Exhibit 10.1


 




 





 


COMMODORE RESOURCES (NEVADA), INC.


 


LYRIS TECHNOLOGIES INC.


 


UPTILT INC.


 


LOAN AND SECURITY AGREEMENT


 




 





 





















 


This
LOAN AND SECURITY AGREEMENT is entered into as of October 04, 2005, by and
between COMERICA BANK (“Bank”) and COMMODORE RESOURCES (NEVADA), INC., LYRIS
TECHNOLOGIES INC. and UPTILT INC.  (each
a “Borrower” and collectively, “Borrowers”).


 


RECITALS


 


Borrowers
wish to obtain credit from time to time from Bank, and Bank desires to extend
credit to Borrowers.  This Agreement sets
forth the terms on which Bank will advance credit to Borrowers, and Borrowers
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 Borrowers 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 Borrowers, 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 Borrowers and
Borrowers’ Books relating to any of the foregoing.


 


 “Advance” or “Advances” means a cash advance
or cash advances under the Revolving 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, generated 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 Nevada, Delaware and
Delaware, the states under whose laws COMMODORE RESOURCES (NEVADA), INC., LYRIS
TECHNOLOGIES INC. and UPTILT INC., respectively, is organized.


 


“Borrower’s Books” means all of each Borrower’s
books and records including:  ledgers;
records concerning such 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.


 


“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.


 


“Capitalized Expenditures” means current
period cash expenditures that are amortized over a period of time in accordance
with GAAP.


 


“Cash” means unrestricted cash and cash
equivalents.


 


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“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 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 a 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 a Borrower, who did not have such power before such
transaction.


 


“Chief Executive Office State means Nevada, California
and California, where COMMODORE RESOURCES (NEVADA), INC.’s, LYRIS TECHNOLOGIES
INC.’s and UPTILT INC.’s, chief executive office is located, respectively.


 


“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
Exhibits A-1, A-2, A-3 and A-4 attached hereto and all Negotiable Collateral
and Intellectual Property Collateral to the extent not described on Exhibits
A-1, A-2, A-3 and A-4, 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 are California, Colorado, Nevada, and
Delaware.


 


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


 


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


 


“Contingent Obligation” means, as applied to
any Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit, corporate credit cards, or merchant services issued
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.


 


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


 


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


 


“EBITDA” means with respect to any fiscal
period an amount equal to the sum of (a) Consolidated Net Income of the
Borrowers and their Subsidiaries for such fiscal period, plus (b) in each case
to the extent deducted in the calculation of the Borrowers’ Consolidated Net
Income and without duplication, (i) depreciation and amortization for such
period, plus (ii) income tax expense for such period, plus (iii) Consolidated
Total Interest Expense paid or accrued during such period, plus (iv) up to One
Million Seven Hundred Thousand Dollars ($1,700,000) in one-time cash or
non-cash acquisition expenses, and minus, to the extent added in computing
Consolidated Net Income, and without duplication, all extraordinary and
non-recurring revenue and gains (including income tax benefits) for such
period, all as determined in accordance with GAAP.


 


“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
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 a Borrower has any interest.


 


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


 


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


 


“Excess Cash Flow” means, as of the end of
each fiscal quarter for the quarter then ended, quarterly EBITDA, less cash
taxes, capital expenditures (including any capitalization of software),
required principal and interest payments on all Indebtedness to Bank hereunder,
required principal and interest payments on Subordinated Debt and deferred
merger compensation owing in connection with the [**] of [**] and aggregate
increases in net working capital.


 


“Funded Indebtedness” means Indebtedness of
Borrowers to Bank that is outstanding hereunder at any time.


 


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


 


“Guarantors” means J.L. Halsey Corporation, a
Delaware corporation, Admiral Management Company, a Delaware corporation and
Admiral Holdings, Inc, a Delaware corporation.


 


“Inactive Subsidiaries” means NV Holdings,
Inc., a Nevada corporation and NovaCare Management Co., a Pennsylvania
corporation.


 


“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.


 










[**]
CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.


 


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


 


“Intellectual Property Collateral” means all
of a 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 a Borrower now or hereafter existing, created, acquired or held;


 


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


 


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


 


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


 


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


 


“Inventory” means all present and future
inventory in which a Borrower has any interest.


 


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


 


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


 


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


 


“Loan Documents” means, collectively, this
Agreement, any note or notes executed by a 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) or prospects of Guarantors, Borrowers and their Subsidiaries taken
as a whole, (ii) the ability of Guarantors and Borrowers to repay the
Obligations or otherwise perform its obligations under the Loan Documents, or
(iii) Guarantors’ and Borrowers’ interest in, or the value, perfection or
priority of Bank’s security interest in the Collateral.


 


“Negotiable Collateral” means all of a
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.


 


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“Obligations” means all debt, principal,
interest, Bank Expenses and other amounts owed to Bank by Borrowers 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 a Borrower to others that Bank may
have obtained by assignment or otherwise.


 


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


 


“Periodic Payments” means all installments or
similar recurring payments that Borrowers 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 Borrowers and Bank.


