Document:

WWW.EXFILE.COM, INC. -- 888-775-4789 -- WORLD ENERGY SOLUTIONS, INC. -- EXHIBIT 10.1 TO FORM 8-K

    EXHIBIT 10.1

     

     

    EXECUTION
COPY

     

     

    LOAN
AND SECURITY AGREEMENT

     

    THIS LOAN AND SECURITY
AGREEMENT (this “Agreement”) dated as of the
Effective Date among SILICON
VALLEY BANK, a California corporation with its principal place of
business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan
production office located at One Newton Executive Park, Suite 200, 2221
Washington Street, Newton, Massachusetts  02462 (“Bank”), WORLD ENERGY SOLUTIONS, INC.,
a Delaware corporation with offices located at 446 Main Street, Worcester,
Massachusetts 01608, and WORLD
ENERGY SECURITIES CORP., a Massachusetts securities corporation with
offices located at 446 Main Street, Worcester, Massachusetts 01608 (individually
and collectively, jointly and severally, “Borrower”), provides the terms
on which Bank shall lend to Borrower and Borrower shall repay
Bank.  The parties agree as follows:

     

    1              
ACCOUNTING AND OTHER
TERMS

     

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

     

    2             
LOAN AND TERMS OF
PAYMENT

     

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

     

    2.1.1       
Revolving
Advances.

     

    (a) Availability.  Subject
to the terms and conditions of this Agreement and to deduction of Reserves, Bank
will make Advances to Borrower up to the Availability Amount.  Amounts
borrowed under the Revolving Line may be repaid, and prior to the Revolving Line
Maturity Date, reborrowed, subject to the applicable terms and conditions
precedent herein.

     

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

     

    2.1.2       
Letters of Credit
Sublimit.

     

    (a)           
As part
of the Revolving Line and subject to deduction of Reserves, Bank shall issue or
have issued Letters of Credit for Borrower’s account.  The face amount
of outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve) may not exceed One Million Dollars
($1,000,000.00) inclusive of Credit
Extensions relating to Sections 2.1.3 and 2.1.4.  Such aggregate
amounts utilized hereunder shall at all times reduce the amount otherwise
available for Advances under the Revolving Line.  If, on the Revolving
Line Maturity Date or after the occurrence and during the continuance of an
Event of Default there are any
outstanding Letters of Credit, then on such date Borrower shall provide to Bank
cash collateral in an amount equal to 105% of the face amount of all such
Letters of Credit plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business judgment),
to secure all of the Obligations relating to said Letters of
Credit.  All Letters of Credit shall be in form and substance
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank’s standard Application and Letter of Credit Agreement (the
“Letter of Credit
Application”), provided that, to the extent
of any conflict, this Agreement shall govern.  Borrower agrees to
execute any further documentation in connection with the Letters of Credit as
Bank may reasonably request.  Borrower further agrees to be bound by
the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Bank and opened for Borrower’s account or by Bank’s
interpretations of any Letter of Credit issued by Bank for Borrower’s account,
and Borrower understands and agrees that Bank shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrower’s instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto, except Bank’s gross
negligence or willful misconduct.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b)           
The
obligation of Borrower to immediately reimburse Bank for drawings made under
Letters of Credit shall be absolute, unconditional, and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.  Any amounts
Bank pays on behalf of Borrower for any Letters of Credit will be treated as
Advances under the Revolving Line and will accrue interest at the interest rate
applicable to Advances.

     

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

     

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

     

    2.1.3       
Foreign Exchange
Sublimit.  As part of the Revolving Line, Borrower may enter
into foreign exchange contracts with Bank under which Borrower commits to
purchase from or sell to Bank a specific amount of Foreign Currency (each, a
“FX Forward Contract”)
on a specified date (the “Settlement
Date”).  FX Forward Contracts shall have a Settlement Date of
at least one (1) FX Business Day after the contract date and shall be subject to
a reserve of ten percent (10%) of each outstanding FX Forward Contract in a
maximum aggregate amount equal to One Hundred Thousand Dollars ($100,000.00)
(the “FX
Reserve”).  The aggregate amount of FX Forward Contracts at any
one time plus Credit Extensions made pursuant to Sections 2.1.2 and 2.1.4 may
not exceed ten (10) times the maximum amount of the FX Reserve.  Any
amounts needed to fully reimburse Bank will be treated as Advances under the
Revolving Line and will accrue interest at the interest rate applicable to
Advances.

     

    2.1.4       
Cash Management Services
Sublimit.  Borrower may use up to One Million Dollars
($1,000,000.00) inclusive of Credit Extensions relating to Sections 2.1.2 and
2.1.3 (the “Cash Management Services Sublimit”) of the Revolving Line for Bank’s
cash management services which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services identified in Bank’s
various cash management services agreements (collectively, the “Cash Management
Services”).  The dollar amount of any Cash Management Services
provided under this sublimit will reduce the amount otherwise available under
the Revolving Line.  Any amounts used or reserved by Borrower for any
Cash Management Services will reduce the amount otherwise available for Credit
Extensions under the Revolving Line.  Any amounts Bank pays on behalf
of Borrower for any Cash Management Services will be treated as Advances under
the Revolving Line and will accrue interest at the interest rate applicable to
Advances.

     

    2.2          
Overadvances.  If,
at any time the sum of (a) the outstanding amount of any Advances (including any
amounts used for Cash Management Services) plus (b) the face amount of any
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve, plus (c) the FX Reserve exceeds the
lesser of either the Revolving Line or the Borrowing Base (such excess amount
being an “Overadvance”),
Borrower shall pay to Bank in cash such Overadvance immediately; provided, however, that if such
Overadvance results from Bank’s exercising its right to decrease the percentages
of the Borrowing Base or to adjust the criteria for Eligible Accounts, Borrower
shall have three (3) Business Days from receipt of notice from Bank of such
decrease or adjustment to repay such Overadvance.

     

    2.3          
Payment of Interest on the Credit
Extensions.

     

    (a)           
Interest Rate; Advances.  Subject
to Section 2.3(b), (a) the principal amount of the Revolving Line outstanding
due to Advances made in respect of Eligible Accounts shall accrue interest at a
floating per annum rate equal to the aggregate of the Prime Rate plus one and
three-quarters of one percentage point (1.75%), provided, however, during a
Streamline Period, the principal amount of the Revolving Line outstanding due to
Advances made in respect of Eligible Accounts shall accrue interest at a
floating per annum rate equal to the aggregate of the Prime Rate plus
three-quarters of one percentage point (0.75%); and (b) the principal amount of
the Revolving Line outstanding due to Advances made in respect of Eligible
Retail Backlog Accounts shall accrue interest at a floating per annum rate equal
to the aggregate of the Prime Rate plus two and one-quarter of one 

     

    
      
        
        

      

      
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    percentage
point (2.25%), provided, however, during a
Streamline Period, the principal amount of the Revolving Line outstanding due to
Advances made in respect of Eligible Retail Backlog Accounts shall accrue
interest at a floating per annum rate equal to the aggregate of the Prime Rate
plus one and one-half of one percentage point (1.50%).  Interest on
any Credit Extension shall be payable monthly.

     

    (b)           
Default Rate.
Immediately upon the occurrence and during the continuance of an Event of
Default, Obligations shall bear interest at a rate per annum which is four
percentage points (4.00%) above the rate effective immediately before the
occurrence of the Event of Default (the “Default
Rate”).  Payment or acceptance of the increased interest rate
provided in this Section 2.3(b) is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Bank.

     

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

     

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

     

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

     

    (f)            
Payment; Interest
Computation; Float Charge.  Interest is payable monthly on the
last Business Day of each month.  In computing interest on the
Obligations, all Payments received after 3:00 p.m. local Boston time on any day
shall be deemed received on the next Business Day.  Bank shall be
entitled to charge Borrower a “float” charge in an amount equal to two (2)
Business Days interest, at the interest rate applicable to the Advances, on all
Payments received by Bank.  Said float charge is not applicable during
a Streamline Period, and is not included in interest for purposes of computing
Minimum Monthly Interest (if any) under this Agreement.  The float
charge for each month shall be payable on the last day of the
month.  Bank shall not, however, be required to credit Borrower’s account for the
amount of any item of payment which is unsatisfactory to Bank in its good faith
business judgment, and Bank may charge Borrower’s Designated Deposit Account for
the amount of any item of payment which is returned to Bank unpaid.

     

    2.4          
Fees.  Borrower
shall pay to Bank:

     

    (a)           
Commitment
Fee.  A fully earned, non-refundable commitment fee of Twenty
Thousand Dollars ($20,000.00), on the Effective Date;

     

    (b)           
Letter of Credit
Fee.  Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, upon the issuance or renewal of such Letter of
Credit by Bank;

     

    (c)           
Termination
Fee.  Subject to the terms of Section 12.1, a termination
fee;

     

    (d)           
Unused Revolving Line
Facility Fee.  A fee (the “Unused Revolving Line Facility
Fee”), which fee shall be paid monthly, in arrears, on the last Business
Day of each month, in an amount equal to one-half of one percent (0.50%) per
annum of the average unused portion of the Revolving Line, as determined by
Bank.  Borrower shall not be entitled to any credit, rebate or
repayment of any Unused Revolving Line Facility Fee previously earned by Bank
pursuant to this Section notwithstanding any termination of the within
Agreement, or suspension or termination of Bank’s obligation to make loans and
advances hereunder; and

     

     (f)           
Bank
Expenses.  All Bank Expenses (including reasonable attorneys’
fees and expenses for documentation and negotiation of this Agreement) which are
the subject of an invoice delivered to Borrower, incurred through and after the
Effective Date, when due.

     

    3             
CONDITIONS OF
LOANS

     

    3.1          
Conditions Precedent to Initial
Advance.  Bank’s obligation to make the initial Advance is
subject to the condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, such 

     

    
      
        
        

      

      
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    documents,
and completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation:

     

    (a)           
Borrower
shall have delivered duly executed original signatures to the Loan Documents to
which it is a party;

     

    (b)           
Other
than accounts described in Section 6.8(a)(i), Borrower shall have delivered duly
executed original signatures to the Control Agreement(s);

     

    (c)           
Borrower
shall have delivered its Operating Documents and a good standing certificate of
Borrower certified by the Secretary of State of the applicable state of
incorporation or organization of Borrower, dated as of a date no earlier than
thirty (30) days prior to the Effective Date;

     

    (d)           
Borrower
shall have delivered duly executed original signatures to the completed
Borrowing Resolutions for Borrower;

     

    (e)           
Borrower
shall have delivered the Subordination Agreement duly executed by any holder of
Subordinated Debt as required by Bank, in favor of Bank;

     

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

     

    (g)           
Borrower
shall have delivered the Perfection Certificate(s) executed by
Borrower;

     

    (h)           
Borrower
shall have delivered a bailee’s/warehouseman’s waiver executed by each bailee,
if any, of Borrower as required by Bank, in favor of Bank;

     

    (i)            
Borrower
shall have delivered a legal opinion of Borrower’s counsel as to authority and
enforceability, dated as of the Effective Date together with the duly executed
original signatures thereto;

     

    (j)            
Borrower
shall have delivered evidence satisfactory to Bank that the insurance policies
required by Section 6.7 hereof are in full force and effect, together with
appropriate evidence showing loss payable and/or additional insured clauses or
endorsements in favor of Bank;

     

    (k)            the
completion of the Initial Audit with results satisfactory to Bank in its sole
and absolute discretion; and

     

    (l)            
Borrower
shall have paid the fees and Bank Expenses then due as specified in Section 2.4
hereof.

