Document:

exhibit_103.htm

    Exhibit
10.3

     

    
      
 

      
        

        

      

       

       

      
 

       

      
 

      

      Credit
Agreement

      

      

      

      

      dated as
of November 5, 2008

      

      

      between

      

      

      Micrus
Endovascular Corporation,

      as
Borrower,

      

      

      

      and

      

      

      

      Wells
Fargo Bank, National Association,

      as
Bank

      

      

      

      

      

       

      
 

      

      
        

        

      

      

      

      

    

    

    
      
         

      

      
        - i
-

        
          

        

      

      
         

      

    

    

    Table
of Contents

    
      

      
        	
                ARTICLE
      I

              	
                DEFINITIONS

              	
                1

              
	 
      	 
      	 
      
	
                SECTION
      1.1.

              	
                CERTAIN
      DEFINED TERMS

              	
                1

              
	
                SECTION
      1.2.

              	
                CERTAIN
      RULES OF CONSTRUCTION

              	
                16

              
	 
      	 
      	 
      
	
                ARTICLE
      II

              	 
      	
                17

              
	 
      	 
      	 
      
	
                SECTION
      2.1.

              	
                REVOLVING
      LINE OF CREDIT

              	
                17

              
	
                SECTION
      2.2.

              	
                PROCEDURES
      FOR BORROWING

              	
                18

              
	
                SECTION
      2.3.

              	
                PREPAYMENTS

              	
                19

              
	
                SECTION
      2.4.

              	
                INTEREST/
      APPLICABLE RATES

              	
                20

              
	
                SECTION
      2.5.

              	
                COMPUTATIONS
      OF INTEREST AND FEES

              	
                20

              
	
                SECTION
      2.6.

              	
                PAYMENTS
      GENERALLY; COLLECTION OF PAYMENTS

              	
                21

              
	
                SECTION
      2.7.

              	
                COLLATERAL

              	
                21

              
	
                SECTION
      2.8.

              	
                GUARANTIES

              	
                22

              
	 
      	 
      	 
      
	
                ARTICLE
      III

              	
                TAXES,
      YIELD PROTECTION AND ILLEGALITY

              	
                22

              
	 
      	 
      	 
      
	
                SECTION
      3.1.

              	
                ILLEGALITY

              	
                22

              
	
                SECTION
      3.2.

              	
                INABILITY
      TO DETERMINE RATES

              	
                22

              
	
                SECTION
      3.3.

              	
                INCREASED
      COSTS

              	
                23

              
	
                SECTION
      3.4.

              	
                COMPENSATION
      FOR LOSSES

              	
                24

              
	
                SECTION
      3.5.

              	
                SURVIVAL

              	
                24

              
	 
      	 
      	 
      
	
                ARTICLE
      IV

              	
                CONDITIONS

              	
                25

              
	 
      	 
      	 
      
	
                SECTION
      4.1.

              	
                CONDITION
      OF INITIAL EXTENSION OF CREDIT

              	
                25

              
	
                SECTION
      4.2.

              	
                CONDITION
      OF EACH EXTENSION OF CREDIT

              	
                26

              
	 
      	 
      	 
      
	
                ARTICLE
      V

              	
                REPRESENTATIONS
      AND WARRANTIES

              	
                26

              
	 
      	 
      	 
      
	
                SECTION
      5.1.

              	
                LEGAL
      STATUS

              	
                26

              
	
                SECTION
      5.2.

              	
                AUTHORIZATION
      AND VALIDITY

              	
                27

              
	
                SECTION
      5.3.

              	
                NO
      VIOLATION

              	
                27

              
	
                SECTION
      5.4.

              	
                LITIGATION

              	
                27

              
	
                SECTION
      5.5.

              	
                CORRECTNESS
      OF FINANCIAL STATEMENT

              	
                27

              
	
                SECTION
      5.6.

              	
                INCOME
      TAX RETURNS

              	
                27

              
	
                SECTION
      5.7.

              	
                NO
      SUBORDINATION

              	
                27

              
	
                SECTION
      5.8.

              	
                PERMITS,
      FRANCHISES

              	
                28

              
	
                SECTION
      5.9.

              	
                ERISA
      COMPLIANCE

              	
                28

              
	
                SECTION
      5.10.

              	
                OTHER
      OBLIGATIONS

              	
                28

              
	
                SECTION
      5.11.

              	
                ENVIRONMENTAL
      MATTERS

              	
                28

              
	
                SECTION
      5.12.

              	
                ELIGIBLE
      ACCOUNTS

              	
                28

              

      

      
 

    

    
      
        
           

          

        

         

      

      
        - ii
-

        
          

        

      

      
         

      

    

    
      

      
        	
                ARTICLE
      VI

              	
                AFFIRMATIVE
      COVENANTS

              	
                28

              
	 
      	 
      	 
      
	
                SECTION
      6.1.

              	
                PUNCTUAL
      PAYMENTS

              	
                29

              
	
                SECTION
      6.2.

              	
                ACCOUNTING
      RECORDS; ONE-TIME COLLATERAL EXAMS

              	
                29

              
	
                SECTION
      6.3.

              	
                FINANCIAL
      STATEMENTS

              	
                29

              
	
                SECTION
      6.4.

              	
                COMPLIANCE

              	
                30

              
	
                SECTION
      6.5.

              	
                INSURANCE

              	
                30

              
	
                SECTION
      6.6.

              	
                FACILITIES

              	
                30

              
	
                SECTION
      6.7.

              	
                TAXES
      AND OTHER LIABILITIES

              	
                30

              
	
                SECTION
      6.8.

              	
                LITIGATION

              	
                31

              
	
                SECTION
      6.9.

              	
                FINANCIAL
      CONDITION

              	
                31

              
	
                SECTION
      6.10.

              	
                NOTICE
      TO BANK

              	
                31

              
	
                SECTION
      6.11.

              	
                SUBSIDIARIES

              	
                31

              
	 
      	 
      	 
      
	
                ARTICLE
      VII

              	
                NEGATIVE
      COVENANTS

              	
                32

              
	 
      	 
      	 
      
	
                SECTION
      7.1.

              	
                USE
      OF FUNDS

              	
                32

              
	
                SECTION
      7.2.

              	
                CAPITAL
      EXPENDITURES

              	
                32

              
	
                SECTION
      7.3.

              	
                LEASE
      EXPENDITURES

              	
                33

              
	
                SECTION
      7.4.

              	
                OTHER
      INDEBTEDNESS

              	
                33

              
	
                SECTION
      7.5.

              	
                MERGER,
      CONSOLIDATION, TRANSFER OF ASSETS

              	
                33

              
	
                SECTION
      7.6.

              	
                GUARANTIES

              	
                33

              
	
                SECTION
      7.7.

              	
                LOANS,
      ADVANCES, INVESTMENTS

              	
                33

              
	
                SECTION
      7.8.

              	
                DIVIDENDS,
      DISTRIBUTIONS

              	
                33

              
	
                SECTION
      7.9.

              	
                PLEDGE
      OF ASSETS

              	
                34

              
	
                SECTION
      7.10.

              	
                SALE
      AND LEASEBACKS

              	
                34

              
	
                SECTION
      7.11.

              	
                TRANSACTIONS
      WITH AFFILIATES

              	
                34

              
	 
      	 
      	 
      
	
                ARTICLE
      VII

              	
                EVENTS
      OF DEFAULT

              	
                34

              
	 
      	 
      	 
      
	
                SECTION
      8.1.

              	
                EVENTS
      OF DEFAULT

              	
                34

              
	
                SECTION
      8.2.

              	
                REMEDIES

              	
                36

              
	 
      	 
      	 
      
	
                ARTICLE
      IX

              	
                MISCELLANEOUS

              	
                36

              
	 
      	 
      	 
      
	
                SECTION
      9.1.

              	
                NO
      WAIVER

              	
                36

              
	
                SECTION
      9.2.

              	
                NOTICES

              	
                36

              
	
                SECTION
      9.3.

              	
                EXPENSES;
      INDEMNITY; DAMAGE WAIVER

              	
                37

              
	
                SECTION
      9.4.

              	
                SUCCESSORS,
      ASSIGNMENT

              	
                38

              
	
                SECTION
      9.5.

              	
                ENTIRE
      AGREEMENT; AMENDMENT

              	
                38

              
	
                SECTION
      9.6.

              	
                NO
      THIRD PARTY BENEFICIARIES

              	
                38

              
	
                SECTION
      9.7.

              	
                TIME

              	
                38

              
	
                SECTION
      9.8.

              	
                SEVERABILITY
      OF PROVISIONS

              	
                38

              
	
                SECTION
      9.9.

              	
                COUNTERPARTS

              	
                39

              
	
                SECTION
      9.10.

              	
                GOVERNING
      LAW

              	
                39

              
	
                SECTION
      9.11.

              	
                ARBITRATION

              	
                39

              

      

      

    

     

    
      
        
           

          

        

         

      

      
        - iii
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                SCHEDULES

              	 
      
	 
      	 
      
	
                1.1-A

              	
                Permitted
      Indebtedness

              
	
                1.1-B

              	
                Permitted
      Investments

              
	
                1.1-C

              	
                Permitted
      Liens

              
	
                5.1

              	
                Subsidiaries

              
	
                5.4

              	
                Litigation

              
	
                5.11

              	
                Environmental
      Matters

              
	 
      	 
      
	
                EXHIBITS

              	 
      
	 
      	 
      
	
                A

              	
                Form
      of Revolving Line of Credit Note

              
	
                B

              	
                Form
      of Loan Notice

              
	
                C

              	
                Form
      of Financial Covenant Compliance Certificate

              
	
                D

              	
                Form
      of Borrowing Base Certificate

              

      

      

        
          
            
               

              

            

             

          

          
            - iv
-

            
              

            

          

          
             

          

        

        Credit
Agreement

         

        This
Credit Agreement (this “Agreement”) is entered into
as of November 5, 2008, by and between Micrus Endovascular Corporation, a
Delaware corporation (“Borrower”), and Wells Fargo
Bank, National Association (“Bank”).

         

        Recitals

         

        Whereas,
Borrower has requested that Bank extend credit to Borrower as described
below, and Bank has agreed to provide such credit to Borrower on the terms and
conditions contained herein.

         

        Now,
Therefore, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Bank and Borrower hereby agree as follows:

         

        Article
I

         

        Definitions

         

        Section
1.1.Certain Defined Terms.

         

        As used
in this Agreement, the following terms shall have the meaning set forth
below:

         

        “AAA” has the meaning
ascribed to such term in Section 9.11(b) hereof.

         

        “Account Debtor” means any
Person who is or who may become obligated under, with respect to, or on account
of, an Account, chattel paper, or a General Intangible.

         

        “Accounts” means all of
Borrower’s now owned or hereafter acquired right, title, and interest with
respect to “accounts” (as that term is defined in the UCC), and any and all
supporting obligations in respect thereof.

         

        “Advance Rate” means the
lesser of (i) 80% and (ii) the percentage set by Bank in its sole discretion
following the completion of the Initial Collateral Audit.

         

        “Affiliate” means, with
respect to any Person, any Person that directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, such first Person.  A Person shall be deemed to control another
Person for the purposes of this definition if such first Person possesses,
directly or indirectly, the power to direct, or cause the direction of, the
management and policies of the second Person, whether through common directors,
trustees or officers, by contract, by law, or otherwise.

         

        “Agreement” has the meaning
ascribed to such term in the introductory paragraph hereof.

        
          
             

          

          
            - 1
-

            
              

            

          

          
             

          

        

         

        “Applicable Rate” means, from
time to time, with respect to any Base Rate Loan or LIBOR Loan, as the case may
be, the applicable rate per annum set forth as follows: (i) for any LIBOR
Loan 3.5% (three and fifty hundredths percent), and (ii) for any Base Rate
Loan, the sum of 2.25% (two and twenty-five hundredths percent) plus the Applicable Rate
Adjustment Factor.

         

        “Applicable Rate Adjustment
Factor” means, as of any date of determination, the sum of (i) the
Base Rate as of the close of business on the Closing Date minus three-month LIBOR as of
the close of business on the Closing Date, minus (ii) the Base Rate
as of the close of business as of the last Business Day for the fiscal quarter
ending on, or most recently ended as of, such date of determination minus three-month LIBOR as of
the close of business as of the last Business Day for the fiscal quarter ending
on, or most recently ended as of, such date of determination.

         

        “Availability Period” means
the period from the Closing Date to the earlier of (i) the Maturity Date
and (ii) the date that Bank’s commitment to make Revolving Credit Loans
terminates pursuant to Section 8.2.

         

        “Bank” has the meaning
ascribed to such term in the introductory paragraph hereof.

         

        “Bankruptcy Code” means the
Bankruptcy Reform Act of 1978 (United States Code Sections 101 et
seq.)

         

        “Bankruptcy Laws” means,
collectively:  (a) the Bankruptcy Code; and (b) all other
liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief laws of the United States or other applicable
jurisdictions from time to time in effect and affecting the rights of creditors
generally.

         

        “Base LIBOR” means the rate
per annum for United States dollar deposits quoted by Bank as the Inter-Bank
Market Offered Rate, with the understanding that such rate is quoted by Bank for
the purpose of calculating effective rates of interest for loans making
reference thereto, on the first day of an Interest Period for delivery of funds
on said date for a period of time approximately equal to the number of days in
such Interest Period and in an amount approximately equal to the principal
amount to which such Interest Period applies.  Borrower understands
and agrees that Bank may base its quotation of the Inter-Bank Market Offered
Rate upon such offers or other market indicators of the London interbank offered
market as Bank in its discretion deems appropriate including, but not limited
to, the rate offered for Dollar deposits on the London interbank offered
market.

         

        “Base Rate” means, for any
day, the per annum rate of interest in effect for such day as publicly
announced from time to time by Bank as its “Prime Rate,” such rate being
the rate of interest most recently announced within Bank at its principal office
as its “Prime Rate,”
with the understanding that Bank’s “Prime Rate” is one of Bank’s
base rates and serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto, and is evidenced by the
recording thereof after its announcement in such internal publication or
publications as Bank may designate.  Any change in Bank’s “Prime Rate” as announced by
Bank shall
take effect at the opening of business on the day specified in the public
announcement of such change.

         

        
          
            
            

          

          
            - 2
-

            
              

            

          

          
            
            

          

        

        “Base Rate Loan” means a
Revolving Credit Loan that bears interest based upon the Base Rate.

         

        “Borrower” has the meaning
ascribed to such term in the introductory paragraph hereof.

         

        “Borrowing Base” means, as of
any date of determination, the greater of (i) $7,500,000 and (ii) the product of
the Advance Rate multiplied by Eligible Accounts.  

         

        “Borrowing Base Certificate”
means a certificate substantially in the form of Exhibit D.

         

        “Business Day” means any day
except a Saturday, Sunday or any other day on which commercial banks in
California are authorized or required by law to close; provided that, if any such
day relates to LIBOR or any LIBOR Loan, such day must also be a day on which
dealings in Dollar deposits are conducted by and between banks in the London
interbank offered market.

