QuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.10    
    




 
 

GENOPTIX, INC.
  
    AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT    
    









 

        This
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as of May 09, 2005, by and between COMERICA BANK ("Bank") and GENOPTIX, INC. ("Borrower"). 


RECITALS  


        Bank and Borrower are parties to that certain Loan and Security Agreement, dated as of November 26, 2002, as amended from time to time
(the "Original Agreement"). Borrower and Bank wish to amend and restate the terms of the Original Agreement. 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 Line or the Committed Line. 


        "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, whether generated in-house or by outside counsel) 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 (whether
generated in-house or by outside counsel) 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
State" means Delaware, the state under whose laws Borrower is organized. 



        "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 eighty percent (80%) of Eligible Accounts, 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. 


        "Cash"
means unrestricted cash and cash equivalents. 


        "Change
in Control" shall mean a transaction in which any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
becomes the "beneficial 


2







 



owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), 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. 


        "Chief
Executive Office State" means California, where Borrower's chief executive office is located. 


        "Closing
Date" means the date of this Agreement. 


        "Code"
means the California Uniform Commercial Code, as amended or supplemented from time to time. 



        "Collateral"
means the property described on Exhibit A attached hereto and all Negotiable Collateral to the extent not described on Exhibit A, except to the extent
any such property (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under
applicable law, including, without limitation, Sections 9406 and 9408 of the Code), or (ii) the granting of a security interest therein is contrary to applicable law, provided
that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral; provided that in no case shall the definition of "Collateral" exclude
any Accounts, proceeds of the disposition of any property, or general intangibles consisting of rights to payment. 


        "Collateral
State" means the state or states where the Collateral is located, which is California. 


        "Committed
Line" means a Credit Extension of up to One Million Dollars ($1,000,000), inclusive of any amounts outstanding under the Letter of Credit Sublimit. 


        "Committed
Line Maturity Date" means May 31, 2006. 


        "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 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 designated to protect a 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. 


        "Credit
Extension" means each Advance, Equipment Advance, the Term Loan or any other extension of credit by Bank to or for the benefit of Borrower hereunder. 



        "Eligible
Accounts" means those Accounts 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 5.3; 


3







 



provided,
that Bank may change the standards of eligibility by giving Borrower thirty (30) days prior written notice. Unless otherwise agreed to by Bank, Eligible Accounts shall not include
the following: 


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


        (b)   Credit
balances over ninety (90) days; 


        (c)   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; 


        (d)   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; 



        (e)   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; 


        (f)    Accounts
with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States, except for
Accounts of the United States if the payee has assigned its payment rights to Bank and the assignment has been acknowledged under the Assignment of Claims Act of 1940
(31 U.S.C. 3727); 


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


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


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



        (j)    Accounts
that have not yet been billed to the account debtor or that relate to deposits (such as good faith deposits) or other property of the account debtor held by
Borrower for the performance of services or delivery of goods which Borrower has not yet performed or delivered; 


        (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; 


        (l)    Accounts
the collection of which Bank reasonably determines after inquiry and consultation with Borrower to be doubtful; and 


        (m)  Retentions
and hold-backs. 


        "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 are
(i) supported by one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank, (ii) insured by the Export Import Bank of the
United States, (iii) generated by an account debtor with its principal place of business in Canada, provided that the Bank has perfected its security interest in the appropriate Canadian
province, or (iv) approved by Bank on a case-by-case basis. All Eligible Foreign Accounts must be calculated in U.S. Dollars. 


        "Environmental
Laws" means all laws, rules, regulations, orders and the like issued by any federal state, local foreign or other governmental or quasi-governmental authority or any
agency pertaining to 


4








 



the
environment or to any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials. 


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


        "Equipment
Advance(s)" means a cash advance or cash advances under the Equipment Line. 



        "Equipment
Line" means a Credit Extension of up to Three Hundred Thousand Dollars ($300,000) 


        "Equipment
Maturity Date" means November 09, 2008. 


        "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, consistently applied, as in effect from time to time. 



        "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" means all of Borrower's right, title, and interest in and to the following: 


        (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 copyrights, patents or trademarks, and all license fees and royalties arising from such use to the extent permitted by such
license or rights; 


        (f)    All
amendments, renewals and extensions of any 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. 


        "Inventory"
means all present and future inventory in which Borrower has any interest. 



        "Investment"
means any beneficial ownership of (including stock, partnership or limited liability company interest 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. 


5







 



        "Letter
of Credit" means a commercial or standby letter of credit or similar undertaking issued by Bank at Borrower's request in accordance with Section 2.1(b)(iii). 



        "Letter
of Credit Sublimit" means a sublimit for Letters of Credit under the Committed Line not to exceed $1,000,000. 


        "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 document, instrument or 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, condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole,
(ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents, (iii) Borrower's interest in, or the value, perfection or priority of
Bank's security interest in the Collateral. 


