Document:

BACTERIN
INTERNATIONAL, INC.

    BACTERIN
INTERNATIONAL HOLDINGS, INC.

    

    BRIDGE
BANK, NATIONAL ASSOCIATION

    

    LOAN
AND SECURITY AGREEMENT

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    This
Loan
And Security Agreement is entered into as of January 14, 2011, by and
between Bridge
Bank, National Association (“Bank”) and Bacterin
International, Inc.  and Bacterin
International Holdings, Inc. (collectively, “Borrower”).

     

    Recitals

     

    Borrower
wishes to obtain credit from time to time from Bank, and Bank desires to extend
credit to Borrower.  This Agreement sets forth the terms on which Bank will
advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.

     

    Agreement

     

    The
parties agree as follows:

     

    1. 
         Definitions
and Construction.

     

    1.1           Definitions.  As used in
this Agreement, the following terms shall have the following
definitions:

     

    “Accounts”
means all presently existing and hereafter arising accounts, contract rights,
payment intangibles, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower’s Books relating to any of the
foregoing.

     

    “Advance”
or “Advances” means a cash advance or cash advances under the Revolving
Facility.

     

    “Affiliate”
means, with respect to any Person, any Person that owns or controls directly or
indirectly such Person, any Person that controls or is controlled by or is under
common control with such Person, and each of such Person’s senior executive
officers, directors, and partners.

     

    “Asset
Coverage Ratio” means the ratio of (a) Borrower’s unrestricted cash and cash
equivalents maintained with Bank plus Eligible Accounts to (b) all Obligations
owed to Bank.

     

    “Bank
Expenses” means all:  reasonable costs or expenses (including
reasonable attorneys’ fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and
expenses incurred in amending, enforcing or defending the Loan Documents
(including fees and expenses of appeal), incurred before, during and after an
Insolvency Proceeding, whether or not suit is brought.

     

    “Borrower’s
Books” means all of Borrower’s books and records including:  ledgers;
records concerning Borrower’s assets or liabilities, the Collateral, business
operations or financial condition; and all computer programs, or tape files, and
the equipment, containing such information.

     

    “Borrowing
Base” means an amount equal to eighty percent (80%) of Eligible Accounts, as
determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrower.

     

    “Business
Day” means any day that is not a Saturday, Sunday, or other day on which banks
in the State of California are authorized or required to close.

     

    “Change
in Control” shall mean a transaction in which any “person” or “group” (within
the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of shares of all classes of stock then outstanding of Borrower ordinarily
entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of Borrower, who did not
have such power before such transaction.

    
      
         

      

      
        1.

        
          

        

      

      
         

      

    

     

    “Closing
Date” means the date of this Agreement.

     

    “Code”
means the California Uniform Commercial Code.

     

    “Collateral”
means the property described on Exhibit A attached
hereto.

     

    “Contingent
Obligation” means, as applied to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another;
(ii) any obligations with respect to undrawn letters of credit, corporate
credit cards, or merchant services issued or provided for the account of that
Person; and (iii) all obligations arising under any agreement or
arrangement designed to protect such Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided, however, that the
term “Contingent Obligation” shall not include endorsements for collection or
deposit in the ordinary course of business.  The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determined
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by Bank in good faith; provided,
however, that such amount shall not in any event exceed the maximum amount of
the obligations under the guarantee or other support arrangement.

     

    “Copyrights”
means any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof.

     

    “Credit
Extension” means each Advance or any other extension of credit by Bank for the
benefit of Borrower hereunder.

     

    “Daily
Balance” means the amount of the Obligations owed at the end of a given
day.

     

    “Disclosure
Letter” means that certain Disclosure Letter, dated as of the date hereof,
delivered by Borrower to Bank.

     

    “Eligible
Accounts” means those Accounts (net of pre-paid deposits, offsets, and contras)
that arise in the ordinary course of Borrower’s business that comply with all of
Borrower’s representations and warranties to Bank set forth in Section 5.4;
provided, that standards of eligibility may be fixed and revised from time to
time by Bank in Bank’s reasonable judgment and upon notification thereof to
Borrower in accordance with the provisions hereof.  Unless otherwise agreed
to by Bank, Eligible Accounts shall not include the following:

     

    (a)           Accounts
that the account debtor has failed to pay within ninety (90) days of invoice
date;

     

    (b)           Accounts
with respect to an account debtor, thirty percent (30%) of whose Accounts the
account debtor has failed to pay within ninety (90) days of invoice
date;

     

    (c)           Accounts
with respect to which the account debtor is an officer, employee, or agent of
Borrower;

     

    (d)           Accounts
with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional;

     

    (e)           Accounts
with respect to which the account debtor is an Affiliate of
Borrower;

     

    (f)          
Accounts with respect to which the account debtor does not have its
principal place of business in the United States or Canada, except for Eligible
Foreign Accounts;

    
      
         

      

      
        2.

        
          

        

      

      
         

      

    

     

    (g)          Accounts
with respect to which the account debtor is the United States or any department,
agency, or instrumentality of the United States;

     

    (h)          Accounts
with respect to which Borrower is liable to the account debtor for goods sold or
services rendered by the account debtor to Borrower or for deposits or other
property of the account debtor held by Borrower, but only to the extent of any
amounts owing to the account debtor against amounts owed to
Borrower;

     

    (i)           Accounts
with respect to an account debtor, including Subsidiaries and Affiliates, whose
total obligations to Borrower exceed thirty percent (30%) of all Accounts, to
the extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank;

     

    (j)           Accounts
with respect to which the account debtor disputes liability or makes any claim
with respect thereto as to which Bank believes, in its reasonable discretion,
that there may be a basis for dispute (but only to the extent of the amount
subject to such dispute or claim), or is subject to any Insolvency Proceeding,
or becomes insolvent, or goes out of business;

     

    (k)          Prebillings,
prepaid deposits, retention billings, or progress billings;

     

    (l)           Unbilled
Accounts; and

     

    (m)         Accounts
the collection of which Bank reasonably determines to be doubtful.

     

    “Eligible
Foreign Accounts” means Accounts with respect to which the account debtor does
not have its principal place of business in the United States or Canada and that
(i) are supported by one or more letters of credit in an amount and of a
tenor, and issued by a financial institution, acceptable to Bank, or
(ii) that Bank approves on a case-by-case basis; provided, however, any
Eligible Foreign Accounts without foreign credit insurance shall not exceed
$500,000 in the aggregate unless approved by Bank in its sole
discretion.

     

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

     

    “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder.

     

    “Event of
Default” has the meaning assigned in Article 8.

     

    “GAAP”
means generally accepted accounting principles as in effect from time to
time.

     

    “Indebtedness”
means (a) all indebtedness for borrowed money or the deferred purchase
price of property or services, including without limitation reimbursement and
other obligations with respect to surety bonds and letters of credit,
(b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.

     

    “Insolvency
Proceeding” means any proceeding commenced by or against any person or entity
under any provision of the United States Bankruptcy Code, as amended, or under
any other bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extension generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
relief.

     

    “Intellectual Property Collateral”
means all of Borrower’s right, title, and interest in and to the following:
Copyrights, Trademarks and Patents; all trade secrets, all design rights, claims
for damages by way of past, present and future infringement of any of the rights
included above, all licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights; all amendments, renewals and
extensions of any of the Copyrights, Trademarks or Patents; and all proceeds and
products of the foregoing, including without limitation all payments under
insurance or any indemnity or warranty payable in respect of any of the
foregoing.

    
      
         

      

      
        3.

        
          

        

      

      
         

      

    

     

    “Inventory”
means all inventory in which Borrower has or acquires any interest, including
work in process and finished products intended for sale or lease or to be
furnished under a contract of service, of every kind and description now or at
any time hereafter owned by or in the custody or possession, actual or
constructive, of Borrower, including such inventory as is temporarily out of its
custody or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing any
of the above, and Borrower’s Books relating to any of the
foregoing.

     

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

     

    “IRC”
means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.

     

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

     

    “Loan
Documents” means, collectively, this Agreement, any note or notes executed by
Borrower, and any other agreement entered into in connection with this
Agreement, all as amended or extended from time to time.

     

    “Material
Adverse Effect” means a material adverse effect on (i) the business
operations, or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents or
(iii) the value or priority of Bank’s security interests in the
Collateral.

     

    “Negotiable
Collateral” means all letters of credit of which Borrower is a beneficiary,
notes, drafts, instruments, securities, documents of title, and chattel paper,
and Borrower’s Books relating to any of the foregoing.

     

    “Obligations”
means all debt, principal, interest, Bank Expenses and other amounts owed to
Bank by Borrower pursuant to this Agreement or any other agreement, whether
absolute or contingent, due or to become due, now existing or hereafter arising,
including any interest that accrues after the commencement of an Insolvency
Proceeding and including any debt, liability, or obligation owing from Borrower
to others that Bank may have obtained by assignment or otherwise.

     

    “Patents”
means all patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

     

    “Periodic
Payments” means all installments or similar recurring payments that Borrower may
now or hereafter become obligated to pay to Bank pursuant to the terms and
provisions of any instrument, or agreement now or hereafter in existence between
Borrower and Bank.

     

    “Permitted
Indebtedness” means:

     

    (a)           Indebtedness
of Borrower in favor of Bank arising under this Agreement or any other Loan
Document;

     

    (b)           Indebtedness
existing on the Closing Date and disclosed in the Schedule;

     

    (c)           Indebtedness
secured by a lien described in clause (c) of the defined term “Permitted
Liens,” provided (i) such Indebtedness does not exceed the lesser of the
cost or fair market value of the equipment financed with such Indebtedness and
(ii) such Indebtedness does not exceed $200,000 in the aggregate at any
given time; and

     

    (d)           Subordinated
Debt.

     

    
      
         

      

      
        4.

        
          

        

      

      
         

      

    

     

    “Permitted
Investment” means:

     

    (a)           Investments
existing on the Closing Date disclosed in the Schedule;

     

    (b)           Accounts
receivable in the ordinary course of Borrower’s business;

     

    (c)           Temporary
advances to cover incidental expenses to be incurred in the ordinary course of
business;

     

    (d)           Investments
in wholly-owned Subsidiaries of Borrower; and

     

    (e)           (i) marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or any agency or any State thereof maturing within one (1) year from the
date of acquisition thereof, (ii) commercial paper maturing no more than
one (1) year from the date of creation thereof and currently having rating of at
least A-2 or P-2 from either Standard & Poor’s Corporation or
Moody’s Investors Service, (iii) certificates of deposit maturing no more
than one (1) year from the date of investment therein and (iv) money market
accounts.

