Exhibit 10.8


LOAN AND SECURITY AGREEMENT


THIS LOAN
AND SECURITY AGREEMENT (this “Agreement”)
dated as of the Effective Date between SILICON VALLEY BANK,
a California corporation (“Bank”), on the
one side, and EV3 ENDOVASCULAR, INC., a Delaware
corporation, EV3 INTERNATIONAL, INC., a
Delaware corporation, and MICRO THERAPEUTICS, INC.,
a Delaware corporation (collectively and jointly and severally referred to as “Borrowers”), provides the terms on which Bank shall lend to
Borrowers and Borrowers shall repay Bank. The parties agree as follows:


1                                         ACCOUNTING
AND OTHER TERMS


Accounting terms
not defined in this Agreement shall be construed following GAAP. Calculations
and determinations must be made following GAAP. Capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in Section 13.
All other terms contained in this Agreement, unless otherwise indicated, shall
have the meaning provided by the Code to the extent such terms are defined
therein.


2                                         LOAN
AND TERMS OF PAYMENT


2.1                               Promise
to Pay. Borrowers hereby unconditionally promise to pay Bank the
outstanding principal amount of all Credit Extensions and accrued and unpaid
interest thereon as and when due in accordance with this Agreement.


2.1.1                     Revolving Advances.


(a)                                  Availability.
Subject to the terms and conditions of this Agreement, Bank shall make Advances
not exceeding the Availability Amount. Amounts borrowed under the Revolving
Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed,
subject to the applicable terms and conditions precedent herein.


(b)                                 Termination;
Repayment. The Revolving Line terminates on the Revolving Line Maturity
Date, when the principal amount of all Advances, the unpaid interest thereon,
and all other Obligations relating to the Revolving Line shall be immediately
due and payable.


2.1.2                     Letters of Credit Sublimit.


(a)                                  As
part of the Revolving Line, Bank shall issue or have issued Letters of Credit
for Borrowers’ account. The face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed the Overall Ancillary Sublimit set forth in
Section 2.1.6. Such aggregate amounts utilized hereunder shall at all
times reduce the amount otherwise available for Credit Extensions under the
Revolving Line. If, on the Revolving Maturity Date or any earlier date of
termination of the Revolving Line, there are any outstanding Letters of Credit,
then on such date Borrowers shall provide to Bank cash collateral in an amount
equal to 100% of the face amount of all such Letters of Credit plus all
interest, fees, and costs due or to become due in connection therewith (as
estimated by Bank in its good faith business judgment), to secure all of the
Obligations relating to said Letters of Credit. All Letters of Credit shall be
in form and substance acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank’s standard Application and Letter
of Credit Agreement (the “Letter of Credit
Application”). Borrowers agree to execute any further documentation
in connection with the Letters of Credit as Bank may reasonably request. Borrowers
further agree to be bound by the regulations and interpretations of the issuer
of any Letters of Credit guarantied by Bank and opened for any Borrower’s
account or by Bank’s interpretations of any Letter of Credit issued by Bank for
any Borrower’s account, and Borrowers understand and agree that Bank shall not
be liable for any error, negligence, or mistake, whether of omission or
commission, in following any Borrower’s instructions or those contained in the
Letters of Credit or any modifications, amendments, or supplements thereto.


(b)                                 The
obligation of Borrowers to immediately reimburse Bank for drawings made under
Letters of Credit shall be absolute, unconditional, and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.









 



(c)                                  Borrowers
may request that Bank issue a Letter of Credit payable in a Foreign Currency. If
a demand for payment is made under any such Letter of Credit, Bank shall treat
such demand as an Advance to Borrowers of the equivalent of the amount thereof
(plus fees and charges in connection therewith such as wire, cable, SWIFT or
similar charges) in Dollars at the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.


(d)                                 To
guard against fluctuations in currency exchange rates, upon the issuance of any
Letter of Credit payable in a Foreign Currency, Bank shall create a reserve
(the “Letter of Credit Reserve”)
under the Revolving Line in an amount equal to ten percent (10%) of the face
amount of such Letter of Credit. The amount of the Letter of Credit Reserve may
be adjusted by Bank from time to time to account for fluctuations in the
exchange rate. The availability of funds under the Revolving Line shall be
reduced by the amount of such Letter of Credit Reserve for as long as such
Letter of Credit remains outstanding.


2.1.3                     Foreign Exchange Sublimit. As
part of the Revolving Line, Borrowers may enter into foreign exchange contracts
with Bank under which Borrowers commit to purchase from or sell to Bank a specific
amount of Foreign Currency (each, a “FX
Forward Contract”) on a specified date (the “Settlement Date”). FX Forward Contracts
shall have a Settlement Date of at least one (1) FX Business Day after the
contract date and shall be subject to a reserve of ten percent (10%) of each
outstanding FX Forward Contract in a maximum aggregate amount equal to
$7,000,000 (the “FX Reserve”). Subject
to the Overall Ancillary Sublimit set forth in Section 2.1.6, the
aggregate amount of FX Forward Contracts at any one time may not exceed ten
(10) times the amount of the FX Reserve.


2.1.4                     Cash Management Services Sublimit.
Subject to the Overall Ancillary Sublimit set forth in Section 2.1.6,
Borrowers may use up to the Availability Amount of the Revolving Line for Bank’s
cash management services which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services identified in Bank’s
various cash management services agreements (collectively, the “Cash Management Services”). Such aggregate
amounts utilized hereunder shall at all times reduce the amount otherwise
available for Credit Extensions under the Revolving Line. Any amounts Bank pays
on behalf of any Borrower or any amounts that are not paid by Borrowers for any
Cash Management Services will be treated as Advances under the Revolving Line
and will accrue interest at the interest rate applicable to Advances.


2.1.5                     Equipment Advances.


(a)                                  Availability.
Subject to the terms and conditions of this Agreement, during the Draw Period,
Bank shall make advances (each, an “Equipment
Advance” and, collectively, “Equipment
Advances”) not exceeding the Equipment Line.


(i)                                     Qualifying
Initial Equipment Advance. If the initial Equipment Advance is requested by
Borrowers in time for funding on or before July 7, 2006, then Borrowers may
request such Equipment Advance in an amount of up to $7,500,000 (the “Qualifying Initial Equipment Advance”) to
finance Eligible Equipment purchased on or after December 31, 2004 and on or
before December 30, 2006 (determined based upon the applicable invoice date of
such Eligible Equipment) (the “Eligible
Equipment Purchase Period”). Concurrently with Borrowers’ request
for the Qualifying Initial Equipment Advance, Borrowers shall deliver to Bank
copies of all invoices for Eligible Equipment to be financed by the Qualifying
Initial Equipment Advance that has been purchased during the Eligible Equipment
Purchase Period but before or at the time of such request, and going forward
Borrowers shall deliver to Bank copies of all invoices for Eligible Equipment
to be financed by the Qualifying Initial Equipment Advance that is purchased
during the Eligible Equipment Purchase Period but after such request. If on
December 30, 2006 the outstanding amount of the Qualifying Initial Equipment
Advance exceeds the aggregate Eligible Equipment Invoice Amounts for which
Borrowers have delivered invoices to Bank for purchases of Eligible Equipment
made during the Eligible Equipment Purchase Period that are to be financed by
the Qualifying Initial Equipment Advance, then Borrowers shall immediately pay
the amount of such excess (the “Excess
Initial Equipment Advance”) to Bank.


(ii)                                  Non-Qualifying
Equipment Advances. Borrowers may request Equipment Advances other than the
Qualifying Initial Equipment Advance (a “Subsequent
Equipment Advance”) to finance Eligible Equipment purchased within
ninety (90) days (determined based upon the applicable invoice date of such
Eligible Equipment) before the date of each such Equipment Advance, and no such
Equipment Advance may exceed the Eligible Equipment Invoice Amount(s) of the
Eligible Equipment being financed. Borrowers may not finance



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the same Eligible Equipment with both the Qualifying Initial Equipment
Advance and a Subsequent Equipment Advance.


(iii)                               Eligible
Equipment Invoice Amount; No Reborrowing. As used herein, “Eligible Equipment Invoice Amount” shall
mean 100% of the total invoice for Eligible Equipment (excluding taxes,
shipping, warranty charges, freight discounts and installation expenses
relating to such Eligible Equipment except to the extent such are allowed to be
financed pursuant hereto as Other Equipment), provided that, unless otherwise
agreed to by Bank, not more than 25% of the proceeds of the Equipment Line
shall be used to finance Other Equipment. After repayment, no Equipment Advance
may be reborrowed.


(b)                                 Repayment.
Equipment Advances outstanding on December 31, 2006 (other than any Excess
Initial Equipment Advance) are payable in 42 consecutive equal monthly
installments of principal, beginning on January 31, 2007 and continuing on the
last day of each month thereafter until June 30, 2010, on which date all
remaining outstanding principal and all accrued unpaid interest with respect to
such Equipment Advances shall be due. Equipment Advances made after December
31, 2006 and outstanding on the last day of the Draw Period are payable in 42
consecutive equal monthly installments of principal, beginning on July 31, 2007
and continuing on the last day of each month thereafter until December 31,
2010, on which date all remaining outstanding principal and all accrued unpaid
interest with respect to such Equipment Advances shall be due.


(c)                                  Prepayment
Upon an Event of Loss. Borrowers shall bear the risk of any loss, theft,
destruction, or damage of or to the Financed Equipment. If, during the term of
this Agreement, any item of Financed Equipment becomes obsolete or is lost,
stolen, destroyed, damaged beyond repair, rendered permanently unfit for use,
or seized by a governmental authority for any reason for a period equal to at
least the remainder of the term of this Agreement (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, Borrowers 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 Borrowers’ 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 an
Event of Loss, (y) Bank has a first priority perfected security interest in
such repaired or replaced Financed Equipment, and (z) the Borrowers shall be
subject to any limit on the use of insurance proceeds contained in this
Agreement. Principal prepayments pursuant to this subsection shall be applied
to the principal payments due on the Equipment Advances in the inverse order of
maturity.


2.1.6                     Overall Ancillary Sublimit. Anything
herein to the contrary notwithstanding, the sum of the aggregate amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), plus any Letter of Credit Reserve, plus the FX Reserve, plus the
aggregate amount used for Cash Management Services, shall not at any time
exceed $7,000,000 (the “Overall Ancillary
Sublimit”).


2.1.7                     Voluntary Prepayment; Reduction of
the Revolving Line; Termination of the Credit Facility by the Borrowers. Borrowers
may prepay the Equipment Advances (in addition to any payments made in
accordance with Section 2.1.5(c)) in whole or part at any time by written
notice to Bank without premium, penalty or charge whatsoever. Any principal
prepayment of Equipment Advances shall be applied to the principal payments due
on the Equipment Advances in the inverse order of maturity. Borrowers may
terminate the Revolving Line at any time effective three Business Days after
written notice to Bank without premium, penalty or charge whatsoever, except as
set forth in Section 2.4(e). Upon any such termination of the Revolving Line,
Borrowers shall pay and perform the principal amount of all Advances, the
unpaid interest thereon, and all other Obligations relating to the Revolving
Line (including, without limitation, any prepayment fee that may be due
pursuant to Section 2.4(e)).


2.1.8                     [Omitted.]


2.2                               Overadvances.
If, at any time, the Credit Extensions under Sections 2.1.1, 2.1.2, 2.1.3 and
2.1.4 exceed the lesser of either (a) the Revolving Line or (b) the greater of
(i) $12,000,000 or (ii) the Borrowing Base less applicable reserves, Borrowers
shall immediately pay to Bank in cash such excess.



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2.3                               Payment
of Interest on the Credit Extensions.


(a)                                  Interest
Rate.


(i)                                     Advances.
Subject to Section 2.3(b), the principal amount outstanding under the Revolving
Line shall accrue interest at a floating per annum rate equal to the Prime
Rate, which interest shall be payable monthly in accordance with Section 2.3(f)
below.


(ii)                                  Equipment
Advances. Subject to Section 2.3(b), the principal amount outstanding for
each Equipment Advance shall accrue interest at a floating per annum rate equal
to one (1.0) percentage point above the Prime Rate, which interest shall be
payable monthly.


(b)                                 Default
Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, Obligations shall bear interest at a rate per annum which is
five percentage points above the rate that is otherwise applicable thereto (the
“Default Rate”). Payment or
acceptance of the increased interest rate provided in this Section 2.3(b)
is not a permitted alternative to timely payment and shall not constitute a
waiver of any Event of Default or otherwise prejudice or limit any rights or
remedies of Bank.


(c)                                  Adjustment
to Interest Rate. Changes to the interest rate of any Credit Extension
based on changes to the Prime Rate shall be effective on the effective date of
any change to the Prime Rate and to the extent of any such change.


(d)                                 360-Day
Year. Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed.


(e)                                  Debit
of Accounts. Bank may debit any deposit account of any Borrower, including
the Designated Deposit Account, for principal and interest payments or any
other amounts that any Borrower owes Bank when due. These debits shall not
constitute a set-off.


(f)                                    Payments.
Unless otherwise provided, interest is payable monthly on the last calendar day
of each month. Payments of principal and/or interest received after 12:00 p.m.
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 fees or interest, as
applicable, shall continue to accrue.


