Exhibit 10.24


 




 





AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT 


TRANSOMA MEDICAL, INC.




 





 

















 


TABLE OF CONTENTS


 


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1

  	
  ACCOUNTING AND
  OTHER TERMS

  	
  1

  
	
   

  	
   

  	
   

  
	
  2

  	
  LOAN AND TERMS
  OF PAYMENT

  	
  1

  
	
  2.1

  	
  Promise
  to Pay

  	
  1

  
	
  2.2

  	
  Termination
  of Commitment to Lend

  	
  2

  
	
  2.3

  	
  Overadvances

  	
  2

  
	
  2.4

  	
  Interest
  Rate, Payments

  	
  2

  
	
  2.5

  	
  Fees

  	
  3

  
	
   

  	
   

  	
   

  
	
  3

  	
  CONDITIONS OF
  LOANS

  	
  3

  
	
  3.1

  	
  Conditions
  Precedent to Initial Credit Extension

  	
  3

  
	
  3.2

  	
  Conditions
  Precedent to all Credit Extensions

  	
  3

  
	
   

  	
   

  	
   

  
	
  4

  	
  CREATION OF
  SECURITY INTEREST

  	
  3

  
	
  4.1

  	
  Grant
  of Security Interest

  	
  3

  
	
  4.2

  	
  Authorization
  to File

  	
  4

  
	
   

  	
   

  	
   

  
	
  5

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
  4

  
	
  5.1

  	
  Due
  Organization and Authorization

  	
  4

  
	
  5.2

  	
  Collateral

  	
  4

  
	
  5.3

  	
  Litigation

  	
  4

  
	
  5.4

  	
  No
  Material Adverse Change in Financial Statements

  	
  4

  
	
  5.5

  	
  Solvency

  	
  5

  
	
  5.6

  	
  Regulatory
  Compliance

  	
  5

  
	
  5.7

  	
  Investments
  in Subsidiaries

  	
  5

  
	
  5.8

  	
  Full
  Disclosure

  	
  5

  
	
   

  	
   

  	
   

  
	
  6

  	
  AFFIRMATIVE
  COVENANTS

  	
  5

  
	
  6.1

  	
  Government
  Compliance

  	
  5

  
	
  6.2

  	
  Financial
  Statements, Reports, Certificates

  	
  5

  
	
  6.3

  	
  Inventory;
  Returns

  	
  6

  
	
  6.4

  	
  Taxes

  	
  6

  
	
  6.5

  	
  Insurance

  	
  6

  
	
  6.6

  	
  Primary
  Accounts

  	
  6

  
	
  6.7

  	
  Financial
  Covenants

  	
  6

  
	
  6.8

  	
  Further
  Assurances

  	
  7

  
	
   

  	
   

  	
   

  
	
  7

  	
  NEGATIVE
  COVENANTS

  	
  7

  
	
  7.1

  	
  Dispositions

  	
  7

  
	
  7.2

  	
  Changes
  in Business, Ownership, Management or Locations of Collateral

  	
  7

  
	
  7.3

  	
  Mergers
  or Acquisitions

  	
  7

  
	
  7.4

  	
  Indebtedness

  	
  7

  
	
  7.5

  	
  Encumbrance

  	
  7

  
				



 


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  7.6

  	
  Distributions;
  Investments

  	
  7

  
	
  7.7

  	
  Transactions
  with Affiliates

  	
  8

  
	
  7.8

  	
  Subordinated
  Debt

  	
  8

  
	
  7.9

  	
  Compliance

  	
  8

  
	
   

  	
   

  	
   

  
	
  8

  	
  EVENTS OF
  DEFAULT

  	
  8

  
	
  8.1

  	
  Payment
  Default

  	
  8

  
	
  8.2

  	
  Covenant
  Default

  	
  8

  
	
  8.3

  	
  Material
  Adverse Change

  	
  8

  
	
  8.4

  	
  Attachment

  	
  9

  
	
  8.5

  	
  Insolvency

  	
  9

  
	
  8.6

  	
  Other
  Agreements

  	
  9

  
	
  8.7

  	
  Judgments

  	
  9

  
	
  8.8

  	
  Misrepresentations

  	
  9

  
	
  8.9

  	
  Guaranty.

  	
  9

  
	
   

  	
   

  	
   

  
	
  9

  	
  BANK’S RIGHTS
  AND REMEDIES

  	
  9

  
	
  9.1

  	
  Rights
  and Remedies

  	
  9

  
	
  9.2

  	
  Power
  of Attorney

  	
  10

  
	
  9.3

  	
  Bank
  Expenses

  	
  10

  
	
  9.4

  	
  Bank’s
  Liability for Collateral

  	
  10

  
	
  9.5

  	
  Remedies
  Cumulative

  	
  11

  
	
  9.6

  	
  Demand
  Waiver

  	
  11

  
	
   

  	
   

  	
   

  
	
  10

  	
  NOTICES

  	
  11

  
	
   

  	
   

  	
   

  
	
  11

  	
  CHOICE OF LAW,
  VENUE AND JURY TRIAL WAIVER

  	
  11

  
	
   

  	
   

  	
   

  
	
  12

  	
  GENERAL
  PROVISIONS

  	
  11

  
	
  12.1

  	
  Successors
  and Assigns

  	
  11

  
	
  12.2

  	
  Indemnification

  	
  11

  
	
  12.3

  	
  Time
  of Essence

  	
  11

  
	
  12.4

  	
  Severability
  of Provision

  	
  12

  
	
  12.5

  	
  Amendments
  in Writing, Integration

  	
  12

  
	
  12.6

  	
  Counterparts

  	
  12

  
	
  12.7

  	
  Survival

  	
  12

  
	
  12.8

  	
  Confidentiality

  	
  12

  
	
  12.9

  	
  Effect
  of Amendment and Restatement

  	
  12

  
	
  12.10

  	
  Attorneys’
  Fees, Costs and Expenses

  	
  12

  
	
   

  	
   

  	
   

  
	
  13

  	
  DEFINITIONS

  	
  12

  
	
  13.1

  	
  Definitions

  	
  12

  
				



 


ii

















 


This AMENDED AND RESTATED LOAN
AND SECURITY AGREEMENT (“Agreement”) dated as of the Effective Date,
between SILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 with a loan production office located at 301 Carlson
Parkway, Suite 255, Minnetonka, Minnesota 55305 and TRANSOMA MEDICAL, INC. (“Borrower”),
whose address is 4211 Lexington Avenue North, Suite 2244, St. Paul, Minnesota
55126.


 


RECITALS


 


A.            Bank
and Borrower are parties to that certain Loan and Security Agreement dated
December 17, 2002, as amended (collectively, the “Original Agreement”).


 


B.            Borrower
and Bank desire in this Agreement to set forth their agreement with respect to
a working capital and equipment line loan and to amend and restate in its
entirety without novation the Original Agreement in accordance with the
provisions herein.


 


AGREEMENT


 


The parties agree as follows:


 


1              ACCOUNTING
AND OTHER TERMS


 


Accounting terms not defined in this Agreement will be
construed following GAAP.  Calculations
and determinations must be made following GAAP. The term “financial statements”
includes the notes and schedules. The terms “including” and “includes” always
mean “including (or includes) without limitation,” in this or any Loan
Document.


 


2              LOAN
AND TERMS OF PAYMENT


 


2.1          Promise to Pay.


 


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


 


2.1.1       Revolving Advances.


 


(a)           Bank
will make Advances not exceeding the lesser of (A) the Committed Revolving Line
or (B) the Borrowing Base. Amounts borrowed under this Section may be repaid
and reborrowed during the term of this Agreement.


 


(b)           To
obtain an Advance, Borrower must notify Bank by facsimile or telephone by 12:00
p.m. Pacific time on the Business Day the Advance is to be made. Borrower must
promptly confirm the notification by delivering to Bank the Payment/Advance
Form attached as Exhibit B. Bank will credit Advances to Borrower’s deposit
account. Bank may make Advances under this Agreement based on instructions from
a Responsible Officer or his or her designee or without instructions if the
Advances are necessary to meet Obligations which have become due. Bank may rely
on any telephone notice given by a person whom Bank believes is a Responsible
Officer or designee. Borrower will indemnify Bank for any loss Bank suffers due
to such reliance.


 


(c)           The
Committed Revolving Line terminates on the Revolving Maturity Date, when all
Advances are immediately payable.


 


2.1.2       Equipment II Advances.


 


(a)           Through
June 21, 2006 (the “Equipment II Availability End Date”), Bank will make
advances (“Equipment II Advance” and, collectively, “Equipment II Advances”)
not exceeding the Committed Equipment II 


 


1

















 


Line. The Equipment II Advances may only be used to
finance or refinance Equipment purchased on or after 90 days before the date of
each Equipment II Advance and may not exceed 100% of the equipment invoice
excluding taxes, shipping, warranty charges, freight discounts and installation
expense. Transferable software licenses, leasehold improvements or other soft
costs, including sales tax, freight, and installation expenses may constitute
up to 30% of the aggregate Equipment II Advances.


 


(b)           Interest
accrues from the date of each Equipment II Advance at the rate in Section 2.4
(a). Each Equipment II Advance shall immediately amortize and is payable in 48
equal monthly installments of principal plus accrued interest, beginning on the
1st of each month following the respective Equipment II Advance and ending 48
months thereafter (each, the “Equipment II Maturity Date”). Equipment II
Advances when repaid may not be reborrowed.


 


(c)           Borrower
shall have the option to prepay all, but not less than all, of the Equipment II
Advances advanced by Bank under this Agreement; provided Borrower
(i) provides written notice to Bank of its election to prepay the Equipment
II Advances at least thirty (30) days prior to such prepayment, and (ii) pays,
on the date of the prepayment (A) all unpaid Equipment II Advances (including
principal and interest); (B) all unpaid accrued interest to the date of the
prepayment; (C) an amount equal to 3% of all prepaid Equipment II Advances, if
prepaid within 1 year from the Effective Date, or 2% of all prepaid Equipment
II Advances, if prepaid within 2 years from the Effective Date; or 1 % of all
prepaid Equipment II Advances, if prepaid within 3 years from the Effective
Date; and (D) all other sums, if any, that shall have become due and payable
hereunder with respect to this Agreement.


 


(d)           To
obtain an Equipment II Advance, Borrower must notify Bank (the notice is
irrevocable) by facsimile no later than 12:00 p.m. Pacific time one Business
Day before the day on which the Equipment II Advance is to be made. The notice
in the form of Exhibit B (Payment/Advance Form) must be signed by a Responsible
Officer or designee and include a copy of the invoice for the Equipment being
financed.


 


2.1.3       Equipment Facility.


 


Bank has made an
equipment facility available to Borrower pursuant to the terms of the Original
Agreement (the “Equipment Facility”). There are currently six advances (each, the
“Equipment Advance”) outstanding under the Equipment Facility, which will
continue to amortize in accordance with the terms of the schedules relating to
such Equipment Advance and the Original Agreement. Accordingly, Borrower will
continue to pay each Equipment Advance in accordance with the schedules
provided therewith at the time of each Equipment Advance. The amount
outstanding on the Equipment Facility is described in the definition of the
Committed Equipment Line. No further Equipment Advances will be allowed under
the Committed Equipment Line. Each Equipment Advance is due on its respective
Equipment Advance Maturity Date.