     

    3.2          
Conditions Precedent to all Credit
Extensions.  Bank’s obligations to make each Credit Extension,
including the initial Credit Extension, is subject to the
following:

     

    (a)           
Subject
to Section 6.2(a), timely receipt of an executed Transaction
Report;

     

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

     

    
      
        
        

      

      
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    (c)            in Bank’s
good faith business judgment, there has not been any material impairment in the
general affairs, management, results of operation, financial condition or the
prospect of repayment of the Obligations, and that Borrower is in general
compliance with its most recent business plan presented to and accepted by
Bank.

     

    3.3          
Covenant to Deliver.

     

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

     

    3.4          
Procedures for
Borrowing.  Subject to the prior satisfaction of all other
applicable conditions to the making of an Advance set forth in this Agreement,
to obtain an Advance (other than Advances under Sections 2.1.2, 2.1.3 or 2.1.4),
Borrower shall notify Bank (which notice shall be irrevocable) by electronic
mail, facsimile, or telephone by 3:00 p.m. local Boston time on the Funding Date
of the Advance.  Together with such notification, Borrower must
promptly deliver to Bank by electronic mail or facsimile a completed Transaction
Report executed by a Responsible Officer or his or her designee.  Bank
shall credit Advances to the Designated Deposit Account.  Bank may
make Advances under this Agreement based on instructions from a Responsible
Officer or his or her designee or without instructions if the Advances are
necessary to meet Obligations which have become due.  Bank may rely on
any telephone notice given by a person whom Bank believes in its good faith
business judgment, to be  a Responsible Officer or
designee.

     

    4             
CREATION
OF SECURITY INTEREST

     

    4.1          
Grant of Security
Interest.  Borrower hereby grants Bank, to secure the payment
and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products
thereof.  Borrower represents, warrants, and covenants that the
security interest granted herein is and shall at all times continue to be a
first priority perfected security interest in the Collateral (except for
Permitted Liens that may have superior priority to Bank’s Lien under this
Agreement).  If Borrower shall acquire any commercial tort claims in
an aggregate amount in excess of Seventy Five Thousand Dollars ($75,000.00),
Borrower shall promptly notify Bank in a writing signed by Borrower of the
general details thereof and grant to Bank in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance reasonably satisfactory to
Bank.

     

    4.2          
Authorization to File Financing
Statements.  Borrower hereby authorizes Bank to file financing
statements, without notice to Borrower, with all appropriate jurisdictions to
perfect or protect Bank’s interest or rights hereunder, including a notice that
any disposition of the Collateral, by either Borrower or any other Person, shall
be deemed to violate the rights of Bank under the Code.   Without
limiting the foregoing, Borrower hereby authorizes Bank to file financing
statements which describe the collateral as “all assets” and/or “all personal
property” of Borrower or words of similar import.

     

    5              REPRESENTATIONS AND
WARRANTIES

     

    Borrower
represents and warrants as follows:

     

    5.1          
Due Organization and
Authorization.  Borrower and each of its Subsidiaries, if any,
are duly existing and in good standing as Registered Organizations in their
respective jurisdictions of formation and are qualified and licensed to do
business and are in good standing in any jurisdiction in which the conduct of
their business or their ownership of property requires that they be qualified
except where the failure to do so could not reasonably be expected to have a
material adverse effect on Borrower’s business.  In connection with
this Agreement, Borrower has delivered to Bank a completed certificate
substantially in the form provided by Bank, entitled “Perfection Certificate”
(the “Perfection
Certificate”).  Borrower represents and warrants to Bank that
(a) Borrower’s exact legal name is that indicated on the Perfection Certificate
and on the signature page hereof; (b) Borrower is an organization of the
type and is organized in the jurisdiction set forth in the Perfection
Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s
organizational identification number or accurately states that Borrower has
none; (d) the Perfection Certificate accurately sets forth Borrower’s place of
business, or, if more than one, its chief executive office as well as Borrower’s
mailing address (if different than its chief executive 

     

    
      
        
        

      

      
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    office);
(e) Borrower (and each of its predecessors) has not, in the past five (5)
years, changed its jurisdiction of formation, organizational structure or type,
or any organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete in all material respects (it
being understood and agreed that Borrower may from time to time update certain
information in the Perfection Certificate after the Effective Date in connection
with actions permitted by this Agreement).  If Borrower is not a
Registered Organization as of the Effective Date but later becomes one, Borrower
shall promptly notify Bank of such occurrence and provide Bank with Borrower’s
organizational identification number.

     

    The
execution, delivery and performance by Borrower of the Loan Documents to which
it is a party have been duly authorized, and do not conflict with Borrower’s
organizational documents, nor constitute an event of default under any material
agreement by which Borrower is bound.  Borrower is not in default
under any agreement to which it is a party or by which it is bound in which the
default could reasonably be expected to have a material adverse effect on
Borrower’s business.

     

    5.2          
Collateral.  Borrower
has good title to, has rights in, and the power to transfer each item of
Collateral upon which it purports to grant a Lien hereunder, free and clear of
any and all Liens except Permitted Liens.  Other than as described in
Section 6.8(a), Borrower has no deposit accounts other than the deposit accounts
with Bank and deposit accounts described in the Perfection Certificate delivered
to Bank in connection herewith, or of which Borrower has given Bank notice and
taken such actions as are necessary to give Bank a perfected security interest
therein.

     

    The
Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection
Certificate.  None of the components of the Collateral shall be
maintained at locations other than as provided in the Perfection Certificate or
as permitted pursuant to Section 7.2.  In the event that Borrower,
after the date hereof, intends to store or otherwise deliver any portion of the
Collateral to a bailee, then Borrower will first receive the written consent of
Bank and such bailee must execute and deliver a bailee agreement in form and
substance satisfactory to Bank in its sole discretion.

     

    All
Inventory is in all material respects of good and marketable quality, free from
material defects.

     

    Borrower
is the sole owner of its intellectual property, except for non-exclusive
licenses granted to its customers in the ordinary course of
business.  To the best of Borrower’s actual knowledge, each patent is
valid and enforceable and no part of the intellectual property has been judged
invalid or unenforceable, in whole or in part, and to the best of Borrower’s
knowledge, no claim has been made that any part of the Intellectual Property
violates the rights of any third party.

     

    Except as
noted on the Perfection Certificate, Borrower is not a party to, nor is bound
by, any material license or other agreement with respect to which Borrower is
the licensee that prohibits or otherwise restricts Borrower from granting a
security interest in Borrower’s interest in such license or agreement or any
other property.  Borrower shall provide written notice to Bank within
ten (10) days of entering or becoming bound by any such license or agreement
(other than over-the-counter software that is commercially available to the
public) which is reasonably likely to have a material impact on Borrower’s
business or financial condition.  Borrower shall take such steps as
Bank requests to obtain the consent of, or waiver by, any person whose consent
or waiver is necessary for all such licenses or contract rights to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such license or
agreement (such consent or authorization may include a licensor’s agreement to a
contingent assignment of the license to Bank if Bank determines that is
necessary in its good faith judgment), whether now existing or entered into in
the future.

     

    5.3          
Accounts
Receivable.

     

    (a)           
For each Account with respect to which Advances are requested, on the date each
Advance is requested and made, such Account shall meet the Minimum Eligibility
Requirements set forth in Section 13 below.

     

    (b)          
All statements made and all unpaid balances appearing in all invoices,
instruments and other documents evidencing the Accounts are and shall be true
and correct to the best of Borrower’s actual knowledge, and all such invoices,
instruments and other documents, and all of Borrower’s Books are genuine and in
all respects what they purport to be.  All sales and other
transactions underlying or giving rise to each Account shall comply in all
material respects with all applicable laws and governmental rules and
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    actual
knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor
whose accounts are an Eligible Account in any Borrowing Base
Certificate.  To the best of Borrower’s actual knowledge, all
signatures and endorsements on all documents, instruments, and agreements
relating to all Accounts are genuine, and all such documents, instruments and
agreements are legally enforceable in accordance with their terms.

     

    5.4          
Litigation.  Except
as disclosed to the Bank in writing pursuant to Section 6.2 or as listed in the
Perfection Certificate, there are no actions or proceedings pending or, to the
knowledge of the Responsible Officers, threatened in writing by or against
Borrower or any of its Subsidiaries involving more than Fifty Thousand Dollars
($50,000.00).

     

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

     

    5.6          
Solvency.  The fair
salable value of Borrower’s assets (including goodwill minus disposition costs)
exceeds the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions in this Agreement; and
Borrower is able to pay its debts (including trade debts) as they
mature.

     

    5.7          
Regulatory
Compliance.  Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company
Act.  Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations T and U of the Federal
Reserve Board of Governors).  Borrower has complied in all material
respects with the Federal Fair Labor Standards Act.  Borrower has not
violated any laws, ordinances or rules, the violation of which could reasonably
be expected to have a material adverse effect on its business.  None
of Borrower’s or any of its Subsidiaries’ properties or assets has been used by
Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous
Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than legally which use could reasonably be expected to
cause a Material Adverse Change.  Borrower and each of its
Subsidiaries have obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently
conducted.

     

    5.8          
Subsidiaries;
Investments.  Borrower does not own any stock, partnership
interest or other equity securities except for Permitted
Investments.

     

    5.9          
Tax Returns and Payments; Pension
Contributions.  Borrower has timely filed all required tax
returns and reports (except such returns or reports related to taxes as may be
due or owing in an amount not to exceed Twenty Five Thousand Dollars
($25,000.00) in the aggregate), and Borrower and its Subsidiaries, if any, have
timely paid all foreign, federal, state and local taxes, assessments, deposits
and contributions owed by Borrower (except such returns or reports related to
taxes as may be due or owing in an amount not to exceed Twenty Five Thousand
Dollars ($25,000.00) in the aggregate).  Borrower may defer payment of
any contested taxes, provided that Borrower (a) in good faith contests its
obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (b) notifies Bank in writing of the commencement of,
and any material development in, the proceedings, (c) posts bonds or takes any
other steps required to prevent the governmental authority levying such
contested taxes from obtaining a Lien upon any of the Collateral that is other
than a “Permitted Lien”.  Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result in
additional taxes becoming due and payable by Borrower.  Borrower has
paid all amounts necessary to fund all present pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.

     

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

     

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

     

    
      
        
        

      

      
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    untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading (it
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected or forecasted results).

     

    6             
AFFIRMATIVE
COVENANTS

     

    Borrower
shall do all of the following:

     

    6.1           Government
Compliance.  Maintain its and all its Subsidiaries’ legal
existence and good standing in their respective jurisdictions of formation and
maintain qualification in each jurisdiction in which the failure to so qualify
would reasonably be expected to have a material adverse effect on Borrower’s
business or operations.  Borrower shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, the noncompliance with which could have a material adverse effect on
Borrower’s business.