         

        “Change in Law” means the
occurrence, after the date of this Agreement, of:  (a) the
adoption or taking effect of any law, rule, regulation or treaty; (b) any
change in any law, rule, regulation or treaty or in the administration,
interpretation or application thereof by any Governmental Authority; or
(c) the making or issuance of any request, guideline or directive (whether
or not having the force of law) by any Governmental Authority.

         

        “Change of Control” means an
event or series of events by which any “person” or “group” (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any
employee benefit plan of such person or its subsidiaries, and any person or
entity acting in its capacity as trustee, agent or other fiduciary or
administrator of any such plan) becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group
shall be deemed to have “beneficial ownership” of all securities that such
person or group  has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of thirty-five percent or more of the Equity Interests of Borrower
entitled to vote for members of the board of directors or equivalent governing
body of Borrower on a fully-diluted basis (and taking into account all such
securities that such person or group has the right to acquire pursuant to any
option right).

         

        “Closing Date” means
November 5, 2008.

         

        “Code” means the Internal
Revenue Code of 1986.

         

        “Compliance Certificate” means
a certificate substantially in the form of Exhibit C.

         

        “Control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the ability
to exercise voting power, by contract or otherwise.

        
          
             

          

          
            - 3
-

            
              

            

          

          
             

          

        

         

        “Default” means any event or
condition that constitutes an Event of Default or that, with the giving of
notice, the passage of time, or both, would constitute an Event of
Default.

         

        “Default Rate” means a per
annum interest rate equal to the sum of:  (i) the Base Rate;
plus (ii) the
Applicable Rate, if any, applicable to Base Rate Loans; plus (iii) three percent
(3.0%) per annum; provided that, with respect
to a LIBOR Loan, the Default Rate shall be a per annum interest rate equal to
the sum of:  (A) the interest rate (including any Applicable
Rate) otherwise applicable to such Revolving Credit Loan; plus (B) three percent
(3.0%) per annum.

         

        “Dollar” and “$” mean lawful money of the
United States.

         

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

         

        “Eligible Accounts” means
those Accounts created by Borrower in the ordinary course of its business, that
arise out of Borrower’s sale of goods or rendition of services, that comply with
each of the representations and warranties respecting Eligible Accounts made by
Borrower in the Loan Documents, upon which Borrower’s right to receive payment
is absolute and not contingent upon the fulfillment of any condition whatsoever,
in which Bank has a perfected security interest of first priority, and that are
not excluded as ineligible by virtue of one or more of the criteria set forth
below; provided, however, that such
criteria may be fixed and revised from time to time by Bank in Bank’s sole and
absolute discretion to address the results of any audit performed by Bank from
time to time after the Closing Date.  In determining the amount to be
included, Eligible Accounts shall be calculated net of customer deposits and
unapplied cash remitted to Borrower.  Eligible Accounts shall not
include the following:

         

        (i)    
any Account which is more than ninety (90) days past due;

         

        (ii)   
any Account that is disputed or subject to a claim of offset or other potential
credit or a contra account;

         

        (iii)  
any Account not yet earned by the final delivery of goods or rendition of
services, as applicable, by Borrower to the customer;

         

        (iv) 
any Account for services not yet rendered or for goods not yet shipped,
including, without limitation, that portion of any Account, which
represents

               
interim or progress billings or retention rights on the part of the Account
Debtor;

         

        (v)  
Accounts constituting proceeds of copyrightable material unless such
copyrightable material shall have been registered with the United States

               
Copyright Office and shall be covered by a duly executed copyright security
agreement, in form and substance reasonably satisfactory to Bank, and 
filed in the United States Copyright Office;

         

        (vi) 
Accounts owed by an Account Debtor that is not Solvent, the subject of an
insolvency proceeding or has gone out of business;

        
          
             

          

          
            - 4
-

            
              

            

          

          
             

          

        

         

        (vii)  
Accounts owed by an owner, Subsidiary, Affiliate, officer or employee of
Borrower;

         

        (viii) 
Accounts not subject to a duly perfected security interest in Bank’s favor or
which are subject to any Lien other than a Permitted Lien;

         

        (ix)   
that portion of any Account for which there exists any right of setoff, defense
or discount (except regular discounts allowed in the ordinary course of

                
business to promote prompt payment) or for which any defense or counterclaim has
been asserted in writing;

         

        (x)    
that portion of Accounts that has been restructured, extended, amended or
modified;

         

        (xi)    that
portion of Accounts that constitutes advertising, finance charges, service
charges or sales or excise taxes;

         

        (xii)  
any Account which represents an obligation of any Account Debtor (or an
Affiliate of such Account Debtor), regardless of whether otherwise
eligible,

               
 when twenty percent (20%) or more of Borrower’s Accounts from such Account
Debtor are not eligible pursuant to (i) above;

         

        (xiii)  Accounts
arising in a transaction wherein goods are placed on consignment or are sold
pursuant to a guaranteed sale, a sale or return, a sale on 

                
approval, a bill and hold, or any other terms by reason of which the payment by
the Account Debtor may be conditional;

         

        (xiv) 
Accounts that are not payable in Dollars;

         

        (xv) 
Accounts with respect to which the Account Debtor is not organized under
the laws of the United States and Canada (except the province of
Quebec) 

               
 unless the Account is covered by credit insurance in form, substance, and
amount, and by an insurer, reasonably satisfactory to Bank in its sole
and

               
 absolute discretion;

         

        (xvi) 
any Account which represents an obligation of any state or municipal government
or of the United States government or any political subdivision 

                
thereof unless Bank determines, in its sole and absolute discretion based on the
advice of counsel, that such Account is not subject to the Federal 

                
Assignment of Claims Act of 1940, as amended, or any state equivalent thereto
and provides written notice to Borrower to such effect; or

         

        (xvii)
any Account deemed ineligible by Bank when Bank, in its sole and absolute
discretion, deems the creditworthiness or financial condition of
the

               
 Account Debtor, or the industry in which the Account Debtor is engaged, to
be unsatisfactory.

        
          
             

          

          
            - 5
-

            
              

            

          

          
             

          

        

         

        “Environmental Claims” means
all claims, however asserted, by any Governmental Authority or other Person
alleging Environmental Liabilities.

         

        “Environmental Laws” means any
and all Federal, state, local, and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or governmental restrictions relating to
pollution and the protection of the environment or the release of any materials
into the environment, including those related to hazardous substances or wastes,
health and safety, air emissions and discharges to waste or public
systems.

         

        “Environmental Liability”
means any liability, contingent or otherwise (including any liability for
damages, costs of environmental remediation, fines, penalties or indemnities),
of Borrower, any Guarantor or any of their respective Subsidiaries directly or
indirectly resulting from or based upon:  (a) violation of any
Environmental Law; (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials; (c) exposure to
any Hazardous Materials; (d) the release or threatened release of any
Hazardous Materials into the environment; or (e) any contract, agreement or
other consensual arrangement pursuant to which liability is assumed or imposed
with respect to any of the foregoing.

         

        “Equity Interests” means, with
respect to any Person, all of the shares of capital stock of (or other ownership
or profit interests in) such Person, all of the warrants, options or other
rights for the purchase or acquisition from such Person of shares of capital
stock of (or other ownership or profit interests in) such Person, all of the
securities convertible into or exchangeable for shares of capital stock of (or
other ownership or profit interests in) such Person or warrants, rights or
options for the purchase or acquisition from such Person of such shares (or such
other interests), and all of the other ownership or profit interests in such
Person (including partnership, member or trust interests therein), whether
voting or nonvoting, and whether or not such shares, warrants, options, rights
or other interests are outstanding on any date of determination.

         

        “ERISA” means the Employee
Retirement Income Security Act of 1974.

         

        “ERISA Affiliate” means any
trade or business (whether or not incorporated) under common control with
Borrower or any Subsidiary thereof within the meaning of
Section 414(b) or (c) of the Code (and
Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code).

         

        “ERISA Event” means any of the
following:  (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by Borrower or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations that is treated as such a withdrawal under
Section 4062(e) of ERISA; (c) a complete or partial withdrawal by
Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a
Multiemployer Plan is in reorganization; (d) the filing of a notice of
intent to terminate, the treatment of a Plan amendment as a termination under
Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the
PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition that constitutes
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan;
or (f) the imposition of any liability under Title IV of ERISA, other
than for PBGC premiums due but not delinquent under Section 4007 of ERISA,
upon Borrower or any ERISA Affiliate.

         

        
          
            
            

          

          
            - 6
-

            
              

            

          

          
            
            

          

        

        “Event of Default” has the
meaning ascribed to such term in Article VIII hereof.

         

        “Exchange Act” means the
Securities Exchange Act of 1934.

         

        “Foreign Subsidiary” means
any Subsidiary organized under the laws of a country (or political subdivision
thereof) other than the United States (or political subdivision
thereof).

         

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

         

        “GAAP Profit/Loss” means, for
any period, for Borrower and its Subsidiaries on a consolidated basis, the sum
of: (a) the revenue for such period; minus (b) the cost of goods
sold during such period; minus (c) the operating
expenses for such period; provided, that for purposes
of determining operating expenses, no effect shall be given to (i) any
stock-based compensation expenses incurred during such period; and (ii) any
stock-based acquisition expenses incurred during such period.

         

        “General Intangibles” means
all of Borrower’s general intangibles, as such term is defined in the UCC,
whether now owned or hereafter acquired, including all present and future
intellectual property rights, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use Borrower’s name,
and the goodwill of Borrower’s business.

         

        “Governmental Authority” means
the government of the United States or any other nation, or of any political
subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government (including any supra-national bodies
such as the European Union or the European Central Bank).

         

        “Guarantor” or “Guarantors” have the
meanings ascribed to such terms in Section 2.8 hereof.

         

        “Guaranty” or “Guaranties” have the
meanings ascribed to such terms in Section 2.8 hereof.

        
          
             

          

          
            - 7
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        “Hazardous Materials” means
all explosive or radioactive substances or wastes and all hazardous or toxic
substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos-containing materials, polychlorinated
biphenyls, radon gas, infectious or medical wastes and all other substances or
wastes of any nature regulated pursuant to any Environmental Law.

         

        “Indemnitees” has the meaning
ascribed thereto in Section 9.3(b).

         

        “Initial Collateral Audit”
means that certain audit by Bank of any collateral under this Agreement,
including the examination of any books, records, documents, instruments or
agreements relating to any accounts requested to be Eligible Accounts
hereunder.  The results and conclusions of Bank as a result of such
audit are confidential and will not be shared with Borrower, with the exception
of Exhibit A to such audit, which is incorporated herein by
reference.

         

        “Interest Payment Date” means
the last Business Day of each calendar month.

         

        “Interest Period” means, as to
each LIBOR Loan, the period commencing on the date such LIBOR Loan is disbursed
or converted to or continued as a LIBOR Loan and ending on the date one, two or
three months thereafter, as selected by Borrower in its related Loan Notice;
provided
that:  (a) any Interest Period that would otherwise end on a day
that is not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day; (b) any
Interest Period that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period; and (c) no Interest
Period for any Revolving Credit Loan shall extend beyond the Maturity
Date.

         

        “Investment” means, as to any
Person, any direct or indirect acquisition or investment by such Person, whether
by means of (a) the purchase or other acquisition of capital stock or other
securities of another Person, (b) a loan, advance or capital contribution
to, guarantee or assumption of debt of, or purchase or other acquisition of any
other debt or equity participation or interest in, another Person, including any
partnership or joint venture interest in such other Person and any arrangement
pursuant to which the investor guarantees Indebtedness of such other Person, or
(c) the purchase or other acquisition (in one transaction or a series of
transactions) of assets of another Person that constitute a business
unit.  For purposes of covenant compliance, the amount of any
Investment shall be the amount actually invested (but shall exclude the portion
of the amount invested that constitutes the direct proceeds of Equity Interests
issued by Borrower), without adjustment for subsequent increases or decreases in
the value of such Investment.

        
          
             

          

          
            - 8
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        “LIBOR” means the rate per
annum (rounded upward, if necessary, to the nearest whole 1/100 of 1%) and
determined pursuant to the following formula:

         

        
          
            
              	 
      	
                      LIBOR
      =

                    	 
      	
                      Base
      LIBOR

                    
	 
      	 
      	 
      	
                      100%
      - LIBOR Reserve Percentage

                    

            

          

           

        

        “LIBOR Loan” means a
Revolving Credit Loan that bears interest based upon LIBOR.

         

        “LIBOR Reserve Percentage”
means the reserve percentage prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for “Eurocurrency Liabilities”
(as defined in Regulation D of the Federal Reserve Board, as amended), adjusted
by Bank for expected changes in such reserve percentage during the applicable
Interest Period.

         

        “Lien” means any mortgage,
pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), charge, or preference, priority or other security interest
or preferential arrangement in the nature of a security interest of any kind or
nature whatsoever (including any conditional sale or other title retention
agreement and any easement, right of way or other encumbrance on title to real
property).

         

        “Loan Documents” means this
Agreement, the Revolving Line of Credit Note, the Security Agreement, the
Guaranties, the Pledge Agreement, the Subsidiary Security Agreement and each
other contract, instrument and document required by or delivered to Bank in
connection with this Agreement.

         

        “Loan Notice” means a notice,
pursuant to Section 2.2(a), of:  (a) a borrowing of
Revolving Credit Loans; (b) a conversion of Revolving Credit Loans from one
Type to the other (other than a conversion of a LIBOR Loan into a Base Rate
Loan); or (c) a continuation of LIBOR Loans; which, if in writing, shall be
substantially in the form of Exhibit B.

         

        “Material Adverse Effect”
means a material adverse effect on (i) the business operations or financial
condition of Borrower and its Subsidiaries taken as a whole, (ii) the
ability of Borrower to repay all debt, principal, interest, expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement, the Revolving Line
of Credit Note, and the other Loan Documents, or to otherwise perform its
material obligations under the Loan Documents, or (iii) Borrower’s interest
in, or the value, perfection or priority of Bank’s security interest or lien in,
the collateral described in Section 2.8 hereof.

         

        “Material Subsidiary” means
(i) any Subsidiary of Borrower with annual revenues in excess of 0.5% of the
aggregate annual consolidated revenues of Borrower and its Subsidiaries for any
fiscal period ending after the Closing Date or (ii) any Subsidiary of Borrower
with total assets in excess of 1.0% of the aggregate consolidated assets of
Borrower and its Subsidiaries as of the last day of any fiscal period ending
after the Closing Date; provided that each Subsidiary of Borrower that is not a
Material Subsidiary shall be deemed a Material Subsidiary to the extent that
such Subsidiary’s designation as a Subsidiary that is not a Material Subsidiary
would result in
aggregate annual revenues for all such Subsidiaries that are not Material
Subsidiaries in excess of $1.00.

         

        
          
            
            

          

          
            - 9
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        “Maturity Date” means November
1, 2009.

         

        “Modified Quick Ratio” means,
as of any date of determination, for Borrower and its Subsidiaries on a
consolidated basis, the ratio of:  (a) the sum of
(i) unrestricted cash plus (ii) unrestricted
short-term marketable securities plus (iii) net accounts
receivable to (b) current liabilities.

         

        “Multiemployer Plan” means any
employee benefit plan of the type described in Section 4001(a)(3) of ERISA
to which Borrower or any ERISA Affiliate makes or is obligated to make
contributions, or during the preceding five plan years, has made or been
obligated to make contributions.