 


2.2          Termination of
Commitment to Lend.


 


Bank’s obligation to lend the undisbursed portion of
the Obligations will terminate if, in Bank’s sole discretion, there has been a
material adverse change in the general affairs,
management, results of operation, condition (financial or otherwise) or
the prospect of repayment of the Obligations, or there has been any material
adverse deviation by Borrower from the most recent business plan of Borrower
presented to and accepted by Bank prior to the execution of this Agreement.


 


2.3          Overadvances.


 


If Borrower’s Obligations under Section 2.1.1 exceed
the lesser of either (i) the Committed Revolving Line or (ii) the Borrowing
Base, Borrower must immediately pay Bank the excess.


 


2.4          Interest Rate, Payments.


 


(a)           Interest
Rate. (i) Advances accrue interest on the outstanding principal balance at a
per annum rate of 0.25 of 1 percentage point above the Prime Rate; and (ii)
Equipment II Advances accrue interest on the 


 


2

















 


outstanding principal balance at a per annum rate of
0.5 of 1 percentage point above the Prime Rate. After an Event of Default, Obligations
accrue interest at 5 percent above the rate effective immediately before the
Event of Default. The interest rate increases or decreases when the Prime Rate
changes. Interest is computed on a 360 day year for the actual number of days
elapsed.


 


(b)           Payments.
Interest due on the Committed Revolving Line is payable on the 20th of each
month. Interest due on the Equipment II Advances is payable on the 1st of each
month. Bank may debit any of Borrower’s deposit accounts including Account
Number                                              for
principal and interest payments owing or any amounts Borrower owes Bank. Bank
will promptly notify Borrower when it debits Borrower’s accounts. These debits
are not a set-off. Payments received after 12:00 noon Pacific Time are
considered received at the opening of business on the next Business Day. When a
payment is due on a day that is not a Business Day, the payment is due the next
Business Day and additional interest shall accrue.


 


2.5          Fees.


 


Borrower will pay:


 


(a)           Facility
Fee. A fully earned, non-refundable Facility Fee of $7,500 for the Committed
Revolving Line due on the Effective Date; and


 


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


 


(c)           Revolving
Line Prepayment Fee. A fully earned, non-refundable prepayment fee equal to 1%
of Committed Revolving Line shall be due upon voluntary or involuntary payment
in full of Borrower’s Obligations under the Committed Revolving Line prior to
the Revolving Maturity Date.


 


3              CONDITIONS
OF LOANS


 


3.1          Conditions Precedent to
Initial Credit Extension.


 


Bank’s obligation to make the initial Credit Extension
is subject to the condition precedent that it receives the agreements,
documents and fees it requires.


 


3.2          Conditions Precedent to
all Credit Extensions.


 


Bank’s obligations to make each Credit Extension,
including the initial Credit Extension, is subject to the following:


 


(a)           timely
receipt of any Payment/Advance Form; and


 


(b)           the
representations and warranties in Section 5 must be materially true on the date
of the Payment/Advance Form and on the effective date of each Credit Extension
and no Event of Default may have occurred and be continuing, or result from the
Credit Extension. Each Credit Extension is Borrower’s representation and
warranty on that date that the representations and warranties of Section 5
remain true.


 


4              CREATION
OF SECURITY INTEREST


 


4.1          Grant of Security
Interest.


 


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


 


3

















 


Obligations. If Borrower
shall at any time, acquire a commercial tort claim, Borrower shall promptly
notify Bank in a writing signed by Borrower of the brief details thereof and
grant to Bank in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in form
and substance satisfactory to Bank.


 


4.2          Authorization to File.


 


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


 


5              REPRESENTATIONS
AND WARRANTIES


 


Borrower represents and warrants as follows:


 


5.1          Due Organization and
Authorization.


 


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


 


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


 


5.2          Collateral.


 


Borrower has good title to the Collateral, free of
Liens except Permitted Liens or Borrower has Rights to each asset that is
Collateral. Borrower has no other deposit account, other than the deposit
accounts described in the Schedule. The Accounts are bona fide, existing
obligations, and the service or property has been performed or delivered to the
account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor. The Collateral is not in the possession of
any third party bailee (such as at a warehouse). In the event that Borrower,
after the date hereof, intends to store or otherwise deliver the Collateral to
such a bailee, then Borrower will receive the prior written consent of Bank and
such bailee must acknowledge in writing that the bailee is holding such
Collateral for the benefit of Bank. Borrower has no notice of any actual or
imminent Insolvency Proceeding of any account debtor whose accounts are an
Eligible Account in any Borrowing Base Certificate. All Inventory is in all
material respects of good and marketable quality, free from material defects.


 


5.3          Litigation.


 


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


 


5.4          No Material Adverse
Change in Financial Statements.


 


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


 


4

















 


5.5          Solvency.


 


The fair salable value of Borrower’s assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities;
the Borrower is not left with unreasonably small capital after the transactions
in this Agreement; and Borrower is able to pay its debts (including trade
debts) as they mature.


 


5.6          Regulatory Compliance.


 


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


 


5.7          Investments in
Subsidiaries.


 


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


 


5.8          Full Disclosure.


 


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


 


6              AFFIRMATIVE
COVENANTS


 


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


 


6.1          Government Compliance.


 


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


 


6.2          Financial Statements,
Reports, Certificates.


 


(a)           Borrower
will deliver to Bank: (i) as soon as available, but no later than 30 days after
the last day of each month, a company prepared consolidated balance sheet and
income statement covering Borrower’s consolidated operations during the period
certified by a Responsible Officer and in a form acceptable to Bank;


 


5

















 


(ii) as soon as available, but no later than 120 days
after the last day of Borrower’s fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm reasonably acceptable to Bank; (iii) prior to Borrower’s
fiscal year end (June 30), annual projections from Borrower’s Board of
Directors; (iv) a prompt report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of $100,000 or more; and (v) budgets, sales
projections, operating plans or other financial information Bank reasonably
requests.


 


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


 


(c)           Within
30 days after the last day of each month, Borrower will deliver to Bank with
the monthly financial statements a Compliance Certificate signed by a
Responsible Officer in the form of Exhibit D.


 


(d)           Allow
Bank to audit Borrower’s Collateral at Borrower’s expense. Such audits will be
conducted the earlier of (i) prior to Borrower’s initial Advance or (ii) 90
days from the Effective Date and no more often than every year thereafter,
unless an Event of Default has occurred and is continuing.


 


6.3          Inventory; Returns.


 


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


 


6.4          Taxes.


 


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


 


6.5          Insurance.


 


Borrower will keep its business and the Collateral
insured for risks and in amounts, as Bank may reasonably request. Insurance
policies will be in a form, with companies, and in amounts that are
satisfactory to Bank in Bank’s reasonable discretion. All property policies
will have a lender’s loss payable endorsement showing Bank as an additional
loss payee and all liability policies will show the Bank as an additional
insured and provide that the insurer must give Bank at least 20 days notice
before canceling its policy. At Bank’s request, Borrower will deliver certified
copies of policies and evidence of all premium payments. Proceeds payable under
any policy will, at Bank’s option, be payable to Bank on account of the
Obligations.


 


6.6          Primary Accounts.


 


Borrower will maintain its primary depository,
operating and investment accounts with or through Bank, which relationship
shall include Borrower maintaining account balances in any accounts with or
through Bank representing at least 80% of all account balances of Borrower at
any financial institution.


 


6.7          Financial Covenants.


 


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


 


(i)            Tangible Net Worth. A Tangible Net Worth plus Subordinated
Debt and any class of Borrower’s stock treated as a liability on Borrower’s
balance sheet of at least $3,000,000.


 


6

















 


(ii)           Liquidity Coverage. A ratio of unrestricted cash (and
equivalents) plus accounts receivables divided by outstanding Obligations of
not less than 1.25 to 1.00.


 


6.8          Further Assurances.


 


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


 


7              NEGATIVE
COVENANTS


 


For so long as Bank has an obligation to lend or there
are any outstanding Obligations, Borrower shall not, without Bank’s prior
written consent (which shall be a matter of its good faith business judgment),
do any of the following:


 


7.1          Dispositions.


 


Convey, sell, lease, transfer or otherwise dispose of
(collectively “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, except for Transfers (i) of
Inventory in the ordinary course of business; (ii) of non-exclusive licenses
and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; or (iii) of worn-out or
obsolete Equipment.


 


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


 


Engage in or permit any of its Subsidiaries to engage
in any business other than the businesses currently engaged in by Borrower or
reasonably related thereto or have a material change in its ownership or
management of greater than 25% (other than by the sale of Borrower’s equity securities
in a public offering or to venture capital investors so long as Borrower
identifies the venture capital investors prior to the closing of the
investment).  Borrower will not, without
at least 30 days prior written notice, relocate its chief executive office,
change its state of formation (including reincorporation), change its
organizational number or name or add any new offices or business locations
(such as warehouses) in which Borrower maintains or stores over $5,000 in
Collateral.


 


7.3          Mergers or Acquisitions.


 


Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person, except where (i) no Event of
Default has occurred and is continuing or would result from such action during
the term of this Agreement and (ii) such transaction would not
result in a decrease of more than 25% of Tangible Net Worth. A Subsidiary may
merge or consolidate into another Subsidiary or into Borrower.


 


7.4          Indebtedness.


 


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


 


7.5          Encumbrance.


 


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


 


7.6          Distributions;
Investments.


 


Directly or indirectly acquire or own any Person, or
make any Investment in any Person, other than Permitted Investments, or permit
any of its Subsidiaries to do so. Pay any dividends or make any distribution or
payment or redeem, retire or purchase any capital stock.


 


7

















 


7.7          Transactions with
Affiliates.


 


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


 


7.8          Subordinated Debt.


 


Make or permit any payment on any Subordinated Debt,
except under the terms of the Subordinated Debt, or amend any provision in any
document relating to the Subordinated Debt without Bank’s prior written
consent.


 


7.9          Compliance.


 


Become an “investment company” or a company controlled
by an “investment company,” under the Investment Company Act of 1940 or
undertake as one of its important activities extending credit to purchase or
carry margin stock, or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business or operations or would reasonably be
expected to cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.


 


8              EVENTS
OF DEFAULT


 


Anyone of the following is an Event of Default:


 


8.1          Payment Default.


 


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


 


8.2          Covenant Default.


 


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


 


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


 


8.3          Material Adverse Change.


 


If there (i) occurs a material adverse change in the
business, operations, or financial condition of the Borrower, or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations; or (iii) is a material impairment of the value or priority of Bank’s
security interests in the Collateral (the foregoing being defined as a “Material
Adverse Change”).


 


8

















 


8.4          Attachment.


 


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


 


8.5          Insolvency.


 


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


 


8.6          Other Agreements.


 


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


 


8.7          Judgments.


 


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


 


8.8          Misrepresentations.


 


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


 


8.9          Guaranty.


 


Any guaranty of any Obligations ceases for any reason
to be in full force or any Guarantor does not perform any obligation under any
guaranty of the Obligations, or any material misrepresentation or material
misstatement exists now or later in any warranty or representation in any
guaranty of the Obligations or in any certificate delivered to Bank in
connection with the guaranty, or any circumstance described in Sections 8.4,
8.5 or 8.7 occurs to any Guarantor.