 


“Permitted Indebtedness” means:


 


(a)           Indebtedness of Borrowers or
Guarantors 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 Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year
of Borrowers or Guarantors 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 at the time of financing;


 


(d)           Subordinated Debt;


 


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


 


(f)            Indebtedness of a Borrower to
another Borrower or a Guarantor;


 


(g)           Indebtedness not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate with respect to
credit card debt incurred in the ordinary course of Borrowers’ business; and


 


(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 the
respective Borrower, Guarantor 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 (1)
year from the date of investment therein and (iv) Bank’s money market accounts;


 


(c)           Repurchases of stock from former
employees or directors of a Guarantor or Borrower under the terms of applicable
repurchase agreements (i) in an aggregate amount not to exceed Two Hundred
Fifty Thousand Dollars ($250,000) 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 such
Borrower regardless of whether an Event of Default exists;


 


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(d)           Investments accepted in connection
with Permitted Transfers;


 


(e)           Investments of a Guarantor in a
Borrower or another Guarantor and Investments by a Borrower in another
Borrower;


 


(f)            Investments not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) 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 a Guarantor or a Borrower or its Subsidiaries pursuant to
employee stock purchase plan agreements approved by such Guarantor’s or such
Borrower’s Board of Directors;


 


(g)           Investments (including debt
obligations) received in connection with the bankruptcy, reorganization or
other compromise of customers or suppliers and in settlement of delinquent
obligations of, and other disputes with, customers or suppliers arising in the
ordinary course of a Guarantor’s or a 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 a
Guarantor or a Borrower in any Subsidiary; and


 


(i)            Joint ventures or strategic
alliances in the ordinary course of a Guarantor’s or a Borrower’s business
consisting of the non-exclusive licensing of technology, the development of
technology or the providing of technical support, provided that any cash
Investments by Guarantors or Borrowers do not exceed Two Hundred Fifty Thousand
Dollars ($250,000) in the aggregate in any fiscal year.


 


“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 the relevant Borrower or
Guarantor maintains adequate reserves;


 


(c)           Liens not to exceed Two Hundred Fifty
Thousand Dollars ($250,000) in the aggregate (i) upon or in any Equipment
(other than Equipment financed by an Equipment Advance) acquired or held by a
Guarantor, a Borrower or any of its Subsidiaries to secure the purchase price
of such Equipment or indebtedness incurred solely for the purpose of financing
the acquisition 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)           Licenses between Borrowers and
Guarantors for the use of property in the ordinary course of business;


 


(f)            Liens arising from judgments,
decrees or attachments in circumstances not constituting an Event of Default
under Sections 8.5 or 8.9; and


 


(g)           Liens in favor of other financial
institutions arising in connection with Guarantor’s Borrower’s deposit accounts
held at such institutions to secured standard fees for deposit services


 


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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 a Guarantor, a Borrower or any
Subsidiary of:


 


(a)           Inventory in the ordinary course of
business;


 


(b)           licenses and similar arrangements for
the use of the property of a Guarantor or a Borrower or its Subsidiaries in the
ordinary course of business;


 


(c)           cash to any Guarantor to satisfy
mandatory tax payments with respect to a Borrower:


 


(d)           beginning on January 1, 2008, cash or
other assets to Guarantors not to exceed One Million Dollars ($1,000,000) in
the aggregate;


 


(e)           any property to a Borrower;


 


(f)            worn-out or obsolete Equipment; or


 


(g)           other assets of Borrowers and their
Subsidiaries that do not in the aggregate exceed Two Hundred Fifty Thousand
Dollars ($250,000) 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 a Borrower.


 


“Revolving Line” means a Credit Extension of
up to Eighteen Million Five Hundred Thousand Dollars ($18,500,000) on the
Closing Date.  Availability under the
Revolving Line shall be reduced on the last day of each month by: (i) Two
Hundred Fifty Thousand Dollars ($250,000) per month from October 31, 2005
through September 30, 2007; (ii) Three Hundred Forty Seven Thousand Two Hundred
Twenty Two and 22/100 Dollars ($347,222.22) per month from October 31, 2007 through
September 30, 2009; and (iii) Three Hundred Forty Seven Thousand Two Hundred
Twenty Two and 23/100 Dollars ($347,222.23) per month from October 31, 2009
through the Revolving Maturity Date.   By
way of example, on October 31, 2005, the Revolving Line shall be reduced to
Eighteen Million Two Hundred Fifty Thousand Dollars ($18,250,000); on November
30, 2005, the Revolving Line shall be reduced to Eighteen Million Dollars
($18,000,000) and so forth.


 


“Revolving Maturity Date” means October 04,
2010.


 


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


 


“Shares” means (i) sixty five percent (65%)
of the issued and outstanding capital stock, membership units or other
securities owned or held of record by a Guarantor or a Borrower in any
Subsidiary of such Guarantor or Borrower which is not an entity organized under
the laws of the United States or any territory thereof, and (ii) one hundred
percent (100%) of the issued and outstanding capital stock, membership units or
other securities owned or held of record by a Guarantor or Borrower in any
Subsidiary of such Guarantor or Borrower which is an entity organized under the
laws of the United States or any territory thereof.


 


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“SOS Reports” means the official reports from
the Secretaries of State of each Collateral State, Chief Executive Office State
and 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 or
deferred payments incurred or owing by a Borrower that is subordinated in
writing to the debt owing by such Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by such 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 a Borrower, either directly or through an Affiliate.