     

    “Permitted
Liens” means the following:

     

    (a)           Any
Liens existing on the Closing Date and disclosed in the Schedule or arising
under this Agreement or the other Loan Documents;

     

    (b)           Liens
for taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings, provided
the same have no priority over any of Bank’s security interests (other than
Liens for property taxes on real estate);

     

    (c)           Liens
(i) upon or in any equipment which was not financed by Bank acquired or
held by Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment;

     

    (d)           Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through (c)
above, 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.

     

    (e)           Liens
incurred pursuant to the WTI Loan Agreement;

     

    (f)           Bankers’
Liens, rights of setoff and similar Liens incurred on deposits made in the
ordinary course of business, so long as an account control agreement (or
equivalent) for each account in which such deposits are held in a form
acceptable to Bank has been executed and delivered to Lender;

     

    (g)           Materialmen’s,
mechanic’s, repairmen’s, employee’s or other like Liens arising in the ordinary
course of business and which are not delinquent or are being contested in good
faith by appropriate proceedings;

     

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

     

    (i)           Licenses
or sublicenses of Intellectual Property in accordance with Section 7.1;
and

     

    (j)           Involuntary
Liens which, in the aggregate, would not have a Material Adverse Effect and
which in any event do not secure obligations exceeding
$100,000.

    
      
         

      

      
        5.

        
          

        

      

      
         

      

    

     

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

     

    “Prime
Rate” means the greater of (i) 4.0% per annum or (ii) the variable rate of
interest, per annum, most recently announced by Bank, as its “prime rate,”
whether or not such announced rate is the lowest rate available from
Bank.

     

    “Responsible
Officer” means each of the Chief Executive Officer and the Chief Financial
Officer of Borrower.

     

    “Revolving
Facility” means the facility under which Borrower may request Bank to issue
Advances, as specified in Section 2.1(a) hereof.

     

    “Revolving
Line” means a credit extension of up to Three Million Dollars ($3,000,000);
provided upon (i) Borrower, on a consolidated basis, reaching two consecutive
quarters of profitability of at least $4,000,000 in the aggregate, (ii)
Borrower’s certification that it reasonably believes that it will achieve
continued profitability on a consolidated basis, and (iii) consent by Western
Technology Investment of the increase of the Revolving Line provided by Bank to
$5,000,000; “Revolving Line” shall mean a credit extension of up to Five Million
Dollars ($5,000,000).

     

    “Revolving
Maturity Date” means the second anniversary of the Closing Date.

     

    “Schedule”
means the schedule of exceptions attached to the Disclosure Letter and approved
by Bank, if any.

     

    “Subordinated
Debt” means any debt incurred by Borrower that is subordinated to the debt owing
by Borrower to Bank on terms acceptable to Bank (and identified as being such by
Borrower and Bank).

     

    “Subsidiary”
means any corporation, company or partnership in which (i) any general
partnership interest or (ii) more than 50% of the stock or other units of
ownership which by the terms thereof has the ordinary voting power to elect the
Board of Directors, managers or trustees of the entity, at the time as of which
any determination is being made, is owned by Borrower, either directly or
through an Affiliate.

     

    “Trademarks”
means any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Borrower connected with and symbolized by
such trademarks.

     

    “WTI Loan
Agreement” means that certain Loan and Security Agreement, dated as of November
17, 2010, by and among Borrower, Venture Lending & Leasing V, Inc. and
Venture Lending & Leasing VI, Inc., as may be amended, restated, modified or
otherwise supplemented.

     

    1.2           Accounting Terms.  All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP and all calculations made hereunder shall be made in
accordance with GAAP.  When used herein, the terms “financial statements”
shall include the notes and schedules thereto.

    
      
         

      

      
        6.

        
          

        

      

      
         

      

    

     

    2. 
         Loan and
Terms Of Payment.

     

    2.1         Credit
Extensions.

     

    Borrower
promises to pay to the order of Bank, in lawful money of the United States of
America, the aggregate unpaid principal amount of all Credit Extensions made by
Bank to Borrower hereunder.  Borrower shall also pay interest on the unpaid
principal amount of such Credit Extensions at rates in accordance with the terms
hereof.

     

    (a)         Revolving
Advances.

     

    (i)           Subject
to and upon the terms and conditions of this Agreement, Borrower may request
Advances in an aggregate outstanding amount not to exceed the lesser of
(i) the Revolving Line or (ii) the Borrowing Base.  Subject to
the terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1(a) may be repaid and reborrowed at any time prior to the
Revolving Maturity Date, at which time all Advances under this
Section 2.1(a) shall be immediately due and payable.  Borrower may
prepay any Advances without penalty or premium.

     

    (ii)          Whenever
Borrower desires an Advance, Borrower will notify Bank by facsimile transmission
or telephone no later than 3:00 p.m. Pacific time, on the Business Day that
the Advance is to be made.  Each such notification shall be promptly
confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. 
Bank is authorized to make Advances under this Agreement, based upon
instructions received from a Responsible Officer or a designee of a Responsible
Officer, or without instructions if in Bank’s discretion such Advances are
necessary to meet Obligations which have become due and remain unpaid. 
Bank shall be entitled to rely on any telephonic notice given by a person who
Bank reasonably believes to be a Responsible Officer or a designee thereof, and
Borrower shall indemnify and hold Bank harmless for any damages or loss suffered
by Bank as a result of such reliance.  Bank will credit the amount of
Advances made under this Section 2.1(a) to Borrower’s deposit
account.

     

    2.2         Overadvances.  If the
aggregate amount of the outstanding Advances exceeds the lesser of the Revolving
Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank,
in cash, the amount of such excess.

     

    2.3         Interest Rates, Payments, and
Calculations.

     

    (a)         Interest
Rates.

     

    (i)           Advances.  Except as set
forth in Section 2.3(b), the Advances shall bear interest, on the
outstanding Daily Balance thereof, at a rate equal to two and one quarter of one
percent (2.25%) above the Prime Rate.

     

    (b)         Late Fee; Default Rate. 
If any payment is not made within ten (10) days after the date such payment is
due, Borrower shall pay Bank a late fee equal to the lesser of (i) five
percent (5%) of the amount of such unpaid amount or (ii) the maximum amount
permitted to be charged under applicable law, not in any case to be less than
$25.00.  All Obligations shall bear interest, from and after the occurrence
and during the continuance of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.

     

    (c)         Payments.  Interest
hereunder shall be due and payable on the tenth calendar day of each month
during the term hereof.  Bank shall, at its option, charge such interest,
all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit
accounts via auto-debit or against the Revolving Line, in which case those
amounts shall thereafter accrue interest at the rate then applicable
hereunder.  Any interest not paid when due shall be compounded by becoming
a part of the Obligations, and such interest shall thereafter accrue interest at
the rate then applicable hereunder.  All payments shall be free and clear
of any taxes, withholdings, duties, impositions or other charges, to the end
that Bank will receive the entire amount of any Obligations payable hereunder,
regardless of source of payment.

    
      
         

      

      
        7.

        
          

        

      

      
         

      

    

     

    (d)           Computation.  In the
event the Prime Rate is changed from time to time hereafter, the applicable rate
of interest hereunder shall be increased or decreased, effective as of the day
the Prime Rate is changed, by an amount equal to such change in the Prime
Rate.  All interest chargeable under the Loan Documents shall be computed
on the basis of a three hundred sixty (360) day year for the actual number of
days elapsed.

     

    2.4         Crediting Payments. 
Prior to the occurrence of an Event of Default, Bank shall credit a wire
transfer of funds, check or other item of payment to such deposit account or
Obligation as Borrower specifies.  After the occurrence and during the
continuance of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment.  Notwithstanding anything to the contrary contained herein, any
wire transfer or payment received by Bank after 12:00 noon Pacific time
shall be deemed to have been received by Bank as of the opening of business on
the immediately following Business Day.  Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.

     

    2.5         Fees.  Borrower shall pay
to Bank the following:

     

    (a)           Facility Fee.  On each of
the Closing Date and on the first anniversary of the Closing Date, a Facility
Fee equal to $50,000, which shall be nonrefundable and

     

    (b)           Bank Expenses.  On the
Closing Date, all Bank Expenses incurred through the Closing Date, including
reasonable attorneys’ fees and expenses and, after the Closing Date, all Bank
Expenses, including reasonable attorneys’ fees and expenses, as and when they
are incurred by Bank.

     

    2.6         Term.  This Agreement
shall become effective on the Closing Date and, subject to Section 12.7,
shall continue in full force and effect for so long as any Obligations remain
outstanding or Bank has any obligation to make Credit Extensions under this
Agreement.  Notwithstanding the foregoing, Bank shall have the right to
terminate its obligation to make Credit Extensions under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default, and Borrower shall have the right to terminate Bank’s
obligation to make Credit Extensions under this Agreement upon ten (10) days
prior written notice and payment in full of all outstanding Obligations. 
Notwithstanding termination, Bank’s Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.

     

    3. 
         Conditions
of Loans.

     

    3.1         Conditions Precedent to Initial
Credit Extension.  The obligation of Bank to make the initial Credit
Extension is subject to the condition precedent that Bank shall have received,
in form and substance satisfactory to Bank, the following:

     

    (a)           this
Agreement;

     

    (b)           a
certificate of the Secretary of each Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this
Agreement;

     

    (c)           UCC
National Form Financing Statement for each Borrower;

     

    (d)           an
intellectual property security agreement;

     

    (e)           agreement
to provide insurance and insurance certificates;

    
      
         

      

      
        8.

        
          

        

      

      
         

      

    

     

    (f)           an
intercreditor agreement (Venture Lending & Leasing V, Inc. and Venture
Lending & Leasing VI, Inc.);

     

    (g)          evidence
satisfactory to Bank of the extension of the maturity dates of all notes to
Flathead Bank;

     

    (h)           payment
of the fees and Bank Expenses then due specified in Section 2.5
hereof;

     

    (i)           current
financial statements of Borrower;

     

    (j)           an
audit of the Collateral, the results of which shall be satisfactory to
Bank;

     

    (k)          a
landlord waiver;

     

    (l)           the
Disclosure Letter; and

     

    (m)         such
other documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate.