        "Negotiable
Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents
of title, and chattel paper, and Borrower's Books relating to any of the foregoing. 


        "New Equity"
means cash proceeds received from the sale or issuance of Borrower's equity securities. 



        "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; provided "Obligations" shall not include any obligations of Borrower under the terms of any warrants
provided to Bank in connection with this Agreement. 


        "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 or any other Loan Document; 


        (b)   Indebtedness
existing on the Closing Date and disclosed in the Schedule; 


        (c)   Indebtedness
not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year of Borrower secured by a lien described in clause (c) of
the defined term "Permitted Liens;" provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness; 


        (d)   Subordinated
Debt; 


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



        (f)    Indebtedness
other than Indebtedness described in clauses (a) through (e) of this definition of Permitted Indebtedness, provided such Indebtedness shall
not exceed One Hundred Thousand Dollars ($100,000) in the aggregate at any given time; 


6







 



        (g)   Indebtedness
of a Subsidiary to Borrower or to any other Subsidiary of Borrower that is a co-borrower or guarantor hereunder not to exceed Five Hundred
Thousand Dollars ($500,000) in the aggregate; 


        (h)   Extensions,
refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more
burdensome terms upon Borrower or its Subsidiary, as the case may be. 


        "Permitted
Investment" means: 


        (a)   Investments
existing on the Closing Date disclosed in the Schedule; and 


        (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) Bank's certificates of deposit maturing no more than one year from
the date of investment therein, and (iv) Bank's money market accounts; 


        (c)   Repurchases
of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed
Five Hundred Thousand Dollars ($500,000) in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any
amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists; 


        (d)   Investments
accepted in connection with Permitted Transfers; 


        (e)   Investments
of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed Five Hundred Thousand Dollars ($500,000) in
the aggregate in any fiscal year; 


        (f)    Investments
not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year consisting of (i) travel advances and employee relocation
loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or
its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower's Board of Directors; 


        (g)   Investments
(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 Borrower's business; 


        (h)   Investments
consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary
course of business, provided that this subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary; and 


        (i)    Investments
not otherwise permitted under Section 7.7 which do not exceed One Hundred Thousand Dollars ($100,000) in the aggregate during the term of this
Agreement; and 


        (j)    Joint
ventures or strategic alliances in the ordinary course of Borrower's business consisting of the licensing of technology, the development of technology or the
providing of technical support, provided that any cash Investments by Borrower do not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year. 


7







 



        "Permitted
Liens" means the following: 


        (a)   Any
Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Advances) 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 and for
which Borrower maintains adequate reserves, provided the same have no priority over any of Bank's security interests; 


        (c)   Liens
not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate (i) upon or in any Equipment (other than Equipment financed by an Equipment Advance)
acquired or held by Borrower or any of its Subsidiaries to secure the purchase price or lease of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease 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)   Liens
arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.5 or 8.9; 


        (f)    Leases
or subleases and licenses and sublicenses granted to others in the ordinary course of Borrower's business not interfering in any material respect with the
business of Borrower and its Subsidiaries taken as a whole; 


        (g)   Deposits
under worker's compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other
than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations (other than liens arising under ERISA or environmental liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; all, in the
ordinary course of Borrower's business; 


        (h)   Liens
in favor or customs and revenue authorities arising as a matter of law, in the ordinary course of Borrower's business, to secure payment of customs duties in
connection with the importation of goods; 


        (i)    Liens
of materialmen, mechanics, warehousemen, carriers, artisan's or other similar Liens arising in the ordinary course of Borrower's business or by operation of law,
which are not past due or which are being contested in good faith by appropriate proceedings and for which reserves have been established in accordance with GAAP; and 


        (j)    Liens
in favor of other financial institutions arising in connection with Borrower's deposit accounts held at such institutions to secure standard fees for deposit
services charged by, but not financing made available by such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit accounts. 



        "Permitted
Transfer" means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of: 


        (a)   Inventory
in the-ordinary course of business; 


8







 



        (b)   licenses
and similar arrangements for the use of the property (including without limitation, Intellectual Property) of Borrower or its Subsidiaries in the ordinary
course of business; 


        (c)   surplus,
worn-out or obsolete Equipment not financed with the proceeds of Equipment Advances; or 


        (d)   transfers
from any Subsidiary to Borrower; 


        (e)   transfers
of investment property of Borrower for the sole purpose of obtaining replacement investment property of substantially the same value with the proceeds of
such transfer; 



        (f)    transfers
from Borrower to any Subsidiary who is a co-borrower or guarantor hereunder (including loans to any such Subsidiary) not to exceed Five Hundred
Thousand Dollars ($500,000) in the aggregate; 


        (g)   transfers
permitted under Section 7.3; 


        (h)   Transfers
disclosed on Schedule of Exceptions; or 


        (i)    other
assets of Borrower or its Subsidiaries that do not in the aggregate exceed One Hundred Thousand Dollars ($100,000) during any fiscal year. 