 


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


 


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.  Borrowers promise 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 Borrowers, together with interest on the
unpaid principal amount of such Credit Extensions at rates in accordance with
the terms hereof.


 


(b)           Advances Under Revolving Line.


 


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


 


(ii)           Excess Cash Flow Recapture.  Within three (3) Business days of receipt of
quarterly financial statements for each fiscal quarter during which Advances
are outstanding, Borrowers shall pay to Bank an amount equal to seventy five
percent (75%) of their Excess Cash Flow for the immediately preceding fiscal
quarter.  This Excess Cash Flow payment
will be allocated to reduce the amount of outstanding Advances.


 


(iii)          Form of Request.  Whenever Borrowers desires an Advance,
Borrowers will notify Bank by email or 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 Borrowers 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 Borrowers’ deposit account.


 


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2.2           Overadvances.  If the aggregate amount of the outstanding
Advances exceeds the Revolving Line at any time, Borrowers shall immediately
pay to Bank, in cash, the amount of such excess.


 


2.3           Interest Rates, Payments, and
Calculations.


 


(a)           Interest Rates for Advances.  Except as set forth in Section 2.3(b), the
Advances shall bear interest, on the outstanding daily balance thereof, as set
forth in the LIBOR Addendum to Loan & Security Agreement attached as Exhibit
D.


 


(b)           Late Fee; Default Rate.  If any payment is not made within ten (10)
days after the date such payment is due, Borrowers 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 last 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 either
Borrower’s deposit accounts or against the Revolving Line, in which case those
amounts shall thereafter accrue interest at the rate then applicable hereunder
until repaid.  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 number of days elapsed.


 


2.4           Crediting Payments.  Prior to the occurrence 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 Borrowers specifies.  After the occurrence of an Event of Default,
Bank shall have the right, in its sole discretion, to immediately apply any
wire transfer of funds, check, or other item of payment Bank may receive to
conditionally reduce Obligations, but such applications of funds 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.  Borrowers shall pay to Bank the following:


 


(a)           Facility Fee.  On the Closing Date, a fee equal to $92,500,
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 14.7, 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.


 


9





















 


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 satisfactory to Bank, the
following:


 


(a)           this Agreement;


 


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


 


(c)           UCC National Form Financing
Statements for each Borrower;


 


(d)           an intellectual property security
agreement from each Borrower and from each Guarantor;


 


(e)           a third party security agreement from
each Guarantor


 


(f)            an unconditional guaranty from each
Guarantor.


 


(g)           the certificate(s) for the Shares,
together with Assignment(s) Separate from Certificate, duly executed by in
blank;


 


(h)           fully executed copies of the
documents evidencing the acquisition of Uptilt Inc  by Commodore Resources (Nevada), Inc.;


 


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


 


(j)            control agreements with respect to
any accounts permitted hereunder to be maintained outside Bank (except with respect
to accounts at Cupertino Bank);


 


(k)           agreement to provide insurance;


 


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


 


(m)          current financial statements,
including audited statements for J.L. Halsey Corporation’s most recently ended
fiscal year, together with an unqualified opinion, 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;


 


(n)           Burr, Pilger and Mayer review of
Uptilt Inc.’s financial statements;


 


(o)           current Compliance Certificate in
accordance with Section 6.2; and


 


(p)           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


 


10





















 


(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 Borrowers 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.  Each Borrower grants and pledges to Bank a continuing
security interest in the Collateral to secure prompt repayment of any and all
Obligations and to secure prompt performance by Borrowers of each of its
covenants and duties under the Loan Documents. 
Except as set forth in the Schedule, such security interest constitutes
a valid, first priority security interest in the presently existing Collateral
(except for leasehold interests in real estate), and will constitute a valid,
first priority security interest in later-acquired Collateral.  Notwithstanding any termination, Bank’s Lien
on the Collateral shall remain in effect for so long as any Obligations are
outstanding.


 


4.2           Perfection of Security Interest.  Each 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 such 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 such Borrower is an organization, the type of organization
and any organizational identification number issued to such Borrower, if
applicable.  Any such financing
statements may be signed by Bank on behalf of Borrowers, 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.  Each Borrower shall from time to time endorse
and deliver to Bank, at the request of Bank, all Negotiable Collateral and
other documents that Bank may reasonably request, in form satisfactory to Bank,
to perfect and continue perfected Bank’s security interests in the Collateral and
in order to fully consummate all of the transactions contemplated under the
Loan Documents.  Each Borrower shall have
possession of the Collateral, except where expressly otherwise provided in this
Agreement or where Bank chooses to perfect its security interest by possession
in addition to the filing of a financing statement.  Where Collateral is in possession of a third
party bailee, each Borrower shall take such commercially reasonable steps as
Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and
substance satisfactory to Bank, of the bailee that the bailee holds such
Collateral for the benefit of Bank and (ii) obtain “control” of any Collateral
consisting of investment property, deposit accounts, letter-of-credit rights or
electronic chattel paper (as such items and the term “control” are defined in
Revised Article 9 of the Code) by causing the securities intermediary or
depositary institution or issuing bank to execute a control agreement in form
and substance satisfactory to Bank.  No
Borrower will 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.  Each Borrower from time
to time may deposit with Bank specific cash collateral to secure specific
Obligations; each Borrower authorizes Bank to hold such specific balances in
pledge and to decline to honor any drafts thereon or any request by a 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 a Borrower’s usual business hours but no more than twice a year
(unless an Event of Default has occurred and is continuing), to inspect such
Borrower’s Books and to make copies thereof and to check, test, and appraise
the Collateral in order to verify such Borrower’s financial condition or the amount,
condition of, or any other matter relating to, the Collateral.


