Document:

Exhibit 10.1

 

Partners for Growth

 

Term Loan and Security Agreement

 

	
  Borrower:

  	
  Bioject Medical Technologies, Inc.

  
	
  Address:

  	
  211 Somerville Road, Route 202N, Bedminster, NJ 07921

  
	
   

  	
   

  
	
  Borrower:

  	
  Bioject, Inc.

  
	
  Address:

  	
  20245
  S.W. 95th Ave., Tualatin, OR 97062

  
	
   

  	
   

  
	
  Date:

  	
  December 15, 2004

  

 

 

THIS TERM LOAN AND SECURITY AGREEMENT is entered
into on the above date between PARTNERS FOR GROWTH, L.P. (“PFG”), whose address
is 560 Mission Street, 3rd floor, San Francisco, CA 94105 and the borrowers
named above (jointly and severally, the “Borrower”), whose chief executive
office is located at the above address, respectively. The Schedule to this
Agreement (the “Schedule”) being signed by the parties concurrently, is an
integral part of this Agreement. 
(Definitions of certain terms used in this Agreement are set forth in Section 7
below.)

 

1.                                       LOANS.

 

1.1  Loans.  PFG will make a loan to Borrower (the “Loan”)
in the amount shown on the Schedule, provided no Default or Event of Default
has occurred and is continuing.

 

1.2  Interest.  All Loans and all other monetary Obligations
shall bear interest at the rate shown on the Schedule, except where expressly
set forth to the contrary in this Agreement. 
Interest shall be payable monthly, on the last day of the month.

 

1.3  Fees.  Borrower shall pay PFG the fees shown on the
Schedule, which are in addition to all interest and other sums payable to PFG
and are not refundable.

 

1.4  [INTENTIONALLY LEFT BLANK]

 

1.5  Late Fee.  If any payment of accrued interest for any
month is not made within three Business Days after the date a bill therefore is
sent by PFG to Borrower, or if any payment of principal or any other payment is
not made within three Business Days after the date due, Borrower shall pay PFG
a late payment fee equal to 5% of the amount of such late payment.  The provisions of this paragraph shall not be
construed as PFG’s consent to Borrower’s failure to pay any amounts when due,
and PFG’s acceptance of any such late payments shall not restrict PFG’s
exercise of any remedies arising out of any such failure.

 

2.  SECURITY INTEREST.

 

2.1  Grant of Security
Interest.  To secure
the payment and performance of all of the Obligations when due, Borrower hereby
grants to PFG a security interest in all of the following (collectively, the “Collateral”):  all right, title and interest of Borrower in
and to all of the following, whether now owned or hereafter arising or acquired
and wherever located: all Accounts; all Inventory; all Equipment; all Deposit
Accounts; all General Intangibles (including without limitation all
Intellectual Property); all Investment Property; all Other Property; the Real
Property; and any and all claims, rights and interests in any of the above, and
all guaranties and security for any of the above, and all substitutions and
replacements for, additions, accessions, attachments, accessories, and
improvements to, and proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties) of, any and all of the
above, and all Borrower’s books relating to any and all of the above.

 

2.2  Specified Contracts
Excluded.  Notwithstanding
anything herein to the contrary, the security interest granted under this Section 2
shall not attach to any of the following (“Specified Contracts”):  any lease, license, contract, property rights
or

 

 

agreement
to which Borrower is a party or any of its rights or interests thereunder if
and for so long as the grant of such security interest shall constitute or result
in any of the following (other than to the extent that any such term would be
ineffective under the Code or any other applicable law or principles of
equity):  (i) the abandonment,
invalidation or unenforceability of any right, title or interest of Borrower
therein, or (ii) in a breach or termination pursuant to the terms of, or a
default under, any such lease, license, contract property rights or agreement;
provided however that such security interest shall attach immediately at such
time as the condition causing such abandonment, invalidation or
unenforceability shall be remedied and to the extent severable, shall attach
immediately to any portion of such lease, license, contract, property rights or
agreement that does not result in any of the consequences specified in (i) or
(ii) above. Except as disclosed on Exhibit A hereto, Borrower represents and
warrants to PFG that there are no Specified Contracts which are material to
Borrower’s business or grant Borrower rights in Intellectual Property which is
licensed by the Borrower to its customers or incorporated in products licensed
or sold by the Borrower to its customers. 
Borrower shall not, hereafter, without PFG’s prior written consent,
enter into any Specified Contract which is material to Borrower’s business or
grants Borrower rights in Intellectual Property which is licensed by the
Borrower to its customers or incorporated in products licensed or sold by the
Borrower to its customers.

 

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BORROWER.

 

In
order to induce PFG to enter into this Agreement and to make Loans, Borrower
represents and warrants to PFG as follows, and Borrower covenants that the
following representations will continue to be true, and that Borrower will at
all times comply with all of the following covenants, throughout the term of
this Agreement and until all Obligations have been paid and performed in full:

 

3.1  Corporate Existence and
Authority. 
Borrower is and will continue to be, duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation.  Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would result in a Material Adverse Change.  The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (i)
have been duly and validly authorized, (ii) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors’ rights generally), and (iii) do not violate
Borrower’s articles or certificate of incorporation, or Borrower’s by-laws, or
any law or any material agreement or instrument which is binding upon Borrower
or its property, and (iv) do not constitute grounds for acceleration of any
material indebtedness or obligation under any agreement or instrument which is
binding upon Borrower or its property.

 

3.2  Name; Trade Names and
Styles. 
As of the date hereof, the name of Borrower set forth in the heading to
this Agreement is its correct name, as set forth in its Articles or Certificate
of Incorporation.  Listed in the
Representations are all prior names of Borrower and all of Borrower’s present
and prior trade names as of the date hereof. 
Borrower shall give PFG 30 days’ prior written notice before changing
its name or doing business under any other name.  Borrower has complied, and will in the future
comply, in all material respects, with all laws relating to the conduct of
business under a fictitious business name, if applicable to Borrower.

 

3.3  Place of Business; Location
of Collateral.  As of the
date hereof, the address set forth in the heading to this Agreement is Borrower’s
chief executive office.  In addition, as
of the date hereof, Borrower has places of business and Collateral is located
only at the locations set forth in the Representations.  Borrower will give PFG at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other
than Borrower’s Address or one of the locations set forth in the
Representations, except that Borrower may maintain sales offices in the
ordinary course of business at which not more than a total of $10,000 fair
market value of Equipment is located.

 

3.4  Title to Collateral;
Perfection; Permitted Liens.

 

(a)          Borrower is
now, and will at all times in the future be, the sole owner of all the
Collateral, except for items of Equipment which are leased to Borrower.  The Collateral now is and will remain free
and clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens. 
PFG now has, and will continue to have, a first-priority perfected and
enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and Borrower will at all times defend PFG and the Collateral
against all claims of others.

 

(b)         Borrower has
set forth in the Representations all of Borrower’s Deposit Accounts, and
Borrower will give PFG five Business Days advance written notice before
establishing any new Deposit Accounts and will cause the institution where any
such new Deposit Account is maintained to execute and deliver to PFG a control
agreement in form sufficient to perfect PFG’s security interest in the Deposit
Account and otherwise satisfactory to PFG in its good faith business judgment.

 

2

 

(c)          In the event
that Borrower shall at any time after the date hereof have any commercial tort
claims against others, which it is asserting, and in which the potential
recovery exceeds $100,000, Borrower shall promptly notify PFG thereof in
writing and provide PFG with such information regarding the same as PFG shall
request (unless providing such information would waive the Borrower’s
attorney-client privilege).  Such
notification to PFG shall constitute a grant of a security interest in the
commercial tort claim and all proceeds thereof to PFG, and Borrower shall
execute and deliver all such documents and take all such actions as PFG shall
request in connection therewith.

 

(d)         Whenever any
Collateral is located upon premises in which any third party has an interest,
including real property leased by Borrower, Borrower shall, whenever requested
by PFG, use commercially reasonable efforts to cause such third party to
execute and deliver to PFG, in form acceptable to PFG, such waivers and
subordinations as PFG shall specify in its good faith business judgment.  Borrower will keep in full force and effect,
and will comply with all material terms of, any lease of real property where
any of the Collateral now or in the future may be located.

 

3.5  Maintenance of Collateral.  Borrower will maintain the Collateral in good
working condition (ordinary wear and tear excepted), and Borrower will not use
the Collateral for any unlawful purpose. 
Borrower will immediately advise PFG in writing of any material loss or
damage to the Collateral.

 

3.6  Books and Records.  Borrower has maintained and will maintain at
Borrower’s Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.

 

3.7  Financial Condition,
Statements and Reports.  All
financial statements now or in the future delivered to PFG have been, and will
be, prepared in conformity with GAAP (subject, in the case of unaudited interim
statements, to year-end adjustments and the absence of footnotes) and now and
in the future will fairly present the results of operations and financial
condition of Borrower in all material respects, in accordance with GAAP
(subject, in the case of unaudited interim statements, to year-end adjustments
and the absence of footnotes), at the times and for the periods therein
stated.  Between the last date covered by
any such statement provided to PFG and the date hereof, there has been no
Material Adverse Change.

 

3.8  Tax Returns and Payments;
Pension Contributions. 
Borrower has timely filed, and will timely file, all required tax
returns and reports, and Borrower has timely paid, and will timely pay, all
foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower.  Borrower may, however, defer payment of any
of the foregoing which are contested by Borrower in good faith, provided that
Borrower (i) contests the same by appropriate proceedings promptly and
diligently instituted and conducted, (ii) notifies PFG in writing of the
commencement of, and any material development in any such proceedings, and
(iii) posts bonds or takes any other steps required to stay the enforcement of
any such lien upon any of the Collateral against which such foreign, federal,
state or local authority could then proceed. 
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, and shall continue to pay all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not and will not withdraw from participation
in, permit partial or complete termination of, or permit 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.

 

3.9  Compliance with Law.  Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations applicable to Borrower,
including, but not limited to, those relating to Borrower’s ownership of real
or personal property, the conduct and licensing of Borrower’s business, and all
environmental matters.

 

3.10  Litigation.  There is no claim, suit, litigation,
proceeding or investigation pending or (to best of Borrower’s knowledge)
threatened against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which could
reasonably be expected to result, either separately or in the aggregate, in any
Material Adverse Change.  Borrower will
promptly inform PFG in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted against Borrower involving
$250,000 or more in the aggregate for all such claims, proceedings, litigation
or investigation.

 

3.11  Use of Proceeds.  All proceeds of all Loans shall be used
solely for lawful business purposes. 
Borrower is not purchasing or carrying any “margin stock” (as defined in
Regulation U of the Board of Governors of the Federal Reserve System) and no
part of the proceeds of any Loan will be used to purchase or carry any “margin
stock” or to extend credit to others for the purpose of purchasing or carrying
any “margin stock.”

 

3

 

3.12  No Default.  At the date
hereof, no Default or Event of Default has occurred, and no Default or Event of
Default will have occurred after giving effect to any Loans being made
concurrently herewith.

 

4.  ADDITIONAL DUTIES OF BORROWER.

 

4.1  Financial and Other
Covenants. 
Borrower shall at all times comply with the financial and other
covenants set forth in the Schedule.

 

4.2.  Remittance of Proceeds. Subject to
the rights of the Senior Lender, all proceeds arising from the disposition of
any Collateral shall be delivered, in kind, by Borrower to PFG 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 in such order as
PFG shall determine; provided that, if no Default or Event of Default has
occurred and is continuing, Borrower shall not be obligated to remit to PFG (i)
the proceeds of Accounts arising in the ordinary course of business, (ii) the
proceeds of the sale of Inventory in the ordinary course of business, (iii) the
proceeds of the sale of Permitted Investments which are promptly reinvested in
other Permitted Investments, the proceeds of the sale of Equipment to the
extent such proceeds are reinvested in Equipment of comparable utility within
six (6) months of such sale, or 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 $50,000 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 PFG,
except as set forth above, and subject to the rights of the Senior Lender.  Nothing in this Section limits the
restrictions on disposition of Collateral set forth elsewhere in this
Agreement.

 

4.3  Insurance.  Borrower shall, at all times insure all of
the tangible personal property Collateral and carry such other business
insurance, with insurers reasonably acceptable to PFG, in such form and amounts
as PFG may reasonably require and as are customary and in accordance with
standard practices for Borrower’s industry and locations, and Borrower shall
provide evidence of such insurance to PFG. 
All such insurance policies shall name PFG as an additional loss payee,
and shall contain a lenders loss payee endorsement in form reasonably
acceptable to PFG.  Upon receipt of the
proceeds of any such insurance, subject to the rights of the Senior Lender, PFG
shall apply such proceeds in reduction of the Obligations as PFG shall
determine in its good faith business judgment, except that, provided no Default
or Event of Default has occurred and is continuing, at the direction of
Borrower, PFG shall release to Borrower insurance proceeds of any such
Collateral with respect to which the insurance proceeds were paid.  PFG may require reasonable assurance that the
insurance proceeds so released will be so used. 
If Borrower fails to provide or pay for any insurance, PFG may, but is
not obligated to, obtain the same at Borrower’s expense.  Borrower shall promptly deliver to PFG copies
of all material reports made to insurance companies.

 

4.4  Reports.  Borrower, at its expense, shall provide PFG
with the written reports set forth in the Schedule, and such other written
reports with respect to Borrower (including budgets, projections, operating
plans and other financial documentation), as PFG shall from time to time
reasonably request in its good faith business judgment.

 

4.5  Access to Collateral, Books
and Records. 
At reasonable times, and on one Business Day’s notice, PFG, or its
agents, shall have the right to inspect the Collateral, and the right to audit
and copy Borrower’s books and records. The foregoing inspections and audits
shall be at Borrower’s expense for one such inspection and one such audit each
year and the charge therefor shall be $750 per person per day (or such higher
amount as shall represent PFG’s then current standard charge for the same),
plus reasonable out-of-pocket expenses. The PFG costs of any such inspections
and audits in excess of one each year shall be at PFG’s expense; provided,
however, that upon the occurrence and during the continuance of an Event of
Default, Borrower shall be liable for the costs of all such inspections.  In no event shall Borrower be required to
disclose to PFG any document or information (i) where disclosure is prohibited
by applicable law or any agreement binding on Borrower, or (ii) is subject to
attorney-client or similar privilege or constitutes attorney work product. If
Borrower is withholding any information under the preceding sentence, it shall
so advise PFG in writing, giving PFG a general description of the nature of the
information withheld and the basis upon which it is withheld.

 

4.6  Negative Covenants.  Except as may be permitted in the Schedule,
Borrower shall not, without PFG’s prior written consent (which shall be a
matter of its good faith business judgment), do any of the following:

 

(i)
merge or consolidate with another corporation or entity;

 

(ii)
acquire any assets, except in the ordinary course of business, or make any
Investments other than Permitted Investments;

 

(iii)
enter into any other transaction outside the ordinary course of business;

 

4

 

(iv)
sell or transfer any Collateral (including without limitation and sale or
transfer of Collateral which is then leased back by Borrower), except for (A)
the sale of Inventory in the ordinary course of Borrower’s business, and except
for the sale of obsolete or unneeded Equipment and the sale and replacement of
Equipment, in each case, in the ordinary course of business, (B) the sale of,
and reinvestment of such sale proceeds in, Permitted Investments, (C) the
granting of Permitted Liens, and (D) the licensing of Intellectual Property in
the ordinary course of business;

 

(v)
store any Inventory or other Collateral with any warehouseman or other third
party, unless Borrower has used commercially reasonable efforts to comply with
the provisions of Section 3.4(d) above and has notified PFG of such action
or proposed action;

 

(vi)
sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other
contingent basis;

 

(vii)
make any loans of any money or other assets, other than Permitted Investments;

 

(viii)
incur any Indebtedness, other than Permitted Indebtedness;

 

(ix)
guarantee or otherwise become liable with respect to the obligations of another
party or entity other than the endorsements of checks and other similar
instruments in the ordinary course of Borrower’s business;

 

(x)
pay or declare any dividends on Borrower’s stock (except for dividends payable
solely in stock of Borrower);

 

(xi)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower’s stock;

 

(xii)
engage, directly or indirectly, in any business other than the businesses
currently engaged in by Borrower or reasonably related thereto; or

 

(xiii)
dissolve or elect to dissolve.

 

Transactions
permitted by the foregoing provisions of this Section are only permitted
if no Default or Event of Default would occur as a result of such transaction.

 

4.7  Litigation Cooperation.  Should any third-party suit or proceeding be
instituted by or against PFG with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to PFG, make available Borrower and
its officers, employees and agents and Borrower’s books and records, to the
extent that PFG may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.

 

4.8  Changes.  Borrower
agrees to notify PFG in writing of any changes in the information set forth in
the Representations.

 

4.9  Further Assurances.  Borrower agrees, at its expense, on request
by PFG, to execute all documents and take all actions, as PFG, may, in its good
faith business judgment, deem necessary or useful in order to perfect and
maintain PFG’s perfected first-priority security interest in the Collateral (subject
to Permitted Liens), and in order to fully consummate the transactions
contemplated by this Agreement.

 

5.  TERM.

 

5.1  Maturity Date.  This Agreement shall continue in effect until
the maturity date set forth on the Schedule (the “Maturity Date”), subject
to Sections 5.2 and 5.3 below.