2.4                               Fees.
Borrowers shall pay to Bank:


(a)                                  Equipment
Line Facility Fee. On July 10, 2006, a fully earned, non-refundable
facility fee of $18,750 with respect to the Equipment Advance facility,
provided that the Bank shall waive the $18,750 fee with respect to the Equipment
Advance facility if Borrowers take the Qualifying Initial Equipment Advance by
July 7, 2006 in the full amount of $7,500,000;


(b)                                 Letter
of Credit Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, including, without limitation, a Letter of Credit
Fee of one percent (1.00%) per annum of the face amount of each Letter of
Credit issued, upon the issuance, each anniversary of the issuance, and the
renewal of such Letter of Credit;


(c)                                  Unused
Revolving Line Fee. A fee (the “Unused
Revolving Line Fee”), payable quarterly, in arrears, on a calendar
year basis, in an amount equal to three-eighths of one percent (0.375%) per
annum of the average unused portion of the Revolving Line, as determined by
Bank. For purposes of computing the Unused Revolving Line Fee, the following
shall not be considered as uses of the Revolving Line: the amount of any
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), any Letter of Credit Reserve, any amounts used for Cash Management
Services, and any FX Reserve. Borrowers shall not be entitled to any credit,
rebate or repayment of any Unused Revolving Line Fee previously earned by Bank
pursuant to this Section notwithstanding any termination of the Agreement or
the suspension or termination of Bank’s obligation to make loans and advances
hereunder;


(d)                                 Revolving
Line Facility Fee. A fee, payable quarterly, in arrears, on a calendar year
basis, in an amount equal to $46,875 per quarter less one-half of one percent
(0.5%) per annum of the average used portion of the Revolving Line, as
determined by Bank;



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(e)                                  Prepayment
Fee. If the Revolving Line is terminated by Borrowers, or by Bank during
the existence of an Event of Default, prior to June 26, 2007, then Borrowers
shall pay Bank a prepayment fee equal to $150,000 less the amount paid pursuant
to Section 2.4(d) during the period from the Effective Date through the
effective date of such termination, but in no event shall said fee be less than
zero. If the Revolving Line is terminated by Borrowers, or by Bank during the
existence of an Event of Default, on or after June 26, 2007 but prior to the
Revolving Line Maturity Date, then Borrowers shall pay Bank a prepayment fee
equal to $150,000 less the amount paid pursuant to Section 2.4(d) during the
period from June 26, 2007 through the effective date of such termination, but
in no event shall said fee be less than zero. For purposes of computing such
prepayment fee, the following shall not be considered as uses of the Revolving
Line: the amount of any outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), any Letter of Credit Reserve, any amounts used
for Cash Management Services, and any FX Reserve; and


(f)                                    Bank
Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses, plus expenses for documentation and negotiation of this Agreement)
incurred through and after the Effective Date, when due.


3                                         CONDITIONS
OF LOANS


3.1                               Conditions
Precedent to Initial Credit Extension. Bank’s obligation to make the
initial Advance Credit Extension is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, such
documents, and completion of such other matters, as Bank may reasonably deem necessary
or appropriate, including, without limitation:


(a)                                  Borrowers
shall have delivered duly executed original signatures to the Loan Documents;


(b)                                 Borrowers
shall have delivered the Operating Documents of each Borrower and the Operating
Documents of Parent and good standing certificates of each Borrower and of
Parent certified by the Secretary of States of Delaware and Minnesota as of a
date no earlier than thirty (30) days prior to the Effective Date;


(c)                                  Borrowers
shall have delivered duly executed original signatures to (i) completed
Borrowing Resolutions for each Borrower and (ii) completed Guaranty Resolutions
for each Guarantor (other than Borrowers);


(d)                                 Bank
shall have received certified copies, dated as of a recent date, of financing
statement searches, as Bank shall request, accompanied by written evidence
(including any UCC termination statements) that the Liens indicated in any such
financing statements either constitute Permitted Liens or have been or, in
connection with the initial Credit Extension, will be terminated or released;


(e)                                  Borrowers
shall have delivered Perfection Certificates executed by each Borrower and
Parent, the substance of which shall be acceptable to Bank in its discretion;


(f)                                    Borrowers
shall have delivered a legal opinion of Borrower’s, Parent’s, and Guarantor’s
counsel dated as of the Effective Date together with the duly executed original
signatures thereto;


(g)                                 Borrowers
shall have delivered to Bank (i) a cross-guaranty by each Borrower of the
obligations of the others and (ii) guaranties and security agreements from
Parent and all of Parent’s Domestic Subsidiaries (excluding Borrowers), and
Bank shall have a first-priority perfected security interest in the collateral
of Parent and all such Domestic Subsidiaries, subject to permitted liens, all
satisfactory to Bank;


(h)                                 Borrowers
shall have delivered evidence satisfactory to Bank that the insurance policies
required by Section 6.5 hereof are in full force and effect, together with
appropriate evidence showing loss payable and/or additional insured clauses or
endorsements in favor of Bank;


(i)                                     Borrowers
shall have paid the fees and Bank Expenses then due as specified in Section 2.4
hereof; and



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(j)                                     Bank
has approved in writing, in its discretion, all schedules which Borrowers’ are
permitted or required to deliver to Bank prior to the initial Credit Extension
under the terms of this Agreement.


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)                                  except
as otherwise provided in Section 3.4(a), timely receipt of an executed
Payment/Advance Form;


(b)                                 the
representations and warranties in Section 5 shall be true in all material
respects on the date of the Payment/Advance Form and on the Funding Date of
each Credit Extension; provided, however, that such materiality qualifier shall
not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific
date shall be true, accurate and complete in all material respects as of such
date, and no Default or Event of Default shall have occurred and be continuing
or result from the Credit Extension. Each Credit Extension is Borrowers’
representation and warranty on that date that the representations and
warranties in Section 5 remain true in all material respects; provided,
however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date; and


(c)                                  in
Bank’s sole discretion, there has not been any material impairment in the
general affairs, management, results of operation, financial condition or the
prospect of repayment of the Obligations, or there has not been any material
adverse deviation by Parent or any Borrower from the most recent business plan
of Parent (or any Borrower, if applicable) presented to and accepted by Bank.


3.3                               Covenant
to Deliver.


Borrowers agree to
deliver to Bank each item required to be delivered to Bank under this Agreement
as a condition to any Credit Extension. Borrowers expressly agree that the
extension of a Credit Extension prior to the receipt by Bank of any such item
shall not constitute a waiver by Bank of any Borrower’s obligation to deliver
such item, and any such extension in the absence of a required item shall be in
Bank’s sole discretion.


3.4                               Procedures
for Borrowing.


(a)                                  Advances.
Subject to the prior satisfaction of all other applicable conditions to the
making of an Advance set forth in this Agreement, to obtain an Advance (other
than Advances under Sections 2.1.2 or 2.1.4), Borrowers shall notify Bank
(which notice shall be irrevocable) by electronic mail, facsimile, or telephone
by 12:00 p.m. Pacific time on the Funding Date of the Advance. Together with
any such electronic or facsimile notification, Borrowers shall deliver to Bank
by electronic mail or facsimile a completed Payment/Advance Form executed by a
Responsible Officer of each Borrower or his or her designee. Bank may rely on
any telephone notice given by a person whom Bank believes is a Responsible
Officer or designee. Bank shall credit Advances to the Designated 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.


(b)                                 Equipment
Advances. Subject to the prior satisfaction of all other applicable
conditions to the making of an Equipment Advance set forth in this Agreement,
to obtain an Equipment Advance, Borrowers must notify Bank (which notice shall
be irrevocable) by electronic mail or facsimile no later than 12:00 p.m.
Pacific time one (1) Business Day before the proposed Funding Date. The notice
shall be a Payment/Advance Form, must be signed by a Responsible Officer of
each Borrower or designee, and (except as otherwise provided in
Section 2.1.5(a)(i) with respect to the Qualifying Initial Equipment
Advance) shall include a copy of the invoice for the Equipment being financed. If
Borrowers satisfy the conditions of each Equipment Advance, Bank shall disburse
such Equipment Advance by transfer to the Designated Deposit Account.



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4                                         CREATION OF
SECURITY INTEREST


4.1                               Grant
of Security Interest. Each Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations, a continuing
security interest in, and pledges to Bank, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof. Each Borrower represents, warrants, and covenants that the
security interest granted herein is and shall at all times continue to be a
first priority perfected security interest in the Collateral (subject only to
Permitted Liens that may have superior priority to Bank’s Lien under this
Agreement). If any Borrower shall acquire a commercial tort claim, Borrowers
shall promptly notify Bank in a writing signed by Borrowers of the general
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 reasonably satisfactory to Bank.


If this Agreement is terminated, Bank’s Lien in the
Collateral shall continue until the Obligations (other than inchoate indemnity
obligations) are repaid in full in cash. Upon payment in full in cash of the
Obligations and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall, at Borrowers’ sole cost and
expense, release its Liens in the Collateral and all rights therein shall
revert to Borrowers.


4.2                               Authorization
to File Financing Statements. Each Borrower hereby authorizes Bank to file
financing statements, without notice to Borrowers, with all appropriate
jurisdictions to perfect or protect Bank’s interest or rights hereunder,
including a notice that any disposition of the Collateral, by either Borrowers
or any other Person, shall be deemed to violate the rights of Bank under the
Code.


5                                         REPRESENTATIONS
AND WARRANTIES


Borrowers represent and warrant as follows as of the
date of the initial Credit Extension and thereafter:


5.1                               Due
Organization and Authorization. Each Borrower, Parent and each of Parent’s
Subsidiaries are duly existing and in good standing in their respective
jurisdictions of formation and are qualified and licensed to do business and
are in good standing in any jurisdiction in which the conduct of their business
or their ownership of property requires that they be qualified except where the
failure to do so could not reasonably be expected to have a material adverse
effect on any Borrower’s or Parent’s business. Pursuant to Section 3.1(e), each
Borrower shall deliver to Bank a completed “Perfection Certificate”, in the
form previously provided by Bank, signed by Borrower and Parent. Each Borrower
represents and warrants to Bank that (a) such Borrower’s exact legal name is
that indicated on its Perfection Certificate and on the signature page hereof;
(b) such Borrower is an organization of the type and is organized in the
jurisdiction set forth in its Perfection Certificate; (c) its Perfection
Certificate accurately sets forth such Borrower’s organizational identification
number or accurately states that such Borrower has none; (d) its Perfection
Certificate accurately sets forth such Borrower’s place of business, or, if
more than one, its chief executive office as well as such Borrower’s mailing
address (if different than its chief executive office); (e) such Borrower
(and each of its predecessors) has not, in the past five (5) years, changed its
state of formation, organizational structure or type, or any organizational
number assigned by its jurisdiction; and (f) all other information set forth on
its Perfection Certificate pertaining to such Borrower and each of its
Subsidiaries is accurate and complete.


The execution,
delivery and performance of the Loan Documents have been duly authorized, and
do not conflict with such Borrower’s organizational documents, nor constitute
an event of default under any material agreement by which such Borrower is
bound. Neither such Borrower nor Parent nor any of Parent’s Subsidiaries is in
default under any agreement to which it is a party or by which it is bound in
which the default could reasonably be expected to have a material adverse
effect on any Borrower’s or Parent’s business.


5.2                               Collateral.
Each Borrower has good title to, has rights in, and the power to transfer each
item of the Collateral upon which it purports to grant a Lien hereunder, free
and clear of any and all Liens except Permitted Liens. None of the Borrowers,
Parent or any of Parent’s Domestic Subsidiaries have any deposit accounts other
than the deposit accounts with Bank, the deposit accounts, if any, described in
the Perfection Certificates of Borrowers and Parent that were delivered to Bank
in connection herewith, or of which Borrowers have given Bank notice and taken
such actions as are necessary to give Bank a perfected security interest therein
(subject to Section 6.6 hereof). The Accounts are bona fide, existing
obligations of the Account Debtors.



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The Collateral is not in the possession of
any third party bailee (such as a warehouse) except as otherwise provided in
the Perfection Certificate. None of the components of the Collateral (other
than Inventory in the possession of consignees of such Inventory and Trunk
Inventory) shall be maintained at locations other than as provided in the
Perfection Certificate or new locations of Borrowers within the United States
for which Borrowers have given Bank 30 days’ prior written notice. In the event
that any Borrower, after the date hereof, intends to store or otherwise deliver
any portion of the Collateral to a bailee, then Borrowers will first receive
the written consent of Bank and such bailee must execute and deliver a bailee
agreement in form and substance satisfactory to Bank in its sole discretion.


All Financed
Equipment is new, except for such Financed Equipment that has been disclosed in
writing to Bank by Borrowers as “used”. All Inventory is in all material
respects of good and marketable quality, free from material defects.


Each Borrower,
Parent and each of Parent’s Subsidiaries is the sole owner of its intellectual
property, except for non-exclusive licenses granted to its customers in the
ordinary course of business. Each patent is valid and enforceable to the best
of each Borrower’s knowledge, and no part of such intellectual property has
been judged invalid or unenforceable, in whole or in part, and to the best of
each Borrower’s knowledge, except as may be set forth in a schedule hereto, no
claim has been made that any part of such intellectual property violates the
rights of any third party except to the extent such claim could not reasonably
be expected to have a material adverse effect on any Borrower’s or Parent’s
business. Except as noted on the Perfection Certificate, neither any Borrower
nor Parent nor any Subsidiary of Parent is a party to, nor is bound by, any
material license or other agreement with respect to which such Person is the
licensee, including without limitation any material license or agreement (a)
for which a default under or termination could interfere with the right to sell
Collateral, or (b) that prohibits or otherwise restricts such Person from
granting a security interest in such Person’s interest in such license or
agreement or any other property. Borrowers shall provide written notice to Bank
within ten (10) days of any such Person entering or becoming bound by any such
license or agreement (other than over-the-counter software that is commercially
available to the public). Each Borrower shall take such steps as Bank requests
to obtain the consent of, or waiver by, any person whose consent or waiver is
necessary for Bank to have the ability in the event of a liquidation of the
Collateral to dispose of the Collateral in accordance with Bank’s rights and
remedies under this Agreement and the Loan Documents.