 


4.4           Pledge of Collateral.  Each Borrower hereby pledges, assigns and
grants to Bank a security interest in all the Shares, together with all
proceeds and substitutions thereof, all cash, stock and other moneys and
property paid thereon, all rights to subscribe for securities declared or
granted in connection therewith, and all other cash and noncash proceeds of the
foregoing, as security for the performance of the Obligations.  On the Closing Date, the certificate or
certificates for the Shares will be delivered to Bank, accompanied by an
instrument of assignment duly executed in blank by the appropriate
Borrower.  To the extent required by the
terms and


 


11





















 


conditions governing the Shares, the relevant Borrower
shall cause the books of each entity whose Shares are part of the Collateral
and any transfer agent to reflect the pledge of the Shares.  Upon the occurrence and during the
continuance of an Event of Default hereunder, Bank may effect the transfer of
any securities included in the Collateral (including but not limited to the
Shares) into the name of Bank and cause new certificates representing such
securities to be issued in the name of Bank or its transferee.  Each Borrower will execute and deliver such
documents, and take or cause to be taken such actions, as Bank may reasonably
request to perfect or continue the perfection of Bank’s security interest in
the Shares.  Unless an Event of Default
shall have occurred and be continuing, each Borrower shall be entitled to
exercise any voting rights with respect to the relevant Shares and to give
consents, waivers and ratifications in respect thereof, provided that no vote
shall be cast or consent, waiver or ratification given or action taken which
would be inconsistent with any of the terms of this Agreement or which would
constitute or create any violation of any of such terms.  All such rights to vote and give consents,
waivers and ratifications shall terminate upon the occurrence and continuance
of an Event of Default.


 


5.             REPRESENTATIONS
AND WARRANTIES.


 


Each
Borrower represents and warrants as follows with respect to such Borrower:


 


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 so 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 Articles or 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.  All Collateral is
located solely in the Collateral States. 
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 Collateral.  Borrower is the sole owner or the valid
licensee of the Intellectual Property Collateral, except for licenses granted
by Borrower to its customers in the ordinary course of business.  To the best of Borrower’s knowledge, each of
the Copyrights, Trademarks and Patents is valid and enforceable, and no part of
the Intellectual Property Collateral has been judged invalid or unenforceable,
in whole or in part, and no claim has been made to Borrower that any part of
the Intellectual Property Collateral violates the rights of any third party
except to the extent such claim could not reasonably be expected to cause a
Material Adverse Effect.  Except as set
forth in the Schedule, Borrower’s rights as a licensee of intellectual property
do not give rise to more than five percent (5%) of its gross revenue in any
given month, including without limitation revenue derived from the sale,
licensing, rendering or disposition of any product or service.


 


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.


 


12





















 


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 Borrowers (taken as a whole) 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 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.  Borrower is in
compliance with all 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.


 


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


 


5.13                           Shares.  Borrower has full power and authority to
create a first lien on the Shares and no disability or contractual obligation
exists that would prohibit Borrower from pledging the Shares pursuant to this
Agreement.  To Borrower’s knowledge,
there are no subscriptions, warrants, rights of first refusal or other
restrictions on transfer relative to, or options exercisable with respect to
the Shares.  The Shares have been and
will be duly authorized and validly issued, and are fully paid and
non-assessable.  To Borrower’s knowledge,
the Shares are not the subject of any present or threatened suit, action,
arbitration, administrative or other proceeding, and Borrower knows of no
reasonable grounds for the institution of any such proceedings.


 


5.14                           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 as of
the date made or provided, 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.


 


13





















 


5.15                           Inactive
Subsidiaries.  The Inactive
Subsidiaries currently do not conduct any business and do not own any material
assets.


 


6.                                       AFFIRMATIVE
COVENANTS.


 


Each 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,
such Borrower (except as otherwise indicated) 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 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. 
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 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. 
Borrowers 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 Borrowers’ 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 the indicated time frame, copies of
all statements, reports and notices sent or made available generally by
Borrowers to its security holders or to any holders of Subordinated Debt and
all reports on Forms 10-Q (within forty-five (45) days of the end of each
fiscal quarter) and 10-K (within ninety (90) days of the end of each fiscal
year) filed with the Securities and Exchange Commission; (iv) no later
than seventy five (75) days after the Closing Date, unqualified audited
financial statements of Uptilt Inc. for its 2004 fiscal year with no changes
from the draft financial statements previously provided to Bank which could
reasonably be expected to have a Material Adverse Effect; (v) promptly
upon receipt of notice thereof, a report of any legal actions pending or
threatened against a Borrower or any Subsidiary that could result in damages or
costs to a Borrower or any Subsidiary of Two Hundred Fifty Thousand Dollars
($250,000) or more; (vi) promptly upon receipt, each management letter
prepared by a Borrower’s independent certified public accounting firm regarding
such Borrower’s management control systems; (vii) such budgets, sales
projections, operating plans or other financial information generally prepared
by a Borrower in the ordinary course of business as Bank may reasonably request
from time to time; and (viii) within forty five (45) days of the last day
of each fiscal quarter, a report signed by Borrowers, in form reasonably
acceptable to Bank, listing any applications or registrations that a Borrower
has made or filed in respect of any Patents, Copyrights or Trademarks and the
status of any outstanding applications or registrations, as well as any material
change in a Borrower’s Intellectual Property Collateral, including but not
limited to any subsequent ownership right of such Borrower in or to any
Trademark, Patent or Copyright not specified in Exhibits A, B, and C of any
Intellectual Property Security Agreement delivered to Bank by such Borrower in
connection with this Agreement.