 

5.2  Early Termination.  This Agreement may be terminated prior to the
Maturity Date as follows:  (i) by
Borrower, effective three Business Days after written notice of termination is
given to PFG; or (ii) by PFG at any time after the occurrence and during the
continuance of an Event of Default. 
There is no termination fee or prepayment penalty.

 

5.3  Payment of Obligations.  On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether
or not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of PFG’s security interests
in all of the Collateral and all of the terms and provisions of this Agreement
shall continue in full force and effect until all Obligations have been paid
and performed in full; provided that PFG may, in its sole discretion, refuse to
make any further Loans after termination. 
No termination shall in any way affect or impair any right or remedy of
PFG, nor shall any such termination relieve Borrower of any Obligation to PFG,
until all of the Obligations have been paid and performed in full.  Upon payment and performance in full of all
the Obligations and termination of this Agreement, PFG shall promptly terminate
its financing statements with respect to the Borrower and deliver to Borrower
such other documents as may be required to fully terminate PFG’s security
interests.

 

5

 

6.  EVENTS OF DEFAULT AND REMEDIES.

 

6.1  Events of Default.  The occurrence of any of the following events
shall constitute an “Event of Default” under this Agreement, and Borrower shall
give PFG immediate written notice thereof:

 

(a)
Any warranty, representation, statement, report or certificate made or
delivered to PFG by Borrower or any of Borrower’s officers, employees or
agents, now or in the future, shall be untrue or misleading in a material
respect when made or deemed to be made; or

 

(b)
Borrower shall fail to pay any Loan or any interest thereon or any other
monetary Obligation within three (3) Business Days after the date due or fail
to pay any other monetary Obligation within five (5) Business Days after the
date due; or

 

(c)
Borrower shall fail to comply with the financial covenants set forth in the Schedule (if
any), or shall breach any of the provisions of Section 4.6 hereof, or
shall fail to perform any other non-monetary Obligation which by its nature
cannot be cured, or shall fail to permit PFG to conduct an inspection or audit
as provided in Section 4.5 hereof or shall fail to timely provide PFG with
reports due under Section 6 of the Schedule within five Business Days
after the date due; or

 

(d)
Borrower shall fail to perform any other non-monetary Obligation which is
capable of cure, which failure is not cured within ten (10) Business Days after
the date due; provided, such cure period may be extended for such additional
period as PFG may determine in its good faith discretion (i) if Borrower is
diligently pursuing a cure that is likely to result in a cure and (ii) that
repayment of Obligations or PFG’s security is not affected by the granting of
additional time to cure; or

 

(e)
any levy, assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made on all or any part of the Collateral which is not cured
within ten (10) Business Days after the earlier to occur of (i) the occurrence
of the same, or (ii) Borrower’s knowledge of the same; or

 

(f)
any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien; or

 

(g)
Borrower breaches any material contract or obligation, which has resulted or
reasonably may be expected to result in a Material Adverse Change; or

 

(h)
Dissolution, termination of existence, insolvency or business failure of
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect,
or Borrower shall generally not pay its debts as they become due, or Borrower
shall conceal, remove or transfer any part of its property, with intent to
hinder, delay or defraud its creditors, or make or suffer any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or

 

(i)
the commencement of any proceeding against Borrower or any guarantor of any of the
Obligations under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 45 days after the date commenced; or

 

(j)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under
any bankruptcy or insolvency law; or

 

(k)
revocation or termination of, or limitation or denial of liability upon, any
pledge of any certificate of deposit, securities or other property or asset of
any kind pledged by any third party to secure any or all of the Obligations, or
any attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or

 

(l)
Borrower makes any payment on account of any indebtedness or obligation which
has been subordinated to the Obligations (other than as permitted in the
applicable subordination agreement), or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or

 

(m)
there shall occur, without the prior written consent of PFG, a Change in
Control,; or

 

(n)
a Material Adverse Change shall occur.

 

6

 

PFG
may cease making any Loans hereunder during any of the cure periods provided
above, and thereafter if an Event of Default has occurred and is continuing.

 

6.2  Remedies.  Upon the occurrence and during the
continuance of any Event of Default, PFG, at its option, and without notice or
demand of any kind except as specified below (all of which are hereby expressly
waived by Borrower), may do any one or more of the following: (a) Cease making
Loans or otherwise extending credit to Borrower under this Agreement or any
other Loan Document; (b) Upon notice to Borrower (which may be on the same day)
accelerate and declare all or any part of the Obligations to be immediately
due, payable, and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation;
(c) Take possession of any or all of the Collateral wherever it may be found,
and for that purpose Borrower hereby authorizes PFG without judicial process to
enter onto any of Borrower’s premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain on the
premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge for so long as PFG deems it necessary, in its good
faith business judgment, in order to complete the enforcement of its rights
under this Agreement or any other agreement; provided, however, that should PFG
seek to take possession of any of the Collateral by court process, Borrower
hereby irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and (iii) any requirement that
PFG retain possession of, and not dispose of, any such Collateral until after
trial or final judgment; (d) Require Borrower to assemble any or all of the
Collateral and make it available to PFG at places designated by PFG which are
reasonably convenient to PFG and Borrower, and to remove the Collateral to such
locations as PFG may deem advisable; (e) Complete the processing, manufacturing
or repair of any Collateral prior to a disposition thereof and, for such
purpose and for the purpose of removal, PFG shall have the right to use Borrower’s
premises, vehicles, hoists, lifts, cranes, and other Equipment and all other
property without charge; (f) Sell, lease or otherwise dispose of any of the
Collateral, in its condition at the time PFG obtains possession of it or after
further manufacturing, processing or repair, at one or more public and/or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale.  PFG shall have the right to conduct such
disposition on Borrower’s premises without charge, for such time or times as
PFG deems reasonable, or on PFG’s premises, or elsewhere and the Collateral
need not be located at the place of disposition.  PFG may directly or through any affiliated
company purchase or lease any Collateral at any such public disposition, and if
permissible under applicable law, at any private disposition.  Any sale or other disposition of Collateral
shall not relieve Borrower of any liability Borrower may have if any Collateral
is defective as to title or physical condition or otherwise at the time of
sale; (g) Demand payment of, and collect any Accounts and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes PFG to endorse or sign Borrower’s name on all collections, receipts,
instruments and other documents, to take possession of and open mail addressed
to Borrower and remove therefrom payments made with respect to any item of the
Collateral or proceeds thereof, and, in PFG’s good faith business judgment, to
grant extensions of time to pay, compromise claims and settle Accounts and the
like for less than face value; (h) Exercise any and all rights under any
present or future control agreements relating to Deposit Accounts or Investment
Property; and (i) Demand and receive possession of any of Borrower’s federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. 
All reasonable attorneys’ fees, expenses, costs, liabilities and
obligations incurred by PFG with respect to the foregoing shall be added to and
become part of the Obligations, shall be due on demand, and shall bear interest
at a rate equal to the highest interest rate applicable to any of the
Obligations.  Without limiting any of PFG’s
rights and remedies, from and after the occurrence and during the continuance
of any Event of Default, the interest rate applicable to the Obligations shall
be increased by an additional four percent per annum (the “Default Rate”).

 

6.3  Standards for Determining
Commercial Reasonableness. 
Borrower and PFG agree that a sale or other disposition (collectively, “sale”)
of any Collateral which complies with the following standards will conclusively
be deemed to be commercially reasonable: 
(i) Notice of the sale is given to Borrower at least ten days prior to
the sale, and, in the case of a public sale, notice of the sale is published at
least five days before the sale in a newspaper of general circulation in the
county where the sale is to be conducted; (ii) Notice of the sale describes the
collateral in general, non-specific terms; (iii) The sale is conducted at a
place designated by PFG, with or without the Collateral being present; (iv) The
sale commences at any time between 8:00 a.m. and 6:00 p.m.;  (v) Payment of the purchase price in cash or
by cashier’s check or wire transfer is required; (vi) With respect to any sale
of any of the Collateral, PFG may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same.  PFG
shall be free to employ other methods of noticing and selling the Collateral,
in its discretion, if they are commercially reasonable.

 

6.4  Power of Attorney.  Upon the occurrence and during the
continuance of any Event of Default, without limiting PFG’s other rights and
remedies, Borrower grants to PFG an irrevocable power of attorney coupled with
an interest, authorizing and

 

7

 

permitting
PFG (acting through any of its employees, attorneys or agents) at any time, at
its option, but without obligation, with or without notice to Borrower, and at
Borrower’s expense, to do any or all of the following, in Borrower’s name or
otherwise, but PFG agrees that if it exercises any right hereunder, it will do
so in good faith and in a commercially reasonable manner:  (a) Execute on behalf of Borrower any
documents that PFG may, in its good faith business judgment, deem advisable in
order to perfect and maintain PFG’s security interest in the Collateral, or in
order to exercise a right of Borrower or PFG, or in order to fully consummate
all the transactions contemplated under this Agreement, and all other Loan
Documents; (b) Execute on behalf of Borrower, any invoices relating to any
Account, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic’s,
materialman’s or other lien, or assignment or satisfaction of mechanic’s,
materialman’s or other lien; (c) Take control in any manner of any cash or
non-cash items of payment or proceeds of Collateral; endorse the name of
Borrower upon any instruments, or documents, evidence of payment or Collateral
that may come into PFG’s possession; (d) Endorse all checks and other forms of
remittances received by PFG; (e) Pay, contest or settle any lien, charge,
encumbrance, security interest and adverse claim in or to any of the Collateral,
or any judgment based thereon, or otherwise take any action to terminate or
discharge the same; (f) Grant extensions of time to pay, compromise claims and
settle Accounts and General Intangibles for less than face value and execute
all releases and other documents in connection therewith; (g) Pay any sums
required on account of Borrower’s taxes or to secure the release of any liens
therefor, or both; (h) Settle and adjust, and give releases of, any insurance
claim that relates to any of the Collateral and obtain payment therefor; (i)
Instruct any third party having custody or control of any books or records
belonging to, or relating to, Borrower to give PFG the same rights of access
and other rights with respect thereto as PFG has under this Agreement; and (j)
Take any action or pay any sum required of Borrower pursuant to this Agreement
and any other Loan Documents.  Any and
all reasonable sums paid and any and all reasonable costs, expenses,
liabilities, obligations and attorneys’ fees incurred by PFG with respect to
the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations.  In no event shall PFG’s rights under the
foregoing power of attorney or any of PFG’s other rights under this Agreement
be deemed to indicate that PFG is in control of the business, management or
properties of Borrower.

 

6.5  Application of Proceeds.  All proceeds realized as the result of any
sale of the Collateral shall be applied by PFG first to the reasonable costs,
expenses, liabilities, obligations and attorneys’ fees incurred by PFG 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, in such
order as PFG shall determine in its sole discretion.  Any surplus shall be paid to Borrower or
other persons legally entitled thereto; Borrower shall remain liable to PFG for
any deficiency.  If, PFG, 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, PFG
shall have the option, exercisable at any time, in its good faith business
judgment, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by PFG of the cash therefor.

 

6.6  Remedies Cumulative.  In addition to the rights and remedies set
forth in this Agreement, PFG shall have all the other rights and remedies
accorded a secured party under the Code and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between PFG and Borrower, and all of such rights and remedies are cumulative
and none is exclusive.  Exercise or
partial exercise by PFG of one or more of its rights or remedies shall not be
deemed an election, nor bar PFG from subsequent exercise or partial exercise of
any other rights or remedies.  The
failure or delay of PFG to exercise any rights or remedies shall not operate as
a waiver thereof, but all rights and remedies shall continue in full force and
effect until all of the Obligations have been fully paid and performed.

 

7.                                       Definitions.  AS USED IN THIS AGREEMENT,
THE FOLLOWING TERMS HAVE THE FOLLOWING MEANINGS:

 

“Account
Debtor” means the obligor on an Account.

 

“Accounts”
means all present and future “accounts” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all accounts
receivable and other sums owing to Borrower.

 

 “Affiliate” means, with respect to any
Person, a relative, partner, shareholder, director, officer, or employee of
such Person, or any parent or subsidiary of such Person, or any Person
controlling, controlled by or under common control with such Person.

 

“Borrower
Address” shall mean the address(es) listed on the first page of this Loan
and Security Agreement for each Borrower.

 

“Business
Day” means a day on which PFG is open for business.

 

8

 

“Change in Control” means: (1) a dissolution, liquidation, or
sale of all or substantially all of the assets of Borrower; (2) a merger or
consolidation in which Borrower is not the surviving corporation; (3) a reverse
merger in which Borrower is the surviving corporation but the shares of the
Borrower’s common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; (4) an expression of intent to acquire control
notified to Borrower under Section 13(d)(1)(C) of the U.S. Securities
Exchange Act of 1934, as amended, which acquisition is subsequently effected;
or (5) a change in control of Borrower effected by a successful tender offer
for more than 50% of the outstanding voting securities of Borrower.

 

“Code”
means the Uniform Commercial Code as adopted and in effect in the State of
California from time to time.

 

“Collateral”
has the meaning set forth in Section 2 above.

 

“continuing”
and “during the continuance of” when used with reference to a Default or
Event of Default means that the Default or Event of Default has occurred and
has not been either waived in writing by PFG or cured within any applicable
cure period.

 

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

 

“Default
Rate” has the meaning set forth in Section 6.2 above.

 

“Deposit
Accounts” means all present and future “deposit accounts” as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without
limitation all general and special bank accounts, demand accounts, checking
accounts, savings accounts and certificates of deposit.

 

 “Equipment” means all present and
future “equipment” as defined in the California Uniform Commercial Code in
effect on the date hereof 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.

 

“Event
of Default” means any of the events set forth in Section 6.1 of this
Agreement.

 

“GAAP”
means generally accepted accounting principles consistently applied.

 

“General
Intangibles” means all present and future “general intangibles” as defined
in the California Uniform Commercial Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without
limitation all Intellectual Property, payment intangibles, royalties, contract
rights, goodwill, franchise agreements, purchase orders, customer lists, route
lists, telephone numbers, domain names, claims, income 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.

 

“good
faith business judgment” means honesty in fact and good faith (as defined
in Section 1201 of the Code) in the exercise of PFG’s business judgment.

 

“including”
means including (but not limited to).

 

“Indebtedness”
means (a) indebtedness for borrowed money or the deferred purchase price of
property or services (other than trade payables arising in the ordinary course
of business), (b) obligations evidenced by bonds, notes, debentures or other
similar instruments, (c) reimbursement obligations in connection with letters
of credit, and (d) capital lease obligations.

 

 “Intellectual Property” means all
present and future: (a) copyrights, copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished, (b) trade secret
rights, including all rights to unpatented inventions and know-how, and
confidential information; (c) mask work or similar rights available for the
protection of semiconductor chips; (d) patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same; (e) trademarks, servicemarks, trade styles, and trade names, whether or
not any of the foregoing are registered, and all applications to register and
registrations of the same and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by any such trademarks; (f)
computer software and computer software products; (g) designs and design rights;
(h) technology; (i) all claims for damages by way of past, present and future
infringement of any of the rights included above; and (j) all licenses or other
rights to use any property or rights of a type described above.

 

“Inventory”
means all present and future “inventory” as defined in the California Uniform
Commercial 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

 

9

 

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”
means any beneficial ownership interest in any Person (including any stock,
partnership interest or other equity or debt securities issued by any Person),
and any loan, advance or capital contribution to any Person.

 

“Investment
Property” means all present and future investment property, securities,
stocks, bonds, debentures, debt securities, partnership interests, limited
liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets
held in any securities account or otherwise, and all options and warrants to
purchase any of the foregoing, wherever located, and all other securities of
every kind, whether certificated or uncertificated.

 

“Loan
Documents” means, collectively, this Agreement, the Representations, and
all other present and future documents, instruments and agreements between PFG
and Borrower, including, but not limited to those relating to this Agreement,
and all amendments and modifications thereto and replacements therefor.

 

“Material
Adverse Change” means any of the following: (i) a material adverse change
in the business, operations, or financial or other condition of the Borrower
(in the case of two Borrowers, such entities taken as a whole), or (ii) a
material impairment of the prospect of repayment of any portion of the
Obligations; or (iii) a material impairment of the value or priority of PFG’s
security interests in the Collateral.

 

“Obligations”
means all present and future Loans, advances, debts, liabilities, obligations,
guaranties, covenants, duties and indebtedness at any time owing by Borrower to
PFG, whether evidenced by this Agreement or any note or other instrument or document,
or otherwise, whether arising from an extension of credit, opening of a letter
of credit, banker’s acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect (including, without limitation, those acquired by
assignment and any participation by PFG in Borrower’s debts owing to others),
absolute or contingent, due or to become due, including, without limitation,
all interest, charges, expenses, fees, attorney’s fees, expert witness fees,
audit fees, collateral monitoring fees, closing fees, facility fees,
termination fees, minimum interest charges and any other sums chargeable to
Borrower under this Agreement or under any other Loan Documents, provided
however, that for purposes of the termination of this Agreement at the Maturity
Date as set forth in Section 4 of the Schedule or upon Borrower’s
termination of this Agreement by prepayment under Section 1 of the
Schedule, the term “Obligations” shall not be construed to require Borrower’s
payment of Indebtedness arising under the Senior Loan Documents.