        "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 Financial Officer and the Controller of Borrower. 


        "Revolving
Line" means a Credit Extension of up to One Million Dollars ($1,000,000). 


        "Revolving
Maturity Date" means May 09, 2006. 


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


        "SOS
Reports" means the official reports from the Secretaries of State of each Collateral State, Chief Executive Office State and the Borrower State and other applicable federal, state
or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report. 


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


        "Subsidiary"
means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than fifty percent
(50%) of the stock, limited liability company interest or joint venture of 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. 


        "Term
Loan" has the meaning set forth in Section 2.1(e). 


        "Term
Loan Maturity Date" means November 09, 2008. 


        "Tranche A"
has the meaning assigned in Section 2.1(c)(i). 


        "Tranche A
Availability End Date" means November 09, 2005. 


9







 



        "Tranche A
Equipment Advance" or "Tranche A Equipment Advances" means any Equipment Advances(s) made under Tranche A. 


        "Tranche B"
has the meaning assigned in Section 2.1(c)(i). 


        "Tranche B
Availability End Date" means May 09, 2006. 


        "Tranche B
Equipment Advance" or "Tranche B Equipment Advances" means any Equipment Advances(s) made under Tranche B. 


        1.2    Accounting Terms.    Any accounting term not specifically defined herein shall be
construed in accordance with GAAP and all calculations shall be made in accordance with GAAP. The term "financial statements" shall include the accompanying notes and schedules. 


        2.    LOAN AND TERMS OF PAYMENT.    


        2.1    Credit Extensions.    


        (a)   Promise
to Pay.    Borrower promises to pay to Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof. 



        (b)    Advances Under Committed Line.    



        (i)    Amount.    Subject
to and upon the terms and conditions of this Agreement (1) Borrower may request Advances in an aggregate
outstanding amount not to exceed the Committed Line, less any amounts outstanding under the Letter of Credit Sublimit, and (2) amounts borrowed pursuant to this Section 2.1(b) may be
repaid and reborrowed at any time prior to the Committed Line Maturity Date, at which time all Advances under this Section 2.1(b) shall be immediately due and payable. Borrower may prepay any
Advances without penalty or premium. 



10









  



        (ii)   Form
of Request.    Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. Pacific time (1:00 p.m. Pacific time for wire transfers), on 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(b) to Borrower's deposit account. 


        (iii)  Letter
of Credit Sublimit.    Subject to the availability under the Committed Line, and in reliance on the representations and
warranties of Borrower set forth herein, at any time and from time to time from the date hereof through the Business Day immediately prior to the Committed Line Maturity Date, Bank shall issue for the
account of Borrower such Letters of Credit as Borrower may request by delivering to Bank a duly executed letter of credit application on Bank's standard form; provided, however, that the outstanding
and undrawn amounts under all such Letters of Credit (i) shall not at any time exceed the Letter of Credit Sublimit, and (ii) shall be deemed to constitute Advances for the purpose of
calculating availability under the Committed Line. Any drawn but unreimbursed amounts under any Letters of Credit shall be charged as Advances against the Committed Line. All Letters of Credit shall
be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form application and letter of credit agreement. Borrower will pay any
standard issuance and other fees that Bank notifies Borrower it will charge for issuing and processing Letters of Credit. 


        (iv)  Collateralization
of Obligations Extending Beyond Maturity.    If Borrower has not secured to Bank's satisfaction its obligations
with respect to any Letters of Credit, by the Committed Line 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 and undrawn Letters of Credit. 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 Letters of Credit are outstanding
or continue. 




        (c)   Advances
Under Revolving Line. 



        (i)    Amount.    Subject
to and upon the terms and conditions of this Agreement (1) Borrower may request Advances in an aggregate
outstanding amount not to exceed the lesser of (A) the Revolving Line or (B) the Borrowing Base and (2) amounts borrowed pursuant to this Section 2.1(c) may be repaid and
reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(c) shall be immediately due and payable. Borrower may prepay any Advances without
penalty or premium. 


        (ii)   Form
of Request.    Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. Pacific time (1:00 p.m. Pacific time for wire transfers), on 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 



11







 




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(c) to Borrower's deposit account. 




        (d)   Equipment
Advances. 



        (i)    Subject
to and upon the terms and conditions of this Agreement, Bank agrees to make Equipment Advances to Borrower in two tranches, Tranche A and
Tranche B. Borrower may request Equipment Advances under Tranche A at any time from the date hereof through the Tranche A Availability End Date. Borrower may request Equipment
Advances under Tranche B at any time from the Tranche A Availability End Date through the Tranche B Availability End Date. The aggregate outstanding amount of Tranche A
Equipment Advances and Tranche B Equipment Advances shall not exceed the Equipment Line. Each Equipment Advance shall not exceed one hundred percent (100%) of the invoice amount of equipment
and software approved by Bank from time to time (which Borrower shall, in any case, have purchased within 90 days of the date of the corresponding Equipment Advance), excluding taxes, shipping,
warranty charges, freight discounts and installation expense. Equipment Advances for soft costs shall not exceed Forty Five Thousand Dollars ($45,000). 