 


(a)                                  Within
thirty (30) days after the last day of each month, Borrowers shall deliver to
Bank aged listings by invoice date of accounts receivable and accounts payable.


 


(b)                                 Within
thirty (30) days after the last day of each month, Borrowers 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) calendar days after
becoming aware of the occurrence or existence of an Event of Default hereunder,
a written statement of a 


 


14





















 


Responsible
Officer of Borrowers setting forth details of the Event of Default, and the
action which Borrowers and the relevant Borrower (if other than Borrowers) has
taken or proposes to take with respect thereto.


 


(d)                                 Bank
shall have a right from time to time hereafter to audit each Borrower’s
Accounts and appraise Collateral at Borrowers’ expense and shall conduct such
an audit no later than forty five (45) days after the closing date, provided
that such audits will be conducted no more often than every twelve (12) months
unless an Event of Default has occurred and is continuing.


 


Borrowers 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 Borrowers deliver 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, as they exist on the Closing
Date.  Borrower shall promptly notify
Bank of all returns and recoveries and of all disputes and claims involving
more than Two Hundred Fifty Thousand Dollars ($250,000).


 


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, on demand,
proof 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 reasonably satisfactory to Bank.  All policies of property insurance shall
contain a lender’s loss payable endorsement, in a form satisfactory to Bank,
showing Bank as an additional loss payee, and all liability insurance policies
shall show Bank as an additional insured and specify that the insurer must give
at least 10 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 operating accounts with Bank, and its primary investment
accounts with Bank or Bank’s Affiliates.


 


15





















 


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


 


(a)                                  Fixed
Charge Coverage.  Measured on a
monthly basis, a ratio of trailing twelve-months EBITDA plus excess borrowing
availability under the Revolving Line at a Funded Indebtedness  to EBITDA ratio of 1.50:1.00, to the sum of
Capitalized Expenditures, interest expense, income tax expense, the required
reductions to the Revolving Line (to the extent funded) and Subordinated Debt
payments in the preceding 12-month period of at least 1.25 to 1.00;
notwithstanding the foregoing, trailing 12-month EBITDA shall be calculated on
a year-to-date annualized basis for the month-end reporting periods ended August 31,
2005 through November 31, 2005.


 


(b)                                 EBITDA.  Measured monthly on a rolling three-month
basis, an EBITDA of not less than (i) One Million Five Hundred Thousand
Dollars ($1,500,000) from the Closing Date through the measuring period ending August 31,
2006, (ii) Two Million Dollars ($2,000,000) for the measuring period ending
September 30, 2006 through the measuring period ending February 28,
2007, and (iii) Two Million Five Hundred Thousand Dollars ($2,500,000) at
all times thereafter.


 


(c)                                  Senior
Debt to EBITDA.  Measured on a
monthly basis, a ratio of Funded Indebtedness, minus Cash held at Bank and Bank
Affiliates to EBITDA calculated on a trailing twelve-month basis of not greater
than: (i) 2.50 to 1.00 from the Closing Date through the measuring period
ending November 30, 2006, (ii) 2.00 to 1.00 for the measuring period ending
December 31, 2006 though the measuring period ending November 30,
2007 and (iii) 1.50 to 1.00 at all times thereafter.


 


6.8                                 Intellectual
Property Rights.


 


(a)                                  Borrower
shall register or cause to be registered on an expedited basis (to the extent
not already registered) with the United States Patent and Trademark Office or
the United States Copyright Office, as the case may be, those registerable
intellectual property rights now owned or hereafter developed or acquired by
Borrower, to the extent that Borrower, in its reasonable business judgment,
deems it appropriate to so protect such intellectual property rights.


 


(b)                                 Borrower
shall promptly give Bank written notice of any applications or registrations of
intellectual property rights filed with the United States Patent and Trademark
Office, including the date of such filing and the registration or application
numbers, if any.


 


(c)                                  Borrower
shall (i) give Bank not less than thirty (30) days prior written notice of
the filing of any applications or registrations with the United States
Copyright Office, including the title of such intellectual property rights to
be registered, as such title will appear on such applications or registrations,
and the date such applications or registrations will be filed; (ii) prior
to the filing of any such applications or registrations, execute such documents
as Bank may reasonably request for Bank to maintain its perfection in such
intellectual property rights to be registered by Borrower; (iii) upon the
request of Bank, either deliver to Bank or file such documents simultaneously
with the filing of any such applications or registrations; (iv) upon
filing any such applications or registrations, promptly provide Bank with a
copy of such applications or registrations together with any exhibits, evidence
of the filing of any documents requested by Bank to be filed for Bank to
maintain the perfection and priority of its security interest in such
intellectual property rights, and the date of such filing.


