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Exhibit 10.18  




 
 

LOAN AND SECURITY AGREEMENT    
    


DISPLAYTECH, INC.  










   TABLE OF CONTENTS  



	 
	 	 
	 	 
	 	Page

	1	 	ACCOUNTING AND OTHER TERMS	 	1
	

2	
 	
LOAN AND TERMS OF PAYMENT	
 	

1
	 	 	2.1	 	Promise to Pay	 	1
	 	 	2.2	 	Interest Rate, Payments	 	1
	 	 	2.3	 	Fees	 	2
	

3	
 	
CONDITIONS OF LOANS	
 	

2
	 	 	3.1	 	Conditions Precedent to Term Loan	 	2
	

4	
 	
CREATION OF SECURITY INTEREST	
 	

2
	 	 	4.1	 	Grant of Security Interest	 	2
	

5	
 	
REPRESENTATIONS AND WARRANTIES	
 	

3
	 	 	5.1	 	Due Organization and Authorization	 	3
	 	 	5.2	 	Collateral	 	3
	 	 	5.3	 	Litigation	 	3
	 	 	5.4	 	No Material Adverse Change in Financial Statements	 	3
	 	 	5.5	 	Solvency	 	4
	 	 	5.6	 	Regulatory Compliance	 	4
	 	 	5.7	 	Investments in Subsidiaries	 	4
	 	 	5.8	 	Inside Debt	 	4
	 	 	5.9	 	Full Disclosure	 	4
	

6	
 	
AFFIRMATIVE COVENANTS	
 	

4
	 	 	6.1	 	Government Compliance	 	4
	 	 	6.2	 	Financial Statements, Reports, Certificates	 	5
	 	 	6.3	 	Inventory; Returns	 	5
	 	 	6.4	 	Taxes	 	5
	 	 	6.5	 	Insurance	 	5
	 	 	6.6	 	Primary Accounts	 	6
	 	 	6.7	 	Financial Covenants	 	6
	 	 	6.8	 	Subordination of Inside Debt	 	6
	 	 	6.9	 	Registration of Intellectual Property Rights	 	6
	 	 	6.10	 	Further Assurances	 	6
	

7	
 	
NEGATIVE COVENANTS	
 	

6
	 	 	7.1	 	Dispositions	 	6
	 	 	7.2	 	Changes in Business, Ownership, or Locations of Collateral	 	6
	 	 	7.3	 	Mergers or Acquisitions	 	7
	 	 	7.4	 	Indebtedness	 	7
	 	 	7.5	 	Encumbrance	 	7
	 	 	7.6	 	Distributions; Investments	 	7
	 	 	7.7	 	Transactions with Affiliates	 	7
	 	 	7.8	 	Subordinated Debt	 	7
	 	 	7.9	 	Compliance	 	7
	 	 	 	 	 	 	 





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8	
 	
EVENTS OF DEFAULT	
 	

8
	 	 	8.1	 	Payment Default	 	8
	 	 	8.2	 	Covenant Default	 	8
	 	 	8.3	 	Material Adverse Change	 	8
	 	 	8.4	 	Attachment	 	8
	 	 	8.5	 	Insolvency	 	9
	 	 	8.6	 	Other Agreements	 	9
	 	 	8.7	 	Judgments	 	9
	 	 	8.8	 	Misrepresentations	 	9
	 	 	8.9	 	Management Change	 	9
	

9	
 	
BANK'S RIGHTS AND REMEDIES	
 	

9
	 	 	9.1	 	Rights and Remedies	 	9
	 	 	9.2	 	Power of Attorney	 	10
	 	 	9.3	 	Bank Expenses	 	10
	 	 	9.4	 	Bank's Liability for Collateral	 	10
	 	 	9.5	 	Remedies Cumulative	 	10
	 	 	9.6	 	Demand Waiver	 	10
	