         

        “Obligations” means all
advances, debts, liabilities, obligations, covenants and duties of Borrower or
any Guarantor under any Loan Document, whether with respect to any Revolving
Credit Loan or otherwise, whether direct or indirect (including those acquired
by assumption), absolute or contingent, due or to become due, now existing or
hereafter arising and including interest and fees that accrue after the
commencement by or against Borrower or any Guarantor or any affiliate thereof of
any proceeding under any Bankruptcy Law naming such Person as the debtor in such
proceeding, regardless of whether such interest and fees are allowed claims in
such proceeding.

         

        “PBGC” means the Pension
Benefit Guaranty Corporation.

         

        “Pension Plan” means any
“employee pension benefit plan” (as that term is defined in Section 3(2) of
ERISA), other than a Multiemployer Plan, that is subject to Title IV of
ERISA and is sponsored or maintained by Borrower or any ERISA Affiliate or to
which Borrower or any ERISA Affiliate contributes or has an obligation to
contribute, or in the case of a multiple employer or other plan described in
Section 4064(a) of ERISA, has made contributions at any time during
the immediately preceding five plan years.

         

        “Permitted Indebtedness”
means:

         

        (a)   
the liabilities of Borrower to Bank under this Agreement and the other Loan
Documents;

         

        (b)   
any other liabilities of Borrower existing as of the Closing Date and listed on
Schedule 1.1-A;

         

        (c)    
unsecured indebtedness to trade creditors incurred in the ordinary course of
business;

        
          
             

          

          
            - 10
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        (d)   
guaranty obligations of a Subsidiary with respect to indebtedness of Borrower
permitted under Section 7.6;

         

        (e)   
indebtedness secured by Permitted Liens identified in paragraphs (d), (e), (f),
(g) (but solely with respect to Permitted Liens permitted under such
paragraph (g) that are related to extensions, renewals or refinancings of
indebtedness secured by liens identified in paragraph (d) of the definition
of Permitted Liens) and (j) of the definition of Permitted Liens;

         

        (f)  
  Indebtedness incurred by Foreign Subsidiaries in an aggregate principal
amount outstanding not to exceed $250,000;

         

        (g)   
Other unsecured Indebtedness of Borrower not existing on the Closing Date,
provided that the aggregate principal amount of all such Indebtedness does not
exceed $100,000; and

         

        (h)   
extensions, refinancings, modifications, amendments and restatements of any
items of Permitted Indebtedness identified in (a) through (d), (f) and (g)
above, provided that
the principal amount is not increased beyond the lesser of (i) the original
principal amount and (ii) the amount outstanding on the Closing Date nor the
terms modified to impose more burdensome terms upon Borrower or its
Subsidiaries, as the case may be.

         

        “Permitted Investments”
means:

         

        (a)   
Investments by Borrower existing as of the Closing Date and listed on Schedule 1.1-B;

         

        (b)   
Investments by Borrower in (i) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any state
thereof maturing within one year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one year from the date of
creation thereof and currently having a rating of at least A-2 or P-2 from
either Standard & Poor’s Corporation or Moody’s Investors Services, Inc.,
(iii) Bank’s certificates of deposit maturing no more than one year from
the date of investment therein, and (iv) Bank’s money market
accounts;

         

        (c)   
Investments by Borrower consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business of Borrower;

         

        (d)   
Investments by Borrower consisting of deposit accounts in which Bank has a first
priority perfected security interest;

         

        (e)   
Investments, in the aggregate not to exceed $1,000,000.00, by Borrower
(i) in Subsidiaries formed or acquired after the Closing Date, so long as
Borrower hasControl
of such Subsidiary immediately following the effectiveness of such acquisition,
Borrower has executed a pledge agreement pledging all equity interests in such
Subsidiary to Bank and such Subsidiary, to the extent that such Subsidiary is a
Material Subsidiary and is not a Foreign Subsidiary, has executed a guaranty in
favor of Bank pursuant to the terms of Section 2.8 and/or (ii) constituting
the purchase or other acquisition (in one transaction or a series of
transactions) of assets of another Person that constitute a business
unit;

         

        
          
            
            

          

          
            - 11
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        (f)   
Investments by Borrower not to exceed $250,000.00 in the aggregate in any fiscal
year consisting of  (i) travel advances and employee relocation
loans and other employee loans and advances in the ordinary course of business,
and (ii) loans to employees, officers or directors relating to the purchase
of equity securities of Borrower pursuant to employee stock purchase plans or
agreements approved by Borrower’s board of directors;

         

        (g)   
Investments (including debt obligations) by Borrower not to exceed $50,000.00 in
the aggregate outstanding at any time received in connection with the bankruptcy
or reorganization of customers or suppliers and in settlement of delinquent
obligations of, and other disputes with, customers or suppliers arising in the
ordinary course of business; and

         

        (h)  
Investments by Borrower not to exceed $250,000.00 in the aggregate outstanding
at any time consisting of notes receivable of, or prepaid royalties and other
credit extensions to, customers and suppliers who are not affiliates, in the
ordinary course of business; provided that this paragraph
(h) shall not apply to investments of Borrower in any Subsidiary.

         

        “Permitted Liens”
means:

         

        (a)   
liens and security interests in favor of Bank created under any Loan
Document;

         

        (b)   
liens and security interests existing as of the Closing Date and listed on Schedule 1.1-C;

         

        (c)   
liens for taxes, fees, assessments or other government charges or levies, either
not delinquent or being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and for which Borrower maintains
adequate reserves in accordance with GAAP;

         

        (d)  
purchase money liens not to exceed $500,000.00 in the aggregate (i) on
equipment acquired or held by Borrower incurred for financing the acquisition of
such equipment, or (ii) existing on equipment when acquired, if the lien is
confined to the property so acquired and improvements thereon, and the proceeds
of such equipment;

         

        (e)   
statutory liens arising in the ordinary course of business and not overdue for a
period of more than thirty days or being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and for which Borrower
maintains adequate reserves in accordance with GAAP, not to exceed $100,000.00
in the aggregate, securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other persons imposed without action of
such parties;

         

        (f)   
liens to secure payment of workers’ compensation, employment insurance, old-age
pensions, social security and other like obligations incurred in the ordinary
course of business not delinquent or being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and for
which Borrower maintains adequate reserves in accordance with GAAP;

         

        (g)  
liens incurred in the extension, renewal or refinancing of the indebtedness
secured by liens identified in paragraphs (b) and (d) of this definition, so
long as such indebtedness is Permitted Indebtedness, provided that any extension,
renewal or replacement lien shall be limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase;

         

        (h)   
leases or subleases of real property granted in the ordinary course of business,
and leases; and subleases, non-exclusive licenses or sublicenses of property
(other than real property or intellectual property) granted in the ordinary
course of Borrower’s business;

         

        (i)   
Liens in the form of zoning restrictions, easements, rights of way, licenses,
reservations, covenants, conditions or other restrictions on the use of real
property that (1) secure Indebtedness or (2) materially interfere with the
ordinary conduct of Borrower and its Subsidiaries;

         

        
          
            
            

          

          
            - 12
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        (j)   
Liens not for borrowed money in the form of pledges or deposits securing bids,
tenders, performance, payment of insurance premiums, statutory obligations,
surety bonds, appeal bonds, leases to which Borrower or any of its Subsidiaries
is a party and other obligations of a like nature, in each case, made in the
ordinary course of business and in any event not to exceed
$250,000.00;

         

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

         

        (l)   
statutory liens or liens arising by law arising in the ordinary course of
business and not overdue for a period of thirty days or being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and for which Borrower maintains adequate reserves in accordance with GAAP, not
to exceed $100,000.00 in the aggregate, securing claims existing solely with
respect to cash and Permitted Investments on deposit in one or more accounts
maintained by Borrower or any
Subsidiary of Borrower, in favor of the bank or banks which such accounts are
maintained, securing amounts owing to such bank with respect to cash management
or other account arrangements, including those involving pooled accounts and
netting arrangements, provided that in no case shall any such liens secure
(either directly or indirectly) the repayment of any Indebtedness;

         

        (m)  
Liens on assets of Foreign Subsidiaries to secure any items of Permitted
Indebtedness identified in clause (g) of such definition; and

         

        (n)   
non-exclusive licenses of intellectual property granted to third parties in the
ordinary course of business.

         

        “Person” means any natural
person, corporation, limited liability company, trust, joint venture,
association, company, partnership, Governmental Authority or other
entity.

         

        “Plan” means any “employee
benefit plan” (as such term is defined in Section 3(3) of ERISA)
established by Borrower or, with respect to any such plan that is subject to
Section 412 of the Code or Title IV of ERISA, any ERISA
Affiliate.

         

        “Pledge Agreement” means a
pledge agreement, in form and substance reasonably satisfactory to Bank, made by
Borrower for the benefit of Bank.

         

        “Reportable Event” means any
of the events set forth in Section 4043(c) of ERISA, other than events
for which the thirty-day notice period has been waived.

         

        “Responsible Officer” means
the chief executive officer, the president, the chief financial officer, any
vice president, the general counsel and/or secretary, the assistant secretary,
the controller of Borrower, the director of finance of Borrower, or any other
officer of Borrower having substantially the same authority and responsibility
as any of the foregoing.

         

        “Revolving Credit Borrowing”
means a borrowing of a Revolving Credit Loan of a particular Type.

         

        “Revolving Credit Loan” has
the meaning ascribed thereto in Section 2.1(a).

         

        “Revolving Line of Credit”
has the meaning ascribed to such term in Section 2.1(a).

         

        “Revolving Line of Credit
Note” has the meaning ascribed to such term in
Section 2.1(a).

         

        “Rules” has the meaning
ascribed to such term in Section 9.11(b) hereof.

         

        “SEC” means the United States
Securities and Exchange Commission.

        
          
             

          

          
            - 13
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        “Security Agreement” means
that certain Security Agreement, dated as of the date hereof, executed by
Borrower and each Domestic Subsidiary in existence as of the Closing Date in
favor of Bank.

         

        “Solvent” means, as to any
Person at any time, that:  (a) the fair value of the property of
such Person on a going concern basis is greater than the amount of such Person’s
liabilities (including contingent liabilities), as such value is established and
such liabilities are evaluated for purposes of Section 101(32) of the
Bankruptcy Code and, in the alternative, for purposes of the California Uniform
Fraudulent Transfer Act or any similar state statute applicable to Borrower or
any Subsidiary thereof; (b) the present fair salable value of the property
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured; (c) such Person is able to realize upon its property and pay its
debts and other liabilities (including contingent liabilities) as they mature in
the normal course of business; (d) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such Person’s
ability to pay as such debts and liabilities mature; and (e) such Person is
not engaged in business or a transaction, and is not about to engage in business
or a transaction, for which such Person’s property would constitute unreasonably
small capital.

         

        “Subsidiary” of a Person means a corporation, partnership, joint
venture, limited liability company or other business entity of which a majority
of the shares of securities or other interests having ordinary voting power for
the election of directors or other governing body (other than securities or
interests having such power only by reason of the happening of a contingency)
are at the time beneficially owned, or the management of which is otherwise
controlled, directly, or indirectly through one or more intermediaries, or both,
by such Person.  Unless otherwise specified, all references herein to
a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of
Borrower.

         

        “Subsidiary Security
Agreement” means a security agreement, in form and substance reasonably
satisfactory to Bank, made by a Material Subsidiary that is not a Foreign
Subsidiary for the benefit of Bank.

         

        “Type” means, with respect to
any Revolving Credit Loan, its character as a Base Rate Loan or a LIBOR
Loan.

         

        “UCC” means the California
Uniform Commercial Code; provided that, to the extent
that the UCC is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the UCC, the
definition of such term contained in Article or Division 9 shall govern; provided further that, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection, or priority of, or remedies with respect to, Bank’s Lien on any
Collateral is governed by the Uniform Commercial Code in effect in a
jurisdiction other than the State of California, the term “UCC” shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for
purposes on the provisions thereof relating to such attachment, perfection,
priority, or remedies and for purposes of definitions relating to such
provisions.

        
          
             

          

          
            - 14
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        Section
1.2.Certain Rules of Construction.

         

        (a)  
Unless the context requires otherwise, the meaning of a defined term is
applicable equally to the singular and plural forms thereof.

         

        (b)  
The words “hereof,”
“herein,” “hereunder” and similar words
refer to this Agreement as a whole and not to any particular provision of this
Agreement; and, unless otherwise specified, Article, Section, subsection,
clause, Schedule and Exhibit references are to this Agreement.

         

        (c)           
(i)   The term “documents” includes
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced.

         

        (ii)  
The terms “include” and
“including” are not
limiting.

         

        (iii) 
In the computation of periods of time from a specified date to a later specified
date, the word “from”
means “from and
including”; the words “to” and “until” each mean “to but excluding” and the
word “through” means
“to and
including.”

         

        (iv) 
Unless the context clearly requires otherwise, the terms “property,” “properties,” “asset” and “assets” refer to both
personal property (whether tangible or intangible) and real
property.

         

        (d)  
Unless otherwise expressly provided herein:  (i) references to
documents (including this Agreement) shall be deemed to include all subsequent
amendments and other modifications thereto, but only to the extent such
amendments and other modifications are not prohibited by the terms of any Loan
Document; and (ii) references to any statute or regulation are to be
construed as including all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting the statute or
regulation.

         

        (e)  
Unless otherwise specified, all references herein to times of day shall be
references to Pacific time (daylight or standard, as applicable).

         

        (f)   
The captions and headings of this Agreement are for convenience of reference
only and shall not affect the interpretation of this Agreement.

         

        (g)  
This Agreement and the other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar
matters.  All such limitations, tests and measurements are cumulative
and shall be performed in accordance with their respective terms.

         

        (h)  
This Agreement and the other Loan Documents are the result of negotiations
among, and have been reviewed by counsel to, Borrower, the Guarantors and Bank
and are the products of all parties.  Accordingly, they shall not be
construed against Bank merely because of the involvement of any or all of the
preceding Persons in their preparation.

         

        
          
            
            

          

          
            - 15
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        (i)  
Unless the context otherwise clearly requires, all accounting terms not
expressly defined herein shall be construed, and all financial computations
required under this Agreement shall be made, in accordance with GAAP.  If at any time any
change in GAAP would affect the computation of any financial ratio or
requirement set forth in any Loan Document, and Bank shall so request, Bank and
Borrower shall negotiate in good faith to amend such ratio or requirement to
preserve the original intent thereof in light of such change in GAAP; provided that, until so
amended:  (i) such ratio or requirement shall continue to be
computed in accordance with GAAP prior to such change therein; and
(ii) Borrower shall provide to Bank financial statements and other
documents required under this Agreement or as reasonably requested hereunder
setting forth a reconciliation between calculations of such ratio or requirement
made before and after giving effect to such change in GAAP.

         

        (j)  
References herein to “fiscal
year” refer to the fiscal year of Borrower.

         

        (k)  
Any financial ratios required to be maintained by Borrower pursuant to the Loan
Documents shall be calculated by dividing the appropriate component by the other
component, carrying the result to one place more than the number of places by
which such ratio is expressed herein and rounding the result up or down to the
nearest number using the common – or symmetric arithmetic – method of rounding
(in other words, rounding-up if there is no nearest number).