 


9              BANK’S
RIGHTS AND REMEDIES


 


9.1          Rights and Remedies.


 


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


 


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


 


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


 


(c)           Settle
or adjust disputes and claims directly with account debtors for amounts, on
terms and in any order that Bank considers advisable; notify any Person owing
Borrower money of Bank’s security interest in the 


 


9

















 


funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit;


 


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


 


(e)           Bank
may place a “hold” on any account maintained with Bank and deliver a notice of
exclusive control, any entitlement order, or other directions or instructions
pursuant to any control agreement or similar agreements providing control of
any Collateral;


 


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


 


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


 


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


 


9.2          Power of Attorney.


 


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


 


9.3          Bank Expenses.


 


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


 


9.4          Bank’s Liability for
Collateral.


 


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


 


10

















 


9.5          Remedies Cumulative.


 


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


 


9.6          Demand Waiver.


 


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


 


10           NOTICES


 


All notices or demands by any party about this
Agreement or any other related agreement must be in writing and be personally
delivered or sent by an overnight delivery service, by certified mail, postage
prepaid, return receipt requested, or by telefacsimile to the addresses set
forth at the beginning of this Agreement. A party may change its notice address
by giving the other party written notice.


 


11           CHOICE
OF LAW, VENUE AND JURY TRIAL WAIVER


 


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


 


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


 


12           GENERAL
PROVISIONS


 


12.1        Successors and Assigns.


 


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


 


12.2        Indemnification.


 


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


 


12.3        Time of Essence.


 


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


 


11

















 


12.4        Severability of Provision.


 


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


 


12.5        Amendments in Writing,
Integration.


 


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


 


12.6        Counterparts.


 


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


 


12.7        Survival.


 


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


 


12.8        Confidentiality.


 


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


 


12.9        Effect of Amendment and
Restatement.


 


This Agreement is intended to and does completely
amend and restate, without novation, the Original Agreement. All credit
extensions or loans outstanding under the Original Agreement are and shall
continue to be outstanding under this Agreement. All security interests granted
under the Original Agreement are hereby confirmed and ratified and shall
continue to secure all Obligations under this Agreement.


 


12.10      Attorneys’ Fees, Costs and
Expenses.


 


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


 


13           DEFINITIONS


 


13.1        Definitions.


 


In this Agreement:


 


12

















 


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


 


“Advance” or “Advances” is a loan advance (or advances) under the
Committed Revolving Line.


 


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


 


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


 


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


 


“Borrowing Base”
is 75% of Eligible Accounts as determined by Bank from Borrower’s most recent
Borrowing Base Certificate; provided, however, that Bank may
lower the percentage of the Borrowing Base after performing an audit of
Borrower’s Collateral.


 


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


 


“Code” is the
Minnesota Uniform Commercial Code, as applicable.


 


“Collateral” is
the property described on Exhibit A.


 


“Committed II Equipment Line”
is a Credit Extension of up to $1,500,000.


 


“Committed Revolving Line”
is an Advance of up to $3,000,000.


 


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


 


“Credit Extension”
is each Advance, Equipment II Advance, or any other extension of credit by Bank
for Borrower’s benefit, which shall not exceed $4,000,000 in the aggregate.


 


“Effective Date”
is the date Bank executes this Agreement.


 


“Eligible Accounts”
are Accounts in the ordinary course of Borrower’s business that meet all
Borrower’s representations and warranties in Section 5; but Bank may
change eligibility standards by giving Borrower notice. Unless Bank agrees
otherwise in writing, Eligible. Accounts will not include:


 


13

















 


(a)           Accounts that the
account debtor has not paid within 90 days of invoice date;


 


(b)           Accounts for an account
debtor, 50% or more of whose Accounts have not been paid within 90 days of
invoice date;


 


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


 


(d)           Accounts for an account
debtor, including Affiliates, whose total obligations to Borrower exceed 25% of
all Accounts, for the amounts that exceed that percentage, unless the Bank
approves in writing;


 


(e)           Accounts for which the
account debtor does not have its principal place of business in the United
States;


 


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


 


(g)           Accounts for which
Borrower owes the account debtor, but only up to the amount owed (sometimes
called “contra” accounts, accounts payable, customer deposits or credit
accounts);


 


(h)           Accounts for
demonstration or promotional equipment, or in which goods are consigned, sales
guaranteed, sale or return, sale on approval, bill and hold, or other terms if
account debtor’s payment may be conditional;


 


(i)            Accounts for which the
account debtor is Borrower’s Affiliate, officer, employee, or agent;


 


(j)            Accounts in which the
account debtor disputes liability or makes any claim and Bank believes there
may be a basis for dispute (but only up to the disputed or claimed amount), or
if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent,
or goes out of business;


 


(k)           Accounts for which Bank
reasonably determines collection to be doubtful.


 


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


 


“Equipment Facility”
is defined in Section 2.1.3.


 


“Equipment II Advance”
is defined in Section 2.1.2.


 


“Equipment II Availability End
Date” is defined in Section 2.1.2.


 


“Equipment II Maturity Date”
is defined in Section 2.1.2.


 


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


 


“GAAP” is
generally accepted accounting principles.


 


“Guarantor” is
any present or future guarantor of the Obligations, including DATA SCIENCES UK,
INC.


 


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


 


14

















 


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


 


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


 


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


 


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


 


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


 


“Material Adverse Change”
is defined in Section 8.3.


 


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


 


“Original Agreement”
has the meaning set forth in recital paragraph A.


 


“Permitted Indebtedness”
is:


 


(a)           Borrower’s indebtedness
to Bank under this Agreement or any other Loan Document;


 


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


 


(c)           Subordinated Debt;


 


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


 


(e)           Indebtedness secured by
Permitted Liens.


 


“Permitted Investments” are:


 


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


 


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


 


15

















 


“Permitted Liens” are:


 


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


 


(b)           Liens for taxes, fees,
assessments or other government charges or levies, either not delinquent or
being contested in good faith and for which Borrower maintains adequate
reserves on its Books, if they have no priority over any of Bank’s security
interests;


 


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


 


(d)           Licenses or sublicenses
granted in the ordinary course of Borrower’s business and any interest or title
of a licensor or under any license or sublicense, if the licenses and
sublicenses permit granting Bank a security interest;


 


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


 


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


 


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


 


“Prime Rate” is Bank’s most recently announced “prime
rate,” even if it is not Bank’s lowest rate.


 


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


 


“Revolving Maturity Date” is June 20, 2006.


 


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


 


“Schedule” is any attached schedule of
exceptions.


 


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


 


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


 


“Tangible Net Worth” is, on any date, the consolidated
total assets of Borrower and its Subsidiaries minus, (i) any amounts
attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, patents, trade and service marks and names, copyrights
and research and development expenses except prepaid expenses, and (c) reserves
not already deducted from assets, and (ii) Total Liabilities.


 


16

















 


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


 


	
  BORROWER:

  	
   

  
	
   

  	
   

  
	
  TRANSOMA
  MEDICAL, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Charles T. Coggin

  	
   

  	
   

  
	
   

  	
   

  
	
  Name: Charles T.
  Coggin

  	
   

  
	
  Title: Vice
  President and CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  BANK:

  	
   

  
	
   

  	
   

  
	
  SILICON VALLEY
  BANK

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Charlie Roehl

  	
   

  	
   

  
	
   

  	
   

  
	
  Name: Charlie
  Roehl

  	
   

  
	
  Title: Vice
  President – Relationship Manager

  	
   

  
	
   

  	
   

  
	
  Effective Date:
  June 21, 2005

  	
   

  



 


17

















 


EXHIBIT A


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


Notwithstanding the foregoing, the Collateral shall
not be deemed to include any copyrights (including computer programs,
blueprints and drawings), copyright applications, copyright registration and
like protection in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any design rights;
any patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, trademarks, servicemarks and
applications thereof, whether registered or not, except that the Collateral shall
include all Accounts, license and royalty fees and other revenues, proceeds, or
income arising out of or relating to any of the foregoing.


 


Borrower and Bank are parties to that certain
negative pledge arrangement, whereby Borrower, in connection with Bank’s loan
or loans to Borrower, has agreed, among other things, not to sell, transfer,
assign, mortgage, pledge, lease grant a security interest in, or encumber any
of its intellectual property, without Bank’s prior written consent.


 


18

















 


EXHIBIT B


 


LOAN PAYMENT/ADVANCE REQUEST FORM


 


DEADLINE FOR SAME
DAY PROCESSING IS 12:00 P.S.T.


 


	
  Fax To:

  	
  Date:

  



 


	
  LOAN
  PAYMENT:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TRANSOMA
  MEDICAL, INC. (Borrower)

  	
   

  
	
   

  	
   

  	
   

  
	
  From Account #

  	
   

  	
  To Account #

  	
   

  	
   

  
	
   

  	
  (Deposit Account
  #)

  	
  (Loan Account #)

  
	
   

  	
   

  	
   

  
	
  Principal $                    and/or
  Interest $                       

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  All Borrower’s representation and warranties in the
  Loan and Security Agreement are true, correct and complete in all material
  respects up to and including the date of the transfer request for a loan
  payment, but those representations and warranties expressly referring to
  another date shall be true, correct and complete in all material respects as
  of that date:

  
	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
  Phone Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LOAN
  ADVANCE:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Complete Outgoing
  Wire Request section
  below if all or a portion of the funds from this loan advance are for an
  outgoing wire.

  
	
   

  	
   

  	
   

  
	
  From Account #

  	
   

  	
   

  	
  To Account #

  	
   

  	
   

  
	
   

  	
  (Loan Account #)

  	
   

  	
  (Deposit Account
  #)

  
	
   

  	
   

  	
   

  	
   

  
	
  Amount of Advance $                    

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  All Borrower’s representation and warranties in the
  Amended and Restated Loan and Security Agreement are true, correct and
  complete in all material respects up to and including the date of the
  transfer request for an advance, but those representations and warranties
  expressly referring to another date shall be true, correct and complete in
  all material respects as of that date:

  
	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
  Phone Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  OUTGOING
  WIRE REQUEST

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Complete only if all or a portion of funds from
  the loan advance above are to be wired.

  
	
   

  
	
  Deadline for same day processing is 12:00pm, P.S.T.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Beneficiary Name:

  	
   

  	
   

  	
  Amount of Wire:
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beneficiary Bank:

  	
   

  	
   

  	
  Account Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  City and State:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Beneficiary Bank Transit (ABA) #:

  	
   

  	
   

  	
  Beneficiary Bank
  Code (Swift, Sort, Chip, etc.):                               

  
	
   

  	
   

  	
   

  	
  (For
  International Wire Only)

  
	
   

  	
   

  	
   

  	
   

  
	
  Intermediary Bank:

  	
   

  	
   

  	
  Transit (ABA) #:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  For Further Credit to:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Special Instruction:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By signing
  below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with
  and subject to the terms and conditions set forth in the agreements(s)
  covering funds transfer service(s), which agreements(s) were previously
  received and executed by me (us).

  
	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
  2nd
  Signature (If Required):

  	
   

  	
   

  
	
   

  	
   

  
	
  Print Name/Title:

  	
   

  	
   

  	
  Print
  Name/Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone #

  	
   

  	
   

  	
  Telephone #

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
																										



 


19

















 


EXHIBIT C
 BORROWING BASE CERTIFICATE


 


	
  Borrower:

  	
  TRANSOMA
  MEDICAL, INC.

  	
  Bank:

  	
  Silicon Valley
  Bank

  
	
   

  	
   

  	
   

  	
  3003 Tasman
  Drive

  
	
   

  	
   

  	
   

  	
  Santa Clara, CA
  95054

  
	
   

  	
   

  	
   

  	
   

  
	
  Commitment
  Amount: $3,000,000

  	
   

  	
   

  	
   

  
					



 


	
  ACCOUNTS
  RECEIVABLE

  
	
  1.

  	
   

  	
  Accounts
  Receivable Book Value as of

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  2.

  	
   

  	
  Additions
  (please explain on reverse)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  3.