10	
 	
NOTICES	
 	

11
	

11	
 	
CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER	
 	

11
	

12	
 	
GENERAL PROVISIONS	
 	

11
	 	 	12.1	 	Successors and Assigns	 	11
	 	 	12.2	 	Indemnification	 	11
	 	 	12.3	 	Time of Essence	 	11
	 	 	12.4	 	Severability of Provision	 	11
	 	 	12.5	 	Amendments in Writing, Integration	 	11
	 	 	12.6	 	Counterparts	 	12
	 	 	12.7	 	Survival	 	12
	 	 	12.8	 	Confidentiality	 	12
	 	 	12.9	 	Attorneys' Fees, Costs and Expenses	 	12
	

13	
 	
DEFINITIONS	
 	

12
	 	 	13.1	 	Definitions	 	12




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        This LOAN AND SECURITY AGREEMENT (the "Agreement") dated as of April 4, 2003, between SILICON VALLEY BANK ("Bank"), whose address
is 4410 Arapahoe Avenue, Suite 200, Boulder, Colorado 80303 (facsimile no. 303-938-0486), and DISPLAYTECH, INC., a Colorado corporation ("Borrower"), whose
address is 2602 Clover Basin Drive, Longmont, Colorado 80503 (facsimile no. 303-772-2193), provides the terms on which Bank will lend to Borrower and Borrower will repay
Bank. The parties agree as follows: 


1 ACCOUNTING AND OTHER TERMS  


        All capitalized terms used herein shall have the meanings set forth in Section 13 of this Agreement. Accounting terms not defined in this Agreement will be
construed following GAAP. Calculations and determinations must be made following GAAP. The term "financial statements" includes the notes and schedules. The terms "including" and "includes" always
mean "including (or includes) without limitation," in this or any Loan Document. 


2 LOAN AND TERMS OF PAYMENT  


2.1   Promise to Pay.  


        Borrower promises to pay Bank the unpaid principal amount of all Credit Extensions and interest on the unpaid principal amount of the Credit Extensions. 



2.1.1 Term Loans.  


        (a)   Bank
will make the Term Loan available to Borrower on the Closing Date as working capital for the purpose of paying off certain current outstanding lease indebtedness
owed to Transamerica Technology Finance Corporation by Borrower (the "Transamerica Indebtedness"). 


        (b)   Borrower
will pay twenty-four (24) equal installments of principal and interest of $30,578.25 on the Term Loan (the "Term Loan Payment"). The first
Term Loan Payment shall be due on the Closing Date. Every other Term Loan Payment is payable on the first day of each month thereafter during the term of the loan. Borrower's final Term Loan Payment
shall be due on the Term Loan Maturity Date, and shall be in an amount necessary to satisfy in full all outstanding Term Loan principal and accrued interest on the Term Loan through such date. The
Term Loan may not be reborrowed once repaid. 


2.2   Interest Rate, Payments.  


2.2.1 As to Term Loans.  


        (a)   Interest
Rate. The Term Loan accrues interest at a per annum rate equal to the Prime Rate as of the Closing Date plus one and one-half percent (1.5%), which
is 5.75%. The interest rate shall be fixed as of the Closing Date. After an Event of Default, Obligations accrue interest at five percent above the rate effective immediately before the Event of
Default. Interest is computed on a 360 day year for the actual number of days elapsed. 


        (b)   Final
Payment. On the Term Loan Maturity Date, Borrower will pay, in addition to the unpaid principal and accrued interest and all other amounts due on such date with
respect to the Term Loan, an amount equal to the Final Payment. 


        (c)   Mandatory
Prepayment Upon an Acceleration. If the Term Loan is accelerated following the occurrence of an Event of Default or otherwise, then Borrower will immediately
pay to Bank (i) all outstanding principal of the Term Loan, (ii) all unpaid accrued interest on the Term Loan through the date of prepayment, (iii) if such prepayment requirement
occurs within twelve months after the Closing Date, an amount equal to 1% of the original principal amount of the Term Loan, (iv) the Final 


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Payment,
and (v) all other Obligations, if any, that shall have become due and payable with respect to this Agreement. 