     

    6.2           Financial Statements, Reports,
Certificates.

     

    (a)           Borrower
shall provide Bank with the following:

     

    (i)          weekly,
whenever there are any outstanding Credit Extensions, and upon each request for
a Credit Extension, a Transaction Report;

     

    (ii)         whenever
there are any outstanding Credit Extensions, within twenty (20) days after the
end of each month, (A) monthly accounts receivable agings, aged by invoice date,
(B) monthly accounts payable agings, aged by invoice date, and outstanding or
held check registers, if any, (C) monthly unbilled accounts receivable agings
(aged by revenue date), Deferred Revenue report and general ledger, and (D) a
schedule of expected collections;

     

    (iii)       
as soon as available, and in any event within thirty (30) days after the end of
each month, monthly unaudited financial statements, unless Borrower has filed
financial information with the Securities and Exchange Commission on form 10-Q
or 10-K within any given month, in which case Borrower’s compliance with Section
6.2(b) of this Agreement shall satisfy this subsection (iii);

     

    (iv)       within
thirty (30) days after the end of each month a monthly Compliance Certificate
signed by a Responsible Officer, certifying that as of the end of such month,
Borrower was in full compliance with all of the terms and conditions of this
Agreement, and setting forth calculations showing compliance with the financial
covenants set forth in this Agreement and such other information as Bank shall
reasonably request, including, without limitation, a statement that at the end
of such month there were no held checks;

     

    (v)       
within thirty (30) days after approval by Borrower’s board of directors, (A)
annual operating budgets (including income statements, balance sheets and cash
flow statements, by month) for the upcoming fiscal year of Borrower, and (B)
annual financial projections for the following fiscal year (on a quarterly
basis), together with any related business forecasts delivered to Borrower’s
board of directors in the preparation of such annual financial projections;
and

     

    (vi)       
as soon as available, and in any event within one hundred fifty (150) days
following the end of Borrower’s fiscal year, annual financial statements
certified by, and with an unqualified opinion of, independent certified public
accountants acceptable to Bank.

     

    Notwithstanding
the foregoing, during a Streamline Period, provided no Event of Default has
occurred and is continuing, Borrower shall not be required to provide Bank with
the Transaction Report required pursuant to clause (a)(i) above; provided, however, that during
such Streamline Period, Borrower shall provide Bank, within twenty (20) days
after the end of each month in which there were any outstanding Credit
Extensions, a duly completed Borrowing Base Certificate signed by a Responsible
Officer.

     

    (b)           In
the event that Borrower is or becomes subject to the reporting requirements
under the Securities Exchange Act of 1934, as amended, within five (5) days
after filing, all reports on Form 10-K, 10-Q and 8-K filed with the Securities
and Exchange Commission or a link thereto on Borrower’s or another website on
the Internet.

     

    
      
        
        

      

      
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    (c)           Prompt
written notice of (i) any material change in the composition of the intellectual
property, (ii) the registration of any copyright, including any subsequent
ownership right of Borrower in or to any copyright, patent or trademark not
previously disclosed to Bank, or (iii) Borrower’s knowledge of an event
that has an actual material adverse effect on the value of the intellectual
property.

     

    6.3           Accounts
Receivable.

     

    (a)           
Schedules and
Documents Relating to Accounts. Borrower shall deliver to
Bank transaction reports and schedules of collections, as provided in Section
6.2, on Bank’s standard forms; provided, however, that Borrower’s failure to
execute and deliver the same shall not affect or limit Bank’s Lien and other
rights in all of Borrower’s Accounts, nor shall Bank’s failure to advance or
lend against a specific Account affect or limit Bank’s Lien and other rights
therein.  If requested by Bank, and to the extent commercially
reasonable, Borrower shall furnish Bank with copies (or, at Bank’s request,
originals) of all contracts, orders, invoices, and other similar documents, and
all shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Accounts.  In addition, Borrower shall deliver to Bank, on its
reasonable request and to the extent commercially reasonable, the originals of
all instruments, chattel paper, security agreements, guarantees and other
documents and property evidencing or securing any Accounts, in the same form as
received, with all necessary endorsements, and copies of all credit
memos.

     

    (b)           
Disputes.  Borrower
shall promptly notify Bank of all material disputes or claims relating to
Accounts in an aggregate amount in excess of Fifty Thousand Dollars ($50,000.00)
at any time.  Borrower may forgive (completely or partially),
compromise, or settle any Account for less than payment in full, or agree to do
any of the foregoing so long as (i) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, in
arm’s-length transactions, and reports the same to Bank in the regular reports
provided to Bank; (ii) no Default or Event of Default has occurred and is
continuing; and (iii) after taking into account all such discounts,
settlements and forgiveness, the total outstanding Advances will not exceed the
Availability Amount.  

     

    (c)           
Collection of
Accounts.  Borrower shall have the right to collect all
Accounts, unless and until a Default or an Event of Default has occurred and is
continuing.  All payments on, and proceeds of, Accounts shall be
deposited directly by the applicable Account Debtor into a lockbox account, or
such other “blocked account” as Bank may specify, pursuant to a blocked account
agreement in form and substance satisfactory to Bank in its sole
discretion.  Whether or not an Event of Default has occurred and is
continuing, Borrower shall hold all payments on, and proceeds of, Accounts in
trust for Bank, and Borrower shall promptly deliver all such payments and
proceeds to Bank in their original form, duly endorsed, to be applied to the
Obligations pursuant to the terms of Section 9.4 hereof; provided, however, during a
Streamline Period, such payments shall be deposited in Borrower’s Designated
Deposit Account.

     

    (d)           
Returns.  Provided no
Event of Default has occurred and is continuing, if any Account Debtor returns
any Inventory to Borrower, Borrower shall promptly (i) determine the reason
for such return, (ii) issue a credit memorandum to the Account Debtor in
the appropriate amount, and (iii) provide a copy of such credit memorandum
to Bank, upon request from Bank.  In the event any attempted return
occurs after the occurrence and during the continuance of any Event of Default,
Borrower shall hold the returned Inventory in trust for Bank,
and immediately notify Bank of the return of the
Inventory.  

     

    (e)           
Verification.  Bank may, from
time to time, verify directly with the respective Account Debtors the validity,
amount and other matters relating to the Accounts, either in the name of
Borrower or Bank or such other name as Bank may choose. 

     

    (f)           
No
Liability.  Bank shall not
be responsible or liable for any shortage or discrepancy in, damage to, or loss
or destruction of, any goods, the sale or other disposition of which gives rise
to an Account, or for any error, act, omission, or delay of any kind occurring
in the settlement, failure to settle, collection or failure to collect any
Account, or for settling any Account in good faith for less than the full amount
thereof, nor shall Bank be deemed to be responsible for any of Borrower’s
obligations under any contract or agreement giving rise to an
Account.  Nothing herein shall, however, relieve Bank from liability
for its own gross negligence or willful misconduct.

     

    6.4           Remittance of
Proceeds.  Except as otherwise provided in Section 6.3(c),
deliver, in kind, all proceeds arising from the disposition of any Collateral to
Bank in the original form in which received by Borrower not later than the
following Business Day after receipt by Borrower, to be applied to the
Obligations pursuant to the terms of Section 9.4 hereof; provided that, if no
Default or Event of Default has occurred and is continuing, 

     

    
      
        
        

      

      
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    Borrower
shall not be obligated to remit to Bank the proceeds of the sale of worn out or
obsolete Equipment disposed of by Borrower in good faith in an arm’s length
transaction for an aggregate purchase price of Fifty Thousand Dollars
($50,000.00) or less (for all such transactions in any fiscal
year).  Borrower agrees that it will not commingle proceeds of
Collateral with any of Borrower’s other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for Bank.  Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.

     

    6.5           Taxes;
Pensions.  Make, and cause each of its Subsidiaries, if any, to
make, timely payment of all foreign, federal, state and local taxes or
assessments (other than taxes and assessment which Borrower or its Subsidiaries
are contesting pursuant to the terms of Section 5.9 hereof), and shall deliver
to Bank, on demand, appropriate certificates attesting to such payments, and pay
all amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms.

     

    6.6           Access to Collateral; Books and
Records.  At reasonable times, on one (1) Business Day’s notice
(provided no notice is required if an Event of Default has occurred and is
continuing), Bank, or its agents, shall have the right on a semi-annual basis
(or more frequently if an Event of Default has occurred and is continuing), to
inspect the Collateral and the right to audit and copy Borrower’s
Books.  The foregoing inspections and audits shall be at Borrower’s
expense, and the charge therefor shall be $750 per person per day (or such
higher amount as shall represent Bank’s then-current standard charge for the
same), plus reasonable out-of-pocket expenses.  In the event Borrower
and Bank schedule an audit more than ten (10) days in advance, and Borrower
cancels or seeks to reschedules the audit with less than ten (10) days written
notice to Bank, then (without limiting any of Bank’s rights or remedies),
Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred
by Bank to compensate Bank for the anticipated costs and expenses of the
cancellation or rescheduling.

     

    6.7           Insurance.  Keep its
business and the Collateral insured for risks and in amounts standard for
companies in Borrower’s industry and location and as Bank may reasonably
request.  Insurance policies shall be in a form, with companies, and
in amounts that are satisfactory to Bank.  All property policies shall
have a lender’s loss payable endorsement showing Bank as the sole lender loss
payee and waive subrogation against Bank, and all liability policies shall show,
or have endorsements showing, Bank as an additional insured.  All
property and liability policies (other than directors and officers liability
policies) (or the loss payable and additional insured endorsements) shall
provide that the insurer must give Bank at least thirty (30) days notice before
canceling, or declining to renew its policy.  At Bank’s request,
Borrower shall deliver certified copies of policies and evidence of all premium
payments.  Proceeds payable under any policy shall, at Bank’s option,
be payable to Bank on account of the Obligations.  Notwithstanding the
foregoing, (a) so long as no Event of Default has occurred and is continuing,
Borrower shall have the option of applying the proceeds of any casualty policy
up to Fifty Thousand Dollars ($50,000.00), in the aggregate, toward the
replacement or repair of destroyed or damaged property; provided that any such
replaced or repaired property (i) shall be of equal or like value as the
replaced or repaired Collateral and (ii) shall be deemed Collateral in
which Bank has been granted a first priority security interest, and (b) after
the occurrence and during the continuance of an Event of Default, all proceeds
payable under such casualty policy shall, at the option of Bank, be payable to
Bank on account of the Obligations.  If Borrower fails to obtain
insurance as required under this Section 6.7 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section 6.7, and take any action under the policies Bank deems
prudent.

     

    6.8          
Operating
Accounts.

     

    (a)           
Subject
to the following, maintain its and its Subsidiaries’, if any, primary
depository, operating accounts and securities accounts with Bank and Bank’s
affiliates with all excess funds maintained at or invested through Bank or an
affiliate of Bank:

     

    (i)          
Borrower is permitted to maintain accounts nos. 000000708266184 and
000002330740974 (collectively, the “JP Morgan Chase Bank
Accounts”), provided that, whenever the
aggregate balance in the JP Morgan Chase Bank Accounts exceeds Fifty Thousand
Dollars ($50,000), such excess amounts in such JP Morgan Chase Bank Accounts
shall promptly be transferred to Bank for deposit into such account as Bank
shall specify.

     

    (b)           
Provide
Bank five (5) days prior-written notice before establishing any Collateral
Account at or with any bank or financial institution other than Bank or its
Affiliates.  In addition, for each Collateral Account that Borrower at
any time maintains, other than the JP Morgan Chase Bank Accounts, Borrower shall
cause 

     

    
      
        
        

      

      
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    the
applicable bank or financial institution (other than Bank) at or with which any
Collateral Account is maintained to execute and deliver a Control Agreement or
other appropriate instrument with respect to such Collateral Account to perfect
Bank’s Lien in such Collateral Account in accordance with the terms
hereunder.  The provisions of the previous sentence shall not apply to
deposit accounts exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of Borrower’s employees and
identified to Bank by Borrower as such.