  	
   

  	
  TOTAL ACCOUNTS
  RECEIVABLE

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ACCOUNTS
  RECEIVABLE DEDUCTIONS (without duplication)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Amounts over 90
  days due

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Balance of 50%
  over 90 day accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Credit balances
  over 90 days

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  Concentration
  Limits

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Foreign Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  Governmental
  Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  Contra Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  Promotion or
  Demo Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  Intercompany/Employee
  Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  Other (please
  explain on reverse)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
  TOTAL ACCOUNTS
  RECEIVABLE DEDUCTIONS

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  15.

  	
   

  	
  Eligible
  Accounts (#3 minus #14)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  16.

  	
   

  	
  LOAN VALUE OF
  ACCOUNTS (75% of #15)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BALANCES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
   

  	
  Maximum Loan
  Amount

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
   

  	
  Total Funds
  Available [Lesser of #17 or #16]

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  19.

  	
   

  	
  Present balance
  owing on Line of Credit

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
   

  	
  Outstanding
  under Sublimits ()

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
   

  	
  RESERVE POSITION
  (#18 minus #19 and #20)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  



 


The
undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Amended and Restated Loan and Security
Agreement between the undersigned and Silicon Valley Bank.


 


	
  COMMENTS:

  	
   

  
	
   

  	
   

  
	
  TRANSOMA
  MEDICAL, INC.

  	
         BANK
  USE  ONLY

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
    Rec’d
  By:

  	
   

  	
   

  
	
   

  	
  Authorized
  Signer

  	
   

  	
                                                   Auth.
  Signer

  
	
   

  	
   

  	
   

  	
    Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
    Verified:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
                                                   Auth.
  Signer

  
	
   

  	
   

  	
   

  	
    Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
								



 


20

















 


EXHIBIT D

COMPLIANCE CERTIFICATE


 


	
  TO:

  	
  SILICON VALLEY
  BANK

  
	
   

  	
  3003 Tasman
  Drive

  
	
   

  	
  Santa Clara, CA
  95054

  
	
   

  	
   

  
	
  FROM:

  	
  TRANSOMA
  MEDICAL, INC.

  



 


The undersigned Responsible Officer of TRANSOMA
MEDICAL, INC. (“Borrower”) certifies that under the terms and conditions of the
Amended and Restated Loan and Security Agreement between Borrower and Bank (the
“Agreement”), (i) Borrower is in complete compliance for the period ending                              with
all required covenants except as noted below and (ii) all representations and
warranties in the Agreement are true and correct in all material respects on
this date. In addition, the undersigned certifies that Borrower, and each
Subsidiary, has timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes, except those being contested in
good faith with adequate reserves under GAAP. Attached are the required
documents supporting the certification. The Officer certifies that these are
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Responsible Officer acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is delivered.


 


Please
indicate compliance status by circling Yes/No under “Complies” column.


 


	
  Reporting Covenant

  	
   

  	
  Required

  	
   

  	
   

  	
   

  	
  Complies

  	
   

  
	
  Monthly financial statements + CC

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  Annual (Audited)

  	
   

  	
  FYE within 120 days

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  NR & NP Agings

  	
   

  	
  Monthly within 20 days

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  Borrowing Base Certificate

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  



 


	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
   

  	
   

  	
  Complies

  	
   

  
	
  Maintain on a monthly basis:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum Tangible Net Worth

  	
   

  	
  $

  	
  3,000,000

  	
  *

  	
  $

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  Minimum Liquidity Coverage

  	
   

  	
  1.25:1.00

  	
  **

  	
              :1.00

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
												



 






*A Tangible Net Worth plus Subordinated Debt and any
class of Borrower’s stock treated as a liability on Borrower’s balance sheet of
at least $3,000,000.


 


** A ratio of unrestricted cash (and equivalents) plus
accounts receivables divided by outstanding Obligations of not less than 1.25
to 1.00.


 


Borrower only has deposit accounts located at the
following institutions:                                    


 


	
  Comments Regarding Exceptions: See Attached.

  	
  BANK USE ONLY

  
	
   

  	
   

  
	
  Sincerely,

  	
    Received by:

  	
   

  	
   

  
	
   

  	
                                          AUTHORIZED
  SIGNER

  
	
  TRANSOMA MEDICAL, INC.

  	
    Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature

  	
   

  
	
   

  	
    Verified

  	
   

  	
   

  
	
   

  	
   

  	
                                          AUTHORIZED
  SIGNER

  
	
  Title

  	
   

  	
    Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
    Compliance Status:

  	
  Yes

  	
  No

  
	
  Date

  	
   

  
							



 


21

















 


Schedule to Loan and Security Agreement


 


[Registrant
Account Information Omitted.]


 


22

















 


REAFFIRMATION
OF GUARANTY


 


This Reaffirmation of
Guaranty (this “Agreement”) is made as of the 21st day of June 2005
by the undersigned person (“Guarantor”) and Silicon Valley Bank (“Bank”).


 


RECITALS


 


A.            Bank and Transoma
Medical, Inc. (formerly known as, Data Sciences International, Inc.) (“Borrower”)
are parties to a Loan and Security Agreement dated as of December 17, 2002, as
may be amended and modified from time to time (the “Loan Agreement”). The
Guarantor has guaranteed the payment and performance of Borrower’s obligations
to Bank under the Loan Agreement or otherwise under the terms of a Continuing
Guaranty (the “Guaranty”).


 


B.            Borrower has requested
Bank to further amend the terms of the Loan Agreement pursuant to an Amended
and Restated Loan and Security Agreement (the “Amended Loan Agreement”), and
Bank has agreed, provided Guarantor executes this Agreement.


 


NOW THEREFORE, the
undersigned agree as follows:


 


1.             Guarantor consents to
the execution, delivery and performance by Borrower of the Amended Loan
Agreement.


 


2.             Guarantors
unconditionally guarantee the prompt payment of all amounts due, and performance
of all obligations, under the Loan Agreement, as amended by the Amended Loan
Agreement. Guarantors affirm that the Guaranties are and shall remain in full
force and effect, notwithstanding the execution and delivery of the Amended
Loan Agreement.


 


3.             This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute the same instrument.


 


IN WITNESS WHEREOF the
undersigned have executed this Agreement as of the date first above written.


 


	
  GUARANTOR:

  	
   

  
	
   

  	
   

  
	
  DATA SCIENCES UK, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
      /s/ Charles T. Coggin

  	
   

  	
   

  
	
  Name: Charles T. Coggin

  	
   

  
	
  Title: Vice President and CFO

  	
   

  
	
   

  	
   

  
	
  BANK:

  	
   

  
	
   

  	
   

  
	
  SILICON VALLEY BANK

  	
   

  
	
   

  	
   

  
	
  By:

  	
      /s/ Charlie Roehl

  	
   

  	
   

  
	
  Name: Charlie Roehl

  	
   

  
	
  Title: Vice President – Relationship Manager

  	
   

  



 


23














 


FIRST AMENDMENT

TO AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT


 


THIS FIRST
AMENDMENT to Amended and Restated Loan and Security Agreement (this “Amendment”)
is entered into this 4th day of January, 2007, by and between Silicon Valley
Bank (“Bank”) and Transoma Medical, Inc., a Delaware corporation (“Borrower”)
whose address is 4211 Lexington Avenue North, Suite 2244, St. Paul, Minnesota
55126.


 


RECITALS


 


A.            Bank and Borrower have entered into that
certain Amended and Restated Loan and Security Agreement with an Effective Date
of June 21, 2005 (as the same may from time to time be amended, modified,
supplemented or restated in writing, the “Loan Agreement”).


 


B.            Bank has extended credit to Borrower for
the purposes permitted in the Loan Agreement.


 


C.            Borrower has requested that Bank amend the
Loan Agreement to (i) renew the Committed Revolving Line which matured on June
20, 2006, (ii) increase the maximum amount for the Committed Revolving Line
from $3,000,000 to $4,000,000, (iii) provide for a new term loan based upon the
cost of certain software purchased by Borrower, (iv) provide for a new term
loan(s) based upon the cost of certain equipment purchased by Borrower, and (v)
make certain other revisions to the Loan Agreement as more fully set forth herein.


 


D.            Bank has agreed to so amend certain
provisions of the Loan Agreement, but only to the extent, in accordance with
the terms, subject to the conditions and in reliance upon the representations
and warranties set forth below.


 


AGREEMENT


 


NOW, THEREFORE, in consideration of the foregoing
recitals and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, and intending to be legally bound, the parties
hereto agree as follows:


 


1.             Definitions.
Capitalized terms used but not defined in this Amendment shall have the
meanings given to them in the Loan Agreement.


 


2.             Amendments to Loan
Agreement.


 


2.1          Section 2.1.2A
(Equipment III Advances). The following is hereby added as a new Section
2.1.2A to the Loan Agreement, to follow Section 2.1.2 thereof:


 


Section 2.1.2A      Equipment III Advances.


 


(a)           Through
January 4, 2008, Bank will make advances (each, an “Equipment III Advance”
and, collectively, “Equipment III Advances”) not exceeding the Committed
Equipment III Line, provided that until 


 


1

















 


Borrower has received net cash proceeds of at least
$7,500,000 from the sale of Borrower’s preferred stock in a series C round and
delivered satisfactory evidence thereof to Bank, the aggregate Equipment III
Advances shall not exceed $700,000. Each Equipment III Advance may only be used to finance Eligible
Equipment purchased (the purchase date to be determined based upon the
applicable invoice date of such Eligible Equipment) no more than 180 days
before the date of such Equipment III Advance, except that if the initial
Equipment III Advance is taken by Borrower on or before January 15, 2007,
then it may be used to finance Eligible Equipment purchased on or after January
15, 2006. No Equipment III Advance may exceed 100% of the Eligible Equipment
invoice(s) excluding taxes, shipping, warranty charges, freight discounts and
installation expense (provided that transferable software licenses, leasehold
improvements or other soft costs, including sales tax, freight, and
installation expenses may constitute up to 30% of the aggregate Equipment III
Advances). Each Equipment III Advance must be in an amount equal to the lesser
of $150,000 or the amount that has not yet been drawn under the Committed
Equipment III Line.


 


(b)           Interest
accrues from the date of each Equipment III Advance at the rate in Section
2.4(a). Each Equipment III Advance shall immediately amortize and is payable in
48 equal monthly installments of principal, beginning on the first day of the
month following such Equipment III Advance and continuing on the first day of
each month thereafter until the first day of the 48th month following such
Equipment III Advance, on which date all remaining principal and interest with
respect to such Equipment III Advance shall be paid in full. Equipment III
Advances when repaid may not be reborrowed.


 


(c)           Borrower
shall have the option to prepay all, but not less than all, of the Equipment III
Advances advanced by Bank under this Agreement; provided Borrower (i) provides
written notice to Bank of its election to prepay the Equipment III Advances at
least thirty (30) days prior to such prepayment, and (ii) pays, on the date of
the prepayment, (A) all unpaid Equipment III Advances (including principal and
interest); (B) all unpaid accrued interest to the date of the prepayment; and (C) all
other sums, if any, that shall have become due and payable hereunder with
respect to this Agreement.