        (d)   Permitted
Prepayment of Loan. Borrower shall have the option to prepay all, but not less than all, of the Term Loan,  provided Borrower (i) provides written notice to Bank to prepay the Term Loan prior to
such prepayment, and (ii) pays, on the date of the
prepayment (A) all outstanding principal of the Term Loan; (B) all unpaid accrued interest on the Term Loan through the date of the prepayment; (C) if such prepayment occurs
within twelve months after the Closing Date, an amount equal to 1% of the original principal amount of the Term Loan; (D) the Final Payment, and (E) all other Obligations, if any, that
shall have become due and payable hereunder with respect to this Agreement. 



2.2.2 Request to Debit Accounts.  


        Borrower authorizes Bank to debit any of Borrower's deposit accounts including Account Number 3300364560 for principal and interest payments or any amounts
Borrower owes Bank when due. Bank will notify Borrower of all debits that Bank makes against Borrower's accounts. These debits to Borrower's account are not a set-off. 


2.3   Fees.  


        In addition to any other fees due and payable to Bank by Borrower as set forth in this Agreement, Borrower will pay: 



        (a)   Facility
Fee. A fully earned, non-refundable facility fee of $2,500.00 for the Term Loan due on the Closing Date; and 


        (b)   Bank
Expenses. All Bank Expenses (including reasonable attorneys' fees and reasonable expenses) incurred through and after the date of this Agreement, are payable when
due. 


3 CONDITIONS OF LOANS  



3.1   Conditions Precedent to Term Loan.  


        Bank's obligation to make the Term Loan is subject to the condition precedent that it receive the agreements, documents and fees it requires. 


4 CREATION OF SECURITY INTEREST  


4.1   Grant of Security Interest.  


        Borrower grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of
Borrower's duties under the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. If this Agreement is terminated, Bank's lien
and security interest in the Collateral will continue until Borrower fully satisfies its Obligations. 


4.1.1 Authorization to File.  


        Borrower authorizes Bank to file financing statements without notice to Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in order to
perfect or protect Bank's interest in the Collateral. 


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5 REPRESENTATIONS AND WARRANTIES  


        Borrower represents and warrants as follows: 


5.1   Due Organization and Authorization.  


        Borrower and each Subsidiary is duly existing and in good standing in its state of incorporation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so could not reasonably be expected to cause a
Material Adverse Change. Borrower has not changed its state of incorporation or its organizational structure or type or any organizational number (if any) assigned by its jurisdiction of
incorporation. 


        The
execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower's formation documents, nor constitute an event of default under
any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in which the default could reasonably be expected to cause a Material
Adverse Change. 


5.2   Collateral.  


        Borrower has good title to the Collateral, free of Liens except Permitted Liens or Borrower has Rights to each asset that is Collateral. Borrower has no other
deposit account, other than the deposit accounts described in the Schedule. The Accounts are bona fide, existing obligations, and the service or property has been performed or delivered to the account
debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. The Collateral is not in the possession of any third party bailee (such as at a warehouse). In the
event that Borrower, after the date hereof, intends to store or otherwise deliver the Collateral to such a bailee, then Borrower will receive the prior written
consent of Bank and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Bank. Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing Base Certificate. All Inventory is in all material respects of good and marketable quality, free from material defects.
Except as set forth in the Schedule, Borrower is the sole owner of the Intellectual Property, except for non-exclusive licenses granted to its customers in the ordinary course of business.
No part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property violates the rights of any
third party, except to the extent such claim could not reasonably be expected to cause a Material Adverse Change, and, to the knowledge of Borrower's Responsible Officers, each Patent is valid and
enforceable. 


5.3   Litigation.  


        Except as shown in the Schedule, there are no actions or proceedings pending or, to the knowledge of Borrower's Responsible Officers, threatened by or against
Borrower or any Subsidiary in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change. 



5.4   No Material Adverse Change In Financial Statements.  


        All consolidated financial statements for Borrower, and any Subsidiary, delivered to Bank fairly present in all material respects Borrower's consolidated
financial condition and Borrower's consolidated results of operations. There has not been any material deterioration in Borrower's consolidated financial condition since the date of the most recent
financial statements submitted to Bank. 