         

        Article
II

         

        Credit
Terms

         

        Section
2.1.Revolving Line of Credit.

         

        (a)  
Revolving Line of
Credit.  Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make loans (each such loan, a “Revolving Credit Loan”) to
Borrower from time to time on any Business Day during the Availability Period,
not to exceed at any time the aggregate principal amount of Fifteen Million
Dollars ($15,000,000.00) (the “Revolving Line of Credit”),
the proceeds of which shall be used for working capital and general corporate
purposes.  Borrower’s obligation to repay advances under the Revolving
Line of Credit shall be evidenced by a promissory note dated as of
November 5, 2008 (the “Revolving Line of Credit
Note”), in the form attached hereto as Exhibit A, all terms of
which are incorporated herein by this reference.

         

        (b)  
Borrowing
Availability.  There is no availability under this Agreement
until Bank’s completion of the Initial Collateral Audit.  After the
completion of the Initial Collateral Audit, outstanding borrowings under the
Revolving Line of Credit, to a maximum of the principal amount set forth above,
shall not at any time exceed the Borrowing Base.  The foregoing
shall be determined by Bank upon receipt and review of all collateral reports
required hereunder and such other documents and collateral information as Bank
may from time to time require.  If the outstanding principal balance
of the Revolving Line of Credit on any date is greater than the Borrowing Base,
then Borrower shall make a principal reduction on the Revolving Line of Credit
on such date in an amount sufficient to reduce the then outstanding principal
balance thereof to an amount not greater than such maximum allowable principal
amount.

         

        (c)  
Borrowing and
Repayment.  Borrower may from time to time during the
Availability Period, partially or wholly repay its outstanding borrowings under
the Revolving Line of Credit, and reborrow, subject to all of the limitations,
terms and conditions contained herein; provided that, the total
outstanding borrowings under the Revolving Line of Credit shall not at any time
exceed the maximum principal amount available thereunder, as set forth
above.  On the Maturity Date, Borrower shall repay to Bank in full the
aggregate outstanding principal balance of all Revolving Credit Loans, together
with all accrued and unpaid interest due thereon.

         

        
          
            
            

          

          
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        Section
2.2.Procedures For Borrowing.

         

        (a)  
Each Revolving Credit Borrowing, each conversion of Revolving Credit Loans from
one Type to the other and each continuation of LIBOR Loans shall be made upon
Borrower’s irrevocable notice to Bank, which may be given by telephone or by
approved electronic communications.  Each such notice must be received
by Bank not later than 11:00 a.m. on the requested date of any Revolving Credit
Borrowing, conversion or continuation.  Notwithstanding anything to
the contrary contained herein, any telephonic notice or other electronic
communication by Borrower pursuant to this Section 2.2(a) may be given by
an individual who has been authorized in writing to do so by an appropriate
Responsible Officer of Borrower.  Each such telephonic notice or other
electronic communication must be confirmed promptly by delivery to Bank of a
written Loan Notice, appropriately completed and signed by an appropriate
Responsible Officer of Borrower.

         

        (b)  
Each Revolving Credit Borrowing of, conversion to or continuation of LIBOR Loans
shall be in a principal amount of $100,000 or more.  Each Revolving
Credit Borrowing of or conversion to Base Rate Loans shall be in a principal
amount of $100,000 or more.

         

        (c)  
Each Loan Notice (whether telephonic or written) shall
specify:  (i) whether Borrower is
requesting:  (A) a Revolving Credit Borrowing; (B) a
conversion of outstanding Revolving Credit Loans from one Type to the other
(other than LIBOR Loans to Base Rate Loans); or (C) a continuation of LIBOR
Loans; (ii) the requested date of such Revolving Credit Borrowing,
conversion or continuation, as the case may be (which shall be a Business Day);
(iii) the principal amount of the Revolving Credit Loans to be borrowed,
converted or continued; (iv) the Type of Revolving Credit Loans to be
borrowed or to which existing Revolving Credit Loans are to be converted; and
(v) if applicable, the duration of the Interest Period with respect
thereto.  If Borrower fails to specify a Type of Revolving Credit Loan
in a Loan Notice or if Borrower
fails to give a timely notice requesting a conversion or continuation, then the
applicable Revolving Credit Loan(s) shall be made as, or converted to, Base Rate
Loans.  Any such automatic conversion to Base Rate Loans shall be
effective as of the last day of the Interest Period then in effect with respect
to the applicable LIBOR Loans.  If Borrower requests a Revolving
Credit Borrowing of, conversion to, or continuation of LIBOR Loans in any such
Loan Notice, but fails to specify an Interest Period, it will be deemed to have
specified an Interest Period of one month.

         

        (d)  
Except as otherwise provided herein, a LIBOR Loan may be continued or converted
only on the last day of an Interest Period for such LIBOR
Loan.  During the existence of an Event of
Default:  (i) no Revolving Credit Loans may be requested as,
converted to or continued as LIBOR Loans without the consent of Bank; and
(ii) Bank may demand that any or all of the then outstanding Revolving
Credit Loans that are LIBOR Loans be converted immediately to Base Rate Loans,
whereupon Borrower shall pay any amounts due under Section 3.4 in
accordance with the terms thereof due to any such conversion.

         

        (e)  
Bank shall promptly notify Borrower of the interest rate applicable to any
Interest Period for LIBOR Loans upon determination of such interest
rate.

         

        (f)  
After giving effect to all Revolving Credit Borrowings, all conversions of
Revolving Credit Loans from one Type to the other, and all continuations of
Revolving Credit Loans as the same Type, there shall not be more than five
Interest Periods in effect.

         

        Section
2.3.Prepayments.

         

        Borrower
may, upon notice to Bank, at any time or from time to time voluntarily prepay
Revolving Credit Loans in whole or in part without premium or penalty; provided
that:  (A) such notice must be received by Bank not later than
11:00 a.m.:  (1) three Business Days prior to any date of
prepayment of Revolving Credit Loans that are LIBOR Loans; and (2) one
Business Day prior to the date of prepayment of Revolving Credit Loans that are
Base Rate Loans; and (B) any prepayment of any Revolving Credit Loans that
are:  (1) LIBOR Loans shall be in a principal amount of $100,000
or more, or, if less, the entire principal amount thereof then outstanding; and
(2) Base Rate Loans shall be in a principal amount of $100,000 or more, or,
if less, the entire principal amount thereof then outstanding.  Each
such notice shall specify the date and amount of such prepayment and the Type(s)
of Revolving Credit Loans to be prepaid.  If Borrower gives such
notice, then Borrower’s prepayment obligation shall be irrevocable, and Borrower
shall make such prepayment and the payment amount specified in such notice shall
be due and payable on the date specified therein.  Any prepayment of a
Revolving Credit Loan that is a LIBOR Loan shall be accompanied by all accrued
interest on the amount prepaid, together with any additional amounts required
pursuant to Section 3.4.

        
          
             

          

          
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        Section
2.4.Interest/Applicable Rates.

         

        (a)  
Subject to the provisions of subsection
Section 2.4(b):  (i) each LIBOR Loan shall bear interest on
the outstanding principal amount thereof for each Interest Period at a rate per
annum equal to LIBOR for such Interest Period plus the Applicable Rate; and
(ii) each Base Rate Loan shall bear interest on the outstanding principal
amount thereof from the applicable borrowing date at a rate per annum equal to
the Base Rate plus the
Applicable Rate.

        

        
          	
                   
      

                	
                  (b) 
      (i)    If any amount of principal of any Revolving Credit
      Loan is not paid when due (without regard to any applicable grace
      periods), whether at stated maturity, by acceleration or otherwise, such
      amount shall thereafter bear interest at a fluctuating interest rate per
      annum at all times equal to the Default Rate to the fullest extent
      permitted by applicable laws.

                

        

        

        
          	
                   
      

                	
                       
      (ii)   If any amount (other than principal of any Revolving
      Credit Loan) payable by Borrower under any Loan Document is not paid when
      due (without regard to any applicable grace periods), whether at stated
      maturity, by acceleration or otherwise, then such amount shall thereafter
      bear interest at a fluctuating interest rate per annum at all times equal
      to the Default Rate to the fullest extent permitted by applicable
      laws.

                

        

        

        
          	
                   
      

                	
                      
      (iii)  While any Event of Default exists, Borrower shall pay interest
      on the principal amount of all outstanding Obligations hereunder at a
      fluctuating interest rate per annum at all times equal to the Default Rate
      to the fullest extent permitted by applicable
  laws.

                

        

        

        
          	
                   
      

                	
                      
      (iv)  Accrued and unpaid interest on past due amounts (including
      interest on past due interest) shall be due and payable upon
      demand.

                

        

         

        (c)  
Interest on each Revolving Credit Loan shall be due and payable in arrears on
each Interest Payment Date applicable thereto and at such other times as may be
specified herein.  Interest hereunder shall be due and payable in
accordance with the terms hereof before and after judgment, and before and after
the commencement of any proceeding under any Bankruptcy Law.

         

        Section
2.5.Computations of Interest and Fees.

         

        All
computations of interest for Base Rate Loans shall be made on the basis of a
year of 365 or 366 days, as the case may be, and actual days
elapsed.  All other computations of interest and fees hereunder shall
be made on the basis of a year of 360 days and actual days
elapsed.  Interest shall accrue on each Revolving Credit Loan for the
day on which the Revolving Credit Loan is made, and shall not accrue on a
Revolving Credit Loan, or any portion thereof, for the day on which the
Revolving Credit Loan or such portion is paid, provided that any Revolving
Credit Loan that is repaid on the same day on which it is made shall bear
interest for one day. Each
determination by Bank of an interest rate or fee hereunder shall be conclusive
and binding for all purposes, absent manifest error.

         

        Section
2.6.Payments Generally; Collection of Payments.

         

        (a) 
General.  All
payments to be made by Borrower shall be made without condition or deduction for
any counterclaim, defense, recoupment or setoff.  Except as otherwise
expressly provided herein, all payments by Borrower hereunder shall be made to
Bank in Dollars and in immediately available funds not later than 4:00 p.m. on
the date specified herein.  All payments received by Bank after 4:00
p.m. shall be deemed received on the next succeeding Business Day and any
applicable interest or fee shall continue to accrue.  If any payment
to be made by Borrower shall come due on a day other than a Business Day,
payment shall be made on the next following Business Day, and such extension of
time shall be reflected in computing interest or fees, as the case may
be.

         

        (b) 
Collection of
Payments.  Borrower authorizes Bank to collect all principal
and interest due under each credit created by the Loan Documents by charging
Borrower’s deposit account number 41121041941 with Bank, or any other deposit
account maintained by Borrower with Bank, for the full amount
thereof.  Should there be insufficient funds in any such deposit
account to pay all such sums when due, the full amount of such deficiency shall
be immediately due and payable by Borrower.

         

        
          
            
            

          

          
            - 18
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        Section
2.7.Collateral.

         

        As
security for all indebtedness of Borrower to Bank created by the Loan Documents,
Borrower hereby grants to Bank security interests of first priority (except for
Permitted Liens that are senior to Bank’s security interests), and shall cause
each Domestic Subsidiary that is a Material Subsidiary (including, as required
by Section 6.11(a) and subject to the timeframes established therein, any
Domestic Subsidiary formed or acquired after the  Closing Date) to
grant to Bank security interests of first priority (except for Permitted Liens
that are senior to Bank’s security interest), in all of Borrower’s and each such
Domestic Subsidiary’s personal property (including, without limitation, all of
Borrower’s ownership interests in Subsidiaries, accounts receivable, inventory,
equipment and intellectual property now owned or hereafter acquired), but
excluding interests shares of voting stock of each Foreign Subsidiary that
represent more than 65% of the voting stock of such Foreign
Subsidiary.

         

        As
additional security for all indebtedness of Borrower to Bank created by the Loan
Documents, Borrower shall cause each Domestic Subsidiary that is a Material
Subsidiary to grant to Bank security interests of first priority (except for
Permitted Liens that are senior to Bank’s security interest) in all such
Domestic Subsidiary’s ownership interest in any other Domestic Subsidiary or
Foreign Subsidiary, but excluding shares of voting stock of each Foreign
Subsidiary that represent more than 65% of the voting stock of such Foreign
Subsidiary and, with respect to each Foreign Subsidiary, subject to the time
frames established in Section 6.11(b).

         

        All of
the foregoing shall be evidenced by and subject to the terms of such security
agreements, financing statements, deeds or mortgages, and other documents as
Bank shall reasonably require, all in form and substance satisfactory to
Bank.  Borrower shall reimburse Bank within 7 days after written
demand for all costs and expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and recording fees and
costs of appraisals, audits and title insurance.

         

        Section
2.8.Guaranties.

         

        Subject
to the time frames established in Section 6.11(a) hereof, all Obligations
shall be guaranteed jointly and severally by each Domestic Subsidiary (each a
“Guarantor” and,
collectively, the “Guarantors”), as evidenced
by and subject to the terms of guaranties (each a “Guaranty” and, collectively,
the “Guaranties”) in
form and substance satisfactory to Bank.

         

        Article
III

         

        Taxes,
Yield Protection

         

        and
Illegality

         

        Section
3.1.Illegality.

         

        If Bank
determines that any law has made it unlawful, or that any Governmental Authority
has asserted that it is unlawful, for Bank to make, maintain or fund LIBOR
Loans, or to determine or charge interest rates based upon LIBOR, or any
Governmental Authority has imposed material restrictions on the authority of
Bank to purchase or sell, or to take deposits of, Dollars in the London
interbank offered market, then, on notice thereof by Bank to Borrower, any
obligation of Bank to make or continue LIBOR Loans or to convert Revolving
Credit Loans that are Base Rate Loans to LIBOR Loans shall be suspended until
Bank notifies Borrower that the circumstances giving rise to such determination
no longer exist.  Upon receipt of such notice, Borrower shall, upon
demand from Bank, prepay or, if applicable, convert all LIBOR Loans to Base Rate
Loans, either on the last day of the Interest Period therefor, if Bank may
lawfully continue to maintain such LIBOR Loans to such day, or immediately, if
Bank may not lawfully continue to maintain such LIBOR Loans.  Upon any
such prepayment or conversion, Borrower shall also pay accrued interest on the
amount so prepaid or converted and all amounts due under Section 3.4 in
accordance with the terms thereof due to such prepayment or
conversion.

         

        
          
            
            

          

          
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        Section
3.2.Inability to Determine Rates.

         

        If Bank
determines in connection with any request for a LIBOR Loan or a conversion to or
continuation thereof that (a) Dollar deposits are not being offered to banks in
the London interbank offered market for the applicable amount and Interest
Period of such LIBOR Loan, (b) adequate and reasonable means do not exist for
determining LIBOR for any requested Interest Period with respect to a proposed
LIBOR Loan, or (c) LIBOR for any requested Interest Period with respect to a
proposed LIBOR Loan does not adequately and fairly reflect the cost to Bank of
funding such Revolving Credit Loan, then Bank will promptly so notify
Borrower.  Thereafter, the obligation of Bank to make or maintain
LIBOR Loans shall be suspended until Bank revokes such
notice.  Upon receipt of such notice, Borrower may revoke any pending
request for a Revolving Credit Borrowing of, conversion to or continuation of
LIBOR Loans or, failing that, will be deemed to have converted such request into
a request for a Revolving Credit Borrowing consisting of Base Rate Loans in the
amount specified therein.