        (ii)   Interest
shall accrue from the date of each Equipment Advance at the rate specified in Section 2.3 (a), and shall be payable in accordance with
Section 2.3(c). Any Equipment Advances that are outstanding under Tranche A on the Tranche A Availability End Date shall be payable in thirty (30) equal monthly
installments of principal, plus all accrued interest, beginning on December 09, 2005, and continuing on the same day of each month thereafter until paid in full. Any Equipment Advances that are
outstanding under Tranche B on the Tranche B Availability End Date shall be payable in thirty (30) equal monthly installments of principal, plus all accrued interest, beginning on
June 09, 2006 and
continuing on the same day of each month thereafter through the Equipment Maturity Date, at which time all amounts due in connection with Tranche B Equipment Advances made under this
Section 2.1(d) shall be immediately due and payable. Equipment Advances, once repaid, may not be reborrowed. Borrower may prepay any Equipment Advances without penalty or premium. 


        (iii)  When
Borrower desires to obtain an Equipment Advance, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later
than 3:00 p.m. Pacific time three (3) Business Days before the day on which the Equipment Advance is to be made. Such notice shall be substantially in the form of Exhibit B. The
notice shall be signed by a Responsible Officer or its designee and include a copy of the invoice for any Equipment to be financed. 




        (e)   Term
Loan. 



        (i)    Subject
to and upon the terms and conditions of this Agreement, on the Closing Date or as soon thereafter as is practical, Bank shall make one term loan to Borrower in
an aggregate amount not to exceed Three Million Dollars ($3,000,000) (the "Term Loan"), which amount shall be used for working capital purposes. 


        (ii)   Interest
shall accrue from the date the Term Loan is made at the rate specified in Section 2.3(a), and shall be payable monthly on the first day of each month
commencing on the first day of the first month after the Term Loan is made. The Term Loan shall be repaid in thirty six (36) equal monthly installments of principal plus accrued but unpaid
interest, commencing on November 09, 2005 and continuing on the same day of each month thereafter through the Term 



12







 




Loan
Maturity Date, at which time all amounts owing under this Section 2.1(e) shall be immediately due and payable. The Term Loan, once repaid, may not be reborrowed. Borrower may prepay the
Term Loan without penalty or premium. 


        (iii)  When
Borrower desires to obtain the Term Loan, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than
3:00 p.m. Pacific time one (1) Business Day before the day on which the Term Loan is to be made. Such notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee. 




        2.2    Overadvances.    If the aggregate amount of the outstanding Advances made under
the Revolving Line 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. 



        (i)    Advances
under Committed Line.    Except as set forth in Section 2.3(b), the Advances made under the Committed Line shall
bear interest, on the outstanding daily balance thereof, at a variable rate equal to one percent (1.00%) above the Prime Rate. 



        (ii)   Advances
under Revolving Line.    Except as set forth in Section 2.3(b), the Advances made under the Revolving Line shall
bear interest, on the outstanding daily balance thereof, at a variable rate equal to three quarters of one percent (0.75%) above the Prime Rate. 


        (iii)  Equipment
Advances.    Except as set forth in Section 2.3(b), the Equipment Advances shall bear interest, on the
outstanding daily balance thereof, at a rate equal to one percent (1.00%) above the Prime Rate. 



        (iv)  Term
Loan.    Except as set forth in Section 2.3(b), the Term Loan shall bear interest, on the outstanding daily balance
thereof, at a rate equal to one and one quarter percent (1.25%) above the Prime Rate. 




        (b)   Late
Fee; Default Rate.    If any payment is not made within ten (10) Business 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 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. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder. 


        (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 days elapsed. 



        2.4    Crediting Payments.    Prior to the occurrence and continuance of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies, except that to the extent Borrower uses the Advances to
purchase 


13







 



Collateral,
Borrower's repayment of the Advances shall apply on a "first-in-first-out" basis so that the portion of the Advances used to purchase a particular item
of Collateral shall be paid in the chronological order the Borrower purchased the Collateral. 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 12:00 noon Pacific 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 the Closing Date, a fee equal to $20,000, which shall be nonrefundable; and 



        (b)   Bank
Expenses.    On the Closing Date, all Bank Expenses incurred through the Closing Date, and, after the Closing Date, all Bank
Expenses as and when they become due. 


        2.6    Term.    This Agreement shall become effective on the Closing Date and, subject to
Section 13.7, 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. 