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5.5   Solvency.  


        Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as
they mature. 


5.6   Regulatory Compliance.  


        Borrower is not an "investment company" or a company "controlled" by an "investment company" under the Investment Company Act. Borrower is not engaged as one of
its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). To the knowledge of Borrower's Responsible Officers, Borrower has
compiled in all material respects with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a
Material Adverse Change. None of Borrower's or any Subsidiary's properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change. 


5.7   Investments in Subsidiaries.  


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



5.8   Inside Debt.  


        Except as shown in the Schedule, Borrower presently does not owe any indebetedness to its officers, directors and shareholders. 


5.9   Full Disclosure.  


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


6 AFFIRMATIVE COVENANTS  


        Borrower will do all of the following for so long as Bank has an obligation to lend, or there are outstanding Obligations: 


6.1   Government Compliance.  


        Borrower will maintain its and all Subsidiaries' legal existence and good standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to cause a material adverse effect on Borrower's business or operations. Borrower will comply, and have each Subsidiary
comply, with all laws, ordinances and regulations to 


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which
it is subject, noncompliance with which could have a material adverse effect on Borrower's business or operations or would reasonably be expected to cause a Material Adverse Change. 


6.2   Financial Statements, Reports, Certificates.  



        (a)   Borrower
will deliver to Bank: (i) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated operations during the period certified by a Responsible Officer and in a form acceptable to Bank; (ii) as soon
as available, but no later than one hundred twenty (120) days after the last day of Borrower's fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) within five days of filing, copies of
all statements, reports and notices made available to Borrower's security holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission; (iv) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of $100,000 or more; (v) budgets, sales projections, operating plans or other financial information Bank reasonably requests; and
(vi) prompt notice of any material change in the composition of the Intellectual Property, including any subsequent ownership right of Borrower in or to any Copyright, Patent or Trademark not
shown in any Schedule of Borrower or knowledge of an event that materially adversely affects the value of the Intellectual Property. 



        (b)   Within
thirty (30) days after the last day of each month, Borrower will deliver to Bank an aged listings of accounts receivable and accounts payable by invoice
date certified by a Responsible Officer and in a form acceptable to Bank. 


        (c)   Within
thirty (30) days after the last day of each month and one hundred twenty (120) days after the last day of Borrower's fiscal year, Borrower will
deliver to Bank with the monthly or annual financial statements a Compliance Certificate signed by a Responsible Officer in the form of  Exhibit B. 



        (d)   Allow
Bank to audit Borrower's Collateral at Borrower's expense. Such audits will be conducted no more often than annually unless an Event of Default has occurred and is
continuing. 


6.3   Inventory; Returns.  


        Borrower will keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors
will follow Borrower's customary practices as they exist at execution of this Agreement. Borrower must promptly notify bank of all returns, recoveries, disputes and claims, that involve more than
$50,000. 


6.4   Taxes.  


        Borrower will make, and cause each Subsidiary to make, timely payment of all federal, state, and local taxes or assessments and will deliver to Bank, on demand,
appropriate certificates attesting to the payment. 


6.5   Insurance.  


        Borrower will keep its business and the Collateral insured for risks and in amounts, as Bank may reasonably request. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank in Bank's reasonable discretion. All property policies will have a lender's loss payable endorsement showing Bank as an additional loss payee
and provide that the insurer must give Bank at least twenty (20) days notice before canceling its policy. At Bank's request, Borrower will 


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deliver
certified copies of policies and evidence of all premium payments. Proceeds payable under any policy will, at Bank's option, be payable to Bank on account of the Obligations. 



6.6   Primary Accounts.  


        Borrower will maintain its primary depository and operating accounts with Bank. 


6.7   Financial Covenants.  


        Borrower will maintain as of the last day of each month: 


        (a)   Liquidity Coverage. A Liquidity Coverage Ratio of not less than 1.75 to 1.00. 



6.8   Subordination of Inside Debt.  


        All Present and future indebtedness of Borrower to its officers, directors and shareholders, shall, at all times, be Subordinated Debt. 