5.3                               Accounts
Receivable. For any Eligible Account in any Borrowing Base Certificate, all
statements made and all unpaid balances appearing in all invoices, instruments
and other documents evidencing such Eligible Account are and shall be true and
correct and all such invoices, instruments and other documents, and all of each
Borrower’s Books are genuine and in all respects what they purport to be. All
sales and other transactions underlying or giving rise to each Eligible Account
shall comply in all material respects with all applicable laws and governmental
rules and regulations. No Borrower has any knowledge of any actual or imminent
Insolvency Proceeding of any Account Debtor with an account that is included as
an Eligible Account in any Borrowing Base Certificate. To the best of each
Borrower’s knowledge, all signatures and endorsements on all documents,
instruments, and agreements relating to all Eligible Accounts are genuine, and
all such documents, instruments and agreements are legally enforceable in
accordance with their terms.


5.4                               Litigation.
Except as may be set forth on a schedule hereto, there is no action or
proceeding (or series of related actions or proceedings) pending or, to the
knowledge of the Responsible Officers of each Borrower, threatened in writing
by or against any Borrower, Parent or any of Parent’s Subsidiaries involving
more than $500,000.


5.5                               No
Material Deviation in Financial Statements. All consolidated financial
statements for Parent and its Subsidiaries delivered to Bank fairly present in
all material respects Parent’s consolidated financial condition and Parent’s
consolidated results of operations. There has not been any material
deterioration in Parent’s consolidated financial condition since the date of
the most recent financial statements submitted to Bank.


5.6                               Solvency.
The fair salable value of each Borrower’s assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; no Borrower is
left with unreasonably small capital after the transactions in this Agreement;
and each Borrower is able to pay its debts (including trade debts) as they
mature.


5.7                               Regulatory
Compliance. No Borrower is an “investment company” or a company “controlled”
by an “investment company” under the Investment Company Act. No Borrower is
engaged as one of its important



 8
 






 



activities in extending credit for margin stock (under Regulations T
and U of the Federal Reserve Board of Governors). Each Borrower has complied in
all material respects with the Federal Fair Labor Standards Act. No Borrower
has violated any laws, ordinances or rules, the violation of which could
reasonably be expected to have a material adverse effect on any Borrower’s or
Parent’s business. No Borrower’s, Parent’s or any of Parent’s Subsidiaries’
properties or assets has been used by such Persons or, to the best of each
Borrower’s knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrowers,
Parent and all of Parent’s Subsidiaries have 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.


5.8                               Subsidiaries;
Investments. No Borrower owns any stock, partnership interest or other
equity securities except for Permitted Investments.


5.9                               Tax
Returns and Payments; Pension Contribution. Each Borrower, Parent and
Subsidiary of Parent has timely filed all required material tax returns and
reports, and each Borrower, Parent and Subsidiary of Parent has timely paid all
material foreign, federal, state and local taxes, assessments, deposits and
contributions owed by such Person. Any of such Persons may defer payment of any
contested taxes, provided that such Person (a) in good faith contests its
obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (b) notifies Bank in writing of the commencement of,
and any material development in, the proceedings, (c) posts bonds or takes any
other steps required to prevent the governmental authority levying such
contested taxes from obtaining a Lien upon any of the Collateral that is other
than a “Permitted Lien”. Each Borrower is unaware of any claims or adjustments
proposed for any of such Person’s prior tax years which could result in
additional taxes becoming due and payable by such Persons. Each Borrower,
Parent and Subsidiary of Parent has paid all amounts necessary to fund all
present pension, profit sharing and deferred compensation plans in accordance
with their terms, and no such Person has withdrawn from participation in, and
has not permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could
reasonably be expected to result in any liability of such any such Persons,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.


5.10                        Use
of Proceeds. Borrowers shall use the proceeds of the Credit Extensions
solely as working capital, to purchase Eligible Equipment, and to fund its
general business requirements and not for personal, family, household or
agricultural purposes.


5.11                        Assets
of Foreign Subsidiaries. As of March 31, 2006, $746,000 of the Accounts,
$595,000 of the Inventory, $625,000 of the net Equipment, and $6,050,000 of the
cash and Cash Equivalents listed on Parent’s consolidated financial statements
are owned by foreign Subsidiaries of Parent (as opposed to being owned by
Borrowers, Parent or Domestic Subsidiaries of Parent).


5.12                        Full
Disclosure. No written representation, warranty or other statement of any
Borrower, Parent or any Subsidiary of Parent in any certificate or written
statement given to Bank, as of the date such representations, warranties, or
other statements were made, taken together with all such written certificates
and written statements given 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 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 or forecasted results).


6                                         AFFIRMATIVE
COVENANTS


Borrowers shall do
all of the following:


6.1                               Government
Compliance. Each Borrower shall, and shall cause Parent and each of Parent’s
Subsidiaries to, maintain its legal existence and good standing in its
jurisdiction of formation and each jurisdiction in which the nature of its
business requires them to be so qualified, except where the failure to take
such action would not reasonably be expected to have a material adverse effect
on such Borrower’s or Parent’s business or operations; provided, that
(a) the legal existence of any Subsidiary that is not a Guarantor may be
terminated or permitted to lapse, and any qualification of such Subsidiary to
do business may be terminated or permitted to lapse, if, in the good faith
judgment of Borrowers, such termination or lapse is in the best interests of
Borrowers, and (b) no



 9
 






 



Borrower or Parent may permit its qualification to do business in the
jurisdiction of its chief executive office to terminate or lapse; and provided,
further, that this Section 6.1 shall not be construed to prohibit any
other transaction that is otherwise expressly permitted in Section 7 of this
Agreement.


Each Borrower shall comply, and shall have Parent and
each Subsidiary of Parent comply, with all laws, ordinances and regulations to
which it is subject, noncompliance with which could have a material adverse
effect on any Borrower’s or Parent’s business.


6.2                               Financial
Statements, Reports, Certificates.


(a)                                  Deliver
to Bank: (i) as soon as available, but no later than thirty (30) days after the
last day of each month, a company prepared consolidated balance sheet and
income statement covering Parent’s consolidated operations for such month certified
by a Responsible Officer of Parent and in a form acceptable to Bank (ii) Parent’s
10K, 10Q, and 8K reports as soon as available, but no later than the earlier of
(x) five (5) days after filing with the Securities Exchange Commission or (y)
in the case of 10Ks with respect to a fiscal year, 120 days after the last day
of such fiscal year or (z) in the case of 10Qs with respect to a Fiscal
Quarter, forty-five (45) days after the last day of such Fiscal Quarter; (iii)
a duly completed Compliance Certificate signed by a Responsible Officer of
Parent and each Borrower (which, among other things, shall set forth (y) calculations showing
compliance with the financial covenants set forth in this Agreement and (z) the
amount and locations of Parent’s, Borrower’s and each Guarantor’s cash and Cash
Equivalents) together with delivery of Parent’s 10K and 10Q reports and the
monthly financial statements; (iv) prior to the end of each fiscal year, annual
financial projections (including profit and loss, balance sheet and cash flow)
for the following fiscal year (on a Fiscal Quarter basis) as approved by Parent’s
board of directors; (v) a prompt report of any legal action (or series of
related legal actions) pending or threatened against Parent or any Subsidiary
of Parent that could result in damages or costs to Parent or any Subsidiary of
Parent of $500,000 or more; (vi) a copy of the monthly financial information
that is provided to Parent’s Board of Directors by Parent, Borrowers and Parent’s
Subsidiaries, within five (5) days of providing the same to Parent’s Board of
Directors; and (vii) as the Bank shall from time to time reasonably request,
budgets, sales projections, and operating plans used in the preparation of the
annual financial projections required by clause “iv” above, and other financial
information normally prepared by Parent including, without limitation,
consolidating financial statements.


(b)                                 Within
thirty (30) days after the last day of each Fiscal Quarter, deliver to Bank
(i) aged listings of accounts receivable and accounts payable (by invoice
date), (ii) 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 and are reasonably available to Borrowers, (iii) a cash
balance report, including account statements detailing cash management types of
investments held and maturity dates, and (iv) if at any time during such Fiscal
Quarter the sum of the Credit Extensions under Sections 2.1.1, 2.1.2, 2.1.3 and
2.1.4 exceeds $12,000,0000, a duly completed Borrowing Base Certificate signed
by a Responsible Officer of each Borrower and Parent.


(c)                                  Allow
Bank to audit each Borrower’s Collateral at Borrowers’ expense. (Without
limitation on the foregoing, Borrowers shall cooperate with Bank completing,
within 90 days after the Effective Date, an audit of each Borrower’s Collateral
and books and records.)


(d)                                 If
during a Fiscal Quarter Borrowers desire to obtain Credit Extensions under
Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 that aggregate in excess of $12,000,000,
and previously during such Fiscal Quarter Borrowers have not provided Bank with
a duly completed Borrowing Base Certificate signed by a Responsible Officer of
each Borrower and Parent, then Borrowers’ shall first provide Bank with such a
Borrowing Base Certificate.


6.3                               Inventory;
Returns. Keep all Inventory in good and marketable condition, free from
material defects. Returns and allowances between any Borrower and its Account
Debtors shall follow such Borrower’s customary practices as they exist at the
Effective Date. Borrowers must promptly notify Bank of all returns, recoveries,
disputes and claims that involve more than Five Hundred Thousand Dollars
($500,000) and (i) relate to a single customer or (ii) relate to returns of a
single product within a Fiscal Quarter.


6.4                               Taxes;
Pensions. Make, and cause Parent and each of Parent’s Subsidiaries to make,
timely payment of all material foreign, federal, state, and local taxes or
assessments (other than taxes and assessments



 10















which such Person is contesting pursuant to the terms of Section 5.9
hereof) and shall deliver to Bank, on demand, appropriate certificates
attesting to such payments, and pay all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance (in all
material respects) with their terms.


6.5          Insurance.
Keep its business and the Collateral insured for risks and in amounts standard
for companies in Borrowers’ industry and location and as Bank may reasonably
request. Insurance policies shall be in a form and with companies that are
satisfactory to Bank. On and after the date of the initial Credit Extension,
all property policies shall have a lender’s loss payable endorsement showing
Bank as the lender loss payee and waive subrogation against Bank, and all
liability policies shall show, or have endorsements showing, Bank as an
additional insured. On and after the date of the initial Credit Extension, all
policies (or the loss payable and additional insured endorsements) shall
provide that the insurer must give Bank at least twenty (20) days notice before
canceling, decreasing the policy limits under, or declining to renew its policy.
Borrowers shall provide Bank with written notice of any material amendment to
any insurance policy (including, without limitation, any material decrease in
policy limits, exclusion or increase in deductible) at the later of twenty (20)
days before such amendment is to take effect or when any Borrower first learns
of such amendment. At Bank’s request, Borrowers shall deliver certified copies
of policies and evidence of all premium payments. Except as otherwise provided
in Section 2.1.5(c), proceeds payable under any policy shall, at Bank’s option,
be payable to Bank on account of the Obligations. Notwithstanding the
foregoing, (a)(x) so long as no Event of Default has occurred and is
continuing, Borrowers shall have the option of applying the proceeds of any
casualty policy up to $3,000,000 with respect to any loss, but not exceeding an
aggregate of $3,000,000 for all losses under all casualty policies in any one
year, toward the replacement or repair of destroyed or damaged property;
provided that any such replaced or repaired property (i) shall be of equal or
like value as the replaced or repaired Collateral and (ii) shall be deemed
Collateral in which Bank has been granted a first priority security interest,
and (b)(y) after the occurrence and during the continuance of an Event of
Default, all proceeds payable under all casualty policies shall, at the option
of Bank, be payable to Bank on account of the Obligations. If any Borrower
fails to obtain insurance as required under this Section 6.5 or to pay any
amount or furnish any required proof of payment to third persons and Bank, Bank
may make all or part of such payment or obtain such insurance policies required
in this Section 6.5, and take any action under the policies Bank deems prudent.


6.6          Operating
Accounts.


(a)           Commencing
on the date of the initial Credit Extension and continuing thereafter (i)
Maintain an operating account with Bank and (ii) cause to be maintained in
accounts of Parent, Borrower or Secured Guarantors held with Bank and Bank’s
affiliates the lesser of $15,000,000 or an amount equal to 50% of the aggregate
cash and Cash Equivalents of Borrowers, Parent and Subsidiaries of Parent.


(b)           Provide
Bank five (5) days prior written notice before Parent, any Borrower or any
Domestic Subsidiary of Parent establishes any Collateral Account at or with any
bank or financial institution other than Bank or its Affiliates. In addition,
for each Collateral Account that Parent, any Borrower or any Domestic
Subsidiary of Parent at any time maintains, Borrowers shall cause the
applicable bank or financial institution (other than Bank) at or with which any
such Collateral Account is maintained to execute and deliver a Control
Agreement or other appropriate instrument with respect to such Collateral
Account to perfect Bank’s Lien in such Collateral Account in accordance with
the terms hereunder. The provisions of the previous sentence shall not apply to
deposit accounts exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of the employees of Parent,
Borrowers or such Subsidiary and identified to Bank by Borrowers as such. Notwithstanding
the foregoing, Borrowers shall have until the expiration of sixty (60) days
following the Effective Date to provide such Control Agreements with respect to
Collateral Accounts in existence on the Effective Date.