     

    6.9          
Financial
Covenants.

     

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

     

    (a)           Tangible Net
Worth.  A Tangible Net Worth of at least Five Hundred Thousand
Dollars ($500,000.00).

     

    6.10        
Protection of Intellectual Property
Rights.  Borrower shall use commercially reasonable efforts to:
(a) protect, defend and maintain the validity and enforceability of its
intellectual property; (b) promptly advise Bank in writing of material
infringements of its intellectual property; and (c) not allow any intellectual
property material to Borrower’s business to be abandoned, forfeited or dedicated
to the public without Bank’s written consent.

     

    6.11        
Litigation
Cooperation.  From the date hereof and continuing through the
termination of this Agreement, make available to Bank, at reasonable times and
intervals, without expense to Bank, Borrower and its officers, employees and
agents and Borrower’s Books and records, to the extent that Bank may deem them
reasonably necessary to prosecute or defend any third-party (for clarity, other
than Borrower or its Affiliates) suit or proceeding instituted by or against
Bank with respect to any Collateral or relating to Borrower.

     

    6.12        
Further
Assurances.  Borrower shall execute any further instruments and
take further action as Bank reasonably requests to perfect or continue Bank’s
Lien in the Collateral or to effect the purposes of this Agreement.

     

    7             
NEGATIVE
COVENANTS

     

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

     

    7.1          
Dispositions.  Convey,
sell, lease, transfer or otherwise dispose of (collectively, “Transfer”), or permit any of
its Subsidiaries to Transfer, all or any part of its business or property,
except for Transfers of (a) of Inventory in the ordinary course of
business; (b) of worn out or obsolete Equipment; (c) in connection with
Permitted Liens and Permitted Investments; and (d) of non-exclusive
licenses for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business, and licenses that could not result in a legal
transfer of title of the licensed property but that may be exclusive in respects
other than territory and that may be exclusive as to territory only as to
discreet geographical areas outside of the United States.  Borrower
shall not enter into an agreement with any Person other than Bank which
restricts the subsequent granting of a security interest in Borrower’s
intellectual property.

     

    7.2          
Changes in Business, Management,
Ownership, Control, or Business Locations.  (a) Engage in
or permit any of its Subsidiaries, if any, to engage in any business other than
the businesses currently engaged in by Borrower and such Subsidiary, as
applicable, or reasonably related thereto; (b) liquidate or dissolve; or
(c) (i) have a change in any member of the Senior Management Group
or (ii) enter into
any transaction or series of related transactions in which the stockholders of
Borrower who were not stockholders immediately prior to the first such
transaction own more than forty-nine percent (49.00%) of the voting stock of
Borrower immediately after giving effect to such transaction or related series
of such transactions (other than by the sale of Borrower’s equity securities in
a public offering or to venture capital investors so long as Borrower identifies
to Bank the venture capital investors prior to the closing of the
transaction).  Borrower shall not, without at least thirty (30) days
prior written notice to Bank: (1) add any new offices or business
locations, including warehouses (unless such new offices or business locations
contain less than Ten Thousand Dollars ($10,000.00) in Borrower’s assets or
property), (2) change its jurisdiction of organization, (3) change its
organizational structure or type, (4) change its legal name, or (5) change
any organizational number (if any) assigned by its jurisdiction of
organization.

     

    
      
        
        

      

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

     

    7.4          
Indebtedness.  Create,
incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do
so, other than Permitted Indebtedness.

     

    7.5          
Encumbrance.  Create,
incur, or allow any Lien on any of  its property, or assign or convey
any right to receive income, including the sale of any Accounts, or permit any
of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral
not to be subject to the first priority security interest granted herein, or
enter into any agreement, document, instrument or other arrangement (except with
or in favor of Bank) with any Person which directly or indirectly prohibits or
has the effect of prohibiting Borrower or any Subsidiary from assigning,
mortgaging, pledging, granting a security interest in or upon, or encumbering
any of Borrower’s or any Subsidiary’s intellectual property, except as is
otherwise permitted in Section 7.1 hereof and the definition of “Permitted Lien”
herein.

     

    7.6          
Maintenance of Collateral
Accounts.  Maintain any Collateral Account except pursuant to
the terms of Section 6.8(b) hereof.

     

    7.7          
Investments;
Distributions.  (a) Directly or indirectly make any Investment
other than Permitted Investments, or permit any of its Subsidiaries to do so; or
(b) pay any dividends or make any distribution or payment or redeem, retire or
purchase any capital stock provided that (i) Borrower may convert any of
its convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange thereof, (ii) Borrower may
pay dividends solely in common stock; and (iii) Borrower may repurchase the
stock of existing and former employees or consultants pursuant to board approved
stock repurchase agreements so long as (X) an Event of Default does not exist at
the time of such repurchase and would not exist after giving effect to such
repurchase, and (Y) such repurchase does not exceed Two Hundred Fifty Thousand
Dollars ($250,000.00) in the aggregate in any fiscal year.

     

    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.  (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any
provision in any document relating to the Subordinated Debt which would increase
the amount thereof or adversely affect the subordination thereof to Obligations
owed to Bank.

     

    7.10        
Compliance.  Become
an “investment company” or a company controlled by an “investment company”,
under the Investment Company Act of 1940 or undertake as one of its important
activities extending credit to purchase or carry margin stock (as defined in
Regulation U of the Board of Governors of the Federal Reserve System), or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could reasonably be expected to have a material adverse effect on Borrower’s
business, or permit any of its Subsidiaries to do so; withdraw or permit any
Subsidiary to withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
present pension, profit sharing and deferred compensation plan which could
reasonably be expected to result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.

     

    8              
EVENTS OF
DEFAULT

     

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

     

    8.1          
Payment
Default.  Borrower fails to (a) make any payment of
principal or interest on any Credit Extension on its due date, or (b) pay
any other Obligations within three (3) Business Days after such Obligations are

     

    
      
        
        

      

      
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    due and
payable.  During the cure period, the failure to cure the payment
default is not an Event of Default (but no Credit Extension will be made during
the cure period);

     

    8.2          
Covenant Default.

     

    (a)
Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5,
6.6, 6.7, 6.8, 6.9, 6.10, or 6.11, or violates any covenant in Section 7;
or

     

    (b)
Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement, any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to cure the default
shall not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period).  Grace periods provided under this section
shall not apply, among other things, to financial covenants or any other
covenants set forth in subsection (a) above;

     

    8.3          
Material Adverse
Change.  A Material Adverse Change occurs;

     

    8.4          
Attachment.  (a) Any
material portion of Borrower’s assets is attached, seized, levied on, or comes
into possession of a trustee or receiver and the attachment, seizure or levy is
not removed in ten (10) days; (b) the service of process upon Bank (or
Bank’s Affiliate) seeking to attach, by trustee or similar process, any funds of
Borrower, or of any entity under control of Borrower (including a Subsidiary) on
deposit with Bank (or bank’s Affiliate) in an aggregate amount in excess of
Fifty Thousand Dollars ($50,000.00); (c) Borrower is enjoined, restrained, or
prevented by court order from conducting a material part of its business; (d) a
judgment or other claim in excess of Fifty Thousand Dollars ($50,000.00) becomes
a Lien on any of Borrower’s assets and is not stayed or satisfied within ten
(10) days; or (e) a notice of lien, levy, or assessment is filed against any of
Borrower’s assets in an aggregate amount in excess of Fifty Thousand Dollars
($50,000.00) at any time by any government agency and not paid, discharged or
stayed within ten (10) days after Borrower receives notice.  These are
not Events of Default if stayed or if a bond is posted pending contest by
Borrower (but no Credit Extensions shall be made during the cure
period);

     

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

     

    8.6          
Other
Agreements.  There is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000.00)
or that could have a material adverse effect on Borrower’s
business;

     

    8.7          
Judgments.  A
judgment or judgments for the payment of money in an amount, individually or in
the aggregate, of at least Fifty Thousand Dollars ($50,000.00) (not covered by
independent third-party insurance) shall be rendered against Borrower and shall
remain unsatisfied, unvacated and unstayed for a period of ten (10) days after
the entry thereof (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment);

     

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

     

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

     

    
      
        
        

      

      
        - 13
-

        
          

        

      

      
        
        

      

    

    9              BANK’S RIGHTS AND
REMEDIES

     

    9.1          
Rights and
Remedies.  While an Event of Default occurs and continues Bank
may, without notice or demand, do any or all of the following:

     

    (a)           
declare
all Obligations immediately due and payable (but if an Event of Default
described in Section 8.5 occurs all Obligations are immediately due and payable
without any action by Bank);

     

    (b)           
stop
advancing money or extending credit for Borrower’s benefit under this Agreement
or under any other agreement between Borrower and Bank;

     

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

     

    (d)           
terminate
any FX Forward Contracts;

     

    (e)           
settle or
adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, notify any Person owing Borrower
money of Bank’s security interest in such funds, and verify the amount of such
account;

     

    (f)            
make any
payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral.  Borrower
shall assemble the Collateral if Bank requests and make it available as Bank
designates.  Bank may enter premises where the Collateral is located,
take and maintain possession of any part of the Collateral, and pay, purchase,
contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred. Borrower grants Bank a license
to enter and occupy any of its premises, without charge, to exercise any of
Bank’s rights or remedies;

     

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

     

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

     

    (i)            
place a
“hold” on any account maintained with Bank and/or deliver a notice of exclusive
control, any entitlement order, or other directions or instructions pursuant to
any Control Agreement or similar agreements providing control of any
Collateral;

     

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

     

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

     

    9.2          
Power of
Attorney.  Borrower hereby irrevocably appoints Bank as its
lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to:  (a) endorse Borrower’s name
on any checks or other forms of payment or security; (b) sign Borrower’s name on
any invoice or bill of lading for any Account or drafts against Account Debtors;
(c) settle and adjust disputes and claims about the Accounts directly with
Account Debtors, for amounts and on terms Bank determines reasonable; (d) make,
settle, and adjust all claims under Borrower’s insurance policies; (e) pay,
contest or settle any Lien, charge, encumbrance, security interest, and adverse
claim in or to the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; and (f) transfer the Collateral
into the name of Bank or a third party as the Code permits.  Borrower
hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on
any documents 

     

    
      
        
        

      

      
        - 14
-

        
          

        

      

      
        
        

      

    

    necessary
to perfect or continue the perfection of any security interest in the Collateral
regardless of whether an Event of Default has occurred until all Obligations
have been satisfied in full and Bank is under no further obligation to make
Credit Extensions hereunder.  Bank’s foregoing appointment as
Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with
an interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank’s obligation to provide Credit Extensions
terminates.

     

    9.3          
Protective
Payments.  If Borrower fails to obtain the insurance called for
by Section 6.7 or fails to pay any premium thereon or fails to pay any other
amount which Borrower is obligated to pay under this Agreement or any other Loan
Document, Bank may obtain such insurance or make such payment, and all amounts
so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest applicable rate charged by Bank, and secured by the
Collateral.  Bank will make reasonable efforts to provide Borrower
with notice of Bank obtaining such insurance at the time it is obtained or
within a reasonable time thereafter.  No payments by Bank are deemed
an agreement to make similar payments in the future or Bank’s waiver of any
Event of Default.

