Document:

exv10w18

 

Exhibit 10.18

TECHNOLOGY TRANSFER AGREEMENT

     This Technology Transfer Agreement (this “Agreement”) is entered into as of June 16, 1994, by
and between Gregory A. Demopulos, M.D. (“Demopulos”) and Omeros Medical Systems, Inc., a Washington
corporation (“Omeros”).

     Demopulos, along with Stephen A. Yencho, Ph.D., P.E. (“Yencho”), is the inventor of certain
technology relating to the surgical repair of lacerated or ruptured anatomic soft tissues (as
further described below, the “Technology”). Demopulos desires to transfer all his right, title and
interest in and to the Technology to Omeros for further research, development and
commercialization, and Omeros desires to obtain ownership of and other rights in the Technology for
such purpose.

     For good and valuable consideration, the receipt and sufficiency of such consideration being
hereby acknowledged, the parties agree:

     1. Definitions. The following definitions apply whenever the specified terms are used
in this Agreement or in any attachments to this Agreement:

          a. “Confidential Information” means confidential information relating to the
Technology, now existing or hereafter arising, including without limitation, research,
developments, inventions, technical data, any type of product development, and any and all other
processes, formulae, marketing plans or proposals, customer lists or other customer information,
financial information, or any observations, data, written material, records or documents.
Confidential Information includes any such information whether or not such information was
developed, devised or otherwise created in whole or in part by the efforts of Demopulos or Omeros.
Confidential Information shall not include a matter of public knowledge, unless such matter become
public knowledge as a result of unauthorized disclosure to the general public, or the combination
of such matters would amount to Confidential Information. In any dispute over whether information
is Confidential Information for purposes of enforcement of this Agreement, it shall be the burden
of Demopulos to show that such contested information is neither confidential nor a Trade Secret.

          b. “Intellectual Property Rights” mean all intellectual property rights arising under
federal, state or common law and relating to the Technology, including without limitation Patent
Rights and Know-How.

          c. “Know-How” means all information, now existing or hereafter acquired, known to
Demopulos and related in any way to the Technology, including without limitation, information
directly or indirectly related to any formula, method, procedure, process, composition of matter,
design, material, or other subject matter that contributes in whole or in part to the present or
future commercial development, exploitation, utilization or understanding of the Technology.
Know-How also includes, without limitation, the following: (a) any Confidential Information;
(b) any information relating in any way to the Technology that may result from further research
sponsored in whole or in part by Omeros; and (c) any information relating to the Technology,

 

 

whether or not such information was developed, devised or otherwise created in whole or in
part by the efforts of Demopulos or Omeros and whether or not it is a matter of public knowledge.

          d. “New Invention” means any invention, discovery, concept, idea, information or
improvement, whether or not patentable, that is (i) made, developed or conceived in whole or in
part while Demopulos is an employee, agent, officer, director, or shareholder of Omeros, and
(ii) is derived from the Technology.

          e. “Patent Rights” mean the rights of Demopulos to any and all matter claimed in or
disclosed by any and all present and future letters patent, pending applications for patents and
other legal rights applied for by or granted to Demopulos, alone or with another or others, as
inventor or co-inventor in any country with respect to or in connection with the Technology, and
any and all divisions, continuations, continuations-in-part, reissues, substitutions,
re-examinations, extensions and renewals arising therefrom or issuing thereon. Without limiting
the generality of the foregoing, Patent Rights include without limitation, any and all foreign
rights related to, derived from, or claiming priority from U.S. Patent Rights.

          f. “Technology” means that certain technology developed in whole or in part by
Demopulos and related to the surgical repair of lacerated or ruptured anatomic soft tissues,
including but not limited to tendons and/or ligaments, which technology currently includes and is
embodied by a surgical device commonly referred to as the “Tendon Splice” along with related
application instruments. Without limiting the generality of the foregoing, the Technology shall
include, without limitation, all related advances or improvements, whether or not patentable.

          g. “Trade Secrets” mean any and all Confidential Information within the definition of
that term as set forth in RCW Chapter 19.108.

     2. Transfer of Technology.

          a. Present Technology. Demopulos hereby irrevocably sells, assigns, conveys and
otherwise transfers to Omeros all right, title and interest in and to the Technology, Know-How,
Patent Rights, and other Intellectual Property Rights, which right, title, and interest he now
possess or may hereafter acquire. Such transfer hereby includes, without limitation, all right,
title and interest of Demopulos in and to the Patent Rights, and any and all existing records that
contain Know-How. Upon execution of this Agreement, Demopulos shall execute an Assignment of
Patent Rights in the form attached hereto as Exhibit A, and shall identify for Omeros any and all
existing records that contain Know-How. Demopulos and Omeros jointly shall determine which of such
records shall be delivered to Omeros as originals or as copies, and such records shall be
identified and categorized in writing no later than thirty (30) days after execution of this
Agreement. Demopulos shall then transfer and deliver to Omeros all such records that contain
Know-How in a form reasonably understandable by any physician or scientist generally knowledgeable
of methods of tendon surgery. Upon such transfer and delivery, such records shall be the property
of Omeros and shall be under Omeros’ exclusive control. Thereafter, on a timely basis, but not
less than quarterly, Demopulos shall develop, produce, deliver to Omeros and maintain permanent
records, in writing or otherwise, that set forth Know-How in a form reasonably understandable by
any physician or scientist generally knowledgeable of relevant surgical methods.

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          b. Future Developments. Demopulos acknowledges that title to any and all New
Inventions shall immediately vest in Omeros. Immediately upon the development of any New
Invention, Demopulos shall disclose such New Invention to Omeros in writing. From time to time,
Demopulos shall execute such documents as Omeros may reasonably require to evidence assignment to
Omeros of all right, title, and interest in and to such New Inventions.

          c. Other Inventions. Pursuant to RCW 49.44.150, Demopulos shall disclose to Omeros
all inventions being developed by Demopulos for the purpose of determining whether such inventions
are New Inventions or Other Inventions. If Demopulos receives any bona fide offer to transfer all
or any portion of any Other Invention, Demopulos immediately shall disclose to Omeros the nature of
such Other Invention and the terms of such offer. For a period of at least ten (10) years, Omeros
will not at any time, without the express prior written consent of Demopulos, disclose or otherwise
make known or available to any person, firm, corporation or other entity, nor shall Omeros use for
its own account, any such Other Invention so disclosed by Demopulos.

     3. Covenant Not to Disclose. For a period of at least ten (10) years, Demopulos shall
not at any time, without the express prior written consent of Omeros, disclose or otherwise make
known or available to any person, firm, corporation or other entity, or use for their own account,
any Confidential Information. Both Demopulos and Omeros shall utilize reasonable procedures to
safeguard Confidential Information, including releasing Confidential Information to employees of
Omeros only on a “need-to-know” basis.

     4. Consideration. The shares of the common stock of Omeros being issued to Demopulos
as of the date of this Agreement shall constitute consideration for the transfer of rights
described in Section 2 above, for Demopulos’ covenant not to disclose Confidential Information, and
for other covenants and promises made by Demopulos hereunder.

     5. Specific Performance. Demopulos and Omeros acknowledge that (a) the covenants set
forth in Sections 2 and 3 are essential elements of the transactions contemplated in this
Agreement, that, but for the agreement of the parties to comply with such covenants, neither
Demopulos nor Omeros would have entered into such transactions, and that each party has consulted
with counsel and has been advised in all respects concerning the reasonableness of such covenants
as to scope and limit of time; (b) the nonbreaching party will not have any adequate remedy at law
if the other party violates the terms of Section 2 or 3 or fails to perform any of its other
obligations hereunder; and (c) the nonbreaching party shall have the right, in addition to any
other rights it may have, to obtain in any court of competent jurisdiction temporary, preliminary
and permanent injunctive relief to restrain any breach or threatened breach, or otherwise to
specifically enforce, any of such covenants or any other obligations if the breaching party fails
to perform any of its obligations under this Agreement.

     6. Right to Repurchase Technology. In the event that Omeros either (a) files for
liquidation under Chapter 7 of the United States Bankruptcy Act, or (b) undertakes a voluntary
dissolution, liquidation and termination (except in connection with a merger, reorganization,
consolidation or sale of assets), Demopulos shall have the right, along with co-inventor Yencho, to
repurchase the Technology from Omeros for a price equal to the then-current fair market value of
the Technology. If the parties are unable to agree upon the fair market value of the Technology
within

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thirty (30) days after the filing or undertaking described above, then such value shall be
established by the appraisal of a qualified, mutually acceptable independent appraiser. In the
event the parties are unable to agree upon an appraiser within sixty (60) days after the filing or
undertaking described above, then Demopulos and Omeros each shall select an independent appraiser,
and the two appraisers shall select a third independent appraiser. The three appraisers shall
conduct such appraisal proceeding in accordance with the Commercial Arbitration Rules of the
American Arbitration Association as then in effect, and the decisions of the appraisers shall be
delivered to the parties not later than four months after the commencement of such appraisal
proceeding. All such appraisal proceedings shall take place in Seattle, Washington and all results
of such proceedings shall be binding on Demopulos and Omeros. All appraisal expenses shall be paid
by Demopulos. Demopulos’ rights to repurchase the Technology under this Section 6 are subject to
the similar rights of co-inventor Yencho, with whom Omeros executed an agreement substantially
similar hereto. In the event that both Demopulos and Yencho desire to exercise their respective
rights to repurchase the Technology, those parties shall be responsible for negotiating between
themselves their individual rights and obligations with regard to such transfer, and Demopulos and
Yencho shall exercise their rights jointly in any transaction involving Omeros.

     7. Severability. The invalidity of all or any part of any section of this Agreement
shall not render invalid the remainder of this Agreement or the remainder of such section. If any
provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted
to be only so broad as is enforceable. Demopulos and Omeros agree and stipulate that the covenants
set forth in Sections 2, 3 and 6 are fair and reasonably necessary for the protection of their
protectable interests. In the event a court of competent jurisdiction should decline to enforce
any provision of Sections 2, 3 or 6, Sections 2, 3 or 6 shall be deemed to be modified to the
minimum extent which the court shall find enforceable.

     8. Miscellaneous.

          a. Headings. The headings of the sections and paragraphs of this Agreement are
inserted for convenience only, and shall not control or affect the meaning or construction of any
provisions hereof.

          b. Waiver of Breach. Neither the waiver of any breach of any provision of this
Agreement, nor failure to enforce any provision hereof, shall operate or be construed as a waiver
of any subsequent breach by either party.

          c. Disputes. In any litigation or dispute arising out of this Agreement, the
substantially prevailing party will be entitled to recover, in addition to other relief granted,
all reasonable costs and attorneys’ fees, including such costs and fees on appeal.

          d. Rights Cumulative. The provisions of this Agreement shall not be construed as
limiting any rights or remedies that either party may otherwise have under applicable law.

          e. Governing Law. The rights and obligations under this Agreement shall in all
respects be governed by the laws of the State of Washington. This Agreement is intended to

          
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supplement and not to supersede the rights of the parties under the Uniform Trade Secrets Act,
as adopted by the State of Washington.

          f. Integration. This Agreement as herein written constitutes the entire understanding
between the parties pertaining to the subject matter contained in it, and supersedes all prior and
contemporaneous agreements, representations and understandings of the parties. It is expressly
understood and agreed that this Agreement may not be altered, amended, modified or otherwise
changed in any respect whatsoever, except by a writing duly executed by the parties.