 


(d)                                 Borrower
shall execute and deliver such additional instruments and documents from time
to time as Bank shall reasonably request to perfect and maintain the perfection
and priority of Bank’s security interest in the Intellectual Property
Collateral.


 


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


 


16





















 


(f)                                    Bank
may audit Borrower’s Intellectual Property Collateral to confirm compliance
with this Section, provided such audit may not occur more often than twice per
year, unless an Event of Default has occurred and is continuing.  Bank shall have the right, but not the
obligation, to take, at Borrower’s sole expense, any actions that Borrower is
required under this Section to take but which Borrower fails to take,
after fifteen (15) days’ notice to Borrower. 
Borrower shall reimburse and indemnify Bank for all reasonable costs and
reasonable expenses incurred in the reasonable exercise of its rights under
this Section.


 


6.9                                 Consent
of Inbound Licensors.  Prior to
entering into or becoming bound by any material license or agreement, Borrower
shall:  (i) provide written notice
to Bank of the material terms of such license or agreement with a description
of its likely impact on Borrower’s business or financial condition; and (ii) in
good faith use commercially reasonable efforts to obtain the consent of, or
waiver by, any person whose consent or waiver is necessary for Borrower’s
interest in such licenses or contract rights to be deemed Collateral and for
Bank to have a security interest in it that might otherwise be restricted by
the terms of the applicable license or agreement, whether now existing or
entered into in the future, provided, however, that the failure to obtain any
such consent or waiver shall not constitute a default under this Agreement.


 


6.10                           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 become a co-Borrower hereunder and Borrower
shall grant and pledge to Bank a perfected security interest in the stock,
units or other evidence of ownership of such Subsidiary.


 


6.11                           Inactive
Subsidiaries.  Borrower shall cause
the Inactive Subsidiaries to be dissolved as soon after the Closing Date as is
feasible.


 


6.12                           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.


 


Each 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, such 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, 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 subsequent notification to Bank within three (3) days;
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), 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 (i) such transactions do not in
the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000) 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.  Notwithstanding the foregoing,
Borrower 


 


17





















 


Commodore
Resources (Nevada), Inc. shall be permitted to [**] for [**], subject to
[**], provided that concurrent with [**] Borrower shall execute such documents
as Bank may request [**].


 


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, 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.


 


7.6                                 Distributions.  Except for Permitted Transfers, 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) repurchase the stock of former employees pursuant to stock
repurchase agreements as long as an Event of Default does not exist prior to
such repurchase or would not exist after giving effect to such repurchase, and (ii) repurchase
the stock of former employees 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.


 


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 satisfactory to Bank, or suffer or permit any
Subsidiary to be a party to, or be bound by, an agreement that restricts such
Subsidiary from paying dividends or otherwise distributing property to
Borrower.


 


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


 


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
(including any subordination agreement executed in favor of Bank), 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 a material part
of 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, Inventory in transit,
immaterial items of Inventory 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.


 










[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.


 


18





















 


7.12                           Negative
Pledge Agreements.  Permit the
inclusion in any contract to which it or a Subsidiary becomes a party of any
provisions that could restrict or invalidate the creation of a security
interest in any of Borrower’s or such Subsidiary’s property.


 


8.                                       EVENTS
OF DEFAULT.


 


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


 


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


 


8.2                                 Covenant
Default.


 


(a)                                  If
a Borrower fails to perform any obligation under Article 6 or violates any
of the covenants contained in Article 7 of this Agreement; or


 


(b)                                 If
a 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 a 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 a Borrower receives notice thereof or any officer of a 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
Borrowers be cured within such ten (10) day period, and such default is
likely to be cured within a reasonable time, then Borrowers 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;


 


8.4                                 Material
Adverse Effect.  If there occurs any
circumstance or circumstances that could reasonably be expected to have a
Material Adverse Effect;


 


8.5                                 Attachment.  If any material portion of a 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 a 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 a Borrower’s assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of a 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 such 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 such Borrower (provided that no Credit
Extensions will be required to be made during such cure period);


 


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


 


8.7                                 Other
Agreements.  If there is a default or
other failure to perform in any agreement to which a Borrower is a party with a
third party or parties resulting in a right by such third party or parties,
whether or 


 


19





















 


not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of Two
Hundred Fifty Thousand Dollars ($250,000) or that could have a Material Adverse
Effect;


 


8.8                                 Subordinated
Debt.  If a 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 Two Hundred
Fifty Thousand Dollars ($250,000) shall be rendered against a Borrower and
shall remain unsatisfied and unstayed for a period of ten (10) days
(provided that no Credit Extensions will be made prior to the satisfaction or
stay of such judgment); 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.


 


8.11                           Guaranty.  If any guaranty of all or a portion of the
Obligations ceases for any reason to be in full force and effect, or any
guarantor fails to perform any obligation under any guaranty of all or a
portion of the Obligations, or any guarantor revokes or purports to revoke any
guaranty of the Obligations, or any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set
forth in any guaranty of all or a portion of the Obligations or in any
certificate delivered to Bank in connection with such guaranty.