 

“Other
Property” means the following as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and all rights relating thereto: all present and future
“commercial tort claims” (including without limitation any commercial tort
claims identified in the Representations), “documents”, “instruments”, “promissory
notes”, “chattel paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”,
“farm products” and “money”; and all other goods and personal property of every
kind, tangible and intangible, whether or not governed by the California
Uniform Commercial Code.

 

“Payment”
means all checks, wire transfers and other items of payment received by for
credit to Borrower’s outstanding Obligations.

 

“Permitted
Indebtedness” means

 

(i)
the Loans and other Obligations; and

 

(ii)
Indebtedness existing on the date hereof and shown on Exhibit A hereto;

 

(iii)
Subordinated Debt;

 

(iv)
Indebtedness owing to Senior Lender not to exceed the Senior Debt Limit
specified in the Schedule;

 

(v)
other Indebtedness secured by Permitted Liens;

 

(vi)
reimbursement obligations in respect of letters of credit in an aggregate face
amount outstanding not to exceed $300,000 at any time outstanding, which has
been reported to PFG in writing, and, in the case of reimbursement obligations
to the Senior Lender in respect of letters of credit which do not exceed the
Senior Debt Limit (taking into account all other Indebtedness to Senior
Lender).

 

“Permitted
Investments” are:

 

(i)
Investments (if any) shown on the Exhibit A and existing on the date hereof;

 

10

 

(ii)
marketable direct obligations issued or unconditionally guaranteed by the
United States or its agency or any State maturing within 1 year from its
acquisition;

 

(iii) commercial
paper maturing no more than 1 year after its creation and having the highest
rating from either Standard & Poor’s Corporation or Moody’s Investors
Service, Inc; and

 

(iv) bank
certificates of deposit issued maturing no more than 1 year after issue; and

 

(v)
other investments (except for common stock of Borrower) consistent with
Borrower’s Investment Policy attached hereto as Exhibit A.

 

“Permitted
Liens” means the following:

 

(i)
purchase money security interests in specific items of Equipment;

 

(ii)
leases of specific items of Equipment;

 

(iii)
liens for taxes not yet payable, or being contested in the manner contemplated
in Section 3.8 above;

 

(iv) 
subject to the written consent of PFG on a case by case basis that such
event(s) shall not give rise to an Event of Default, which consent may be given
or withheld in PFG’s business judgment or subject to such conditions as PFG may
determine in good faith, liens for fees, assessments, or other charges of a
governmental authority, provided that the payment of such fees, assessments, or
other charges of a governmental authority referenced in this clause (iv) that
are due and payable are being contested in good faith and by appropriate
proceedings diligently pursued and as to which adequate financial reserves have
been established in accordance with GAAP on Borrower’s books and records and a
stay of enforcement of any such lien is in effect;

 

(v) liens on deposits made by Borrower in the
ordinary course of business in connection with, or to secure payment of,
obligations under worker’s compensation, unemployment insurance, social
security, and other similar laws, or to secure the performance of bids,
tenders, or contracts (other than for the repayment of Indebtedness) or to
secure indemnity, performance, or other similar bonds for the performance of
bids, tenders, or contracts (other than for the repayment of Indebtedness) or
to secure statutory obligations (other than Liens arising under ERISA or
Environmental Liens) or surety or appeal bonds, or to secure indemnity,
performance, or other similar bonds;

 

(vi) liens constituting encumbrances in the
nature of reservations, exceptions, encroachments, easements, rights of way,
covenants running with the land, and other similar title exceptions or
encumbrances affecting any Real Property, provided that any such liens do not
in the aggregate materially interfere with the use of such Real Property in the
ordinary conduct of Borrower’s business;

 

(vii) liens arising from judgments and
attachments in connection with court proceedings, provided that (a) the
attachment or enforcement of such liens would not otherwise result in an Event
of Default hereunder, (b) such liens are being contested in good faith by
appropriate proceedings diligently pursued, (c) adequate financial reserves
have been established on Borrower’s books and records in accordance with GAAP,
(d) no Collateral with an aggregate value in excess of $250,000 is subject to a
material risk of loss or forfeiture, and (e) a stay of execution pending appeal
or proceeding for review is in effect;

 

(viii)
any additional security interests and liens consented to in writing by PFG,
which consent may be withheld in its good faith business judgment. PFG will
have the right to require, as a condition to its consent under this
subparagraph (iv), that the holder of the additional security interest or lien
sign an intercreditor agreement on PFG’s then standard form, acknowledge that
the security interest is subordinate to the security interest in favor of PFG,
and agree not to take any action to enforce its subordinate security interest
so long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement;

 

(ix)
security interests being terminated substantially concurrently with this
Agreement;

 

(x) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; provided, that Borrower may,
however, defer payment of any of the foregoing which are contested by Borrower
in good faith, provided that Borrower (a) contests the same by appropriate
proceedings promptly and diligently instituted and conducted, (b) notifies PFG
in writing of the commencement of, and any material development in, any such
proceedings which involved $250,000 either individually or in the aggregate,
and (c) posts bonds or takes any other steps required to stay the enforcement
of any such lien upon any of the Collateral against which such person could
then proceed;

 

11

 

(xi) liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or
(ii) above or clause (xiv) below, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien and
the principal amount of the indebtedness being extended, renewed or refinanced
does not increase;

 

(xii)
liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods;

 

(xiii)
statutory, common law or contractual liens of depository institutions or
institutions holding securities account (including rights of set-off) securing
only customary charges and fees in connection with such accounts; and

 

(xiv)
liens in favor of Senior Lender securing an amount not in excess of the Senior
Debt Limit.

 

“Person”
means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.

 

“Real
Property” means that certain land, building, structures, appurtenances,
improvements, fixtures and personal property on or within the real property
located at postal address: 211 Somerville Road, Route 202N, Bedminster, New
Jersey 07921.

 

“Representations”
means the written Representations and Warranties provided by Borrower to PFG
referred to in the Schedule.

 

“Senior
Lender” has the meaning set forth in Section 8 of the Schedule.

 

“Senior
Loan Documents” has the meaning set forth in Section 8 of the
Schedule.

 

“Subordinated Debt” means debt incurred by Borrower subordinated
to Borrower’s debt to PFG (pursuant to a subordination agreement entered into
between PFG, Borrower and the subordinated creditor), on terms acceptable to
PFG in its absolute discretion.

 

Other
Terms.  All accounting
terms used in this Agreement, unless otherwise indicated, shall have the
meanings given to such terms in accordance with GAAP, consistently
applied.  All other terms contained in
this Agreement, unless otherwise indicated, shall have the meanings provided by
the Code, to the extent such terms are defined therein.

 

8.                                       GENERAL
PROVISIONS.

 

8.1  Confidentiality.  PFG agrees
to use the same degree of care that it exercises with respect to its own
proprietary information, to maintain the confidentiality of any and all
proprietary, trade secret or confidential information provided to or received
by PFG from the Borrower, which indicates that it is confidential, including
business plans and forecasts, non-public financial information, confidential or
secret processes, formulae, devices and contractual information, customer
lists, and employee relation matters, provided that PFG may disclose such
information (i) to its officers, directors, employees, attorneys, accountants,
affiliates, participants, prospective participants, assignees and prospective
assignees, and such other Persons to whom PFG shall at any time be required to
make such disclosure in accordance with applicable law or legal process, and
(ii) in its good faith business judgment in connection with the enforcement of
its rights or remedies after an Event of Default, or in connection with any
dispute with Borrower or any other Person relating to Borrower.  The confidentiality agreement in this Section supersedes
any prior confidentiality agreement of PFG relating to Borrower.

 

8.2  Interest Computation.  In computing
interest on the Obligations, all Payments received after 12:00 Noon, Pacific
Time, on any day shall be deemed received on the next Business Day.

 

8.3 Payments. All Payments
may be applied, and in PFG’s good faith business judgment reversed and
re-applied, to the Obligations, in such order and manner as PFG shall determine
in its good faith business judgment.

 

8.4  Monthly Accountings.  PFG shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement.  Such account shall be deemed
correct, accurate and binding on Borrower and an account stated (except for
reverses and reapplications of payments made and corrections of errors
discovered by PFG), unless Borrower notifies PFG in writing to the contrary
within 90 days after such account is rendered, describing the nature of any
alleged errors or omissions.

 

8.5  Notices.  All notices to be given under this Agreement
shall be in writing and shall be given either personally, or by reputable
private delivery service, or by regular first-class mail, or certified mail
return receipt requested, or by fax to the most recent fax number a party has
for the other party (and if by fax, sent concurrently by one of the other
methods provided herein), addressed to PFG or Borrower at the addresses shown
in the heading to this Agreement, or at any other address designated in writing
by one party to the other party. All notices shall be deemed to have been given
upon delivery in the case

 

12

 

of
notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid,
or on the first business day of receipt during business hours in the case of notices
sent by fax, as provided herein.

 

8.6  Severability.  Should any provision of this Agreement be
held by any court of competent jurisdiction to be void or unenforceable, such
defect shall not affect the remainder of this Agreement, which shall continue
in full force and effect.

 

8.7  Integration.  This Agreement and such other written
agreements, documents and instruments as may be executed in connection herewith
are the final, entire and complete agreement between Borrower and PFG and
supersede all prior and contemporaneous negotiations and oral representations
and agreements, all of which are merged and integrated in this Agreement.  There are no oral understandings,
representations or agreements between the parties which are not set forth in
this Agreement or in other written agreements signed by the parties in
connection herewith.

 

8.8  Waivers; Indemnity.  The failure of PFG at any time or times to
require Borrower to strictly comply with any of the provisions of this
Agreement or any other Loan Document shall not waive or diminish any right of
PFG later to demand and receive strict compliance therewith.  Any waiver of any default shall not waive or
affect any other default, whether prior or subsequent, and whether or not
similar.  None of the provisions of this
Agreement or any other Loan Document shall be deemed to have been waived by any
act or knowledge of PFG or its agents or employees, but only by a specific
written waiver signed by an authorized officer of PFG and delivered to
Borrower.  Borrower waives the benefit of
all statutes of limitations relating to any of the Obligations or this
Agreement or any other Loan Document, and Borrower waives demand, protest,
notice of protest and notice of default or dishonor, notice of payment and
nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by PFG on which Borrower is or may in any way be liable, and
notice of any action taken by PFG, unless expressly required by this Agreement.
Borrower hereby agrees to indemnify PFG and its affiliates, subsidiaries,
parent, directors, officers, employees, agents, and attorneys, and to hold them
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, and related costs and
expenses (including reasonable attorneys’ fees), of every kind, which they may
sustain or incur based upon or arising out of any of the Obligations, or any
relationship or agreement between PFG and Borrower, or any other matter,
relating to Borrower or the Obligations; provided that this indemnity shall not
extend to damages proximately caused by the indemnitee’s own gross negligence
or willful misconduct.  Notwithstanding
any provision in this Agreement to the contrary, the indemnity agreement set
forth in this Section shall survive any termination of this Agreement and
shall for all purposes continue in full force and effect.

 

8.9  No Liability for Ordinary
Negligence. 
Neither PFG, nor any of its directors, officers, employees, agents,
attorneys or any other Person affiliated with or representing PFG shall be
liable for any claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by Borrower or any other party through the
ordinary negligence of PFG, or any of its directors, officers, employees,
agents, attorneys or any other Person affiliated with or representing PFG, but
nothing herein shall relieve PFG from liability for its own gross negligence or
willful misconduct.

 

8.10  Amendment.  The terms and provisions of this Agreement
may not be waived or amended, except in a writing executed by Borrower and a
duly authorized officer of PFG.

 

8.11  Time of Essence.  Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.

 

8.12  Attorneys’ Fees and Costs.  Borrower shall reimburse PFG for all
reasonable attorneys’ fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by PFG: (a) in connection
with the preparation, negotiation and closing of this Agreement, and (b) any
future amendments, consents, waivers or supplements to this Agreement, and (c)
upon the occurrence and during the continuance of a Default or an Event of
Default, to (i) obtain legal advice in connection with this Agreement or
Borrower; (ii) enforce, or seek to enforce, any of its rights hereunder; (iii)
prosecute actions against, or defend actions by, Account Debtors; (iv)
commence, intervene in, or defend any action or proceeding; (v) initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; (vi)
examine, audit, copy, and inspect any of the Collateral or any of Borrower’s
books and records; (vii) protect, obtain possession of, lease, dispose of, or
otherwise enforce PFG’s security interest in, the Collateral; and (viii)
otherwise represent PFG in any litigation relating to Borrower. If either PFG
or Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys’ fees, including (but not limited to) reasonable
attorneys’ fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment.  All attorneys’ fees and costs to which PFG
may be entitled pursuant to this Paragraph shall immediately become part of
Borrower’s Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.

 

13

 

8.13  Benefit of Agreement.  The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and PFG; provided,
however, that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of PFG, and any prohibited assignment shall
be void.  No consent by PFG to any
assignment shall release Borrower from its liability for the Obligations.

 

8.14  Joint and Several
Liability. 
If Borrower consists of more than one Person, their liability shall be
joint and several, and the compromise of any claim with, or the release of, any
Borrower shall not constitute a compromise with, or a release of, any other
Borrower.

 

8.15  Limitation of Actions.  Any claim or
cause of action by Borrower against PFG, its directors, officers, employees,
agents, accountants or attorneys, based upon, arising from, or relating to this
Loan Agreement, or any other Loan Document, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by PFG, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of
an action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after the first act, occurrence or omission upon
which such claim or cause of action, or any part thereof, is based, and the
service of a summons and complaint on an officer of PFG, or on any other person
authorized to accept service on behalf of PFG, within thirty (30) days
thereafter.  Borrower agrees that such
one-year period is a reasonable and sufficient time for Borrower to investigate
and act upon any such claim or cause of action. 
The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of PFG in its sole discretion.  This provision shall survive any termination
of this Loan Agreement or any other Loan Document.

 

8.16  Paragraph Headings;
Construction. 
Paragraph headings are only used in this Agreement for convenience.  Borrower and PFG acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed
strictly against PFG or Borrower under any rule of construction or otherwise.

 

8.17  Governing Law;
Jurisdiction; Venue. 
This Agreement and all acts and transactions hereunder and all rights
and obligations of PFG and Borrower shall be governed by the laws of the State
of New York.  As a material part of the
consideration to PFG to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement
shall, at PFG’s option, be litigated in courts located within California, and
that the exclusive venue therefor shall be San Francisco County; (ii) consents
to the jurisdiction and venue of any such court and consents to service of
process in any such action or proceeding by personal delivery or any other
method permitted by law; and (iii) waives any and all rights Borrower may have
to object to the jurisdiction of any such court, or to transfer or change the
venue of any such action or proceeding.

 

8.18  Mutual Waiver of Jury
Trial.  BORROWER
AND PFG EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS
AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN PFG
AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF PFG OR BORROWER OR ANY OF
THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH PFG OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

 

8.19 Representations and warranties of PFG.  PFG has all requisite power and has taken all
requisite action to execute and deliver each of this Agreement and to carry out
and perform all of its obligations hereunder. 
This Agreement has been duly authorized, executed and delivered on
behalf of Purchaser and constitutes the valid and binding agreement of PFG,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency,  reorganization
or similar laws relating to or affecting the enforcement of creditors’ rights
generally and (ii) as limited by equitable principles generally.  The consummation of the transactions
contemplated herein and the fulfillment of the terms herein will not result in
a breach of any of the terms or provisions of PFG’s partnership agreement or
other relevant organizational documents.

 

8.20 
Provisions Relating to Oregon Law.  To the extent that all or any portion of this
Agreement is determined by a court of competent jurisdiction to be subject to
Oregon law, the following disclosures are made:

 

In compliance with Oregon law, the Borrower and any Guarantor(s) should
read carefully and acknowledge your receipt and understanding of the following
statement:

 

14

 

UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US
AFTER NOVEMBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH
ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER’S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF LENDER TO BE ENFORCEABLE.

 

Under Oregon law, we are also required to notify you of certain matters
related to our right to place insurance on the property that is collateral for
our loan in certain circumstances.  In
compliance with this law, please read carefully and acknowledge your receipt
and understanding of the following warning:

 

WARNING:  UNLESS YOU PROVIDE US WITH EVIDENCE OF THE
INSURANCE COVERAGE AS REQUIRED BY OUR CONTRACT OR LOAN AGREEMENT, WE MAY
PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR INTEREST.  THIS INSURANCE MAY, BUT NEED NOT, ALSO
PROTECT YOUR INTEREST.  IF THE COLLATERAL
BECOMES DAMAGED, THE COVERAGE WE PURCHASE MAY NOT PAY ANY CLAIM YOU MAKE OR ANY
CLAIM MADE AGAINST YOU.  YOU MAY LATER
CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT YOU HAVE OBTAINED PROPERTY
COVERAGE ELSEWHERE.

 

YOU ARE RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY US.  THE COST OF THIS INSURANCE MAY BE ADDED TO
YOUR CONTRACT OR LOAN BALANCE.  IF THIS
COST IS ADDED TO YOUR CONTRACT OR LOAN BALANCE, THE INTEREST RATE PAYABLE UNDER
THE UNDERLYING LOAN WILL APPLY TO THIS ADDED AMOUNT.  THE EFFECTIVE DATE OF THE COVERAGE MAY BE THE
DATE YOUR PRIOR COVERAGE LAPSED OR THE DATE YOUR FAILED TO PROVIDE PROOF OF
COVERAGE.