     

    3.2         Conditions Precedent to all Credit
Extensions.  The obligation of Bank to make each Credit Extension,
including the initial Credit Extension, is further subject to the following
conditions:

     

    (a)           timely
receipt by Bank of the Payment/Advance Form as provided in Section 2.1;
and

     

    (b)           the
representations and warranties contained in Section 5 shall be true and
correct in all material respects on and as of the date of such Payment/Advance
Form and on the effective date of each Credit Extension as though made at and as
of each such date, except to the extent such representation or warranty refers
solely to an earlier date, and no Event of Default shall have occurred and be
continuing, or would exist after giving effect to such Credit Extension. 
The making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2.

     

    4. 
         Creation of
Security Interest.

     

    4.1         Grant of Security
Interest.  Borrower grants and pledges to Bank a continuing security
interest in all presently existing and hereafter acquired or arising Collateral
in order to secure prompt repayment of any and all Obligations and in order to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents.  Except as set forth in the Schedule and for Permitted
Liens, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date
hereof.

     

    4.2         Delivery of Additional Documentation
Required.  Borrower shall from time to time execute and deliver to
Bank, at the request of Bank, all Negotiable Collateral, all financing
statements and other documents that Bank may reasonably request, in form
satisfactory to Bank, to perfect and continue the perfection of Bank’s security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents.  Borrower from time to
time may deposit with Bank specific time deposit accounts to secure specific
Obligations. Borrower authorizes Bank to hold such balances in pledge and to
decline to honor any drafts thereon or any request by Borrower or any other
Person to pay or otherwise transfer any part of such balances for so long as the
Obligations are outstanding.

     

    4.3         Right to Inspect.  Bank
(through any of its officers, employees, or agents) shall have the right, upon
reasonable prior notice, from time to time during Borrower’s usual business
hours but no more than twice a year (unless an Event of Default has occurred and
is continuing), to inspect Borrower’s Books and to make copies thereof and to
check, test, and appraise the Collateral in order to verify Borrower’s financial
condition or the amount, condition of, or any other matter relating to, the
Collateral.

    
      
         

      

      
        9.

        
          

        

      

      
         

      

    

     

    5. 
         Representations
and Warranties.

     

    Borrower
represents and warrants as follows:

     

    5.1           Due Organization and
Qualification.  Borrower and each Subsidiary is a corporation duly
existing under the laws of its state of incorporation and qualified and licensed
to do business in any state in which the conduct of its business or its
ownership of property requires that it be so qualified, except where failure to
be so qualified would not reasonably be expected to have a Material Adverse
Effect.

     

    5.2           Due Authorization; No
Conflict.  The execution, delivery, and performance of the Loan
Documents are within Borrower’s powers, have been duly authorized, and are not
in conflict with nor constitute a breach of any provision contained in
Borrower’s Certificate of Incorporation or Bylaws, nor will they constitute an
event of default under any material agreement to which Borrower is a party or by
which Borrower is bound.  Borrower is not in default under any material
agreement to which it is a party or by which it is bound.

     

    5.3           No Prior Encumbrances. 
Borrower has good and marketable title to its property, free and clear of Liens,
except for Permitted Liens.

     

    5.4           Bona Fide Eligible
Accounts.  The Eligible Accounts are bona fide existing
obligations.  The property and services giving rise to such Eligible
Accounts has been delivered or rendered to the account debtor or to the account
debtor’s agent for immediate and unconditional acceptance by the account
debtor.  Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor that is included in any Borrowing Base
Certificate as an Eligible Account.

     

    5.5           Merchantable Inventory. 
All Inventory is in all material respects of good and marketable quality, free
from all material defects, except for Inventory for which adequate reserves have
been made.

     

    5.6           Intellectual Property
Collateral.  Borrower is the sole owner of the Intellectual Property
Collateral, except for non-exclusive licenses granted by Borrower to its
customers in the ordinary course of business.  Each of the Patents is valid
and enforceable, and no part of the Intellectual Property Collateral has been
judged invalid or unenforceable, in whole or in part, and no claim has been made
that any part of the Intellectual Property Collateral violates the rights of any
third party.  Except as set forth in the Schedule, Borrower’s rights as a
licensee of intellectual property do not give rise to more than five percent
(5%) of its gross revenue in any given month, including without limitation
revenue derived from the sale, licensing, rendering or disposition of any
product or service.  Except as set forth in the Schedule, Borrower is not a
party to, or bound by, any material license agreement as a licensee that
restricts the grant by Borrower of a security interest in Borrower’s rights
under such agreement.

     

    5.7           Name; Location of Chief Executive
Office.  Except as disclosed in the Schedule, Borrower has not done
business under any name other than that specified on the signature page
hereof.  The chief executive office of Borrower is located at the address
indicated in Section 10 hereof and in the Schedule or at such other address
disclosed in writing to Bank pursuant to Sections 7.2 or 7.10.  All
Borrower’s Inventory and Equipment is located only at the location set forth in
Section 10 hereof and in the Schedule or at such other location disclosed in
writing to Bank pursuant to Sections 7.2 or 7.10.

     

    5.8           Litigation.  Except as
set forth in the Schedule, there are no actions or proceedings pending by or
against Borrower or any Subsidiary before any court or administrative agency
which could reasonably be expected to have a Material Adverse
Effect.

     

    5.9           No Material Adverse Change in
Financial Statements.  All consolidated and consolidating financial
statements related to Borrower and any Subsidiary that Bank has received from
Borrower fairly present in all material respects Borrower’s financial condition
as of the date thereof and Borrower’s consolidated and consolidating results of
operations for the period then ended.  There has not been a material
adverse change in the consolidated or the consolidating financial condition of
Borrower since the date of the most recent of such financial statements
submitted to Bank.

    
      
         

      

      
        10.

        
          

        

      

      
         

      

    

     

    5.10         Solvency, Payment of
Debts.  Borrower is solvent and able to pay its debts (including
trade debts) as they mature.

     

    5.11         Regulatory Compliance. 
Borrower and each Subsidiary have met the minimum funding requirements of ERISA
with respect to any employee benefit plans subject to ERISA, and no event has
occurred resulting from Borrower’s failure to comply with ERISA that could
result in Borrower’s incurring any material liability.  Borrower is not an
“investment company” or a company “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940.  Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T and U of the Board of Governors of the Federal
Reserve System).  Borrower has complied with all the provisions of the
Federal Fair Labor Standards Act.  Borrower has not violated any statutes,
laws, ordinances or rules applicable to it, the violation of which would
reasonably be expected to have a Material Adverse Effect.

     

    5.12         Environmental Condition. 
Except as disclosed in the Schedule, none of Borrower’s or any Subsidiary’s
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower’s knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower’s knowledge, none of Borrower’s properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the
environment.

     

    5.13         Taxes.  Borrower and each
Subsidiary have filed or caused to be filed all tax returns required to be
filed, and have paid, or have made adequate provision for the payment of, all
taxes reflected therein, except those being contested in good faith with
adequate reserves under GAAP or where the failure to file such returns or pay
such taxes would not reasonably be expected to have a Material Adverse
Effect.

     

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

     

    5.15         Government Consents. 
Borrower and each Subsidiary have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all governmental authorities that are necessary for the continued operation
of Borrower’s business as currently conducted, except where failure to do so
would not reasonably be expected to cause a Material Adverse
Effect.

     

    5.16         Accounts.  None of
Borrower’s nor any Subsidiary’s primary operating or deposit accounts are
maintained or invested with a Person other than Bank.

     

    5.17         Full Disclosure.  No
representation, warranty or other statement made by Borrower in any certificate
or written statement furnished to Bank contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained in such certificates or statements not misleading, it being
recognized by Bank that the projections and forecasts provided by Borrower in
good faith and based upon reasonable assumptions are not to be viewed as facts
and actual facts during the period or periods covered may differ from the
projected or forecasted results.

    
      
         

      

      
        11.

        
          

        

      

      
         

      

    

    6. 
         Affirmative
Covenants.

     

    Borrower
shall do all of the following:

     

    6.1           Good Standing.  Borrower
shall maintain its and each of its Subsidiaries’ corporate existence and good
standing in its jurisdiction of incorporation and maintain qualification in each
jurisdiction in which it is required under applicable law.  Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, in force all
licenses, approvals and agreements required under applicable law, except where
the failure to maintain the same could reasonably be expected to have a Material
Adverse Effect.

     

    6.2           Government Compliance. 
Borrower shall meet, and shall cause each Subsidiary to meet, the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA.  Borrower shall comply, and shall cause each Subsidiary to
comply, with all statutes, laws, ordinances and government rules and regulations
to which it is subject, noncompliance with which could reasonably be expected to
have a Material Adverse Effect.

     

    6.3           Financial Statements, Reports,
Certificates.  Borrower shall deliver the following to
Bank:  (a) as soon as available, but in any event within thirty
(30) days after the end of each calendar month, a company prepared consolidated
balance sheet, income statement, and cash flow statement covering Borrower’s
consolidated operations during such period, prepared in accordance with GAAP,
consistently applied, subject to year-end adjustments and the absence of
footnotes, in a form acceptable to Bank and certified by a Responsible
Officer;  (b) as soon as available, but in any event within thirty
(30) days after each fiscal quarter, company prepared consolidating balance
sheet, income statement, and cash flow statement covering Borrower’s
consolidated operations during such period, prepared in accordance with GAAP,
consistently applied, subject to year-end adjustments and the absence of
footnotes, in a form acceptable to Bank and certified by a Responsible Officer;
(c) within ten (10) days of filing, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders or
to any holders of Subordinated Debt and, all reports on Forms 8-K, 10-K and
10-Q filed with the Securities and Exchange Commission; (d) promptly upon
receipt of notice thereof, a report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more;
(e)  an operating budget for the following fiscal year within thirty
(30) days prior to the end of Borrower’s fiscal year; and (f) such budgets,
sales projections, operating plans or other financial information as Bank may
reasonably request from time to time.

     

    Prior to
an Advance request and within thirty (30) days after the last day of each month
when any Advances are outstanding, Borrower shall deliver to Bank a Borrowing
Base Certificate signed by a Responsible Officer in substantially the form of
Exhibit C hereto,
together with aged listings by invoice date of accounts receivable and accounts
payable.

     

    Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit D
hereto.

     

    6.4           Audits.  Bank shall have
a right from time to time hereafter, upon reasonable notice and during
Borrower’s usual business hours, to audit Borrower’s Accounts and appraise
Collateral at Borrower’s expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.