 


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 Borrowers:


 


(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 Borrowers  (i) deposit cash
with Bank in an amount equal to the amount of any letters of credit issued by
Bank 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 any
letters of credit issued by Bank, and Borrowers shall promptly deposit and pay
such amounts;


 


(c)                                  Cease
advancing money or extending credit to or for the benefit of Borrowers under
this Agreement or under any other agreement between a 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.  Borrowers agree to assemble the Collateral if
Bank so requires, and to make the Collateral available to Bank as Bank may
designate.  Borrowers authorize Bank to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank’s determination
appears to be prior or superior to its security interest and to pay all
expenses incurred in connection therewith. 
With respect to any of a Borrower’s owned premises, Borrowers hereby
grant 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;


 


20





















 


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


 


9.2                                 Power
of Attorney.  Effective only upon the
occurrence and during the continuance of an Event of Default, Borrowers hereby
irrevocably appoint Bank (and any of Bank’s designated officers, or employees)
as each 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 each
Borrower’s name on any checks or other forms of payment or security that may
come into Bank’s possession; (c) sign each 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 a Borrower’s policies of
insurance; (f) settle and adjust disputes and claims respecting the
accounts directly with account debtors, for amounts and upon terms which Bank
determines to be reasonable; (g) to modify, in its sole discretion, any
intellectual property security agreement entered into between a Borrower and
Bank without first obtaining a Borrower’s approval of or signature to such
modification by amending Exhibits A, B, and C, thereof, as appropriate, to
include reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by a Borrower after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which a Borrower no longer has or claims to have any right, title
or interest; and (h) 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 clauses (g) and (h) above,
regardless of whether an Event of Default has occurred.  The appointment of Bank as each 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 a Borrower of Bank’s security interest in such funds
and verify the amount of such Account. 
Borrowers shall collect all such amounts owing to Borrowers for Bank, 


 


21





















 


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 a 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 Borrowers:  (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 Borrowers.


 


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 Borrowers.  Each 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 a Borrower’s part shall be deemed a continuing
waiver.  No delay by Bank shall
constitute a waiver, election, or acquiescence by it.  No waiver by Bank shall be effective unless
made in a written document signed on behalf of Bank and then shall be effective
only in the specific instance and for the specific purpose for which it was
given.  Each 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, each 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 Borrowers or to Bank, as the case may
be, at its addresses set forth below:


 


22





















 


	
  If to Borrowers:

  	
  COMMODORE RESOURCES (NEVADA), INC.

  (on behalf of all Borrowers)

  
	
   

  	
  2070 Allston Way, Suite 200

  
	
   

  	
  Berkeley, CA 94704

  
	
   

  	
  Attn: President

  
	
   

  	
  FAX: (    )                      

  
	
   

  	
   

  
	
  With a copy to

  	
  Vinson & Elkins LLP

  
	
   

  	
  Trammell Crow Center

  
	
   

  	
  2001 Ross Avenue, Suite 3700

  
	
   

  	
  Dallas, TX 75201-2975

  
	
   

  	
  Attn: Michael Wortley

  
	
   

  	
  FAX: (214) 999-7732

  
	
   

  	
   

  
	
  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

  
	
   

  	
  2 Embarcadero Center, Suite 300,

  
	
   

  	
  San Francisco 94111

  
	
   

  	
  Attn: Philip Koblis, Vice President

  
	
   

  	
  FAX: (415) 477-3260

  



 


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 Borrowers 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 BORROWERS 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 BORROWERS, EXCEPT BY A WRITTEN INSTRUMENT
EXECUTED BY EACH OF THEM.


 


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.


 


23





















 


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 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 all 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.


 


24





















 


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.                                 CO-BORROWERS.


 


13.1                           Co-Borrowers.  Borrowers are jointly and severally liable
for the Obligations and Bank may proceed against one Borrower to enforce the
Obligations without waiving its right to proceed against the other
Borrower.  This Agreement and the Loan
Documents are a primary and original obligation of each Borrower and shall
remain in effect notwithstanding future changes in conditions, including any
change of law or any invalidity or irregularity in the creation or acquisition
of any Obligations or in the execution or delivery of any agreement between
Bank and any Borrower.  Each Borrower
shall be liable for existing and future Obligations as fully as if all of the
Credit Extensions were advanced to such Borrower.  Bank may rely on any certificate or
representation made by any Borrower as made on behalf of, and binding on, all
Borrowers, including without limitation Advance Request Forms, Borrowing Base
Certificates and Compliance Certificates. 
Borrowers are jointly and severally liable for the Obligations and Bank
may proceed against one or more of the Borrowers to enforce the Obligations
without waiving its right to proceed against any of the other Borrowers.  Each Borrower appoints each other Borrower as
its agent with all necessary power and authority to give and receive notices,
certificates or demands for and on behalf of both Borrowers, to act as
disbursing agent for receipt of any Advances on behalf of each Borrower and to
apply to Bank on behalf of each Borrower for Advances, any waivers and any
consents.  This authorization cannot be
revoked, and Bank need not inquire as to one Borrower’s authority to act for or
on behalf of another Borrower.