6.9   Registration of Intellectual Property Rights.  


        Borrower will register with the United States Patent and Trademark Office or the United States Copyright Office its Patents within thirty (30) days of the
date of this Agreement, and, if Borrower's
management determines it is necessary for protection of the Intellectual Property, additional Intellectual Property rights developed or acquired including revisions or additions with any product
before the sale or licensing of the product to any third party. 


        Borrower
will (a) protect, defend and maintain the validity and enforceability of the Intellectual Property and promptly advise Bank in writing of material infringements and
(b) not allow any Intellectual Property to be abandoned, forfeited or dedicated to the public without Bank's written consent. 



6.10 Further Assurances.  


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


7 NEGATIVE COVENANTS  


        Borrower will not do any of the following without Bank's prior written consent, which will not be unreasonably withheld, for so long as Bank has an obligation to
lend and there are any outstanding Obligations: 



7.1   Dispositions.  


        Convey, sell, lease, transfer or otherwise dispose of (collectively "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or
property, including any Intellectual Property as limited by the Negative Pledge Agreement between the parties, except for Transfers (a) of
Inventory in the ordinary course of business; (b) of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary
course of business; or (c) of worn-out or obsolete Equipment. 


7.2   Changes in Business, Ownership, or Locations of Collateral.  



        Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto or
have a material change in its 


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ownership
of greater than thirty-five percent (35%) (other than by the sale of Borrower's equity securities in a public offering or to venture capital investors so long as Borrower
identifies the venture capital investors prior to the closing of the investment). Borrower will not, without at least thirty (30) days prior written notice, relocate its chief executive office,
change its state of formation (including reincorporation), change its organizational number or name or add any new offices or business locations (such as warehouses) in which Borrower maintains or
stores over $5,000 in Collateral. 


7.3   Mergers or Acquisitions.  


        Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person, except where (a) no Event of Default has occurred and is continuing or would result from such action during the term
of this Agreement and (b) such transaction would not result in a decrease of more than ten percent (10%) of Tangible Net Worth  and (c) the
consideration delivered by Borrower does not require the creation of any indebtedness. A Subsidiary may merge or consolidate into
another Subsidiary or into Borrower. 


7.4   Indebtedness.  


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


7.5   Encumbrance.  


        Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its
Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted here, subject to Permitted Liens. 


7.6   Distributions; Investments.  


        Except as set forth in Section 7.3, directly or indirectly acquire or own any Person, or make any investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so. Other than as required by the terms of the Series E Preferred Stock of the Borrower, pay any dividends or make any distribution or
payment or redeem, retire or purchase any capital stock. 



7.7   Transactions with Affiliates.  


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


7.8   Subordinated Debt.  


        Make or permit any payment on any Subordinated Debt or any indebtedness owed to Hewlett-Packard Company, except under the terms of the Subordinated Debt (not
including any acceleration provisions), or amend any provision in any document relating to the Subordinated Debt without Bank's prior written consent. 


7.9   Compliance.  


        Become an "investment company" or a company controlled by an "investment company," under the Investment Company Act of 1940 or undertake as one of its important
activities extending credit to 


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purchase
or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a
material adverse effect on Borrower's business or operations or would reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do so. 


8 EVENTS OF DEFAULT  


        Any one of the following is an event of default ("Event of Default"); 



8.1   Payment Default.  


        If Borrower fails to pay any of the Obligations within three (3) Business Days after their due date, however, during such period no Credit Extensions will
be made; 


8.2   Covenant Default.  


        (a)   If
Borrower fails to perform any obligation under Sections 6.2 or 6.7 or violates any of the covenants contained in Article 7 of this Agreement, or 



        (b)   If
Borrower fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of
the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition, covenant or agreement that can be cured,
has failed to cure such default within ten (10) days after the occurrence 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 (provided that no Credit Extensions will be made during such cure period); 


8.3   Material Adverse Change.  


        If there (a) occurs a material adverse change in the general affairs, management, business, operations, or condition (financial or otherwise) of Borrower,
or (b) is a material impairment of the prospect of repayment of any portion of the Obligations; or (c) is a material impairment of the value or priority of Bank's security interests in
the Collateral (the foregoing being defined as a "Material Adverse Change"); 


8.4   Attachment.  


        If any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy
is not removed in ten (10) days, or if Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a
Lien on a material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed against any of Borrower's assets by any government agency and not paid within ten (10) days
after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during the cure period); 


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   8.5   Insolvency.  