     

    9.4          
Application of Payments and
Proceeds.  Unless an Event of Default has occurred and is
continuing, Bank shall apply any funds in its possession, whether from Borrower
account balances, payments, or proceeds realized as the result of any collection
of Accounts or other disposition of the Collateral, first, to Bank
Expenses, including without limitation, the reasonable costs, expenses,
liabilities, obligations and attorneys’ fees incurred by Bank in the exercise of
its rights under this Agreement; second, to the interest due upon any of the
Obligations; and third, to the principal of the Obligations and any applicable
fees and other charges, in such order as Bank shall determine in its sole
discretion.  Any surplus shall be paid to Borrower or other Persons
legally entitled thereto; Borrower shall remain liable to Bank for any
deficiency.  If an Event of Default has occurred and is continuing,
Bank may apply any funds in its possession, whether from Borrower account
balances, payments, proceeds realized as the result of any collection of
Accounts or other disposition of the Collateral, or otherwise, to the
Obligations in such order as Bank shall determine in its sole
discretion.  Any surplus shall be paid to Borrower or to other Persons
legally entitled thereto; Borrower shall remain liable to Bank for any
deficiency.  If Bank, in its good faith business judgment, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Bank shall have the option, exercisable at
any time, of either reducing the Obligations by the principal amount of the
purchase price or deferring the reduction of the Obligations until the actual
receipt by Bank of cash therefor.

     

    9.5          
Bank’s Liability for
Collateral.  So long as Bank complies with reasonable banking
practices regarding the safekeeping of the Collateral in the possession or under
the control of Bank, Bank shall not be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any
diminution in the value of the Collateral; or (d) any act or default of any
carrier, warehouseman, bailee, or other Person.  Borrower bears all
risk of loss, damage or destruction of the Collateral.

     

    9.6          
No Waiver; Remedies
Cumulative.  Bank’s failure, at any time or times, to require
strict performance by Borrower of any provision of this Agreement or any other
Loan Document shall not waive, affect, or diminish any right of Bank thereafter
to demand strict performance and compliance herewith or therewith.  No
waiver hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it is
given.  Bank’s rights and remedies under this Agreement and the other
Loan Documents are cumulative.  Bank has all rights and remedies
provided under the Code, by law, or in equity.  Bank’s exercise of one
right or remedy is not an election, and Bank’s waiver of any Event of Default is
not a continuing waiver.  Bank’s delay in exercising any remedy is not
a waiver, election, or acquiescence.

     

    9.7          
Demand
Waiver.  Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

     

    10           
NOTICES

     

    All
notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”), other than
Advance requests made pursuant to Section 3.4, by any party to this Agreement or
any other Loan Document must be in writing and be delivered or sent by facsimile
at the addresses or facsimile numbers listed below.  Bank or Borrower
may change its notice address by giving the other party written notice
thereof.  Each such Communication shall be deemed to have been validly
served, given, or delivered: (a) upon the earlier of actual receipt and three
(3) Business Days after deposit in the U.S. mail, registered or certified mail,
return 

     

    
      
        
        

      

      
        - 15
-

        
          

        

      

      
        
        

      

    

    receipt
requested, with proper postage prepaid; (b) upon transmission, when sent by
facsimile transmission (with such facsimile promptly confirmed by delivery of a
copy by personal delivery or United States mail as otherwise provided in this
Section 10); (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid; or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated below.  Advance requests
made pursuant to Section 3.4 must be in writing and may be in the form of
electronic mail, delivered to Bank by Borrower at the e-mail address of Bank
provided below and shall be deemed to have been validly served, given, or
delivered when sent (with such electronic mail promptly confirmed by delivery of
a copy by personal delivery or United States mail as otherwise provided in this
Section 10).  Bank or Borrower may change its address, facsimile
number, or electronic mail address by giving the other party written notice
thereof in accordance with the terms of this Section 10.

    
    

     

    
      	 	
              If to
      Borrower: 

            	
              World
      Energy Solutions, Inc.

              World
      Energy Securities Corp.

              c/o
      World Energy Solutions, Inc.

              446
      Main Street

              Worcester,
      Massachusetts 01608

              Attn:  Jim
      Parslow, CFO

              Fax:  (508)
      459-8101

              Email:   jparslow@worldenergy.com 

            
	 	 	 
	 	
              with a copy
      to:  

            	
              Wilmer
      Cutler Pickering Hale and Dorr LLP

              60
      State Street

              Boston,
      Massachusetts

              Attn:   Mr.
      Mitchel Appelbaum

              Fax:   (617)
      526-5000

              Email:   mitchel.appelbaum@wilmerhale.com 

            
	 	 	 
	 	
              If to
      Bank: 

            	
              Silicon
      Valley Bank

              One
      Newton Executive Park, Suite 200

              2221
      Washington Street, Newton, MA 02462

              Attn:   Mr.
      David Rodriguez

              Fax:   (617)
      969-4395

              Email:   drodriguez@svb.com 

            
	 	 	 
	 	
              with a copy
      to: 

            	
              Riemer
      & Braunstein LLP

              Three
      Center Plaza

              Boston,
      Massachusetts 02108

              Attn:   Charles
      W. Stavros, Esquire

              Fax:   (617)
      880-3456

              Email:   cstavros@riemerlaw.com 

            

    

     

    11           
CHOICE OF LAW, VENUE AND
JURY TRIAL WAIVER

     

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

     

    
      
        
        

      

      
        - 16
-

        
          

        

      

      
        
        

      

    

    BANK
SHALL SPECIFICALLY HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK
DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO
OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS PROPERTY.

     

    TO THE EXTENT PERMITTED BY APPLICABLE
LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS
OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND
ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER
INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS
COUNSEL.

     

    12           
GENERAL
PROVISIONS

     

    12.1        
Termination Prior to Maturity
Date.  This Agreement may be terminated prior to the Revolving
Line Maturity Date by Borrower, effective three (3) Business Days after written
notice of termination is received by Bank or if Bank’s obligation to fund Credit
Extensions terminates pursuant to the terms of Section
2.1.1(b).  Notwithstanding any such termination, Bank’s lien and
security interest in the Collateral shall continue until Borrower fully
satisfies its Obligations.  If such termination is at Borrower’s
election or at Bank’s election due to the occurrence and continuance of an Event
of Default, Borrower shall pay to Bank, in addition to the payment of any other
expenses or fees then-owing, a termination fee in an amount equal to Fifteen
Thousand Dollars ($15,000.00) provided that no termination fee shall be charged
if the credit facility hereunder is replaced with a new facility from another
division of Silicon Valley Bank.  Upon payment in full of the
Obligations and at such time as Bank’s obligation to make Credit Extensions has
terminated, Bank shall release its liens and security interests in the
Collateral and all rights therein shall revert to Borrower.

     

    12.2        
Successors and
Assigns.  This Agreement binds and is for the benefit of the
successors and permitted assigns of each party.  Borrower may not
assign this Agreement or any rights or obligations under it without Bank’s prior
written consent (which may be granted or withheld in Bank’s
discretion).  Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank’s obligations, rights, and benefits under this
Agreement and the other Loan Documents.

     

    12.3        
Indemnification.  Borrower
agrees to indemnify, defend and hold Bank and its directors, officers,
employees, agents, attorneys, or any other Person affiliated with or
representing Bank harmless against:  (a) all obligations,
demands, claims, and liabilities (collectively, “Claims”) asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses incurred, or paid by Bank from, following,
or arising from transactions between Bank and Borrower (including reasonable
attorneys’ fees and expenses), except for Claims and/or losses directly caused
by Bank’s gross negligence or willful misconduct.

     

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

     

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

     

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

     

    12.7        
Counterparts.  This
Agreement may be executed in any number of counterparts and by different parties
on separate counterparts, each of which, when executed and delivered, are an
original, and all taken together, constitute one Agreement.

     

    12.8        
Survival.  All
covenants, representations and warranties made in this Agreement continue in
full force until this Agreement has terminated pursuant to its terms and all
Obligations (other than inchoate indemnity obligations and any other obligations
which, by their terms, are to survive the termination of this Agreement) have

     

    
      
        
        

      

      
        - 17
-

        
          

        

      

      
        
        

      

    

    been
satisfied.  The obligation of Borrower in Section 12.3 to indemnify
Bank shall survive until the statute of limitations with respect to such claim
or cause of action shall have run.

     

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

     

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

     

    12.11     
Borrower Liability. Either Borrower may,
acting singly, request Credit Extensions hereunder.  Each Borrower
hereby appoints the other as agent for the other for all purposes hereunder,
including with respect to requesting Credit Extensions hereunder. Each Borrower
hereunder, jointly and severally, shall be obligated to repay all Credit
Extensions made hereunder, regardless of which Borrower actually receives said
Advance, as if each Borrower hereunder directly received all Credit
Extensions.  Each Borrower waives any suretyship defenses available to
it under the Code or any other applicable law.  Each Borrower waives
any right to require Bank to: (i) proceed against any Borrower or any other
person; (ii) proceed against or exhaust any security; or (iii) pursue any other
remedy.  Bank may exercise or not exercise any right or remedy it has
against any Borrower or any security it holds (including the right to foreclose
by judicial or non-judicial sale) without affecting any Borrower’s
liability.  Notwithstanding any other provision of this Agreement or
other related document, each Borrower irrevocably waives all rights that it may
have at law or in equity (including, without limitation, any law subrogating
Borrower to the rights of Bank under this Agreement) 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 Borrower with respect to the Obligations in
connection with this Agreement 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 Borrower with respect to the Obligations in connection
with this Agreement or otherwise.  Any agreement providing for
indemnification, reimbursement or any other arrangement prohibited under this
Section shall be null and void.  If any payment is made to a Borrower
in contravention of this Section, 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.

     

    12.12     
Right of Set
Off.   Borrower hereby grants to Bank, a lien, security
interest and right of set off as security for all Obligations to Bank, whether
now existing or hereafter arising upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of Bank
(including a Bank subsidiary) or in transit to any of them.  At any
time after the occurrence and during the continuance of an Event of Default,
without demand or notice, Bank may set off the same or any part thereof and
apply the same to any liability or obligation of Borrower even though unmatured
and regardless of the adequacy of any other collateral securing the
Obligations.  ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS
RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE
OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH
DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.

     

    13           
DEFINITIONS

     

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

     

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

     

    
      
        
        

      

      
        - 18
-

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

    “Agreement” is defined in the
preamble hereof.

     

    “Adjusted Quick Ratio” is, on
any date of determination, the ratio of (a) (i) Borrower’s unrestricted cash at
Bank, plus (ii)
Eligible Accounts, to (b) (i) all
Indebtedness of Borrower owed to Bank, plus (ii) without
duplication, the aggregate amount of Borrower’s Total Liabilities that mature
within one (1) year, minus (ii) Deferred
Revenue.

     

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

     

    “Bank” is defined in the
preamble hereof.

     

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

     

    “Borrower” is defined in the
preamble hereof.