        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; 


        (b)   an
officer's certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement; 


        (c)   UCC
National Form Financing Statement; 


        (d)   a
warrant to purchase stock; 


        (e)   current
SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral; 


        (f)    securities
and/or deposit account control agreements with respect to any accounts permitted hereunder to be maintained outside Bank; 


        (g)   agreement
to provide insurance; 


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



        (i)    current
financial statements, including unaudited statements for Borrower's most recently ended fiscal year, company prepared consolidated and consolidating balance
sheets and income statements for the most recently ended month in accordance with Section 6.2, and such other updated financial information as Bank may reasonably request; 


        (j)    current
Compliance Certificate in accordance with Section 6.2; 


14







 



        (k)   an
audit of the Collateral, the results of which shall be reasonably satisfactory to Bank (this in only applicable for the first Advance under the Revolving
Line; and 


        (l)    evidence
that Borrower has received at least Five Million Dollars ($5,000,000) in New Equity; and 


        (m)  such
other documents or certificates, 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 the 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 the Collateral 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 and except for Permitted Liens, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and
except for Permitted Liens will constitute a valid, first priority security interest in later-acquired Collateral. Borrower also hereby agrees to not sell, transfer, assign, mortgage, pledge, lease,
grant a security interest in, or encumber any
of its intellectual property except for Permitted Liens and Permitted Transfers. Notwithstanding any termination, Bank's Lien on the Collateral shall remain in effect for 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 reasonably 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 is required to perfect its security interest by possession in addition to the filing of a
financing statement. Where Collateral is in possession of a third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and
substance reasonably 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 


15







 



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 reasonably 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. 


        4.4    Termination of Financing Statement.    Upon final payment in full by Borrower of
all of the Obligations and upon termination of this Agreement, Bank shall promptly file a UCC termination statement with respect to the Collateral. 



        5.    REPRESENTATIONS AND WARRANTIES.    


        Borrower
represents and warrants as follows: 


        5.1    Due Organization and Qualification.    Borrower and each Subsidiary is duly
existing under the laws of the state in which it is organized 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 do be so qualified or licensed could not reasonably be expected to cause 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 Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to the extent
such default could not reasonably be expected to cause a Material Adverse Effect. 


        5.3    Collateral.    Borrower has rights in or the power to transfer the Collateral, and
its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens. Ail Collateral is located solely in the Collateral States.
The Eligible Accounts are bona fide existing obligations. The property or services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor whose accounts are included
in any Borrowing Base Certificate as an Eligible Account. All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which
adequate reserves have been made. Except as set forth in the Schedule, none of the Collateral is maintained or invested with a Person other than Bank or Bank's Affiliates. 



        5.4    Intellectual Property.    Borrower is the sole owner of its patents, trademarks,
copyrights and other intellectual property, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business. To the best of Borrower's knowledge,
each of Borrower's patents, trademarks and copyrights is valid and enforceable, and no part of its intellectual property has been judged invalid or unenforceable, in whole or in part, and no claim has
been made to Borrower that any 


16







 



part
of its intellectual property violates the rights of any third party except to the extent such claim could not reasonably be expected to cause a Material Adverse Effect. 


        5.5    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, and its exact legal name is as set forth in the first paragraph of this Agreement. The chief
executive office of Borrower is located in the Chief Executive Office State at the address indicated in Section 10 hereof. 



        5.6    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 a likely adverse decision could reasonably be expected to have a Material
Adverse Effect. 


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


        5.8    Solvency, Payment of Debts.    Borrower is able to pay its debts (including trade
debts) as they mature; the fair saleable value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably
small capital after the transactions contemplated by this Agreement. 



        5.9    Compliance with Laws and Regulations.    Borrower and each Subsidiary have met the
minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower's failure to comply with ERISA that is reasonably
likely to result in Borrower's incurring any liability that could reasonably be expected to have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940. 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 applicable to it. Borrower is in compliance with all applicable environmental laws, regulations and ordinances except where the
failure to comply is not reasonably likely to have a Material Adverse Effect. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, the violation of which could
reasonably be expected to have a Material Adverse Effect. 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 except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes could
not reasonably be expected to have a Material Adverse Effect. 


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


        5.11    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, except where the failure to do so could not reasonably be expected to cause a Material Adverse Effect. 


17







 



        5.12    Inbound Licenses.    Except as disclosed on the Schedule, Borrower is not a party
to, nor is bound by, any license that prohibits or otherwise restricts Borrower from granting a security interest in Borrower's interest in such license. 