         

        Section
3.3.Increased Costs.

         

        (a) 
Increased Costs
Generally.  If any Change in Law shall:

         

        (i)  
impose, modify or deem applicable any reserve, special deposit, compulsory loan,
insurance charge or similar requirement against assets of, deposits with or for
the account of, or credit extended or participated in by, Bank (except any
reserve requirement reflected in LIBOR);

         

        (ii) 
subject Bank to any tax of any kind whatsoever with respect to this Agreement or
any LIBOR Loan made by it, or change the basis of taxation of payments to Bank
in respect thereof (except for taxes covered by paragraph (c) below);
or

         

        (iii) 
impose on Bank or the London interbank market any other condition, cost or
expense affecting this Agreement or LIBOR Loans made by Bank;

         

        and the
result of any of the foregoing shall be to increase the cost to Bank of making
or maintaining any LIBOR Loan (or of maintaining its obligation to make any such
Revolving Credit Loan), or to reduce the amount of any sum received or
receivable by Bank hereunder (whether of principal, interest or any other
amount), then, upon written request of Bank (together with a certificate as
described in Section 3.3(d)), Borrower will pay to Bank such additional amount
or amounts as will compensate Bank for such additional costs incurred or
reduction suffered.

         

        (b) 
Capital
Requirements.  If Bank determines that any Change in Law
affecting Bank or Bank’s holding company, if any, regarding capital requirements
has or would have the effect of reducing the rate of return on Bank’s capital or
on the capital of Bank’s holding company, if any, as a consequence of this
Agreement or the Revolving Credit Loans made by Bank, to a level below that
which Bank or Bank’s holding company could have achieved but for such Change in
Law (taking into consideration Bank’s policies and the policies of Bank’s
holding company with respect to capital adequacy), then from time to time, upon
written request of Bank (together with a certificate as described in Section
3.3(d)), Borrower will pay to Bank such additional amount or amounts as will
compensate Bank or Bank’s holding company for any such reduction
suffered.

         

                      
(c)  Taxes.  Borrower
shall pay to Bank within 10 days after written demand, in addition to any other
amounts due or to become due hereunder, any and all withholdings, interest
equalization taxes, stamp taxes or other taxes (except income and franchise
taxes) imposed by any domestic or foreign governmental authority and related in
any manner to LIBOR.  In determining
which of the foregoing are attributable to any LIBOR option available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower absent manifest
error.

         

        
          
            
            

          

          
            - 20
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        (d)  
Certificates for
Reimbursement.  A certificate of Bank setting forth the amount
or amounts necessary to compensate Bank or its holding company, as the case may
be, as specified in subsection (a), (b) or (c) of this Section, as well as the
basis for determining such amount or amounts, and delivered to Borrower shall be
conclusive absent manifest error.  Borrower shall pay Bank the amount
shown as due on any such certificate within ten days after receipt
thereof.

         

        (e)  
Delay in
Requests.  Failure or delay on the part of Bank to demand
compensation pursuant to the foregoing provisions of this Section shall not
constitute a waiver of Bank’s right to demand such compensation, provided that
Borrower shall not be required to compensate Bank pursuant to the foregoing
provisions of this Section for any increased costs incurred or reductions
suffered more than six months prior to the date that Bank notifies Borrower of
the Change in Law giving rise to such increased costs or reductions and of
Bank’s intention to claim compensation therefor (except that, if the Change in
Law giving rise to such increased costs or reductions is retroactive, then the
six-month period referred to in this subsection shall be extended to include the
period of retroactive effect thereof).

         

        Section
3.4.Compensation for Losses.

         

        Upon
written demand of Bank from time to time, Borrower shall promptly compensate
Bank for and hold Bank harmless from any loss, cost or expense incurred by it as
a result of:

         

        (a)  
any continuation, conversion, payment or prepayment of any Revolving Credit Loan
other than a Base Rate Loan on a day other than the last day of the Interest
Period for such Revolving Credit Loan (whether voluntary, mandatory, automatic,
by reason of acceleration, or otherwise); or

         

        (b) 
any failure by Borrower (for a reason other than the failure of Bank to make a
Revolving Credit Loan) to prepay, borrow, continue or convert any Revolving
Credit Loan other than a Base Rate Loan on the date or in the amount notified by
Borrower; including any loss of anticipated profits and any loss or expense
arising from the liquidation or reemployment of funds obtained by it to maintain
such Revolving Credit Loan or from fees payable to terminate the deposits from
which such funds were obtained.  Borrower shall also pay any customary
administrative fees charged by Bank in connection with the
foregoing.  For purposes of calculating amounts payable by Borrower to
Bank under this Section 3.4, Bank shall be deemed to have funded each LIBOR Loan
made by it by a matching deposit or other borrowing in the London interbank
offered market for a comparable amount and for a comparable period, whether or
not such LIBOR Loan was in fact so funded.

         

        Section
3.5.Survival.

         

        All
obligations of Borrower under this Article III shall survive repayment,
satisfaction or discharge of all the Obligations.

        
          
             

          

          
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        Article
IV

         

        Conditions

         

        Section
4.1.Conditions of Initial Extension of Credit.  The obligation of Bank
to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank’s satisfaction of all of the following
conditions:

         

        (a)  
Approval of Bank
Counsel.  All legal matters incidental to the extension of
credit by Bank shall be satisfactory to Bank’s counsel.

         

        (b)  
Documentation.  Bank
shall have received, in form and substance satisfactory to Bank, each of the
following, duly executed:

        

        
          	
                   
      

                	
                  (i)    
      this Agreement and the Note;

                

        

        
          	
                   
      

                	
                  (ii)   
      the Security Agreement;

                

        

        
          	
                   
      

                	
                  (iii)  
      each of the Guaranties required pursuant to Section 2.8
      hereof;

                

        

        
          	
                   
      

                	
                  (iv)  
      the Subsidiary Security Agreement;

                

        

        
          	
                   
      

                	
                  (v)   
      the Pledge Agreement;

                

        

        
          	
                   
      

                	
                  (vi)  
      such certificates of resolutions or other action, incumbency certificates
      or other certificates of Responsible Officers of each of Borrower and each
      Guarantor as Bank may reasonably require evidencing the identity,
      authority and capacity of each Responsible Officer thereof authorized to
      act as a Responsible Officer in connection with the Loan Documents to
      which such Person is a party;

                

        

        
          	
                   
      

                	
                  (vii)  such
      documents and certifications as Bank may reasonably require to evidence
      that Borrower and each Guarantor is duly organized or formed, and is
      validly existing, in good standing and qualified to engage in business
      in:  (A) the State in which it is incorporated, organized or
      formed; and (B) each jurisdiction where its ownership, lease or operation
      of properties or the conduct of its business requires such
      qualification;

                

        

        
          	
                   
      

                	
                  (viii)
      a favorable opinion of counsel to Borrower and Guarantors reasonably
      acceptable to Bank addressed to Bank, as to such matters as are reasonably
      required by Bank with respect to Borrower and the Guarantors and the Loan
      Documents;

                

        

        
          	
                   
      

                	
                  (ix)   a
      duly completed Compliance Certificate as of the last day of the fiscal
      quarter of Borrower ended September 30, 2008, signed by an
      appropriate Responsible Officer of Borrower;
and

                

        

        
          	
                   
      

                	
                  (x)   
      such other documents as Bank may require under any other Section of this
      Agreement.

                

        

         

        (c)  
Financial
Condition.  There shall have been no material adverse change,
as determined by Bank, in the financial condition or business of Borrower and
its Subsidiaries, nor any material decline, as determined by Bank, in the market
value of any collateral required hereunder or a substantial or material portion
of the assets of Borrower.

         

        (d)  Insurance.  Borrower
shall have delivered to Bank evidence of insurance coverage on all Borrower’s
property, in form, substance, amounts, covering risks and issued by companies
reasonably satisfactory to Bank, and where required by Bank, with loss payable
endorsements in favor of Bank.

         

        (e) 
Fees.  Borrower
shall have paid all fees, charges and disbursements of counsel to Bank to the
extent invoiced prior to or on the Closing Date, plus such additional amounts of
such fees, charges as shall constitute its reasonable estimate of such fees,
charges and disbursements incurred or to be incurred by it through the closing
proceedings (provided
that such estimate shall not thereafter preclude a final settling of accounts
between Borrower and Bank).

         

        
          
            
            

          

          
            - 22
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        Section
4.2.Conditions of Each Extension of Credit.  The obligation of Bank to
make each extension of credit requested by Borrower hereunder shall be subject
to the fulfillment to Bank’s satisfaction of each of the following
conditions:

         

        (a)  
Compliance.  The
representations and warranties contained herein and in each of the other Loan
Documents executed by Borrower or any Guarantor shall be true in all material
respects on and as of the date of the signing of this Agreement and on the date
of each extension of credit by Bank pursuant hereto, with the same effect as
though such representations and warranties had been made on and as of each such
date (provided, however, that those representations and warranties expressly
referring to another date shall be true and correct in all material respects as
of such date), and on each such date, no Event of Default as defined herein, and
no condition, event or act which with the giving of notice or the passage of
time or both would constitute such an Event of Default, shall have occurred and
be continuing or shall exist.

         

        (b)  
Compliance
Certificate.  Bank shall have received a duly completed
Compliance Certificate as of the last fiscal month, signed by an appropriate
Responsible Officer of Borrower.

         

        (c)  
Documentation.  Bank
shall have received all additional documents which may be required in connection
with such extension of credit.

         

        Article
V

         

        Representations
and Warranties

         

        Borrower
makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank created by
the Loan Documents.

         

        Section
5.1.Legal Status.  Borrower and each of its Subsidiaries, and each
Subsidiary of a Subsidiary, is a corporation, partnership or limited liability
company, duly organized and existing and in good standing under the laws of the
jurisdiction of its incorporation, organization or formation, and is qualified
or licensed to do business (and is in good standing as a foreign entity, if
applicable) in all jurisdictions in which such qualification or licensing is
required or in which the failure to so qualify or to be so licensed would have a
Material Adverse Effect.  All of 

         

        the
Subsidiaries of Borrower in existence as of the Closing Date are listed on Schedule 5.1
hereto.

         

        Section
5.2.Authorization and Validity.  This Agreement and each of the Loan
Documents executed by Borrower or any Guarantor have been duly authorized, and
upon their execution and delivery in accordance with the provisions hereof will
constitute legal, valid and binding agreements and obligations of Borrower or
the party which executes the same, enforceable in accordance with their
respective terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforceability of
creditors’ rights generally and to general principles of equity.

         

        Section
5.3.No Violation.  The execution, delivery and performance by Borrower
and the Guarantors of each of the Loan Documents do not violate any provision of
any law or regulation, or contravene any provision of such Person’s
organizational documents, or result in any breach of or default under any
contract, obligation, indenture or other instrument to which any such Person is
a party or may be bound which violation contravention, breach or default would
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect.

         

        
          
            
            

          

          
            - 23
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        Section
5.4.Litigation.  There are no pending, or to the best of Borrower’s
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative
agency, against Borrower, any Subsidiary, or any Subsidiary of a Subsidiary,
which is reasonably likely to be adversely determined, and if adversely
determined would have a Material Adverse Effect, other than those disclosed on
Schedule 5.4.

         

        Section
5.5.Correctness of Financial Statement.  The annual financial
statement of Borrower dated March 31, 2008, and all interim financial statements
delivered by Borrower to Bank since such date, true copies of which have been
delivered by Borrower to Bank prior to the date hereof, (a) are complete
and correct and presents fairly in all material respects the financial condition
of Borrower, (b) disclose all liabilities of Borrower that are required to
be reflected or reserved against under GAAP, whether liquidated or unliquidated,
fixed or contingent, and (c) have been prepared in accordance with
GAAP.  Since the dates of such financial statements there has been no
material adverse change in the financial condition of Borrower, nor (exclusive
of Permitted Liens) has Borrower mortgaged, pledged, granted a security interest
in or otherwise encumbered any of its assets or properties except in favor of
Bank or as otherwise permitted by Bank in writing or pursuant to this
Agreement.

         

        Section
5.6.Income Tax Returns.  Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any
year.

         

        Section
5.7.No Subordination.  There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower’s or any
Guarantor’s obligations created by the Loan Documents to any other obligation of
Borrower or such Guarantor.

         

        Section
5.8.Permits, Franchises.  Borrower and each of its Subsidiaries, and
each Subsidiary of a Subsidiary, possess, and will hereafter possess, all
permits, consents, approvals, franchises and licenses required and rights to all
trademarks, trade names, patents, and fictitious names, if any, necessary to
enable it to conduct the business in which it is now engaged in compliance with
applicable law the failure of which to comply with would have a Material Adverse
Effect.

         

        Section
5.9.ERISA Compliance.  Each Plan is in compliance with the applicable
provisions of ERISA, the Code and other federal or state law.  Each
Plan which is intended to qualify under subsection 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service and
nothing has occurred that would cause the loss of such
qualification.  Borrower and each ERISA Affiliate have made all
required contributions to any Plan subject to Section 412 of the Code, and
no application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan;
and there are no pending or, to the best knowledge of Borrower, threatened
claims, actions or lawsuits, or action by any Governmental
Authority.  There has been no prohibited transaction or violation of
the fiduciary responsibility rules with respect to any Plan; no ERISA Event has
occurred or is reasonably expected to occur; and no event or circumstance has
occurred or exists that would create an Event of Default under
Section 8.1(j).

         

        Section
5.10.Other Obligations.  None of Borrower or any Subsidiary (including
any Subsidiary of a Subsidiary) is in default (i) as of the Closing Date,
on any obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation, and
(ii) after the Closing Date, on any obligation for borrowed money, any
purchase money obligation or any other material lease, commitment, contract,
instrument or obligation in excess of $250,000.00.

         

        Section
5.11.Environmental Matters.  Borrower is in compliance in all material
respects with all applicable Environmental Laws.  None of the
operations of Borrower is the subject of any federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment.  Borrower has no material contingent liability in
connection with any release of any toxic or hazardous waste or substance into
the environment.

         

        Section
5.12.Eligible Accounts.  All accounts that are included in the
Borrowing Base are Eligible Accounts and meet the definition
thereof.

         

        
          
            
            

          

          
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        Article
VI

         

        Affirmative
Covenants

         

        Borrower
covenants that so long as Bank remains committed to extend credit to Borrower
pursuant hereto, or any liabilities (whether direct or contingent, liquidated or
unliquidated) of Borrower to Bank under any of the Loan Documents remain
outstanding, and until payment in full of all obligations of Borrower created by
the Loan Documents, Borrower shall, and shall (except in the case of the
covenants set forth in Section 6.3 and Section 6.10) cause each of its
Subsidiaries
(including Subsidiaries of Subsidiaries) to, unless Bank otherwise consents in
writing:

         

        Section
6.1.Punctual Payments.  Punctually pay all principal, interest, fees
or other liabilities due under any of the Loan Documents at the times and place
and in the manner specified therein.