DATED as of June 16, 1994.

	 	 	 	 	 
	 	 	 
	 	                                                       /s/ Gregory A. Demopulos
 	 
	 	Gregory A. Demopulos, M.D. 	 
	 	 	 
	 

	 	 	 	 	 
	 	 	Omeros Medical Systems, Inc.
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	By
	 	 /s/ H. Raymond Cairncross
	 

	 	 	 	 
	 

	 	 	 	 H. Raymond Cairncross, Its V.P.

	 	 	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 

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EXHIBIT A

PATENT RIGHTS ASSIGNMENT

     FOR VALUE RECEIVED, I, Gregory A. Demopulos, M.D., hereby sell, assign and transfer unto
Omeros Medical Systems, Inc., a Washington corporation (“Omeros”) as assignee, and its successors,
assigns and legal representatives, the entire right, title and interest, for all countries in and
to certain inventions associated with certain technology related to the surgical repair of
lacerated or ruptured anatomic soft tissues, as more particularly described in that certain
Technology Transfer Agreement between Omeros and me, dated as of June 16, 1994, and all the rights
and privileges under any and all letters patent that may be granted therefor.

     I request that any and all patents for said inventions be issued to said assignee, its
successors, assigns and legal representatives, or to such nominees as it may designate.

     I agree that, when requested, I will, without charge to said assignee but at its expense, sign
all papers, take all lawful oaths, and do all acts which may be necessary, desirable or reasonably
appropriate for securing and maintaining patents for said inventions in any and all countries and
for vesting title thereto in said assignee, its successors, assigns and legal representatives or
nominees.

     I authorize and empower the said assignee, its successors, assigns and legal representatives
or nominees, to invoke and claim for any application for patent or other form of protection for
said inventions filed by it or them, the benefit of the right of priority provided by the
International Convention for the Protection of Industrial Property, as amended, or by any
convention which may henceforth be substituted for it, and to invoke and claim such right of
priority without further written or oral authorization from us.

     I hereby consent that a copy of this assignment shall be deemed a full legal and formal
equivalent of any assignment, consent to file or like document which may be required in any country
for any purpose and more particularly in proof of the right of the said assignee or nominee to
claim the aforesaid benefit of the right of priority provided by the International Convention for
the Protection of Industrial Property, as amended, or by any convention which may henceforth be
substituted for it.

 

 

     I covenant with said assignee, its successors, assigns and legal representatives, that the
rights and property herein conveyed are free and clear of any encumbrance, and that we have full
right to convey the same as herein expressed.

     SIGNED AT Seattle, Washington, as of the 16th day of June, 1994.

	 	 	 	 	 
	 	 	 
	 	                                                                    /s/ Gregory A. Demopulos
 	 
	 	Gregory A. Demopulos, M.D. 	 
	 	 	 
	 

Witnessed and Accepted:

Omeros Medical Systems, Inc.

	 	 	 	 	 
	By

	 	  /s/ H. Raymond Cairncross
	 	 
	 

	 	 	 	 
	 

	 	 H. Raymond Cairncross, Its V.P.	 	 

-2-exv10w19

 

Exhibit 10.19

Master Security Agreement

No. 5081087

MASTER SECURITY AGREEMENT

No. 5081087
Dated as of April 26, 2005 (“Agreement”)

     THIS AGREEMENT is between Oxford Finance Corporation (together with its successors and
assigns, if any, “Secured Party”) and Nura, Inc. (“Debtor”). Secured Party has an office at 133 N.
Fairfax Street, Alexandria, VA 22314. Debtor is a corporation organized and existing under the
laws of the state of Delaware. Debtor’s mailing address and chief place of business is 1124
Columbia Street, Suite 650, Seattle, Washington, 98104.

1. CREATION OF SECURITY INTEREST.

     Debtor grants to Secured Party, its successors and assigns, a security interest in and against
the Collateral (as that term is defined herein). This security interest is given to secure the
payment and performance of all debts, obligations and liabilities of any kind whatsoever of Debtor
to Secured Party, now existing or arising in the future, including but not limited to the payment
and performance of certain Promissory Notes from time to time executed by Debtor (collectively
“Notes” and each a “Note”), and any renewals, extensions and modifications of such debts,
obligations and liabilities (such Notes, debts, obligations and liabilities are called the
“Indebtedness”). Unless otherwise provided by applicable law, notwithstanding anything to the
contrary contained in this Agreement, to the extent that Secured Party asserts a purchase money
security interest in any items of Collateral (the “PMSI Collateral”): (i) the PMSI Collateral shall
secure only that portion of the Indebtedness which has been advanced by Secured Party to enable
Debtor to purchase, or acquire rights in or the use of such PMSI Collateral (the “PMSI
Indebtedness”), and (ii) no other Collateral shall secure the PMSI Indebtedness.

2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.

Debtor represents, warrants and covenants as of the date of this Agreement and as of the
date of each Note (as appropriate) that:

	 	(a)	 	Due Organization. Debtor’s exact legal name is as set forth in the
preamble of this Agreement and Debtor is, duly organized, existing and in good standing
under the laws of the State set forth in the preamble of this Agreement, has its chief
executive offices at the location specified in the preamble, and is, and will remain
duly qualified and licensed in every jurisdiction wherever necessary to carry on its
business and operations;
	 
	 	(b)	 	Power and Capacity to Enter Into and Perform Obligations. Debtor has
adequate power and capacity to enter into, and to perform its obligations under this
Agreement, each Note and any other documents evidencing, or given in connection with,
any of the Indebtedness (all of the foregoing are called the “Debt Documents”);

 

Master Security Agreement

No. 5081087

	 	(c)	 	Due Authorization. This Agreement and the other Debt Documents have
been duly authorized, executed and delivered by Debtor and constitute legal, valid and
binding agreements enforceable in accordance with their terms, except to the extent
that the enforcement of remedies may be limited under applicable bankruptcy and
insolvency laws;
	 
	 	(d)	 	Approvals and Consents. No approval, consent or withholding of
objections is required from any governmental authority or instrumentality with respect
to the entry into, or performance by Debtor of any of the Debt Documents, except any
already obtained;
	 
	 	(e)	 	No Violations or Defaults. The entry into, and performance by, Debtor
of the Debt Documents will not (i) violate any of the organizational documents of
Debtor or any judgment, order, law or regulation applicable to Debtor, or (ii) result
in any breach of or constitute a default under any contract to which Debtor is a party,
or result in the creation of any lien, claim or encumbrance on any of Debtor’s property
(except for liens in favor of Secured Party) pursuant to any indenture, mortgage, deed
of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor
is a party;
	 
	 	(f)	 	Litigation. There are no suits or proceedings pending in court or
before any commission, board or other administrative agency against or affecting Debtor
which could, in the aggregate, have a material adverse effect on Debtor, its business
or operations, or its ability to perform its obligations under the Debt Documents, nor
does Debtor have reason to believe that any such suits or proceedings are threatened;
	 
	 	(g)	 	Solvency. The fair salable value of Debtor’s assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the Debtor
is not left with unreasonably small capital after the transactions in this Agreement or
any Notes and Debtor is able to pay its debts (including trade debts) as they mature.
	 
	 	(h)	 	Financial Statements Prepared In Accordance with GAAP. All financial
statements delivered to Secured Party in connection will) the Indebtedness have been
prepared in accordance with generally accepted accounting principles, but excluding
footnotes and normal year-end adjustments, and since the date of the most recent
financial statement, there has been no material adverse change to Debtors financial
condition;
	 
	 	(i)	 	Use of Collateral. The Collateral is not, and will not be, used by
Debtor for personal, family or household purposes;
	 
	 	(j)	 	Collateral in Good Condition and Repair. The Collateral is, and will
remain, in good condition and repair, subject to normal wear and tear, and Debtor will
not be negligent in its care and use;

 

Master Security Agreement

No. 5081087

	 	(k)	 	Ownership of Collateral. Debtor is, and will remain, the sole and
lawful owner, and in possession of, the Collateral, and has the sole right and lawful
authority to grant the security interest described in this Agreement;
	 
	 	(l)	 	Encumbrances. The Collateral is, and will remain, free and clear of
all liens, claims and encumbrances of any kind whatsoever, except for (i) liens in
favor of Secured Party, (ii) liens for taxes not yet due or for taxes being contested
in good faith and which do not involve, in the judgment of Secured Party, any risk of
the sale, forfeiture or loss of any of the Collateral, and (iii) inchoate material
men’s, mechanic’s, repairmen’s and similar liens arising by operation of law in the
normal course of business for amounts which are not delinquent (all of such liens are
called “Permitted Liens”);
	 
	 	(m)	 	Negative Pledge on Intellectual Property. Debtor’s Intellectual
Property is, and will remain, free and clear of all liens, claims and encumbrances of
any kind whatsoever, except for Permitted Liens. Debtor shall not sell, transfer,
assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its
Intellectual Property, or enter into any agreement, document, instrument or other
arrangement (except with or in favor of Secured Party) with any entity which directly
or indirectly prohibits or has the effect of prohibiting Debtor from selling,
transferring, assigning, mortgaging, pledging, leasing, granting a security interest in
or upon, or encumbering any of Debtor’s Intellectual Property; provided, however, that
Debtor may grant non-exclusive licenses with respect to components of Debtor’s
Intellectual Property in connection with joint ventures and corporate collaborations in
the ordinary course of business.
	 
	 	(n)	 	Taxes. All federal, state and local tax returns required to be filed
by Debtor have been filed with the appropriate governmental agencies and all taxes due
and payable by Debtor have been timely paid. Debtor will pay when due all taxes,
assessments and other liabilities except as contested in good faith and by appropriate
proceedings and for which adequate reserves have been established;
	 
	 	(o)	 	No Defaults. No event or condition exists under any material
agreement, instrument or document to which Debtor is a party or may be subject, or by
which Debtor or any of its properties are bound, which constitutes a default or an
event of default thereunder, or will, with the giving of notice, passage of time, or
both, would constitute a default or event of default thereunder;
	 
	 	(p)	 	Certification of Financial Information. All reports, certificates,
schedules, notices and financial information submitted by Debtor to the Secured Party
pursuant to this Agreement shall be certified as true and correct by the president or
chief financial officer of Debtor;

 

Master Security Agreement

No. 5081087

	 	(q)	 	Notice of Material Adverse Change. Debtor shall give the Secured Party
prompt written notice of any event, occurrence or other matter which has resulted or
may result in a material adverse change in its financial condition, business
operations, prospects, product development, technology, or business or contractual
relations with third parties of Debtor which would impair the ability of Debtor to
perform its obligations hereunder or under any of the other financing agreements to
which it is a party or of Secured Party to enforce the Indebtedness or realize upon the
Collateral
	 
	 	(r)	 	Notice of Investor Abandonment. Debtor shall give the Secured Party
prompt written notice Secured Party if (a) it is the clear intention of Debtor’s
investors to not continue to fund the Debtor in the amounts and timeframe necessary to
enable Debtor to satisfy the Indebtedness as it becomes due and payable or (b) there is
a material impairment in the perfection or priority of the Secured Party’s security
interest in the Collateral.
	 