     

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

     

    “Borrowing Base” is (a) eighty
percent (80.0%) of Eligible Accounts, plus (b) twenty-five percent (25%) of
Eligible Retail Backlog Accounts, capped at an amount not to exceed twenty-five
percent (25%) of clause (a) plus clause (b), in each case as determined by Bank
from Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank
may decrease the foregoing percentages in its good faith
business judgment based on events, conditions, contingencies, or risks which, as
determined by Bank, may adversely affect the value of the
Collateral.

     

    “Borrowing Base Certificate” is
that certain certificate included within each Transaction Report.

     

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

     

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

     

    “Cash Equivalents” means
(a) marketable direct obligations issued or unconditionally guaranteed by
the United States or any agency or any State thereof having maturities of not
more than one (1) year from the date of acquisition; (b) commercial paper
maturing no more than one (1) year after its creation and having the highest
rating 

     

    
      
        
        

      

      
        - 19
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    from
either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.,
(c) Bank’s certificates of deposit issued maturing no more than one (1) year
after issue; and (d) money market funds at least ninety-five percent (95%) of
the assets of which constitute Cash Equivalents of the kinds described in
clauses (a) through (c) of this definition.

     

    “Cash Management Services” is
defined in Section 2.1.4.

     

    “Cash Management Services Sublimit”
is defined in Section 2.1.4.

     

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

    

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

     

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

     

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

     

    “Communication” is defined in
Section 10.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        - 20
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    “Designated Deposit Account” is
Borrower’s deposit account, account number _____________, maintained with
Bank.

     

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

     

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

     

    “Eligible Accounts” are
Accounts which arise in the ordinary course of Borrower’s business that meet all
Borrower’s representations and warranties in Section 5.3.  Bank
reserves the right at any time and from time to time after the Effective Date
upon notice to Borrower, to adjust any of the criteria set forth below and to
establish new criteria in its good faith business judgment.  Without
limiting the fact that the determination of which Accounts are eligible for
borrowing is a matter of Bank’s good faith judgment, the following (“Minimum
Eligibility Requirements”) are the minimum requirements for an Account to be an
Eligible Account.  Unless Bank agrees otherwise in writing, Eligible
Accounts shall not include:

     

    (a)           
Accounts that the Account Debtor has not paid within ninety (90) days of invoice
date;

     

    (b)           
Accounts owing from an Account Debtor, fifty percent (50%) or more of whose
Accounts have not been paid within ninety (90) days of invoice
date;

     

    (c)           
Credit balances over ninety (90) days from invoice date;

     

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

     

    (e)           
Represent progress billings, or be due under a fulfillment or requirements
contract;

     

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

     

    (g)           
Accounts owing from the United States or any department, agency, or
instrumentality thereof except for Accounts of the United States if Borrower has
assigned its payment rights to Bank and the assignment has been acknowledged
under the Federal Assignment of Claims Act of 1940, as amended;

     

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

     

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

     

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

     

    (k)           
Accounts in which the Account Debtor disputes liability or makes any claim (but
only up to the disputed or claimed amount), or if the Account Debtor is subject
to an Insolvency Proceeding, or becomes insolvent, or goes out of
business;

     

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

     

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

     

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

     

    
      
        
        

      

      
        - 21
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    “Eligible Retail Backlog
Accounts” are Accounts that (i) are otherwise Eligible Accounts and (ii)
are contractually due to be recognized as revenue within ninety (90) days and
are the result of completed auctions.

     

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

     

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

     

    “Event of Default” is defined
in Section 8.

     

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

     

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

     

    “FX Forward Contract” is defined in Section
2.1.3.

     

    “FX Reserve” is defined in Section
2.1.3.

     

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

     

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

     

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

     

    “Initial Audit” is Bank’s
initial inspection of the Collateral and Borrower’s Books.

     

    “Insolvency Proceeding” is any
proceeding by or against any Person under the United States Bankruptcy Code, or
any other bankruptcy or insolvency law, including assignments for the benefit of
creditors, compositions, extensions generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.

     

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

     

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

     

    
      
        
        

      

      
        - 22
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    “Letter of Credit” means a
standby letter of credit issued by Bank or another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Bank as
set forth in Section 2.1.2.

     

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

     

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

     

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

     

    “Loan Documents” are,
collectively, this Agreement, the Perfection Certificate, the Subordination
Agreement, if any, any note, or notes or guaranties executed by Borrower, or any
other present or future agreement executed by Borrower, if any, and/or for the
benefit of Bank in connection with this Agreement, each as amended, restated, or
otherwise modified.

     

    “Material Adverse Change” is
(a) a material impairment in the perfection or priority of Bank’s Lien in the
Collateral or in the value of such Collateral; (b) a material adverse change in
the business, operations, or condition (financial or otherwise) of Borrower; (c)
a material impairment of the prospect of repayment of any portion of the
Obligations or (d)
Bank determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower shall fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.

     

    “Minimum Eligibility
Requirements” is defined in the defined term “Eligible
Accounts”.

     

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

     

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

     

    “Payment” means all checks, wire
transfers and other items of payment received by Bank (including proceeds of
Accounts and payment of all the Obligations in full) for credit to Borrower’s
outstanding Credit Extensions or, if the balance of the Credit Extensions has
been reduced to zero, for credit to its Deposit Accounts.

     

    “Perfection Certificate” is
defined in Section 5.1.

     

    “Permitted Indebtedness”
is:

     

    (a)           
Borrower’s Indebtedness to Bank under this Agreement and the other Loan
Documents;

     

    (b)           
Indebtedness existing on the Effective Date and shown on the Perfection
Certificate;

     

    (c)           
Subordinated Debt, if any;

     

    (d)           
unsecured Indebtedness to trade creditors incurred in the ordinary course of
business; any

     

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

     

    (f)            
Indebtedness secured by Permitted Liens;

     

    (g)           
Indebtedness not otherwise permitted by Section 7.4 in an amount not to exceed
Fifty Thousand Dollars ($50,000) in the aggregate outstanding at any time;
and

     

    
      
        
        

      

      
        - 23
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    (h)           extensions,
refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (g) above, provided that the principal amount
thereof is not increased or the terms thereof are not modified to impose more
burdensome terms upon Borrower or its Subsidiary, as the case may
be.

     

    “Permitted Investments”
are:

     

    (a)           
Investments shown on the Perfection Certificate and existing on the Effective
Date;

     

    (b)           
Cash Equivalents;

     

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

     

    (d)           
Investments consisting of (i) travel advances and employee relocation loans and
other employee loans and advances in the ordinary course of business, and (ii)
loans to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower’s Board of Directors;

     

    (e)           
Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business; and

     

    (f)           
Investments consisting of notes receivable of, or prepaid royalties and other
credit extensions, to customers and suppliers who are not Affiliates, in the
ordinary course of business; provided that this paragraph (f) shall not apply to
Investments of Borrower in any Subsidiary;

     

    “Permitted Liens”, whether now
existing or hereafter arising, are:

     

    (a)           
Liens existing on the Effective Date and shown on the Perfection Certificate or
arising under this Agreement and the other Loan Documents;

     

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

     

    (c)           
purchase money Liens (i) on Equipment acquired or held by Borrower incurred for
financing the acquisition of the Equipment securing no more than One Hundred
Thousand Dollars ($100,000.00) in the aggregate amount outstanding, or (ii)
existing on Equipment when acquired, if the Lien is
confined to the property and improvements and the proceeds of the
Equipment;

     

    (d)           
Liens of carriers, warehousemen, suppliers, or other Persons that are possessory
in nature arising in the ordinary course of business, so long as such Liens
attach only to Inventory, that are not delinquent, that remain payable without
penalty, or that are being contested in good faith and by appropriate
proceedings that have the effect of preventing the forfeiture or sale of the
property subject to such Liens;

     

    (e)           
Liens to secure payment of workers’ compensation, employment insurance, old age
pensions, social security, and other like obligations incurred in the ordinary
course of business (other than Liens imposed by ERISA);

     

    (f)            
Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not
increase;

     

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

     

    
      
        
        

      

      
        - 24
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    (h)           
non-exclusive licenses of intellectual property granted to third parties in the
ordinary course of business;

     

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

     

    (j)            
Liens securing Permitted Indebtedness;

     

    (k)           
Liens in favor of any landlord of Borrower solely to secure the payment of rent
by Borrower; and

     

    (k)           
Liens in favor of other financial institutions arising in connection with
Borrower’s deposit and/or securities accounts held at such
institutions.

     

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

     

    “Prime Rate” is Bank’s most
recently announced “prime rate,” even if it is not Bank’s lowest
rate.

     

    “Registered Organization” is
any “registered organization” as defined in the Code with such additions to such
term as may hereafter be made.

     

    “Reserves” means, as of any
date of determination, such amounts as Bank may from time to time establish and
revise in good faith reducing the amount of Advances, Letters of Credit and
other financial accommodations which would otherwise be available to Borrower
under the lending formulas:  (a) to reflect events, conditions,
contingencies or risks which, as determined by Bank in good faith, do or may
affect (i) the Collateral or any other property which is security for the
Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets or business of Borrower or any
guarantor, or (iii) the security interests and other rights of Bank in the
Collateral (including the enforceability, perfection and priority thereof); or
(b) to reflect Bank’s good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any guarantor to Bank is or
may have been incomplete, inaccurate or misleading in any material respect; or
(c) in respect of any state of facts which Bank determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.

     

    “Responsible Officer” is any of
the Chief Executive Officer, President, Chief Financial Officer and Controller
of Borrower.

     

    “Revolving Line” is an Advance
or Advances in an aggregate amount of up to Three Million Dollars
($3,000,000.00) outstanding at any time.

     

    “Revolving Line Maturity Date”
is September 7, 2009.

     

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

     

    “Senior Management Group” is
the group of individuals, exclusive of others, who, as of the Effective Date,
hold any of the following positions at Borrower: Chief Executive Officer, Chief
Operating Officer, and Chief Financial Officer.

     

    “Settlement Date” is defined in Section
2.1.3.

     

    “Streamline Period” is any date
of measurement in which Borrower’s Adjusted Quick Ratio is greater than or equal
to 1.0 to 1.0.

     

    “Subordinated Debt” is
indebtedness incurred by Borrower subordinated to all of Borrower’s now or
hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or
other similar agreement in form and substance satisfactory to Bank entered into
between Bank and the other creditor), on terms acceptable to Bank.

     

    
      
        
        

      

      
        - 25
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    “Subordination Agreement” is
any agreement, in form and substance acceptable to Bank in its sole discretion,
as required by Bank in its sole discretion, subordinating Subordinated Debt to
the Bank.

     

    “Subsidiary” means, with
respect to any Person, any Person of which more than fifty percent (50%) of the
voting stock or other equity interests is owned or controlled, directly or
indirectly, by such Person or one or more Affiliates of such
Person.

     

    “Tangible Net Worth” is, on any
date, the consolidated total assets of Borrower and its Subsidiaries minus (a) any amounts
attributable to (i) goodwill, (ii) intangible items including unamortized debt
discount and expense, patents, trade and service marks and names, copyrights and
research and development expenses except prepaid expenses, (iii) notes, accounts
receivable and other obligations owing to Borrower from its officers or other
Affiliates, and (iv) reserves not already deducted from assets, minus (b) Total
Liabilities plus (c) Subordinated
Debt.

     

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

     

    “Transaction Report” is the
Bank’s standard reporting package provided by Bank to Borrower.

     

    “Transfer” is defined in
Section 7.1.

     

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

     

    

     

    [Signature page follows.]