 

THE COVERAGE WE PURCHASE MAY BE CONSIDERABLY MORE EXPENSIVE THAN
INSURANCE YOU CAN OBTAIN ON YOUR OWN AND MAY NOT SATISFY ANY NEED FOR PROPERTY
DAMAGE COVERAGE OR ANY MANDATORY LIABILITY INSURANCE REQUIREMENTS IMPOSED BY
APPLICABLE LAW.  (Each reference to “you”
and “your” shall refer to Borrower and each reference to “us” and “we” shall
refer to Lender.)

 

 

	
  Borrower:

  	
  PFG:

  
	
   

  	
  Bioject
  Medical Technologies Inc.

  	
   

  	
  PARTNERS
  FOR GROWTH, L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Jim O’ Shea

  	
   

  	
  By

  	
  /s/ Lorraine Nield

  	
   

  
	
   

  	
   

  	
  Jim
  O’Shea, President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Lorraine Nield

  	
   

  
	
   

  	
  By

  	
  /s/ Christine Farrell

  	
   

  	
   

  
	
   

  	
   

  	
  Secretary
  or Ass’t Secretary

  	
   

  	
  Title: Manager, Partners for Growth, LLC

  
	
   

  	
   

  	
   

  	
   

  	
  Its
  General Partner

  
	
  Borrower:

  	
   

  	
   

  
	
   

  	
  Bioject
  Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Jim O’ Shea

  	
   

  	
   

  
	
   

  	
   

  	
  Jim
  O’Shea, President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Christine Farrell

  	
   

  	
   

  
	
   

  	
   

  	
  Secretary
  or Ass’t Secretary

  	
   

  	
   

  
									

 

 

Signature Page to Loan and Security Agreement

 

15

 

Partners For Growth

 

Schedule to

 

Term Loan and Security Agreement

 

	
  Borrower:

  	
  Bioject Medical Technologies, Inc.

  
	
  Address:

  	
  211 Somerville Road, Route 202N, Bedminster, NJ 07921

  
	
   

  	
   

  
	
  Borrower:

  	
  Bioject, Inc.

  
	
  Address:

  	
  20245
  S.W. 95th Ave., Tualatin, OR 97062

  
	
   

  	
   

  
	
  Date:

  	
  December 15, 2004

  

 

This Schedule forms an integral part of the Term Loan and Security
Agreement between PARTNERS FOR GROWTH, L.P. and the above-borrower of even
date.

 

	
  1. LOAN (Section 1.1):

  	
   

  
	
   

  	
  The Loan shall consist of a term loan in the amount of $3,000,000,
  which shall be funded on the date hereof

  
	
   

  	
  The Principal Amount of the Loan shall be repaid in 36 equal
  principal payments of $83,333 each, plus interest thereon, commencing on the
  first business day of the month following the date hereof and continuing on
  the first day of each month thereafter until the Maturity Date on which date
  the entire unpaid principal balance of the Loan plus any and all accrued and
  unpaid interest shall be paid.

  
	
   

  	
  The principal of the Loan may be prepaid at any time, in whole or in
  part, without penalty. Prepayments shall be applied to the principal payments
  on the Loan in inverse order of their maturity.

  
	
   

  	
   

  
	
  2. INTEREST.

  	
   

  
	
  Interest
  Rate (Section 1.2):

  	
   

  
	
   

  	
  The Loan shall bear interest at a rate per annum equal to (i) the
  greater of 4.5% or the Prime Rate, plus (ii) 3%. Interest shall be based on
  the outstanding balance due under the Loan during each month, calculated
  monthly on the basis of a 360-day year and a year of twelve months of 30 days
  each for the actual number of days elapsed in each month. Accrued interest
  for each month shall be payable monthly, on the last day of the month.

  
	
   

  	
  “Prime Rate” means the rate quoted from time to time by
  Silicon Valley Bank as its prime lending rate.

  

 

1

 

	
  3. FEES (Section 1.3):

  	
   

  
	
   

  	
   

  
	
  Loan Fee:

  	
  $30,000, payable concurrently herewith.

  
	
   

  	
   

  
	
  4. MATURITY DATE

  	
   

  
	
  (Section 5.1):

  	
  December 14, 2007

  
	
   

  	
   

  
	
  5. FINANCIAL COVENANTS

  	
   

  
	
  (Section 4.1):

  	
  NONE

  
	
   

  	
   

  
	
  6. REPORTING.

  	
   

  
	
  (Section 4.4):

  	
   

  
	
   

  	
   

  
	
   

  	
  Borrower shall provide PFG with the following:

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Monthly Borrowing Base Compliance Certificate, in such form as PFG
  shall specify, within five (5) Business Days after the end of each month, and
  borrowing base reports at such other times as PFG shall from time to time request
  in its good faith business judgment.

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Monthly accounts receivable agings, aged by invoice date, within five
  (5) Business Days after the end of each month.

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Monthly accounts payable agings, aged by invoice date, and
  outstanding or held check registers, if any, within five (5) Business Days
  after the end of each month.

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Monthly reconciliations of accounts receivable agings (aged by
  invoice date), and general ledger, within five (5) Business Days after the
  end of each month.

  
	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  Monthly perpetual inventory reports for the Inventory valued on a
  first-in, first-out basis at the lower of cost or market (in accordance with
  GAAP) or such other inventory reports as are requested by PFG in its good
  faith business judgment, all within ten (10) Business Days after the end of
  each month.

  
	
   

  	
   

  	
   

  
	
   

  	
  (f)

  	
  Monthly unaudited, management-prepared financial statements prepared
  in accordance with GAAP, within ten (10) Business Days after the end of each
  month.

  
	
   

  	
   

  	
   

  
	
   

  	
  (g)

  	
  Monthly Compliance Certificates, within ten (10) Business Days after
  the end of each month, in such form as PFG shall

  

 

2

 

	
   

  	
   

  	
  reasonably specify, signed by the Chief Financial Officer of
  Borrower, 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 PFG shall
  reasonably request, including, without limitation, a statement that at the
  end of such month there were no held checks.

  
	
   

  	
   

  	
   

  
	
   

  	
  (h)

  	
  Quarterly financial statements, as soon as available, and in any
  event within forty-five days after the end of each fiscal quarter of Borrower
  (other than the last fiscal quarter in any year); provided, however, if
  Borrower files a form 10-Q with the Securities and Exchange Commission and
  the same is available within said period through EDGAR, such availability
  will satisfy this requirement.

  
	
   

  	
   

  	
   

  
	
   

  	
  (i)

  	
  A quarterly information update certificate, in the form of an update
  of the Representations, within the earlier to occur of ten (10) Business Days
  after the end of each fiscal quarter of Borrower or promptly following the
  knowledge of any executive officer of Borrower that the Representations are
  no longer true, complete and accurate.

  
	
   

  	
   

  	
   

  
	
   

  	
  (j)

  	
  Annual financial statements, as soon as available, and in any event
  within 120 days following the end of Borrower’s fiscal year, certified by,
  and with an unqualified opinion of, independent certified public accountants
  reasonably acceptable to PFG; provided, however, if Borrower files a form
  10-K with the Securities and Exchange Commission and the same is available
  within said period through EDGAR, such availability will satisfy this
  requirement.

  
	
   

  	
   

  	
   

  
	
  7. BORROWER INFORMATION:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Borrower represents and warrants that the information set forth in
  the Representations and Warranties of the Borrower dated December 15,
  2004, previously submitted to PFG (the “Representations”) is true and correct
  as of the date hereof.

  
	
   

  	
   

  	
   

  
	
  8. ADDITIONAL PROVISIONS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Senior Lender.

  
	
   

  	
   

  	
  (1)

  	
  Senior Lender. As used herein, “Senior
  Lender” means the holder of Borrower’s revolving line

  

 

3

 

	
   

  	
   

  	
   

  	
  of credit indebtedness arising under that certain Loan and Security
  Agreement dated as of December 15, 2004, and “Senior Loan Documents”
  means all present and future documents instruments and agreements entered
  into between Borrower and Senior Lender or by third parties relating to
  Borrower and Senior Lender.

  
	
   

  	
   

  	
  (2)

  	
  Senior Debt Limit. Borrower shall not permit
  the total Indebtedness of Borrower to Senior Lender under the Senior Loan
  Documents to exceed $2,000,000 at any time outstanding (the “Senior Debt
  Limit”), including, but not limited to, monies borrowed by Borrower, interest
  on loans due from Borrower, fees and expenses for which Borrower is
  obligated, sums due from Borrower in connection with issuance of commercial
  letters of credit, issuance of forward contracts for foreign exchange
  reserve, and any other direct or indirect financial accommodation Senior
  Lender may provide to Borrower).

  
	
   

  	
   

  	
  (3)

  	
  Senior Loan Documents. Borrower represents
  and warrants that it has provided PFG with true and complete copies of all
  existing Senior Loan Documents, and Borrower covenants that it will, in the
  future, provide PFG with true and complete copies of any future Senior Loan
  Documents, including without limitation any amendments to any existing Senior
  Loan Documents.

  
	
   

  	
  (b)

  	
  Deposit Accounts. Concurrently, Borrower
  shall cause the banks and other institutions where its Deposit Accounts are
  maintained to enter into control agreements with PFG, in form and substance
  satisfactory to PFG in its good faith business judgment and sufficient to
  perfect PFG’s security interest in said Deposit Accounts, subject to the
  security interest of the Senior Lender. Said control agreements shall permit
  PFG, in its discretion, to withdraw from said Deposit Accounts accrued interest
  on the Obligations monthly (subject to the rights of the Senior Lender).

  
	
   

  	
  (c)

  	
  Lockbox. If requested to do so by PFG,
  Borrower shall direct each Account Debtor (and each depository institution
  where proceeds of accounts receivable are on deposit) to make payments with
  respect to all receivables to a lockbox account established for PFG at such
  banking institution as PFG may notify (the “Lockbox”) or to wire transfer
  payments to a cash collateral account that PFG controls, as and when directed
  by PFG from time to time, at its option and at the sole and exclusive
  discretion of the PFG. It will be considered an

  

 

4

 

	
   

  	
   

  	
  immediate Event of Default if the Lockbox is not set-up and
  operational within 30 days from the date of PFG ‘s request.

  
	
   

  	
  (d)

  	
  Conditional Release of Collateral from Security Interest.
  At any time prior to the Maturity Date, Borrower may request that PFG release
  its security interest and lien on all or part of Borrower’s Intellectual
  Property, and PFG shall release such security interest and lien, provided,
  however, that Borrower’s right to make such request and PFG’s obligation
  to honor such request shall be expressly conditioned on the following:

  
	
   

  	
   

  	
  (i) at the time of such request, no Event of Default has occurred and
  is continuing and Borrower is otherwise in full compliance with its
  obligations to PFG hereunder and under each other agreement between Borrower
  and PFG; and

  
	
   

  	
   

  	
  (ii) the fair market value of the Real Property (as supported by a
  then current appraisal) equals or exceeds the dollar amount of all
  Obligations outstanding; and

  
	
   

  	
   

  	
  (iii) any future requests for advances which would increase
  Obligations above the fair market value of the Real Property may be declined
  by PFG or may be conditioned upon a new security interest being granted by
  Borrower in such Intellectual Property; and

  
	
   

  	
   

  	
  (iv) upon each occasion of the Intellectual Property released from
  PFG’s security interest and lien being sold or licensed, Borrower shall apply
  50% (or such lesser percentage as PFG may determine in its sole discretion)
  of any such sales or 

  

 

5

 

	
   

  	
   

  	
  licensing proceeds to payment of Obligations, in such manner and
  against such outstanding Obligations as PFG shall determine.

  

 

 

	
  Borrower:

  	
  PFG:

  
	
   

  	
  Bioject
  Medical Technologies Inc.

  	
   

  	
  PARTNERS
  FOR GROWTH, L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Jim O’ Shea

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Jim
  O’Shea, President

  	
   

  	
  By

  	
  /s/ Lorraine Nield

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:
  Lorraine Nield

  
	
   

  	
  By

  	
  /s/ Christine Farrell

  	
   

  	
   

  
	
   

  	
   

  	
  Secretary
  or Ass’t Secretary

  	
   

  	
  Title:
  Manager, Partners for Growth, LLC

  
	
   

  	
   

  	
   

  	
   

  	
  Its
  General Partner

  
	
  Borrower:

  	
   

  	
   

  
	
   

  	
  Bioject,
  Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Jim O’ Shea

  	
   

  	
   

  
	
   

  	
   

  	
  Jim
  O’Shea, President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Christine Farrell

  	
   

  	
   

  
	
   

  	
   

  	
  Secretary
  or Ass’t Secretary

  	
   

  	
   

  

 

6Exhibit 10.2

 

Partners for Growth

 

Loan and
Security Agreement

 

	
  Borrower:

  	
   

  	
  Bioject Medical Technologies, Inc.

  
	
  Address:

  	
   

  	
  211 Somerville Road, Route 202N,
  Bedminster, NJ 07921

  
	
   

  	
   

  	
   

  
	
  Borrower:

  	
   

  	
  Bioject, Inc.

  
	
  Address:

  	
   

  	
  20245 S.W. 95th Ave., Tualatin, OR 97062

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  December 15, 2004

  

 

THIS LOAN AND SECURITY AGREEMENT is entered
into on the above date between PARTNERS FOR GROWTH, L.P. (“PFG”), whose address
is 560 Mission Street, 3rd floor, San Francisco, CA 94105 and the borrowers
named above (jointly and severally, the “Borrower”), whose chief executive
office is located at the above address, respectively. The Schedule to this
Agreement (the “Schedule”) being signed by the parties concurrently, is an
integral part of this Agreement. 
(Definitions of certain terms used in this Agreement are set forth in Section 8
below.)

 

1.                                       LOANS.

 

1.1  Loans.  PFG will make loans to Borrower (the “Loans”)
expressly for general working capital purposes up to a maximum aggregate credit
limit of $2,000,000 (the “Credit Limit”), subject to the Borrowing Base shown
on the Schedule, provided no Default or Event of Default has occurred and is
continuing, and subject to deduction of Reserves for accrued interest and such
other Reserves as PFG deems proper from time to time in its good faith business
judgment.

 

1.2  Interest.  All Loans and all other monetary Obligations
shall bear interest at the rate shown on the Schedule, except where expressly
set forth to the contrary in this Agreement. 
Interest shall be payable monthly, on the last day of the month.  Interest may, in PFG’s discretion, be charged
to Borrower’s loan account, and the same shall thereafter bear interest at the
same rate as the other Loans. Regardless of the amount of the Obligations that
may be outstanding from time to time.

 

1.3  Overadvances.  If, at any time or for any reason, the total
of all outstanding Loans and all other monetary Obligations exceeds the Credit
Limit (an “Overadvance”), Borrower shall immediately pay the amount of the
excess to PFG, without notice or demand. 
Without limiting Borrower’s obligation to repay to PFG the amount of any
Overadvance, Borrower agrees to pay PFG interest on the outstanding amount of
any Overadvance, on demand, at the Default Rate.

 

1.4  Fees.  Borrower shall pay PFG the fees shown on the
Schedule, which are in addition to all interest and other sums payable to PFG
and are not refundable.

 

1.5 Loan Requests. To obtain a Loan, Borrower shall make a
request to PFG by facsimile or telephone. Loan requests may also be made by
Borrower by email, but the same shall not be deemed made until PFG acknowledges
receipt of the same by email or otherwise in writing. Loan requests received
after 12:00 Noon Pacific time will not be considered by PFG until the next
Business Day. PFG may rely on any telephone request for a Loan given by a
person whom PFG believes in good faith is an authorized representative of
Borrower, and Borrower will indemnify PFG for any loss PFG suffers as a result
of that reliance.

 

1.6  Late Fee. If any
payment of accrued interest for any month is not made within three (3) Business
Days after the date a bill therefore is sent by PFG to Borrower, or if any
payment of principal or any other payment is not made within three Business
Days after the date due, Borrower shall pay PFG a late payment fee equal to 5%
of the amount of such late payment.  The
provisions of this paragraph shall not be construed as PFG’s consent to
Borrower’s failure to pay any amounts

 

1

 

when due, and PFG’s acceptance of any
such late payments shall not restrict PFG’s exercise of any remedies arising
out of any such failure.

 

2.  SECURITY INTEREST. 

 

2.1  Grant of Security
Interest.  To secure
the payment and performance of all of the Obligations when due, Borrower hereby
grants to PFG a security interest in all of the following (collectively, the “Collateral”):  all right, title and interest of Borrower in
and to all of the following, whether now owned or hereafter arising or acquired
and wherever located: all Accounts; all Inventory; all Equipment; all Deposit
Accounts; all General Intangibles (including without limitation all
Intellectual Property); all Investment Property; all Other Property; all Real
Property; and any and all claims, rights and interests in any of the above, and
all guaranties and security for any of the above, and all substitutions and
replacements for, additions, accessions, attachments, accessories, and
improvements to, and proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties) of, any and all of the
above, and all Borrower’s books relating to any and all of the above.