	 	(s)	 	Transactions with Affiliates. Debtor shall not, without the prior
written consent of Security Party, directly or indirectly enter into or permit to exist
any material transaction with any Affiliate of Debtor except for transactions that are
in the ordinary course of Debtor’s business, upon fair and reasonable terms that are no
less favorable to Debtor than would be obtained in an arm’s length transaction with a
nonaffiliated Person.
	 
	 	(t)	 	Audits. Debtor shall allow Security Party to audit Debtor’s Collateral at
Debtor’s expense. Such audits will be conducted no more often than every six (6)
months unless an Event of Default has occurred and is continuing.
	 
	 	(u)	 	Primary Account and Wire Transfer Instructions. Debtor maintains its
Primary Account (the “Primary Operating Account”) and the Wire Transfer Instructions
for the Primary Operating Account are as follows:

Comerica Bank

10500 NE 8th Street
Suite 1905
Bellevue, WA 98004
Swift: MNBDUS33

ABA No.: 121137522
Account No.: 1891926162
Account Name: Nura, Inc.

Debtor hereby agrees that Loans will be advanced to the account specified above and
regularly scheduled payments will be automatically debited from the same account. In
addition to the Primary Operating Account identified hereinabove, Debtor maintains the
following other deposit and investment accounts:

 

Master Security Agreement

No. 5081087

Comerica Bank

10500 NE 8th Street
Suite 1905
Bellevue, WA 98004
Swift: MNBDUS33

Account No.: 1892015684 & 189286334-9
Account Name: Nura, Inc.

	 	(v)	 	Right to Invest. Debtor hereby grants to Secured Party a right (but
not an obligation) to invest up to $1,000,000 but not more than $3,000,000, in each
case subject to the first rights to invest provided to holders of the Company’s
preferred stock, in each of the Debtor’s Subsequent Financings on the same terms,
conditions and pricing offered to its investors. Debtor shall give Secured Party at
least thirty (30) days prior written notice of each Subsequent Financing containing the
terms, conditions and pricing of each Subsequent Financing. As used herein,
“Subsequent Financing” shall mean the next and any future round of private equity
financing in which the Debtor receives, in the aggregate, at least $2,000,000 of net
proceeds excluding any bridge debt financing except to the extent actually converted to
equity in the Debtor.

3. COLLATERAL.

The Debtor, covenants and agrees that, so long as any of the Debt Documents shall remain in
effect, or unless the Secured Party shall otherwise consent in writing:

	 	(a)	 	Possession of Collateral; Inspection of Collateral. Until the
declaration of any default, Debtor shall remain in possession of the Collateral; except
that Secured Party shall have the right to possess (i) any chattel paper or instrument
that constitutes a part of the Collateral, and (ii) any other Collateral in which
Secured Party’s security interest may be perfected only by possession. Secured Party
may inspect any of the Collateral during normal business hours after giving Debtor
reasonable prior notice.
	 
	 	(b)	 	Maintenance of Collateral. Debtor shall (i) use the Collateral only in
its trade or business, (ii) maintain all of the Collateral in good operating order and
repair, normal wear and tear excepted, (iii) use and maintain the Collateral only in
compliance with manufacturers recommendations and all applicable laws, and (iv) keep
all of the Collateral free and clear of all liens, claims and encumbrances (except for
Permitted Liens).
	 
	 	(c)	 	Disposition of Collateral. Secured Party docs not authorize and Debtor
agrees it shall not (i) part with possession of any of the Collateral (except to
Secured Party or for maintenance and repair), (ii) remove any of the Collateral from
the continental United States, or (iii) sell, rent, lease, mortgage, license, grant a
security interest in or otherwise transfer or encumber (except for Permitted liens) any
of the Collateral.

 

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	 	(d)	 	Taxes. Debtor shall pay promptly when due all taxes, license fees,
assessments and public and private charges levied or assessed on any of the Collateral,
on its use, or on this Agreement or any of the other Debt Documents. At its option,
Secured Party may discharge taxes, liens, security interests or other encumbrances at
any time levied or placed on the Collateral and may pay for the maintenance, insurance
and preservation of the Collateral and effect compliance with the terms of this
Agreement or any of the other Debt Documents. Debtor agrees to reimburse Secured
Party, on demand, all costs and expenses incurred by Secured Party in connection with
such payment or performance and agrees that such reimbursement obligation shall
constitute Indebtedness.
	 
	 	(e)	 	Books and Records. Debtor shall, at all times, keep accurate and
complete records of the Collateral, and Secured Party shall have the right to inspect
and make copies of all of Debtor’s books and records relating to the Collateral during
normal business hours, after giving Debtor reasonable prior notice.
	 
	 	(f)	 	Third Party Possession of Collateral. Debtor agrees and acknowledges
that any third person who may at any time possess all or any portion of the Collateral
shall be deemed to hold, and shall hold, the Collateral as the agent of, and as pledge
holder for, Secured Party. Secured Party may at any time give notice to any third
person described in the preceding sentence that such third person is holding the
Collateral as the agent of, and as pledge holder for, the Secured Party.
	 
	 	(g)	 	Receivables. As to each and every Receivable, should Debtor have
Receivables now or in the future, (a) it is a bona fide existing obligation, valid and
enforceable against the Account Debtor for a sum certain for sales of goods shipped or
delivered, or goods leased, or services rendered in the ordinary course of business,
(b) all supporting documents, instruments, chattel paper and other evidence of
indebtedness, if any, delivered to the Secured Party are complete and correct and valid
and enforceable in accordance with their terms, and all signatures and endorsements
that appear thereon are genuine, and all signatories and endorsers have full capacity
to contract, (c) to the best of the Debtor’s knowledge, the Account Debtor is liable
for and will make payment of the amount expressed in such Receivable according to its
terms; (d) it will be subject to no discount, deduction, setoff, counterclaim, return,
allowance or special terms of payment without the prior approval of the Secured Party,
(e) it is subject to no dispute, defense or offset, real or claimed, (f) it is not
subject to any prohibition or limitation upon assignment, (g) it has not been redated
or reissued in satisfaction of prior Receivables, (h) the Debtor has full right and
power to grant the Secured Party a security interest therein and the security interest
granted in such Receivable to the Secured Party in this Agreement, when perfected, will
be a valid first security interest which will inure to the benefit of the Secured Party
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	 	 	 	further action. The warranties set out herein shall be deemed to have been made with
respect to each and every Receivable now owned or hereafter acquired by the Debtor.
	 
	 	(h)	 	Bailees. The Inventory, should Debtor have Inventory now or in the
future, is not now and shall not at any time hereafter be stored with a bailee,
warehouseman, or similar party without the Secured Party’s prior written consent. If
any Inventory is so stored, the Debtor will, concurrent with storing such Inventory,
cause any such bailee, warehouseman, or similar party to issue and deliver to the Secured Party, in a form
acceptable to the Secured Party, warehouse receipts in the Secured Party’s name
evidencing the storage of the Inventory. All such warehouse receipts do and will
evidence ownership of the Inventory stored by the issuers thereof, and the holder
thereof is and will continue to be the owner of good and marketable title of same,
free and clear of any Liens or encumbrances. All such warehouse receipts are and
will be genuine, valid and enforceable by the holder thereof in accordance with their
terms and all statements thereon are and will be true and accurate in all respects.
	 
	 	(i)	 	Change of Address. All of the Collateral is located in and will in the
future be in the possession of the Debtor at its address stated above or at such other
addresses as may be set forth on the attached Schedule A. The Debtor has not
at any time within the past four (4) months either (a) maintained Inventory or
Equipment or (b) maintained its chief executive office or its records with respect to
the Receivables at any other location and shall not do so hereafter except with the
prior written consent of the Secured Party. The Secured Party shall be entitled to
rely upon the foregoing unless it receives 14 days’ advance written notice of a change
in the address of the Debtor’s executive offices or location of the Collateral.
	 
	 	(j)	 	Schedules of Receivables. Upon the written request of Secured Party,
deliver to the Secured Party schedules of all outstanding Receivables, should Debtor
have Receivables now or in the future,. Such schedules shall be in form satisfactory
to the Secured Party and shall show the age of such Receivables in intervals of not
more than thirty (30) days, and contain such other information and be accompanied by
such supporting documents as the Secured Party may from time to time prescribe. The
Debtor shall also deliver to the Secured Party copies of the Debtor’s invoices, sales
journals, evidences of shipment or delivery and such other schedules and information as
the Secured Party may reasonably request. The items to be provided under this Section
are to be prepared and delivered to the Secured Party from time to time solely for its
convenience in maintaining records of the Collateral and the Debtor’s failure to give
any of such items to the Secured Party shall not affect, terminate, modify or otherwise
limit the Secured Party’s security interest granted herein.

 

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	 	(k)	 	Consignment. If at any time any of the Inventory, should Debtor have
Inventory now or in the future, is placed by the Debtor on consignment with any person
or entity (“Consignee”), the Debtor shall, prior to the delivery of such consigned
Inventory;

	 	a.	 	Provide the Secured Party with all consignment agreements and
other instruments and documentation to be used in connection with such
consignment, all of which agreements, instruments, and documentation shall be
acceptable in form and substance to the Secured Party;
	 
	 	b.	 	Prepare and file appropriate financing statements with respect to
any consigned Inventory showing the Consignee as debtor, the Debtor as secured
party, and the Secured Party as assignee of the Debtor;
	 
	 	c.	 	Prepare and file appropriate financing statements with respect to
any consigned Inventory showing the Debtor as debtor, and the Secured Party as
secured party;
	 
	 	d.	 	After all financing statements referred to in the previous two
subsections have been filed, conduct a search of all filings made against the
Consignee in alt jurisdictions in which the Inventory to be consigned is to be
located while on consignment, and deliver to the Secured Party copies of the
results of all such searches; and
	 
	 	e.	 	Notify, in writing, all creditors of the Consignee that are or
may be holders of security interests in the Inventory to be consigned, that the
Debtor expects to deliver certain Inventory to the Consignee, all of which
Inventory shall be described in such notice by item or type.

	 	(l)	 	Fixtures. Not permit any item of the Equipment to become a fixture to
real estate or an accession to other property without the prior written consent of the
Secured Party, and the Equipment is now and shall at all times remain personal property
except with the Secured Party’s prior written consent. If any of the Collateral is or
will be attached to real estate in such a manner as to become a fixture under
applicable state law and if such real estate is encumbered, the Debtor will obtain from
the holder of each Lien or encumbrance a written consent and subordination to the
security interest hereby granted, or a written disclaimer of any interest in the
Collateral, in a form acceptable to the Secured Party.
	 
	 	(m)	 	Chattel Paper. Promptly, upon request by the Secured Party, deliver,
assign, and endorse to the Secured Party all chattel paper and all other documents held
by the Debtor in connection therewith.