     

    6.5           Inventory; Returns. 
Borrower shall keep all Inventory in good and marketable condition, free from
all material defects except for Inventory for which adequate reserves have been
made.  Returns and allowances, if any, as between Borrower and its account
debtors shall be on the same basis and in accordance with the usual customary
practices of Borrower, as they exist at the time of the execution and delivery
of this Agreement.  Borrower shall promptly notify Bank of all returns and
recoveries and of all disputes and claims, where the return, recovery, dispute
or claim involves more than Fifty Thousand Dollars ($50,000).

     

    6.6           Taxes.  Borrower shall
make, and shall cause each Subsidiary to make, due and timely payment or deposit
of all material federal, state, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to Bank, on demand,
appropriate certificates attesting to the payment or deposit thereof; and
Borrower will make, and will cause each Subsidiary to make, timely payment or
deposit of all material tax payments and withholding taxes required of it by
applicable laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof satisfactory to Bank indicating that
Borrower or a Subsidiary has made such payments or deposits; provided that
Borrower or a Subsidiary need not make any payment if the amount or validity of
such payment is contested in good faith by appropriate proceedings and is
reserved against (to the extent required by GAAP) by Borrower.

    
      
         

      

      
        12.

        
          

        

      

      
         

      

    

     

    6.7         Insurance.

     

    (a)           Borrower,
at its expense, shall keep the Collateral insured against loss or damage by
fire, theft, explosion, sprinklers, and all other hazards and risks, and in such
amounts, as ordinarily insured against by other owners in similar businesses
conducted in the locations where Borrower’s business is conducted on the date
hereof.  Borrower shall also maintain insurance relating to Borrower’s
business, ownership and use of the Collateral in amounts and of a type that are
customary to businesses similar to Borrower’s.

     

    (b)           All
such policies of insurance shall be in such form, with such companies, and in
such amounts as are reasonably satisfactory to Bank.  All such policies of
property insurance shall contain a lender’s loss payable endorsement, in a form
satisfactory to Bank, showing Bank as an additional loss payee thereof, and all
liability insurance policies shall show the Bank as an additional insured and
shall specify that the insurer must give at least twenty (20) days notice to
Bank before canceling its policy for any reason.  Upon Bank’s request,
Borrower shall deliver to Bank certified copies of such policies of insurance
and evidence of the payments of all premiums therefor.  All proceeds
payable under any such policy shall, be payable to Borrower, to replace the
property subject to the claim, provided that such replacement property shall be
deemed Collateral in which Bank has been granted a first priority security
interest (subject to Permitted Liens), unless an Event of Default has occurred
and is continuing, in which case such proceeds shall (provided such proceeds are
subject to the first priority security interest of Bank), at the option of Bank,
be payable to Bank to be applied on account of the Obligations.

     

    6.8         Accounts.  Borrower shall
maintain and shall cause each of its Subsidiaries to maintain its primary
depository, operating, and investment accounts with Bank.

     

    6.9         Asset Coverage Ratio. 
Borrower shall maintain at all times, measured monthly, an Asset Coverage Ratio
of at least 1.75 to 1.00.

     

    6.10   
   Intellectual
Property Rights.

     

    (a)           Borrower
shall promptly give Bank written notice of any applications or registrations of
intellectual property rights filed with the United States Patent and Trademark
Office, including the date of such filing and the registration or application
numbers, if any.  Borrower shall (i) give Bank not less than 30 days prior
written notice of the filing of any applications or registrations with the
United States Copyright Office, including the title of such intellectual
property rights to be registered, as such title will appear on such applications
or registrations, and the date such applications or registrations will be filed,
and (ii) prior to the filing of any such applications or registrations, shall
execute such documents as Bank may reasonably request for Bank to maintain its
perfection in such intellectual property rights to be registered by Borrower,
and upon the request of Bank, shall file such documents simultaneously with the
filing of any such applications or registrations.  Upon filing any such
applications or registrations with the United States Copyright Office, Borrower
shall promptly provide Bank with (i) a copy of such applications or
registrations, without the exhibits, if any, thereto, (ii) evidence of the
filing of any documents requested by Bank to be filed for Bank to maintain the
perfection and priority of its security interest in such intellectual property
rights, and (iii) the date of such filing.

     

    (b)           Upon
reasonable prior notice and during Borrower’s usual business hours, Bank may
audit Borrower's Intellectual Property Collateral to confirm compliance with
this Section, provided such audit may not occur more often than twice per year,
unless an Event of Default has occurred and is continuing.  Bank shall have
the right, but not the obligation, to take, at Borrower's sole expense, any
actions that Borrower is required under this Section to take but which Borrower
fails to take, after 15 days' notice to Borrower.  Borrower shall reimburse
and indemnify Bank for all reasonable costs and reasonable expenses incurred in
the reasonable exercise of its rights under this Section.

    
      
         

      

      
        13.

        
          

        

      

      
         

      

    

     

    6.11         Formation or Acquisition of
Subsidiaries.  At the time that Borrower forms any direct or
indirect Subsidiary or acquires any direct or indirect Subsidiary after the
Effective Date, Borrower shall (a) cause such new Subsidiary to provide to Bank
a joinder to the Loan Agreement to cause such Subsidiary to become a co-borrower
hereunder, together with such appropriate financing statements and/or Control
Agreements, all in form and substance satisfactory to Bank (including being
sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in
and to the assets of such newly formed or acquired Subsidiary), (b) provide to
Bank appropriate certificates and powers and financing statements, pledging all
of the direct or beneficial ownership interest in such new Subsidiary, in form
and substance satisfactory to Bank, and (c) provide to Bank all other
documentation in form and substance satisfactory to Bank, which in its opinion
is appropriate with respect to the execution and delivery of the applicable
documentation referred to above.  Any document, agreement, or instrument
executed or issued pursuant to this Section 6.11 shall be a Loan
Document.

     

    6.12         Further Assurances.  At
any time and from time to time Borrower shall execute and deliver such further
instruments and take such further action as may reasonably be requested by Bank
to effect the purposes of this Agreement.

     

    7. 
         Negative
Covenants.

     

    Borrower
will not do any of the following without Bank’s prior written
consent:

     

    7.1           Dispositions.  Convey,
sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or
permit any of its Subsidiaries to Transfer, all or any part of its business or
property, 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 or obsolete
property; (iv) Transfers constituting Permitted Liens and Permitted Investments;
or (v) Transfers of Collateral (other than Intellectual Property) for fair
consideration and in the ordinary course of business in the aggregate amount of
$25,000 in any fiscal year.

     

    7.2           Change in Business; Change in Control
or Executive Office.  Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto); or cease to conduct any material portion of business in
the manner conducted by Borrower as of the Closing Date; or suffer or permit a
Change in Control; experience a change in Borrower’s chief executive officer or
chief financial officer without prompt written notice to Bank; or without thirty
(30) days prior written notification to Bank, relocate its chief executive
office or state of incorporation or change its legal name; or without Bank’s
prior written consent, change the date on which its fiscal year
ends.

     

    7.3           Mergers or Acquisitions. 
Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with or into any other business organization, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, provided that a Subsidiary may merge into Borrower
or another Subsidiary of Borrower.

     

    7.4           Indebtedness.  Create,
incur, guarantee, assume or be or remain liable with respect to any
Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.

     

    7.5           Encumbrances.  Create,
incur, assume or suffer to exist any Lien with respect to any of its property,
or assign or otherwise convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries so to do, except for Permitted
Liens, or agree with any Person other than Bank not to grant a security interest
in, or otherwise encumber, any of its property, or permit any Subsidiary to do
so other than (i) with respect to property that is the subject of a Lien
described in clause (c) of the definition Permitted Lien so long as the
restriction applies only to the specific equipment acquired; (ii) with respect
to licenses where Borrower is the licensee; (iii) pursuant to merger agreements
where the Obligations hereunder will be repaid in full upon the closing of such
merger agreement; and (iv) pursuant to the WTI Loan Agreement.

    
      
         

      

      
        14.

        
          

        

      

      
         

      

    

    7.6         Distributions.  Pay any
dividends or make any other distribution or payment on account of or in
redemption, retirement or purchase of any capital stock, or permit any of its
Subsidiaries to do so, except that Borrower may (i) pay dividends or other
distributions solely in capital stock of Borrower; or (ii) repurchase the stock
of former employees pursuant to stock repurchase agreements as long as an Event
of Default does not exist prior to such repurchase or would not exist after
giving effect to such repurchase.

     

    7.7         Investments.  Directly or
indirectly acquire or own, or make any Investment in or to any Person, or permit
any of its Subsidiaries so to do, other than Permitted Investments; or maintain
or invest any of its deposit or investment accounts with a Person other than
Bank or permit any of its [Subsidiaries] to do so unless such Person has entered
into an account control agreement with Bank in form and substance satisfactory
to Bank; or suffer or permit any Subsidiary to be a party to, or be bound by, an
agreement (other than this Agreement and the WTI Loan Agreement) that restricts
such Subsidiary from paying dividends or otherwise distributing property to
Borrower.

     

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

     

    7.9         Subordinated Debt.  Make
any payment in respect of any Subordinated Debt, or permit any of its
Subsidiaries to make any such payment, except in compliance with the terms of
such Subordinated Debt, or amend any provision contained in any documentation
relating to the Subordinated Debt without Bank’s prior written consent. 
Notwithstanding the foregoing, Bank agrees that the conversion or exchange into
Borrower’s equity securities of any Subordinated Debt and the payment of cash in
lieu of the issuance of fractional shares shall not be prohibited by this
Section 7.9.

     

    7.10       Inventory and Equipment. Store
the Inventory or the Equipment in excess of $10,000 per location with a bailee,
warehouseman, or other third party unless the third party has been notified of
Bank’s security interest and Bank (a) has received an acknowledgment from the
third party that it is holding or will hold the Inventory or Equipment for
Bank’s benefit or (b) is in pledge possession of the warehouse receipt, where
negotiable, covering such Inventory or Equipment. Store or maintain any
Equipment or Inventory at a location other than the location set forth in
Section 10 of this Agreement.