 

2.2  Specified Contracts
Excluded.  Notwithstanding
anything herein to the contrary, the security interest granted under this Section 2
shall not attach to any of the following (“Specified Contracts”):  any lease, license, contract, property rights
or agreement to which Borrower is a party or any of its rights or interests
thereunder if and for so long as the grant of such security interest shall
constitute or result in any of the following (other than to the extent that any
such term would be ineffective under the Code or any other applicable law or
principles of equity):  (i) the
abandonment, invalidation or unenforceability of any right, title or interest
of Borrower therein, or (ii) in a breach or termination pursuant to the terms
of, or a default under, any such lease, license, contract property rights or
agreement; provided however that such security interest shall attach
immediately at such time as the condition causing such abandonment,
invalidation or unenforceability shall be remedied and to the extent severable,
shall attach immediately to any portion of such lease, license, contract,
property rights or agreement that does not result in any of the consequences
specified in (i) or (ii) above. Except as disclosed on Exhibit A hereto,
Borrower represents and warrants to PFG that there are no Specified Contracts
which are material to Borrower’s business or grant Borrower rights in
Intellectual Property which is licensed by the Borrower to its customers or
incorporated in products licensed or sold by the Borrower to its
customers.  Borrower shall not,
hereafter, without PFG’s prior written consent, enter into any Specified
Contract which is material to Borrower’s business or grants Borrower rights in
Intellectual Property which is licensed by the Borrower to its customers or
incorporated in products licensed or sold by the Borrower to its customers.

 

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BORROWER.

 

In
order to induce PFG to enter into this Agreement and to make Loans, Borrower
represents and warrants to PFG as follows, and Borrower covenants that the
following representations will continue to be true, and that Borrower will at
all times comply with all of the following covenants, throughout the term of
this Agreement and until all Obligations have been paid and performed in full:

 

3.1  Corporate Existence and
Authority. 
Borrower is and will continue to be, duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation.  Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would result in a Material Adverse Change.  The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (i)
have been duly and validly authorized, (ii) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors’ rights generally), and (iii) do not violate
Borrower’s articles or certificate of incorporation, or Borrower’s by-laws, or
any law or any material agreement or instrument which is binding upon Borrower
or its property, and (iv) do not constitute grounds for acceleration of any
material indebtedness or obligation under any agreement or instrument which is
binding upon Borrower or its property.

 

3.2  Name; Trade Names and
Styles. 
As of the date hereof, the name of Borrower set forth in the heading to
this Agreement is its correct name, as set forth in its Articles or Certificate
of Incorporation.  Listed in the
Representations are all prior names of Borrower and all of Borrower’s present
and prior trade names as of the date hereof. 
Borrower shall give PFG 30 days’ prior written notice before changing
its name or doing business under any other name.  Borrower has complied, and will in the future
comply, in all material respects, with all laws relating to the conduct of
business under a fictitious business name, if applicable to Borrower.

 

3.3  Place of Business; Location
of Collateral. As of the date hereof, the address set
forth in the heading to this Agreement is Borrower’s chief executive
office.  In addition, as of the date
hereof, Borrower has places of business and Collateral is located only at the
locations set forth in the Representations. 
Borrower will give PFG at least 30 days prior written notice

 

2

 

before opening any additional place of
business, changing its chief executive office, or moving any of the Collateral
to a location other than Borrower’s Address or one of the locations set forth
in the Representations, except that Borrower may maintain sales offices in the
ordinary course of business at which not more than a total of $10,000 fair
market value of Equipment is located.

 

3.4  Title to Collateral;
Perfection; Permitted Liens.

 

(a) 
Borrower is now, and will at all times in the future be, the sole owner
of all the Collateral, except for items of Equipment which are leased to
Borrower.  The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens.  PFG now has, and will continue to have, a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend PFG and the Collateral against all claims of others.

 

(b)         Borrower has
set forth in the Representations all of Borrower’s Deposit Accounts, and
Borrower will give PFG five Business Days advance written notice before
establishing any new Deposit Accounts and will cause the institution where any
such new Deposit Account is maintained to execute and deliver to PFG a control
agreement in form sufficient to perfect PFG’s security interest in the Deposit
Account and otherwise satisfactory to PFG in its good faith business judgment.

 

(c) In the event that Borrower shall at
any time after the date hereof have any commercial tort claims against others,
which it is asserting, and in which the potential recovery exceeds $100,000,
Borrower shall promptly notify PFG thereof in writing and provide PFG with such
information regarding the same as PFG shall request (unless providing such
information would waive the Borrower’s attorney-client privilege).  Such notification to PFG shall constitute a
grant of a security interest in the commercial tort claim and all proceeds
thereof to PFG, and Borrower shall execute and deliver all such documents and
take all such actions as PFG shall request in connection therewith.

 

(d)         Whenever any
Collateral is located upon premises in which any third party has an interest,
including real property leased by Borrower, Borrower shall, whenever requested
by PFG, use commercially reasonable efforts to cause such third party to
execute and deliver to PFG, in form acceptable to PFG, such waivers and
subordinations as PFG shall specify in its good faith business judgment.  Borrower will keep in full force and effect,
and will comply with all material terms of, any lease of real property where
any of the Collateral now or in the future may be located.

 

3.5  Maintenance of Collateral.  Borrower will maintain the Collateral in good
working condition (ordinary wear and tear excepted), and Borrower will not use
the Collateral for any unlawful purpose. 
Borrower will immediately advise PFG in writing of any material loss or
damage to the Collateral.

 

3.6  Books and Records.  Borrower has maintained and will maintain at
Borrower’s Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.

 

3.7  Financial Condition,
Statements and Reports. 
All financial statements now or in the future delivered to PFG have
been, and will be, prepared in conformity with GAAP (subject, in the case of
unaudited interim statements, to year-end adjustments and the absence of
footnotes) and now and in the future will fairly present the results of
operations and financial condition of Borrower in all material respects, in
accordance with GAAP (subject, in the case of unaudited interim statements, to
year-end adjustments and the absence of footnotes), at the times and for the
periods therein stated.  Between the last
date covered by any such statement provided to PFG and the date hereof, there
has been no Material Adverse Change.

 

3.8  Tax Returns and Payments;
Pension Contributions. 
Borrower has timely filed, and will timely file, all required tax
returns and reports, and Borrower has timely paid, and will timely pay, all
foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower.  Borrower may, however, defer payment of any
of the foregoing which are contested by Borrower in good faith, provided that
Borrower (i) Borrower contests the same by appropriate proceedings promptly and
diligently instituted and conducted, (ii) notifies PFG in writing of the
commencement of, and any material development in any such proceedings, and
(iii) posts bonds or takes any other steps required to stay the enforcement of
any such lien upon any of the Collateral atainst which subh foreign, federal,
state or local authority could then proceed. 
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, and shall continue to pay all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not and will not withdraw from participation
in, permit partial or complete termination of, or permit 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.

 

3

 

3.9  Compliance with Law.  Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations applicable to Borrower,
including, but not limited to, those relating to Borrower’s ownership of real
or personal property, the conduct and licensing of Borrower’s business, and all
environmental matters.

 

3.10  Litigation.  There is no claim, suit, litigation,
proceeding or investigation pending or (to best of Borrower’s knowledge)
threatened against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which could
reasonably be expected to result, either separately or in the aggregate, in any
Material Adverse Change.  Borrower will
promptly inform PFG in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted against Borrower involving
$250,000 or more in the aggregate for all such claims, proceedings, litigation
or investigation.

 

3.11  Use of Proceeds.  All proceeds of all Loans shall be used
solely for lawful business purposes.  Borrower is not purchasing or carrying any “margin
stock” (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to
purchase or carry any “margin stock” or to extend credit to others for the
purpose of purchasing or carrying any “margin stock.”

 

3.12  No Default.  At the date
hereof, no Default or Event of Default has occurred, and no Default or Event of
Default will have occurred after giving effect to any Loans being made concurrently
herewith.

 

4.  Accounts.

 

4.1  Representations Relating to
Accounts.  Borrower
represents and warrants to PFG as follows: 
Each Account with respect to which Loans are requested by Borrower
shall, on the date each Loan is requested and made, (i) represent an undisputed
bona fide existing unconditional obligation of the Account Debtor created by
the sale, delivery, and acceptance of goods or the rendition of services, or
the licensing of Intellectual Property, in the ordinary course of Borrower’s
business, and (ii) meet the Minimum Eligibility Requirements set forth in Section 8
below.

 

4.2  Representations Relating to
Documents and Legal Compliance.  Borrower
represents and warrants to PFG as follows: 
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 in all material respects and all such invoices, instruments and
other documents and all of Borrower’s books and records are and shall be 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 regulations.  To
the best of Borrower’s knowledge, all signatures and endorsements on all
documents, instruments, and agreements relating to all Accounts are and shall
be genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.

 

4.3 Documents Relating to Accounts. If requested
by PFG, Borrower shall furnish PFG with copies (or, at PFG’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, and Borrower warrants the genuineness of all of the
foregoing.  Borrower shall also furnish
to PFG an aged accounts receivable trial balance as provided in the
Schedule.  In addition, Borrower shall
deliver to PFG, on its request, 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
indorsements, and copies of all credit memos.

 

4.4  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. PFG may, in its good faith business judgment, require that all
proceeds of Collateral be deposited by Borrower into a lockbox account, or such
other “blocked account” as PFG may specify, pursuant to a blocked account
agreement in such form as PFG may specify in its good faith business judgment.

 

4.5.  Remittance of Proceeds. All
proceeds arising from the disposition of any Collateral shall be delivered, in
kind, by Borrower to PFG 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 in such order as PFG shall determine; provided that, if no
Default or Event of Default has occurred and is continuing, Borrower shall not
be obligated to remit to PFG (i) the proceeds of Accounts arising in the
ordinary course of business, or (ii) the proceeds of the sale of Inventory in
the ordinary course of business, (iii) the proceeds of the sale of Permitted
Investments which are promptly reinvested in other Permitted Investments, the
proceeds of the sale of Equipment to the extent such proceeds are reinvested in
Equipment of comparable utility within six (6) months of such sale, or 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
$50,000 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

 

4

 

proceeds separate and apart from such other funds and property and in
an express trust for PFG, except as set forth above.  Nothing in this Section limits the
restrictions on disposition of Collateral set forth elsewhere in this
Agreement.

 

4.6  Disputes.  Borrower shall notify PFG promptly of all
disputes or claims relating to Accounts. 
Borrower shall not forgive (completely or partially), compromise or
settle any Account for less than payment in full, or agree to do any of the
foregoing, except that Borrower may do so, provided that: (i) Borrower does so
in good faith, in a commercially reasonable manner, in the ordinary course of
business, and in arm’s length transactions, which are reported to PFG on the
regular reports provided to PFG; (ii) no Default or Event of Default has
occurred and is continuing; and (iii) taking into account all such discounts,
settlements and forgiveness, the total outstanding Loans will not exceed the
Credit Limit.

 

4.7  Returns.  Provided no Event of Default has occurred and
is continuing, if any Account Debtor returns any Inventory to Borrower,
Borrower shall promptly determine the reason for such return and promptly issue
a credit memorandum to the Account Debtor in the appropriate amount.  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 PFG,
and immediately notify PFG of the return of the Inventory.

 

4.8  Verification.  PFG may, from time to time, verify directly
with the respective Account Debtors the validity, amount and other matters
relating to the Accounts, by means of mail, telephone or otherwise, either in
the name of Borrower or PFG or such other name as PFG may choose.

 

4.9  No Liability.  PFG 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 PFG 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 PFG from liability for its own gross negligence or willful misconduct.

 

5.  ADDITIONAL DUTIES OF BORROWER.

 

5.1  Financial and Other
Covenants. 
Borrower shall at all times comply with the financial and other
covenants set forth in the Schedule.

 

5.2  Insurance.  Borrower shall, at all times insure all of
the tangible personal property Collateral and carry such other business insurance,
with insurers reasonably acceptable to PFG, in such form and amounts as PFG may
reasonably require and as are customary and in accordance with standard
practices for Borrower’s industry and locations, and Borrower shall provide
evidence of such insurance to PFG.  All
such insurance policies shall name PFG as an additional loss payee, and shall
contain a lenders loss payee endorsement in form reasonably acceptable to
PFG.  Upon receipt of the proceeds of any
such insurance, PFG shall apply such proceeds in reduction of the Obligations
as PFG shall determine in its good faith business judgment, except that,
provided no Default or Event of Default has occurred and is continuing, at the
direction of Borrower, PFG shall release to Borrower insurance proceeds with
respect to any such Collateral with respect to which the insurance proceeds
were paid.  PFG may require reasonable
assurance that the insurance proceeds so released will be so used.  If Borrower fails to provide or pay for any
insurance, PFG may, but is not obligated to, obtain the same at Borrower’s
expense.  Borrower shall promptly deliver
to PFG copies of all material reports made to insurance companies.

 

5.3  Reports.  Borrower, at its expense, shall provide PFG
with the written reports set forth in the Schedule, and such other written
reports with respect to Borrower (including budgets, projections, operating
plans and other financial documentation), as PFG shall from time to time
reasonably request in its good faith business judgment.

 

5.4  Access to Collateral, Books
and Records. 
At reasonable times, and on one Business Day’s notice, PFG, or its
agents, shall have the right to inspect the Collateral, and the right to audit
and copy Borrower’s books and records. The foregoing inspections and audits
shall be at Borrower’s expense for one such inspection and one such audit each
year and the charge therefor shall be $750 per person per day (or such higher
amount as shall represent PFG’s then current standard charge for the same),
plus reasonable out-of-pocket expenses. The PFG costs of any such inspections
and audits in excess of one each year shall be at PFG’s expense; provided,
however, that upon the occurrence and during the continuance of an Event of
Default, Borrower shall be liable for the costs of all such inspections.  In no event shall Borrower be required to
disclose to PFG any document or information (i) where disclosure is prohibited
by applicable law or any agreement binding on Borrower, or (ii) is subject to
attorney-client or similar privilege or constitutes attorney work product. If
Borrower is withholding any information under the preceding sentence, it shall
so advise PFG in writing, giving PFG a general description of the nature of the
information withheld and the basis upon which it is withheld.

 

5

 

5.5  Negative Covenants.  Except as may be permitted in the Schedule,
Borrower shall not, without PFG’s prior written consent (which shall be a
matter of its good faith business judgment), do any of the following:

 

(i) merge or consolidate with another
corporation or entity;

 

(ii) acquire any assets, except in the
ordinary course of business, or make any Investments other than Permitted
Investments;

 

(iii) enter into any other transaction outside
the ordinary course of business;

 

(iv) sell or transfer any Collateral
(including without limitation and sale or transfer of Collateral which is then
leased back by Borrower), except for (A) the sale of Inventory in the ordinary
course of Borrower’s business, and except for the sale of obsolete or unneeded
Equipment and the sale and replacement of Equipment, in each case, in the
ordinary course of business, (B) the sale of, and reinvestment of such sale
proceeds in, Permitted Investments, (C) the granting of Permitted Liens, and
(D) the licensing of Intellectual Property in the ordinary course of business,
provided that Borrower shall give PFG advance written notice of any exclusive
licensing of Intellectual Property and provided further that the proceeds of
such licensing shall become Collateral subject to the security interest of PFG;

 

(v) store any Inventory or other
Collateral with any warehouseman or other third party, unless Borrower has used
commercially reasonable efforts to comply with the provisions of Section 3.4(d)
above and has notified PFG of such action or proposed action;

 

(vi) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis;

 

(vii) make any loans of any money or
other assets, other than Permitted Investments;

 

(viii) incur any Indebtedness, other than
Permitted Indebtedness;

 

(ix) guarantee or otherwise become liable
with respect to the obligations of another party or entity other than the
endorsement of checks and other similar instruments in the ordinary course of
Borrower’s business;

 

(x) pay or declare any dividends on
Borrower’s stock (except for dividends payable solely in stock of Borrower);

 

(xi) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower’s stock;

 

(xii) engage, directly or indirectly, in
any business other than the businesses currently engaged in by Borrower or
reasonably related thereto; or

 

(xiii) dissolve or elect to dissolve.

 

Transactions permitted by the foregoing
provisions of this Section are only permitted if no Default or Event of
Default would occur as a result of such transaction.

 

5.6  Litigation Cooperation.  Should any third-party suit or proceeding be
instituted by or against PFG with respect to any Collateral or relating to Borrower,
Borrower shall, without expense to PFG, make available Borrower and its
officers, employees and agents and Borrower’s books and records, to the extent
that PFG may deem them reasonably necessary in order to prosecute or defend any
such suit or proceeding.

 

5.7 Changes.  Borrower
agrees to notify PFG in writing of any changes in the information set forth in
the Representations.

 

5.8  Further Assurances.  Borrower agrees, at its expense, on request
by PFG, to execute all documents and take all actions, as PFG, may, in its good
faith business judgment, deem necessary or useful in order to perfect and
maintain PFG’s perfected first-priority security interest in the Collateral
(subject to Permitted Liens), and in order to fully consummate the transactions
contemplated by this Agreement.

 

6.   TERM.

 

6.1  Maturity Date.  This Agreement shall continue in effect until
the maturity date set forth on the Schedule (the “Maturity Date”), subject
to Sections 6.2 and 6.3 below.

 

6.2  Early Termination.  This Agreement may be terminated prior to the
Maturity Date as follows:  (i) by
Borrower, effective three Business Days after written notice of termination is
given to PFG; or (ii) by PFG at any time after the occurrence and during the
continuance of an Event of Default. 
There is no termination fee or prepayment penalty.