 

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	 	(n)	 	Copies of Government Contracts. Make available to the Secured Party,
at the request of the Secured Party, a copy of each Government Contract in which the
Secured Party has a security interest and a copy of each amendment thereto or
modification thereof which changes the price of such contract or the amount funded to
pay for such contract, except to the extent that furnishing such copies may be
prohibited by government security regulations. Attached hereto as Schedule B
is a complete list of all Government Contracts under which Receivables now exist or may
hereafter arise, identified by the names of the contracting parties thereto, the date
thereof and the number identifying the Government Contract or agreement and providing
information in the form specified by the Secured Party from time to time regarding the
contracting officer, the identity of any sureties and the disbursing officer, whether
progress payments are to be made and the rate thereof, whether the Government Contract
or agreement has been fully performed and such other information as the Secured Party
may request. A true, complete and correct copy of each such Government Contract
(including all modifications thereto and notice of exercise of options thereunder) now
existing has been provided to the Secured Party by the Debtor. The Debtor shall as
soon as practicable (but in no event later than five days prior to the date of
execution thereof) notify the Secured Party of any additional Government Contracts, or
any renewals or extensions of any Government Contract or the exercise of any options
thereunder or modifications thereof, identified by the names of the contracting parties
thereto, the date thereof and the number identifying the Government Contract or
agreement and providing information in the form specified by the Secured Party from
time to time regarding the contracting officer, the identity of any sureties and the
disbursing officer, whether progress payments are to be made and the rate thereof, and
such other information as the Secured Party may request, and a true, complete and
correct copy of each such Government Contract, amendment or modification or exercise of
option shall be provided lo the Secured Party by the Debtor no later than the date of
execution thereof.
	 
	 	(o)	 	Claims and Disputes. Immediately upon learning thereof, report to the
Secured Party any reclamation, return or repossession of goods, any claim or dispute
asserted by any Account Debtor or other obligor, and any other matter affecting the
value and enforceability or collectability of any of the Collateral. In addition, the
Debtor shall, at its sole cost and expense (including attorneys’ fees), settle any and
all such claims and disputes and indemnify and protect the Secured Party against any
liability, loss or expense arising therefrom or out of any such reclamation, return or
repossession of goods, provided, however, that the Secured Party, if it shall so elect,
shall have the right at all times to settle, compromise, adjust or litigate all claims
or disputes directly with the Account Debtor or other obligor upon such terms and
conditions as the Secured Party deems advisable and charge all costs and expenses
thereof (including attorneys’ fees) to the Debtor’s account and add them to the
principal amount of the Indebtedness.

 

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	 	(p)	 	Government Contracts Are Binding, Etc Take the necessary or
appropriate steps to ensure that all Government Contracts have been, or if arising
hereafter will be, legally awarded and binding on the parties thereto; no payment has
been or will be made by the Debtor, any affiliate, or any person acting on their
behalf, to any person that was, is or will be contingent upon the award of any
Government Contract in violation of applicable procurement law or that would otherwise
be in violation of applicable procurement law (including, but not limited to, the
Federal Acquisition Regulations, the Defense Acquisition Regulations, the Federal
Procurement Regulations and the Armed Services Procurement Regulations); there is no
claim that has been asserted by any government agency or authority concerning the award
or performance of any Government Contract and the Debtor shall immediately notify the
Secured Party of the assertion of any such claim or the existence of any basis
therefor; neither the Debtor nor any director, employee or Affiliate has been debarred
or suspended from participation in the award of contracts with the federal government
or any state or local government, or any agency or instrumentality thereof, or is a
party to or the subject of any pending or threatened proceeding or investigation
relating to debarment or suspension, and the Debtor shall immediately notify the
Secured Party of the occurrence of any of the foregoing or the existence of any basis
therefor; and neither the Debtor nor any Affiliate, nor any officer, director or
employee of any of them, is permanently or temporarily enjoined or barred from engaging
in or continuing any conduct or practice relating to the conduct of their business, or
enjoining or requiring any of them to take any action of any kind relating thereto, and
the Debtor shall immediately notify the Secured Party of the occurrence of any of the
foregoing or the existence of any basis therefor.
	 
	 	(q)	 	No Provisions Prohibiting Assignment of Government Contracts. Take the
necessary or appropriate steps to ensure that each Government Contract (i) doss not and
will not contain any provision prohibiting assignment thereof as provided herein, (ii)
contains a “no set-off’ clause or does not permit any set-off against or reduction of
the obligation to make payments thereunder for liability of the Debtor to the
government because of renegotiation, fine, penalty (other than as specifically
permitted by the federal Assignment of Claims Act with respect to Government Contracts
with the federal government), taxes, social security contributions, or withholding or
failing to withhold taxes, social security contributions or similar amounts, whether
arising from or independent of the Government Contract. The Debtor shall promptly
notify the Secured Party of any claimed set-off or reduction or the disallowance of
progress payment requests.
	 
	 	(r)	 	Cost Accounting and Procurement Systems. The Debtor’s cost accounting
and procurement systems are and at all times have been, and will continue to be, in
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	 	(s)	 	Compliance with Assignment Requirements for Government Contracts. The
Debtor is now in compliance and hereby covenants and agrees that the Debtor will in the
future comply with any and all of the requirements of Title 3l Section 3727 and Title
31 Section 15 of the United States Code and any similar state or local law and all
rules and regulations relating thereto, as amended, where such statutes, rules and
regulations are applicable to a particular Receivable, and shall at all times take all
such other action as may be necessary to facilitate and/or ensure perfection of the
Secured Party’s security interest in and the assignment to the Secured Party of any
Government Account and Government Contract.
	 
	 	(t)	 	Information Concerning Government Contracts. At the request of the
Secured Party, submit to the Secured Party for the Secured Party’s approval each
Government Contract which the Debtor desires to be included in determining eligible
Government Accounts, and provide such other information concerning such Government
Contract as the Secured Party may reasonably request.
	 
	 	(u)	 	Domain Name. Take the necessary or appropriate steps to ensure that
the identity and location of the servers used in connection with the Debtor’s domain
name and the identity of the party having control over the domain name server and of
the administrative contact with the registry have been disclosed to the Secured Party.
The Debtor shall not change the domain name server without notification to the Secured
Party. The Debtor shall maintain the trademark of the domain name by defending against
any infringement suits and by policing the trademark. The Debtor shall renew the
domain name registration during the loan term. The Debtor shall make all payments to
the domain name registrar necessary to maintain the domain name.
	 
	 	(v)	 	Account Control Agreements. Debtor shall at all times maintain all Cash
Equivalents owned by Debtor on deposit in a Deposit Account or Accounts in Debtor’s
name at Comerica Bank or in a Deposit Account or Accounts at another institution (a
“Third Party Institution”) covered by an account
control agreement in favor of Secured Party (the
terms of which shall be substantially identical to the terms of that
certain Control Agreement,
dated                     ,
200   , between Debtor and Secured Party, or otherwise
acceptable to Secured Party). At any time that the Cash
Equivalents or any portion thereof are held in an account or accounts in one or more
Third Party Institutions, the related account control agreement shall provide that
Secured Party is to receive monthly account statements, in form and substance
acceptable to Secured Party, evidencing that the Cash Equivalents are maintained in
the related account. With respect to each such Deposit Account, Debtor, Secured
Party, and each Third Party Institution with which a Deposit Account is maintained,
shall enter into a written agreement, granting Secured Party control of the Deposit
Account and providing that the Third Party Institution will comply with instructions

 

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	 		 	originated by the Secured Party directing disposition of the funds in the Deposit Account
without further consent by Debtor. Such account control agreement may in accordance with
the provisions thereof provide terns under which Debtor may remove funds from the Deposit
Account; provided all funds in or transferred into the Deposit Account on or after the
effectiveness of this Agreement shall be subject to the security interest granted under this
Agreement.

4. INSURANCE.

	 	(a)	 	Risk of Loss. Debtor shall at all times bear the entire risk of any
loss, theft, damage to, or destruction of, any of the Collateral from any cause
whatsoever.
	 
	 	(b)	 	Insurance Requirements. Debtor agrees to maintain general liability
insurance and to keep the Collateral insured against loss or damage by fire and
extended coverage perils, theft, burglary, risk of loss by collision (for any or all
Collateral which are vehicles) and such other risks as Secured Party may reasonably
require. The liability insurance coverage shall be in an amount standard for companies
similar to Debtor in Debtor’s industry in Debtor’s geographic region. The property
insurance coverage shall be in an amount no less than the full replacement value of the
Collateral. All insurance policies shall be in a form, with companies and with
deductible amounts, acceptable to Secured Party. Debtor shall deliver to Secured Party
policies or certificates of insurance evidencing such coverage. Each policy shall name
Secured Party as a loss payee and an additional insured, shall provide for coverage to
Secured Party regardless of the breach by Debtor of any warranty or representation made
therein, shall not be subject to co-insurance, and shall provide that coverage may not
be canceled or altered by the insurer except upon thirty (30) days prior written notice
to Secured Party. Debtor appoints Secured Party as its attorney-in-fact to make proof
of loss, claim for insurance and adjustments with insurers, and to receive payment of
and execute or endorse all documents, checks or drafts in connection with insurance
payments. Secured Party shall not act as Debtor’s attorney-in fact unless Debtor is
in default. Proceeds of insurance shall be applied, at the option of Secured Party,
to repair or replace the Collateral or to reduce any of the Indebtedness.

5. REPORTS.

	 	(a)	 	Notice of Events. Debtor shall promptly notify Secured Party of (i)
any change in the name of Debtor, (ii) any change in the state of its incorporation or
registration, (iii) any relocation of its chief executive offices, (iv) any of the
Collateral being lost, stolen, missing, destroyed, materially damaged or worn out, or
(v) any lien, claim or encumbrance other than Permitted Liens attaching to or being
made against any of the Collateral.

 

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	 	(b)	 	Financial Statements, Reports and Certificates. Debtor will deliver to
Secured Party within one-hundred eighty (180) days of the close of each fiscal year of
Debtor, Debtor’s complete financial statements including a balance sheet, income
statement, statement of shareholders’ equity and statement of cash flows, each prepared
in accordance with generally accepted accounting principles, but excluding footnotes
and normal year-end adjustments, consistently applied, certified by a recognized firm
of certified public accountants satisfactory to Secured Party. Debtor will deliver to
Secured Party copies of Debtor’s quarterly financial statements including a balance
sheet, income statement and statement of cash flows, each prepared by Debtor in
accordance with generally accepted accounting principles, but excluding footnotes and
normal year-end adjustments, consistently applied by Debtor and certified by Debtor’s
chief financial officer, within ninety (90) days after the close of each of Debtor’s
fiscal quarter. Debtor will deliver to Secured Party copies of all Forms 10-K and
10-Q, if any, within 30 days after the dates on which they are filed with the
Securities and Exchange Commission. Debtor will deliver to Secured Party copies of
Debtor’s monthly financial statements including a balance sheet and income statement,
each prepared by Debtor in accordance with generally accepted accounting principles, ,
but excluding footnotes and normal year-end adjustments, consistently applied by Debtor
and certified by Debtor’s chief financial officer, within forty-five (45) days after
the close of each month. Concurrently with delivery of the foregoing information, and
from time to time promptly upon request of Secured Party, Debtor will deliver to
Secured Party a Compliance Certificate substantially consistent with the form of the
document attached hereto as Schedule C. Debtor will deliver to Secured Party
promptly upon request of Secured Party, in form satisfactory to
Secured Party, such other and additional information as Secured Party may reasonably
request from time to time.