6.7          Financial
Covenants.


Parent shall maintain at all times, to be tested as of
the last day of each month, unless otherwise noted, on a consolidated basis
with respect to Parent and its Subsidiaries:


(a)           Quick
Ratio. A ratio of Quick Assets to Current Liabilities of at least 1.3 to
1.0.


(b)           Tangible
Net Worth. A Tangible Net Worth of at least (i) $90,000,000 during the
period beginning with the Effective Date through November 30, 2006, (ii)
$95,000,000 during the period beginning with December 1, 2006 through May 31,
2007, (iii) $105,000,000 during the period beginning with June 1, 2007 through



 11
 






 



August 31, 2007, (iv) $108,000,000 during the period beginning with
September 1, 2007 through November 30, 2007 and (v) $115,000,000 beginning with
December 1, 2007 and continuing thereafter; in each of the foregoing cases (y)
the minimum Tangible Net Worth requirements will be increased by 50% of Net
Income and 50% of issuances of equity (except that, for such purpose, increases
in equity due to equity issued upon exercise of options granted under a stock
option plan of Parent, a Borrower or any predecessor thereof shall not be
included for purposes of computing such increase unless the amount of such
increase in equity in a Fiscal Quarter exceeds $500,000, in which case the
entire amount of such increase (i.e., not just the excess over $500,000) in the
Fiscal Quarter shall be included) after the Effective Date, in accordance with
this Section 6.7(b), and (z) if after the Effective Date Parent or a Subsidiary
of Parent makes a payment for a purchase or other acquisition of an asset or
company (provided that such purchase or acquisition occurred prior to the
Effective Date or is allowed under the terms of this Agreement) and because of
goodwill, intangibles or in-process research and development that were acquired
in such purchase or acquisition the Tangible Net Worth decreases, the minimum
Tangible Net Worth requirements will be decreased by the same amount. Increases
in the minimum Tangible Net Worth requirements based on consideration received
for equity securities shall be effective as of the end of the month in which
such consideration is received, and shall continue in effect thereafter;
provided that (aa) increases due to equity issued upon the exercise of options
granted under a stock option plan as described above, shall be effective as of
the end of the month during which the aggregate amount of such increases for
the Fiscal Quarter containing such month first exceeds $500,000, and (bb) all
such increases which occur in any subsequent month during such Fiscal Quarter
shall be effective as of the end of such month. Increases in the minimum
Tangible Net Worth requirements based on Net Income shall be effective on the
last day of the month in which said Net Income is realized, and shall continue
in effect thereafter. Decreases in the minimum Tangible Net Worth requirements
based on goodwill, etc. associated with payments for purchases or acquisitions
shall be effective on the last day of the month in which such payments are
accrued in accordance with GAAP, and shall continue in effect thereafter. Except
as described in this subsection with respect to purchases and acquisitions, in
no event shall the minimum Tangible Net Worth requirements be decreased.


6.8          Protection
of Intellectual Property Rights. Borrowers shall and
shall cause Parent and the Subsidiaries of Parent to:  (a) protect, defend and maintain the validity
and enforceability of the intellectual property that is material to Borrower’s
and/or Parent’s business; (b) promptly advise Bank in writing of material
infringements of the intellectual property that is material to Borrower’s
and/or Parent’s business; and (c) not allow any intellectual property that, to
any Borrower’s knowledge, is material to any Borrower’s and/or Parent’s
business to be abandoned, forfeited or dedicated to the public without Bank’s
written consent.


6.9          Litigation
Cooperation. From the date hereof and continuing
through the termination of this Agreement, make available to Bank, without expense
to Bank, Borrowers and their officers, employees and agents and each Borrower’s
books and records, to the extent that Bank may deem them reasonably necessary
to prosecute or defend any third-party suit or proceeding instituted by or
against Bank with respect to any Collateral or relating to any Borrower.


6.10        Landlord
Consents. At Bank’s request Borrowers shall obtain for
Bank landlord consents with respect to locations at which Collateral is located
in form acceptable to Bank in its good faith discretion.


6.11        Further
Assurances. Borrowers shall execute any further
instruments and take further action as Bank reasonably requests to perfect or
continue Bank’s Lien in the Collateral or to effect the purposes of this
Agreement.


7              NEGATIVE COVENANTS


No Borrower shall
do any of the following without Bank’s prior written consent:


7.1          Dispositions.
Convey, sell, lease, transfer or otherwise dispose of (collectively “Transfer”),
or permit Parent or any of the Subsidiaries of Parent to Transfer, all or any
part of such Person’s business or property, except for:


(a)           Transfers in the ordinary course of
business (excluding Transfers of Accounts, but including Transfers of used
Financed Equipment subject to the limit set forth below in this Section 7.1)
for reasonably equivalent consideration;



 12
 






 



(b)           Transfers (i) from any Borrower to
Parent or to any other Borrower, (ii) from any Subsidiary of Parent (other than
a Borrower) to Parent, any Borrower or any Secured Guarantor, or (iii) from any
foreign Subsidiary of Parent to Parent, any Borrower or any other Subsidiary of
Parent;


(c)           Transfers of property (excluding
Transfers of Inventory outside the ordinary course of business and Transfers of
Accounts, but including Transfers of used Financed Equipment subject to the limit
set forth below in this Section 7.1 and including licenses of intellectual
property) for fair market value;


(d)           Transfers of property (other than
Accounts, Inventory outside the ordinary course of business, Financed
Equipment, or intellectual property) in connection with sale-leaseback
transactions;


(e)           Transfers of property (other than
Accounts, Inventory outside the ordinary course of business, Financed
Equipment, or intellectual property) to the extent such property is exchanged
for credit against, or proceeds are promptly applied to, the purchase price of
other property used or useful in the business of a Borrower or the transferor;


(f)            Transfers constituting non-exclusive
licenses and similar arrangements for the use of the property of the transferor
in the ordinary course of business and other non-perpetual licenses that may be
exclusive in some respects other than territory (and/or that may be exclusive
as to territory only in discreet geographical areas outside of the United
States), but that could not result in a legal transfer of transferor’s title in
the licensed property;


(g)           Transfers otherwise expressly
permitted by the Loan Documents;


(h)           sales or discounting of delinquent
accounts in the ordinary course of business;


(i)            Transfers associated with the making
or disposition of a Permitted Investment; and


(j)            Provided no Event of Default exists
or will occur as a result thereof, any exclusive or non-exclusive license
(other than to Accounts, Inventory or Financed Equipment) granted in consideration
of or to settle any claim or dispute.


Notwithstanding the foregoing, Transfers of
used Financed Equipment shall not be permitted under “a” or “c” of this Section
7.1 in a Fiscal Quarter of Borrower to the extent that the aggregate fair
market value of all used Financed Equipment transferred in such Fiscal Quarter
for all Borrowers exceeds $150,000.


7.2          Changes in Business; Change in
Control; Jurisdiction of Formation. Engage in any
material line of business other than those lines of business conducted by
Borrowers and their Subsidiaries on the date hereof and any businesses
reasonably related, complementary or incidental thereto or reasonable
extensions thereof; permit or suffer any Change in Control. No Borrower will,
without prior written notice, change its jurisdiction of formation.


7.3          Mergers or Acquisitions.
Merge or consolidate, or permit Parent or any Subsidiary of Parent to merge or
consolidate, with any Person other than a merger of (a) any Subsidiary into any
Borrower with such Borrower being the surviving Person, (b) any Subsidiary of
Parent (other than a Borrower) into a Secured Guarantor, with such Secured
Guarantor being the surviving Person, (c) any foreign Subsidiary of Parent into
another foreign Subsidiary of Parent, (d) ev3 Santa Rosa, Inc. into ev3
International, Inc., with ev3 International, Inc. being the surviving Person,
and (e) any of EndiCOR Medical, Incorporated, ev3 Sunnyvale, Inc. or ev3
Technologies, Inc into ev3 Peripherals, Inc., with ev3 Peripherals being the
survivor; provided in each case that no Event of Default then exists or shall
result therefrom.


7.4          Indebtedness.
Create, incur, assume, or be liable for any Indebtedness, or permit Parent or
any Subsidiary of Parent 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
Parent or any of its Subsidiaries to do so, except for Permitted Liens; permit
any Collateral not to be subject to the first priority security interest
granted herein, permit any collateral provided by any Guarantor not to be
subject to the first priority security interest granted in the Loan Documents
by such Guarantor; or enter or allow Parent or any Subsidiary of Parent to
enter into any



 13
 






 



agreement, document, instrument or other arrangement (except with or in
favor of Bank) with any Person which directly or indirectly prohibits or has
the effect of prohibiting any Borrower, Parent or any Subsidiary of Parent from
assigning, mortgaging, pledging, granting a security interest in or upon, or
encumbering any of Borrower’s, Parent’s or any of such Subsidiarys’
intellectual property, except as is otherwise permitted in Section 7.1 hereof
and the definition of “Permitted Lien” herein.


7.6          Maintenance
of Collateral Accounts. Maintain any Collateral
Account except pursuant to the terms of Section 6.6.(b) hereof.


7.7          Distributions;
Investments. (a) Directly or indirectly acquire
or own any Person, or make any Investment in any Person, other than Permitted
Investments, or permit Parent or any of Parent’s Subsidiaries to do so; or (b)
pay any dividends or make any distribution or payment or redeem, retire or
purchase any capital stock other than Permitted Distributions, or permit Parent
or any of Parent’s Subsidiaries to do so.


7.8          Transactions
with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of any Borrower
except for (a) transactions that are in the ordinary course of business, upon
fair and reasonable terms (when viewed in the context of any series of
transactions of which it may be a part, if applicable) that are no less
favorable to Borrowers than would be obtained in an arm’s length transaction
with a non-affiliated Person; or (b) transactions with Parent or any of
Parent’s Subsidiaries so long as no Event of Default exists or could result
therefrom.


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 (as
defined in Regulation U of the Board of Governors of the Federal Reserve
System), 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 any
Borrower’s or Parent’s business, or permit Parent or any of Parent’s
Subsidiaries to do so; withdraw or permit Parent or any Subsidiary of Parent to
withdraw from participation in, permit partial or complete termination of, or
permit the occurrence of any other event with respect to, any present pension,
profit sharing and deferred compensation plan which could reasonably be
expected to result in any liability of such Person, including any liability to
the Pension Benefit Guaranty Corporation or its successors or any other
governmental agency.


8              EVENTS OF DEFAULT


Any one of the
following shall constitute an event of default (an “Event of Default”) under
this Agreement:


8.1          Payment Default.
Any Borrower fails within three (3) Business Days of when due to make any
payment of principal or interest on any Credit Extension or other Obligation. During
the cure period, the failure to cure the payment default is not an Event of
Default (but no Credit Extension will be made during the cure period);


8.2          Covenant Default.


(a)           Any Borrower fails or neglects to
perform any obligation in Sections 6.2, 6.6, or 6.7 or violates any covenant in
Section 7; or


(b)           Any Borrower fails or neglects to
perform, keep, or observe any other term, provision, condition, covenant or
agreement contained in this Agreement or any Loan Documents, and as to any
default (other than those specified in this Section 8) under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure the 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 such Borrower be cured within
such ten (10) day period, and such default is likely to be cured within a
reasonable time, then such Borrower shall have an additional 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 cure the default shall
not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period). Grace periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in subsection (a) above;



 14
 






 



8.3          Material
Adverse Change. A Material Adverse Change occurs;


8.4          Attachment. (a)
Any material portion of the assets of any Borrower, Parent or any Subsidiary of
Parent is attached, seized, levied on, or comes into possession of a trustee or
receiver and the attachment, seizure or levy is not removed in ten (10) days;
(b) the service of process upon Bank seeking to attach, by trustee or
similar process, any funds of any Borrower, Parent or any Subsidiary of Parent
on deposit with Bank; (c) any Borrower, Parent or any Subsidiary of Parent is
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (d) a judgment or other claim in excess of $100,000
becomes a Lien on any of the assets of any Borrower, Parent or any Subsidiary
of Parent; or (e) a notice of lien, levy, or assessment is filed against any of
the assets of any Borrower, Parent or any Subsidiary of Parent by any
government agency and not paid within ten (10) days after any Borrower, Parent
or any Subsidiary of Parent receives notice. These are not Events of Default if
stayed or if a bond is posted pending contest by such Borrower, Parent or such
Subsidiary of Parent (as applicable). No Credit Extensions shall be made during
any cure period, notwithstanding any stay or bond;


8.5          Insolvency. (a) Any
Borrower, Parent or any Subsidiary of Parent is unable to pay its debts
(including trade debts) as they become due or otherwise becomes insolvent; (b)
any Borrower, Parent or any Subsidiary of Parent begins an Insolvency
Proceeding; or (c) an Insolvency Proceeding is begun against any Borrower,
Parent or any Subsidiary of Parent and not dismissed or stayed within thirty
(30) days (but no Credit Extensions shall be made while of any of the
conditions described in clause (a) exist and/or until any Insolvency Proceeding
is dismissed);


8.6          Other Agreements.
If any Borrower, Parent or any Subsidiary of Parent fails to (a) make any
payment that is due and payable with respect to any Material Indebtedness and
such failure continues after the applicable grace or notice period, if any,
specified in the agreement or instrument relating thereto, or (b) perform
or observe any other condition or covenant, or any other event shall occur or
condition exist under any agreement or instrument relating to any Material
Indebtedness, and such failure continues after the applicable grace or notice
period, if any, specified in the agreement or instrument relating thereto and
the effect of such failure, event or condition is to cause the holder or
holders of such Material Indebtedness to accelerate the maturity of such
Material Indebtedness or cause the mandatory repurchase of any Material Indebtedness;


8.7          Judgments. A
judgment or judgments for the payment of money in an amount, individually or in
the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered
by independent third-party insurance) shall be rendered against any Borrower,
Parent or any Subsidiary of Parent and shall remain unsatisfied and unstayed
for a period of ten (10) days after the entry thereof (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);


8.8          Misrepresentations.
Any Borrower, Parent or any Subsidiary of Parent or any Person acting therefor
makes any representation, warranty, or other statement now or later in this
Agreement, any Loan Document or in any writing delivered to Bank or to induce
Bank to enter this Agreement or any Loan Document, and such representation,
warranty, or other statement is incorrect in any material respect when made;


8.9          Subordinated Debt.
A default or breach occurs under any agreement between any Borrower, Parent or
any Subsidiary of Parent and any creditor of Borrower, Parent or any Subsidiary
of Parent that signed a subordination, intercreditor, or other similar
agreement with Bank, or any creditor that has signed such an agreement with
Bank breaches any terms of such agreement; or


8.10        Cross-Default. A
default or breach occurs under any agreement between or by a Guarantor, with or
in favor of Bank, which default or breach shall not have been cured or waived
within any applicable grace period.