        If Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed or stayed
within thirty (30) days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed); 



8.6   Other Agreements.  


        If there is a default in any agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $100,000
or that could cause a Material Adverse Change; 


8.7   Judgments.  


        If a money judgment(s) in any single judgment of at least $50,000 or in the aggregate of at least $100,000 is rendered against Borrower and is unsatisfied and
unstayed for ten (10) days (but no Credit Extensions will be made before the judgment is stayed or satisfied); 



8.8   Misrepresentations.  


        If Borrower or any Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this
Agreement or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document; or 


8.9   Management Change.  


        If the individuals serving as chief executive officer and chief financial officer of Borrower as of the Closing Date cease to hold such positions. 



9 BANK'S RIGHT'S AND REMEDIES  


9.1   Rights and Remedies.  


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


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


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


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



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


9







 



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


        (f)    Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral; and 


        (g)   Dispose
of the Collateral according to the Code. 



9.2   Power of Attorney.  


        Effective only when an Event of Default occurs and continues, Borrower irrevocably appoints Bank as its lawful attorney to: (a) endorse Borrower's name on
any checks or other forms of payment or security; (b) sign Borrower's name on any invoice or bill of lading for any Account or drafts against account debtors, (c) make, settle, and
adjust all claims under Borrower's insurance policies; (d) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines
reasonable; and (e) transfer the Collateral into the name of Bank or a third party as the Code permits. Bank may exercise the power of attorney to sign Borrower's name on any documents
necessary to perfect or continue the perfection of any security interest, if Borrower has failed to sign such documents within five days after Bank's request that Borrower do so, regardless of whether
an Event of Default has occurred. Bank's appointment as Borrower's attorney in fact, and all of Bank's rights and powers, coupled with an interest, are irrevocable until all Obligations have been
fully repaid and performed and Bank's obligation to provide Credit Extensions terminates. 


9.3   Bank Expenses.  


        If Borrower fails to pay any amount or furnish any required proof of payment to third persons, Bank may make all or part of the payment or obtain insurance
policies required in Section 6.5, and take any action under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and Immediately due and payable, bearing interest at the
then applicable rate and secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default. 


9.4   Bank's Liability for Collateral.  


        If Bank complies with reasonable banking practices and Section 9-207 of the Code, it is not liable for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other
person. Except as provided above, Borrower bears all risk of loss, damage or destruction of the Collateral. 


9.5   Remedies Cumulative.  


        Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements are cumulative. Bank has all rights and remedies provided under the
Code, by law, or in equity. Bank's exercise of one right or remedy is not an election, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay is not a waiver, election, or
acquiescence. No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given. 


9.6   Demand Waiver.  


        Except as specifically provided in Section 9.2, Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable. 


10







 



10 NOTICES  


        All notices or demands by any party about this Agreement or any other related agreement must be in writing and shall be deemed delivered (a) when
personally delivered, (b) one Business Day after being sent by an overnight delivery service, (c) three Business Days after begin sent by certified mail, postage prepaid, return receipt
requested, or (d) upon confirmation of delivery when sent by telefacsimile, all to the addresses set forth at the beginning of this Agreement. A party may change its notice address by giving
the other party written notice. 


11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER  


        Colorado law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State
and Federal courts in Boulder County, Colorado. 


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


12 GENERAL PROVISIONS  


12.1 Successors and Assigns.  


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


12.2 Indemnification.  


        Borrower will indemnify, defend and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or
consequential to transactions between Bank and Borrower (including reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 


12.3 Time of Essence.  


        Time is of the essence for the performance of all obligations in this Agreement. 


