SHALL NO
LONGER INCLUDE THE EQUIPMENT NEEDED TO MANUFACTURE/ASSEMBLE THE ONQ AEROSOL
GENERATOR, AS SPECIFICALLY SET FORTH ON SCHEDULE B HERETO, ALL OF WHICH ARE TO
BE CONVEYED PURSUANT TO BORROWER'S AGREEMENT WITH MEDICAL INDUSTRIES AMERICA,
INC. CONSISTENT WITH THE TERM SHEET SIGNED ON AUGUST 15, 2003 (COLLECTIVELY, THE
"MIA ASSETS").
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE
GRANT OF A SECURITY INTEREST AS PROVIDED HEREIN SHALL NOT EXTEND TO, AND THE
TERM "COLLATERAL" SHALL NOT INCLUDE, TO THE EXTENT SUCH EXCLUSION DOES NOT
RESULT IN A MATERIAL ADVERSE EFFECT (AS DEFINED IN THE LOAN AGREEMENT), ANY
IMMATERIAL CONTRACT, INSTRUMENT OR CHATTEL PAPER IN WHICH THE BORROWER HAS ANY
RIGHT, TITLE OR INTEREST IF AND TO THE EXTENT SUCH CONTRACT, INSTRUMENT OR
CHATTEL PAPER INCLUDES A PROVISION CONTAINING A RESTRICTION ON ASSIGNMENT SUCH
THAT THE CREATION OF A SECURITY INTEREST IN THE
2
RIGHT, TITLE OR INTEREST OF THE BORROWER THEREIN WOULD BE PROHIBITED AND WOULD,
IN AND OF ITSELF, CAUSE OR RESULT IN A DEFAULT THEREUNDER ENABLING ANOTHER
PERSON PARTY TO SUCH CONTRACT, INSTRUMENT OR CHATTEL PAPER TO ENFORCE ANY REMEDY
WITH RESPECT THERETO.
(C)
"OBLIGATIONS" MEANS ALL OF THE BORROWER'S
OBLIGATIONS UNDER THIS AGREEMENT AND THE DEBENTURES, IN EACH CASE, WHETHER NOW
OR HEREAFTER EXISTING, VOLUNTARY OR INVOLUNTARY, DIRECT OR INDIRECT, ABSOLUTE OR
CONTINGENT, LIQUIDATED OR UNLIQUIDATED, WHETHER OR NOT JOINTLY OWED WITH OTHERS,
AND WHETHER OR NOT FROM TIME TO TIME DECREASED OR EXTINGUISHED AND LATER
INCREASED, CREATED OR INCURRED, AS SUCH OBLIGATIONS MAY BE AMENDED,
SUPPLEMENTED, CONVERTED, EXTENDED OR MODIFIED FROM TIME TO TIME PURSUANT TO THE
TERMS OF THIS AGREEMENTS OR THE DEBENTURES, AS APPLICABLE.
(D)
"PERMITTED INDEBTEDNESS" MEANS:
(I)
INDEBTEDNESS OF BORROWER IN FAVOR OF THE
SECURED PARTIES ARISING UNDER THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT;
(II)
EXISTING INDEBTEDNESS AS SET FORTH IN THE
BORROWER'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2002 (INCLUDING ANY EXTENSIONS OR RENEWALS THEREOF, PROVIDED, THERE IS NO
INCREASE IN THE PRINCIPAL AMOUNT THEREOF OR OTHER SIGNIFICANT CHANGE IN THE
TERMS THEREOF);
(III)
SUBORDINATED DEBT IN AN AGGREGATE PRINCIPAL
AMOUNT WHICH DOES NOT EXCEED $1,000,000, PROVIDED, THAT IT SHALL BE A
PRECONDITION OF THE LENDERS' CONSENT TO SUCH DEBT THAT THE BORROWER AND THE
LENDER THEREUNDER AGREE TO MAKE THE REPAYMENT OF SUCH DEBT SUBJECT TO
SUBORDINATION PROVISIONS INCLUDING, WITHOUT LIMITATION, STAND-STILL PROVISIONS,
ACCEPTABLE TO THE LENDERS IN THEIR SOLE DISCRETION;
(IV)
INDEBTEDNESS EVIDENCED BY CAPITAL LEASE
OBLIGATIONS;
(V)
INCURSION OR PAYMENT OF TRADE PAYABLES,
LICENSING FEES AND BONDS TO SECURE WORK CONTRACTS, IN EACH CASE, INCURRED OR
PAID IN THE ORDINARY COURSE OF BUSINESS; OR
(VI)
INDEBTEDNESS OF THE BORROWER WITH RESPECT TO
LETTER OF CREDIT ISSUED BY SILICON VALLEY BANK IN FAVOR OF THE BORROWER'S
LANDLORD AND DESCRIBED ON SCHEDULE A HERETO.
(E)
"PERMITTED LIENS" MEANS THE FOLLOWING:
(I)
ANY LIENS EXISTING ON THE DATE HEREOF
AND SPECIFICALLY DISCLOSED IN THE SCHEDULE A HERETO AND LIENS IN FAVOR OF THE
SECURED PARTIES;
(II)
LIENS FOR TAXES, FEES, ASSESSMENTS