9              BANK’S
RIGHTS AND REMEDIES


9.1          Rights and Remedies.
While 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);



 15
 






 



(b)           stop advancing money or extending
credit for Borrowers’ benefit under this Agreement or under any other agreement
between any Borrower and Bank, including, without limitation, by terminating
the Revolving Line effective immediately;


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


(d)           terminate
any FX Forward Contracts;


(e)           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
any Borrower money of Bank’s security interest in such funds, and verify the
amount of such account;


(f)            make
any payments and do any acts it considers necessary or reasonable to protect
the Collateral and/or its security interest in the Collateral. Borrowers shall
assemble the Collateral if Bank requests 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. Each Borrower grants Bank a license to
enter and occupy any of its premises, without charge, to exercise any of Bank’s
rights or remedies;


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


(h)           ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral. Bank is hereby granted a non-exclusive,
royalty-free license or other right to use, without charge, each Borrower’s
labels, patents, copyrights, mask works, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
similar property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section, each Borrower’s rights under all
licenses and all franchise agreements inure to Bank’s benefit;


(i)            place
a “hold” on any account maintained with Bank and/or 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;


(j)            demand
and receive possession of each Borrower’s Books; and


(k)           exercise
all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of
the Collateral pursuant to the terms thereof).


9.2          Power
of Attorney. Each Borrower hereby irrevocably appoints
Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during
the continuance of an Event of Default, to: 
(a) endorse such Borrower’s name on any checks or other forms of payment
or security; (b) sign such Borrower’s name on any invoice or bill of lading for
any Account or drafts against Account Debtors; (c) settle and adjust disputes
and claims about the Accounts directly with Account Debtors, for amounts and on
terms Bank determines reasonable; (d) make, settle, and adjust all claims under
such Borrower’s insurance policies; (e) pay, contest or settle any Lien,
charge, encumbrance, security interest, and adverse claim in or to the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; and (f) transfer the Collateral into the name
of Bank or a third party as the Code permits. Each Borrower hereby appoints
Bank as its lawful attorney-in-fact to sign such 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 until all
Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank’s foregoing appointment as such
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.



 16
 






 



9.3          Accounts
Verification; Collection. Whether or not an Event of
Default has occurred and is continuing, Bank may notify any Person owing any
Borrower money of Bank’s security interest in such funds and verify the amount
of such account. After the occurrence of an Event of Default, any amounts
received by any Borrower shall be held in trust by such Borrower for Bank, and,
if requested by Bank, such Borrower shall immediately deliver such receipts to
Bank in the form received from the Account Debtor, with proper endorsements for
deposit.


9.4          Protective
Payments. If any Borrower fails to obtain the
insurance called for by Section 6.5 or fails to pay any premium thereon or
fails to pay any other amount which such Borrower is obligated to pay under
this Agreement or any other Loan Document, Bank may obtain such insurance or
make such payment, and all amounts so paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then highest applicable
rate, and secured by the Collateral. Bank will make reasonable efforts to
provide such Borrower with notice of Bank obtaining such insurance at the time
it is obtained or within a reasonable time thereafter. No payments by Bank are
deemed an agreement to make similar payments in the future or Bank’s waiver of
any Event of Default.


9.5          Application
of Payments and Proceeds. Unless an Event of Default
has occurred and is continuing, Bank shall apply any funds in its possession,
whether from Borrower account balances, payments, or proceeds realized as the
result of any collection of Accounts or other disposition of the Collateral,
first, to Bank Expenses, including without limitation, the reasonable costs,
expenses, liabilities, obligations and attorneys’ fees incurred by Bank in the
exercise of its rights under this Agreement; second, to the interest due upon
any of the Obligations; and third, to the principal of the Obligations and any
applicable fees and other charges, in such order as Bank shall determine in its
sole discretion. Any surplus shall be paid to Borrowers or other Persons
legally entitled thereto; Borrowers shall remain liable to Bank for any
deficiency. If an Event of Default has occurred and is continuing, Bank may
apply any funds in its possession, whether from Borrower account balances,
payments, proceeds realized as the result of any collection of Accounts or
other disposition of the Collateral, or otherwise, to the Obligations in such
order as Bank shall determine in its sole discretion. Any surplus shall be paid
to Borrowers or other Persons legally entitled thereto; Borrowers shall remain
liable to Bank for any deficiency. If Bank, in its good faith business
judgment, directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the
option, exercisable at any time, of either reducing the Obligations by the
principal amount of the purchase price or deferring the reduction of the
Obligations until the actual receipt by Bank of cash therefor.


9.6          Bank’s
Liability for Collateral. So long as Bank complies
with reasonable banking practices regarding the safekeeping of the Collateral
in the possession or under the control of Bank, Bank shall not be liable or
responsible 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. Borrowers
bear all risk of loss, damage or destruction of the Collateral.


9.7          No
Waiver; Remedies Cumulative. Bank’s failure, at any
time or times, to require strict performance by any Borrower of any provision
of this Agreement or any other Loan Document shall not waive, affect, or diminish
any right of Bank thereafter to demand strict performance and compliance
herewith or therewith. No waiver hereunder shall be effective unless signed by
Bank and then is only effective for the specific instance and purpose for which
it is given. Bank’s rights and remedies under this Agreement and the other Loan
Documents 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 in exercising any remedy is not a waiver, election, or
acquiescence.


9.8          Demand
Waiver. Each 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 any Borrower is liable.


10           NOTICES


All notices,
consents, requests, approvals, demands, or other communication (collectively, “Communication”) by any party to this Agreement or any other
Loan Document must be in writing and shall be deemed to have been validly
served, given, or delivered: (a) upon the earlier of actual receipt and three
(3) Business



 17
 






 



Days after deposit in the U.S. mail, first class,
registered or certified mail return receipt requested, with proper postage
prepaid; (b) upon transmission, when sent by electronic mail or facsimile
transmission; (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid; or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address, facsimile number, or email address indicated below. Bank or
Borrowers may change their address or facsimile number by giving the other
party written notice thereof in accordance with the terms of this Section 10. A
single Communication made by Bank pursuant to one of the foregoing methods to
the address for Borrowers below shall be deemed a Communication to any and all
Borrowers.


	
  

  	
  If to any
  Borrower or all Borrowers:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  c/o ev3 Inc.

  	
   

  
	
   

  	
  9600 54th Avenue North

  	
   

  
	
   

  	
  Plymouth, MN
  55442

  	
   

  
	
   

  	
  Attn: Chief
  Financial Officer

  	
   

  
	
   

  	
  Fax:
  763.398.7647

  	
   

  
	
   

  	
  Email:  pspangler@ev3.net

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  If to Bank:

  	
  Silicon Valley Bank

  	
   

  
	
   

  	
  301 Carlson Parkway, Suite 255

  	
   

  
	
   

  	
  Minnetonka, MN 55305

  	
   

  
	
   

  	
  Attn: Mr. Jay McNeil

  	
   

  
	
   

  	
  Fax:  952.475.8471

  	
   

  
	
   

  	
  Email: jmcneil@svbank.com

  	
   

  



 


11           CHOICE OF LAW, VENUE, JURY TRIAL
WAIVER AND JUDICIAL REFERENCE


California law
governs the Loan Documents without regard to principles of conflicts of law. Each
Borrower and Bank submit to the exclusive jurisdiction of the State and Federal
courts in Santa Clara County, California; provided, however, that nothing in
this Agreement shall be deemed to operate to preclude Bank from bringing suit
or taking other legal action in any other jurisdiction to realize on the
Collateral or any other security for the Obligations, or to enforce a judgment
or other court order in favor of Bank. Each Borrower expressly submits and
consents in advance to such jurisdiction in any action or suit commenced in any
such court, and each Borrower hereby waives any objection that it may have
based upon lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or equitable
relief as is deemed appropriate by such court. Each Borrower hereby waives
personal service of the summons, complaints, and other process issued in such
action or suit and agrees that service on Borrower of such summons, complaints,
and other process may be made by registered or certified mail addressed as set
forth in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid.


TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND BANK WAIVE THEIR
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT, 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.


WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’
AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above
waiver of the right to a trial by jury is not enforceable, the parties hereto
agree that any and all disputes or controversies of any nature between them
arising at any time shall be decided by a reference to a private judge,
mutually selected by the parties (or, if they cannot agree, by the Presiding
Judge of the Santa Clara County, California Superior Court) appointed in
accordance with California Code of Civil Procedure Section 638 (or pursuant to
comparable provisions of federal law if the dispute falls within the exclusive
jurisdiction of the federal courts), sitting without a jury, in Santa Clara
County, California; and the parties hereby submit to the jurisdiction of such
court. The reference proceedings shall be conducted pursuant to and in



 18
 






 



accordance with
the provisions of California Code of Civil Procedure §§ 638 through 645.1,
inclusive. The private judge shall have the power, among others, to grant
provisional relief, including without limitation, entering temporary
restraining orders, issuing preliminary and permanent injunctions and
appointing receivers. All such proceedings shall be closed to the public and
confidential and all records relating thereto shall be permanently sealed. If
during the course of any dispute, a party desires to seek provisional relief,
but a judge has not been appointed at that point pursuant to the judicial
reference procedures, then such party may apply to the Santa Clara County,
California Superior Court for such relief. The proceeding before the private
judge shall be conducted in the same manner as it would be before a court under
the rules of evidence applicable to judicial proceedings. The parties shall be
entitled to discovery which shall be conducted in the same manner as it would
be before a court under the rules of discovery applicable to judicial
proceedings. The private judge shall oversee discovery and may enforce all
discovery rules and order applicable to judicial proceedings in the same manner
as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in
this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclose against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.


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. No Borrower may assign this Agreement or any rights or
obligations 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 any 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 and the other Loan Documents.


12.2        Indemnification.
Borrowers agree to indemnify, defend and hold Bank and its directors, officers,
employees, agents, attorneys, or any other Person affiliated with or
representing Bank harmless against: 
(a) all obligations, demands, claims, and liabilities
(collectively, “Claims”) 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 arising from
transactions between Bank and any Borrower (including reasonable attorneys’
fees and expenses), except for Claims and/or losses directly caused by Bank’s
gross negligence or willful misconduct.


12.3        Limitation of Actions.
Any claim or cause of action by any Borrower against Bank, its directors,
officers, employees, agents, accountants, attorneys, or any other Person
affiliated with or representing Bank based upon, arising from, or relating to
this Loan Agreement or any other Loan Document, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Bank, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by such Borrower by the commencement
of an action or proceeding in a court of competent jurisdiction by (a) the
filing of a complaint within one year from the earlier of (i) the date any of
such Borrower’s officers or directors had knowledge of the first act, the
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, or (ii) the date this Agreement is terminated, and (b) the
service of a summons and complaint on an officer of Bank, or on any other
person authorized to accept service on behalf of Bank, within thirty (30) days
thereafter. Each Borrower agrees that such one-year period is a reasonable and
sufficient time for such Borrower to investigate and act upon any such claim or
cause of action. The one-year period provided herein shall not be waived,
tolled, or extended except by the written consent of Bank in its sole
discretion. This provision shall survive any termination of this Loan Agreement
or any other Loan Document.


12.4        Time of Essence.
Time is of the essence for the performance of all Obligations in this
Agreement.


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


12.6        Amendments in Writing; Integration.
All amendments to this Agreement must be in writing signed by both Bank and the
Borrowers. This Agreement and the Loan Documents represent the entire agreement
about this subject matter and supersede prior negotiations or agreements. All
prior agreements, understandings,



 19
 






 



representations, warranties, and negotiations
between the parties about the subject matter of this Agreement and the Loan
Documents merge into this Agreement and the Loan Documents.


12.7        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.


12.8        Survival. All
covenants, representations and warranties made in this Agreement continue in
full force until this Agreement has terminated pursuant to its terms and all
Obligations (other than inchoate indemnity obligations and any other
obligations which, by their terms, are to survive the termination of this
Agreement) have been satisfied. The obligation of each Borrower in Section 12.2
to indemnify Bank shall survive until the statute of limitations with respect
to such claim or cause of action shall have run.


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


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


12.11      Joint and Several Liability. Borrowers’ liability for the Obligations
shall be joint and several, and the compromise of any claim with, or the release
of, any Borrower shall not constitute a compromise with, or a release of, any
other Borrower.


13           DEFINITIONS


13.1        Definitions.
As used in this Agreement, the following terms have the following meanings:


“Account” is any “account” as defined in the Code with such
additions to such term as may hereafter be made, and includes, without
limitation, all accounts receivable and other sums owing to any Borrower.