 


(d)           If,
during the term of this Agreement, any item of Financed Equipment is lost,
stolen, destroyed, damaged beyond repair, rendered permanently unfit for use,
or seized by a governmental authority for any reason for a period ending beyond
the maturity date for the loan that financed such Financed Equipment (an “Event
of Loss”), then, within ten (10) days following the later of (i) the date of
such Event of Loss or (ii) the settlement of any insurance claim relating
thereto, but not later than one hundred ten (110) days following the Event of
Loss, Borrower 


 


2

















 


shall either (i) pay to Bank on account of the
Obligations all outstanding principal that had been advanced with respect to
the Financed Equipment subject to the Event of Loss, plus all accrued interest
relating to such principal; or, if no Event of Default has occurred and is
continuing, at Borrower’s option, (ii) repair or replace any Financed Equipment
subject to the Event of Loss provided (x) the repaired or replaced Financed
Equipment is of equal or like value to the Financed Equipment subject to the
Event of Loss, (y) Bank has a first priority perfected security interest in
such repaired or replaced Financed Equipment, and (z) the Borrower shall be
subject to any limit on the use of insurance proceeds contained in this
Agreement. (Nothing contained in the foregoing shall have the effect of
extending the due date for any payments due hereunder.) Principal prepayments
pursuant to this subsection shall be applied to the principal payments due on
the loan that financed such Financed Equipment in the inverse order of
maturity.


 


(e)           To
obtain an Equipment III Advance, Borrower must notify Bank (the notice is
irrevocable) by facsimile no later than 12:00 p.m. Pacific time one Business
Day before the day on which the Equipment III Advance is to be made. The notice
in the form of Exhibit B (Payment/Advance Form) must be signed by a Responsible
Officer or designee and include a copy of the invoice(s) for the Eligible
Equipment being financed.


 


2.2          Section 2.1.2B (Software
Advance). The following is hereby added as a new Section 2.1.2B to the Loan
Agreement, to follow Section 2.1.2A thereof:


 


Section 2.1.2B       Software Advance.


 


(a)           One
or before January 15, 2007, Bank will make an advance (the “Software
Advance”) not exceeding the Committed Software Line. The Software Advance may
only be used to finance Eligible Software purchased (the purchase date to be
determined based upon the applicable invoice date of such Eligible Software) on
or after January 15, 2006. The Software Advance may not exceed 100% of the
Eligible Software invoice(s).


 


(b)           Interest
accrues from the date of the Software Advance at the rate in Section 2.4(a).
The Software Advance shall immediately amortize and is payable in 30 equal
monthly installments of principal, beginning on the first day of the month
following the Software Advance and continuing on the first day of each month
thereafter until the first day of the 30th month following the Software Advance
(the “Software Maturity Date”) on which date all remaining principal and
interest with respect to the Software Advance shall be paid in full. The
Software Advance when repaid may not be reborrowed.


 


3

















 


(c)           Borrower
shall have the option to prepay all, but not less than all, of the Software
Advance; provided Borrower (i) provides written notice to Bank of its election
to prepay the Software Advance at least thirty (30) days prior to such
prepayment, and (ii) pays, on the date of the prepayment, (A) all of the Software
Advance (including principal and interest); (B) all unpaid accrued interest to
the date of the prepayment; and (C) all other sums, if any, that shall have
become due and payable hereunder with respect to this Agreement.


 


(d)           To
obtain the Software Advance, Borrower must notify Bank (the notice is
irrevocable) by facsimile no later than 12:00 p.m. Pacific time one Business
Day before the day on which the Software Advance is to be made. The notice in
the form of Exhibit B (Payment/Advance Form) must be signed by a Responsible
Officer or designee and include a copy of the invoice(s) for the Eligible
Software being financed.


 


2.3          Section 2.3
(Overadvances). The following is added to the end of Section 2.3 of the
Loan Agreement:


 


If the Credit Extensions ever exceed $8,000,000,
Borrower must immediately pay Bank the excess.


 


2.4          Section 2.4(a)
(Interest). The first sentence of Section 2.4(a) of the Loan Agreement
reads as follows:


 


(i) Advances accrue interest on the outstanding
principal balance at a per annum rate of 0.25 of 1 percentage point above the
Prime Rate; and (ii) Equipment II Advances accrue interest on the
outstanding principal balance at a per annum rate of 0.5 of 1 percentage point
above the Prime Rate.


 


Said first sentence of Section 2.4( a) is hereby
amended to read as follows:


 


(i) Advances accrue interest on the outstanding
principal balance at the Prime Rate; (ii) Equipment II Advances accrue interest
on the outstanding principal balance at a per annum rate of 0.5 of 1 percentage
point above the Prime Rate; (iii) Equipment III Advances accrue interest on the
outstanding principal balance at a per annum rate of 0.5 of 1 percentage point
above the Prime Rate; and (iv) the Software Advance accrues interest on the
outstanding principal balance at a per annum rate of 1.25 percentage points
above the Prime Rate.


 


2.5          Section 2.4(b)
(Payments). The first two
sentences of Section 2.4(b) of the Loan Agreement read as follows:


 


Interest due on the Committed Revolving Line is
payable on the 20th of each month. Interest due on the Equipment II Advances is
payable on the 1st of each month.


 


4

















 


Said first two sentences of Section 2.4(b) are hereby
amended to read as follows:


 


Interest due on the Committed Revolving Line is
payable on the 20th of each month. Interest due on the Equipment II Advances,
the Equipment III Advances, and the Software Advance is payable on the 1st of
each month.


 


2.6          Section 6.2(d) (Audits).
The following is hereby added to the end of Section 6.2(d) of the Loan
Agreement:


 


In “addition to the audits provided for in the
previous sentence, such an audit will be conducted the earlier of (i) new
Advances being made to Borrower pursuant to the First Amendment or (ii) March
15, 2007.


 


2.7          Section 6.7(i) (Tangible
Net Worth). Section 6.7(i) of the Loan Agreement reads as follows:


 


(i) Tangible Net Worth. A Tangible Net Worth plus
Subordinated Debt and any class of Borrower’s stock treated as a liability on
Borrower’s balance sheet of at least $3,000,000.


 


Said Section 6.7(i) is hereby amended to read as
follows:


 


(i) Tangible Net Worth. A Tangible Net Worth plus
Subordinated Debt and any class of Borrower’s stock treated as a liability on
Borrower’s balance sheet of at least the following amounts for the following
periods:


 


	
  January 1, 2007 through March 31, 2007

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
  April 1, 2007 through June 30, 2007

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
  July 1, 2007 and thereafter

  	
   

  	
  $

  	
  12,000,000

  	
   

  



 


2.8          Section 6.7(ii)
(Liquidity Coverage). Section 6.7(ii) of the Loan Agreement reads as
follows:


 


(ii) Liquidity Coverage. A ratio of unrestricted cash
(and equivalents) plus accounts receivables divided by outstanding Obligations
of not less than 1.25 to 1.00.


 


Said Section 6.7(ii) is hereby amended to read as
follows:


 


(ii) Liquidity Coverage. A ratio of unrestricted cash
(and equivalents) plus accounts receivables divided by outstanding Obligations
of not less than the following for the following periods:


 


	
  January 1, 2007 through March 31, 2007

  	
   

  	
  1.50 to 1.00

  	
   

  
	
  April 1, 2007 and thereafter

  	
   

  	
  1.75 to 1.00

  	
   

  



 


2.9          Section 7.1
(Dispositions). Subpart “iii” of Section 7.1 of the Loan Agreement reads as
follows:


 


5

















 


(iii) of worn-out or obsolete Equipment.


 


Said subpart “iii” is hereby amended to read as
follows:


 


(iii) of worn-out or obsolete Equipment other than
Financed Equipment.


 


2.10 Section 7.5 (Encumbrance). The
following is added to the end of Section 7.5 of the Loan Agreement:


 


Financed Equipment shall not be subject to any Liens
in favor of any other Person, including without limitation Liens which would
fall within the definition of “Permitted Liens”.


 


2.11 Section 7.10 (Negative
Pledge). The following is hereby added to the Loan Agreement
as a new Section 7.10:


 


7.10 Negative Pledge.


 


Without limitation on Sections 7.1 or 7.5 of the Loan
Agreement or on any other provision of the Loan Documents, Borrower shall not
Transfer, or create, incur, or allow any Lien on, any of its patents,
trademarks, copyrights or other intellectual property without Bank’s prior
written consent.


 


2.12 Section 13 (Amended
Definitions).


 


2.12.1 Borrowing Base. The
portion of the definition of “Borrowing Base” contained in Section 13.1 of the
Loan Agreement which reads “is 75% of Eligible Accounts”, is hereby amended to
read “up to 80% of Eligible Accounts”.


 


2.12.2 Eligible Accounts. Subsection
“e” of the definition of “Eligible Accounts” contained in Section 13.1 of the
Loan Agreement which reads “(e) Accounts for which the account debtor does not
have its principal place of business in the United States”, is hereby deleted
and replaced with “(e) [Omitted]”.


 


2.12.3 Eligible Accounts. Subsection
“f” of the definition of “Eligible Accounts” contained in Section 13.1 of the
Loan Agreement, is hereby amended to read as follows:


 


(f) Accounts for
which the account debtor is a federal, state or local government entity or any
department, agency, or instrumentality except for Accounts of the United States
if the Bank in its discretion has approved them in writing, the payee has
assigned its payment rights to Bank, and the assignment has been acknowledged
under the Assignment of Claims Act of 1940 (31 U.S.C. 3727);


 


2.12.4 Permitted Liens. Subsection
“c” of the definition of “Permitted Liens” contained in Section 13.1 of the
Loan Agreement reads as follows:


 


6

















 


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


 


Said subsection “c” is hereby amended to read as
follows:


 


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


 


2.13 Section 13 (Replaced
Definitions). The following terms and their respective
definitions set forth in Section 13.1 are amended in their entirety and
replaced with the following:


 


“Committed Revolving Line” is an
aggregate of Advances at any time outstanding of up to $4,000,000 less the
amount, if any, by which the aggregate of all Credit Extensions exceeds
$8,000,000.


 


“Credit Extension” is each
Advance, Equipment Advance, Equipment II Advance, Equipment III Advance, Software
Advance, or any other extension of credit by Bank for Borrower’s benefit, which
shall not exceed $8,000,000 in the aggregate.


 


“Revolving Maturity Date” is
January 3, 2008.


 


2.14 Section 13 (New Definitions).
The following terms and their respective definitions are
hereby added to Section 13.1 of the Loan Agreement in the appropriate
alphabetical order:


 


“Committed Equipment III Line”
is a Credit Extension of up to $2,000,000.


 


“Committed Software Line” is a
Credit Extension of up to $300,000.


 


“Eligible Equipment” is the
following to the extent that it complies with all of Borrower’s representations
and warranties to Bank, is reasonably acceptable to Bank in all respects, is
located at Borrower’s corporate headquarters at 4211 Lexington Avenue North, Suite
2244, St. Paul, Minnesota 55126 or such other location of which Bank has
approved in writing, is subject to a first priority Lien in favor of Bank, and
is not already Financed Equipment: general purpose computer equipment, office
equipment, test and laboratory equipment, and furnishings. All Eligible
Equipment must have been new when purchased by Borrower, except for such
Eligible Equipment that is disclosed in writing to Bank by Borrower, 


 


7

















 


and that Bank in its sole discretion has agreed to
finance, prior to being financed by Bank.


 


“Eligible Software” is ERP
software to the extent that it complies with all of Borrower’s representations
and warranties to Bank, is
reasonably acceptable to Bank in all respects, and is located at Borrower’s
corporate headquarters at 4211 Lexington Avenue North, Suite 2244,
St. Paul, Minnesota 55126 or such other location of which Bank has
approved in writing.


 


“Equipment III Advance” is
defined in Section 2.1.2A.