6. FURTHER ASSURANCES.

	 	(a)	 	Further Assurances Regarding Security Interests. Debtor shall, upon
request of Secured Party, furnish to Secured Party such further information, execute
and deliver to Secured Party such documents and instruments (including, without
limitation, Uniform Commercial Code financing statements) and shall do such other acts
and things as Secured Party may at any time reasonably request relating to the
perfection or protection of the security interest created by this Agreement or for the
purpose of carrying out the intent of this Agreement. Without limiting the foregoing,
Debtor shall cooperate and do all acts deemed necessary or advisable by Secured Party
to continue in Secured Party a perfected first security interest in the Collateral, and
shall obtain and furnish to Secured Party any subordinations, releases, landlord
waivers, lessor waivers, mortgagee waivers, or control agreements, and similar
documents as may be from time to time requested by, and in form and substance
satisfactory to, Secured Party.

 

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	 	(b) 	 	Authorization To File Financial Statements. Debtor shall perform any
and all acts requested by the Secured Party to establish, maintain and continue the
Secured Party’s security interest and liens in the Collateral, including but not
limited to, executing or authenticating financing statements and such other instruments
and documents when and as reasonably requested by the Secured Party. Debtor hereby
authorizes Secured Party through any of Secured Party’s employees, agents or attorneys
to file any and all financing statements, including, without limitation, any original
filings, continuations, transfers or amendments thereof required to perfect Secured
Party’s security interest and liens in the Collateral under the UCC without
authentication or execution by Debtor. Debtor hereby irrevocably authorizes the
Secured Patty at any time and from tune to time to file in any filing office in any
Uniform Commercial Code jurisdiction any initial financing statement(s) and amendments
thereto that (a) indicate the Collateral (i) as all assets of the Debtor or words of
similar effect, regardless of whether any particular asset comprised in the Collateral
falls within the scope of Article 9 of the Uniform Commercial Code of the State or such
jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and
(b) provide any other information required by part 5 of Article 9 of the Uniform
Commercial Code of the State or such other jurisdiction for the sufficiency
or filing office acceptance of any financing statement or amendment, including (i)
whether the Debtor is an organization, the type of organization and any organization
identification number issued to the Debtor, and (ii) in the case of a financing
statement filed as a fixture filing, a sufficient description of real property to
which the Collateral relates. The Debtor agrees to furnish any such information to
the Secured Party promptly upon the Secured Party’s request.
	 
	 	(c)	 	Indemnification. Debtor shall indemnify and defend the Secured Party,
its successors and assigns, and their respective directors, officers and employees,
from and against all claims, actions and suits (including, without limitation, related
attorneys’ fees) of any kind whatsoever arising, directly or indirectly, in connection
with any of the Collateral.

7. DEFAULT AND REMEDIES.

	 	(a)	 	Defaults. Debtor shall be in default under this Agreement and each of
the other Debt Documents if any one of the following should occur:

	 	(i)	 	Debtor breaches its obligation to pay when due any
installment or other amount due or coming due under any of the Debt
Documents;
	 
	 	(ii)	 	Debtor, without the prior written consent of Secured
Party, attempts to or does sell, rent, lease, license, mortgage, grant a
security interest in, or otherwise transfer or encumber (except for
Permitted Liens) any of the Collateral;

 

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	 	(iii)	 	Debtor breaches any of its insurance obligations under
Section 4:
	 
	 	(iv)	 	Debtor breaches any of its other non-payment obligations
under any of the Debt Documents and fails to cure that breach within thirty
(30) days after written notice from Secured Party;
	 
	 	(v)	 	Any warranty, representation or statement made by Debtor
in any of the Debt Documents or otherwise in connection with any of the
Indebtedness shall be false or misleading in any material respect;
	 
	 	(vi)	 	Any of the Collateral is subjected to attachment,
execution, levy, seizure or confiscation in any legal proceeding or
otherwise, or if any legal or administrative proceeding is commenced against
Debtor or any of the
Collateral, which in the good faith judgment of Secured Party subjects any of
the Collateral to a material risk of attachment, execution, levy, seizure or
confiscation and no bond is posted or protective order obtained to negate
such risk;
	 
	 	(vii)	 	Debtor breaches or is in default under any other
agreement between Debtor and Secured Party;
	 
	 	(viii)	 	Debtor or any guarantor or other obligor for any of the Indebtedness
(collectively “Guarantor”) dissolves, terminates its existence, becomes
insolvent or ceases to do business as a going concern;
	 
	 	(ix)	 	Debtor or any Guarantor is a natural person, Debtor or
any such Guarantor dies or becomes incompetent;
	 
	 	(x)	 	A receiver is appointed for all or of any part of the
property of Debtor or any Guarantor, or Debtor or any Guarantor makes any
assignment for the benefit of creditors;
	 
	 	(xi)	 	Debtor or any Guarantor files a petition under any
bankruptcy, insolvency or similar law, or any such petition is filed against
Debtor or any Guarantor and is not dismissed within forty-five (45) days;
	 
	 	(xii)	 	Debtor’s improper filing of an amendment or termination
statement relating to a filed financing statement describing the Collateral;
	 
	 	(xiii)	 	Debtor shall merge with or consolidate into any other entity or sell all
or substantially all of its assets or in any manner terminate its existence;

 

 

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	 	(xiv)	 	If Debtor is a privately held corporation, and without
the prior written consent of Secured Party, which consent shall not be
unreasonably delayed, conditioned or withheld, more than 50% of Debtor’s
voting capital stock, or effective control of Debtor’s voting capital stock,
issued and outstanding from time to time, is not retained by the holders of
such stock on the date the Agreement is executed, other than (a) by the sale
or issuance of Debtor’s equity securities in a public offering or to venture
capital investors or (b) pursuant to a merger or consolidation in which
Debtor is the surviving entity pursuant to the terms of section 7(a)(xiii)
above;
	 
	 	(xv)	 	If Debtor should become a publicly held corporation,
there shall be a change in the ownership of Debtor’s stock such that Debtor
is no longer subject to the reporting requirements of the Securities
Exchange Act of 1934 or no longer has a class of equity securities
registered under Section 12 of the Securities Act of 1933;
	 
	 	(xvi)	 	Debtor defaults under any other written financing
arrangement between Debtor and a third party, the amount of which is in
excess of S75,000; and
	 
	 	(xvii)	 	Secured Party shall have determined in its sole and good faith judgment
that (a) it is the clear intention of Debtor’s investors to not continue to
fund the Debtor in the amounts and timeframe necessary to enable Debtor to
satisfy the Indebtedness as it becomes due and payable or (b) there is a
material impairment in the perfection or priority of the Secured Party’s
security interest in the Collateral; or
	 
	 	(xviii)	 	Secured Patty shall have determined in its sole and good faith judgment
that there has been a material adverse change in the financial condition,
business, operations, prospects, product development, technology, or
business or contractual relations with third parties of Debtor from the date
hereof, or a change or event shall have occurred which would impair the
ability of Debtor to perform its obligations hereunder or under any of the
other financing agreements to which it is a party or of Secured Party to
enforce the Indebtedness or realize upon the Collateral.

	 	(b)	 	Acceleration. If Debtor is in default, the Secured Party, at its
option, may declare any or all of the Indebtedness to be immediately due and payable,
without demand or notice to Debtor or any guarantor. The accelerated obligations and
liabilities shall bear interest (both before and after any judgment) until paid in full
at the lower of eighteen percent (18%) per annum or the maximum rate not prohibited by
applicable law.

 

 

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	 	(c)	 	Rights and Remedies. Secured Party shall have all of the rights and
remedies of a Secured Party under the Uniform Commercial Code, and under any other
applicable law. Without limiting the foregoing, Secured Party shall have the right to
(i) notify any account debtor of Debtor or any obligor on any instrument which
constitutes part
of the Collateral to make payment to the Secured Party, (ii) with or without legal
process, enter any premises where the Collateral may be and take possession of and
remove the Collateral from the premises or store it on the premises, (iii) sell the
Collateral at public or private sale, in whole or in part, and have the right to bid
and purchase at said sale, (iv) to instruct the bank maintaining any Deposit Account
to transfer the funds in the Deposit Account to any account of the Secured Party, or
(v) lease or otherwise dispose of all or part of the Collateral, applying proceeds
from such disposition to the obligations then in default. If requested by Secured
Party, Debtor shall promptly assemble the Collateral and make it available to Secured
Party at a place to be designated by Secured Party, which is reasonably convenient to
both parties. Secured Party may also render any or all of the Collateral unusable at
the Debtor’s premises and may dispose of such Collateral on such premises without
liability for rent or costs. Any notice that Secured Party is required to give to
Debtor under the Uniform Commercial Code of the time and place of any public sale or
the time after which any private sate or other intended disposition of the Collateral
is to be made shall be deemed to constitute reasonable notice if such notice is given
to the last known address of Debtor at least five (5) days prior to such action.
Upon the occurrence and during the continuation of an Event of Default, Debtor hereby
appoints Secured Party as Debtor’s attorney-in-fact, with full authority in Debtor’s
place and stead and in Debtor’s name or otherwise, from time to time in Secured
Party’s sole and arbitrary discretion, to take any action and to execute any
instrument which Secured Party may deem necessary or advisable to accomplish the
purpose of this Agreement.
	 
	 	(d)	 	Application of Proceeds. Proceeds from any sale or lease or other
disposition shall be applied: first, to all costs of repossession, storage, and
disposition including without limitation attorneys’, appraisers’, and auctioneers’
fees; second, to discharge the obligations then in default; third, to discharge any
other Indebtedness of Debtor to Secured Party, whether as obligor, endorser, guarantor,
surety or indemnitor; fourth, to expenses incurred in paying or settling liens and
claims against the Collateral; and lastly, to Debtor, if there exists any surplus.
Debtor shall remain fully liable for any deficiency.
	 
	 	(e)	 	Fees and Costs. Debtor agrees to pay alt reasonable attorneys’ fees
and other costs incurred by Secured Party in connection with the enforcement,
assertion, defense or preservation of Secured Patty’s rights and remedies under this
Agreement, or if prohibited by law, such lesser sum as may be permitted. Debtor
further agrees that such fees and costs shall constitute Indebtedness.

 

 

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	 	(f)	 	Remedies Cumulative. Secured Party’s rights and remedies under this
Agreement or otherwise arising are cumulative and may be exercised singularly or
concurrently. Neither the failure nor any delay on the part of the Secured Party to
exercise any right, power or privilege under this Agreement shall operate as a waiver,
nor shall any single or partial exercise of any right, power or privilege preclude any
other or further exercise of that or any other right, power or privilege. SECURED
PARTY SHALL NOT BE DEEMED TO HAVE WAIVED ANY OF ITS RIGHTS UNDER THIS AGREEMENT OR
UNDER ANY OTHER AGREEMENT, INSTRUMENT OR PAPER SIGNED BY DEBTOR UNLESS SUCH WAIVER IS
EXPRESSED IN WRITING AND SIGNED BY SECURED PARTY. A waiver on any one occasion shall
not be construed as a bar to or waiver of any right or remedy on any future occasion.
	 