 


13.2                           Subrogation
and Similar Rights.  Notwithstanding
any other provision of this Agreement or any other Loan Document, each Borrower
irrevocably waives, until all obligations are paid in full and Bank has no
further obligation to make Credit Extensions to Borrower, all rights that it
may have at law or in equity (including, without limitation, any law
subrogating the Borrower to the rights of Bank under the Loan Documents) to
seek contribution, indemnification, or any other form of reimbursement from any
other Borrower, or any other Person now or hereafter primarily or secondarily
liable for any of the Obligations, for any payment made by the Borrower with
respect to the Obligations in connection with the Loan Documents or otherwise
and all rights that it might have to benefit from, or to participate in, any
security for the Obligations as a result of any payment made by the Borrower
with respect to the Obligations in connection with the Loan Documents or
otherwise.  Any agreement providing for
indemnification, reimbursement or any other arrangement prohibited under this Section shall
be null and void.  If any payment is made
to a Borrower in contravention of this Section, such Borrower shall hold such
payment in trust for Bank and such payment shall be promptly delivered to Bank
for application to the Obligations, whether matured or unmatured.


 


13.3                           Waivers
of Notice.  Each Borrower waives, to
the extent permitted by law, notice of acceptance hereof; notice of the existence,
creation or acquisition of any of the Obligations; notice of an Event of
Default except as set forth herein; notice of the amount of the Obligations
outstanding at any time; notice of any adverse change in the financial
condition of any other Borrower or of any other fact that might increase the
Borrower’s risk; presentment for payment; demand; protest and notice thereof as
to any instrument; and all other notices and demands to which the Borrower
would otherwise be entitled by virtue of being a co-borrower or a surety.  Each Borrower waives any defense arising from
any defense of any other Borrower, or by reason of the 


 


25





















 


cessation from any
cause whatsoever of the liability of any other Borrower.  Bank’s failure at any time to require strict
performance by any Borrower of any provision of the Loan Documents shall not
waive, alter or diminish any right of Bank thereafter to demand strict
compliance and performance therewith. 
Each Borrower also waives any defense arising from any act or omission
of Bank that changes the scope of the Borrower’s risks hereunder.  Each Borrower hereby waives any right to
assert against Bank any defense (legal or equitable), setoff, counterclaim, or
claims that such Borrower individually may now or hereafter have against
another Borrower or any other Person liable to Bank with respect to the
Obligations in any manner or whatsoever.


 


13.4                           Subrogation
Defenses.  Until all Obligations are
paid in full and Bank has no further obligation to make Credit Extensions to
Borrower, each Borrower hereby waives any defense based on impairment or
destruction of its subrogation or other rights against any other Borrower and
waives all benefits which might otherwise be available to it under California
Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and
3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726,
as those statutory provisions are now in effect and hereafter amended, and
under any other similar statutes now and hereafter in effect.


 


13.5                           Right
to Settle, Release.


 


13.5.1                  The
liability of Borrowers hereunder shall not be diminished by (i) any
agreement, understanding or representation that any of the Obligations is or
was to be guaranteed by another Person or secured by other property, or (ii) any
release or unenforceability, whether partial or total, of rights, if any, which
Bank may now or hereafter have against any other Person, including another
Borrower, or property with respect to any of the Obligations.


 


13.5.2                  Without
notice to any Borrower and without affecting the liability of any Borrower
hereunder, Bank may (i) compromise, settle, renew, extend the time for
payment, change the manner or terms of payment, discharge the performance of,
decline to enforce, or release all or any of the Obligations with respect to a
Borrower, (ii) grant other indulgences to a Borrower in respect of the
Obligations, (iii) modify in any manner any documents relating to the
Obligations with respect to a Borrower, (iv) release, surrender or
exchange any deposits or other property securing the Obligations, whether
pledged by a Borrower or any other Person, or (v) compromise, settle,
renew, or extend the time for payment, discharge the performance of, decline to
enforce, or release all or any obligations of any guarantor, endorser or other
Person who is now or may hereafter be liable with respect to any of the
Obligations.


 


13.6                           Subordination.  All indebtedness of a Borrower now or
hereafter arising held by another Borrower is subordinated to the Obligations
and the Borrower holding the indebtedness shall take all actions reasonably
requested by Bank to effect, to enforce and to give notice of such
subordination.


 


14.                                 GENERAL
PROVISIONS.


 


14.1                           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 a 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 a 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.


 


14.2                           Indemnification.  Each 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 a Borrower whether under this
Agreement, or otherwise (including without limitation reasonable attorneys’
fees and expenses), except for losses caused by Bank’s gross negligence or
willful misconduct or a material breach of Bank’s obligations under the Loan
Documents.


 


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


 


26





















 


14.4                           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.


 


14.5                           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.


 


14.6                           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.


 


14.7                           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 a Borrower.  The obligations
of Borrowers to indemnify Bank with respect to the expenses, damages, losses,
costs and liabilities described in Section 14.2 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Bank have run.


 


[Balance of Page Intentionally Left Blank] 


 


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


 


 


	
   

  	
  COMMODORE RESOURCES (NEVADA), INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard McDonald

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LYRIS TECHNOLOGIES, INC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Luis Rivera

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UPTILT RESOURCES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Luis Rivera

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COMERICA BANK

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Phil Koblis

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  



 


 


[Signature Page to Loan
and Security Agreement]