 

6.3  Payment of Obligations.  On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether
or not all or any part of

 

6

 

such Obligations are otherwise then due
and payable. Notwithstanding any termination of this Agreement, all of PFG’s
security interests in all of the Collateral and all of the terms and provisions
of this Agreement shall continue in full force and effect until all Obligations
have been paid and performed in full; provided that PFG may, in its sole
discretion, refuse to make any further Loans after termination.  No termination shall in any way affect or
impair any right or remedy of PFG, nor shall any such termination relieve
Borrower of any Obligation to PFG, until all of the Obligations have been paid
and performed in full.  Upon payment and
performance in full of all the Obligations and termination of this Agreement,
PFG shall promptly terminate its financing statements with respect to the
Borrower and deliver to Borrower such other documents as may be required to
fully terminate PFG’s security interests.

 

7.  EVENTS OF DEFAULT AND REMEDIES.

 

7.1  Events of Default.  The occurrence of any of the following events
shall constitute an “Event of Default” under this Agreement, and Borrower shall
give PFG immediate written notice thereof:

 

(a) Any warranty, representation,
statement, report or certificate made or delivered to PFG by Borrower or any of
Borrower’s officers, employees or agents, now or in the future, shall be untrue
or misleading in a material respect when made or deemed to be made; or

 

(b) Borrower shall fail to pay any Loan
or any interest thereon or any other monetary Obligation within three (3)
Business Days after the date due or fail to pay any other monetary Obligation
within five (5) Business Days after the date due; or

 

(c) the total Loans and other Obligations
outstanding at any time shall exceed the Credit Limit; or

 

(d) Borrower shall fail to comply with
any of the financial covenants set forth in the Schedule, or shall breach any
of the provisions of Section 5.5 hereof, or shall fail to perform any
other non-monetary Obligation which by its nature cannot be cured, or shall
fail to permit PFG to conduct an inspection or audit as provided in Section 5.4
hereof or shall fail to provide PFG with a borrowing base report under Section 6
of the Schedule within five Business Days after the date due; or

 

(e) Borrower shall fail to perform any
other non-monetary Obligation which is capable of cure, which failure is not
cured within ten (10) Business Days after the date due; provided, such cure
period may be extended for such additional period as PFG may determine in its
good faith discretion (i) if Borrower is diligently pursuing a cure that is
likely to result in a cure and (ii) that repayment of Obligations or PFG’s
security is not affected by the granting of additional time to cure; or

 

(f) any levy, assessment, attachment,
seizure, lien or encumbrance (other than a Permitted Lien) is made on all or
any part of the Collateral which is not cured within ten (10) Business Days
after the earlier to occur of (i) the occurrence of the same or (ii) Borrower’s
knowledge of the same; or

 

(g) any default or event of default
occurs under any obligation secured by a Permitted Lien, which is not cured
within any applicable cure period or waived in writing by the holder of the
Permitted Lien; or

 

(h) Borrower breaches any material
contract or obligation, which has resulted or may reasonably be expected to
result in a Material Adverse Change; or

 

(i) Dissolution, termination of
existence, insolvency or business failure of Borrower; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, or Borrower shall generally not
pay its debts as they become due, or Borrower shall conceal, remove or transfer
any part of its property, with intent to hinder, delay or defraud its
creditors, or make or suffer any transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law; or

 

(j) the commencement of any proceeding
against Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 45 days
after the date commenced; or

 

(k) revocation or termination of, or
limitation or denial of liability upon, any guaranty of the Obligations or any
attempt to do any of the foregoing, or commencement of proceedings by any
guarantor of any of the Obligations under any bankruptcy or insolvency law; or

 

(l) revocation or termination of, or
limitation or denial of liability upon, any pledge of any certificate of
deposit, securities or other property or asset of any kind pledged by any third
party to secure any or all of the Obligations, or any

 

7

 

attempt to do any of the foregoing, or
commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law; or

 

(m) Borrower makes any payment on account
of any indebtedness or obligation which has been subordinated to the
Obligations (other than as permitted in the applicable subordination
agreement), or if any Person who has subordinated such indebtedness or obligations
terminates or in any way limits his subordination agreement; or

 

(n) there shall occur, without the prior
written consent of PFG, a Change in Control; or

 

(p) a Material Adverse Change shall
occur.

 

PFG may cease making any Loans hereunder
during any of the cure periods provided above, and thereafter if an Event of
Default has occurred and is continuing.

 

7.2  Remedies.  Upon the occurrence and during the
continuance of any Event of Default, PFG, at its option, and without notice or
demand of any kind except as specified below (all of which are hereby expressly
waived by Borrower), may do any one or more of the following: (a) Cease making
Loans or otherwise extending credit to Borrower under this Agreement or any
other Loan Document; (b) Upon notice to Borrower (which may be same day)
accelerate and declare all or any part of the Obligations to be immediately
due, payable, and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation;
(c) Take possession of any or all of the Collateral wherever it may be found,
and for that purpose Borrower hereby authorizes PFG without judicial process to
enter onto any of Borrower’s premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain on the
premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge for so long as PFG deems it necessary, in its good
faith business judgment, in order to complete the enforcement of its rights
under this Agreement or any other agreement; provided, however, that should PFG
seek to take possession of any of the Collateral by court process, Borrower
hereby irrevocably waives: (i) any bond and any surety or security relating
thereto required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and (iii) any requirement that PFG
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (d) Require Borrower to assemble any or all of the
Collateral and make it available to PFG at places designated by PFG which are
reasonably convenient to PFG and Borrower, and to remove the Collateral to such
locations as PFG may deem advisable; (e) Complete the processing, manufacturing
or repair of any Collateral prior to a disposition thereof and, for such
purpose and for the purpose of removal, PFG shall have the right to use
Borrower’s premises, vehicles, hoists, lifts, cranes, and other Equipment and
all other property without charge; (f) Sell, lease or otherwise dispose of any
of the Collateral, in its condition at the time PFG obtains possession of it or
after further manufacturing, processing or repair, at one or more public and/or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale.  PFG shall have the right to conduct such
disposition on Borrower’s premises without charge, for such time or times as
PFG deems reasonable, or on PFG’s premises, or elsewhere and the Collateral
need not be located at the place of disposition.  PFG may directly or through any affiliated
company purchase or lease any Collateral at any such public disposition, and if
permissible under applicable law, at any private disposition.  Any sale or other disposition of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Accounts and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes PFG to endorse or sign Borrower’s name on all collections, receipts,
instruments and other documents, to take possession of and open mail addressed
to Borrower and remove therefrom payments made with respect to any item of the
Collateral or proceeds thereof, and, in PFG’s good faith business judgment, to
grant extensions of time to pay, compromise claims and settle Accounts and the
like for less than face value; (h) Exercise any and all rights under any
present or future control agreements relating to Deposit Accounts or Investment
Property; and (i) Demand and receive possession of any of Borrower’s federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys’ fees,
expenses, costs, liabilities and obligations incurred by PFG with respect to
the foregoing shall be added to and become part of the Obligations, shall be
due on demand, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations. 
Without limiting any of PFG’s rights and remedies, from and after the
occurrence and during the continuance of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional four
percent per annum (the “Default Rate”).

 

7.3  Standards for Determining
Commercial Reasonableness. 
Borrower and PFG agree that a sale or other disposition (collectively, “sale”)
of any Collateral which complies with the following standards will conclusively
be deemed to be commercially reasonable: 
(i) Notice of the sale is given to Borrower at least ten days prior to
the sale, and, in the case of a public sale, notice of the sale is published at
least five days before the sale in a newspaper of general circulation in the
county

 

8

 

where the sale is to be conducted; (ii)
Notice of the sale describes the collateral in general, non-specific terms;
(iii) The sale is conducted at a place designated by PFG, with or without the
Collateral being present; (iv) The sale commences at any time between 8:00 a.m.
and 6:00 p.m;  (v) Payment of the
purchase price in cash or by cashier’s check or wire transfer is required; (vi)
With respect to any sale of any of the Collateral, PFG may (but is not
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.  PFG shall be free to employ other methods of
noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.

 

7.4  Power of Attorney.  Upon the occurrence and during the
continuance of any Event of Default, without limiting PFG’s other rights and
remedies, Borrower grants to PFG an irrevocable power of attorney coupled with
an interest, authorizing and permitting PFG (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower’s expense, to do
any or all of the following, in Borrower’s name or otherwise, but PFG agrees
that if it exercises any right hereunder, it will do so in good faith and in a
commercially reasonable manner:  (a)
Execute on behalf of Borrower any documents that PFG may, in its good faith
business judgment, deem advisable in order to perfect and maintain PFG’s
security interest in the Collateral, or in order to exercise a right of
Borrower or PFG, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other Loan Documents; (b) Execute on
behalf of Borrower, any invoices relating to any Account, any draft against any
Account Debtor and any notice to any Account Debtor, any proof of claim in
bankruptcy, any Notice of Lien, claim of mechanic’s, materialman’s or other
lien, or assignment or satisfaction of mechanic’s, materialman’s or other lien;
(c) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into PFG’s
possession; (d) Endorse all checks and other forms of remittances received by
PFG; (e) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment
based thereon, or otherwise take any action to terminate or discharge the same;
(f) Grant extensions of time to pay, compromise claims and settle Accounts and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (g) Pay any sums required on account of
Borrower’s taxes or to secure the release of any liens therefor, or both; (h)
Settle and adjust, and give releases of, any insurance claim that relates to
any of the Collateral and obtain payment therefor; (i) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give PFG the same rights of access and other rights with respect
thereto as PFG has under this Agreement; and (j) Take any action or pay any sum
required of Borrower pursuant to this Agreement and any other Loan
Documents.  Any and all reasonable sums
paid and any and all reasonable costs, expenses, liabilities, obligations and
attorneys’ fees incurred by PFG with respect to the foregoing shall be added to
and become part of the Obligations, shall be payable on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations.  In no event shall PFG’s
rights under the foregoing power of attorney or any of PFG’s other rights under
this Agreement be deemed to indicate that PFG is in control of the business,
management or properties of Borrower.

 

7.5  Application of Proceeds.  All proceeds realized as the result of any
sale of the Collateral shall be applied by PFG first to the reasonable costs,
expenses, liabilities, obligations and attorneys’ fees incurred by PFG 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, in such
order as PFG shall determine in its sole discretion.  Any surplus shall be paid to Borrower or
other persons legally entitled thereto; Borrower shall remain liable to PFG for
any deficiency.  If, PFG, 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, PFG
shall have the option, exercisable at any time, in its good faith business
judgment, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by PFG of the cash therefor.

 

7.6  Remedies Cumulative.  In addition to the rights and remedies set
forth in this Agreement, PFG shall have all the other rights and remedies
accorded a secured party under the Code and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between PFG and Borrower, and all of such rights and remedies are cumulative
and none is exclusive.  Exercise or
partial exercise by PFG of one or more of its rights or remedies shall not be
deemed an election, nor bar PFG from subsequent exercise or partial exercise of
any other rights or remedies.  The
failure or delay of PFG to exercise any rights or remedies shall not operate as
a waiver thereof, but all rights and remedies shall continue in full force and
effect until all of the Obligations have been fully paid and performed.

 

8.                                       Definitions.  AS USED IN THIS AGREEMENT,
THE FOLLOWING TERMS HAVE THE FOLLOWING MEANINGS:

 

“Account
Debtor” means the obligor on an Account.

 

9

 

“Accounts”
means all present and future “accounts” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all accounts
receivable and other sums owing to Borrower.

 

 “Affiliate” means, with respect to any
Person, a relative, partner, shareholder, director, officer, or employee of
such Person, or any parent or subsidiary of such Person, or any Person
controlling, controlled by or under common control with such Person.

 

“Borrower
Address” shall mean the address(es) listed on the first page of this Loan
and Security Agreement for each Borrower.

 

“Business
Day” means a day on which PFG is open for business.

 

“Change in Control” means: (1) a
dissolution, liquidation, or sale of all or substantially all of the assets of
Borrower; (2) a merger or consolidation in which Borrower is not the surviving
corporation; (3) a reverse merger in which Borrower is the surviving
corporation but the shares of the Borrower’s common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; (4) an expression of
intent to acquire control notified to Borrower under Section 13(d)(1)(C)
of the U.S. Securities Exchange Act of 1934, as amended, which acquisition is
subsequently effected; or (5) a change in control of Borrower effected by a
successful tender offer for more than 50% of the outstanding voting securities
of Borrower.

 

“Code”
means the Uniform Commercial Code as adopted and in effect in the State of
California from time to time.

 

“Collateral”
has the meaning set forth in Section 2 above.

 

“continuing”
and “during the continuance of” when used with reference to a Default or
Event of Default means that the Default or Event of Default has occurred and
has not been either waived in writing by PFG or cured within any applicable
cure period.

 

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

 

“Default
Rate” has the meaning set forth in Section 7.2 above.

 

“Deposit
Accounts” means all present and future “deposit accounts” as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without
limitation all general and special bank accounts, demand accounts, checking
accounts, savings accounts and certificates of deposit.

 

 “Eligible Accounts” means Accounts and
General Intangibles arising in the ordinary course of Borrower’s business from
the sale of goods or the rendition of services, or the non-exclusive licensing
of Intellectual Property, which PFG, in its good faith business judgment, shall
deem eligible for borrowing.  Without limiting
the fact that the determination of which Accounts are eligible for borrowing is
a matter of PFG’s good faith business judgment, the following (the “Minimum
Eligibility Requirements”) are the minimum requirements for a Account to be
an Eligible Account:

 

(i) the Account must not be outstanding
for more than 90 days from its invoice date (the “Eligibility Period”),

 

(ii) the Account must not represent
progress billings, credit balances, accounting entries made to nullify a prior
entry (contras), or be due under a fulfillment or requirements contract with
the Account Debtor,

 

(iii) the Account must not be subject to
any contingencies (including Accounts arising from sales on consignment,
guaranteed sale or other terms pursuant to which payment by the Account Debtor
may be conditional),

 

(iv) the Account must not be owing from
an Account Debtor with whom Borrower has any material dispute (whether or not
relating to the particular Account),

 

(v) the Account must not be owing from an
Affiliate of Borrower,

 

(vi) the Account must not be owing from
an Account Debtor which is subject to any insolvency or bankruptcy proceeding,
or whose financial condition is not acceptable to PFG in its good faith
business judgment, or which, fails or goes out of a material portion of its
business,

 

(vii) the Account must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to PFG’s satisfaction, with the United States
Assignment of Claims Act),

 

10

 

(viii) the Account must not be owing from
an Account Debtor located outside the United States or Canada (unless an
Excepted Concentration Account, pre-approved by PFG in its discretion in
writing, or backed by a letter of credit satisfactory to PFG, or FCIA insured
satisfactory to PFG),

 

(xi) the Account must not be owing from an
Account debtor whose accounts receivable aged over 90 days from invoice date
exceed 50% of all accounts receivable from such account debtor, and in such
case, no account receivable of such account debtor would be eligible for
financing hereunder; and

 

(x) the Account must not be owing from an
Account Debtor to whom Borrower is or may be liable for goods purchased from
such Account Debtor or otherwise (but, in such case, the Account will be deemed
not eligible only to the extent of any amounts owed by Borrower to such Account
Debtor).

 

Accounts owing from one Account Debtor
will not be deemed Eligible Accounts to the extent they exceed 25% of the total
Accounts outstanding; provided that the foregoing shall not include Excepted
Concentration Accounts.  In addition, if
more than 50% of the Accounts owing from an Account Debtor are outstanding for
a period longer than their Eligibility Period (without regard to unapplied
credits) or are otherwise not eligible Accounts, then all Accounts owing from
that Account Debtor will be deemed ineligible for borrowing.  PFG may, from time to time, in its good faith
business judgment, revise the Minimum Eligibility Requirements, upon written notice
to Borrower.

 

“Eligible
Inventory” means Inventory which PFG, in its good faith business judgment,
deems eligible for borrowing.  Without
limiting the fact that the determination of which Inventory is eligible for
borrowing is a matter of PFG’s good faith business judgment, the following are
the minimum requirements for Inventory to be Eligible Inventory:

 

(i) the Inventory must consist of
finished goods, in good, new and salable condition, not be perishable, not be
obsolete or unmerchantable, and not be comprised of raw materials, work in
process, packaging materials or supplies;

 

(ii) the Inventory must meet all
applicable governmental standards and have been manufactured in compliance with
the Fair Labor Standards Act;

 

(iii) the Inventory must conform in
all respects to the warranties and representations set forth in this Agreement;

 

(iv) the Inventory must be at all
times subject to PFG’s duly perfected, first priority security interest; and

 

(v) the Inventory must be situated at
Borrower’s Address or at one of the locations set forth in the Representations.

 

 “Equipment” means all present and
future “equipment” as defined in the California Uniform Commercial Code in
effect on the date hereof 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.

 

“Event
of Default” means any of the events set forth in Section 7.1 of this
Agreement.

 

“Excepted
Concentration Accounts” means Accounts Receivable from Merial, Amgen, Inc.
(AMGN: NASDAQ) and Serono, Inc. (SRA: NYSE).