        5.13    Full Disclosure.    No representation, warranty or other statement made by
Borrower in any certificate or written statement furnished to Bank taken together with all such certificates and written statements 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 not misleading it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and
forecasts may differ from the projected or forecasted results, 


        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 and Government Compliance.    Borrower shall maintain its and each
of its Subsidiaries' corporate existence and good standing in the Borrower State, shall maintain qualification and good standing in each other jurisdiction in which the failure to so qualify could be
reasonably expected to have a Material Adverse Effect, and shall furnish to Bank the organizational identification number issued to Borrower by the authorities of the state in which Borrower is
organized, if applicable. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA except
where the failure to meet such requirements could not reasonably be expected to have a Material Adverse Effect. Borrower shall comply in all material respects with all applicable Environmental Laws,
and maintain all material permits, licenses and approvals required thereunder where the failure to do so could be reasonably expected to have a Material Adverse Effect. 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,
and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which could reasonably be
expected to have a Material Adverse Effect. 


        6.2    Financial Statements, Reports, Certificates.    Borrower shall deliver the
following to Bank (i) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet
and income statement covering Borrower's operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (ii) as soon as available, but in any
event within one hundred fifty (150) days after the end of Borrower's fiscal year, audited consolidated and consolidating financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an opinion which is unqualified or otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (iii) 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; (iv) 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 Two Hundred Fifty Thousand Dollars
($250,000) or more; (v) promptly upon receipt, each management letter prepared by Borrower's independent certified public accounting firm regarding Borrower's management control systems; and
(vi) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as Bank may reasonably request from time
to time. 


18







 



        (a)   Within
thirty (30) days after the last day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings by invoice date of accounts receivable and accounts payable. 



        (b)   Within
thirty (30) days after the last day of each month, Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate certified
as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit D hereto. 


        (c)   As
soon as possible and in any event within three (3) Business Days after becoming aware of the occurrence or existence of an Event of Default hereunder, a
written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto. 



        (d)   Bank
shall have a right from time to time hereafter to audit Borrower's Accounts and appraise Collateral at Borrower's expense (provided the cost of such audits shall
not exceed $3,000 per audit), provided that such audits will be conducted no more often than every six (6) months unless an Event of Default has occurred and is continuing. 


        Borrower
may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the
information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer. If Borrower delivers this information electronically,
it shall also deliver to Bank by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or.pdf file within five (5) Business Days of submission of the unsigned
electronic copy the certification of monthly financial statements, the intellectual property report, the Borrowing Base Certificate and the Compliance Certificate, each bearing the physical signature
of the Responsible Officer. 


        6.3    Inventory; Returns.    Borrower shall keep all Inventory in good and merchantable
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. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving more than One
Hundred Thousand Dollars ($100,000). 


        6.4    Taxes.    Borrower shall make, and 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, including, but not limited to, those laws concerning income taxes, F.I.C.A.,
F.U.T.A. and state disability, and will execute and deliver to Bank, promptly on demand, proof reasonably satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or
deposits and any appropriate certificates attesting to the payment or deposit thereof; 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 reserved against (to the extent required by GAAP) by Borrower. 


        6.5    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
liability and other insurance 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 policies of property insurance
shall contain a lender's loss payable endorsement, in a form reasonably satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show the Bank as an
additional insured 


19







 



and
shall specify that the insurer must give at least 20 days notice to Bank before canceling its policy for any reason. Upon Bank's request, Borrower shall deliver to Bank certified copies of
the policies of insurance and evidence of all premium payments. If no Event of Default has occurred and is continuing, proceeds payable under any casualty policy will, at Borrower's option, be payable
to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security interest. If
an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Bank's option, be payable to Bank to be applied on account of the Obligations. 


        6.6    Accounts.    Borrower shall maintain its primary depository and investment
accounts with Bank or Bank's Affiliates. 


        6.7    Performance to Plan.    Measured on a quarterly basis, Borrower's net loss shall
be no greater than one hundred twenty five percent (125%) of the quarterly projections that have been approved by Borrower's Board of Directors and attached to the Schedule hereto. 



        6.8    Creation/Acquisition of Subsidiaries.    In the event Borrower or any Subsidiary
creates or acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Bank of the creation or acquisition of such new Subsidiary and take all such action as may be reasonably required
by Bank to cause such Subsidiary to guarantee the Obligations of Borrower under the Loan Documents and grant a continuing pledge and security interest in and to the collateral of such Subsidiary
(substantially as described on Exhibit A hereto), and Borrower shall grant and pledge to Bank a perfected security interest in the stock, units or other evidence of ownership of such
Subsidiary. 


        6.9    Continued Investor Support.    Borrower shall cause to be delivered to Bank,
within five (5) Business Days of Bank's request therefore, the Continued Investor Support Certificate in the form attached hereto as Annex I, duly executed by Enterprise Partners or one
of Borrower's other primary investors (as identified by Bank). 


        6.10    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, so long as any credit hereunder shall be available and until the outstanding Obligations are paid in full or for so long as Bank may have any
commitment to make any Credit Extensions, Borrower will not do any of the following without Bank's prior written consent, which shall not be unreasonably withheld: 


        7.1    Dispositions.    Convey, sell, lease, license, transfer or otherwise dispose of
(collectively, to "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, including its intellectual property, or move cash balances on deposit with
Bank to accounts opened at another financial institution, other than Permitted Transfers. 