     

    

     

    
      
        
        

      

      
        - 26
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    IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed as a sealed instrument
under the laws of the Commonwealth of Massachusetts as of the Effective
Date.

     

    BORROWER:

     

    WORLD
ENERGY SOLUTIONS, INC.

     

    By_________________________________________

     

    Name:______________________________________

     

    Title:_______________________________________

     

    

     

    WORLD
ENERGY SECURITIES CORP.

     

    By_________________________________________

     

    Name:______________________________________

     

    Title:_______________________________________

     

    

     

    BANK:

     

    SILICON
VALLEY BANK

     

    By_________________________________________

     

    Name:______________________________________

     

    Title:_______________________________________

     

    Effective
Date: September ____, 2008

     

     

     

    

    
      
        
          
            [Signature
page to Loan and Security Agreement]

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
A

    

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

     

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

     

    all
Borrower’s Books relating to the foregoing, and any and all claims, rights and
interests in any of the above and all substitutions for, additions, attachments,
accessories, accessions and improvements to and replacements, products, proceeds
and insurance proceeds of any or all of the foregoing.

     

    Notwithstanding
the foregoing, the Collateral does not include any of the following, whether now
owned or hereafter acquired: any copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work, whether published or unpublished, any patents, patent
applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrower connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing, and any personal property in which a purchase money creditor has
or obtains a purchase money security interest, but only (a) to the extent such
purchase money creditor prohibits the Borrower from further encumbering such
personal property; and (b) for as long as such purchase money security interest
exists in such personal property; provided, however, the
Collateral shall include all Accounts, license and royalty fees and other
revenues, proceeds, or income arising out of or relating to any of the
foregoing.

     

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

     

    

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

    EXHIBIT
B

    

    COMPLIANCE
CERTIFICATE

    

     

    
      	
              TO:           SILICON
      VALLEY BANK

              FROM:     WORLD
      ENERGY SOLUTIONS, INC.

                               
      AND WORLD ENERGY SECURITIES CORP. 

            	Date: 

              
       

    

     

    

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

     

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

       

    

    
      	
              Reporting
      Covenant

            	
              Required

            	
              Complies

            
	 
      	 
      	 
      
	
              Monthly
      financial statements with Compliance
      Certificate

            	
              Monthly
      within 30 days

            	
              Yes   No

            
	
              Annual
      financial statement (CPA Audited) + CC

            	
              FYE
      within 150 days

            	
              Yes   No

            
	
              10-Q,
      10-K and 8-K

            	
              Within
      5 days after filing with SEC

            	
              Yes   No

            
	
              A/R
      & A/P Agings, Deferred Revenue report, and schedule
      of expected collections

            	
              Monthly
      within 20 days

            	
              Yes   No

            
	
              Borrowing
      Base Certificate

            	
              Monthly
      within 20 Days during
      Streamline Period

            	
              Yes   No

            
	
              Transaction
      Report

            	
              Weekly
      when not Streamline Period

            	
              Yes   No

            
	
              Board-approved
      projections

            	
              Within
      30 days of approval

            	
              Yes   No

            

    

    

    
      	
              Financial
      Covenant

            	
              Required

            	
              Actual

            	
              Complies

            
	 
      	 
      	 
      	 
      
	
              Maintain,
      to be tested monthly:

            	 
      	 
      	 
      
	
              Tangible
      Net Worth

            	
              $500,000

            	
              $________

            	
              Yes   No

            

    

    

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

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

    

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

    

    
      	
              WORLD
      ENERGY SOLUTIONS, INC.

               

              By:_____________________________

              Name:___________________________

              Title:____________________________

               

              WORLD
      ENERGY SECURITIES CORP.

               

              By:_____________________________

              Name:___________________________

              Title:____________________________

               

               

            	
              BANK
      USE ONLY

               

              Received
      by: _____________________

              authorized
      signer

              Date: __________________________

               

              Verified:
      ________________________

              authorized
      signer

              Date: __________________________

               

              Compliance
      Status:                    Yes       
      No

            

    

    

    

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    Schedule 1 to Compliance
Certificate

    

    Financial Covenants of
Borrower

    

    Dated: ____________________

    

    I.           Tangible Net Worth (Section
6.9(a))

    

    Required:                      $500,000.00

    

    Actual:

    
      	
              A.

            	
              Aggregate
      value of consolidated total assets of Borrower and its
      Subsidiaries

               

            	
              $

            
	
              B.

            	
              1.  
      Aggregate value of goodwill of Borrower and its
    Subsidiaries

            	
              $

               

            
	 
      	
              2.  
      Aggregate value of intangible assets of Borrower and its
      Subsidiaries

            	
              $

               

            
	 
      	
              3.  
      Aggregate value of notes, accounts receivables, and other obligations
      owing to Borrower from its officers or other Affiliates

               

            	
              $

            
	 
      	
              4.  
      Aggregate value of any reserves not already deducted from
      assets

            	
              $

               

            
	 
      	
              5.  
      Total Liabilities

            	
              $

               

            
	
              C.

               

            	
              Net
      Tangible net Worth (line A minus lines B.1 through B.5)

            	
              $

               

            
	
              D.

               

            	
              Subordinated
      Debt

            	
              $

               

            
	
              E.

            	
              Tangible
      Net Worth (line C plus line
      D)

            	
              $

               

            

    

    

    Is line E
equal to or greater than $500,000.00?

     

        _________ No,
not in
compliance                                                                 _________Yes,
in complianceEXHIBIT 10.1

LIPPERT/HEILSHORN
_________________
& ASSOCIATES, INC.

                                               EXCELLENCE  IN INVESTOR RELATIONS
                                800 Third Avenue 17th FLOOR * New York, NY 10022
                                                 212.838.3777 * Fax 212.838.4568
                                                                    WWW.LHAI.COM

September 2,2008

Mr. Kenneth C. Barker
Chief Executive Officer,  Director
NATURALLY  ADVANCED  TECHNOLOGIES, INC.
1008 Homer Street
Suite 402
Canada, V6B 2X1

Dear Ken:

This letter confirms the following  agreement  between our respective  companies
(the "Agreement"):

1.   NATURALLY   ADVANCED   TECHNOLOGIES,   INC.   ("Company")   hereby  retains
     Lippert/Heilshorn & Associates, Inc., ("LHA"), effective September 2, 2008,
     for  implementation  of  Company's  financial  communications  program (the
     "Program"). (As the context so requires, each of the Company and LHA may be
     referred to herein,  individually and collectively,  as the "Party" and the
     "Parties", respectively.).

2.   The services  ("Services")  to be performed by LHA on behalf of the Company
     and under the Program will include, but are not limited to, the following:

     a.   Develop,  for approval and  implementation  by the Company,  a program
          plan of  activities  designed to achieve  agreed upon  objectives  and
          provide appropriate services of LHA's professional staff;

     b.   Provide  objective  "counsel on a full spectrum of strategic  investor
          relations and opportunities issues including best practices,  material
          disclosure, corporate governance and crisis situations;

     c.   Conduct a mini  perception  audit to gage the Company's  reputation on
          Wall Street;

     d.   Prepare a  Corporate  Fact  Sheet to market  the  Company  to  various
          investor constituencies;

     e.   Assist in the drafting, finalization and issuing of all press releases
          subject to the Company's prior approval;

     f.   Assemble  and maintain  quarterly  buy/sell-side  industry  peer group
          matrixes for the Company;

     g.   Arrange  periodic set of meetings with locations to be determined with
          buy/sell-side  analysts,  retail  brokers  and  investment  bankers if
          appropriate and provide a feedback document for the same;

     h.   Coordinate  conference call activities  between Company management and
          key  investment   professionals,   when  appropriate,   i.e.  for  the
          disclosure  of  Company  quarterly  results,   major  news,  including
          scripting  prepared  remarks,  previewing  Q&A sessions and a detailed
          feedback document for the same;

     i.   Provide written quarterly board reports reviewing activities initiated
          by LHA on the  Company's  behalf  and  anticipated  for the  following
          quarter, unless otherwise specified;

     j.   Prepare,  subject to the  Company's  prior  approval,  and  distribute
          letters to shareholders (if applicable);

     k.   LHA to take the marketing lead for both Canadian and U.S.  markets for
          the Company;

     l.   List the Company as a client in LHA's Client Roster;

     m.   Include the Company in LHA's Client List sent to investors who inquire
          about LHA clients; and

     n.   Periodic reviews of the Company's  descriptions and coverage to assure
          accuracy in various  Electronic  Bulletins  such as Bloomberg  and Dow
          Jones.

<PAGE>

3.   Subject to the  Company's  prior receipt of approval  (the  "Approval),  if
     required,  from the TSX Venture  Exchange (the "Exchange") of the terms and
     conditions  of this  Agreement as set forth in paragraph 17 below (and such
     Approval  date  being  the  "Effective  Date"  of  this  Agreement  for all
     purposes),  the initial  term (the "Term") of this  Agreement  shall be the
     twelve  (12)  month  period   commencing  on  the  Effective  Date  hereof.
     Thereafter, this Agreement shall automatically renew for successive two (2)
     month  periods  unless either Party  provides  notice to the other Party of
     non-renewal  with the notice to be sent no later  than sixty (60)  calendar
     days prior to the end of the original  Term or any extended  term  thereof.
     However,  the Company may  terminate  this  Agreement at anytime  after the
     initial  ninety (90) calendar day period during the initial Term with sixty
     (60)  calendar  day's  advance  notice to LHA.  During  said sixty (60) day
     notice  period  the  Parties  shall   continue  to  perform  all  of  their
     obligations  under  this  Agreement,   including  LHA's  Services  and  the
     Company's  payment of the  monthly  retainer  fee,  stock  options  and the
     reimbursement of expenses as set forth herein.

4.   During  the  Term and  during  the  continuance  of this  Agreement, and in
     consideration of the Services being provided  hereunder,  the Company shall
     pay and provide to the LHA the following:

     a.   Monthly retainer fee payments:

          o    From the Effective Date through October 31, 2008;  $15,000.00 per
               month pro rated from the Effective Date; and

          o    From  November 1, 2008  through  August 31, 2009;  $9,000.00  per
               month.

               In this  respect  the Company  shall  provide LHA with an initial
               $30,000.00  retainer payment to cover the first two (2) months of
               the monthly  retainer fee under this Agreement  immediately  upon
               the Effective Date hereof.

               Should this Agreement be continued after the initial Term hereof,
               and commencing on September 1, 2009, and on each anniversary year
               thereafter during the further continuance of this Agreement, both
               Parties agree that the monthly fee retainer shall be increased by
               not less than five percent (5%) from the previous period in order
               to offset LHA's increased  operating  expenses resulting from the
               continuance of this Agreement.

     b.   Stock Option:

          Effective  on the  Effective  Date  hereof  LHA or, at LHA's  sole and
          absolute  discretion,  LHA's  principals  or  employees  who  will  be
          responsible for the Services being provided hereunder, will be granted
          an incentive stock option or options  (collectively,  the "Option") to
          acquire up to an  aggregate  of 100,000  common  shares of the Company
          (each a "Share"),  at an Option exercise price of Cdn.$l.25 per Share;
          and  representing the Fair Market Value of the Company's common shares
          as traded on the Exchange on the execution  date hereof,  for a period
          of five years from the  Effective  Date  hereof,  and  vesting,  as to
          exercise,  equally  over 18 months  from the  Effective  Date,  all in
          accordance  with  the  Company's  current  Stock  Option  Plan and the
          current policies of the Exchange.

5.   In the event  that LHA is  required  by the  Company  to  perform  services
     outside the scope of the Services  otherwise  agreed upon under paragraph 2
     hereof  (collectively,  the "Outside  Services"),  then LHA, with the prior
     written  approval of the  Company,  will be entitled to invoice the Company
     for such Outside  Services at LHA's  standard  billable  hourly  rates,  as
     listed  in  Appendix  2 which is  attached  to this  Agreement,  for  LHA's
     participating  principals and staff, as they are required to carry-out such
     Outside Services, plus all agreed upon expenses for the same.

6.   The Company shall be responsible  for all  pre-approved  and reasonable and
     necessary  expenses and disbursements  (collectively,  the "Expenses") made
     and incurred by LHA on the Company's behalf and including,  but not limited
     to, all pre-approved  long distance  telephone calls and in-house  expenses
     (said types of Expenses  being  detailed in Appendix I which is attached to
     this  Agreement).  All LHA partner air travel scheduled for longer than two
     (2) hours will, by agreement,  be undertaken  through  "Business Class". At
     the end of each month LHA shall invoice the Company for said pre-approved

<PAGE>

     Expenses and each invoice  shall itemize all Expenses and the Company shall
     reimburse LHA for them.  LHA's  invoices to the Company will be dated as of
     the 1st of each month and are due and payable  within  thirty (30) calendar
     days of presentment to the Company. In the event that an LHA invoice is not
     paid in full within sixty (60) calendar  days from invoice date,  LHA shall
     have the right to either suspend Services  hereunder until such time as all
     unpaid  invoices are paid in full or terminate this Agreement in accordance
     with paragraph 3 hereof.

7.   Recognizing   that  each  Party's  most  highly  valued   resource  is  its
     professional staff, each Party hereby agrees that it shall not employ, hire
     or retain,  or recommend to others the employment,  hiring or retention of,
     any person as  identified  by the other Party as presently  employed by the
     other Party  without the prior  written  consent of the other  Party.  This
     limitation  will  expire two (2) years  after any such  person has left the
     employ of either Party. Upon any such breach of this provision by any Party
     hereto, both Parties hereby agree that, in addition to any relief at law or
     in equity as may be granted through arbitration and by a court of competent
     jurisdiction,  liquidated  damages  will due and  owing by the Party in the
     wrong to the  harmed  Party  equal to three (3)  times the last  annualized
     total compensation paid by the harmed Party to any such person.

8.   LHA acknowledges its  responsibility to use reasonable  efforts to preserve
     the  confidentiality  of any  information  disclosed  by the  Company  on a
     confidential  basis to LHA,  except for any  disclosures  required by court
     order,  subpoena or other judicial  process for which LHA agrees to provide
     immediate notice of to the Company in advance in order that the Company may
     protect its interests.

9.   All  materials  produced by LHA on behalf of the Company are the  Company's
     property and all rights in such materials are hereby granted to the Company
     by LHA. However, such materials will not be sent to the Company until LHA's
     receipt of final  payment of all  amounts  invoiced  by it to the  Company,
     subject to Company's right to question  Expenses.  These materials  include
     all print  collateral and electronic  documents such as fax lists and email
     lists.

10.  The  Company  understands  and  acknowledges  that LHA will  rely  upon the
     accuracy of all information (collectively, "Information") provided to it by
     Company.  The Company shall have full  responsibility  and liability to LHA
     for such  Information and the Company shall indemnify and hold LHA harmless
     from and against any demands,  claims,  judgments and  liabilities  related
     thereto  (collectively,  any  "Claims  Against  LHA").  The  Company  shall
     reimburse LHA for amounts  payable by LHA in settlement of or in payment of
     any Claims Against LHA resulting from LHA's use of the  Information and all
     costs and  expenses  incurred  by LHA in  connection  therewith,  including
     without  limitation,  reasonable  attorney's  fees and  costs of  defending
     Claims Against LHA; provided that the Company is given reasonable notice of
     such  Claims by LHA and  elects in writing  addressed  to LHA to assume the
     defense of such  Claims,  subject to LHA's  agreement  to settle or pay any
     such claims.

11.  LHA understands and acknowledges  that it will only utilize the Information
     in connection with its Services and LHA hereby assumes full  responsibility
     and  liability  to the  Company for such  utilization.  LHA shall have full
     responsibility   and  liability  to  Company  for  using  the   Information
     accurately in connection with its Services and LHA shall indemnify and hold
     the Company  harmless from and against any demands,  claims,  judgments and
     liabilities   related  thereto   (collectively   the  "Claims  Against  The
     Company").  LHA shall  reimburse  the Company  for  amounts  payable by the
     Company in  settlement  of or in payment of any Claims  Against The Company
     resulting from LHA's  negligent use of the  Information in connection  with
     the  Services  and all costs and  expenses  incurred  by LHA in  connection
     therewith and including, without limitation, reasonable attorney's fees and
     costs of defending  Claims Against The Company;  provided that LHA is given
     reasonable  notice of such  Claims  Against  The Company by the Company and
     elects in a writing  addressed  to LHA to assume the defense of such Claims
     Against The Company,  subject to the  Company's  agreement to settle or pay
     any such claims.

<PAGE>

12.  This Agreement  constitutes the entire  understanding and agreement between
     the  Parties  with  respect  to the  subject  matter  here of and all prior
     contemporaneous  understandings;  negotiations  and  agreements  are merged
     herein.

13.  The  Agreement  may not be altered,  extended,  or modified  nor any of its
     provisions  waived,  except by a document  in  writing  signed by the Party
     against whom such alteration,  modification,  extension or waiver is sought
     to be enforced.

14.  A waiver by either Party of any breach,  act or omission of the other Party
     under this Agreement is not to be deemed a waiver of any subsequent similar
     breach, act or omission.

15.  The terms and provisions of this Agreement shall be binding, upon and shall
     inure to the  benefit of each of the  Parties  hereto and their  respective
     successors and assigns.

16.  Any controversy or claim arising out of or relating to this  Agreement,  or
     the breach  thereof,  shall be settled  by  arbitration  in the City of New
     York,  State of New  York,  U.S.A.,  in  accordance  with the  rules of the
     American Arbitration  Association,  and judgment upon the award rendered by
     the arbitrator(s) may be entered in any court having jurisdiction.

17.  The Parties hereby  acknowledge  and agree that the  effectiveness  of this
     Agreement,  and the ability for LHA to provide any Services under the same,
     is subject to the Company's  prior filing and, if  applicable,  Approval of
     the  same  with  the   Exchange   together   with  such  other   supporting
     documentation  as may be required under Exchange  policy which may include,
     without  limitation,   either  an  Exchange  Form  2A  (PIF)  or  Form  2C1
     (Declaration)  from LHA and an  undertaking  from the  Company  to file all
     materials  prepared  pursuant to this  Agreement  with the  Exchange.  As a
     consequence, the Company will use its reasonable commercial efforts to file
     this Agreement and all supporting  documentation  with the Exchange  within
     five (5) business days of the execution of this  Agreement by both Parties.
     In addition, the Parties hereby also acknowledge and agree that, subject to
     the  prior  review  and  policies  of the  Exchange,  it  may be a  further
     condition   of  the  Approval  and  the   resulting   Effective   Date  and
     effectiveness  of this  Agreement  that no Services or payments may be made
     hereunder without the prior written Approval of the terms and conditions of
     this Agreement by the Exchange;  the failure of which, if required,  making
     this Agreement void and of no force and effect.

18.  The Parties will from time to time after the  execution  of this  Agreement
     make, do, execute or cause or permit to be made, done or executed, all such
     further and other  acts,  deeds,  things,  devices  and  assurances  in law
     whatsoever  as may be required to carry out the true  intention and to give
     full force and effect to this Agreement. The situs of this Agreement is New
     York,  New York,,  and for all  purposes  this  Agreement  will be governed
     exclusively  by and construed and enforced in accordance  with the laws and
     Courts prevailing in the State of New York. This Agreement may be signed by
     the Parties  hereto in as many  counterparts  as may be necessary,  and via
     facsimile  if  necessary,  each of which so  signed  being  deemed to be an
     original  and  such  counterparts  together  constituting  one and the same
     instrument and, notwithstanding the date of execution, being deemed to bear
     the  execution  date of this  Agreement.  The  Parties  have not  created a
     partnership  and nothing  contained in this  Agreement  shall in any manner
     whatsoever constitute any party the partner,  agent or legal representative
     of the other party, nor create any fiduciary  relationship between them for
     any purpose whatsoever.

<PAGE>

If the  foregoing  correctly  states  our  understandings,  please  execute  the
enclosed two copies of this Agreement in the spaces  provided for your signature
below and  return  one copy to the  undersigned.  We look  forward to a long and
mutually successful relationship with your exciting company.

                             Very truly yours,

                             LIPPERT/HEILSHORN & ASSOCIATES, INC.

                             By: KEITH L. LIPPERT
                                 ________________________________
                                 Keith L. Lippert

                             By: JOHN W. HEILSHORN
                                 ________________________________
                                 John W. Heilshorn

Agreed to and Approved
this 2nd day of September, 2008.

NATURALLY ADVANCED TECHNOLOGIES, INC.:

By: /s/ KENNETH C. BARKER
    _____________________
        Kenneth C. Barker

<PAGE>

                                   APPENDIX 1

                                   MEMORANDUM

TO:      CLIENTS

FROM:    LIPPERT/HEILSHORN & ASSOCIATES, INC.
         ACCOUNTING  DEPARTMENT

SUBJECT: IN-HOUSE EXPENSES

LHA  provides  documentation,  in the form of  receipts  and  back  up,  for all
expenses  incurred by Third-Party  Vendors utilized on clients' behalf. In house
expenses,  including  photocopying,  local  telephone,  and access to  Bloomberg
Business News on-line service are expenses,  which are,  incurred monthly by LHA
on clients' behalf.  The following is an explanation of these expenses for which
documentation is not provided in monthly invoices.

Photocopying

Photocopying  costs are  charged  to  clients  at the rate of $0.15 per sheet of
standard  white  paper and $0.20 per sheet of LHA bonded  letterhead.  This rate
covers the costs of paper,  machinery and photocopier  operator  utilized in the
production of client informational kits,  distribution of press releases,  press
articles, etc.

Local  Telephone

Local telephone costs are charged to clients on a pro rated weighted basis.  The
partner's weighting of the average is determined by the client's activity during
the  billing   period.   These   activities   pertain  to  investor   inquiries,
telemarketing press releases, conference call marketing and investor meetings.

Bloomberg Business News Service

On-line  access to Bloomberg  Business News Service is allocated to clients at a
rate of $150.00 per month.

Third - Party  Vendors

Due to the volume of business LHA  provides to its vendors,  the agency has been
successful in obtaining volume discounts.

<PAGE>

                                   APPENDIX 2

Listed  below,  are the  hourly  rates for LHA  Principals  and Staff  whom,  if
required,  will  perform  Outside  Services  outside of the scope of IR Services
outlined in paragraph 2 of this Agreement:

o Partner: $500

o Managing Director/Group Leader: $400

o Senior Vice President: $350

o Vice President:  $300

o Assistant Vice President: $250

o Senior Account Executive: $200

o Account Executive: $150

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