12.4 Severability of Provision.  


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



12.5 Amendments in Writing, Integration.  


        All amendments to this Agreement must be in writing and signed by Borrower and Bank. This Agreement represents the entire agreement about this subject matter, and
supersedes prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations 


11







 



between
the parties about the subject matter of this Agreement merge into this Agreement and the Loan Documents. 



12.6 Counterparts.  


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


12.7 Survival.  


        All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of Borrower
in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run. 



12.8 Confidentiality.  


        In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of
information may be made (a) to Bank's subsidiaries or affiliates in connection with their business with Borrower, (b) to prospective transferees or purchasers of any interest in the
loans (provided, however, Bank shall use commercially reasonable efforts in obtaining such prospective transferee or purchasers agreement of the terms of this provision), (c) as required by
law, regulation, subpoena, or other order, (d) as required in connection with Bank's examination or audit and (e) as Bank considers appropriate exercising remedies under this Agreement.
Confidential information does not include information that either: (i) is in the public domain or in Bank's possession when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank; or (ii) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information. 


12.9 Attorneys' Fees, Costs and Expenses.  


        In any action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other reasonable costs and expenses incurred, in addition to any other relief to which it may be entitled. 


13 DEFINITIONS  


13.1 Definitions.  


        In this Agreement: 


        "Accounts" are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale
or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower
and Borrower's Books relating to any of the foregoing, as such definition may be amended from time to time according to the Code. 


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


        "Bank Expenses" are all audit fees and expenses and reasonable costs and expenses (including reasonable attorneys' fees and expenses) for
preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings). 


12







 



        "Borrower's Books" are all Borrower's books and records including ledgers, records regarding Borrower's assets or liabilities, the
Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information. 


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


        "Closing Date" is the date of this Agreement. 


        "Code" is the Colorado Uniform Commercial Code, as applicable. 


        "Collateral" is the property described on Exhibit A. 


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


        "Copyrights" are all copyright rights, applications or registrations and like protections in each work or authorship or derivative work,
whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held. 


        "Credit Extension" is the Term Loan or any other extension of credit by Bank for Borrower's benefit. 


        "Current Liabilities" are the aggregate amount of Borrower's Total Liabilities which mature within one (1) year. 



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


        "ERISA" is the Employment Retirement Income Security Act of 1974, and its regulations. 


        "Event of Default" is defined in Article 8. 


        "Final Payment" is a payment (in addition to and not a substitution for the regular payments of principal and interest) due on the Term
Loan Maturity Date in an amount equal to the Term Loan Amount multiplied by four percent (4%). 


        "GAAP" is generally accepted accounting principles. 


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


        "Insolvency Proceeding" are proceedings by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or
insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking re-organization, arrangement, or other relief. 


13







 



        "Intellectual Property" is all of Borrower's: 



        (a)   Copyrights,
Trademarks, Patents, and Mask Works including amendments, renewals, extensions, and all licenses or other rights to use and all license fees and royalties
from the use; 


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


        (c)   All
design rights that may be available to Borrower now or later created, acquired or held; 



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


        All
proceeds and products of the foregoing, including all insurance, indemnity or warranty payments. 


        "Inventory" is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or
in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other
proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title. 


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


        "Lien" is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. 



        "Liquidity Coverage Ratio" is the ratio of (a) unrestricted cash (and equivalents) maintained at Bank  plus sixty percent (60%) of Net Accounts to (b) the
Obligations under this Agreement. 


        "Loan Documents" are, collectively, this Agreement, the Negative Pledge Agreement, any note, or notes executed by Borrower, and any other
present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated. 



        "Mask Works" are all mask works or similar rights available for the protection of semiconductor chips, now owned or later acquired. 


        "Material Adverse Change" is defined in Section 8.3. 


        "Negative Pledge Agreement" is that certain negative pledge agreement between the parties as of the date hereof. 



        "Net Accounts" are all Accounts less any Accounts funded pursuant to Borrower's Bill of
Exchange Purchase Agreement with Bank. 


        "Obligations" are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, including cash management
services, letters of credit and foreign exchange contracts, if any and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank. 