        7.2    Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal
Year; Change in Control.    Change its name or the Borrower State or relocate its chief executive office without thirty (30) days prior written notification to Bank;
replace its chief executive officer or chief financial officer without providing written notification to Bank within sixty (60) days thereafter; engage in any business, or permit any of its
Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end; suffer or permit a Change
in Control. 


        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 (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower and other than
Permitted Investments), or acquire, 


20







 



or
permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (i) such transactions do not in the aggregate exceed Five
Hundred Thousand Dollars ($500,000) during any fiscal year, (ii) no Event of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii) such
transactions do not result in a Change in Control, and (iv) Borrower is the surviving entity. 


        7.4    Indebtedness.    Create, incur, assume, guarantee or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any
Indebtedness, except Indebtedness to Bank. 


        7.5    Encumbrances.    Create, incur, assume or allow 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. Agree with any Person other than Bank not to grant a security interest in, or otherwise encumber, any of its, or covenant to any other Person
that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower's 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, except that Borrower may (i) pay dividends in capital stock; (ii) repurchase the stock of former employees,
officers or directors 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,
(iii) repurchase the stock of former employees, officers or directors pursuant to stock repurchase agreements by the cancellation of indebtedness owed by such former employees to Borrower
regardless of whether an Event of Default exists and (iv) convert any of its convertible securities into other securities pursuant to the terms of such convertible securities. 


        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 Bank's Affiliates or permit
any Subsidiary to do so unless such Person has entered into a control agreement with Bank, in form and substance reasonably satisfactory to Bank. 


21









   
        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 other than transactions with Affiliates disclosed on the Schedule. 



        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 affecting Bank's rights 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 similar 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 possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in
the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10
and such other locations of which' Borrower gives Bank prior written notice and as to which Bank files a financing statement, or takes other action, where needed to perfect its security
interest. 


        7.11    No Investment Company; Margin Regulation.    Become 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. 


        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 when due; 


        8.2    Covenant Default.    


        (a)   If
Borrower fails to perform any obligation under Sections 6.4 through 6.10 or violates any of the covenants contained in Article 7 of
this Agreement; 


        (b)   If
Borrower fails to perform any obligation under Section 6.2 and has failed to cure such default within ten (10) days; or 


        (c)   If
Borrower fails to perform any obligation under Sections 6.1 or 6.3 or if Borrower fails or neglects to perform or observe any other material term,
provision, condition, covenant 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 or covenant that can be cured, has failed to cure such default within ten (10) days after Borrower receives 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 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 but no Credit Extensions will
be made; 


        8.3    Defective Perfection.    If Bank shall receive at any time following the Closing
Date an SOS Report indicating that except for Permitted Liens, Bank's security interest in the Collateral is not prior to all other security interests or Liens of record reflected in such
SOS Report; 


22







 



        8.4    Intentionally Omitted.    


        8.5    Attachment.    If any material 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 material portion 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 made
during such cure period); 


        8.6    Insolvency.    If an Insolvency Proceeding is commenced by Borrower, or if an
Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within forty five (45) days (provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding); 


        8.7    Other Agreements.    If there is a default or other failure to perform in any
agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an
amount in excess of Five Hundred Thousand Dollars ($500,000) or that could be reasonably expected to have a Material Adverse Effect; 


        8.8    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; 


        8.9    Judgments.    If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of fifteen
(15) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment); or 


        8.10    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. 


        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 8.6, all Obligations shall become immediately due and payable without any action by Bank); 


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


23







 

        (c)   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; 


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



        (e)   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 reasonably 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 reasonable 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; 


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


        (g)   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; 


        (h)   Sell
the Collateral at either a public or private sale, or both, 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. Bank may sell the
Collateral without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Bank,
and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale; 


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


        (j)    Apply
for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the
Obligations and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of the Obligations; and 


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



        Bank
may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. 


24







 



        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; and
(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; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in clause (g) above, 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.    At any time after 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. During the continuance of an
Event of Default, 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 the Revolving Line 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 6.5 of this Agreement, and take any action with respect to such policies as Bank deems 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.    Bank has no obligation to clean up or
otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 


        9.6    No Obligation to Pursue Others.    Bank has no obligation to attempt to satisfy
the Obligations by collecting them from any other Person liable for them and Bank may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without
affecting Bank's rights against Borrower. Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations. 


        9.7    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 


25







 



purpose
for which it was given. Borrower expressly agrees that this Section may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise. 


        9.8    Demand; Protest.    Except as otherwise provided in this Agreement, Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations. 


        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:	 	GENOPTIX, INC.