 


“Financed Equipment” is all
present and future Eligible Equipment and other Collateral in which Borrower
has any interest, which is financed by an advance against such Equipment.


 


“First Amendment” shall mean the
First Amendment to Amended and Restated Loan and Security Agreement, dated
January 4, 2007, between Bank and Borrower.


 


“Software Advance” is defined in
Section 2.1.2B.


 


2.15 Exhibit C (Borrowing Base
Certificate). Exhibit C to the Loan Agreement is hereby
replaced by Exhibit A hereto.


 


2.16 Exhibit
D (Compliance Certificate). Exhibit D to the Loan Agreement is
hereby replaced by Exhibit B hereto.


 


3.             Condition Precedent
to Further Advances. Reference is made to the fact that the Revolving
Maturity Date occurred on June 20, 2006 and that, pursuant to this Amendment,
the Revolving Maturity Date is being renewed. Notwithstanding the establishment
of a new Revolving Maturity Date pursuant to this Amendment, an audit by Bank
of Borrower’s Collateral shall be a condition precedent to Bank’s obligation to
make any Advances.


 


4.             Fee. In
consideration for Bank entering into this Amendment, Borrower shall
concurrently pay Bank a fee in the amount of $20,000, which fee is deemed fully
earned on the date hereof, and shall be non-refundable and in addition to all
interest and other fees payable to Bank under the Loan Documents. Bank is
authorized to charge said fee to Borrower’s loan account.


 


5.             Limitation of
Amendment.


 


5.1          The amendments set forth
in Section 2, above; are effective for the purposes set forth herein and shall
be limited precisely as written and shall not be deemed to (a) be a
consent to any amendment, waiver or modification of any other term or condition
of any Loan Document, or (b) otherwise prejudice any right or remedy which
Bank may now have or may have in the future under or in connection with any
Loan Document.


 


8

















 


5.2          This Amendment shall be
construed in connection with and as part of the Loan Documents and all terms,
conditions, representations, warranties, covenants and agreements set forth in
the Loan Documents, except as herein amended, are hereby ratified and confirmed
and shall remain in full force and effect.


 


6.             Representations and
Warranties. To induce Bank to enter into this Amendment, Borrower hereby
represents and warrants to Bank as follows:


 


6.1          Immediately after giving
effect to this Amendment (a) the representations and warranties contained
in the Loan Documents are true, accurate and complete in all material respects
as of the date hereof (except to the extent such representations and warranties
relate to an earlier date, in which case they are true and correct as of such
date), and (b) no Event of Default has occurred and is continuing;


 


6.2          Borrower has the power
and authority to execute and deliver this Amendment and to perform its
obligations under the Loan Agreement, as amended by this Amendment;


 


6.3          The Amended and Restated
Certificate of Incorporation of Borrower filed with the Delaware Secretary of
State on September 22, 2005, remains true, accurate and complete and has
not been amended, supplemented or restated and is and continues to be in full
force and effect;


 


6.4          The execution and
delivery by Borrower of this Amendment and the performance by Borrower of its
obligations under the Loan Agreement, as amended by this Amendment, have been
duly authorized;


 


6.5          The execution and
delivery by Borrower of this Amendment and the performance by Borrower of its
obligations under the Loan Agreement, as amended by this Amendment, do not and
will not contravene (a) any law or regulation binding on or affecting
Borrower, (b) any contractual restriction with a Person binding on
Borrower for which Borrower has not obtained from such Person an effective
consent or waiver with respect thereto, (c) any order, judgment or decree
of any court or other governmental or public body or authority, or subdivision
thereof, binding on Borrower, or (d) the organizational documents of
Borrower;


 


6.6          The execution and
delivery by Borrower of this Amendment and the performance by Borrower of its
obligations under the Loan Agreement, as amended by this Amendment, do not
require any order, consent, approval, license, authorization or validation of,
or filing, recording or registration with, or exemption by any governmental or
public body or authority, or subdivision thereof, binding on either Borrower,
except as already has been obtained or made; and


 


6.7          This Amendment has been
duly executed and delivered by Borrower and is the binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws of general application and
equitable principles relating to or affecting creditors’ rights.


 


9

















 


7.             Counterparts; Fees and Costs. This Amendment may be
executed in any number of counterparts and all of such counterparts taken
together shall be deemed to constitute one and the same instrument. Without
limitation on the terms of the Loan Agreement, Borrower agrees to reimburse
Bank for all costs and fees (including attorneys’ fees) incurred in connection
with this Amendment and any documents contemplated hereby.


 


8.             Effectiveness. This
Amendment shall be deemed effective upon (a) the due execution and delivery of
this Amendment by each party hereto, and (b) Bank’s receipt of (i) the
Acknowledgment of Amendment and Reaffirmation of Guaranty substantially in the
form attached hereto as Schedule 1, duly executed and delivered by each
Guarantor, and (ii) a Warrant to Purchase Stock substantially in the form
presented by Bank to Borrower, unless items “i” or “ii” are waived in writing
by Bank.


 


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


 


	
  BANK

  	
  BORROWER

  
	
   

  	
   

  
	
  SILICON VALLEY BANK

  	
  TRANSOMA MEDICAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
       /s/
  Jay McNeil

  	
   

  	
  By:

  	
       /s/
  Charles T. Coggin

  	
   

  
	
  Name:  Jay McNeil

  	
  Name:   Charles T. Coggin

  
	
  Title: SRM

  	
  Title: VP & CFO

  
						



 


10

















 


Schedule 1


 


ACKNOWLEDGMENT OF AMENDMENT

AND REAFFIRMATION OF GUARANTY


 


Section 1.              Guarantor hereby
acknowledges and confirms that it has reviewed and approved the terms and
conditions of the First Amendment to Loan and Security Agreement dated as of
even date herewith (the “Amendment”).


 


Section 2.              Guarantor hereby
consents to the Amendment and agrees that the Guaranty relating to the
Obligations of Borrower (Transoma Medical, Inc., a Delaware corporation) under
the Loan Agreement shall continue in full force and effect, shall be valid and
enforceable and shall not be impaired or otherwise affected by the execution of
the Amendment or any other document or instrument delivered in connection
herewith.


 


Section 3.              Guarantor represents
and warrants that, after giving effect to the Amendment, all representations
and warranties contained in the Guaranty are true, accurate and complete as if
made the date hereof.


 


Dated as of January 4, 2007


 


GUARANTOR


 


	
   

  	
  DATA SCIENCES UK, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/  Brian P. Brockway

  	
   

  
	
   

  	
  Name:   Brian P. Brockway

  
	
   

  	
  Title: President
  & CEO

  



 


11

















 


SECOND
AMENDMENT


TO
AMENDED AND RESTATED


LOAN AND
SECURITY AGREEMENT


 


THIS SECOND
AMENDMENT to Amended and Restated Loan and Security Agreement (this  “Amendment”) is entered into as of this 19th day
of July, 2007, by and between Silicon Valley Bank (“Bank”) and Transoma
Medical, Inc., a Delaware corporation (“Borrower”) whose address is 4211
Lexington Avenue North, Suite 2244, St. Paul, Minnesota 55126.


 


RECITALS


 


A.            Bank and
Borrower have entered into that certain Amended and Restated Loan and Security
Agreement with an Effective Date of June 21, 2005, as amended by that
certain First Amendment to Amended and Restated Loan and Security Agreement,
dated January 4, 2007, between Bank and Borrower (as the same may from time to
time be further amended, modified, supplemented or restated in writing, the “Loan
Agreement”).


 


B.            Bank has
extended credit to Borrower for the purposes permitted in the Loan Agreement.


 


C.            Borrower has
requested that Bank amend the Loan Agreement to (i) extend the Committed
Revolving Line, (ii) increase the maximum amount for the Committed Revolving
Line from $4,000,000 to $6,000,000, (iii) provide for a new term loan(s) based
upon the cost of certain equipment purchased by Borrower, and (iv) make
certain other revisions to the Loan Agreement as more fully set forth herein.


 


D.            Bank has
agreed to so amend certain provisions of the Loan Agreement, but only to the
extent, in accordance with the terms, subject to the conditions and in reliance
upon the representations and warranties set forth below.


 


AGREEMENT


 


NOW, THEREFORE, in
consideration of the foregoing recitals and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, and
intending to be legally bound, the parties hereto agree as follows:


 


1.             Definitions. Capitalized
terms used but not defined in this Amendment shall have the meanings given to
them in the Loan Agreement.


 


2.             Amendments to Loan
Agreement.


 


2.1          Section 2.1.2B
(Equipment IV Advances). The following is hereby added as a new Section
2.1.2B to the Loan Agreement, to follow Section 2.1.2A thereof:


 


1

















 


Section 2.1.2B       Equipment IV Advances.


 


(a)           Subject
to the terms and conditions of this Agreement, through July 17, 2008, Bank will
make advances (each, an “Equipment IV Advance” and, collectively, “Equipment IV
Advances”) not exceeding the Committed Equipment IV Line. Each Equipment IV
Advance may only be used to finance Eligible Equipment purchased (the purchase
date to be determined based upon the applicable invoice date of such Eligible
Equipment) no more than 90 days before the date of such Equipment IV Advance. No
Equipment IV Advance may exceed 100% of the Eligible Equipment invoice(s)
excluding taxes, shipping, warranty charges, freight discounts and installation
expense (provided that transferable software licenses, leasehold improvements
or other soft costs, including sales tax, freight, and installation expenses,
may constitute up to 30% of the aggregate Equipment IV Advances). Each
Equipment IV Advance must be in an amount equal to the lesser of $150,000 or
the amount that has not yet been drawn under the Committed Equipment IV Line.


 


(b)           Interest
accrues from the date of each Equipment IV Advance at the rate in Section
2.4(a). Each Equipment IV Advance shall immediately amortize and is payable in
48 equal monthly installments of principal, beginning on the first day of the
month following such Equipment IV Advance and continuing on the first day of
each month thereafter until the first day of the 48th month following such
Equipment IV Advance, on which date all remaining principal and interest with
respect to such Equipment IV Advance shall be paid in full. Equipment IV
Advances when repaid may not be reborrowed.


 


(c)           Borrower
shall have the option to prepay all, but not less than all, of the Equipment IV
Advances advanced by Bank under this Agreement; provided Borrower (i) provides
written notice to Bank of its election to prepay the Equipment IV Advances at
least thirty (30) days prior to such prepayment, and (ii) pays, on the date of
the prepayment, (A) all unpaid Equipment IV Advances (including principal and
interest); (B) all unpaid accrued interest to the date of the prepayment; and
(C) all other sums, if any, that shall have become due and payable hereunder
with respect to this Agreement.


 


(d)           To
obtain an Equipment IV Advance, Borrower must notify Bank (the notice is
irrevocable) by facsimile no later than 12:00 p.m. Pacific time one Business
Day before the day on which the Equipment IV Advance is to be made. The notice
in the form of Exhibit B (Payment/Advance Form) must be signed by a 


 


2

















 


Responsible Officer or designee and include a copy of
the invoice(s) for the Eligible Equipment being financed.


 


(e)           Notwithstanding
the terms of this Section 2.1.2B, Bank shall not be required to make any
Equipment IV Advance until Bank has received a consent to Borrower borrowing
the Equipment IV Advances by Borrower’s preferred stockholders in form
satisfactory to Bank, unless Bank waives such consent in writing.


 


2.2          Section 2.3
(Overadvances). The following sentence from the end of Section 2.3 of the
Loan Agreement:


 


If the Credit Extensions ever exceed $8,000,000,
Borrower must immediately pay Bank the excess.