“Account Debtor” is any “account debtor” as defined in the
Code with such additions to such term as may hereafter be made.


“Advance” or “Advances” means
an advance (or advances) under the Revolving Line.


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


“Agreement” is defined in the preamble hereof.


“Availability Amount” is (a) the lesser of (i) the Revolving
Line or (ii) the greater of $12,000,000 or the Borrowing Base; minus
(b) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit
Reserves, minus (c) the amounts used for Cash Management Services, minus
(d) the FX Reserve, and minus (e) the outstanding principal balance of any
Advances.


“Bank” is defined in the preamble hereof.



 20















“Bank Expenses” are all audit fees and expenses, costs, and
expenses (including reasonable attorneys’ fees and expenses) for preparing,
amending, negotiating, administering, defending and enforcing the Loan
Documents (including, without limitation, those incurred in connection with
appeals or Insolvency Proceedings) or otherwise incurred with respect to any
Borrower.


“Borrowers” is defined in the preamble hereof.


“Borrower’s Books” are all of each Borrower’s books and
records including ledgers, federal and state tax returns, records regarding
such Borrower’s assets or liabilities, the Collateral, business operations or
financial condition, and all computer programs or storage or any equipment
containing such information.


“Borrowing Base” is (a) 80% of Eligible Accounts plus (b) the
lesser of (i) 30% of the value of Borrowers Eligible Inventory (valued at the
lower of cost or wholesale fair market value), (ii) 33% of an amount equal to
80% of Eligible Accounts, or (iii) $7,500,000, as determined by Bank from
Borrowers’ most recent Borrowing Base Certificate; provided, however, that Bank
may decrease the foregoing percentages in its good faith business judgment,
effective upon written notice to Borrowers, based on events, conditions,
contingencies, or risks which, as determined by Bank, may adversely affect
Collateral.


“Borrowing Base Certificate” is that certain certificate in
the form attached hereto as Exhibit C.


“Borrowing Resolutions” are, with respect to any Person,
those resolutions adopted by such Person’s Board of Directors and delivered by
such Person to Bank approving the Loan Documents to which such Person is a
party and the transactions contemplated thereby, together with a certificate
executed by its secretary on behalf of such Person certifying that
(a) such Person has the authority to execute, deliver, and perform its
obligations under each of the Loan Documents to which it is a party,
(b) that attached as Exhibit A to such certificate is a true, correct, and
complete copy of the resolutions then in full force and effect authorizing and
ratifying the execution, delivery, and performance by such Person of the Loan
Documents to which it is a party, (c) the name(s) of the Person(s) authorized
to execute the Loan Documents on behalf of such Person, together with a sample
of the true signature(s) of such Person(s), and (d) that Bank may
conclusively rely on such certificate unless and until such Person shall have
delivered to Bank a further certificate canceling or amending such prior
certificate.


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


“Cash Equivalents” means marketable securities as defined by
GAAP.


“Cash Management Services” is
defined in Section 2.1.4.


“Change in Control” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange Act”)), other than a trustee or other fiduciary holding securities under an employee benefit plan of Parent, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Parent, representing fifty-one percent (51%) or more of the combined voting power of Parent’s then outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Board of Directors of Parent (together with any new directors whose election by the Board of Directors of Parent was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; or (c) any Borrower is no longer a wholly-owned subsidiary of Parent, or a wholly-owned subsidiary of a wholly-owned subsidiary of Parent, or a wholly-owned subsidiary of a wholly-owned subsidiary of a wholly-owned subsidiary of Parent.
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other

 21
 






 

jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.


“Collateral” is any and all properties, rights and assets of
each Borrower described on Exhibit A.


“Collateral Account” is any Deposit Account, Securities
Account, or Commodity Account.


“Commodity Account” is any “commodity account” as defined in
the Code with such additions to such term as may hereafter be made.


“Communication” is defined in Section 10.


“Compliance Certificate” is that certain certificate in the
form attached hereto as Exhibit D.


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


“Control Agreement” is any control agreement entered into
among the depository institution at which a Person maintains a Deposit Account
or the securities intermediary or commodity intermediary at which a Person
maintains a Securities Account or a Commodity Account, such Person, and Bank
pursuant to which Bank obtains control (within the meaning of the Code) over
such Deposit Account, Securities Account, or Commodity Account.


“Credit Extension” is any Advance, Equipment Advance, Letter
of Credit, FX Forward Contract, amount utilized for Cash Management Services,
or any other extension of credit by Bank for any Borrower’s benefit.


“Current Liabilities” are (a) all obligations and liabilities
of Parent and its Subsidiaries, on a consolidated basis, to Bank that mature
within one (1) year, plus, (b) without duplication, all uses of the Revolving
Line (including, without limitation, (i) the amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an
amount equal to the Letter of Credit Reserves, (ii) the amounts used for
Cash Management Services, (iii) the FX Reserve, and (iv) the outstanding
principal balance of any Advances under the Revolving Line (including any
amounts used for Cash Management Services)), plus, (c) without duplication, the
aggregate amount of Parent’s and its Subsidiaries’ Total Liabilities, on a consolidated
basis, that mature within one (1) year and the current portion of any
Subordinated Debt permitted by Bank to be paid by any Borrower.


“Default”
means any event which with notice or passage of time or both, would constitute
an Event of Default.


“Default Rate” is defined in Section 2.3(b).


“Deferred Revenue” is all amounts received or invoiced in
advance of performance under contracts and not yet recognized as revenue.


“Deposit Account” is any “deposit account” as defined in the
Code with such additions to such term as may hereafter be made.


“Designated Deposit Account” is Borrower’s deposit account,
account number                          ,
maintained with Bank.


“Dollars,” “dollars” and “$” each mean lawful money of the United States.



 22
 






 



“Domestic Subsidiary” means a Subsidiary organized under the
laws of the United States or any state or territory thereof or the District of
Columbia.


“Draw Period” is the period of time from the Effective Date
through the earliest to occur of (a) June 26, 2007, (b) any Event of
Default, or (c) any Default.


“Effective Date” is the date Bank executes this Agreement and
as indicated on the signature page hereof.


“Eligible Accounts” are, collectively, Eligible Domestic
Accounts and Eligible Foreign Accounts.


“Eligible Domestic Accounts” are Accounts which arise in the
ordinary course of the applicable Borrower’s business that meet all Borrowers’
representations and warranties in Section 5.3. Bank reserves the right at any
time and from time to time after the Effective Date upon written notice to
Borrowers, to adjust any of the criteria set forth below and to establish new
criteria in its good faith business judgment. Unless Bank agrees otherwise in
writing, Eligible Domestic Accounts shall not include:


(a)           Accounts
for which the Account Debtor has not been invoiced;


(b)           Accounts
that the Account Debtor has not paid within 120 days of invoice date;


(c)           Accounts
owing from an Account Debtor, fifty percent (50%) or more of whose Accounts
have not been paid within 120 days of invoice date;


(d)           Credit
balances over 120 days from invoice date;


(e)           Accounts
owing from an Account Debtor, including Affiliates, whose total obligations to
Borrowers exceed twenty-five percent (25%) of all Accounts, for the amounts
that exceed that percentage, unless Bank approves in writing;


(f)            Accounts
owing from an Account Debtor which does not have its principal place of
business in the United States;


(g)           Accounts
owing from an Account Debtor which is a federal, state or local government
entity or any department, agency, or instrumentality thereof, that Bank
determines in its good faith business judgment are ineligible for loan purposes
hereunder (without limiting the generality of the foregoing, Bank may in its
good faith business judgment require that Borrowers assign to Bank their right
to payment of Accounts owing from an Account Debtor which is a federal entity,
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.
Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.));


(h)           Accounts
owing from an Account Debtor to the extent that any Borrower is indebted or
obligated in any manner to the Account Debtor (as creditor, lessor, supplier or
otherwise - sometimes called “contra” accounts, accounts payable, customer
deposits or credit accounts), with the exception of customary credits,
adjustments and/or discounts given to an Account Debtor by such Borrower in the
ordinary course of its business;


(i)            Accounts
for demonstration or promotional equipment, or in which goods are consigned, or
sold on a “sale guaranteed”, “sale or return”, “sale on approval”, “bill and
hold”, or other terms if Account Debtor’s payment may be conditional;


(j)            Accounts
for which the Account Debtor is any Borrower’s Affiliate, officer, employee, or
agent;


(k)           Accounts
in which the Account Debtor disputes liability or makes any claim (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;


(l)            Accounts
owing from an Account Debtor with respect to which any Borrower has received
deferred revenue (but only to the extent of such deferred revenue);


(m)          Accounts
for which Bank in its good faith business judgment determines collection to be
doubtful;



 23
 






 



(n)           Accounts
which arise from the licensing or sale of registered copyrights or are
otherwise proceeds of registered copyrights; and


(o)           other
Accounts Bank deems ineligible in the exercise of its good faith business
judgment.


“Eligible Equipment” is the following to the extent that it
complies with all of Borrowers’ representations and warranties to Bank, is
acceptable to Bank in all respects and is subject to a first priority Lien in
favor of Bank: (a) all of Borrowers’ general purpose new or used equipment used
in the manufacture, storage and distribution, of the products of Parent,
Borrowers or Subsidiaries of Parent, including lasers, computer equipment,
office equipment, test and laboratory equipment and furnishings, subject to the
limitations set forth herein, and (b) Other Equipment.


“Eligible Equipment Purchase Period” is defined in
Section 2.1.5(a).


“Eligible Foreign Accounts” are Accounts for which the
Account Debtor does not have its principal place of business in the United
States but are otherwise Eligible Accounts that Bank has not disapproved in its
good faith business judgment.


“Eligible Inventory” means, at any time, the aggregate of
Borrowers’ Inventory that (a) consists of raw materials or finished goods, in
good, new, and salable condition, which is not perishable, returned, 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 Trunk
Inventory or is located at (i) the locations of Borrowers designated in
Borrowers’ Perfection Certificates, (ii) new locations of Borrowers within the
United States for which Borrowers have given Bank 30 days’ prior written
notice, or (ii) the premises of consignees of such Inventory; and (f) is
otherwise acceptable to Bank in its good faith business judgment.


“Equipment” is all “equipment” as defined in the Code with
such additions to such term as may hereafter be made, and includes without
limitation all machinery, fixtures, goods, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing.


“Equipment Advance” is defined in
Section 2.1.5.


“Equipment Line” is an
Equipment Advance or Equipment Advances in an aggregate amount of up to
$7,500,000.


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


“Event of Default” is defined in Section 8.


“Event of Loss” is defined in Section 2.1.5(c).


“Excess Initial Equipment Advance” is defined in Section
2.1.5(a)(i).


“Financed Equipment” is all present and future Eligible
Equipment in which any Borrower has any interest, the purchase of which is
financed by an Equipment Advance.


“Fiscal Quarter” means one of the four 13-week periods during
each fiscal year of Parent, each consisting of one five-week and two four-week
periods.


“Foreign Currency” means lawful money of a country other than
the United States.


“Foreign Subsidiary” means any Subsidiary which is not a
Domestic Subsidiary.


“Funding Date” is any date on which a Credit Extension is
made to or on account of any Borrower which shall be a Business Day.



 24
 






 



“FX Business Day” is any day when (a) Bank’s Foreign Exchange
Department is conducting its normal business and (b) the Foreign Currency being
purchased or sold by any Borrower is available to Bank from the entity from
which Bank shall buy or sell such Foreign Currency.


“FX Forward Contract” is defined in
Section 2.1.3.


“FX Reserve” is defined in
Section 2.1.3.


“GAAP” is generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other Person as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.


“General Intangibles” is all “general intangibles” as defined
in the Code in effect on the date hereof with such additions to such term as
may hereafter be made, and includes without limitation, all copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, trademarks, service marks and, to the extent permitted under
applicable law, any applications therefor, whether registered or not, any trade
secret rights, including any rights to unpatented inventions, payment
intangibles, royalties, contract rights, goodwill, franchise agreements,
purchase orders, customer lists, route lists, telephone numbers, domain names,
claims, income and other tax refunds, security and other deposits, options to
purchase or sell real or personal property, rights in all litigation presently
or hereafter pending (whether in contract, tort or otherwise), insurance
policies (including without limitation key man, property damage, and business
interruption insurance), payments of insurance and rights to payment of any
kind.


“Guarantor” is any present or future guarantor of the
Obligations.


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


“Insolvency Proceeding” is any proceeding 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 all “inventory” as defined in the Code in effect
on the date hereof with such additions to such term as may hereafter be made,
and includes without limitation all merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products, including without limitation such inventory as is temporarily out of
Borrowers’ custody or possession or in transit and including any returned goods
and any documents of title representing any of the above.


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


“Letter of Credit” means a letter of credit issued by Bank or
another institution based upon an application, guarantee, indemnity or similar
agreement on the part of Bank as set forth in Section 2.1.2.


“Letter of Credit Application” is defined in Section
2.1.2(a).


“Letter of Credit Reserve” has the meaning set forth in
Section 2.1.2(d).


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


“Loan Amount” in respect of each Equipment Advance is the
original principal amount of such Equipment Advance.


“Loan Documents” are, collectively, this Agreement, the
Perfection Certificates, any note, or notes, or guaranties, or security
agreements, or pledge agreements executed by any Borrower or any Guarantor, and
any other



 25
 






 



present or future agreement between any Borrower any
Guarantor and/or for the benefit of Bank in connection with this Agreement, all
as amended, restated, or otherwise modified.