         

        Section
6.2.Accounting Records; One-Time Collateral Exams.  Maintain adequate
books and records in accordance with GAAP, and permit any representative of
Bank, at any reasonable time, to inspect, audit and examine such books and
records, to make copies of the same, and to inspect its
properties.  From time to time, as Bank shall require in the exercise
of its reasonable discretion, permit Bank, or its employees, accountants,
attorneys or agents, to conduct, with respect to each such Person, examinations
and inspections of any collateral required hereby or any other property of
Borrower or such Subsidiary, as applicable.  Such examination and
inspection shall be conducted during ordinary business hours and upon one
Business Day’s advance notice (unless an Event of Default shall have occurred
and be continuing, in which case no notice shall be required).  Unless
an Event of Default shall have occurred and be continuing, Borrower shall only
be required to reimburse Bank for the out-of-pocket costs incurred by it in
connection with any such inspection, audit or exam in an amount not to exceed
$10,000.00 per fiscal year.

         

        Section
6.3.Financial Statements.  Provide to Bank all of the following, in
form and detail satisfactory to Bank:

         

        (a)  
not later than 20 days after and as of the end of each month, company prepared
monthly consolidated and consolidating unaudited financial statements of
Borrower, which financial statements shall include Borrower’s balance sheet as
of the end of such month and the related statements of Borrower’s income,
reconciliation of retained earnings and cash flows for the month then ended and
any footnotes thereto, all in reasonable detail and prepared in accordance with
GAAP;

         

        (b)  
promptly after the sending or filing thereof, but in no event later than 45 days
after the end of each fiscal quarter of Borrower copies of each Form 10-Q report
filed by Borrower with the SEC or any successor agency;

         

        (c)  
promptly after the sending or filing thereof, but in no event later than 75 days
after the end of each fiscal year of Borrower, copies of each Form 10-K report
filed by Borrower with the SEC or any successor agency;

         

        (d)  
not later than March 31 of each year, projected consolidated and consolidating
balance sheets, income statements and cash flow statements for such year for
Borrower, in reasonable detail, representing Borrower’s good faith projections
and certified by the chief financial officer of Borrower as being Borrower’s
good faith projections and identical to the projections to be used by Borrower
for internal planning purposes, together with a statement of underlying
assumptions and such supporting schedules and information as Bank may in its
discretion reasonably require (it being recognized by Bank that the projections
and forecasts provided
by Borrower in good faith and based upon reasonable assumptions are not to be
viewed as facts and that actual results during the period or periods covered by
any such projections and forecasts may differ from the projected or forecasted
results);

         

        
          
            
            

          

          
            - 25
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        (e)  
(i) prior to any advances that will increase the aggregate outstanding
amount under the Revolving Line of Credit above Seven Million Five Hundred
Thousand Dollars ($7,500,000); and (ii) within fifteen (15) days after the
end of each month during which the aggregate amount outstanding under the
Revolving Line of Credit exceeds Seven Million Five Hundred Thousand Dollars
($7,500,000), a duly completed Borrowing Base Certificate signed by an
appropriate Responsible Officer of Borrower;

         

        (f)   
as soon as available, but in no event later than ten (10) days after and as of
the end of each month, an aging report for Borrower’s Accounts;

         

        (g)  
as soon as available, but in no event later than ten (10) days after and as of
the end of each month, an account statement for Borrower’s accounts maintained
with Wells Fargo Institutional Brokerage/Wells Capital Management;
and

         

        (h)  
from time to time such other information as Bank may reasonably
request.

         

        Section
6.4.Compliance.  Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which it is organized and/or which govern its continued existence
and with the requirements of all laws, rules, regulations and orders of any
governmental authority applicable to it and/or its business, in each case the
failure of which to preserve and maintain would result in a Material Adverse
Effect.

         

        Section
6.5.Insurance.  Maintain and keep in force insurance of the types and
in amounts customarily carried in lines of business similar to, and in similar
geographic locations as, that of such Person, including but not limited to fire,
extended coverage, public liability, flood, property damage and workers’
compensation, with all such insurance carried with companies and in amounts
reasonably satisfactory to Bank, and deliver to Bank from time to time at Bank’s
request schedules setting forth all insurance then in effect.

         

        Section
6.6.Facilities.  Keep all properties useful or necessary to such
Person’s business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.

         

        Section
6.7.Taxes and Other Liabilities.  Pay and discharge when due any and
all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as such Person may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which such
Person has made provision, in accordance with GAAP, for eventual payment thereof
in the event such Person is obligated to make such payment.

        
          
             

          

          
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        Section
6.8.Litigation.  Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower or any of its Subsidiaries
with a claim in excess of $500,000.00.

         

        Section
6.9.Financial Condition.  For any period during which there is at any
time any outstanding Revolving Credit Borrowing under the Revolving Line of
Credit, maintain Borrower’s financial condition as follows using GAAP (except to
the extent modified by the definitions herein):

         

        (a)  
As of each calendar month end, Modified Quick Ratio of not less than 1.25 to
1.00.

         

        (b)  
As of each fiscal quarter end of Borrower and for the then ending fiscal
quarter, GAAP Profit/Loss not less than:

        

        
          	
                  For
      the fiscal quarter ending September 30, 2008:

                	
                  negative
      Three Million Dollars (-$3,000,000)

                
	
                  For
      the fiscal quarter ending December 31, 2008:

                	
                  negative
      Seven Hundred Fifty Thousand Dollars (-$750,000)

                
	
                  For
      the fiscal quarter ending March 31, 2009 and each fiscal quarter
      thereafter:

                	
                  Five
      Hundred Thousand Dollars ($500,000)

                

        

         

        (c)  
As of each calendar month end, a duly completed Compliance Certificate signed by
an appropriate Responsible Officer of Borrower.

         

        Section
6.10.Notice to Bank.  Promptly (but in no event more than five (5)
business days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of:  (a) the occurrence of
any Event of Default, or any condition, event or act which with the giving of
notice or the passage of time or both would constitute an Event of Default;
(b) any change in the name or the organizational structure of Borrower;
(c) the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with respect to
any Plan; or (d) any termination or cancellation of any insurance policy
which Borrower is required to maintain, or any uninsured or partially uninsured
loss through liability or property damage, or through fire, theft or any other
cause affecting Borrower’s property in excess of an aggregate of
$250,000.00.

         

        Section
6.11.Subsidiaries.

         

        (a)  
Domestic
Subsidiaries.  By not later than (i) with respect to each
Domestic Subsidiary that is a Material Subsidiary in existence as of the Closing
Date, the Closing Date, and (ii) with respect to each Domestic Subsidiary
that is a Material Subsidiary formed or acquired on or after the Closing Date,
twenty (20) calendar days after the formation or acquisition of such Domestic
Subsidiary, cause such Domestic Subsidiary to execute and deliver to Bank
(X) a Guaranty in satisfaction of the requirements of Section 2.8
hereof, (Y) a security agreement in satisfaction of the requirements of
Section 2.7 hereof and (Z) such other documents as Bank
shall reasonably request, in form and substance satisfactory to Bank, evidencing
the authority of such Domestic Subsidiary to execute and deliver such Guaranty
and security agreement, and the incumbency of the Persons executing such
Guaranty and security agreement on behalf of such Domestic
Subsidiary.

         

        (b)  
Foreign
Subsidiaries.  By not later than (i) with respect to each
Foreign Subsidiary in existence as of the Closing Date, the Closing Date, and
(ii) with respect to each Foreign Subsidiary formed or acquired on or after
the Closing Date, forty-five (45) calendar days after the formation or
acquisition of such Foreign Subsidiary, execute, or cause to be executed, such
further agreements, documents or instruments, or take such other actions, as
Bank reasonably deems necessary in order to effectuate the pledge to Bank of
security interests in Borrower’s, and/or Borrower’s Subsidiaries’, ownership
interest in such Foreign Subsidiary (such pledge exclusive of shares of voting
stock of such Foreign Subsidiary that represent more than 65% of the voting
stock of such Foreign Subsidiary, as described in Section 2.8 hereof),
including, without limitation, (A) executing and delivering to each such
Foreign Subsidiary, a notice of the pledge of Borrower’s and/or Borrower’s
Subsidiaries’ interests therein to Bank, and (B) causing such Foreign
Subsidiary to execute and deliver to Bank an acknowledgment of pledge related to
Borrower’s and/or such Subsidiaries’ pledge of its or their interest in such
Foreign Subsidiary, in each case, in form in substance satisfactory to
Bank.

         

        (c) 
Upon the request of Bank, with respect to Borrower’s Equity Interests in
Subsidiaries pledged to Bank as collateral under the Loan Documents, Borrower
shall promptly deliver stock certificates (or other comparable certificates) for
all certificated securities now or at any time constituting such collateral,
duly endorsed in blank for transfer or accompanied by an appropriate assignment
or assignments or an appropriate undated stock power or powers, in every case
sufficient to transfer title thereto.

         

        
          
            
            

          

          
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        Article
VII

         

        Negative
Covenants

         

        Borrower
further covenants that so long as Bank remains committed to extend credit to
Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
created by the Loan Documents, Borrower will not, and will not permit any
Subsidiary (including Subsidiaries of Subsidiaries) of Borrower to, without
Bank’s prior written consent:

         

        Section
7.1.Use of Funds.  Use any of the proceeds of any credit extended
hereunder except for the purposes stated in Article II hereof.

         

        Section
7.2.Capital Expenditures.  Make any additional investment in fixed
assets in any fiscal period such that, after giving effect to such investment:
(a) the aggregate investments in fixed assets made by Borrower and all
Subsidiaries in the fiscal quarters ending December 31, 2008 and March 31, 2009
would exceed $4,250,000.00; and (b) the aggregate investments in

         

         fixed
assets made by Borrower and all Subsidiaries in fiscal year 2010 would exceed
$6,500,000.00

         

        Section
7.3.Lease Expenditures.  Incur operating lease expense in any fiscal
year such that, after giving effect to such operating lease expense, the
aggregate operating lease expense incurred by Borrower and all Subsidiaries in
such year is in excess of $1,200,000.00.

         

        Section
7.4.Other Indebtedness.  Create, incur, assume or permit to exist any
indebtedness resulting from borrowings, loans or advances, whether secured or
unsecured, matured or unmatured, liquidated or unliquidated, joint or several,
other than Permitted Indebtedness.

         

        Section
7.5.Merger, Consolidation, Transfer of Assets.  Merge into or
consolidate with any other entity, other than pursuant to a Permitted Investment
(provided that a Subsidiary may merge or consolidate into another Subsidiary or
into Borrower); make any substantial change in the nature of such Person’s
business as conducted as of the date hereof or reasonably incidental thereto;
acquire all or substantially all of the assets of any other entity, other than
pursuant to a Permitted Investment; nor sell, lease, transfer or otherwise
dispose of all or a substantial or material portion of such Person’s assets
(collectively, a “Transfer”), other than: (i) Transfers of Inventory in the
ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; (iii) Transfers of worn-out, surplus or
obsolete Equipment which was not financed by Bank; or (iv) other assets of
Borrower or its Subsidiaries that do not in the aggregate exceed $100,000 during
any fiscal year.

         

        Section
7.6.Guaranties.  Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of such Person as security
for, any liabilities or obligations of any other person or entity, except any of
the foregoing in favor of Bank constituting Permitted Indebtedness.

         

        Section
7.7.Loans, Advances, Investments.  Make any loans or advances to or
investments in any person or entity, other than Permitted
Investments.

         

        Section
7.8.Dividends, Distributions.  Declare or pay any dividend or
distribution either in cash, stock or any other property on such Person’s stock
now or hereafter outstanding, nor redeem, retire, repurchase or otherwise
acquire any shares of any class of such Person’s stock now or hereafter
outstanding, except that Borrower may (i) pay dividends consistent with prior
priorities in common stock of Borrower, (ii) repurchase the stock of former
employees, consultants or directors of Borrower pursuant to stock repurchase
agreements so long as an Event of Default does not exist prior to such
repurchase and would not exist after giving effect to such repurchase and (iii)
repurchase the stock of former employees pursuant to stock repurchase agreements
by the cancellation of indebtedness owed by such former employees to Borrower so
long as an Event of Default does not exist prior to such repurchase and would
not exist after giving effect to such repurchase.

        
          
             

          

          
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        Section
7.9.Pledge of Assets.  Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of such Person’s assets
now owned or hereafter acquired, other than Permitted Liens.

         

        Section
7.10.Sale and Leasebacks.  Enter into any arrangement, directly or
indirectly, with any other Person whereby Borrower or such Subsidiary, as
applicable, shall sell or transfer any real or personal property, whether now
owned or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which Borrower or such
Subsidiary, as applicable, intends to use for substantially the same purpose or
purposes as the property being sold or transferred.

         

        Section
7.11.Transactions with Affiliates.  Enter into any transaction of any
kind with any affiliate of Borrower, irrespective of whether in the ordinary
course of business, other than on fair and reasonable terms substantially as
favorable to Borrower or a Subsidiary of Borrower as would be obtainable by such
Person at the time in a comparable arm’s-length transaction with a Person other
than an affiliate.

         

        Article
VIII

         

        Events
of Default

         

        Section
8.1.Events of Default.  The occurrence of any of the following shall
constitute an “Event of
Default” under this Agreement:

         

        (a)  
Borrower shall fail to pay (i) when due any principal or any interest, or (ii)
any fees or other amounts payable under any of the Loan Documents (and such
default shall continue unremedied for a period of three Business Days);
or

         

        (b)  
Any financial statement or certificate furnished to Bank in connection with, or
any representation or warranty made by Borrower, any Subsidiary or any other
party under this Agreement or any other Loan Document, shall prove to be
incorrect, false or misleading in any material respect when furnished or made;
or

         

        (c) 
Any default in the performance of or compliance with any obligation, agreement
or other provision contained herein or in any other Loan Document (other than
those referred to in subsections (a) and (b) above), and with respect to any
such default which by its nature can be cured, such default shall continue for a
period of twenty (20) days from the date of its occurrence; or

         

        (d) 
Any default in the payment or performance of any material obligation in excess
of $250,000.00, or any defined event of default, under the terms of any contract
or instrument (other than any of the Loan Documents) pursuant to which Borrower
or any Subsidiary has incurred any debt or other material liability to any
person or entity, including Bank, in excess of $50,000.00; or

        
          
             

          

          
            - 29
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        (e) 
The filing of a notice of judgment lien against Borrower or any Subsidiary; or
the recording of any abstract of judgment against Borrower or any Subsidiary in
any county in which Borrower or such Subsidiary has an interest in real
property; or the service of a notice of levy and/or of a writ of attachment or
execution, or other like process, against the assets of Borrower or any
Subsidiary; or the entry of a judgment against Borrower or any Subsidiary;
or

         

        (f)  
Borrower or any Subsidiary shall become insolvent, or shall suffer or consent to
or apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower or any Subsidiary shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Code, or under any state or
federal law granting relief to debtors, whether now or hereafter in effect; or
any involuntary petition or proceeding pursuant to the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization or
other relief for debtors is filed or commenced against Borrower or any
Subsidiary and such involuntary bankruptcy is not dismissed within 45 days or
Borrower or any Subsidiary shall file an answer admitting the jurisdiction of
the court and the material allegations of any involuntary petition; or Borrower
or any Subsidiary shall be adjudicated a bankrupt, or an order for relief shall
be entered against Borrower or any Subsidiary by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors;
or

         

        (g)  
There shall exist or occur any event or condition which Bank in good faith
believes could reasonably be expected to have a Material Adverse Effect;
or

         

        (h)  
Except to the extent permitted pursuant to Section 7.5, the dissolution or
liquidation of Borrower or any Subsidiary which is a corporation, partnership,
joint venture or other type of entity; or Borrower or any such Subsidiary, or
any of their directors, stockholders or members, shall take action seeking to
effect the dissolution or liquidation of Borrower or any such Subsidiary;
or

         

        (i)  
There shall exist a material deficiency in any collateral required hereunder, as
identified by Bank pursuant to one or more of the collateral examinations and
inspections referenced in Section 6.2 hereof; or

         

        (j)(i) The
occurrence of any ERISA Event with respect to a Pension Plan or Multiemployer
Plan which results in or could reasonably be expected to result in liability of
Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or
the PBGC in an aggregate amount in excess of $500,000.00; or (ii) the
failure by Borrower or any ERISA Affiliate to pay when due, after the expiration
of any applicable grace period, any installment payment with respect to its
withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan
in an aggregate amount in excess of $100,000.00; or

         

        (k)  
Any Loan Document or any provision thereof, at any time after its execution and
delivery and for any reason other than as expressly permitted hereunder or
thereunder, ceases to be in
full force and effect; or Borrower or any Subsidiary contests in any manner the
validity or enforceability of any Loan Document or any provision thereof; or
Borrower or any Subsidiary denies that it has any further liability or
obligation under any Loan Document, or purports to revoke, terminate or rescind
any Loan Document or any provision thereof; or

         

        
          
            
            

          

          
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(l)   There occurs a Change of Control.