     

    7.11       Compliance.  Become an
“investment company” or be controlled by an “investment company,” within the
meaning of the Investment Company Act of 1940, or become principally engaged in,
or undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use the
proceeds of any Credit Extension for such purpose.  Fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair
Labor Standards Act or violate any law or regulation, which violation could have
a Material Adverse Effect, or a material adverse effect on the Collateral or the
priority of Bank’s Lien on the Collateral, or permit any of its Subsidiaries to
do any of the foregoing.

     

    8. 
         Events of
Default.

     

    Any one
or more of the following events shall constitute an Event of Default by Borrower
under this Agreement:

     

    8.1   
    Payment
Default.  If Borrower fails to pay, when due, any of the
Obligations;

     

    8.2     
  Covenant
Default.

     

    (a)           If
Borrower fails to perform any obligation under Sections 6.3, 6.7, 6.8 or 6.9 or
violates any of the covenants contained in Article 7 of this Agreement;
or

    
      
         

      

      
        15.

        
          

        

      

      
         

      

    

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

     

    8.3         Material Adverse Effect. 
If there occurs any circumstance or circumstances that could have a Material
Adverse Effect;

     

    8.4         Attachment.  If any
material portion of Borrower’s assets is attached, seized, subjected to a writ
or distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such attachment,
seizure, writ or distress warrant or levy has not been removed, discharged or
rescinded within forty-five (45) days, or if Borrower is enjoined, restrained,
or in any way prevented by court order from continuing to conduct all or any
material part of its business affairs, or if a judgment or other claim becomes a
lien or encumbrance upon any material portion of Borrower’s assets, or if a
notice of lien, levy, or assessment is filed of record with respect to any of
Borrower’s assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, and the same is not paid within forty-five (45) after Borrower receives
notice thereof, provided that none of the foregoing shall constitute an Event of
Default where such action or event is stayed or an adequate bond has been posted
pending a good faith contest by Borrower (provided that no Credit Extensions
will be required to be made during such cure period);

     

    8.5         Insolvency.  If Borrower
shall fail to pay its debts generally as they become due, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within forty-five (45) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);

     

    8.6         Other Agreements.  If
there is a default or other failure to perform in any agreement to which
Borrower is a party or by which it is bound resulting in a right by a third
party or parties, whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000)
or which could have a Material Adverse Effect;

     

    8.7         Judgments.  If a judgment
or judgments for the payment of money in an amount, individually or in the
aggregate, of at least One Hundred Thousand Dollars ($100,000) shall be rendered
against Borrower and shall remain unsatisfied and unstayed for a period of ten
(10) days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment); or

     

    8.8         Misrepresentations.  If
any material misrepresentation or material misstatement exists now or hereafter
in any warranty or representation set forth herein or in any certificate
delivered to Bank by any Responsible Officer pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan
Document.

     

    9. 
         Bank’s
Rights and Remedies.

     

    9.1         Rights and Remedies. 
Upon the occurrence and during the continuance of an Event of Default, Bank may,
at its election, without notice of its election and without demand, do any one
or more of the following, all of which are authorized by Borrower:

     

    (a)           Declare
all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable (provided that upon the
occurrence of an Event of Default described in Section 8.5, all Obligations
shall become immediately due and payable without any action by
Bank);

     

    
      
         

      

      
        16.

        
          

        

      

      
         

      

    

     

    (b)           Cease
advancing money or extending credit to or for the benefit of Borrower under this
Agreement or under any other agreement between Borrower and Bank;

     

    (c)           Settle
or adjust disputes and claims directly with account debtors for amounts, upon
terms and in whatever order that Bank reasonably considers
advisable;

     

    (d)           Make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral.  Borrower agrees to
assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate.  Borrower authorizes Bank to enter
the premises where the Collateral is located, to take and maintain possession of
the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank’s determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
connection therewith.  With respect to any of Borrower’s owned premises,
Borrower hereby grants Bank a license to enter into possession of such premises
and to occupy the same, without charge, in order to exercise any of Bank’s
rights or remedies provided herein, at law, in equity, or
otherwise;

     

    (e)           Set
off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Bank, or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Bank;

     

    (f)           Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell (in the manner provided for herein) the Collateral. 
Bank is hereby granted a license or other right, solely pursuant to the
provisions of this Section 9.1, to use, without charge, Borrower’s labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section 9.1, Borrower’s rights under all
licenses and all franchise agreements shall inure to Bank’s
benefit;

     

    (g)           Dispose
of the Collateral by way of one or more contracts or transactions, for cash or
on terms, in such manner and at such places (including Borrower’s premises) as
Bank determines is commercially reasonable, and apply any proceeds to the
Obligations in whatever manner or order Bank deems appropriate;

     

    (h)           Bank
may credit bid and purchase at any public sale; and

     

    (i)           Any
deficiency that exists after disposition of the Collateral as provided above
will be paid immediately by Borrower.

     

    9.2         Power of Attorney. 
Effective only upon the occurrence and during the continuance of an Event
of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s
designated officers, or employees) as Borrower’s true and lawful attorney
to:  (a) send requests for verification of Accounts or notify account
debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s name
on any checks or other forms of payment or security that may come into Bank’s
possession; (c) sign Borrower’s name on any invoice or bill of lading relating
to any Account, drafts against account debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to account debtors; (d) dispose
of any Collateral; (e) make, settle, and adjust all claims under and decisions
with respect to Borrower’s policies of insurance; (f) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; and (g) to file, in its
sole discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral.  The appointment of Bank as
Borrower’s attorney in fact, and each and every one of Bank’s rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations have
been fully repaid and performed and Bank’s obligation to provide Credit
Extensions hereunder is terminated.

    
      
         

      

      
        17.

        
          

        

      

      
         

      

    

    9.3           Accounts Collection.  At
any time after the occurrence and during the continuance of an Event of Default,
Bank may notify any Person owing funds to Borrower of Bank’s security interest
in such funds and verify the amount of such Account.  Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank’s trustee, and immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for
deposit.

     

    9.4           Bank Expenses.  If
Borrower fails to pay any amounts or furnish any required proof of payment due
to third persons or entities, as required under the terms of this Agreement,
then Bank may do any or all of the following after reasonable notice to
Borrower:  (a) make payment of the same or any part thereof;
(b) set up such reserves under a loan facility in Section 2.1 as Bank deems
necessary to protect Bank from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in
Section 6.7 of this Agreement, and take any action with respect to such
policies as Bank deems prudent.  Any amounts so paid or deposited by Bank
shall constitute Bank Expenses, shall be immediately due and payable, and shall
bear interest at the then applicable rate hereinabove provided, and shall be
secured by the Collateral.  Any payments made by Bank shall not constitute
an agreement by Bank to make similar payments in the future or a waiver by Bank
of any Event of Default under this Agreement.

     

    9.5           Bank’s Liability for
Collateral.  So long as Bank complies with reasonable banking
practices, Bank shall not in any way or manner be liable or responsible
for:  (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever.  All risk of loss, damage or destruction of the Collateral
shall be borne by Borrower.

     

    9.6           Remedies Cumulative. 
Bank’s rights and remedies under this Agreement, the Loan Documents, and all
other agreements shall be cumulative.  Bank shall have all other rights and
remedies not inconsistent herewith as provided under the Code, by law, or in
equity.  No exercise by Bank of one right or remedy shall be deemed an
election, and no waiver by Bank of any Event of Default on Borrower’s part shall
be deemed a continuing waiver.  No delay by Bank shall constitute a waiver,
election, or acquiescence by it.  No waiver by Bank shall be effective
unless made in a written document signed on behalf of Bank and then shall be
effective only in the specific instance and for the specific purpose for which
it was given.

     

    9.7           Demand; Protest. 
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time held by Bank
on which Borrower may in any way be liable.

     

    10. 
      Notices.

     

    Unless
otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by
telefacsimile to Borrower or to Bank, as the case may be, at its addresses set
forth below:

     

    
      
        
          	
                	
                  If
      to Borrower:

                	
                  BACTERIN
      INTERNATIONAL, INC.

                

        

      

      
        	
                 
      

              	
                BACTERIN
      INTERNATIONAL HOLDINGS, INC.

              

      

      
        	
                 
      

              	
                600
      Cruiser Lane

              

      

      
        	
                 
      

              	
                Belgrade,
      MT  59714

              

      

      
        	
                 
      

              	
                Attn:  John
      Gandolfo, CFO

              

      

      
        	
                 
      

              	
                FAX:  (406)
      388-0422

              

      

       

      
        	
                 
      

              	
                If
      to Bank:

              	
                Bridge
      Bank, N.A.

              

      

      
        	
                 
      

              	
                55
      Almaden Boulevard

              

      

      
        	
                 
      

              	
                San
      Jose, CA 95113

              

      

      
        	
                 
      

              	
                Attn:  Technology
      Division

              

      

      
        	
                 
      

              	
                FAX:  (408)
      282-1681

              

      

    

    
      
         

      

      
        18.

        
          

        

      

      
         

      

    

    

    The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the
other.

     

    11. 
      CHOICE OF
LAW AND VENUE; JURY TRIAL WAIVER.

     

    This
Agreement and all Loan Documents unless otherwise specified therein shall be
governed by, and construed in accordance with, the internal laws of the State of
California, without regard to principles of conflicts of law.  Each of
Borrower and Bank hereby submits to the exclusive jurisdiction of the state and
Federal courts located in the County of Santa Clara, State of California. 
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.  EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT.  EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

     

    If the
jury waiver set forth in this Section 11 is not enforceable, then any dispute,
controversy or claim arising out of or relating to this Agreement or any of the
transactions contemplated herein shall be settled by judicial reference pursuant
to Code of Civil Procedure Section 638 et seq. before a referee sitting without
a jury, such referee to be mutually acceptable to the parties or, if no
agreement is reached, by a referee appointed by the Presiding Judge of the
California Superior Court for Santa Clara County.  This Section shall not
restrict a party from exercising remedies under the Code or from exercising
pre-judgment remedies under applicable law.

     

    12. 
      General
Provisions.

     

    12.1         Successors and Assigns. 
This Agreement shall bind and inure to the benefit of the respective successors
and permitted assigns of each of the parties; provided, however, that neither
this Agreement nor any rights hereunder may be assigned by Borrower without
Bank’s prior written consent, which consent may be granted or withheld in Bank’s
sole discretion.  Bank shall have the right without the consent of or
notice to Borrower to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank’s obligations, rights and benefits
hereunder.