3398 Carmel Mountain Road, Ste. 100

San Diego, CA 92121

Attn: Chief Financial Officer

FAX: (858) 523-5001
	
 If to Bank:	
 	

Comerica Bank

2321 Rosecrans Ave., Suite 5000

El Segundo, CA 90245

Attn: Manager

FAX: (310) 297-2290
	
 with a copy to:	
 	

Comerica Bank

11512 El Camino Real, Suite 350

San Diego, CA 92130

Attn: Steve Stuckey, Senior Vice President

FAX: (858) 509-2365





        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. Each of Borrower
and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. 


26







 



        12.    REFERENCE PROVISION.    


        The
parties prefer that any dispute between them be resolved in litigation subject to a Jury Trial Waiver as set forth in Section 11 of this Agreement, but the availability of
that process is in doubt because of the opinion of the California Court of Appeal in Grafton Partners LP v. Superior Court, 9 Cal.Rptr.3d
511. This Reference Provision will be applicable until the California Supreme Court completes its review of that case, and will continue to be applicable if either that court or a California Court of
Appeal publishes a decision holding that a pre-dispute Jury Trial Waiver provision similar to that contained in the Loan Documents is invalid or unenforceable. Delay in requesting
appointment of a referee pending review of any such decision, or participation in litigation pending review, will not be deemed a waiver of this Reference Provision. 


        12.1    Mechanics.    



        (a)   Other
than (i) nonjudicial foreclosure of security interests in real or personal property, (ii) the appointment of a receiver or (iii) the exercise
of other provisional remedies (any of which may be initiated pursuant to applicable law), 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 Bank and the undersigned (collectively in this Section, the "Loan Documents"), will be resolved by a reference proceeding in
California in accordance with the provisions of Section 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 Loan Documents, venue for the reference proceeding will be in
the Superior Court or Federal District Court in the County or District where venue is otherwise appropriate under applicable law (the "Court"). 


        (b)   The
referee shall be a retired Judge or Justice selected by mutual written agreement of the parties. If the parties do not agree, 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. The referee shall be appointed to sit with all the
powers provided by law. Each party shall have one peremptory challenge pursuant to CCP § 170.6. Pending appointment of the referee, the Court has power to issue temporary or
provisional remedies. 


        (c)   The
parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested to (a) set the matter for a
status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (b) if practicable, try all issues of law or fact within ninety (90) days
after the date of the conference and (c) report a statement of decision within twenty (20) days after the matter has been submitted for decision. Any decision rendered by the referee
will be final, binding and conclusive, and judgment shall be entered pursuant to CCP §644. 



        (d)   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. 



        12.2    Procedures.    Except as expressly set forth in this Agreement, 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 


27







 



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. 


        12.3    Application of Law.    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, provide all temporary or provisional remedies, enter equitable orders that will be binding on the
parties and rule on any motion which
would be authorized in a trial, 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 ail claims of the parties that are the subject of the reference. The referee's 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. 


        12.4    Repeal.    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. 


        12.5 THE
PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY, AND THAT THEY ARE IN EFFECT
WAIVING THEIR RIGHT TO TRIAL BY JURY IN AGREEING TO THIS REFERENCE PROVISION. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY KNOWINGLY
AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT OF OR IS RELATED TO THIS AGREEMENT OR THE
LOAN DOCUMENTS. 


        13.    GENERAL PROVISIONS.    


        13.1    Successors and Assigns.    This Agreement shall bind and inure to the benefit of
the respective successors and permitted assigns of each of the parties and shall bind all Persons who become bound as a debtor to this Agreement; 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. 


        13.2    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, its officers, employees and agents as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under the Loan Documents, or otherwise (including without limitation reasonable attorneys' fees and expenses), except for losses caused
by Bank's gross negligence or willful misconduct. 


28







 



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


        13.4    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. 


        13.5    Amendments in Writing, Integration.    All amendments to or terminations of this
Agreement or the other Loan Documents must be in writing. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject
matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents. 


        13.6    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. 


        13.7    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 any Credit Extension to Borrower. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive until all applicable statute of limitations periods with respect to actions that may
be brought against Bank have run. 


        13.8    Effect of Amendment and Restatement.    Except as otherwise set forth herein,
this Agreement is intended to and does completely amend and restate, without novation, the Original Agreement. All security interests granted under the Original Agreement are hereby confirmed and
ratified and shall continue to secure all Obligations under this Agreement. 


        13.9    Confidentiality.    In handling any confidential information Bank and all
employees and agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or Affiliates of Bank
in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered
into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar
order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies
hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes
part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is
prohibited from disclosing such information. 


29







 

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



	 	 	GENOPTIX, INC.
	

 	
 	
By:	

/s/  TINA S. NOVA      

	 	 	Title:	President and CEO
	

 	
 	
COMERICA BANK
	

 	
 	
By:	

/s/  SENIOR VICE PRESIDENT      

	 	 	Title:	Senior Vice President




30











QuickLinks



Exhibit 10.10


GENOPTIX, INC. AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT