notice thereof, a report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more; and (e) such budgets, backlogs, sales projections, operating
plans or other financial exhibits and information as Bank may reasonably request from time to time
generally prepared by Borrower in the ordinary course of business.




     On Friday of each week, Borrower shall deliver to Bank aged listings of accounts receivable
and accounts payable, a perpetual inventory report, and a Borrowing Base Certificate in
substantially the form of Exhibit C attached hereto.



     Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D attached hereto.



     Bank shall have a right from time to time hereafter to audit Borrower’s Accounts and appraise
Collateral at Borrower’s expense, provided that such audits will be conducted no more often than
once every six (6) months unless an Event of Default has occurred and is continuing. Bank shall
obtain an appraisal of Borrower’s Inventory and Equipment, with results satisfactory to Bank,
within ninety (90) days after the Closing Date.



          6.4 Inventory; Returns. Borrower shall keep all Inventory in good and marketable condition,
free from all material defects except for Inventory for which adequate reserves have been made.
Returns and allowances, if any, as between Borrower and its account debtors shall be on the same
basis and in accordance with the usual customary practices of Borrower, as they exist at the time
of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all
returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim
involves more than Fifty Thousand Dollars ($50,000).




 









 









          6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make, due and timely
payment or deposit of all material federal, state, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary
to make, timely payment or deposit of all material tax payments and withholding taxes required of
it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A.,
state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank
with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or
validity of such payment is contested in good faith by appropriate proceedings and is resented
against (to the extent required by GAAP) by Borrower.




          6.6 Insurance.




               (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by
fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as
ordinarily insured against by other owners in similar businesses conducted in the locations where
Borrower’s business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower’s business, ownership and use of the Collateral in amounts and of a type that
are customary to businesses similar to Borrower’s.



               (b) All such policies of insurance shall be in such form, with such companies, and in such
amounts as are reasonably satisfactory to Bank. All such policies of property insurance shall
contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof, and all liability insurance policies shall show the Bank as an
additional insured and shall specify that the insurer must give at least thirty (30) days notice to
Bank before canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to
Bank certified copies of such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to
Bank to be applied on account of the Obligations.



          6.7 Accounts. Borrower shall maintain all depository, operating, and investment accounts with
Bank and/or Comerica Securities, Inc. (collectively, “Comerica”).




          6.8 Financial Covenants. Borrower shall at all times maintain the following financial ratios
and covenants:




               (a) Current Ratio. Tested on a monthly basis, a ratio of Current Assets to Current
Liabilities, less all Indebtedness owing from Borrower to Bank under the Guaranteed Loan Agreement
of 0.90 to 1.00.



               (b) EBITDA. An EBITDA, tested monthly, on a trailing three (3) month basis, as
indicated for the months set forth below:



	 	 	 	 	 
	Month Ending	 	EBITDA
	03/31/08
	 	$	(1,000,000	)
	04/30/08
	 	$	(1,000,000	)
	05/31/08
	 	$	(700,000	)
	06/30/08
	 	$	(330,000	)
	07/31/08
	 	$	(75,000	)
	08/31/08
	 	$	1.00	 
	09/30/08
	 	$	200,000	 
	10/31/08
	 	$	430,000	 






 









 






	 	 	 	 	 
	Month Ending	 	EBITDA
	11/30/08
	 	$	665,000	 
	12/31/08
	 	$	950,000	 
	Thereafter
	 	$	1,000,000	 






          6.9 Intellectual Property Rights. Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use commercially
reasonable efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly
advise Bank in writing of material infringements detected and (iii) not allow any material
Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the
written consent of Bank, which consent shall not be unreasonably withheld.




          6.10 Lockbox.




               (a) Within sixty (60) days of the Closing Date, Borrower shall establish an account at Bank
(the “Lockbox”) and shall maintain thereafter at all times such Lockbox into which all funds
received by Borrower from any source shall immediately be deposited. Borrower shall direct all
customers to mail or deliver all checks or other forms of payment for amounts owing to Borrower to
a post office box designated by Bank, over which Bank shall have exclusive and unrestricted access.
All funds received by Borrower from any source shall immediately be directed to the Lockbox.
Bank shall collect the mail delivered to such post office box, open such mail, and endorse and
credit all items to the Lockbox. Borrower shall direct all customers or other persons owing money
to Borrower who make payments by electronic transfer of funds to wire such funds directly to the
Lockbox. Borrower shall hold in trust for Bank all amounts that Borrower receives despite the
directions to make payments to the post office box or Lockbox, and immediately deliver such
payments to Bank in their original form as received from the customer, with proper endorsements for
deposit into the Lockbox. Borrower irrevocably authorizes Bank to transfer to the Lockbox any
funds that have been deposited into any other accounts or that Bank has received by wire transfer,
check, cash, or otherwise. Borrower shall not establish or maintain any accounts with any Person
other than Bank except for accounts opened in the ordinary course of business from which all funds
are transferred on a daily basis to the Lockbox. Bank shall have all right, title and interest in
all of the items from time to time in the Lockbox and their proceeds.



               (b) All funds flowing through the Lockbox shall automatically be transferred into a cash
collateral account at Bank in Borrower’s name (the “Cash Collateral Account”), over which Bank
shall have exclusive and unrestricted access. Bank shall have all right, title and interest in all
of the items from time to time flowing through the Lockbox and/or held in the Cash Collateral
Account and their proceeds. Neither Borrower nor any person claiming through Borrower shall have
any right or control over the use of, or any right to withdraw any amount from, the Lockbox, which
shall be under the sole control of Bank. Borrower shall direct all customers or other persons
owing money to Borrower who make payments by electronic transfer of funds to wire such funds
directly to the Cash Collateral Account



               (c) Bank may apply amounts held in the Cash Collateral Account to the outstanding balance of
the Obligations on a daily basis. Borrower shall open an operating account or operating accounts
at Bank (collectively, the “Operating Account”). Unless an Event of Default has occurred and is
continuing, after Bank
applies any amounts in the Cash Collateral Account to the Obligations, Bank shall transfer the
balance to the Operating Account. Bank may from time to time in its discretion make Advances to
Borrowers to cover checks or other items or charges that a Borrower has drawn or made against the
Operating Account or to cause payment of amounts due under the Loan Documents. Each Borrower
authorizes Bank to make such Advances from time to time by means of appropriate entries of credits
to the Operating Account sufficient to cover any such charges then presented, such Advances to be
subject to the terms of this Agreement as through made pursuant to a Payment/Advance Form delivered
by Borrowers.



          6.11 Further Assurances. At any time and from time to time Borrower shall execute and deliver
such further instruments and take such further action as may reasonably be requested by Bank to
effect the purposes of this Agreement.





 









 








     7. NEGATIVE COVENANTS.



          Borrower covenants and agrees that, until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any
of the following without the prior written consent of Bank:




          7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively, a
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or
property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers
of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete
Equipment which was not financed by Bank.




          7.2 Change in Business; Change in Control or Executive Office. Engage in any business, or
permit any of its Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto (or incidental
thereto); or cease to conduct business in the manner conducted by Borrower as of the Closing Date;
or suffer or permit a Change in Control; or without thirty (30) days prior written notification to
Bank, relocate its chief executive office or state of incorporation; or change the date on which
its fiscal year ends.




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




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




          7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with respect to any of
its property, or assign or otherwise convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or agree with any
Person other than Bank not to grant a security interest in, or otherwise encumber, any of its
property, or permit any Subsidiary to do so.




          7.6 Distributions. Pay any dividends or make any other distribution or payment on account of
or in redemption, retirement or purchase of any capital stock, or permit any of its Subsidiaries to
do so, except that Borrower may repurchase the stock of former employees pursuant to stock
repurchase agreements as long as an Event of Default does not exist prior to such repurchase or
would not exist after giving effect to such repurchase.




          7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or to any
Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; or maintain
or invest any of its property with a Person other than Bank or permit any of its Subsidiaries to do
so; or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that
restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.




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




          7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of
its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated
Debt, or amend any provision contained in any documentation relating to the Subordinated Debt
without Bank’s prior written consent.