     

    12.2         Indemnification. 
Borrower shall defend, indemnify and hold harmless Bank and its officers,
employees, and agents against:  (a) all obligations, demands,
claims, and liabilities claimed or asserted by any other party in connection
with the transactions contemplated by this Agreement; and (b) all losses or
Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or
in any way arising out of, following, or consequential to transactions between
Bank and Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys’ fees and expenses), except for losses,
obligations, demands, claims, liabilities and Bank Expenses caused by Bank’s
gross negligence or willful misconduct.

     

    12.3         Time of Essence.  Time is
of the essence for the performance of all obligations set forth in this
Agreement.

     

    12.4         Severability of
Provisions.  Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the
legal enforceability of any specific provision.

     

    12.5         Amendments in Writing,
Integration.  Neither this Agreement nor the Loan Documents can be
amended or terminated orally.  All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement and the Loan Documents, if any,
are merged into this Agreement and the Loan Documents.

    
      
         

      

      
        19.

        
          

        

      

      
         

      

    

     

    12.6         Counterparts.  This
Agreement may be executed in any number of counterparts and by different parties
on separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement.

     

    12.7         Survival.  All covenants,
representations and warranties made in this Agreement shall continue in full
force and effect so long as any Obligations remain outstanding or Bank has any
obligation to make Credit Extensions to Borrower.  The obligations of
Borrower to indemnify Bank with respect to the expenses, damages, losses, costs
and liabilities described in Section 12.2 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Bank have run.

     

    12.8         Confidentiality.  In
handling any confidential information Bank and all employees and agents of Bank,
including but not limited to accountants, shall exercise the same degree of care
that it exercises with respect to its own proprietary information of the same
types to maintain the confidentiality of any non-public information thereby
received or received pursuant to this Agreement except that disclosure of such
information may be made (i) to the subsidiaries or affiliates of Bank in
connection with their present or prospective business relations with Borrower,
(ii) to prospective transferees or purchasers of any interest in the Credit
Extensions, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower,
(iii) as required by law, regulations, rule or order, subpoena, judicial
order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder. 
Confidential information hereunder shall not include information that
either:  (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank through no fault of Bank; or (b) is disclosed to
Bank by a third party, provided Bank does not have actual knowledge that such
third party is prohibited from disclosing such information.

     

    12.9         Patriot Act Notice.  To
help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account. 
WHAT THIS MEANS FOR YOU:  when you open an account, we will ask your
name, address, date of birth, and other information that will allow us to
identify you.  We may also ask to see your driver’s license or other
identifying documents.

     

    13. 
      Co-Borrower
Provisions.

     

    13.1         Primary Obligation.  This
Agreement is a primary and original obligation of each Borrower and shall remain
in effect notwithstanding future changes in conditions, including any change of
law or any invalidity or irregularity in the creation or acquisition of any
Obligations or in the execution or delivery of any agreement between Bank and
any Borrower.  Each Borrower shall be liable for existing and future
Obligations as fully as if all of all Credit Extensions were advanced to such
Borrower.  Bank may rely on any certificate or representation made by any
Borrower as made on behalf of, and binding on, all Borrowers, including without
limitation Disbursement Request Forms, Borrowing Base Certificates and
Compliance Certificates.

     

    13.2         Enforcement of Rights. 
Borrowers are jointly and severally liable for the Obligations and Bank may
proceed against one or more of the Borrowers to enforce the Obligations without
waiving its right to proceed against any of the other Borrowers.

     

    13.3         Borrowers as Agents. 
Each Borrower appoints each other Borrower as its agent with all necessary power
and authority to give and receive notices, certificates or demands for and on
behalf of all Borrowers, to act as disbursing agent for receipt of any Credit
Extensions on behalf of each Borrower and to apply to Bank on behalf of each
Borrower for Credit Extensions, any waivers and any consents.  This
authorization cannot be revoked, and Bank need not inquire as to any Borrower’s
authority to act for or on behalf of any other Borrower.

     

    
      
         

      

      
        20.

        
          

        

      

      
         

      

    

    13.4       Subrogation and Similar
Rights.  Notwithstanding any other provision of this Agreement or
any other Loan Document, each Borrower irrevocably waives all rights that it may
have at law or in equity (including, without limitation, any law subrogating the
Borrower to the rights of Bank under the Loan Documents) to seek contribution,
indemnification, or any other form of reimbursement from any other Borrower, or
any other Person now or hereafter primarily or secondarily liable for any of the
Obligations, for any payment made by the Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise and all rights
that it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by the Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise.  Any
agreement providing for indemnification, reimbursement or any other arrangement
prohibited under this Section 13.4 shall be null and void.  If any payment
is made to a Borrower in contravention of this Section 13.4, such Borrower shall
hold such payment in trust for Bank and such payment shall be promptly delivered
to Bank for application to the Obligations, whether matured or
unmatured.

     

    13.5       Waivers of Notice. 
Except as otherwise provided in this Agreement, each Borrower waives notice of
acceptance hereof; notice of the existence, creation or acquisition of any of
the Obligations; notice of an Event of Default; notice of the amount of the
Obligations outstanding at any time; notice of intent to accelerate; notice of
acceleration; notice of any adverse change in the financial condition of any
other Borrower or of any other fact that might increase the Borrower’s risk;
presentment for payment; demand; protest and notice thereof as to any
instrument; default; and all other notices and demands to which the Borrower
would otherwise be entitled.  Each Borrower waives any defense arising from
any defense of any other Borrower (other than payment in full of the
Obligations), or by reason of the cessation from any cause whatsoever of the
liability of any other Borrower (other than payment in full of the
Obligations).  Bank’s failure at any time to require strict performance by
any Borrower of any provision of the Loan Documents shall not waive, alter or
diminish any right of Bank thereafter to demand strict compliance and
performance therewith.  Nothing contained herein shall prevent Bank from
foreclosing on the Lien of any deed of trust, mortgage or other security
instrument, or exercising any rights available thereunder, and the exercise of
any such rights shall not constitute a legal or equitable discharge of any
Borrower.  Each Borrower also waives any defense arising from any act or
omission of Bank that changes the scope of the Borrower’s risks
hereunder.

     

    13.6       Subrogation Defenses. 
Each Borrower waives any defense based on impairment or destruction of its
subrogation or other rights against any other Borrower and waives all benefits
which might otherwise be available to it under any statutory or common law
suretyship defenses (other than payment in full of the Obligations) or
marshalling rights, now and hereafter in effect.

     

    13.7       Right to Settle,
Release.

     

    (a)           The
liability of Borrowers hereunder shall not be diminished by (i) any agreement,
understanding or representation that any of the Obligations is or was to be
guaranteed by another Person or secured by other property, or (ii) any release
or unenforceability, whether partial or total, of rights, if any, which Bank may
now or hereafter have against any other Person, including another Borrower, or
property with respect to any of the Obligations.

     

    (b)           Without
affecting the liability of any Borrower hereunder, Bank may (i) compromise,
settle, renew, extend the time for payment, change the manner or terms of
payment, discharge the performance of, decline to enforce, or release all or any
of the Obligations with respect to a Borrower, (ii) grant other indulgences to a
Borrower in respect of the Obligations, (iii) modify in any manner any documents
relating to the Obligations with respect to a Borrower, (iv) release, surrender
or exchange any deposits or other property securing the Obligations, whether
pledged by a Borrower or any other Person, or (v) compromise, settle, renew, or
extend the time for payment, discharge the performance of, decline to enforce,
or release all or any obligations of any guarantor, endorser or other Person who
is now or may hereafter be liable with respect to any of the
Obligations.

     

    [remainder
of this page intentionally left blank]

    
      
         

      

      
        21.

        
          

        

      

      
         

      

    

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

    

    
      
        
          
            
              
                
                  
                    	 
      	
                            Bacterin
      International, Inc.

                          
	 
      	 
      
	 
      	
                            By:

                          	
                            /s/
      John Gandolfo

                          
	 
      	 
      
	 
      	
                            Title:

                          	
                            CFO

                          
	 
      	 
      
	 
      	
                            Bacterin
      International Holdings, Inc.

                          
	 
      	 
      
	 
      	
                            By:

                          	
                            /s/
      John Gandolfo

                          
	 
      	 
      
	 
      	
                            Title:

                          	
                            CFO

                          
	 
      	 
      
	 
      	
                            Bridge
      Bank, National Association

                          
	 
      	 
      
	 
      	
                            By:

                          	
                            /s/
      Derek Almeida

                          
	 
      	 
      
	 
      	
                            Title:

                          	
                            Vice
      President

                          

                  

                

              

            

          

        

      

    

    
      
         

      

      
        22.

        
          

        

      

      
         

      

    

    
      	
              DEBTOR:

            	
              BACTERIN
      INTERNATIONAL, INC.

            

    

    BACTERIN INTERNATIONAL HOLDINGS,
INC.

     

    
      	
              SECURED
      PARTY:

            	
              BRIDGE
      BANK, NATIONAL ASSOCIATION

            

    

     

    EXHIBIT
A

     

    COLLATERAL
DESCRIPTION ATTACHMENT

    TO
LOAN AND SECURITY AGREEMENT

     

    All
personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:

     

    (a)         all
accounts (including health-care-insurance receivables), chattel paper (including
tangible and electronic chattel paper), commercial tort claims, deposit
accounts, securities accounts, documents (including negotiable documents),
equipment (including all accessions and additions thereto), general intangibles
(including payment intangibles and software), goods (including fixtures),
instruments (including promissory notes), inventory (including all goods held
for sale or lease or to be furnished under a contract of service, and including
returns and repossessions), investment property (including securities and
securities entitlements), letter of credit rights, money, and all of Debtor’s
books and records with respect to any of the foregoing, and the computers and
equipment containing said books and records;

     

    (b)         any
and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment.  All
terms above have the meanings given to them in the California Uniform Commercial
Code, as amended or supplemented from time to time.

     

    Notwithstanding
the foregoing, the Collateral shall not include more than sixty-five percent
(65%) of the issued and outstanding capital stock, membership units or other
securities entitled to vote owned or held of record by Borrower in any
Subsidiary that is a controlled foreign corporation (as defined in the Internal
Revenue Code).

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
B

     

    ADVANCE
REQUEST FORM

     

    ADVANCE
REQUEST

    (To
be submitted no later than 2:00 PM to be considered for same day
processing)

    

    
      
        
          
            
              
                
                  
                    
                      
                        	
                                To:

                              	
                                Bridge
      Bank, National Association

                              	 
	 
      	 
      	 
	
                                Fax:

                              	
                                (408)
      282-1681

                              	 
	 
      	 
      	 
	
                                Date:

                              	 
      	 
	 
      	 
      	 
	
                                From:

                              	
                                Bacterin
      International, Inc. and Bacterin International Holdings,
    Inc.