 


is hereby amended
to read as follows:


 


If the Credit Extensions ever exceed $9,500,000,
Borrower must immediately pay Bank the excess.


 


2.3          Section 2.4(a)
(Interest). The first sentence of Section 2.4(a) of the Loan Agreement
reads as follows:


 


(i) Advances accrue
interest on the outstanding principal balance at the Prime Rate; (ii) Equipment
II Advances accrue interest on the outstanding principal balance at a per annum
rate of 0.5 of 1 percentage point above the Prime Rate; (iii) Equipment III
Advances accrue interest on the outstanding principal balance at a per annum
rate of 0.5 of 1 percentage point above the Prime Rate; and (iv) the Software
Advance accrues interest on the outstanding principal balance at a per annum
rate of 1.25 percentage points above the Prime Rate.


 


Said
first sentence of Section 2.4(a) is hereby amended to read as follows:


 


(i) Advances accrue
interest on the outstanding principal balance at the Prime Rate; (ii) Equipment
II Advances accrue interest on the outstanding principal balance at a per annum
rate of 0.5 of 1 percentage point above the Prime Rate; (iii) Equipment III
Advances accrue interest on the outstanding principal balance at a per annum
rate of 0.5 of 1 percentage point above the Prime Rate; (iv) the Software
Advance accrues interest on the outstanding principal balance at a per annum
rate of 1.25 percentage points above the Prime Rate; and (v) Equipment IV
Advances accrue interest on the outstanding principal balance at a per annum
rate of 0.5 of 1 percentage point above the Prime Rate.


 


3

















 


2.4          Section 2.4(b)
(Payments). The first two sentences of Section 2.4(b) of the Loan
Agreement read as follows:


 


Interest due on the
Committed Revolving Line is payable on the 20th of each month. Interest due on
the Equipment II Advances, the Equipment III Advances, and the Software Advance
is payable on the 1st of each month.


 


Said
first two sentences of Section 2.4(b) are hereby amended to read as follows:


 


Interest due on the Committed Revolving Line is
payable on the 20th of each month. Interest due on the Equipment II Advances,
the Equipment III Advances, the Software Advance, and the Equipment IV Advances
is payable on the 1st of each month.


 


2.5          Payments Upon Event of
Loss. Section 2.1.2A(d) of the Loan Agreement reads as follows:


 


(d)           If,
during the term of this Agreement, any item of Financed Equipment is lost,
stolen, destroyed, damaged beyond repair, rendered permanently unfit for use,
or seized by a governmental authority for any reason for a period ending beyond
the maturity date for the loan that financed such Financed Equipment (an “Event
of Loss”), then, within ten (10) days following the later of (i) the date of
such Event of Loss or (ii) the settlement of any insurance claim relating
thereto, but not later than one hundred ten (110) days following the Event of
Loss, Borrower shall either (i) pay to Bank on account of the Obligations all
outstanding principal that had been advanced with respect to the Financed
Equipment subject to the Event of Loss, plus all accrued interest relating to
such principal; or, if no Event of Default has occurred and is continuing, at
Borrower’s option,  (ii) repair or
replace any Financed Equipment subject to the Event of Loss provided (x) the
repaired or replaced Financed Equipment is of equal or like value to the
Financed Equipment subject to the Event of Loss, (y) Bank has a first priority
perfected security interest in such repaired or replaced Financed Equipment,
and (z) the Borrower shall be subject to any limit on the use of insurance
proceeds contained in this Agreement. (Nothing contained in the foregoing shall
have the effect of extending the due date for any payments due hereunder.)  Principal prepayments pursuant to this
subsection shall be applied to the principal payments due on the loan that
financed such Financed Equipment in the inverse order of maturity.


 


In order to
clarify that the provisions contained in in Section 2.1.2A(d) apply with
respect to all Financed Equipment, and not just Financed Equipment with respect
to Equipment III Advances, (a) the provisions contained in Section 2.1.2A(d)
are hereby moved to a new Section 2.6 entitled “Payments Upon Event of Loss”,
which new Section shall follow Section 2.5 in the Loan Agreement, and (b)
Section 2.1.2A(d) is hereby amended to read “[Omitted]”.


 


4

















 


2.6          Section 6.2(b) (Reports).
Section 6.2(b) of the Loan Agreement is hereby amended to read as follows:


 


Within 30 days after the last day of each month,
Borrower will deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in the form of Exhibit C, with aged listings of
accounts receivable and accounts payable and with perpetual inventory reports
for the Inventory valued on a first-in, first-out basis at the lower of cost or
market (in accordance with GAAP) or such other inventory reports as are
requested by Bank in its good faith business judgment.


 


2.7          Section 6.2(d) (Audits).
The last sentence of Section 6.2(d) of the Loan Agreement reads as follows:


 


In addition to the
audits provided for in the previous sentence, such an audit will be conducted
the earlier of (i) new Advances being made to Borrower pursuant to the
First Amendment or (ii) March 15, 2007.


 


Said
sentence is hereby amended to read as follows:


 


In addition to the
audits provided for in the previous sentence, such an audit will be conducted
the earlier of (i) prior to any Advances being made to Borrower after June
20, 2007 or (ii) September 30, 2007.


 


2.8          Section 6.7(i) (Tangible
Net Worth). Section 6.7(i) of the Loan Agreement reads as follows:


 


(i)            Tangible Net
Worth. A Tangible Net Worth plus Subordinated Debt and any class of Borrower’s
stock treated as a liability on Borrower’s balance sheet of at least the
following amounts for the following periods:


 


	
  January 1, 2007 through
  March 31, 2007

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
  April 1, 2007 through June 30, 2007

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
  July 1, 2007 and thereafter

  	
   

  	
  $

  	
  12,000,000

  	
   

  



 


Said
Section 6.7(i) is hereby amended to read as follows:


 


(i)            Tangible Net
Worth. A Tangible Net Worth plus Subordinated Debt and any class of Borrower’s
stock treated as a liability on Borrower’s balance sheet of at least the
following amounts for the following periods:


 


	
  April 1, 2007 through June 30, 2007

  	
   

  	
  $15,000,000

  	
   

  
	
  July 1, 2007 and thereafter

  	
   

  	
  $12,000,000

  	
   

  



 


2.9          Section 6.7(ii)
(Liquidity Coverage). Section 6.7(ii) of the Loan Agreement reads as
follows:


 


5

















 


(ii)           Liquidity
Coverage. A ratio of unrestricted cash (and equivalents) plus accounts
receivables divided by outstanding Obligations of not less than the following
for the following periods:


 


	
  January 1, 2007 through March 31, 2007

  	
   

  	
  1.50 to 1.00

  	
   

  
	
  April 1, 2007 and thereafter

  	
   

  	
  1.75 to 1.00

  	
   

  



 


Said
Section 6.7(ii) is hereby amended to read as follows:


 


(ii)           Liquidity
Coverage. A ratio of unrestricted cash (and equivalents) plus accounts
receivables divided by outstanding Obligations of not less than 1.25 to 1.00.


 


2.10        Section 13 (Amended Definitions).


 


2.10.1     Borrowing
Base. The portion of the definition of “Borrowing Base” contained in
Section 13.1 of the Loan Agreement which reads as follows:


 


up to 80% of Eligible
Accounts as determined by Bank from Borrower’s most recent Borrowing Base
Certificate


 


is hereby amended
to read as follows:


 


means up to (a) 80% of
Eligible Accounts plus (b) the lesser of (i) 25% of the value of Borrower’s
Eligible Inventory (valued at the lower of cost or wholesale fair market value)
or (ii) 33% of Eligible Accounts or (iii) $1,000,000; as determined by Bank
from Borrower’s most recent Borrowing Base Certificate.


 


2.11        Section 13 (Replaced Definitions). The following terms and their
respective definitions set forth in Section 13.1 are amended in their
entirety and replaced with the following:


 


“Committed Revolving
Line” is an aggregate of Advances at any time outstanding of up to
$6,000,000 less the amount, if any, by which the aggregate of all Credit
Extensions exceeds $9,500,000.


 


“Credit
Extension” is each Advance, Equipment Advance, Equipment II Advance,
Equipment III Advance, Equipment IV Advance, Software Advance, or any other
extension of credit by Bank for Borrower’s benefit, which shall not exceed
$9,500,000 in the aggregate.


 


“Revolving
Maturity Date” is July 17, 2008.


 


2.12        Section 13 (New Definitions).
The following terms and their respective definitions are hereby added to
Section 13.1 of the Loan Agreement in the appropriate alphabetical order:


 


6

















 


“Committed
Equipment IV Line” is a Credit Extension of up to $1,000,000.


 


“Eligible
Inventory” means, at any time, the aggregate of Borrower’s Inventory
that (a) consists of raw materials and finished goods, in good, new, and
salable condition, which is not perishable, returned, consigned (to or from
Borrower), obsolete, not sellable, damaged, or defective, and is not comprised
of demonstrative or custom inventory, works in progress, packaging or shipping
materials, or supplies; (b) meets all applicable governmental standards; (c)
has been manufactured in compliance with the Fair Labor Standards Act; (d) is
not subject to any Liens, except the first priority Liens granted or in favor
of Bank under this Agreement or any of the other Loan Documents; (e) is located
at Borrower’s premises at 4211 Lexington Avenue North, St. Paul, Minnesota (or
any location permitted under Section 7.2); and (f) is otherwise acceptable
to Bank in its good faith business judgment.


 


“Equipment IV
Advance” is defined in Section 2.1.2B.


 


2.13        Exhibit C (Borrowing Base
Certificate). Exhibit C to the Loan Agreement is hereby replaced by Exhibit
A hereto.


 


2.14        Exhibit D (Compliance
Certificate). Exhibit D to the Loan Agreement is hereby replaced by Exhibit
B hereto.


 


3.             Condition Precedent
to Further Advances. Notwithstanding the establishment of a new Revolving
Maturity Date pursuant to this Amendment, an audit by Bank of Borrower’s
Collateral and Bank’s receipt of a consent to the Advances by Borrower’s
preferred stockholders in form satisfactory to Bank shall be conditions
precedent to Bank’s obligation to make any Advances, unless Bank waives such
conditions in writing.


 


4.             Fee. In
consideration for Bank entering into this Amendment, Borrower shall
concurrently pay Bank a fee in the amount of $8,500, which fee is deemed fully
earned on the date hereof, and shall be non-refundable and in addition to all
interest and other fees payable to Bank under the Loan Documents. Bank is
authorized to charge said fee to Borrower’s loan account.


 


5.             Limitation
of Amendments.


 


5.1          The amendments set
forth in Section 2, above, are effective for the purposes set forth herein
and shall be limited precisely as written and shall not be deemed to
(a) be a consent to any amendment, waiver or modification of any other
term or condition of any Loan Document, or (b) otherwise prejudice any
right or remedy which Bank may now have or may have in the future under or in
connection with any Loan Document.


 


5.2          This Amendment shall
be construed in connection with and as part of the Loan Documents and all
terms, conditions, representations, warranties, covenants and agreements set
forth in the Loan Documents, except as herein amended, are hereby ratified and
confirmed and shall remain in full force and effect.