“Material Adverse Change” is (a) a material impairment in the
perfection or priority of Bank’s Lien in the Collateral or in the value of such
Collateral; or (b) a material adverse change in the business, operations, financial
or other conditions of any Borrower, Parent or any Subsidiary of Parent that
could reasonably be expected to impact the ability of the Borrowers to repay
the Obligations or otherwise perform any of their Obligations under the Loan
Documents.


“Material Indebtedness” is any Indebtedness the principal
amount of which is equal to or greater than $1,000,000.


“Net Income” means, as calculated on a consolidated basis for
Borrowers and their Subsidiaries for any period as at any date of
determination, the net profit (or loss), after provision for taxes, of Borrower
and their Subsidiaries for such period taken as a single accounting period.


“Non-cash Stock Compensation Expense” shall mean what is
reported therefor by Parent in its financial statements.


“Obligations” are the aggregate of each Borrower’s obligation
to pay when due any debts, principal, interest, Bank Expenses and other amounts
Borrowers and each of them owes Bank now or later, whether under this
Agreement, the Loan Documents, or otherwise, including, without limitation, all
obligations relating to letters of credit, cash management services, and
foreign exchange contracts, if any, and including interest accruing after
Insolvency Proceedings begin and debts, liabilities, or obligations of any Borrower
assigned to Bank, and the performance of each Borrower’s duties under the Loan
Documents.


“Operating Documents” are, for any Person, such Person’s
formation documents, as certified with the Secretary of State of such Person’s
state of formation on a date that is no earlier than 30 days prior to the
Effective Date, and, (a) if such Person is a corporation, its bylaws in current
form, (b) if such Person is a limited liability company, its limited liability
company agreement (or similar agreement), and (c) if such Person is a
partnership, its partnership agreement (or similar agreement), each of the
foregoing with all current amendments or modifications thereto.


“Other Equipment” is leasehold improvements, intangible
property such as transferable computer software and transferable software
licenses, equipment specifically designed or manufactured for any Borrower,
other intangible property, limited use property and other similar property and
soft costs approved by Bank, including taxes, shipping, warranty charges,
freight discounts and installation expenses.


“Overall Ancillary Sublimit” is defined in Section 2.1.6.


“Parent” shall mean ev3 Inc., a Delaware corporation.


“Payment/Advance Form” is that certain form attached hereto
as Exhibit B.


“Perfection Certificate” is defined in Section 5.1.


“Permitted Distributions” means:


(a)           purchases
of Parent’s capital stock from former employees, consultants and directors
pursuant to repurchase agreements or other similar agreements in an aggregate
amount not to exceed $500,000 for all such purchases by Parent and Parent’s
Subsidiaries in any fiscal year, provided that at the time of such purchase no
Default or Event of Default has occurred and is continuing;


(b)           distributions
or dividends consisting solely of Parent’s capital stock;


(c)           purchases
for value of any rights distributed in connection with any stockholder rights
plan;



 26
 






 



(d)           purchases
of capital stock or options to acquire such capital stock with the proceeds
received from a substantially concurrent issuance of capital stock or
convertible securities;


(e)           purchases
of capital stock pledged as collateral for loans to employees;


(f)            purchases
of capital stock in connection with the exercise of stock options or stock
appreciation rights by way of cashless exercise or in connection with the
satisfaction of withholding tax obligations;


(g)           purchases
of fractional shares of capital stock arising out of stock dividends, splits or
combinations or business combinations; and


(h)           the
settlement or performance of such Person’s obligations under any equity
derivative transaction, option contract or similar transaction or combination
of transactions.


“Permitted Indebtedness” is:


(a)           Borrowers’
Indebtedness to Bank under this Agreement or any other Loan Document;


(b)           any
Indebtedness set forth in Parents last 10Q report;


(c)           unsecured
Indebtedness of a Person to that Person’s trade creditors incurred in the
ordinary course of business;


(d)           Indebtedness
incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;


(e)           Indebtedness
of a Person consisting of interest rate, currency, or commodity swap
agreements, interest rate cap or collar agreements or arrangements designated
to protect such Person or any Borrower against fluctuations in interest rates,
currency exchange rates, or commodity prices;


(f)            capitalized
leases and purchase money Indebtedness not creating any Lien on Accounts,
Inventory or Financed Equipment;


(g)           Indebtedness
of entities acquired in any permitted merger or acquisition transaction; and


(h)           refinanced
Permitted Indebtedness, provided that the amount of such Indebtedness is not
increased except by an amount equal to a reasonable premium or other reasonable
amount paid in connection with such refinancing and by an amount equal to any
existing, but unutilized, commitment thereunder.


“Permitted
Investments” are:


(a)           Investments
existing on the Effective Date;


(b)           (i) marketable
direct obligations issued or unconditionally guaranteed by the United States or
its agencies or any State maturing within 1 year from its acquisition, (ii)
commercial paper maturing no more than 2 years after its creation and having a
rating of “A-2” or higher from Standard & Poor’s Rating Group or a rating
of “Prime-2” or higher from Moody’s Investors Service, Inc., and (iii) Bank’s
certificates of deposit maturing no more than 2 years after issue;


(c)           Investments
of a Person approved by such Person’s Board of Directors or the Board of
Directors of Parent, or otherwise pursuant to an investment policy approved by
such Person’s Board of Directors or the Board of Directors of Parent;


(d)           (i)
Investments by a Borrower or Parent consisting of Collateral Accounts in the
name of such Borrower or Parent (as applicable) so long as Bank has a first
priority, perfected security interest in such Collateral Accounts, and (ii)
Investments by any Subsidiary of Parent consisting of Collateral Accounts in
the name of such Subsidiary so long as (y) if it is a Domestic Subsidiary, Bank
has a first priority, perfected security interest in such



 27
 






 



Collateral Accounts or (z) if it is a foreign Subsidiary, the aggregate
value of all Collateral Accounts of all foreign Subsidiaries of Parent shall
not at any time exceed a value of $12,000,000;


(e)           Investments
by a Person consisting of extensions of credit to such Person’s customers in
the nature of accounts receivable, prepaid royalties or notes receivable
arising from the sale or lease of goods, provision of services or licensing
activities of such Person;


(f)            Investments
received in satisfaction or partial satisfaction of obligations owed by
financially troubled obligors;


(g)           Investments
acquired in exchange for any other Investments in connection with or as a
result of a bankruptcy, workout, reorganization or recapitalization;


(h)           Investments
acquired as a result of a foreclosure with respect to any secured Investment;


(i)            Investments
by a Person consisting of interest rate, currency, or commodity swap
agreements, interest rate cap or collar agreements or arrangements designated
to protect such Person or a Borrower against fluctuations in interest rates,
currency exchange rates, or commodity prices; Investments acquired as a result
of a foreclosure with respect to any secured Investment;


(j)            Investments
by a Person consisting of loans and advances to such Person’s employees,
provided that the aggregate amount of all such loans and advances of each
Borrower, Parent, and Parent’s Subsidiaries, does not at any time exceed
$500,000; and


(k)           Investments
consisting of intercompany loans and advances made in the ordinary course of
business between or among Parent and its Subsidiaries.


“Permitted
Liens” are:


(a)           Liens in favor of Bank arising under
this Agreement or other Loan Documents;


(b)           Liens with respect to the assets of a
Person for taxes, fees, assessments or other government charges or levies,
either not delinquent or being contested in good faith and for which such
Person maintains adequate reserves on its Books, if they have no priority over
any of Bank’s Liens;


(c)           Liens (including with respect to
capital leases) (i) on property (including accessions, additions, parts,
replacements, fixtures, improvements and attachments thereto, and the proceeds
thereof) acquired or held by a Person incurred for financing such property
(including accessions, additions, parts, replacements, fixtures, improvements
and attachments thereto, and the proceeds thereof), or (ii) existing on
property (and accessions, additions, parts, replacements, fixtures,
improvements and attachments thereto, and the proceeds thereof) when acquired,
if the Lien is confined to such property (including accessions, additions,
parts, replacements, fixtures, improvements and attachments thereto, and the
proceeds thereof);


(d)           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 it secures may not increase;


(e)           leases or subleases of real property
granted in the ordinary course of business, and leases, subleases,
non-exclusive licenses or sublicenses of property (other than real property or
intellectual property) granted in the ordinary course of business, if the
leases, subleases, licenses and sublicenses do not prohibit granting Bank a
security interest;


(f)            non-exclusive license of a Person’s
intellectual property granted to third parties in such Person’s ordinary course
of business;


(g)           leases or subleases with respect to
assets of a Person granted in such Person’s ordinary course of business,
including in connection with leased premises or leased property;



 28
 






 



(h)           Liens in favor of custom and revenue
authorities arising as a matter of law to secure the payment of custom duties
in connection with the importation of goods;


(i)            Liens on insurance proceeds securing
the payment of financed insurance premiums;


(j)            Liens on assets acquired in mergers
and acquisitions not prohibited by Section 7 of this Agreement;


(k)           Liens consisting of pledges of cash,
cash equivalents or government securities to secure swap or foreign exchange
contracts or letters of credit;


(l)            Liens arising from judgments,
decrees or attachments in circumstances not constituting an Event of Default under
Sections 8.4 or 8.7;


(m)          Liens with respect to the assets of a
Person in favor of other financial institutions arising in connection with such
Person’s deposit or securities accounts held at such institutions;


(n)           carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s or other like Liens arising in the ordinary course
of business which are not overdue for a period of more than 30 days or which
are being contested in good faith and by appropriate proceeding if adequate
reserves with respect thereto are maintained on the books of the applicable
Person;


(o)           pledges or deposits in the ordinary
course of business in connection with workers’ compensation, unemployment
insurance and compliance with other social security requirements applicable to
the applicable Person; and


(p)           Liens listed on any schedule approved
in writing by Bank in its discretion prior to the initial Credit Extension.


“Person” is any
individual, sole proprietorship, partnership, limited liability company, joint
venture, company, 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.


“Qualifying Initial Equipment Advance” is defined in
Section 2.1.5(a).


“Quick Assets” is, on any date, Parent’s and its Subsidiaries’
consolidated, unrestricted cash, unrestricted Cash Equivalents, and net billed
trade accounts receivable determined according to GAAP.


“Responsible Officer” with respect to a Person is any of the
Chief Executive Officer, President, Chief Financial Officer and Controller of
such Person.


“Revolving Line” is an Advance or Advances in an aggregate
amount of up to $30,000,000 outstanding at any time.


“Revolving Line Maturity Date” is
June 26, 2008.


“Secured Guarantor” shall mean a Guarantor who has provided a
first-priority perfected security interest in all of its assets to secure its
guaranty, satisfactory to Bank.


“Securities Account” is any “securities account” as defined
in the Code with such additions to such term as may hereafter be made.


“Settlement Date” is defined in
Section 2.1.3.


“Subordinated Debt” is (a) Indebtedness incurred by any
Borrower subordinated to Borrowers’ Indebtedness owed to Bank and which is
reflected in a written agreement in a manner and form reasonably



 29
 






 



acceptable to Bank and approved by Bank in writing,
and (b) to the extent the terms of subordination do not change adversely to
Bank, refinancings, refundings, renewals, amendments or extensions of any of
the foregoing.


“Subsequent Equipment Advance” is defined in
Section 2.1.5(a).


 “Subsidiary”
means, with respect to any Person, any Person of which more than 50% of the
voting stock or other equity interests is owned or controlled, directly or
indirectly, by such Person or one or more Affiliates of such Person. By way of
example and not limitation, each Borrower shall be considered a Subsidiary of
Parent.


“Tangible Net Worth” is, on any date, the consolidated total
assets of Parent and its Subsidiaries minus (a) any amounts attributable
to (i) goodwill, (ii) intangible items including unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research
and development expenses except prepaid expenses, (iii) notes, accounts
receivable and other obligations owing to a Person from its officers or other
Affiliates, and (iv) reserves not already deducted from assets, minus
(b) Total Liabilities of Parent and its Subsidiaries, plus (c) the
aggregate amount of Non-cash Stock Compensation Expense for non-cash stock
compensation provided by Parent and its Subsidiaries to their employees during
the period from June 30, 2006 to December 31, 2007.


“Total Liabilities” is on any day, obligations that should,
under GAAP, be classified as liabilities on the consolidated balance sheet of
Parent and its Subsidiaries, including all Indebtedness, and current portion of
Subordinated Debt permitted by Bank to be paid by Borrowers, but excluding all
other Subordinated Debt.


“Transfer” is defined in Section 7.1.


“Trunk Inventory” shall mean Inventory in the possession of
salesmen of Borrowers for purposes of marketing or supplying products to
Borrowers’ customers.


“Unused Revolving Line Fee” is defined in
Section 2.4(c).


[Signature page follows.]



 30














 


IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be executed as of the Effective Date.


 


BORROWERS:


	
  EV3 ENDOVASCULAR, INC. 

  	
  EV3 INTERNATIONAL, INC. 

  
	
   

  	
   

  
	
  By:

  	
  /s/ Patrick D. Spangler 

  	
   

  	
  By:

  	
  /s/ Patrick D. Spangler 

  	
   

  
	
  Name: Patrick D. Spangler

  	
  Name: Patrick D. Spangler

  
	
  Title: Chief Financial Officer

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  MICRO THERAPEUTICS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Patrick D. Spangler 

  	
   

  	
   

  
	
  Name: Patrick D. Spangler

  	
   

  
	
  Title: Chief Financial Officer

  	
   

  



 


 


	
  BANK:

  
	
   

  
	
  SILICON VALLEY BANK

  
	
   

  
	
  By

  	
  /s/ 

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
  Effective Date: June 28, 2006

  
				



 


[Signature page to Loan
and Security Agreement]















 


EXHIBIT A


The Collateral consists of all of each Borrower’s
right, title and interest in and to the following personal property:


All goods, Accounts (including health-care
receivables), Equipment, Inventory, contract rights or rights to payment of
money, leases, license agreements, franchise agreements, General Intangibles
(except as provided below), commercial tort claims, documents, instruments
(including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, certificates of deposit, fixtures, letters
of credit rights (whether or not the letter of credit is evidenced by a
writing), securities, and all other investment property, supporting
obligations, and financial assets, whether now owned or hereafter acquired, wherever
located; and


all of each 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, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of
any or all of the foregoing.