          7.10 Inventory and Equipment. Store the Inventory or the Equipment with a bailee,
warehouseman, or other third party unless the third party has been notified of Bank’s security
interest and Bank (a)



 









 






has received an acknowledgment from the third party that it is holding or
will hold the Inventory or Equipment for Bank’s benefit or (b) is in pledge possession of the
warehouse receipt, where negotiable, covering such Inventory or Equipment. Store or maintain any
Equipment or Inventory at a location other than the location set forth in Section 10 of this
Agreement.




          7.11 Compliance. Become an “investment company” or be controlled by an “investment company,”
within the meaning of the Investment Company Act of 1940, or become principally engaged in, or
undertake as one of its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, or violate any law or regulation, which violation could
have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of
Bank’s Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.




     8. EVENTS OF DEFAULT.



          Any one or more of the following events shall constitute an Event of Default by Borrower under
this Agreement:




          8.1 Payment Default. If Borrower fails to pay any of the Obligations within three (3) days
after their due date;




          8.2 Covenant Default. If Borrower fails to perform any obligation under Article 6 or violates
any of the covenants contained in Article 7 of this Agreement, or fails or neglects to perform,
keep, or observe any other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future agreement between
Borrower and Bank and as to any default under such other term, provision, condition, covenant or
agreement that can be cured, has failed to cure such default within ten (10) days after Borrower
and the Guarantors receive notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the ten (10) day period
or cannot after diligent attempts by Borrower and the Guarantors be cured within such ten (10) day
period, and such default is likely to be cured within a reasonable time, then Borrower shall have
an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to
cure such default, and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Credit Extensions will be required to be
made during such cure period);




          8.3 Material Adverse Effect. If there occurs any circumstance or circumstances that could
have a Material Adverse Effect;




          8.4 Attachment. If any substantial portion of Borrower’s assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or
distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment
or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets,
or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower’s
assets by the United States Government, or any department, agency, or instrumentality thereof, or
by any state, county, municipal, or governmental agency, and the same is not paid within ten (10)
days after Borrower receives notice thereof, provided that none of the foregoing shall constitute
an Event of Default where such action or event is stayed or an adequate bond has been posted
pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be
made during such cure period);




          8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by
Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or
stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the
dismissal of such Insolvency Proceeding);




 









 








          8.6 Other Agreements. If there is a default or other failure to perform under or in any
agreement to which Borrower is a party or by which it is bound resulting in a right by a third
party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an
amount in excess of Fifty Thousand Dollars ($50,000); or which could have a Material Adverse
Effect;




          8.7 Subordinated Debt. If Borrower makes any payment on account of Subordinated Debt, except
to the extent such payment is allowed under any subordination agreement entered into with Bank;




          8.8 Judgments. If a judgment or judgments for the payment of money in an amount, individually
or in the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against
Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such judgment);




          8.9 Misrepresentations. If any material misrepresentation or material misstatement exists now
or hereafter in any warranty or representation set forth herein or in any certificate delivered to
Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document; or




     9. BANK’S RIGHTS AND REMEDIES.



          9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of
Default, Bank may, at its election, without notice of its election and without demand, do any one
or more of the following, all of which are authorized by Borrower:




               (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event
of Default described in Section 8.5, all Obligations shall become immediately due and payable
without any action by Bank);



               (b) Cease advancing money or extending credit to or for the benefit of Borrower under this
Agreement or under any other agreement between Borrower and Bank;



               (c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms
and in whatever order that Bank reasonably considers advisable;



               (d) Make such payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so
requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes
Bank to enter the premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank’s determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With respect to any of
Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or
remedies provided herein, at law, in equity, or otherwise;



               (e) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower
held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;



               (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a
license or other right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for sale, and



 









 







selling any
Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s
rights under all licenses and all franchise agreements shall inure to Bank’s benefit;



               (g) Dispose of the Collateral by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower’s premises) as Bank determines is
commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank
deems appropriate;



               (h) Bank may credit bid and purchase at any public sale; and



               (i) Any deficiency that exists after disposition of the Collateral as provided above will be
paid immediately by Borrower.



          9.2 Power of Attorney. Effective only upon the occurrence and during the continuance of an
Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers,
or employees) as Borrower’s true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse
Borrower’s name on any checks or other forms of payment or security that may come into Bank’s
possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account,
drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts,
and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all
claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for amounts and upon
terms which Bank determines to be reasonable; (g) to file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of the Collateral
without the signature of Borrower where permitted by law; and (h) to transfer the Intellectual
Property Collateral into the name of Bank or a third party to the extent permitted under the Code;
provided Bank may exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and
powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully
repaid and performed and Bank’s obligation to provide Credit Extensions hereunder is terminated.