 

“GAAP”
means generally accepted accounting principles consistently applied.

 

“General
Intangibles” means all present and future “general intangibles” as defined
in the California Uniform Commercial Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without
limitation all Intellectual Property, payment intangibles, royalties, contract rights,
goodwill, franchise agreements, purchase orders, customer lists, route lists,
telephone numbers, domain names, claims, income 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.

 

“good
faith business judgment” means honesty in fact and good faith (as defined
in Section 1201 of the Code) in the exercise of PFG’s business judgment.

 

“including”
means including (but not limited to).

 

“Indebtedness”
means (a) indebtedness for borrowed money or the deferred purchase price of
property or services (other than trade payables arising in the ordinary course
of business), (b) obligations evidenced by bonds, notes, debentures or other
similar instruments, (c) reimbursement obligations in connection with letters
of credit, and (d) capital lease obligations.

 

11

 

 “Intellectual Property” means all
present and future: (a) copyrights, copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished, (b) trade secret
rights, including all rights to unpatented inventions and know-how, and
confidential information; (c) mask work or similar rights available for the
protection of semiconductor chips; (d) patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same; (e) trademarks, servicemarks, trade styles, and trade names, whether or
not any of the foregoing are registered, and all applications to register and
registrations of the same and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by any such trademarks; (f)
computer software and computer software products; (g) designs and design
rights; (h) technology; (i) all claims for damages by way of past, present and
future infringement of any of the rights included above; and (j) all licenses
or other rights to use any property or rights of a type described above.

 

“Inventory”
means all present and future “inventory” as defined in the California Uniform
Commercial 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”
means any beneficial ownership interest in any Person (including any stock,
partnership interest or other equity or debt securities issued by any Person),
and any loan, advance or capital contribution to any Person.

 

“Investment
Property” means all present and future investment property, securities,
stocks, bonds, debentures, debt securities, partnership interests, limited liability
company interests, options, security entitlements, securities accounts,
commodity contracts, commodity accounts, and all financial assets held in any
securities account or otherwise, and all options and warrants to purchase any
of the foregoing, wherever located, and all other securities of every kind,
whether certificated or uncertificated.

 

“Loan
Documents” means, collectively, this Agreement, the Representations, and
all other present and future documents, instruments and agreements between PFG
and Borrower, including, but not limited to those relating to this Agreement,
and all amendments and modifications thereto and replacements therefor.

 

“Material
Adverse Change” means any of the following: (i) a material adverse change
in the business, operations, or financial or other condition of the Borrower
(in the case of two Borrowers, such entities taken as a whole), or (ii) a
material impairment of the prospect of repayment of any portion of the
Obligations; or (iii) a material impairment of the value or priority of PFG’s
security interests in the Collateral.

 

“Minimum
Eligibility Requirements” is defined in the definition of “Eligible
Accounts” above.

 

“Obligations”
means all present and future Loans, advances, debts, liabilities, obligations,
guaranties, covenants, duties and indebtedness at any time owing by Borrower to
PFG, whether evidenced by this Agreement or any note or other instrument or
document, or otherwise, whether arising from an extension of credit, opening of
a letter of credit, banker’s acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by PFG in Borrower’s debts owing
to others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney’s fees, expert
witness fees, audit fees, collateral monitoring fees, closing fees, facility
fees, termination fees, minimum interest charges and any other sums chargeable
to Borrower under this Agreement or under any other Loan Documents, provided
however, that for purposes of the termination of this Agreement at the Maturity
Date as set forth in Section 4 of the Schedule or upon Borrower’s
termination of this Agreement by prepayment, the term “Obligations” shall not
be construed to require Borrower’s payment of Indebtedness arising under the
Term Loan and Security Agreement with PFG of even date herewith.

 

“Other
Property” means the following as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and all rights relating thereto: all present and
future “commercial tort claims” (including without limitation any commercial
tort claims identified in the Representations), “documents”, “instruments”, “promissory
notes”, “chattel paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”,
“farm products” and “money”; and all other goods and personal property of every
kind, tangible and intangible, whether or not governed by the California
Uniform Commercial Code.

 

“Payment”
means all checks, wire transfers and other items of payment received by for
credit to Borrower’s outstanding Obligations.

 

“Permitted
Indebtedness” means

 

12

 

(i) the Loans and other Obligations; and

 

(ii) Indebtedness existing on the date
hereof and shown on Exhibit A hereto;

 

(iii) Subordinated Debt;

 

(iv) other Indebtedness secured by
Permitted Liens;

 

(v) reimbursement obligations in respect
of letters of credit in an aggregate face amount outstanding not to exceed
$300,000 at any time outstanding, which has been reported to PFG in writing.

 

“Permitted
Investments” are:

 

(i)  Investments (if any) shown on the Exhibit A
and existing on the date hereof;

 

(ii) marketable direct obligations issued
or unconditionally guaranteed by the United States or its agency or any State
maturing within 1 year from its acquisition;

 

(iii) commercial paper maturing no
more than 1 year after its creation and having the highest rating from either
Standard & Poor’s Corporation or Moody’s Investors Service, Inc; and

 

(iv) bank certificates of deposit
issued maturing no more than 1 year after issue; and

 

(v) other investments (except for common
stock of Borrower) consistent with Borrower’s Investment Policy attached hereto
as Exhibit A.

 

“Permitted
Liens” means the following:

 

(i) purchase money security interests in
specific items of Equipment;

 

(ii) leases of specific items of
Equipment;

 

(iii) liens for taxes not yet payable, or
being contested in the manner contemplated in Section 3.8 above;

 

(iv) subject to the written consent of PFG on
a case by case basis that such event(s) shall not give rise to an Event of
Default, which consent may be given or withheld in PFG’s business judgment or
subject to such conditions as PFG may determine in good faith, liens for fees,
assessments, or other charges of a governmental authority, provided that the
payment of such fees, assessments, or other charges of a governmental authority
referenced in this clause (iv) that are due and payable are being contested in
good faith and by appropriate proceedings diligently pursued and as to which
adequate financial reserves have been established in accordance with GAAP on Borrower’s
books and records and a stay of enforcement of any such lien is in effect;

 

(v) liens on deposits made by Borrower in the
ordinary course of business in connection with, or to secure payment of,
obligations under worker’s compensation, unemployment insurance, social
security, and other similar laws, or to secure the performance of bids,
tenders, or contracts (other than for the repayment of Indebtedness) or to
secure indemnity, performance, or other similar bonds for the performance of
bids, tenders, or contracts (other than for the repayment of Indebtedness) or
to secure statutory obligations (other than Liens arising under ERISA or
Environmental Liens) or surety or appeal bonds, or to secure indemnity,
performance, or other similar bonds;

 

(vi) liens constituting encumbrances in the
nature of reservations, exceptions, encroachments, easements, rights of way,
covenants running with the land, and other similar title exceptions or
encumbrances affecting any Real Property, provided that any such liens do not
in the aggregate materially interfere with the use of such Real Property in the
ordinary conduct of Borrower’s business;

 

(vii) liens arising from judgments and
attachments in connection with court proceedings, provided that (a) the
attachment or enforcement of such liens would not otherwise result in an Event
of Default hereunder, (b) such liens are being contested in good faith by
appropriate proceedings diligently pursued, (c) adequate financial reserves
have been established on Borrower’s books and records in accordance with GAAP,
(d) no Collateral with an aggregate value in excess of $250,000 is subject to a
material risk of loss or forfeiture, and (e) a stay of execution pending appeal
or proceeding for review is in effect;

 

(viii) any additional security interests
and liens consented to in writing by PFG, which consent may be withheld in its
good faith business judgment. PFG will have the right to require, as a
condition to its consent under this subparagraph (iv), that the holder of the
additional security interest or lien sign an intercreditor agreement on PFG’s
then standard form, acknowledge that the security interest is subordinate to
the security interest in favor of PFG, and agree not to take any action

 

13

 

to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement;

 

(ix) security interests being terminated
substantially concurrently with this Agreement;

 

(x) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course
of business and securing obligations which are not delinquent; provided, that
Borrower may, however, defer payment of any of the foregoing which are
contested by Borrower in good faith, provided that Borrower (a) contests the
same by appropriate proceedings promptly and diligently instituted and
conducted, (b) notifies PFG in writing of the commencement of, and any material
development in, any such proceedings which involved $250,000 either
individually or in the aggregate, and (c) posts bonds or takes any other steps
required to stay the enforcement of any such lien upon any of the Collateral
against which such person could then proceed;

 

(xi) liens incurred in connection
with the extension, renewal or refinancing of the indebtedness secured by liens
of the type described above in clauses (i) or (ii) above or clause (xiv) below,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase;

 

(xii) liens in favor of customs and
revenue authorities which secure payment of customs duties in connection with
the importation of goods; and

 

(xiii) statutory, common law or
contractual liens of depository institutions or institutions holding securities
account (including rights of set-off) securing only customary charges and fees
in connection with such accounts.

 

“Person”
means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity. .

 

“Real
Property” means that certain land, building, structures, appurtenances,
improvements, fixtures and personal property on or within the real property
located at postal address: 211 Somerville Road, Route 202N, Bedminster, New
Jersey 07921.

 

 “Representations” means the written
Representations and Warranties provided by Borrower to PFG referred to in the
Schedule.

 

“Reserves” means, as of any date
of determination, such amounts as PFG may from time to time establish and
revise in its good faith business judgment, reducing the amount of Loans, and
other financial accommodations which would otherwise be available to Borrower
under the lending formula(s) provided in the Schedule:  (a) to reflect events, conditions,
contingencies or risks which, as determined by PFG in its good faith business
judgment, do or may adversely 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,
business or prospects of Borrower or any Guarantor, or (iii) the security
interests and other rights of PFG in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect PFG’s good
faith belief that any collateral report or financial information furnished by
or on behalf of Borrower or any Guarantor to PFG is or may have been
incomplete, inaccurate or misleading in any material respect; or (c) in respect
of any state of facts which PFG determines in good faith constitutes an Event
of Default or may, with notice or passage of time or both, constitute an Event
of Default.

 

“Subordinated Debt” means debt
incurred by Borrower subordinated to Borrower’s debt to PFG (pursuant to a
subordination agreement entered into between PFG, Borrower and the subordinated
creditor), on terms acceptable to PFG in its absolute discretion.

 

Other
Terms.  All accounting
terms used in this Agreement, unless otherwise indicated, shall have the
meanings given to such terms in accordance with GAAP, consistently
applied.  All other terms contained in
this Agreement, unless otherwise indicated, shall have the meanings provided by
the Code, to the extent such terms are defined therein.

 

9.                                       GENERAL
PROVISIONS.

 

9.1  Confidentiality.  PFG agrees
to use the same degree of care that it exercises with respect to its own
proprietary information, to maintain the confidentiality of any and all
proprietary, trade secret or confidential information provided to or received
by PFG from the Borrower, which indicates that it is confidential, including
business plans and forecasts, non-public financial information, confidential or
secret processes, formulae, devices and contractual information, customer
lists, and employee relation matters, provided that PFG may disclose such
information (i) to its officers, directors, employees,

 

14

 

attorneys, accountants, affiliates,
participants, prospective participants, assignees and prospective assignees,
and such other Persons to whom PFG shall at any time be required to make such
disclosure in accordance with applicable law or legal process, and (ii) in its
good faith business judgment in connection with the enforcement of its rights
or remedies after an Event of Default, or in connection with any dispute with
Borrower or any other Person relating to Borrower.  The confidentiality agreement in this Section supersedes
any prior confidentiality agreement of PFG relating to Borrower.

 

9.2  Interest Computation.  In computing
interest on the Obligations, all Payments received after 12:00 Noon, Pacific
Time, on any day shall be deemed received on the next Business Day.

 

9.3 Payments. All Payments
may be applied, and in PFG’s good faith business judgment reversed and
re-applied, to the Obligations, in such order and manner as PFG shall determine
in its good faith business judgment.

 

9.4  Charges to Accounts.  PFG may, in
its discretion, require that Borrower pay monetary Obligations in cash to PFG,
or charge them to Borrower’s Loan account, in which event they will bear
interest at the same rate applicable to the Loans.

 

9.5  Monthly Accountings.  PFG shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement.  Such account shall be deemed
correct, accurate and binding on Borrower and an account stated (except for
reverses and reapplications of payments made and corrections of errors
discovered by PFG), unless Borrower notifies PFG in writing to the contrary
within 60 days after such account is rendered, describing the nature of any
alleged errors or omissions.

 

9.6  Notices.  All notices to be given under this Agreement
shall be in writing and shall be given either personally, or by reputable
private delivery service, or by regular first-class mail, or certified mail
return receipt requested, or by fax to the most recent fax number a party has
for the other party (and if by fax, sent concurrently by one of the other
methods provided herein), addressed to PFG or Borrower at the addresses shown
in the heading to this Agreement, or at any other address designated in writing
by one party to the other party. All notices shall be deemed to have been given
upon delivery in the case of notices personally delivered, or at the expiration
of one Business Day following delivery to the private delivery service, or two
Business Days following the deposit thereof in the United States mail, with
postage prepaid, or on the first business day of receipt during business hours
in the case of notices sent by fax, as provided herein.

 

9.7  Severability.  Should any provision of this Agreement be
held by any court of competent jurisdiction to be void or unenforceable, such
defect shall not affect the remainder of this Agreement, which shall continue
in full force and effect.

 

9.8  Integration.  This Agreement and such other written
agreements, documents and instruments as may be executed in connection herewith
are the final, entire and complete agreement between Borrower and PFG and
supersede all prior and contemporaneous negotiations and oral representations
and agreements, all of which are merged and integrated in this Agreement.  There are no oral understandings,
representations or agreements between the parties which are not set forth in
this Agreement or in other written agreements signed by the parties in
connection herewith.

 

9.9  Waivers; Indemnity.  The failure of PFG at any time or times to
require Borrower to strictly comply with any of the provisions of this
Agreement or any other Loan Document shall not waive or diminish any right of
PFG later to demand and receive strict compliance therewith.  Any waiver of any default shall not waive or
affect any other default, whether prior or subsequent, and whether or not
similar.  None of the provisions of this
Agreement or any other Loan Document shall be deemed to have been waived by any
act or knowledge of PFG or its agents or employees, but only by a specific
written waiver signed by an authorized officer of PFG and delivered to
Borrower.  Borrower waives the benefit of
all statutes of limitations relating to any of the Obligations or this
Agreement or any other Loan Document, and Borrower waives demand, protest,
notice of protest and notice of default or dishonor, notice of payment and
nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by PFG on which Borrower is or may in any way be liable, and
notice of any action taken by PFG, unless expressly required by this Agreement.
Borrower hereby agrees to indemnify PFG and its affiliates, subsidiaries,
parent, directors, officers, employees, agents, and attorneys, and to hold them
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, and related costs and
expenses (including reasonable attorneys’ fees), of every kind, which they may
sustain or incur based upon or arising out of any of the Obligations, or any
relationship or agreement between PFG and Borrower, or any other matter,
relating to Borrower or the Obligations; provided that this indemnity shall not
extend to damages proximately caused by the indemnitee’s own gross negligence
or willful misconduct.  Notwithstanding
any provision in this Agreement to the contrary, the indemnity agreement set
forth in this Section shall survive any termination of this Agreement and
shall for all purposes continue in full force and effect.

 

9.10  No Liability for Ordinary
Negligence. 
Neither PFG, nor any of its directors, officers, employees, agents,
attorneys or any other Person affiliated with or representing PFG shall be
liable for any claims, demands, losses or damages, of any

 

15

 

kind whatsoever, made, claimed, incurred
or suffered by Borrower or any other party through the ordinary negligence of
PFG, or any of its directors, officers, employees, agents, attorneys or any
other Person affiliated with or representing PFG, but nothing herein shall
relieve PFG from liability for its own gross negligence or willful misconduct.

 

9.11  Amendment.  The terms and provisions of this Agreement
may not be waived or amended, except in a writing executed by Borrower and a
duly authorized officer of PFG.

 

9.12  Time of Essence.  Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.

 

9.13  Attorneys Fees and Costs.  Borrower shall reimburse PFG for all
reasonable attorneys’ fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by PFG: (a) in connection
with the preparation, negotiation and closing of this Agreement, and (b) any
future amendments, consents, waivers or supplements to this Agreement, and (c)
upon the occurrence and during the continuance of a Default or an Event of
Default, to (i) obtain legal advice in connection with this Agreement or Borrower;
(ii) enforce, or seek to enforce, any of its rights hereunder; (iii) prosecute
actions against, or defend actions by, Account Debtors; (iv) commence,
intervene in, or defend any action or proceeding; (v) initiate any complaint to
be relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; (vi) examine,
audit, copy, and inspect any of the Collateral or any of Borrower’s books and
records; (vii) protect, obtain possession of, lease, dispose of, or otherwise
enforce PFG’s security interest in, the Collateral; and (viii) otherwise
represent PFG in any litigation relating to Borrower. If either PFG or Borrower
files any lawsuit against the other predicated on a breach of this Agreement,
the prevailing party in such action shall be entitled to recover its reasonable
costs and attorneys’ fees, including (but not limited to) reasonable attorneys’
fees and costs incurred in the enforcement of, execution upon or defense of any
order, decree, award or judgment.  All
attorneys’ fees and costs to which PFG may be entitled pursuant to this
Paragraph shall immediately become part of Borrower’s Obligations, shall be due
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.