                              	 
	 
      	
                                Borrower's
      Name

                              	 
	 
      	 
      	 
	 
      	 
      	 
	 
      	
                                Authorized
      Signature

                              	 
	 
      	 
      	 
	 
      	 
      	 
	 
      	
                                Authorized
      Signer's Name (please print)

                              	 
	 
      	 
      	 
	 
      	 
      	 
	 
      	
                                Phone
      Number

                              	 

                      

                    

                  

                

              

            

          

        

      

    

    

    
      
        
          	
                  To
      Account #

                	 
      	 
      

        

      

    

    

    Borrower
hereby requests funding in the total amount of $___________________ in
accordance with the following (please check all that apply):

    

    _____
Revolving Advance $______________

    

    as
defined in the Loan and Security Agreement dated January 14, 2011.

    

    Borrower
hereby authorizes Bank to rely on facsimile stamp signatures and treat them as
authorized by Borrower for the purpose of requesting the above
advance.

    

    All
representations and warranties of Borrower stated in the Loan and Security
Agreement are true, correct and complete in all material respects as of the date
of this Advance Request; provided that those
representations and warranties expressly referring to another date shall be
true, correct and complete in all material respects as of such
date.

    

    Capitalized
terms used herein and not otherwise defined have the meanings set forth in the
Loan and Security Agreement.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
C

     

    BORROWING
BASE CERTIFICATE

     

    
      
        	
                Borrower:  Bacterin
      International, Inc. and Bacterin International Holdings, Inc. 
      Lender:  Bridge Bank, National Association

                 

                Commitment
      Amount:  $3,000,000*

              

      

    

    

    
      
        
          
            	
                    ACCOUNTS
      RECEIVABLE

                  	 	 
      	 	 	 
	
                    1. 
               Accounts Receivable
      Book Value as of ___

                  	 	 
      	 	
                    $___________

                  	 
	
                    2. 
               Additions (please
      explain on reverse)

                  	 	 
      	 	
                    $___________

                  	 
	
                    3. 
               TOTAL ACCOUNTS
      RECEIVABLE

                  	 	 
      	 	
                    $___________

                  	 
	 
      	 	 
      	 	 	 
	
                    ACCOUNTS
      RECEIVABLE DEDUCTIONS (without duplication)

                  	 	 
      	 	 	 
	
                    4. 
               Amounts over 90 days
      due

                  	 	
                    $___________

                  	 	 	 
	
                    5. 
               Balance of 30% over
      90 day accounts

                  	 	
                    $___________

                  	 	 	 
	
                    6. 
               Concentration Limits
      (30%)

                  	 	 
      	 	 	 
	
                    7. 
               Foreign
      Accounts

                  	 	
                    $___________

                  	 	 	 
	
                    8. 
               Governmental
      Accounts

                  	 	
                    $___________

                  	 	 	 
	
                    9. 
               Contra
      Accounts

                  	 	
                    $___________

                  	 	 	 
	
                    10. 
             Demo Accounts, Bill and Hold
      Accounts

                  	 	
                    $___________

                  	 	 	 
	
                    11. 
             Intercompany/Employee
      Accounts

                  	 	
                    $___________

                  	 	 	 
	
                    12. 
             Prebillings

                  	 	
                    $___________

                  	 	 	 
	
                    13. 
             Other (please explain on
      reverse)

                  	 	
                    $___________

                  	 	 	 
	
                    14. 
             TOTAL ACCOUNTS RECEIVABLE
      DEDUCTIONS

                  	 	 
      	 	
                    $___________

                  	 
	
                    15. 
             Eligible Accounts (#3 minus
      #14)

                  	 	 
      	 	
                    $___________

                  	 
	
                    16. 
             LOAN VALUE OF ACCOUNTS (80% of
      #15)

                  	 	 
      	 	
                    $___________

                  	 
	 
      	 	 
      	 	 	 
	
                    BALANCES

                  	 	 
      	 	 	 
	
                    17. 
             Maximum Loan
    Amount

                  	 	 
      	 	$	3,000,000	 
	
                    18. 
             Total Funds Available [Lesser of
      #17 or #16]

                  	 	 
      	 	
                    $___________

                  	 
	
                    19. 
             Present balance owing on Line of
      Credit

                  	 	 
      	 	
                    $___________

                  	 
	
                    20. 
             Outstanding under Sublimits
      (Letters of Credit, if any)

                  	 	 
      	 	
                    $___________

                  	 
	
                    21. 
             RESERVE POSITION (#18 minus #19
      and #20)

                  	 	 
      	 	
                    $___________

                  	 

          

        

      

    

     

    *provided
upon (i) Borrower reaching two consecutive quarters of increasing profitability
of at least $4,000,000 in the aggregate, (ii) Borrower’s certification that it
reasonably believes continued profitability, and (iii) consent by Western
Technology Investment of the increase of the Revolving Line provided by Bank to
$5,000,000; “Revolving Line” shall mean a credit extension of up to Five Million
Dollars ($5,000,000).

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    The
undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Bridge Bank, National
Association.

     

    
      
        
          
            
              
                	
                        BACTERIN
      INTERNATIONAL, INC.

                      
	 
      	 
      
	
                        By:

                      	 
      	 
      
	 
      	
                        Authorized
      Signer

                      	 
      
	 
      	 
      
	
                        BACTERIN
      INTERNATIONAL HOLDINGS, INC.

                      
	 
      	 
      
	
                        By:

                      	 
      	 
      
	 
      	
                        Authorized
      Signer

                      	 
      

              

            

          

        

      

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    EXHIBIT
D

    COMPLIANCE
CERTIFICATE

     

    
      	
              TO:

            	
              BRIDGE
      BANK, NATIONAL ASSOCIATION

            

    

     

    
      	
              FROM:

            	
              BACTERIN
      INTERNATIONAL, INC.

            

    

    BACTERIN
INTERNATIONAL HOLDINGS, INC.

     

    The
undersigned authorized officer of BACTERIN INTERNATIONAL, INC. and BACTERIN
INTERNATIONAL HOLDINGS, INC (collectively, “Borrower”) hereby certifies that in
accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct as of the date hereof,
except to the extent such representations or warranties refer solely to an
earlier date.  Attached herewith are the financial statements required
under the Agreement.  The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.

     

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

     

    
      
        
          
            	 	
                    Reporting Covenant

                  	 
      	
                    Required

                  	 
      	
                    Complies

                  
	 	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                    Monthly
      financial statements (consolidated)

                  	 
      	
                    Monthly
      within 30 days

                  	 
      	
                    Yes

                  	 
      	
                    No

                  
	 	
                    Quarterly
      financial statements (consolidating)

                  	 
      	
                    Quarterly
      within 30 days

                  	 
      	
                    Yes

                  	 
      	
                    No

                  
	 	
                    8K,
      10K and 10Q

                  	 
      	
                    within
      10 days of filing

                  	 
      	
                    Yes

                  	 
      	
                    No

                  
	 	
                    A/R
      & A/P Agings, Borrowing Base Cert.*

                  	 
      	
                    Monthly
      within 30 days

                  	 
      	
                    Yes

                  	 
      	
                    No

                  
	 	
                    Operating
      Budget

                  	 
      	
                    Within
      30 days prior to FYE

                  	 
      	
                    Yes

                  	 
      	
                    No

                  
	 	
                    A/R
      Audit

                  	 
      	
                    Initial
      and Semi-Annual

                  	 
      	
                    Yes

                  	 
      	
                    No

                  
	 	
                    IP
      Report

                  	 
      	
                    Quarterly
      within 30 days

                  	 
      	
                    Yes

                  	 
      	
                    No

                  
	 	
                    Deposit
      balances with Bank

                  	 
      	
                    $______________

                  	 
      	 
      	 
      	 
      
	 	
                    Deposit
      balances outside Bank

                  	
                      

                  	
                    $______________

                  	
                      

                  	 
      	
                      

                  	 
      

          

        

      

    

     

    
      
        
          
            
              
                	 	
                        Financial Covenant

                      	 
      	
                        Required

                      	 
      	
                        Actual

                      	 
      	
                        Complies

                      
	 	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                        Minimum
      Asset Coverage Ratio

                      	 
      	
                        1.75:1.00

                      	 
      	
                        _____:1.00

                      	 
      	
                        Yes

                      	 
      	
                        No

                      
	 	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                        *prior
      to an Advance request and when any Advances are
    outstanding.

                      	
                          

                      	 
      	
                          

                      	 
      	
                          

                      	 
      	
                          

                      	 
      

              

            

          

        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  	
                                          Comments Regarding
      Exceptions:  See Attached.

                                        	 	
                                          BANK
      USE ONLY

                                        
	 
      	 	 
      
	 
      	 	
                                          Received
      by: _________________________________________

                                        
	
                                          Sincerely,

                                        	 	
                                          AUTHORIZED
      SIGNER

                                        
	 
      	 	 
      
	 
      	 	
                                          Date:
      ______________________________________________

                                        
	 
      	 	 
      
	 
      	 	
                                          Verified:
      ____________________________________________

                                        
	
                                          SIGNATURE

                                        	 	
                                          AUTHORIZED
      SIGNER

                                        
	 
      	 	 
      
	 
      	 	 
      
	 
      	 	
                                          Date:________________________________________________

                                        
	
                                          TITLE

                                        	 	 
      
	 
      	 	
                                          Compliance
      Status

                                        	
                                          Yes

                                        	
                                          No

                                        
	 
      	 	 
      
	
                                          DATE

                                        	 	 
      

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    CORPORATE
RESOLUTIONS TO BORROW

     

    
      
        	
                Borrower:                      BACTERIN
      INTERNATIONAL, INC.

              

      

    

    

    I, the
undersigned Secretary or Assistant Secretary of Bacterin International, Inc.
(the “Corporation”), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Nevada.

     

    I FURTHER
CERTIFY that attached hereto as Attachments 1 and 2 are true and complete
copies of the restated Articles of Incorporation, as amended, and the restated
Bylaws of the Corporation, as amended, each of which is in full force and effect
on the date hereof.

     

    I FURTHER
CERTIFY that at a meeting of the Directors of the Corporation, duly called and
held, at which a quorum was present and voting (or by other duly authorized
corporate action in lieu of a meeting), the following resolutions (the
“Resolutions”) were adopted.

     

    BE IT
RESOLVED, that any one (1) of the following named officers, employees, or agents
of this Corporation, whose actual signatures are shown below:

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  	
                                          NAMES

                                        	 
      	
                                          POSITION

                                        	 
      	
                                          ACTUAL SIGNATURES

                                        
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    acting
for and on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:

     

    Borrow Money.  To borrow
from time to time from Bridge Bank, National Association (“Bank”), on such terms
as may be agreed upon between the officers, employees, or agents of the
Corporation and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation.

     

    Execute Loan Documents. 
To execute and deliver to Bank that certain Loan and Security Agreement dated as
of January 14, 2011 (the “Loan Agreement”) and any other agreement entered into
between Corporation and Bank in connection with the Loan Agreement, including
any amendments, all as amended or extended from time to time (collectively, with
the Loan Agreement, the “Loan Documents”), and also to execute and deliver to
Bank one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for the Loan Documents, or any portion
thereof.

     

    Grant Security.  To grant
a security interest to Bank in the Collateral described in the Loan Documents,
which security interest shall secure all of the Corporation’s Obligations, as
described in the Loan Documents.

     

    Negotiate Items.  To
draw, endorse, and discount with Bank all drafts, trade acceptances, promissory
notes, or other evidences of indebtedness payable to or belonging to the
Corporation or in which the Corporation may have an interest, and either to
receive cash for the same or to cause such proceeds to be credited to the
account of the Corporation with Bank, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.

     

    Further Acts.  In the
case of lines of credit, to designate additional or alternate individuals as
being authorized to request advances thereunder, and in all cases, to do and
perform such other acts and things, to pay any and all fees and costs, and to
execute and deliver such other documents and agreements as they may in their
discretion deem reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    BE IT
FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions
and performed prior to the passage of these resolutions are hereby ratified and
approved, that these Resolutions shall remain in full force and effect and Bank
may rely on these Resolutions until written notice of their revocation shall
have been delivered to and received by Bank.  Any such notice shall not
affect any of the Corporation’s agreements or commitments in effect at the time
notice is given.

     

    I FURTHER
CERTIFY that the officers, employees, and agents named above are duly elected,
appointed, or employed by or for the Corporation, as the case may be, and occupy
the positions set forth opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever.

     

    IN
WITNESS WHEREOF, I have hereunto set my hand on January 14, 2011 and attest that
the signatures set opposite the names listed above are their genuine
signatures.

     

    
      
        
          
            
              
                
                  	 
      	
                          CERTIFIED
      AND ATTESTED BY:

                        
	 
      	 
      
	 
      	
                          X

                        	 
      

                

              

            

          

        

      

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    CORPORATE
RESOLUTIONS TO BORROW

     

    
      
        	
                Borrower:                      BACTERIN
      INTERNATIONAL HOLDINGS, INC.

              

      

    

    

    I, the
undersigned Secretary or Assistant Secretary of Bacterin International Holdings,
Inc. (the “Corporation”), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Delaware.

     

    I FURTHER
CERTIFY that attached hereto as Attachments 1 and 2 are true and complete
copies of the Certificate of Incorporation, as amended, and the Bylaws of the
Corporation, each of which is in full force and effect on the date
hereof.

     

    I FURTHER
CERTIFY that at a meeting of the Directors of the Corporation, duly called and
held, at which a quorum was present and voting (or by other duly authorized
corporate action in lieu of a meeting), the following resolutions (the
“Resolutions”) were adopted.

     

    BE IT
RESOLVED, that any one (1) of the following named officers, employees, or agents
of this Corporation, whose actual signatures are shown below:

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	
                                        NAMES

                                      	 
      	
                                        POSITION

                                      	 
      	
                                        ACTUAL SIGNATURES

                                      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    acting
for and on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:

     

    Borrow Money.  To borrow
from time to time from Bridge Bank, National Association (“Bank”), on such terms
as may be agreed upon between the officers, employees, or agents of the
Corporation and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation.

     

    Execute Loan Documents. 
To execute and deliver to Bank that certain Loan and Security Agreement dated as
of January 14, 2011 (the “Loan Agreement”) and any other agreement entered into
between Corporation and Bank in connection with the Loan Agreement, including
any amendments, all as amended or extended from time to time (collectively, with
the Loan Agreement, the “Loan Documents”), and also to execute and deliver to
Bank one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for the Loan Documents, or any portion
thereof.

     

    Grant Security.  To grant
a security interest to Bank in the Collateral described in the Loan Documents,
which security interest shall secure all of the Corporation’s Obligations, as
described in the Loan Documents.

     

    Negotiate Items.  To
draw, endorse, and discount with Bank all drafts, trade acceptances, promissory
notes, or other evidences of indebtedness payable to or belonging to the
Corporation or in which the Corporation may have an interest, and either to
receive cash for the same or to cause such proceeds to be credited to the
account of the Corporation with Bank, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.

     

    Further Acts.  In the
case of lines of credit, to designate additional or alternate individuals as
being authorized to request advances thereunder, and in all cases, to do and
perform such other acts and things, to pay any and all fees and costs, and to
execute and deliver such other documents and agreements as they may in their
discretion deem reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    BE IT
FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions
and performed prior to the passage of these resolutions are hereby ratified and
approved, that these Resolutions shall remain in full force and effect and Bank
may rely on these Resolutions until written notice of their revocation shall
have been delivered to and received by Bank.  Any such notice shall not
affect any of the Corporation’s agreements or commitments in effect at the time
notice is given.

     

    I FURTHER
CERTIFY that the officers, employees, and agents named above are duly elected,
appointed, or employed by or for the Corporation, as the case may be, and occupy
the positions set forth opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever.

     

    IN
WITNESS WHEREOF, I have hereunto set my hand on January 14, 2011 and attest that
the signatures set opposite the names listed above are their genuine
signatures.

     

    
      
        
          
            
              
                	 
      	
                        CERTIFIED
      AND ATTESTED BY:

                      
	 
      	 
      
	 
      	
                        X

                      	 
      

              

            

          

        

      

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    INSURANCE AUTHORIZATION
LETTER

     

    In accordance with the insurance
coverage requirements of the Loan and Security Agreement dated as of January 14,
2011 (the “Agreement”) between Bridge Bank, National Association (“Lender”), and
Bacterin International, Inc. and Bacterin International Holdings, Inc.
(collectively, “Borrower”), coverage is to be provided as set forth
below:

    

    COVERAGE:       All
risk including liability and property damage.

     

    INSURED:           Bacterin
International, Inc. and Bacterin International Holdings, Inc.

     

    LOCATION(s) OF
COLLATERAL:

     

    1.

     

    2.

     

    3.

    

    Insuring
Agent:    _________________________

    

    Address:               _________________________

     

    _________________________

     

    Phone
Number:    _________________________

     

    Fax
Number:        _________________________

     

    ADDITIONAL INSURED AND LOSS
PAYEE:

     

    Lender, as its interest may appear
below.

     

    LENDER:

     

    BRIDGE
BANK, NATIONAL ASSOCIATION

     

    55 Almaden Blvd.

    San Jose, CA 95113

    Attn:  Note Dept

    Fax # 408-689-8542

    Phone # 408-423-8500

     

    The above coverage is to be provided
prior to funding the Agreement.  Borrower hereby agrees to pay for the
coverage above and by signing below acknowledges its obligation to do
so.

     

    Signature:             __________________________

     

    Title:                     __________________________

     

    Date:                     __________________________

     

    Signature:             __________________________

     

    Title:                     __________________________

     

    Date:                     __________________________Unassociated Document

    DIVERSIFIED SECURE
VENTURES CORP.

    1285 WESTON
ROAD, UNIT 629, TORONTO, ONTARIO, CANADA, M6M 4R2

    416-525-6872    647-746-7795

    www.diversifiedsecureventures.com

     

    NOV.8,2010

    Amendment to
Definitive Agreement between Diversified Secure Ventures Corp. (previously
Secure Runway Systems) and International Explorers and Prospectors Inc. re
the Hemlo gold property.

     

    Attention Claude
Bonhomme and James White,

     

    As per
the Definitive Agreement signed by the two parties above in respect to the Hemlo
gold property, namely claims TB386628,29, and 31, dated and signed on April
7,2010, and further the Amendment signed on Sept. 16,2010, we hereby do wish to
engage in this further amendment.

     

    As per
our conversation and emails, if you so agree with the following Amendment:

     

    That both
DIVERSIFIED and EXPLORERS agree to the following as the new revised terms of
the Definitive Agreement, wherein,

     

    1. DIVERSIFIED
will initiate immediately to provide to EXPLORERS one million shares of
DIVERSIFIED common stock as per the original agreement upon
signing.

    2. Upon
the delivery of the stock certificate DIVERSIFIED will have an unencumbered 60%
interest in the above mentioned claims.

    3. Upon
payment of $50,000 within 6 months of the signing date of this amendment or
$100,000, as per the original agreement, DIVERSIFIED will own 100% of
the aforementioned claims, effectively acquiring an undivided 100% right, title,
and interest.

    4. DIVERSIFIED
also agrees to entitle EXPLORERS an amended 3% Net Smelter Royalty. DIVERSIFIED
has the sole option to purchase 2% of the NSR for the following, $500,000
for the first percentage, $750,000 for the second percentage, leaving EXPLORERS
with a NSR of one percent. The NSR is as defined in the original Definitive
Agreement.

    5. EXPLORERS
agrees to assist DIVERSIFIED in the transfer of ownership to the Mining and
Minerals departments of the province of Ontario to reflect the above changes
when they have been completed.

     

    Signed this
the 8th
day of November,
2010

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    DIVERSIFIED SECURE
VENTURES CORP.

    1285 WESTON
ROAD, UNIT 629, TORONTO, ONTARIO, CANADA, M6M 4R2

    416-525-6872    647-746-7795

    www.diversifiedsecureventures.com

     

    
      
        	 	 	 	 	 
	
                ``Edward
      Minnema``

              	 	 	
                ``James
      White``

              	 
	
                Edward Minnema

              	 	 	
                James
      White

              	 
	
                President,
      CEO

                Diversified Secure Ventures
      Corp.

              	 	 	
                President

                Int. Explorers and Prospectors

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