          9.3 Accounts Collection. Upon the occurrence and during the continuance of an Event of
Default, Bank may notify any Person owing funds to Borrower of Bank’s security interest in such
funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower
for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to
Bank in their original form as received from the account debtor, with proper endorsements for
deposit.




          9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of
payment due to third persons or entities, as required under the terms of this Agreement, then Bank
may do any or all of the following after reasonable notice to Borrower: (a) make payment of the
same or any part thereof; (b) set up such reserves under a loan facility in Section 2.1 as Bank
deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any
action with respect to such policies as Bank deems reasonably prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall
bear
interest at the then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar
payments in the future or a waiver by Bank of any Event of Default under this Agreement.




          9.5 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking
practices and the applicable provisions of the applicable enactment of the Uniform Commercial Code,
Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.


 









 







           9.6 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan Documents,
and all other agreements shall be cumulative. Bank shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one
right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written
document signed on behalf of Bank and then shall be effective only in the specific instance and for
the specific purpose for which it was given.




          9.7 Demand; Protest. Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper,
and guarantees at any time held by Bank on which Borrower may in any way be liable.




     10. NOTICES.



          Unless otherwise provided in this Agreement, all notices or demands by any party relating to
this Agreement or any other agreement entered into in connection herewith shall be in writing and
(except for financial statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower
or to Bank, as the case may be, at its addresses set forth below:




	 	 	 	 	 
	 

	 	If to Borrower:
	 	LAUREATE PHARMA, INC.

201 College Road East

Princeton, NJ 08540

Attn: Vice President-Finance

FAX: (609) 919-3300
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Safeguard Delaware, Inc.

c/o Safeguard Scientifics, Inc.

435 Devon Park Drive

Wayne, PA 19087

Attn: Chief Financial Officer

FAX: (610) 293-0601
	 
	 	 	 	 
	 

	 	If to Bank:
	 	Comerica Bank

MC 4770

75 E Trimble Road

San Jose, CA 95131

Attn: Manager

FAX: (408) 556-5091

	 
	 	 	 	 
	 

	 	with a copy to:
	 	Comerica Bank

11921 Freedom Drive, Suite 920

Reston, VA 20190

Attn: Peter Bendoris

FAX: (703) 467-9308






     The parties hereto may change the address at which they are to receive notices hereunder, by
notice in writing in the foregoing manner given to the other.



     11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.



          This Agreement shall be governed by, and construed in accordance with, the internal laws of
the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie
in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL


 









 







ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED
BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES,
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.




     12. GENERAL PROVISIONS.



          12.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the
respective successors and permitted assigns of each of the parties; provided, however, that neither
this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior written
consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the
right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits
hereunder.




          12.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities
claimed or asserted by any other party in connection with the transactions contemplated by this
Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a
result of or in any way arising out of, following, or consequential to transactions between Bank
and Borrower whether under this Agreement, or otherwise (including without limitation reasonable
attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful
misconduct.




          12.3 Time of Essence. Time is of the essence for the performance of all obligations set forth
in this Agreement.




          12.4 Severability of Provisions. Each provision of this Agreement shall be severable from
every other provision of this Agreement for the purpose of determining the legal enforceability of
any specific provision.




          12.5 Amendments in Writing, Integration. Neither this Agreement nor the Loan Documents can be
amended or terminated orally. All prior agreements, understandings, representations, warranties,
and negotiations between the parties hereto with respect to the subject matter of this Agreement
and the Loan Documents, if any, are merged into this Agreement and the Loan Documents.




          12.6 Counterparts. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall constitute but one and the
same Agreement.




          12.7 Survival. All covenants, representations and warranties made in this Agreement shall
continue in full force and effect so long as any Obligations remain outstanding or Bank has any
obligation to make Credit Extensions to Borrower. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2
shall survive until all applicable statute of limitations periods with respect to actions that may
be brought against Bank have run.