         

        Section
8.2.Remedies.  Upon the occurrence of any Event of
Default:  (a) all indebtedness of Borrower under each of the Loan
Documents, any term thereof to the contrary notwithstanding, shall at Bank’s
option and without notice become immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are hereby
expressly waived by Borrower; (b) the obligation, if any, of Bank to extend
any further credit under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law, including
without limitation the right to resort to any or all security for any credit
created by the Loan Documents and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law.  All rights,
powers and remedies of Bank may be exercised at any time by Bank and from time
to time after the occurrence and during the continuance of an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.

         

        Article
IX

         

        Miscellaneous

         

        Section
9.1.No Waiver.  No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy.  Any waiver, permit, consent or approval
of any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in such
writing.

         

        Section
9.2.Notices.  All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following
address:

        

        Borrower:Micrus Endovascular
Corporation

        821 Fox Lane

        San Jose, CA 95131

        

        
          	
                   
      

                	
                  Bank:Wells
      Fargo Bank, National Association

                

        

        Peninsula Regional Commercial Banking
Office

        400 Hamilton Ave., Suite
110

        Palo Alto,
California  94301

        Attention:  Customer Service
Manager

        
          
             

          

          
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        or to
such other address as any party may designate by written notice to all other
parties.  Each such notice, request and demand shall be deemed given
or made as follows:  (a) if sent by hand delivery, upon delivery;
(b) if sent by mail, upon the earlier of the date of receipt or three (3)
days after deposit in the U.S. mail, first class and postage prepaid; and
(c) if sent by telecopy, upon receipt.

         

        Section
9.3.Expenses; Indemnity; Damage Waiver.

         

        (a)  
Borrower shall pay to Bank within 7 days after written demand the full amount of
all payments, advances, charges, costs and expenses, including reasonable
attorneys’ fees (to include outside counsel fees and all allocated costs of
Bank’s in-house counsel and collateral review fees), expended or incurred by
Bank in connection with (i) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank’s continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (ii) the enforcement of Bank’s rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and
(iii) the prosecution or defense of any action in any way related to any of
the Loan Documents, including without limitation, any action for declaratory
relief, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.

         

        (b)  
Borrower shall indemnify Bank and Bank’s affiliates and the partners, members,
directors, officers, employees, agents and advisors of Bank and Bank’s
affiliates (each such Person, an “Indemnitee”) against, and
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses (including the fees, charges and disbursements
of any counsel for any Indemnitee), and shall indemnify and hold harmless
each Indemnitee from all fees and time charges and disbursements for attorneys,
who may be employees of any Indemnitee, incurred by any Indemnitee or asserted
against any Indemnitee by any third party or by Borrower or any Guarantor, or
any Subsidiary of Borrower or any Guarantor, arising out of, in connection with,
or as a result of:  (i) the execution or delivery of this
Agreement, any other Loan Document or any document contemplated hereby or
thereby, the performance by the parties hereto of their respective obligations
hereunder or thereunder or the consummation of the transactions contemplated
hereby or thereby; (ii) any Revolving Credit Loan or the use or proposed
use of the proceeds therefrom; (iii) any actual or alleged presence or
release of Hazardous Materials on or from any property owned or operated by
Borrower, any Guarantor or any Subsidiary of Borrower or any Guarantor, or any
Environmental Claim or Environmental Liability related in any way to Borrower,
any Guarantor or any Subsidiary of Borrower or any Guarantor; or (iv) any
actual or prospective claim, litigation, investigation or proceeding relating to
any of the foregoing, whether based on contract, tort or any other theory,
whether brought by a third party or by Borrower, any Guarantor or any Subsidiary
of Borrower or any Guarantor, and regardless of whether any Indemnitee is a
party thereto, in all cases, whether or not caused by or arising, in whole or in
part, out of the comparative, contributory or sole negligence of the Indemnitee;
provided that such
indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses result from
the gross negligence or willful misconduct of such Indemnitee.

         

        (c)  
To the fullest extent permitted by applicable law, Borrower shall not assert,
and hereby waives, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this
Agreement, any other Loan Document or any document contemplated hereby or
thereby, the transactions contemplated hereby or thereby, any Revolving Credit
Loan or the use of the proceeds thereof.  No Indemnitee referred to in
Section 9.3(b) shall be liable for any damages arising from the use by
unintended recipients of any information or other materials distributed by it
through telecommunications, electronic or other information transmission systems
in connection with this Agreement or the other Loan Documents or the
transactions contemplated hereby or thereby.

         

        
          
            
            

          

          
            - 32
-

            
              

            

          

          
            
            

          

        

        (d)  
The agreements in this Section 9.3 shall survive the termination of Bank’s
commitment to make Revolving Credit Loans and the repayment, satisfaction or
discharge of all other Obligations.

         

        Section
9.4.Successors, Assignment.  This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto; provided that Borrower may
not assign or transfer its interest hereunder without Bank’s prior written
consent.  Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank’s rights
and benefits under each of the Loan Documents, provided that so long as no Event
of Default exists Bank shall not so sell, assign, transfer, negotiate or grant
participations in to any direct competitor of Borrower without Borrower’s prior
written consent.

         

        Section
9.5.Entire Agreement; Amendment.  This Agreement and the other Loan
Documents constitute the entire agreement between Borrower and Bank with respect
to each credit created by this Agreement and the other Loan Documents and
supersede all prior negotiations, communications, discussions and correspondence
concerning the subject matter hereof and thereof.  This Agreement may
be amended or modified only in writing signed by each party hereto.

         

        Section
9.6.No Third Party Beneficiaries.  This Agreement is made and entered
into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.

         

        Section
9.7.Time.  Time is of the essence of each and every provision of this
Agreement and each other of the Loan Documents.

         

        Section
9.8.Severability of Provisions.  If any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or any remaining provisions of this Agreement.

         

        Section
9.9.Counterparts.  This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same
Agreement.  Delivery of an executed counterpart of a signature page of
this Agreement by telecopy shall be as effective as delivery of a manually
executed counterpart of this Agreement.

         

        Section
9.10.Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of California.

         

        Section
9.11.Arbitration.

         

        (a)  
Arbitration.  The
parties hereto agree, upon demand by any party, to submit to binding arbitration
all claims, disputes and controversies between or among them (and their
respective employees, officers, directors, attorneys, and other agents), whether
in tort, contract or otherwise in any way arising out of or relating to (i) any
credit subject hereto, or any of the Loan Documents, and their negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination; or (ii) requests for additional credit.

         

        
          
            
            

          

          
            - 33
-

            
              

            

          

          
            
            

          

        

        (b)  
Governing
Rules.  Any arbitration proceeding will (i) proceed in a
location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by
the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding
any conflicting choice of law provision in any of the documents between the
parties; and (iii) be conducted by the AAA, or such other administrator as the
parties shall mutually agree upon, in accordance with the AAA’s commercial
dispute resolution procedures, unless the claim or counterclaim is at least
$1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which
case the arbitration shall be conducted in accordance with the AAA’s optional
procedures for large, complex commercial disputes (the commercial dispute
resolution procedures or the optional procedures for large, complex commercial
disputes to be referred to herein, as applicable, as the “Rules”).  If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control.  Any party who fails or
refuses to submit to arbitration following a demand by any other party shall
bear all costs and expenses incurred by such other party in compelling
arbitration of any dispute.  Nothing contained herein shall be deemed
to be a waiver by any party that is a bank of the protections afforded to it
under 12 U.S.C. §91 or any similar applicable state law.

         

        (c)  
No Waiver of Provisional
Remedies, Self-Help and Foreclosure.  The arbitration
requirement does not limit the right of any party to (i) foreclose against real
or personal property collateral; (ii) exercise self-help remedies relating to
collateral or proceeds of collateral such as setoff or repossession; or (iii)
obtain provisional or ancillary remedies such as replevin, injunctive relief,
attachment or the appointment of a receiver, before during or after the pendency
of any arbitration proceeding.  This exclusion does not constitute a
waiver of the right or obligation
of any party to submit any dispute to arbitration or reference hereunder,
including those arising from the exercise of the actions detailed in sections
(i), (ii) and (iii) of this paragraph.

         

        (d)  
Arbitrator Qualifications and
Powers.  Any arbitration proceeding in which the amount in
controversy is $5,000,000.00 or less will be decided by a single arbitrator
selected according to the Rules, and who shall not render an award of greater
than $5,000,000.00.  Any dispute in which the amount in controversy
exceeds $5,000,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided,
however, that all three arbitrators must actively participate in all
hearings and deliberations.  The arbitrator will be a neutral attorney
licensed in the State of California or a neutral retired judge of the state or
federal judiciary of California, in either case with a minimum of ten years
experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated.  The arbitrator will determine whether or
not an issue is arbitratable and will give effect to the statutes of limitation
in determining any claim.  In any arbitration proceeding the
arbitrator will decide (by documents only or with a hearing at the arbitrator’s
discretion) any pre-hearing motions which are similar to motions to dismiss for
failure to state a claim or motions for summary adjudication.  The
arbitrator shall resolve all disputes in accordance with the substantive law of
California and may grant any remedy or relief that a court of such state could
order or grant within the scope hereof and such ancillary relief as is necessary
to make effective any award.  The arbitrator shall also have the power
to award recovery of all costs and fees, to impose sanctions and to take such
other action as the arbitrator deems necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil
Procedure or other applicable law.  Judgment upon the award rendered
by the arbitrator may be entered in any court having
jurisdiction.  The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.

         

        (e)  
Discovery.  In any
arbitration proceeding discovery will be permitted in accordance with the
Rules.  All discovery shall be expressly limited to matters directly
relevant to the dispute being arbitrated and must be completed no later than 20
days before the hearing date.  Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party’s presentation and that no alternative means for
obtaining information is available.

         

        (f)  
Class Proceedings and
Consolidations.  No party hereto shall be entitled to join or
consolidate disputes by or against others in any arbitration, except parties who
have executed any Loan Document, or to include in any arbitration any dispute as
a representative or member of a class, or to act in any arbitration in the
interest of the general public or in a private attorney general
capacity.

         

        (g)  
Payment Of Arbitration Costs
And Fees.  The arbitrator
shall award all costs and expenses of the arbitration
proceeding.

        
          
             

          

          
            - 34
-

            
              

            

          

          
             

          

        

         

        (h)  
Real Property Collateral;
Judicial Reference.  Notwithstanding anything herein to the
contrary, no dispute shall be submitted to arbitration if the dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of California, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.  If any such dispute is not submitted to
arbitration, the dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and this general
reference agreement is intended to be specifically enforceable in accordance
with said Section 638.  A referee with the qualifications required
herein for arbitrators shall be selected pursuant to the AAA’s selection
procedures.  Judgment upon the decision rendered by a referee shall be
entered in the court in which such proceeding was commenced in accordance with
California Code of Civil Procedure Sections 644 and 645.

         

        (i)  
Miscellaneous.  To
the maximum extent practicable, the AAA, the arbitrators and the parties shall
take all action required to conclude any arbitration proceeding within 180 days
of the filing of the dispute with the AAA.  No arbitrator or other
party to an arbitration proceeding may disclose the existence, content or
results thereof, except for disclosures of information by a party required in
the ordinary course of its business or by applicable law or
regulation.  If more than one agreement for arbitration by or between
the parties potentially applies to a dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the dispute
shall control.  This arbitration provision shall survive termination,
amendment or expiration of any of the Loan Documents or any relationship between
the parties.

        

        (j)    Small Claims
Court.  Notwithstanding anything herein to the contrary, each
party retains the right to pursue in Small Claims Court any dispute within that
court’s jurisdiction.  Further, this arbitration provision shall apply
only to disputes in which either party seeks to recover an amount of money
(excluding attorneys’ fees and costs) that exceeds the jurisdictional limit of
the Small Claims Court.

         

        

        

        [Continues
with Signatures on Next Page]

        
          
             

          

          
            - 35
-

            
              

            

          

          
             

          

        

        

         

        In
Witness Whereof, the parties hereto have caused this Credit Agreement to be
executed as of the day and year first written above.

         

        
          

          
            	
                    MICRUS
      ENDOVASCULAR CORPORATION

                  	 
      	
                    WELLS
      FARGO BANK NATIONAL

                  
	 
      	 
      	 
      	
                    ASSOCIATION

                  
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                    By:

                  	
                    /s/
      Gordon Sangster

                  	 
      	
                    By:

                  	
                    /s/
      Matt Burke

                  
	
                    Name:

                  	
                    Gordon
      Sangster

                  	 
      	
                    Name:

                  	
                    Matt
      Burke

                  
	
                    Title:

                  	
                    CFO

                  	 
      	
                    Title:

                  	
                    Vice
      President

                  

          

          

        

         

         

         

         

         

         

         

         

         

         

         

        
 

        
          
            
              Credit
Agreement

              

            

             

          

          
             

            
              

            

          

          
             

          

        

        Exhibit
A

         

        Form
of Revolving Line of Credit Note

        

        

        [See
attached.]

        
          
             

          

          
             

            
              

            

          

          
             

          

        

        Exhibit
B

         

        Form
of Loan Notice

        

        Date:  ___________,
__ _____

        To:Wells
Fargo Bank, National Association

         

        Ladies
and Gentlemen:

         

        Reference
is hereby made to that certain Credit Agreement, dated as of November 5, 2008
(as amended, restated, extended, supplemented or otherwise modified in writing
from time to time, the “Agreement”), between Micrus
Endovascular Corporation (“Borrower”) and Wells Fargo
Bank, National Association.  Unless otherwise defined herein, each
capitalized term used herein has the meaning ascribed thereto in the
Agreement.