        "Patents" are patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same. 


        "Permitted Indebtedness" is: 


        (a)   Borrower's
indebtedness to Bank under this Agreement, any other Loan Document or the Bill of Exchange Purchase Agreement between Borrower and Bank; 


14







 



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


        (c)   Subordinated
Debt; 


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



        (e)   Indebtedness
secured by Permitted Liens. 


        "Permitted Investments" are: 


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


        (b)   (i) marketable
direct obligations issued or unconditionally guaranteed by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., and (iii) Bank's certificates of deposit issued maturing no more than 1 year after issue. 


        "Permitted Liens" are: 


        (a)   Liens
existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents; 



        (b)   Liens
for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains
adequate reserves on its Books; 


        (c)   Purchase
money Liens (i) on Equipment acquired or held by Borrower or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment; 



        (d)   Licenses
or sublicenses granted in the ordinary course of Borrower's business and any interest or title of a licensor or under any license or sublicense; 


        (e)   Leases
or subleases granted in the ordinary course of Borrower's business, including in connection with Borrower's leased premises or leased property; 


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


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


        "Prime Rate" is Bank's most recently announced "prime rate," even if it is not Bank's lowest rate. 


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



        "Rights", as applied to the Collateral, means Borrower's rights and interests in, and
powers with respect to, that Collateral, whatever the nature of those rights, interests and powers and, in any event, including Borrower's power to transfer rights in such Collateral to Bank. 


        "Schedule" is any schedule attached to this Agreement. 


        "Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in writing. 


15







 



        "Subsidiary" is for any Person, or any other business entity of which more than 50% of the voting stock or other equity interests is owned
or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person. 


        "Term Loan Maturity Date" is April 1, 2005. 


        "Term Loan" is a loan in the principal amount of $695,004.04. 


        "Term Loan Payment" is defined in Section 2.1.1(b). 


        "Total Liabilities" is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower's consolidated balance
sheet, including all indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt. 


        "Trademarks" are trademark and servicemark rights, registered or not, applications to register and registrations and like protections, and
the entire goodwill of the business of Assignor connected with the trademarks. 


        "Transamerica Indebtedness" is defined in Section 2.1.1(a). 


        "Transfer" is defined in Section 7.1. 


        This
Loan and Security Agreement is executed by the parties as of the date set forth above: 



	BORROWER:	 	 
	DISPLAYTECH, INC.	 	 
	

By:	
 	

/s/  LLOYD LEWIS      
	
 	

 
	Title:	 	CFO
	 	 
	

BANK:	
 	

 
	

SILICON VALLEY BANK	
 	

 
	

By:	
 	

/s/ [ILLEGIBLE]
	
 	

 
	Title:	 	Vice President
	 	 




16








EXHIBIT A  


        The Collateral consists of all of Borrower's right, title and interest in and to the following whether owned now or hereafter arising and whether Borrower has
rights now or hereafter has rights therein and wherever located: 


        All
goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any
of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; 


        All
inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and
finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above; 



        All
contract rights and general intangibles (as such definitions may be amended from time to time according to the Code), now owned or hereafter acquired, including, without limitation,
goodwill, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind; 


        All
now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of
goods, the licensing of technology or the rendering of services by Borrower (as such definitions may be amended from time to time according to the Code) whether or not earned by performance, and any
and all credit insurance, insurance (including refund) claims and proceeds, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower; 


        All
documents, cash, deposit accounts, securities, securities entitlements, securities accounts, investment property, financial assets, letters of credit, letter of credit rights,
certificates of deposit, instruments and chattel paper and electronic chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; and 



        All
Borrower's Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds
thereof. 


        Notwithstanding
the foregoing, the Collateral does not include any of Borrower's Intellectual Property. 


        Borrower and Bank are parties to that certain Negative Pledge Agreement, whereby Borrower, in connection with Bank's loan or loans to Borrower, has agreed, among
other things, not to sell, transfer, assign, mortgage, pledge, lease grant a security interest in, or encumber any of its Intellectual Property, without Bank's prior written
consent.













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