	 	(g)	 	WAIVER OF JURY TRIAL. DEBTOR AND SECURED PARTY UNCONDITIONALLY WAIVE
THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED
HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT
MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP
THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER
IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION.
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

8. MISCELLANEOUS.

	 	(a)	 	Assignment. This Agreement, any Note and/or any of the other Debt
Documents may be assigned, in whole or in part, by Secured Party without notice to
Debtor, and Debtor agrees not to assert against any such assignee, or assignee’s
assigns, any defense, set-off, recoupment claim or counterclaim which Debtor has or may
at any
time have against Secured Party for any reason whatsoever. Debtor agrees that if
Debtor receives written notice of an assignment from Secured Party, Debtor will pay
all amounts payable under any assigned Debt Documents to such assignee or as

 

 

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	 	 	 	instructed by Secured Party. Debtor also agrees to confirm in writing receipt of the notice
of assignment as may be reasonably requested by Secured Party or assignee.
	 
	 	(b)	 	Notices. All notices to be given in connection with this Agreement
shall be in writing, shall be addressed to the parties at their respective addresses
set forth in this Agreement (unless and until a different address may be specified in a
written notice to the other party), and shall be deemed given (i) on the date of
receipt if delivered in hand or by facsimile transmission, (ii) on the next business
day after being sent by express mail, and (iii) on the fourth business day after being
sent by regular, registered or certified mail. As used herein, the term “business day”
shall mean and include any day other than Saturdays, Sundays, or other days on which
commercial banks in New York, New York are required or authorized to be closed.
	 
	 	(c)	 	Correction of Errors. Secured Party may correct patent errors end fill
in all blanks in this Agreement or in any Note consistent with the agreement of the
parties.
	 
	 	(d)	 	Time is of the Essence. Time is of the essence of this Agreement.
This Agreement shall be binding, jointly and severally, upon all parties described as
the “Debtor” and their respective heirs, executors, representatives, successors and
assigns, and shall inure to the benefit of Secured Party, its successors and assigns.
	 
	 	(e)	 	Entire Agreement. This Agreement and its Notes constitute the entire
agreement between the parties with respect to the subject matter of this Agreement and
supersede all prior understandings (whether written, verbal or implied) with respect to
such subject matter. THIS AGREEMENT AND ITS NOTES SHALL NOT BE CHANGED OR TERMINATED
ORALLY OR BY COURSE OF CONDUCT, BUT ONLY BY A WRITING SIGNED BY BOTH PARTIES. Section
headings contained in this Agreement have been included for convenience only, and shall
not affect the construction or interpretation of this Agreement.
	 
	 	(f)	 	Termination of Agreement. This Agreement shall continue in full force
and effect until all of the Indebtedness has been indefeasibly paid in full to Secured
Party or its assignee. The surrender, upon payment or otherwise, of any Note or any of
the other documents evidencing any of the Indebtedness shall not affect the right of
Secured Party to retain the Collateral for such other Indebtedness as may then exist or
as it
may be reasonably contemplated will exist in the future. This Agreement shall
automatically be reinstated if Secured Party is ever required to return or restore
the payment of all or any portion of the Indebtedness (all as though such payment had
never been made).
	 
	 	(g)	 	CHOICE OF LAW. DEBTOR AGREES THAT SECURED PARTY AND/OR ITS SUCCESSORS
AND ASSIGNS SHALL HAVE THE OPTION BY WHICH STATE LAWS THIS AGREEMENT SHALL BE GOVERNED
AND CONSTRUED:

 

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(A) THE LAWS OF THE COMMONWEALTH OF VIRGINIA; OR (B) IF COLLATERAL HAS BEEN PLEDGED
TO SECURE THE LIABILITIES, THEN BY THE LAWS OF THE STATE OR STATES WHERE THE
COLLATERAL IS LOCATED, AT SECURED PARTY’S OPTION. THIS CHOICE OF STATE LAWS IS
EXCLUSIVE TO THE SECURED PARTY. DEBTOR SHALL NOT HAVE ANY OPTION TO CHOOSE THE LAWS
BY WHICH THIS AGREEMENT SHALL BE GOVERNED. DEBTOR ACKNOWLEDGES THAT THIS AGREEMENT
IS BEING SIGNED BY THE SECURED PARTY IN PARTIAL CONSIDERATION OF SECURED PARTY’S
RIGHT TO ENFORCE IN THE JURISDICTION STATED ABOVE. DEBTOR CONSENTS TO JURISDICTION
IN THE COMMONWEALTH OF VIRGINIA OR THE STATE IN WHICH ANY COLLATERAL IS LOCATED AND
VENUE IN ANY FEDERAL OR STATE COURT IN THE COMMONWEALTH OF VIRGINIA OR THE STATE IN
WHICH COLLATERAL IS LOCATED FOR SUCH PURPOSES AND WAIVES ANY AND ALL RIGHTS TO
CONTEST SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT SAID COUNTY IS NOT
CONVENIENT. DEBTOR WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST SECURED PARTY IN
ANY JURISDICTION EXCEPT VIRGINIA, OR IF SECURED PARTY CHOOSES TO LITIGATE IN A STATE
WHERE COLLATERAL IS LOCATED THEN IN SUCH COUNTY AND STATE.

	 	(h)	 	Limitation of Liability. The Secured Party shall not, under any
circumstances, be liable for any error or omission or delay of any kind occurring in
the settlement, collection or payment of any Receivables or any instrument received in
payment thereof or for any damage resulting therefrom. The Secured Party is authorized
to accept the return of the goods represented by any of the Receivables, without notice
to or consent by the Debtor, or without discharging or in any manner affecting the
Loan.
	 
	 	(i)	 	Notification to Account Debtors. The Secured Party shall have the
right at any time to notify any Account Debtor of the Secured Party’s security interest
in the Receivables and to require payments to be made directly to the Secured Party.
To facilitate direct collection, the Debtor hereby appoints the Secured Party and any
officer or employee of the Secured Party, as the Secured Party may from time to time
designate, as attorney-in-fact for the Debtor to (a) receive, open and dispose of all
mail addressed to the Debtor and take therefrom any payments on or proceeds of
Receivables; (b) take over the Debtor’s post office boxes or make such other
arrangements, in which the Debtor shall cooperate, to receive the Debtor’s mail,
including notifying the post office authorities to change the address for delivery of
mail addressed to the Debtor to such address as the Secured Party shall designate; (c)
endorse the name of the Debtor in favor of the Secured Party upon any and all checks,
drafts, money orders, notes, acceptances or other evidences of payment or

 

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	 	 	 	Collateral that may come into the Secured Party’s possession; (d) sign and endorse the name
of the Debtor on any invoice or bill of lading relating to any of the Receivables, on
verifications of Receivables sent to any Account Debtor, to drafts against any Account
Debtor, to assignments of Receivables, and to notices to any Account Debtor; and (e) do
all acts and things necessary to carry out this Agreement and the transactions
contemplated hereby, including signing the name of the Debtor on any instruments
required by law in connection with the transactions contemplated hereby and on
financing statements as permitted by the Virginia Uniform Commercial Code. The Debtor
hereby ratifies and approves all acts of such attorneys-in-fact, and neither the
Secured Party nor any other such attorney-in-fact shall be liable for any acts of
commission or omission, or for any error of judgment or mistake of fact or law of any
such attorney-in-fact. This power, being coupled with an interest, is irrevocable so
long as the Loan remains unsatisfied, or any Loan Document remains effective, as solely
determined by the Secured Party.
	 
	 	(j)	 	Loss; Depreciation or Other Damage. The Secured Party shall not be
liable for or prejudiced by any loss, depreciation or other damage to Receivables or
other Collateral unless caused by the Secured Party’s willful and malicious act, and
the Secured Party shall have no duty to take any action to preserve or collect any
Receivable or other Collateral.

9. DEFINITIONS.

     As used herein, the following terms, when initial capital letters are used, shall have the
respective meanings set forth below. In addition, all terms defined in the Virginia Uniform
Commercial Code (including revised Article 9 thereof) shall have the meanings given therein unless
otherwise defined herein.

Defined Terms. As used in this Agreement, the following terms shall have the following meanings,
unless the context otherwise requires:

“Account Debtor” shall mean the account debtor or any customer of the Debtor who is
obligated or indebted to the Debtor with respect to any of the Receivables and/or the
prospective purchaser with respect to any contract right, and/or any party or organization
who enters into or proposes to enter into any contract or other arrangement with the Debtor
pursuant to which the Debtor is to deliver any personal property or perform any service.

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

 

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“Collateral” shall mean all personal property and fixtures of the Debtor, including, but not
limited to all of the Receivables, Payments, accounts, the Deposit Account or Accounts,
contract rights, instruments, documents, chattel paper (including tangible and electronic
chattel paper), payment intangibles, commercial tort claims, health-care-insurance
receivables, instruments, investment property, supporting obligations and general
intangibles now owned or hereafter acquired by the Debtor and all goods, equipment, general
intangibles and property of the Debtor described below which is now owned or hereafter
acquired by the Debtor, wherever located; all deposit accounts (including all signature
cards, account agreements and other documents relating to deposit accounts) and other
obligations or indebtedness owed to the Debtor from whatever source arising; letter of
credit rights; all rights of the Debtor to receive any payment in money or kind; ail
Inventory; all Equipment; all Intellectual Property; all of the Debtor’s rights as an unpaid
seller, including stoppage in transit, detinue and reclamation; alt guarantees, or other
agreements or property securing or relating to any of the items referred to above, or
acquired for the purpose of securing and enforcing any of such items; all books of account
and documents related thereto; all customer lists and other documents containing the names,
addresses and other information regarding
the Debtor’s customers, subscribers or those to whom the Debtor provides any services;
computer tapes, programs, discs and other material, media or documents relating to the
recording, billing or analyzing of any of the above; all computers, word processors,
printers, switches, interfaces, source codes, mask works, software, web servers, website
service contracts, internet connection contract or line lease, website hosting service
contract, website license agreements, back-up copies of website content, contracts with
website advertisers, scripts, codes or Active-X controls, technology escrow agreements,
website content development agreements, all rights, of whatever form, in and to domain
names, instructional material, and connectors and all parts, accessories, additions,
substitutions, or options together with all property or equipment used in connection with
any of the above or which are used to operate or cause to operate any features, special
applications, format controls, options or software of any or all of the above-mentioned
items; whether now owned or existing or hereafter acquired or arising, in and to all
domestic and foreign copyrights, copyright registrations and copyright applications,
patents, license agreements, trademarks, service names, service marks, logos, tradenames,
trade secrets, goodwill, other intellectual property and all income, royalties and other
proceeds therefrom; contractual rights, literary rights, all amounts received as an award in
or settlement of a suit in damages, proceeds of loans, interests in joint ventures or
general or limited partnerships, the sale by the Debtor of any of the foregoing and all
proceeds (cash and non-cash) of the foregoing; proceeds of property received wholly or
partly in trade or exchange for the Collateral and all rents, revenues, issues, profits and
proceeds in any form, including cash, insurance proceeds, distributions on stock, negotiable
instruments and other evidences of indebtedness, chattel paper, security agreements and
other documents arising from the sale, lease, license, encumbrance, collection of, or any
other temporary or permanent disposition of, the Collateral or any interest therein. The
Debtor acknowledges and agrees that, in applying the law of any jurisdiction that at any
time enacts all or substantially all of the uniform

 

Master Security Agreement

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provisions of Revised Article 9 of the Uniform Commercial Code (1999 Official Text), the
foregoing collateral description covers all assets of the Debtor. The Secured Party may at
any time and from time to time file, pursuant to the provisions of this Agreement, financing
and continuation statements and amendments thereto reflecting the same.