Notwithstanding the
foregoing, the Collateral does not include any of the following, whether now
owned, licensed from others, or otherwise held or hereafter acquired, licensed
from others, or otherwise held:  any
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published
or unpublished, any patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered
or not, and the goodwill of the business of such Borrower connected with and
symbolized thereby, know-how, operating manuals, prototypes, trade secret
rights, rights to unpatented inventions, and any claims for damage by way of
any past, present, or future infringement of any of the foregoing; provided,
however, 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.


Pursuant to the terms
hereof, each Borrower has agreed not to encumber any of its copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered
or not, and the goodwill of the business of such Borrower connected with and
symbolized thereby, know-how, operating manuals, prototypes, trade secret
rights, rights to unpatented inventions, and any claims for damage by way of
any past, present, or future infringement of any of the foregoing, whether any
of the foregoing is now owned, licensed from others, or otherwise held or
hereafter acquired, licensed from others, or otherwise held, without Bank’s
prior written consent.



 1














 


EXHIBIT B


Loan
Payment/Advance Request Form


DEADLINE FOR SAME DAY PROCESSING IS NOON P.S.T.*


	
  Fax To:  952-475-8471

  	
  Date: 

  	
   

  	
   

  



 


	
  LOAN PAYMENT:

  	
   

  
	
  [Insert Borrower
  name]

  
	
   

  	
   

  
	
  From Account #

  	
   

  	
   

  	
  To Account #

  	
   

  	
   

  
	
  (Deposit Account
  #)

  	
  (Loan Account #)

  
	
  Principal $

  	
   

  	
   

  	
  and/or Interest $

  	
   

  	
   

  
	
   

  	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
  Phone Number:

  	
   

  	
   

  
	
  Print Name/Title:

  	
   

  	
   

  	
   

  
														



 


	
  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 representations and warranties in the
  Loan and Security Agreement are true, correct and complete in all material
  respects on the date of the request for an advance; provided, however, that
  such materiality qualifier shall not be applicable to any representations and
  warranties that already are qualified or modified by materiality in the text
  thereof; and provided, further that those representations and warranties
  expressly referring to a specific date shall be true, accurate and complete
  in all material respects as of such date:

  
							



 


	
  Authorized Signature:

  	
   

  	
   

  	
  Phone Number:

  	
   

  	
   

  
	
  Print Name/Title:

  	
   

  	
   

  	
   

  
							



 


 


	
  OUTGOING WIRE REQUEST:

  	
   

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

  
	
  Deadline for same day processing is noon, 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 #:

  	
   

  	
   

  
																					



 






*
Unless otherwise provided for an Advance bearing interest at LIBOR, if
applicable.



 1














 


EXHIBIT C


BORROWING
BASE CERTIFICATE


Borrower:

Lender:     Silicon Valley Bank

Commitment Amount:  $


	
  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.

  	
  Un-invoiced
  Accounts

  	
   

  	
  $

  	
   

  
	
  5.

  	
  Amounts
  over 120 days due

  	
   

  	
  $

  	
   

  
	
  6.

  	
  Balance
  of 50% over 120 day accounts

  	
   

  	
  $

  	
   

  
	
  7.

  	
  Credit
  balances over 120 days

  	
   

  	
  $

  	
   

  
	
  8.

  	
  Concentration
  Limits

  	
   

  	
  $

  	
   

  
	
  9.

  	
  Foreign
  Accounts determined ineligible by SVB

  	
   

  	
  $

  	
   

  
	
  10.

  	
  Governmental
  Accounts determined ineligible by SVB

  	
   

  	
  $

  	
   

  
	
  11.

  	
  Contra
  Accounts

  	
   

  	
  $

  	
   

  
	
  12.

  	
  Promotion
  or Demo Accounts

  	
   

  	
  $

  	
   

  
	
  13.

  	
  Intercompany/Employee
  Accounts

  	
   

  	
  $

  	
   

  
	
  14.

  	
  Disputed
  Accounts

  	
   

  	
  $

  	
   

  
	
  15.

  	
  Deferred
  Revenue

  	
   

  	
  $

  	
   

  
	
  16.

  	
  Other
  (please explain on reverse)

  	
   

  	
  $

  	
   

  
	
  17.

  	
  TOTAL
  ACCOUNTS RECEIVABLE DEDUCTIONS

  	
   

  	
  $

  	
   

  
	
  18.

  	
  Eligible
  Accounts (#3 minus #17)

  	
   

  	
  $

  	
   

  
	
  19.

  	
  ELIGIBLE
  AMOUNT OF ACCOUNTS (    % of #18)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  INVENTORY

  	
   

  	
   

  
	
  20.

  	
  Eligible
  Inventory Value as of

  	
   

  	
  $

  	
   

  
	
  21.

  	
  ELIGIBLE
  AMOUNT OF INVENTORY (     % of #20 but not more than
  the lesser of (i) $7,500,000 or (ii) 33% of 80% of Eligible Accounts)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BALANCES

  	
   

  	
   

  
	
  22.

  	
  Maximum
  Loan Amount

  	
   

  	
  $

  	
   

  
	
  23.

  	
  Total
  Funds Available [Lesser of #22 or (#19 plus #21)]

  	
   

  	
  $

  	
   

  
	
  24.

  	
  Present
  balance owing on Line of Credit

  	
   

  	
  $

  	
   

  
	
  25.

  	
  Outstanding
  under Sublimits

  	
   

  	
  $

  	
   

  
	
  26.

  	
  RESERVE POSITION (#23
  minus #24 and #25)

  	
   

  	
  $

  	
   

  



 


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 Loan and
Security Agreement between the undersigned and Silicon Valley Bank.


	
  

  	
  BANK
  USE ONLY

  
	
  COMMENTS:

  	
  Received by:

  	
   

  	
   

  
	
   

  	
  AUTHORIZED
  SIGNER

  
	
   

  	
  Date:

  	
   

  	
   

  
	
  By: 

  	
   

  	
   

  	
  Verified:

  	
   

  	
   

  
	
   

  	
  Authorized
  Signer

  	
   

  	
  AUTHORIZED
  SIGNER

  
	
  Date: 

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
  Compliance Status:      Yes       No

  
									



 



 1














 


EXHIBIT D


COMPLIANCE
CERTIFICATE


	
  TO:

  	
  SILICON VALLEY BANK

  	
  Date:

  	
   

  
	
  FROM:

  	
  ev3 Endovascular, Inc.; ev3 International, Inc.;
  Micro Therapeutics, Inc. (the foregoing are referred to as “Borrowers”); and ev3
  Inc. (“Parent”)

  



 


The undersigned authorized officers of Borrowers and
Parent certify that under the terms and conditions of the Loan and Security
Agreement between Borrowers and Bank (the “Agreement”), (1) Borrowers are
in complete compliance for the period ending                           
with all required covenants except as noted below, (2) there are no Events
of Default, (3) all representations and warranties in the Agreement are
true and correct in all material respects on this date except as noted below; provided,
however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date,
(4) Borrowers, Parent, and each of its Subsidiaries have timely filed all
required tax returns and reports, and Borrowers, Parent, and each of its
Subsidiaries have timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by them except as otherwise
permitted pursuant to the terms of Section 5.9 of the Agreement, and
(5) no Liens have been levied or claims made against Borrowers, Parent, or
any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrowers have not previously provided written notification to Bank.  Attached are the required documents
supporting the certification.  The
undersigned certify that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.  The
undersigned acknowledge that no borrowings may be requested at any time or date
of determination that Borrowers are 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.  Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.


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


	
  Reporting Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
  Monthly financial statements with Compliance
  Certificate

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes   No

  
	
  10-K with Compliance Certificate

  	
   

  	
  Within 5 days of filing with SEC but within 120 days
  FYE

  	
   

  	
  Yes   No

  
	
  10-Q with Compliance Certificate

  	
   

  	
  Within 5 days of filing with SEC but within 45 days
  FQE

  	
   

  	
  Yes   No

  
	
  8-K

  	
   

  	
  Within 5 days after filing with SEC

  	
   

  	
  Yes   No

  
	
  Borrowing Base Certificate (if applicable), A/R
  & A/P Agings, cash balance reports, inventory reports

  	
   

  	
  Quarterly within 30 days

  	
   

  	
  Yes   No

  
	
  Annual financial projections

  	
   

  	
  Prior to FYE for following year

  	
   

  	
  Yes   No

  



r


	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
  Maintain at all times, tested monthly:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum Quick
  Ratio

  	
   

  	
  1.3:1.0

  	
   

  	
              :1.0

  	
   

  	
  Yes   No

  
	
  Minimum Tangible
  Net Worth

  	
   

  	
  $*

  	
   

  	
  $          

  	
   

  	
  Yes   No

  



 






*         $90,000,000 from Effective Date through
11/30/06; $95,000,000 from 12/1/06 through 5/31/07; $105,000,000 from 6/1/07
through 8/31/07; $108,000,000 from 9/1/07 through 11/30/07; $115,000,000 from
12/1/07 and thereafter.



 1
 






 



Amount
and locations of cash and Cash Equivalents:                                                                                .


Other
(e.g., legal actions):                                                                                .


The
following financial covenant analyses and information set forth in Schedule 1
attached hereto are true and accurate as of the date of this Certificate.


The
following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions
to note.”)


 


 


 


	
  EV3 ENDOVASCULAR, INC.

  	
  BANK USE ONLY

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Received by:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
  Title:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Verified:

  	
   

  	
   

  
	
  EV3 INTERNATIONAL, INC.

  	
  AUTHORIZED SIGNER

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Compliance Status:      Yes     No

  
	
   

  	
   

  
	
   

  	
   

  
	
  MICRO THERAPEUTICS, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  EV3 INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
												



 



 2
 






 



Schedule 1 to Compliance Certificate


Financial Covenants of Borrower




	
  Dated:

  	
   

  	
   

  






 


I.                                         Quick Ratio (Section 6.7(a))


Required:                                             1.3:1.00


Actual:


	
  A.

  	
   

  	
  Aggregate value of the unrestricted cash and
  unrestricted Cash Equivalents of Parent and its Subsidiaries on a
  consolidated basis

  	
  $

  	
   

  
	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
   

  	
  Aggregate value of the net billed trade accounts
  receivable of Parent and its Subsidiaries on a 

  	
  $

  	
   

  
	
   

  	
   

  	
  consolidated basis

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C.

  	
   

  	
  Quick Assets: the sum of lines A through B

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  D.

  	
   

  	
  Current Liabilities: (a) all obligations and
  liabilities of Parent and its Subsidiaries, on a consolidated basis, to Bank
  that mature within one (1) year, plus, (b) without duplication, all uses of
  the Revolving Line (including, without limitation, (i) the amount of all
  outstanding Lettersof Credit (including drawn but unreimbursed Letters of
  Credit) plus an amount equal to the Letter of Credit Reserves, (ii) the
  amounts used for Cash Management Services, (iii) the FX Reserve, and
  (iv) the outstanding principal balance of any Advances under the Revolving
  Line (including any amounts used for Cash Management Services)), plus, (c)
  without duplication, the aggregate amount of Parent’s and its Subsidiaries’
  Total Liabilities, on a consolidated basis, that mature within one (1) year
  and the current portion of any Subordinated Debt permitted by Bank to be paid
  by any Borrower

  	
  $

  	
   

  
	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E.

  	
   

  	
  Quick Ratio (line C divided by line D)

  	
   

  	
   

  



 


Is line E equal to or
greater than 1.3:1:00?


	
  

  	
   

  	
           

  	
   No, not in compliance

  	
   

  	
  Yes, in compliance

  	
   

  	
   

  



 


II.                                     Tangible Net Worth (Section 6.7(b))


Required:                                             $           


Actual:


	
  A.

  	
   

  	
  Consolidated value of total assets of Parent and its
  Subsidiaries

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
   

  	
  Consolidated value of goodwill of Parent and its
  Subsidiaries

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C.

  	
   

  	
  Consolidated value of intangible assets of Parent
  and its Subsidiaries and obligations owed to Parent and its Subsidiaries from
  officers and Affiliates

  	
  $

  	
   

  
	
   

  



 



 3
 






 



 


	
  D.

  	
   

  	
  Consolidated value of any reserves not already deducted
  from assets

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E.

  	
   

  	
  Consolidated value of liabilities of Parent and its
  Subsidiaries (including all Indebtedness) and current portion of any
  Subordinated Debt permitted by Bank to be paid by Borrower (but no other
  Subordinated Debt)

  	
  $

  	
   

  
	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  F.

  	
   

  	
  Aggregate non-cash stock compensation from Parent
  and its Subsidiaries to their employees from 6/30/06 to 12/31/07

  	
  $

  	
   

  
	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  G.

  	
   

  	
  Tangible Net Worth (line A minus line B minus line C
  minus line D minus line E plus line F)

  	
  $

  	
   

  



 


Is line G equal to or
greater than the Required amount?


	
  

  	
   

  	
           

  	
   No, not in compliance

  	
   

  	
  Yes, in compliance

  	
   

  	
   

  



 



 4