 

9.14  Benefit of Agreement.  The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and PFG; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of PFG, and any prohibited
assignment shall be void.  No consent by
PFG to any assignment shall release Borrower from its liability for the
Obligations.

 

9.15  Joint and Several
Liability. 
If Borrower consists of more than one Person, their liability shall be
joint and several, and the compromise of any claim with, or the release of, any
Borrower shall not constitute a compromise with, or a release of, any other
Borrower.

 

9.16  Limitation of Actions.  Any claim or
cause of action by Borrower against PFG, its directors, officers, employees,
agents, accountants or attorneys, based upon, arising from, or relating to this
Loan Agreement, or any other Loan Document, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by PFG, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of
an action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after the first act, occurrence or omission upon
which such claim or cause of action, or any part thereof, is based, and the
service of a summons and complaint on an officer of PFG, or on any other person
authorized to accept service on behalf of PFG, within thirty (30) days
thereafter.  Borrower agrees that such
one-year period is a reasonable and sufficient time for Borrower to investigate
and act upon any such claim or cause of action. 
The one-year period provided herein shall not be waived, tolled, or extended
except by the written consent of PFG in its sole discretion.  This provision shall survive any termination
of this Loan Agreement or any other Loan Document.

 

9.17  Paragraph Headings;
Construction. 
Paragraph headings are only used in this Agreement for convenience.  Borrower and PFG acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed
strictly against PFG or Borrower under any rule of construction or otherwise.

 

9.18  Governing Law; Jurisdiction;
Venue. 
This Agreement and all acts and transactions hereunder and all rights
and obligations of PFG and Borrower shall be governed by the laws of the State
of New York. As a material part of the consideration to PFG to enter into this
Agreement, Borrower (i) agrees that all actions and proceedings relating
directly or indirectly to this Agreement shall, at PFG’s option, be litigated
in courts located within California, and that the exclusive venue therefor
shall be San Francisco County; (ii) consents to the jurisdiction and venue of
any such court and consents to

 

16

 

service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and (iii)
waives any and all rights Borrower may have to object to the jurisdiction of
any such court, or to transfer or change the venue of any such action or
proceeding.

 

9.19  Mutual Waiver of Jury Trial.  BORROWER AND PFG EACH HEREBY WAIVE THE RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN PFG AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF PFG
OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS
OR ANY OTHER PERSONS AFFILIATED WITH PFG OR BORROWER, IN ALL OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

 

8.19 Representations and
warranties of PFG.  PFG has all requisite power and has taken all requisite
action to execute and deliver each of this Agreement and to carry out and
perform all of its obligations hereunder. 
This Agreement has been duly authorized, executed and delivered on
behalf of Purchaser and constitutes the valid and binding agreement of PFG,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency,  reorganization
or similar laws relating to or affecting the enforcement of creditors’ rights
generally and (ii) as limited by equitable principles generally.  The consummation of the transactions
contemplated herein and the fulfillment of the terms herein will not result in
a breach of any of the terms or provisions of PFG’s partnership agreement or
other relevant organizational documents.

 

8.20  Provisions Relating to Oregon Law.  To the extent that all or any portion of this
Agreement is determined by a court of competent jurisdiction to be subject to
Oregon law, the following disclosures are made:

 

In compliance with Oregon law, the Borrower
and any Guarantor(s) should read carefully and acknowledge your receipt and
understanding of the following statement:

 

UNDER OREGON LAW, MOST AGREEMENTS, PROMISES
AND COMMITMENTS MADE BY US AFTER NOVEMBER 3, 1989, CONCERNING LOANS AND
OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD
PURPOSES OR SECURED SOLELY BY THE BORROWER’S RESIDENCE MUST BE IN WRITING,
EXPRESS CONSIDERATION AND BE SIGNED BY AN AUTHORIZED REPRESENTATIVE OF LENDER
TO BE ENFORCEABLE.

 

Under Oregon law, we are also required to
notify you of certain matters related to our right to place insurance on the
property that is collateral for our loan in certain circumstances.  In compliance with this law, please read
carefully and acknowledge your receipt and understanding of the following
warning:

 

WARNING:  UNLESS YOU PROVIDE US WITH EVIDENCE OF THE
INSURANCE COVERAGE AS REQUIRED BY OUR CONTRACT OR LOAN AGREEMENT, WE MAY
PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR INTEREST.  THIS INSURANCE MAY, BUT NEED NOT, ALSO PROTECT
YOUR INTEREST.  IF THE COLLATERAL BECOMES
DAMAGED, THE COVERAGE WE PURCHASE MAY NOT PAY ANY CLAIM YOU MAKE OR ANY CLAIM
MADE AGAINST YOU.  YOU MAY LATER CANCEL
THIS COVERAGE BY PROVIDING EVIDENCE THAT YOU HAVE OBTAINED PROPERTY COVERAGE
ELSEWHERE.

 

YOU ARE RESPONSIBLE FOR THE COST OF ANY
INSURANCE PURCHASED BY US.  THE COST OF
THIS INSURANCE MAY BE ADDED TO YOUR CONTRACT OR LOAN BALANCE.  IF THIS COST IS ADDED TO YOUR CONTRACT OR
LOAN BALANCE, THE INTEREST RATE PAYABLE UNDER THE UNDERLYING LOAN WILL APPLY TO
THIS ADDED AMOUNT.  THE EFFECTIVE DATE OF
THE COVERAGE MAY BE THE DATE YOUR PRIOR COVERAGE LAPSED OR THE DATE YOUR FAILED
TO PROVIDE PROOF OF COVERAGE.

 

17

 

THE COVERAGE WE PURCHASE MAY BE CONSIDERABLY MORE
EXPENSIVE THAN INSURANCE YOU CAN OBTAIN ON YOUR OWN AND MAY NOT SATISFY ANY
NEED FOR PROPERTY DAMAGE COVERAGE OR ANY MANDATORY LIABILITY INSURANCE
REQUIREMENTS IMPOSED BY APPLICABLE LAW. 
(Each reference to “you” and “your” shall refer to Borrower and each
reference to “us” and “we” shall refer to Lender.)

 

 

	
  Borrower:

  	
  PFG:

  
	
   

  	
   

  
	
  Bioject
  Medical Technologies Inc.

  	
  PARTNERS FOR GROWTH, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/

  	
  Jim O’Shea

  	
   

  	
  By

  	
  /s/ Lorraine Nield

  	
   

  
	
   

  	
  Jim O’Shea, President

  	
   

  
	
   

  	
  Name:

  	
  Lorraine Nield

  	
   

  
	
  By

  	
  /s/

  	
  Christine Farrell

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
  Title:

  	
  Manager, Partners for Growth, LLC

  
	
   

  	
   

  	
  Its General Partner

  
	
  Borrower:

  	
   

  
	
   

  	
   

  
	
  Bioject
  Inc.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/

  	
  Jim O’ Shea

  	
   

  	
   

  
	
   

  	
  Jim O’Shea, President

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/

  	
  Christine Farrell

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  
									

 

 

Signature
Page to Loan and Security Agreement

 

18

 

Partners For Growth

 

Schedule to

Loan and
Security Agreement

 

	
  Borrower:

  	
   

  	
  Bioject Medical Technologies, Inc.

  
	
  Address:

  	
   

  	
  211 Somerville Road, Route 202N, Bedminster,
  NJ 07921

  
	
   

  	
   

  	
   

  
	
  Borrower:

  	
   

  	
  Bioject, Inc.

  
	
  Address:

  	
   

  	
  20245 S.W. 95th Ave., Tualatin, OR 97062

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  December 15, 2004

  

 

This Schedule forms an integral part of the Loan and Security
Agreement between PARTNERS FOR GROWTH, L.P. and the above-borrower of even
date.

 

	
  1. BORROWING BASE:

  	
   

  
	
  (Section 1.1):

  	
  The Borrowing Base is defined as the sum of
  the following:

  
	
   

  	
  (1)          up to  75% (an “Advance Rate”) of the amount of Borrower’s
  Eligible Accounts (as defined in Section 8 above); plus

  
	
   

  	
  (2)          up to 30% (an “Advance
  Rate”) of the value of Borrower’s Eligible Inventory (as defined in Section 8
  above), calculated on the basis of the values set forth from time to time on
  Borrower’s balance sheet, at all times in accordance with GAAP, consistently
  applied, and in accordance with Borrower’s historical accounting policies.

  
	
   

  	
  PFG may, from time to time, modify the
  Advance Rates, in its good faith business judgment, upon notice to the
  Borrower, based on changes in collection experience with respect to Accounts,
  its evaluation of the Inventory or other issues or factors relating to the
  Accounts, Inventory or other Collateral.

  
	
   

  	
   

  
	
  2. INTEREST.

  	
   

  
	
  Interest
  Rate (Section 1.2):

  
	
   

  	
  A monthly rate equal to (i) the greater of
  4.5% or the Prime Rate, plus (ii) 2%. Interest shall be based on the average
  daily financed account balance during each month, calculated on the basis of
  the actual

  

 

1

 

	
   

  	
  number of days in each month (the “Monthly
  Financed Amount”). Accrued interest for each month shall be payable
  monthly, on the last day of the month.

  
	
   

  	
  “Prime Rate” means the rate quoted
  from time to time by Silicon Valley Bank as its prime lending rate.

  
	
   

  	
   

  
	
  3. FEES (Section 1.4):

  	
   

  
	
   

  	
   

  
	
  Loan Fee:

  	
  $30,000, payable concurrently herewith.

  
	
   

  	
   

  
	
  Collateral Handling Fee:

  	
  Initially, 0.55% per month of the Monthly
  Financed Amount. If Borrower’s Common Stock closes between $2.00 and $4.00
  per share for 30 consecutive trading days, the Collateral Handling Fee will
  reduce to 0.38% per month. If Borrower’s Common Stock closes at or above
  $4.00 per share for 30 consecutive trading days, the Collateral Handling Fee
  will reduce to 0.22% per month.

  
	
   

  	
   

  
	
  4. MATURITY DATE

  	
   

  
	
  (Section 6.1):

  	
  2 years from the date hereof.

  
	
   

  	
   

  
	
  5. BORROWING PROCEDURE:

  
	
   

  	
   

  
	
   

  	
  Borrower will deliver to
  PFG a Borrowing Base Certificate together with any Request for Advance in
  such forms as PFG may specify from time to time, not less than five (5) days
  prior to the date on which the applicable Advance is to be made.

  
	
   

  	
   

  
	
  6. REPORTING.

  	
   

  
	
  (Section 5.3):

  	
   

  
	
   

  	
   

  
	
   

  	
  Borrower shall provide PFG with the
  following:

  
	
   

  	
   

  
	
   

  	
  (k)                                  Monthly
  Borrowing Base Certificate, in such form as PFG shall specify, within five
  (5) Business Days after the end of each month, and borrowing base reports at
  such other times as PFG shall from time to time request in its good faith
  business judgment.

  
	
   

  	
   

  
	
   

  	
  (l)                                     Monthly
  accounts receivable agings, aged by invoice date, within five (5) Business
  Days after the end of each month.

  
	
   

  	
   

  
	
   

  	
  (m)                               Monthly
  accounts payable agings, aged by invoice date, and outstanding or held check
  registers, if any, within five (5) Business Days after the end of each month.

  

 

2

 

	
   

  	
  (n)                                 Monthly
  reconciliations of accounts receivable agings (aged by invoice date), and
  general ledger, within five (5) Business Days after the end of each month.

  
	
   

  	
   

  
	
   

  	
  (o)                                 Monthly
  perpetual inventory reports for the Inventory valued on a first-in, first-out
  basis at the lower of cost or market (in accordance with GAAP) or such other
  inventory reports as are requested by PFG in its good faith business
  judgment, all within ten (10) Business Days after the end of each month.

  
	
   

  	
   

  
	
   

  	
  (p)                                 Monthly
  unaudited, management-prepared financial statements prepared in accordance
  with GAAP, within ten (10) Business Days after the end of each month.

  
	
   

  	
   

  
	
   

  	
  (q)                                 Monthly
  Compliance Certificates, within ten (10) Business Days after the end of each
  month, in such form as PFG shall reasonably specify, signed by the Chief
  Financial Officer of Borrower, 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
  PFG shall reasonably request, including, without limitation, a statement that
  at the end of such month there were no held checks.

  
	
   

  	
   

  
	
   

  	
  (r)                                    Quarterly
  financial statements, as soon as available, and in any event within
  forty-five days after the end of each fiscal quarter of Borrower (other than
  the last fiscal quarater in any year); provided, however, if Borrower files a
  form 10-Q with the Securities and Exchange Commission and the same is
  available within said period through EDGAR, such availability will satisfy
  this requirement.

  
	
   

  	
   

  
	
   

  	
  (s)                                  A
  quarterly information update certificate, in the form of an update of the
  Representations, unless such information is otherwise included as part of a
  Borrowing Base or Monthly Compliance Certificate, within the earlier to occur
  of ten (10) Business Days after the end of each fiscal quarter of Borrower or
  promptly following the knowledge of any executive officer of Borrower that
  the Representations are no longer true, complete and accurate.

  
	
   

  	
   

  
	
   

  	
  (t)                                    Annual
  financial statements, as soon as available, and in any event within 120 days
  following the end of Borrower’s fiscal year, certified by, and with an
  unqualified opinion of, independent certified public accountants reasonably
  acceptable to PFG; provided, however, if Borrower files a form 10-K with the
  Securities and Exchange Commission and the same is 

  

 

3

 

	
   

  	
  available within said period through EDGAR,
  such availability will satisfy this requirement.

  
	
   

  	
   

  
	
  7. BORROWER INFORMATION:

  
	
   

  	
   

  
	
   

  	
  Borrower represents and warrants that the
  information set forth in the Representations and Warranties of the Borrower
  dated December 15, 2004, previously submitted to PFG (the “Representations”)
  is true and correct as of the date hereof.

  
	
   

  	
   

  
	
  8. ADDITIONAL PROVISIONS

  
	
   

  	
   

  
	
   

  	
  (e)                                  Deposit Accounts. Concurrently, Borrower shall cause the
  banks and other institutions where its Deposit Accounts are maintained to
  enter into control agreements with PFG, in form and substance satisfactory to
  PFG in its good faith business judgment and sufficient to perfect PFG’
  security interest in said Deposit Accounts. Said control agreements shall
  permit PFG, in its discretion, to withdraw from said Deposit Accounts accrued
  interest on the Obligations monthly.

  
	
   

  	
  (f)                                    Lockbox. If requested to do so by PFG, Borrower shall
  direct each Account Debtor (and each depository institution where proceeds of
  accounts receivable are on deposit) to make payments with respect to all
  receivables to a lockbox account established for PFG at such banking
  institution as PFG may notify (the “Lockbox”) or to wire transfer payments to
  a cash collateral account that PFG controls, as and when directed by PFG from
  time to time, at its option and at the sole and exclusive discretion of the
  PFG. It will be considered an immediate Event of Default if the Lockbox is
  not set-up and operational within 30 days from the date of PFG ‘s request.

  
	
   

  	
  (g)                                 Conditional Release of Collateral from Security Interest.
  At any time prior to the Maturity Date, Borrower may request that PFG release
  its security interest and lien on all or part of Borrower’s Intellectual
  Property, and PFG shall release such security interest and lien, provided,
  however, that Borrower’s right to make such request and PFG’s obligation
  to honor such request shall be expressly conditioned on the following:

  

 

4

 

	
   

  	
  (i) at the time of such request, no Event
  of Default has occurred and is continuing and Borrower is otherwise in full
  compliance with its obligations to PFG hereunder and under each other
  agreement between Borrower and PFG; and

  
	
   

  	
  (ii) the fair market value of the Real
  Property (as supported by a then current appraisal) equals or exceeds the
  dollar amount of all Obligations outstanding; and

  
	
   

  	
  (iii) any future requests for advances
  which would increase Obligations above the fair market value of the Real
  Property may be declined by PFG or may be conditioned upon a new security
  interest being granted by Borrower in such Intellectual Property; and

  
	
   

  	
  (iv) upon each occasion of the Intellectual
  Property released from PFG’s security interest and lien being sold or
  licensed, Borrower shall apply 50% (or such lesser percentage as PFG may
  determine in its sole discretion) of any such sales or licensing proceeds to
  payment of Obligations, in such manner and against such outstanding
  Obligations as PFG shall determine.

  

 

	
  Borrower:

  	
  PFG:

  
	
   

  	
   

  
	
  Bioject
  Medical Technologies, Inc.

  	
  PARTNERS FOR GROWTH, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/

  	
  Jim O’ Shea

  	
   

  	
  By

  	
  /s/ Lorraine Nield

  	
   

  
	
   

  	
  President or Vice President

  	
   

  
	
   

  	
  Name: 
  Lorraine Nield

  
	
  By

  	
  /s/

  	
  Christine Farrell

  	
   

  	
  Title:

  	
  Manager, Partners for Growth, LLC

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  	
  Its General Partner

  
	
  Borrower:

  	
   

  
	
   

  	
   

  
	
  Bioject,
  Inc.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/

  	
  Jim O’ Shea

  	
   

  	
   

  
	
   

  	
  President or Vice President

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/

  	
  Christine Farrell

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  
								

 

 

5

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