“Cash Equivalents” means the sum outstanding, at any one time, of (i) all cash (in United
States dollars) owned by Debtor at such time plus (ii) the fair market value of all cash
equivalents and short term investments (as those terms are defined by GAAP) owned by Debtor
at such time.

“Deposit Account” means a demand, time, savings, passbook, or similar account maintained
with a bank.

“Equipment” shall mean (a) all goods and equipment of the Debtor of every type and
description, now owned and hereafter acquired and wherever located, including, without
limitation, all imbedded software, machinery, motor vehicles and other rolling stock,
furniture, furnishings, tools, dies, fittings, accessories, all substitutions therefore,
leasehold improvements, fixtures, and materials and supplies relating to any of the
foregoing; (b) all present and future documents of title and trust receipts relating to any
of the foregoing; (c) all present and future rights, claims and causes of action of Debtor
in connection with purchases of (or contracts for the purchase of), or warranties relating
to, or damages to, goods held or to he held by the Debtor as equipment; (d) all present and
future warranties, manuals and other written materials (and packaging thereof or relating
thereto) relating to any of the foregoing; and (e) all present and future general
intangibles of the Debtor in any way relating to any of the foregoing.

“Government Accounts” shall mean all accounts arising out of any Government Contract.

“Government Contract” shall mean any contract between the Debtor and the United States
Government, any state or local government or any agency thereof, and all amendments thereto.

“Intellectual Property” shall mean (a) all of the Debtor’s right, title and interest,
whether now owned or existing or hereafter acquired or arising, in and to all domestic and
foreign copyrights, copyright registrations and copyright applications, whether or not
registered or filed with any governmental authority, together with (i) all renewals thereof,
(ii) all present and future rights of the Debtor under all present and future license
agreements relating thereto, whether the Debtor is licensee or licensor thereunder, (iii)
all income, royalties, damages and payments now or hereafter due and/or payable to the
Debtor thereunder or with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, (iv) all of the Debtor’s present
and future claims, causes of action and rights to sue for past, present or future
infringements thereof, and (v) all rights corresponding thereto throughout the world
(collectively “Copyright Rights”); (b) all of the

 

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Debtor’s right, title and interest, whether now owned or existing or hereafter acquired or
arising, in and to all United States and foreign patents, and pending and abandoned United
States and foreign patent applications, including, without limitation, the inventions and
 improvements described or claimed therein, together with(i) any reissues, divisions,
continuations, certificates of re-examination, extensions and continuations-in-part thereof,
(ii) all present and future rights of the Debtor under all present and future license
agreements relating thereto, whether the Debtor is licensee or licensor thereunder, (iii)
all income, royalties, damages and payments now or hereafter due and/or payable to the
Debtor thereunder or with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, (iv) all of the Debtor’s present
and future claims, causes of action and rights to sue for past, present or future
infringements thereof, and (v) all rights corresponding thereto throughout the world
(collectively “Patent Rights”); (c) all of the Debtor’s right, title and interest, whether
now owned or existing or hereafter acquired or arising, in and to all domestic and foreign
trademarks, trademark registrations, trademark applications and trade names, whether or not
registered or filed with any governmental authority, together with (i) all renewals thereof,
(ii) all present and future rights of the Debtor under all present and future license
agreements relating thereto, whether the Debtor is licensee or licensor thereunder, (iii)
all income, royalties, damages and payments now or hereafter due and/or payable to the
Debtor thereunder or with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, (iv) all of the Debtor’s present
and future claims, causes of action and rights to sue for past, present or future
infringements thereof, and (v) all rights corresponding thereto throughout the world
(collectively “Trademark Rights”); (d) all present and future licenses and license
agreements of the Debtor, and all rights of the Debtor under or in connection therewith,
whether the Debtor is licensee or licensor thereunder, including, without limitation, any
present or future franchise agreements under which the Debtor is franchisee or franchisor,
together with (i) all renewals thereof, (ii) all income, royalties, damages and payments now
or hereafter due and/or payable to the Debtor thereunder or with respect thereto, including,
without limitation, damages and payments for past, present or future infringements thereof,
(iii) all claims, causes of action and rights to sue for past, present or future
infringements thereof, and (iv) all rights corresponding thereto throughout the world
(collectively “License Rights”); (e) all present and future trade secrets of the Debtor; and
(f) all other present and future intellectual property of the Debtor.

“Inventory” shall mean and include (a) all goods now owned or hereafter acquired by the
Debtor, which are held for sale or lease by the Debtor or are furnished or to be furnished
by the Debtor under contracts of service, (b) all raw materials, work in process, finished
goods, packaging materials, and other materials and supplies of every kind used or consumed
in connection with the manufacture, production, packing, shipping, advertising or sale of
such goods, (c) all proceeds and products from the sale or other disposition of such goods,
including all goods returned, repossessed, or acquired by the Debtor by way of substitution
or replacement, and all additions and accessions thereto, and all documents and instruments
(as

 

Master Security Agreement

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those terms are defined in the Uniform Commercial Code) covering such goods;
(d) all the Debtor’s rights as an unpaid seller, including stoppage in transit,
detinue and reclamation; and (e) all of the above owned by the Debtor or in which the
Debtor now has or in which the Debtor may hereafter acquire an interest, whether in transit
or in the Debtor’s constructive or actual possession or held by the Debtor or others for the
Debtor’s account (including any of the above held on consignment), including, without limitation,
all of the above which may be located on the Debtor’s premises or upon the premises of any carriers,
forwarding agents, truckers, warehousemen, vendors, selling agents, finishers, converters or other
third parties who may have possession, temporary or otherwise, thereof.

“Lien(s)” shall mean any mortgage, pledge, deed of trust, assignment, security interest,
encumbrance, hypothecation, lien, or charge of any kind (including any conditional sale or
other title retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code or comparable law of any jurisdiction).

“Payment” or “Payments” shall mean any check, draft, cash or any other remittance or credit
in payment or on account of any or all of the Receivables and the cash proceeds of any
returned, rejected or repossessed goods, the sale or lease of which gave rise to a
Receivable.

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

“Receivables” shall mean in addition to the definition of account as contained in the
Uniform Commercial Code (a) all of the Debtor’s present and future accounts, contract
rights, receivables, promissory notes and other Instruments, chattel paper (including
tangible and electronic chattel paper), tax refunds, general intangibles (excluding the
Intellectual Property) and all rights to receive the payment of money or other consideration
under present or future contracts including, without limitation, all of the Debtor’s rights
under each Government Contract and all related Government Accounts now owned or hereafter
acquired by the Debtor; (b) all present and future cash of the Debtor; (c) all present and
future judgments, orders, awards and decrees in favor of the Debtor and causes of action in
favor of the Debtor; (d) all present and future contingent and noncontingent rights of the
Debtor to the payment of money for any reason whatsoever, whether arising in contract, tort
or otherwise including, without limitation, all rights to receive payments under presently
existing or hereafter acquired or created letters of credit; (e) all present and future
claims, rights of indemnification and other rights of the Debtor under or in connection with
any contracts or agreements to which the Debtor is or becomes a party or third party beneficiary; (f) all
goods previously or hereafter returned, repossessed or stopped in transit, the sale, lease
or other disposition of which contributed to the creation of any account, instrument or
chattel paper of

 

 

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the Debtor; (g) all present and future rights of the Debtor as an unpaid seller of goods,
including rights of stoppage in transit, detinue and reclamation; (h) all rights which the
Debtor may now or at any time hereafter have, by law or agreement, against any Account
Debtor or other obligor of the Debtor, and all rights, liens and security interests which
the Debtor may now or at any time hereafter have, by law or agreement, against any property
of any Account Debtor or other obligor of the Debtor, (i) all invoices and shipping
documents; and (j) all present and future interests and rights of the Debtor, including
rights to the payment of money, under or in connection with all present and future leases
and subleases of real or personal property to which the Debtor is a party, as lessor,
sublessor, lessee or sublessee.

SIGNATURES APPEAR ON FOLLOWING PAGE

 

 

Master Security Agreement

No. 5081087

     IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound hereby, have duly
executed this Agreement in one or more counterparts, each of which shall tie deemed to be an
original, as of the day and year first aforesaid.

	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECURED PARTY:	 	 	 	DEBTOR:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Oxford Finance Corporation	 	 	 	Nura, Inc.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By: 
	 	 	 	 	By: 	/s/ Jim D. Johnston	 	 
	 
	 	 	 	 	 	 	 	 
	 	Name: 
	 	 	 	 	 	Name: 	Jim D. Johnston	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	Title:
	 	 	 	 	 	Title:	Chief Financial Officer	 	 
	 

	 	 
	 	 	 	 	 	 	 	 

 

 

Master Security Agreement

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SCHEDULE A

(Collateral Locations)

1124 Columbia Street, Suite 650, Seattle, Washington, 98104

 

Master Security Agreement

No. 5081087

SCHEDULE B

(Complete List of all Government Contracts)

	 	 	 	 	 	 	 	 	 
	Contracting Parties
	 	Contracting Officer
	 	Surety
	 	Disbursing Officer
	 	Contract Status
	 

No government contracts

 

Master Security Agreement

No. 5081087

SCHEDULE C

(Compliance Certificate)

Form attached

 

			
	Master Security Agreement 

No. 5081087
	 	Promissory Note

PROMISSORY NOTE

To Master Security Agreement No. 5081087

 

(Date)

FOR VALUE RECEIVED, Nura, Inc., a Delaware corporation, located at the address stated below
(“Maker”) promises, jointly and severally if more than one, to pay to the order of Oxford Finance
Corporation or any subsequent holder hereof (each, a “Payee”) at its office located at 133 N.
Fairfax Street, Alexandria, VA 22314 or at such other place as Payee or the holder hereof may
designate, the principal sum of Three Million Dollars ($3,000,000.00), with interest on the unpaid
principal balance, from the date hereof through and including the dates of payment, at a fixed
interest rate of nine and eight tenths percent (9.8%) per annum. Maker shall make six (6) payments
of interest only as follows:

	 	 	 	 	 
	Periodic	 	 
	Installment	 	Amount
	1-6
	 	$	24,500.00	 

Thereafter, commencing on December 1, 2005, maker shall make payments of principal and interest in
thirty-six (36) consecutive monthly installments of principal and interest as follows:

	 	 	 	 	 
	Periodic	 	 
	Installment	 	Amount
	7-42

	 	$	96,520.11	 

each (a “Periodic Installment”) and a final installment which shall be in the amount of the total
outstanding principal and interest, if any. The first Periodic Installment shall be due and
payable on June 1, 2005, and the following Periodic Installments and the final installment shall be
due and payable on the first day of each succeeding month (each, a “Payment Date”) thereafter.
Such installments have been calculated on the basis of a 360-day year of twelve 30-day months.
Each payment may, at the option of the Payee, be calculated and applied on an assumption that such
payment would be made on its due date.