     13. REFERENCE PROVISION.



          13.1 In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect
to proceed under this Judicial Reference Provision.




          13.2 With the exception of the items specified in clause 13.3, below, any controversy, dispute
or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any
other document, instrument or agreement between the undersigned parties (collectively in this
Section, the “Comerica Documents”), will be resolved by a reference proceeding in California in
accordance with the provisions of Sections 638 et seq. of



 









 






the California Code of Civil Procedure
(“CCP”), or their successor sections, which shall constitute the exclusive remedy for the
resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except
as otherwise provided in the Comerica Documents, venue for the reference proceeding will be in the
state or federal court in the county or district where the real property involved in the action, if
any, is located or in the state or federal court in the county or district where venue is otherwise
appropriate under applicable law (the “Court”).




          13.3 The matters that shall not be subject to a reference are the following: (i) nonjudicial
foreclosure of any security interests in real or personal property, (ii) exercise of self-help
remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv)
temporary, provisional or ancillary remedies (including, without limitation, writs of attachment,
writs of possession, temporary restraining orders or preliminary injunctions). This reference
provision does not limit the right of any party to exercise or oppose any of the rights and
remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent
jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition
to, any of those items does not waive the right of any party to a reference pursuant to this
reference provision as provided herein.




          13.4 The referee shall be a retired judge or justice selected by mutual written agreement of
the parties. If the parties do not agree within ten (10) days of a written request to do so by any
party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the
Court (or his or her representative). A request for appointment of a referee may be heard on an ex
parte or expedited basis, and the parties agree that irreparable harm would result if ex parte
relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to
the referee selected by the Presiding Judge of the Court (or his or her representative).




          13.5 The parties agree that time is of the essence in conducting the reference proceedings.
Accordingly, the referee shall be requested, subject to change in the time periods specified herein
for good cause shown, to (i) set the matter for a status and trial-setting conference within
fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues
of law or fact within one hundred twenty (120) days after the date of the conference and (iii)
report a statement of decision within twenty (20) days after the matter has been submitted for
decision.




          13.6 The referee will have power to expand or limit the amount and duration of discovery. The
referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s
failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered, no
party shall be entitled to “priority” in conducting discovery, depositions may be taken by either
party upon seven (7) days written notice, and all other discovery shall be responded to within
fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final and binding.




          13.7 Except as expressly set forth herein, the referee shall determine the manner in which the
reference proceeding is conducted including the time and place of hearings, the order of
presentation of evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee, except for trial,
shall be conducted without a court reporter, except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee, and the referee will
be provided a courtesy copy of the transcript. The party making such a request shall have the
obligation to arrange for and pay the court reporter. Subject to the referee’s power to award costs
to the prevailing party, the parties will equally share the cost of the referee and the court
reporter at trial.




          13.8 The referee shall be required to determine all issues in accordance with existing case
law and the statutory laws of the State of California. The rules of evidence applicable to
proceedings at law in the State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that
will be binding on the parties and rule on any motion which would be authorized in a court
proceeding, including without limitation motions for summary judgment or summary adjudication. The
referee shall issue a decision at the close of the reference proceeding which disposes of all
claims of the parties that are the subject of the reference. Such decision shall be entered by the
Court as a judgment or an order in the same manner as if the action had been tried by the Court.
The parties reserve the right to appeal from the final judgment or order or from any appealable
decision or order entered by the referee. The parties reserve the right to findings of fact,
conclusions of laws, a written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a reference proceeding under this
provision.




 









 








          13.9 If the enabling legislation which provides for appointment of a referee is repealed (and
no successor statute is enacted), any dispute between the parties that would otherwise be
determined by reference procedure will be resolved and determined by arbitration. The arbitration
will be conducted by a retired judge or justice, in accordance with the California Arbitration Act
§1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery set forth above shall apply to any such arbitration proceeding.




          13.10 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED
UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY
KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE
PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR
IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS.




[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




 









 








     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
date first above written.



	 	 	 	 	 
	 	 	LAUREATE PHARMA, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Steven J. Grenfell
	 

	 	 	 	 
	 

	 	Title:
	 	Vice President
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	COMERICA BANK
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Peter Bendoris
	 

	 	 	 	 
	 

	 	Title:
	 	Vice President