 


7

















 


6.             Representations and
Warranties. To induce Bank to enter into this Amendment, Borrower hereby
represents and warrants to Bank as follows:


 


6.1          Immediately after
giving effect to this Amendment (a) the representations and warranties
contained in the Loan Documents are true, accurate and complete in all material
respects as of the date hereof (except to the extent such representations and
warranties relate to an earlier date, in which case they are true and correct
as of such date), and (b) no Event of Default has occurred and is
continuing;


 


6.2          Borrower has the
power and authority to execute and deliver this Amendment and to perform its
obligations under the Loan Agreement, as amended by this Amendment;


 


6.3          The Amended and
Restated Certificate of Incorporation of Borrower filed with the Delaware
Secretary of State on September 22, 2005, remains true, accurate and complete
and has not been amended, supplemented or restated and is and continues to be
in full force and effect;


 


6.4          The execution and
delivery by Borrower of this Amendment and the performance by Borrower of its
obligations under the Loan Agreement, as amended by this Amendment, have been
duly authorized;


 


6.5          The execution and
delivery by Borrower of this Amendment and the performance by Borrower of its obligations
under the Loan Agreement, as amended by this Amendment, do not and will not
contravene (a) any law or regulation binding on or affecting Borrower,
(b) any contractual restriction with a Person binding on Borrower for
which Borrower has not obtained from such Person an effective consent or waiver
with respect thereto, (c) any order, judgment or decree of any court or
other governmental or public body or authority, or subdivision thereof, binding
on Borrower, or (d) the organizational documents of Borrower;


 


6.6          The execution and
delivery by Borrower of this Amendment and the performance by Borrower of its
obligations under the Loan Agreement, as amended by this Amendment, do not
require any order, consent, approval, license, authorization or validation of,
or filing, recording or registration with, or exemption by any governmental or
public body or authority, or subdivision thereof, binding on either Borrower,
except as already has been obtained or made; and


 


6.7          This Amendment has
been duly executed and delivered by Borrower and is the binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws of general application and
equitable principles relating to or affecting creditors’ rights.


 


7.             Counterparts; Fees
and Costs. This Amendment may be executed in any number of counterparts and
all of such counterparts taken together shall be deemed to constitute one and
the same instrument. Without limitation on the terms of the Loan Agreement,
Borrower agrees to reimburse Bank for all costs and fees (including attorneys’
fees) incurred in connection with this Amendment and any documents contemplated
hereby.


 


8

















 


8.             Effectiveness. This
Amendment shall be deemed effective upon (a) the due execution and delivery of
this Amendment by each party hereto, and (b) Bank’s receipt of the
Acknowledgment of Amendment and Reaffirmation of Guaranty substantially in the
form attached hereto as Schedule 1, duly executed and delivered by each
Guarantor, unless such Acknowledgment is waived in writing by Bank.


 


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


 


	
  BANK

  	
  BORROWER

  
	
   

  	
   

  
	
  SILICON VALLEY BANK

  	
  TRANSOMA MEDICAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
       /s/
  Jay McNeil

  	
   

  	
  By:

  	
       /s/
  Charles T. Coggin

  	
   

  
	
  Name:  

  	
  Jay McNeil

  	
   

  	
  Name:   

  	
  Charles T. Coggin

  	
   

  
	
  Title: 

  	
     SRM

  	
   

  	
  Title: 

  	
  VP & CFO

  	
   

  
								



 


9

















 


EXHIBIT A


TO


SECOND
AMENDMENT TO


AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT


 


EXHIBIT C


BORROWING BASE CERTIFICATE


 


	
  Borrower:

  	
  TRANSOMA MEDICAL, INC.

  	
   

  	
  Bank:

  	
  Silicon Valley Bank

  
	
   

  	
   

  	
   

  	
   

  	
  3003 Tasman Drive

  
	
   

  	
   

  	
   

  	
   

  	
  Santa Clara, CA 95054

  



 


Commitment Amount:         $6,000,000


 


	
  ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  Accounts Receivable
  Book Value as of ______

  	
   

  	
  $__________

  	
   

  
	
  2.

  	
   

  	
  Additions (please explain on reverse)

  	
   

  	
  $__________

  	
   

  
	
  3.

  	
   

  	
  TOTAL ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $__________

  	
   

  	
   

  	
   

  
	
  ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Amounts over 90 days due

  	
  $__________

  	
   

  	
   

  
	
  5.

  	
   

  	
  Balance of 50% over 90 day accounts

  	
  $__________

  	
   

  	
   

  
	
  6.

  	
   

  	
  Credit balances over 90 days

  	
  $__________

  	
   

  	
   

  
	
  7.

  	
   

  	
  Concentration Limits

  	
  $__________

  	
   

  	
   

  
	
  8.

  	
   

  	
  Foreign Accounts

  	
  $__________

  	
   

  	
   

  
	
  9.

  	
   

  	
  Governmental Accounts

  	
  $__________

  	
   

  	
   

  
	
  10.

  	
   

  	
  Contra Accounts

  	
  $__________

  	
   

  	
   

  
	
  11.

  	
   

  	
  Promotion or Demo Accounts

  	
  $__________

  	
   

  	
   

  
	
  12.

  	
   

  	
  Intercompany/Employee Accounts

  	
  $__________

  	
   

  	
   

  
	
  13.

  	
   

  	
  Other (please explain on reverse)

  	
  $__________

  	
   

  	
   

  
	
  14.

  	
   

  	
  TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
                       $__________

  	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
  Eligible Accounts (#3 minus #14)

  	
   

  	
   

  	
   

  
	
   

  	
              

  	
                       $__________

  	
   

  	
   

  	
   

  
	
  16.

  	
   

  	
  LOAN VALUE OF ACCOUNTS (80% of #15)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
                       $__________

  	
   

  	
   

  	
   

  
	
  INVENTORY

  	
   

  	
   

  	
   

  
	
  16a

  	
   

  	
  TOTAL INVENTORY

  	
  $__________

  	
   

  	
   

  
	
  16b

  	
   

  	
  Inventory Deductions

  	
  $__________

  	
   

  	
   

  
	
  16c

  	
   

  	
  Eligible Inventory (16a minus 16b)

  	
  $__________

  	
   

  	
   

  
	
  16d

  	
   

  	
  LOAN VALUE OF INVENTORY

  	
  $__________

  	
   

  	
   

  
	
   

  	
   

  	
  (25% of #16c, not to exceed the lesser of 33% of #15
  or $1MM)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BALANCES

  	
   

  	
   

  	
   

  
	
  17.

  	
   

  	
  Maximum Loan Amount

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $__________

  	
   

  	
   

  	
   

  
	
  18.

  	
   

  	
  Total Funds Available [Lesser of #17 or (#16 plus
  #16d)]

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
                                   $__________

  	
   

  	
   

  	
   

  
	
  19.

  	
   

  	
  Present balance owing on Line of Credit

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
                                   $__________

  	
   

  	
   

  	
   

  
	
  20.

  	
   

  	
  Outstanding under Sublimits, if any Sublimits are in
  effect

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $__________

  	
   

  	
   

  	
   

  
	
  21.

  	
   

  	
  RESERVE POSITION (#18 minus #19 and #20)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $__________

  	
   

  	
   

  	
   

  



 


10

















 


The undersigned represents and warrants that this
is true, complete and correct, and that the information in this Borrowing Base
Certificate complies with the representations and warranties in the Amended and
Restated Loan and Security Agreement between the undersigned and Silicon Valley
Bank.


 


	
  COMMENTS:

  	
  BANK
  USE  ONLY

  	
   

  	
   

  
	
   

  	
   Rec’d By:

  	
   

  	
   

  	
   

  
	
  Transoma Medical, Inc.

  	
   

  	
  Auth. Signer

  	
   

  	
   

  
	
   

  	
   Date:

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   Verified:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Auth. Signer

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
										



 


11

















 


EXHIBIT B


TO


SECOND
AMENDMENT TO


AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT


 


EXHIBIT D


COMPLIANCE CERTIFICATE


 


	
  TO:

  	
  SILICON VALLEY BANK

  
	
   

  	
  3003 Tasman Drive

  
	
   

  	
  Santa Clara, CA 95054

  
	
   

  	
   

  
	
  FROM:

  	
  TRANSOMA MEDICAL, INC.

  



 


The undersigned Responsible Officer of TRANSOMA
MEDICAL, INC. (“Borrower”) certifies that under the terms and conditions of the
Amended and Restated Loan and Security Agreement between Borrower and Bank (the
“Agreement”), (i) Borrower is in complete compliance for the period ending
________ with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date. In addition, the undersigned certifies that
Borrower, and each Subsidiary, has timely filed all required tax returns and
paid, or made adequate provision to pay, all material taxes, except those being
contested in good faith with adequate reserves under GAAP. Attached are the
required documents supporting the certification. The Officer certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) consistently applied from one period to the next except as explained in
an accompanying letter or footnotes. The Responsible Officer acknowledges that
no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is delivered.


 


Please indicate compliance status by circling
Yes/No under “Complies” column.


 


	
  Reporting Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly financial statements + CC

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Annual (Audited)

  	
   

  	
  FYE within 120 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  A/R & A/P Agings & Inventory Reports

  	
   

  	
  Monthly within 20 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Board of Director Projections

  	
   

  	
  Prior to FYE (June 30)

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Borrowing Base Certificate

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes

  	
   

  	
  No

  



 


	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maintain on a monthly basis:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum Tangible Net Worth

  	
   

  	
  *

  	
   

  	
  $

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Minimum Liquidity Coverage

  	
   

  	
  **

  	
   

  	
  ______:1.00

  	
   

  	
  Yes

  	
   

  	
  No

  



 






*A Tangible Net Worth plus Subordinated Debt and any class of Borrower’s
stock treated as a liability on Borrower’s balance sheet of at least
$15,000,000 from April 1, 2007 through June 30, 2007, and $12,000,000 from July
1, 2007 and thereafter.


** A ratio of unrestricted cash (and equivalents) plus accounts
receivables divided by outstanding Obligations of not less than 1.25 to 1.00.


 


12

















 


Comments Regarding Exceptions:  See Attached.


 


 


	
  Sincerely,

  	
  BANK
  USE ONLY

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TRANSOMA MEDICAL, INC.

  	
   Received by: 

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  	
   

  
	
   

  	
   

  	
   Date:

  	
   

  	
   

  	
   

  
	
  SIGNATURE

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   Verified:

  	
   

  	
   

  	
   

  
	
  TITLE

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  	
   

  
	
   

  	
   

  	
   Date:

  	
   

  	
   

  	
   

  
	
  DATE

  	
   

  	
   

  	
   

  
	
   

  	
   Compliance Status:

  	
  Yes

  	
  No

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
											



 


13

















 


Schedule 1


 


ACKNOWLEDGMENT OF AMENDMENT


AND REAFFIRMATION OF GUARANTY


 


Section  1.              Guarantor
hereby acknowledges and confirms that it has reviewed and approved the terms
and conditions of the Second Amendment to Loan and Security Agreement dated as
of substantially even date herewith (the “Amendment”).


 


Section  2.              Guarantor
hereby consents to the Amendment and agrees that the Guaranty relating to the
Obligations of Borrower under the Loan Agreement shall continue in full force
and effect, shall be valid and enforceable and shall not be impaired or otherwise
affected by the execution of the Amendment or any other document or instrument
delivered in connection herewith.


 


Section  3.              Guarantor
represents and warrants that, after giving effect to the Amendment, all
representations and warranties contained in the Guaranty are true, accurate and
complete as if made the date hereof.


 


Dated as of July 19, 2007


 


	
   

  	
  GUARANTOR:

  
	
   

  	
   

  
	
   

  	
  DATA SCIENCES UK, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Brian P. Brockway

  	
   

  
	
   

  	
  Name:

  	
  Brian P. Brockway

  	
   

  
	
   

  	
  Title:

  	
  President & CEO

  	
   

  
					



 


14