The acceptance by Payee of any payment which is less than payment in full of all amounts due and
owing at such time shall not constitute a waiver of Payee’s right to receive payment in full at
such time or at any prior or subsequent time.

IMPORTANT NOTICE:

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT
RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT
ANY FURTHER NOTICE.

 

 

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	The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the
blank space on the face hereof and on all related documents pertaining hereto.
	 
	This Note may be secured by a security agreement, chattel mortgage, pledge agreement or like
instrument (each of which is hereinafter called a “Security Agreement” and any Security Agreement,
this Note and any other document evidencing or securing this loan is hereinafter called a “Debt
Document”).
	 
	Time is of the essence hereof. If any installment or any other sum due under this Note or any
Security Agreement is not received when due, the Maker agrees to pay, in addition to the amount of
each such installment or other sum, a late payment charge of five percent (5%) of the amount of
said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make
payment of any amount due hereunder; or (ii) Maker is in default under, or fails to perform under
any term or condition contained in any Security Agreement, then the entire principal sum remaining
unpaid, together with all accrued interest thereon and any other sum payable under this Note or any
Security Agreement, at the election of Payee, shall immediately become due and payable, with
interest thereon at the lesser of eighteen percent (18%) per annum or the highest rate not
prohibited by applicable law from the date of such accelerated maturity until paid (both before and
after any judgment).
	 
	Notwithstanding anything to the contrary contained herein or in the Security Agreement, Maker may
not prepay in full or in part any indebtedness hereunder without the express written consent of
Payee in its sole discretion.
	 
	The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the
Maker, an “Obligor”) who may at any time become liable for the payment hereof jointly and severally
consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all
substitutions or releases of, security or of any party primarily or secondarily liable on this Note
or any Security Agreement or any term and provision of either, which may be made, granted or
consented to by Payee, and agree that suit may be brought and maintained against any one or more of
them, at the election of Payee without joinder of any other as a party thereto, and that Payee
shall not be required first to foreclose, proceed against, or exhaust any security hereof in order
to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other
notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in
collecting this Note or enforcing any of the security hereof, and agrees to pay (if and to the
extent permitted by law) all expenses incurred in collection, including Payee’s actual attorneys’
fees. Maker and each

IMPORTANT NOTICE:

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT
RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT
ANY FURTHER NOTICE.

 

 

Master Security Agreement

No. 5081087

Obligor agrees that fees not in excess of twenty percent (20%) of the amount then due shall be
deemed reasonable.

Maker and Payee intend to strictly comply with all applicable federal and Virginia laws, including
applicable usury laws (or the usury laws of any jurisdiction whose usury laws are deemed to apply
to the Note or any other Debt Document despite the intention and desire of the parties to apply the
usury laws of the Commonwealth of Virginia). Accordingly, the provisions of this paragraph shall
govern and control over every other provision of this Note or any other Debt Document which
conflicts or is inconsistent with this Section, even if such provision declares that it controls.
As used in this paragraph, the term “interest” includes the aggregate of all charges, fees,
benefits or other compensation which constitute interest under applicable law, provided
that, to the maximum extent permitted by applicable law, (a) any non-principal payment shall be
characterized as an expense or as compensation for something other than the use, forbearance or
detention of money and not as
interest, and (b) all interest at any time contracted for, reserved, charged or received shall be
amortized, prorated, allocated and spread, in equal parts during the full term of the obligations.
In no event shall Maker or any other person be obligated to pay, or Payee have any right or
privilege to reserve, receive or retain, (a) any interest in excess of the maximum amount of
non-usurious interest permitted under the laws of the Commonwealth of Virginia or the applicable
laws (if any) of the United States or of any other state, or (b) total interest in excess of the
amount which Payee could lawfully have contracted for, reserved, received, retained or charged had
the interest been calculated for the full term of the obligations. On each day, if any, that the
interest rate (the “Stated Rate”) called for under this Note or any other Debt Document
exceeds the maximum non-usurious rate, the rate at which interest shall accrue shall automatically
be fixed by operation of this sentence at the maximum non-usurious rate for that day. Thereafter,
interest shall accrue at the Stated Rate unless and until the Stated Rate again exceeds the maximum
non-usurious rate, in which case, the provisions of the immediately preceding sentence shall again
automatically operate to limit the interest accrual rate to the maximum non-usurious rate. The
daily interest rates to be used in calculating interest at the maximum non-usurious rate shall be
determined by dividing the applicable maximum non-usurious rate by the number of days in the
calendar year for which such calculation is being made. None of the terms and provisions contained
in this Note or in any other Debt Document which directly or indirectly relate to interest shall
ever be construed without reference to this paragraph, or be construed to create a contract to pay
for the use, forbearance or detention of money at an interest rate in excess of the maximum
non-usurious rate. If the term of any obligation is shortened by reason of acceleration of
maturity as a result of any Default or by any other cause, or by reason of any required or
permitted prepayment, and if for that (or any other) reason Payee at any time, including but not
limited to, the stated maturity, is owed or receives (and/or has received) interest in excess of
interest calculated at the maximum non-usurious rate, then and in any such event all of any such
excess interest shall be canceled automatically as of the date of such

IMPORTANT NOTICE:

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT
RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT
ANY FURTHER NOTICE.

 

 

Master Security Agreement

No. 5081087

acceleration, prepayment or other event which produces the excess, and, if such excess interest has
been paid to Payee, it shall be credited pro tanto against the then-outstanding principal
balance of Maker’s obligations to Payee, effective as of the date or dates when the event occurs
which causes it to be excess interest, until such excess is exhausted or all of such principal has
been fully paid and satisfied, whichever occurs first, and any remaining balance of such excess
shall be promptly refunded to its payor.

THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY
DEALINGS BETWEEN THE MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY OR
ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND
PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS,
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION.
IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

This Note and any Security Agreement constitute the entire agreement of the Maker and Payee with
respect to the subject matter hereof and supersedes all prior understandings, agreements and
representations, express or implied.

No variation or modification of this Note, or any waiver of any of its provisions or conditions,
shall be valid unless in writing and signed by an authorized representative of Maker and Payee.
Any such waiver, consent, modification or change shall be effective only in the specific instance
and for the specific purpose given.

Any provision in this Note or any Security Agreement which is in conflict with any statute, law or
applicable rule shall be deemed omitted, modified or altered to conform thereto.

IMPORTANT NOTICE:

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT
RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT
ANY FURTHER NOTICE.

 

 

Master Security Agreement

No. 5081087

Upon receipt of an affidavit of an officer of Payee as to the loss, theft, destruction or
mutilation of this Note or any Debt Document which is not of public record, and, in the case of any
such loss, theft, destruction or mutilation, upon surrender and cancellation of such Note or other
Debt Document, Maker will issue, in lieu thereof, a replacement Note or other Debt Document in the
same principal amount thereof and otherwise of like tenor.

It is understood and agreed that this Note and all of the Debt Documents were negotiated and have
been or will be delivered to Payee in the Commonwealth of Virginia, which State the parties agree
has a substantial relationship to the parties and to the underlying transactions embodied by this
Note and the Debt Documents. Maker agrees to furnish to Payee at Payee’s office in Alexandria, VA,
all further instruments, certifications and documents to be furnished hereunder. The parties also
agree that if collateral is pledged to secure the debt evidenced by this Note, that the state or
states in which such collateral is located each have a substantial relationship to the parties and
to the underlying transaction embodied by this Note and the Debt Documents.

MAKER AGREES THAT THE PAYEE OF THIS NOTE SHALL HAVE THE OPTION BY WHICH STATE LAWS THIS NOTE SHALL
BE GOVERNED AND CONSTRUED: (A) THE LAWS OF THE COMMONWEALTH OF VIRGINIA; OR (B) IF COLLATERAL HAS
BEEN PLEDGED TO SECURE THE DEBT EVIDENCED BY THIS NOTE, THEN BY THE LAWS OF THE STATE OR STATES
WHERE THE COLLATERAL IS LOCATED, AT PAYEE’S OPTION. THIS CHOICE OF STATE LAWS IS EXCLUSIVE TO THE
PAYEE OF THIS NOTE. MAKER SHALL NOT HAVE ANY OPTION TO CHOOSE THE LAWS BY WHICH THIS NOTE SHALL BE
GOVERNED. MAKER AND GUARANTORS HEREBY CONSENT TO THE EXERCISE OF JURISDICTION OVER IT BY ANY
FEDERAL COURT SITTING IN VIRGINIA OR ANY VIRGINIA COURT SELECTED BY PAYEE, FOR THE PURPOSES OF ANY
AND ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THE NOTE, THE LOAN AGREEMENT
AND ALL OTHER DOCUMENTS. MAKER AND GUARANTORS IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH
PROCEEDING BROUGHT IN ANY SUCH COURT, ANY CLAIM BASED ON THE CONSOLIDATION OF PROCEEDINGS IN SUCH
COURTS IN WHICH PROPER VENUE MAY LIE IN DIVERGENT JURISDICTIONS, AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. MAKER AND
GUARANTORS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE, THE OTHER DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED THEREBY.

IMPORTANT NOTICE:

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT
RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT
ANY FURTHER NOTICE.

 

Master Security Agreement

No. 5081087

Confession of Judgment. In the event that this Note or any installment under this Note is
not paid when due, whether by maturity or acceleration, Maker hereby appoints and constitutes Cindi
E. Cohen and Lauri E. Cleary, either of whom may act (a Virginia attorney) Maker’s duly constituted
attorney-in-fact to confess judgment pursuant to the provisions of Section 8.01-431 et seq.
of the Code of Virginia of 1950, as amended, against Maker for all principal and interest due and
payable under this Note, together with attorneys’ fees and collection fees as provided in this Note
(to the extent permitted by law), which judgment shall be confessed in the Clerk’s Office of the
Circuit Court of the City of Alexandria and/or Fairfax and/or Arlington Counties, Virginia. Maker
shall, upon Payee’s request, name such additional or alternative persons designated by Payee as
Maker’s duly constituted attorney-in-fact to confess judgment against Maker pursuant to the above
Section. Upon request of Payee, Maker also shall agree to the designation of any additional
circuit courts in the Commonwealth of Virginia in which judgment may be confessed against Maker.
No single exercise of the power to confess judgment shall be deemed to exhaust the power and no
judgment
against fewer than all the persons constituting Maker shall bar any subsequent action or judgment
against any one or more of such persons against whom judgment has not been obtained on this Note.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Nuva, Inc.	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ Mohammad Mousa

	 	 	 	By: 	/s/ Jim D. Johnston	 	 
	 

	 	 	 	 	 	 	 
	Witness
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Mohammad Mousa

	 	 	 	Name: 	Jim D. Johnston	 	 
	 

	 	 	 	 	 	 	 	 
	(Print name)
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	1124 Columbia St. #650, Seattle, WA 98104

	 	 	 	Title: 	Chief Financial Officer	 	 
	 

	 	 	 	 	 	 	 	 
	(Address)
	 	 	 	 	 	 	 	 
	 	 	 	 	Federal Tax ID #: 77-0607176	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Address: 1124 Columbia Street,	 	 
	 	 	 	 	Suite 650 Seattle, WA 98104	 	 

IMPORTANT NOTICE:

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT
RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT
ANY FURTHER NOTICE.

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