         

        The
undersigned Borrower hereby requests (select one):

         

        _____A
Revolving Credit Borrowing of Revolving Credit Loans

         

        _____A conversion of LIBOR Rate
Loans

         

        _____A Revolving Credit Borrowing of
LIBOR Rate Loans

         

        _____A continuation of LIBOR Rate
Loans

         

        1.  
On _______ (a Business Day).

         

        2.  
In the amount of $_______.

         

        3.  
[Insert for LIBOR Rate Loans: With an Interest Period of _______
months.]

        
          
             

          

          
             

            
              

            

          

          
             

          

        

         

        The
Revolving Credit Borrowing, if any, requested herein complies with Section 2.1 of the
Agreement.

        

        
          	
                   
      

                	
                  Micrus
      Endovascular Corporation

                

        

        
          	
                   
      

                	 

        

        

        
          	
                   
      

                	
                  By:

                

        

        
          	
                   
      

                	
                  Name:

                

        

        
          	
                   
      

                	
                  Title:

                

        

        
          
             

          

          
             

            
              

            

          

          
             

          

        

        Exhibit
C

         

        Form
of Financial Covenant Compliance Certificate

         

        
          	
                   
      

                	
                  TO:Wells
      Fargo Bank, National Association (“Bank”) under that certain Credit
      Agreement, dated as of November 5, 2008 (as amended, restated, modified
      and/or supplemented from time to time, the “Credit Agreement”),
      between Micrus Endovascular Corporation, a Delaware corporation (“Borrower”), and
      Bank.

                

        

         

        This
Compliance Certificate is delivered this ___ day of ____________, 20__, by the
undersigned, as a senior financial officer of Borrower to Bank in accordance
with Section 6.9(c)
of the Credit Agreement.

         

        The
undersigned hereby certifies on behalf of Borrower that:

         

        1.   Attached hereto are the
consolidated and consolidating company prepared monthly financial statements of
Borrower, presented fairly in all material respects in accordance with GAAP that
are required to be delivered pursuant to Section 6.3(a) of the
Credit Agreement for the period ending ______________, 20__ (the “End Date”).

         

        2.   As of the date of this
Compliance Certificate, no Default or Event of Default has occurred and was
continuing.

         

        3.  The financial condition
covenants and other compliance calculations and information set forth on Schedule 1 attached
hereto are true, complete and accurate in all material respects on and as of the
date of this Compliance Certificate.

         

        The
foregoing certifications, together with the computations set forth in Schedule 1 hereto, are
made and delivered, and the financial statements referenced above are made or
posted, as applicable, this ____ day of _____, 200_, pursuant to the provisions
of the Credit Agreement.

        

        

        

        
          	
                   
      

                	
                  By:

                

        

        
          	
                   
      

                	
                  [                                                            
      ]

                

        

        
          	
                   
      

                	
                  [                                                            
      ]

                

        

        
          	
                   
      

                	
                  of
      Micrus Endovascular Corporation

                

        

        
          
             

          

          
             

            
              

            

          

          
             

          

        

        Schedule
1

        to
Compliance Certificate

        

        

        
          	
                  A.  

                	
                  Modified
      Quick Ratio at each fiscal month end of Borrower, commencing with the
      fiscal month ending October 31, 2008 of
  1.25:1.0.

                

        

        

        
          	
                  1.

                	
                  Modified
      Quick Ratio:

                	 
      	 
      
	 
      	
                  a.  unrestricted
      cash and marketable securities

                	
                  $___________

                	 
      
	 
      	
                  b.  net
      accounts receivable

                	
                  $___________

                	 
      
	 
      	
                  c.  current
      liabilities

                	
                  $___________

                	 
      
	
                  2.

                	
                  Quick
      Ratio ((1a+1b)/1c):

                	 
      	
                  ___________

                
	
                  3.

                	
                  In
      compliance (yes / no)?

                	 
      	
                  ___________

                

        

        

        
          	
                  B.  

                	
                  Minimum
      GAAP Profit/Loss for the fiscal quarter ending September 30, 2008 of
      negative Three Million Dollars (-$3,000,000), for the fiscal quarter
      ending December 31, 2008 of negative Seven Hundred Fifty Thousand Dollars
      (-$750,000) and for each fiscal quarter ending after December 31, 2008 of
      Five Hundred Thousand Dollars
($500,000).

                

        

        

        
          	
                  1.

                	
                  GAAP
      Profit/Loss:

                	 
      	 
      
	 
      	
                  a.  revenue

                	
                  $___________

                	 
      
	 
      	
                  b.  cost
      of goods sold

                	
                  $___________

                	 
      
	 
      	
                  c.  operating
      expenses

                	
                  $___________

                	 
      
	 
      	
                  d.  stock-based
      compensation expenses

                	
                  $___________

                	 
      
	 
      	
                  e.  stock-based
      acquisition expenses

                	
                  $___________

                	 
      
	
                  2.

                	
                  Operating
      Expenses (1c - 1d - 1e):

                	 
      	
                  ___________

                
	
                  3.

                	
                  GAAP
      Profit/Loss (1a - 1b - 2):

                	 
      	
                  ___________

                
	
                  3.

                	
                  In
      compliance (yes / no)?

                	 
      	
                  ___________

                

        

        

        
          
             

          

          
             

            
              

            

          

          
             

          

        

        Exhibit
D

        

        Form
of Borrowing Base Certificate

        Schedule
1.1-A

         

        Permitted
Indebtedness

         

        [Borrower
to provide.]

        
          
             

          

          
             

            
              

            

          

          
             

          

        

        Schedule
1.1-B

         

        Permitted
Investments

         

        [Borrower
to provide.]

        
          
             

          

          
             

            
              

            

          

          
             

          

        

        Schedule
1.1-C

         

        Permitted
Liens

         

        [Borrower
to provide.]

        
          
             

          

          
             

            
              

            

          

          
             

          

        

        Schedule
5.1

         

        Subsidiaries

        

        

        1.Domestic
Subsidiaries

        [Borrower
to provide.]

        

        

        

        2.Foreign
Subsidiaries

        [Borrower
to provide.]

        Schedule
5.4

         

        Litigation

         

        [Borrower
to provide.]Exhibit 4.4

 

AMENDMENT
NO. 1 TO

SECOND
AMENDED AND RESTATED STOCKHOLDER’S AGREEMENT

 

AMENDMENT NO. 1 TO THE SECOND AMENDED AND
RESTATED STOCKHOLDER’S AGREEMENT (this “Amendment”), dated as of November
10, 2008, between Ecolab Inc., a Delaware corporation (the “Company”)
and Henkel AG & Co. KGaA (f/k/a Henkel Kommanditgesellschaft auf
Aktien), organized under the laws of the Federal Republic of Germany (the “Stockholder”).

 

WHEREAS, the Company and the Stockholder are
party to that certain Second Amended and Restated Stockholder’s Agreement,
dated as of November 30, 2001, between the Company and the Stockholder
(the “Stockholder’s Agreement”) (capitalized terms used herein and not
defined herein shall have the respective meanings set forth in the Stockholder’s
Agreement); and

 

WHEREAS, simultaneously with the execution of
this Amendment, the Company, the Stockholder and Henkel Corporation, a Delaware
corporation (“Henkel Corp.,” and, together with the Stockholder, the “Selling
Stockholders”) have executed that certain Stock Purchase Agreement, dated
as of the date hereof (the “Purchase Agreement”), pursuant to which the
Selling Stockholders agree to sell, and the Company agrees to purchase, shares
of Common Stock held by the Selling Stockholders as set forth in the Purchase
Agreement; and

 

WHEREAS, the Company and the Stockholder
desire to amend certain provisions of the Stockholder’s Agreement as set forth
below.

 

NOW, THEREFORE, in consideration of the
mutual promises and covenants contained herein and in the Purchase Agreement,
the parties hereto agree as follows:

 

1.                                       Amendment of Section 5(a).  Section 5(a) of the Stockholder’s
Agreement is hereby amended by (1) deleting the word “or” at the end of Section 5(a)(viii),
(2) deleting the period at the end of Section 5(a)(ix) and
substituting in lieu therefor “; or” and (3) adding the following new Section 5(a)(x) after
Section 5(a)(ix):

 

                                                “(x) pursuant
to an underwritten public offering under the Securities Act (the “First
Offering”); and, in the event that the Stockholder and its Affiliates do
not sell all of their shares of Common Stock in the First Offering, pursuant to
a second underwritten public offering under the Securities Act (the “Second
Offering,” and, together with the First Offering, the “Amendment Offerings”);
provided, however, that:

 

 

(A) (1) each
Amendment Offering will be made in accordance with the terms for registration
rights attached hereto as Exhibit A, (2) the managing underwriters of
such offering will agree to effect the sale of the shares of Common Stock owned
by the Stockholder and its Affiliates in a manner which will result in a broad
distribution thereof and (3) the Stockholder will use all reasonable
efforts to insure that no sales of shares of Common Stock owned by the
Stockholder or its Affiliates are made to any Prohibited Holder (other than to
underwriters or any selected dealers for the purpose of effecting such broad
distribution), except as permitted by Section 5(a)(x)(B) hereof;

 

(B) prior
to (1) the First Offering and (2) the Second Offering, if applicable,
the Stockholder and the Company shall mutually agree in writing upon a list of
Third Persons, each of whom may purchase shares of Common Stock owned by the
Stockholder and its Affiliates in such offering so long as such Third Person
(considered together with such Third Person’s Affiliates or any group such
Third Person may be a member of) will not beneficially own in the aggregate
more than five percent (5%) of the outstanding Voting Securities after such
purchase (the “5% Purchasers”);

 

(C) the
Stockholder will, and will cause each of its Affiliates to, use reasonable
efforts to sell all of the shares of Common Stock owned by the Stockholder and
its Affiliates in the First Offering (subject to reserving shares to the extent
needed for any over-allotment option in connection with the First Offering),
subject to market conditions and the Stockholder’s right to withdraw the
offering if the price is not acceptable in the Stockholder’s reasonable
judgment, provided, that the Stockholder and its Affiliates may not sell
any shares of Common Stock in the First Offering unless at least 43,700,000
shares of Common Stock are sold in the First Offering to the underwriters, and further
provided, that if the First Offering is not completed for any reason,
the Stockholder and its Affiliates may not sell any shares of Common Stock in
the Second Offering unless at least 43,700,000 shares of Common Stock are sold
in the Second Offering to the underwriters;

 

(D) the
Stockholder will, and will cause each of its Affiliates to, deliver the shares
of Common Stock owned by the Stockholder and its Affiliates for each Amendment
Offering to the underwriters for such offering on a single date and no
Amendment Offering may constitute a continuous offering under the Securities
Act;

 

(E) for
each Amendment Offering, the Stockholder will supply the underwriters with an
over-allotment option of at least ten percent (10%) of the shares of Common
Stock owned by the Stockholder and its Affiliates upon the commencement of such
Amendment Offering; and

 

(F) in
the event that the Stockholder terminates any Amendment Offering for any
reason, the obligations of the Company under this Section 5(a)(x) with
respect to such Amendment Offering shall be deemed 

 

2

 

satisfied and
shall not extend to any additional offerings beyond the two Amendment Offerings
provided for in this Section 5(a)(x).”

 

                                                                                                2.                                       Amendment of Section 5(c). 
The final sentence of Section 5(c) of the Stockholder’s
Agreement is hereby amended to read in its entirety as follows: “Transfers
pursuant to Sections 5(a)(i), 5(a)(ii), 5(a)(iii), 5(a)(iv) only as to the
number of shares of Common Stock owned by the Stockholder and its Affiliates
equal to the number of shares of Common Stock in any over-allotment option
granted to the underwriters in the most recent Amendment Offering that were not
purchased by such underwriters, 5(a)(viii) and 5(a)(x) hereof are not
subject to the provisions of this Section 5(c).”

 

3.                                       Amendment
of Section 7.  Section 7,
clause (i) of the second paragraph of the Stockholder’s Agreement is
hereby amended to read in its entirety as follows: “terminate the stop transfer
instructions and remove the legend in connection with transfers pursuant to
Sections 5(a)(iv)(A), 5(a)(vi) and 5(a)(x) of this Agreement,”.

 

4.                                       Amendment
of Exhibit A.

 

                                                (a)                                  Exhibit A
of the Stockholder’s Agreement is hereby amended by adding the following
sentences at the end of Section 2:

 

                                                “Each
Amendment Offering, including any Amendment Offering that the Stockholder
terminates for any reason, shall constitute one request for registration by the
Stockholder for the purposes of this Section 2.  The First Offering shall be deemed to
commence upon the filing of the registration statement relating to the First
Offering.  The Second Offering shall be
deemed to commence upon the Company receiving from the Stockholder written notice
of the Stockholder’s intent to initiate the Second Offering.  For each Amendment Offering, the underwriting
group will consist of five (5) investment banks, three (3) at
bookrunner level and two (2) at co-manager level; the Stockholder will
select two (2) bookrunners and one (1) co-manager, and the Company
will select one (1) bookrunner and one (1) co-manager. The
Stockholder will select the stabilization agent, if any, for each Amendment
Offering.”

 

                                                (b)                                 Exhibit A
of the Stockholder’s Agreement is hereby further amended by adding the
following sentence at the end of Section 5:

 

                                                “The
Stockholder will bear all out-of-pocket expenses incurred by the Company
related to the road shows for the Amendment Offerings, including the use of
private aircraft.”

 

                                                (c)                                  Exhibit A
of the Stockholder’s Agreement is hereby further amended by adding the
following new sentence after Section 6(c):

 

                                                “In
connection with any Amendment Offering, the Company agrees to make members of
senior management of the Company available to participate in a road show, on a
schedule mutually agreeable to the Stockholder and the Company.”

 

3

 

5.                                       Interpretation.
Except as set forth in this Amendment, the provisions of the Stockholder’s
Agreement shall remain in full force and effect.

 

6.                                       Expiration.
This Amendment
shall expire at 5:00 p.m. Eastern time on the date that is eighteen (18)
months after the date on which the registration statement for the First
Offering is declared or otherwise becomes effective and the Stockholder’s
Agreement (in the form existing prior to this Amendment and to the extent not
terminated in accordance with the terms thereof) shall remain in full force and
effect and shall be otherwise unaffected thereby.

 

7.                                       Counterparts.
This Amendment may be executed in one or more counterparts, each of which shall
be deemed to be an original, but all of which together shall constitute one and
the same instrument.  Facsimile
signatures shall constitute original signatures.

 

[signatures appear on following page]

 

4

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.

 

 

	
   

  	
  ECOLAB INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Steven L. Fritze

  
	
   

  	
  Name: Steven L. Fritze

  
	
   

  	
  Its: Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HENKEL AG & CO. KGAA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas Gerd Kühn

  
	
   

  	
  Name: Thomas Gerd Kühn

  
	
   

  	
  Its: General Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Heinz Nicolas

  
	
   

  	
  Name: Heinz Nicolas

  
	
   

  	
  Its: Senior Corporate Counsel

  

 

5

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