Document:

Exhibit
10.20

 

 

LOAN AND SECURITY
AGREEMENT

 

 

by and between

 

 

TECHNOLOGY LENDING
PARTNERS, L.L.C.

(as the Lender)

 

 

and

 

 

ODETICS, INC.

(as the Borrower)

 

DATED AS OF

February 22,
2002

 

 

LOAN AND SECURITY AGREEMENT

 

 

This LOAN AND SECURITY AGREEMENT, dated as of
February 22, 2002 (this “Agreement”), is entered into by and
between ODETICS, INC., a Delaware corporation (the “Borrower”), and
TECHNOLOGY LENDING PARTNERS, L.L.C., a California limited liability company
(the “Lender”).

 

RECITALS

 

WHEREAS, the Borrower has requested that the Lender
make available Advances (as hereinafter defined), in an aggregate principal
amount not to exceed $1,250,000 at any time outstanding, to allow the Borrower
to fund general working capital requirements; and

 

WHEREAS, the Lender is willing to make such Advances
available upon and subject to the terms and conditions hereinafter set forth;

 

NOW, THEREFORE, in consideration of the mutual
covenants and undertakings herein contained, the Borrower and the Lender hereby
agree as follows:

 

I.                                         DEFINITIONS.

 

1.1           Accounting Terms.  As used in this Agreement or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere
in this Agreement and accounting terms partly defined in Section 1.2
to the extent not defined, shall have the respective meanings given to them
under GAAP.

 

1.2           General Terms.  For purposes of this Agreement the following
terms shall have the following meanings:

 

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

 

“Accounts” means
all of the Borrower’s now owned or hereafter acquired right, title, and
interest with respect to “accounts” (as that term is defined in the California
Uniform Commercial Code), and any and all supporting obligations in respect
thereof.  Without limiting the
generality of the foregoing, the term “Accounts” shall further include all
presently existing and hereafter arising accounts, contract rights, and all
other forms of obligations owing to Borrower arising out of the sale or lease
of goods (including, without limitation, the licensing of software and other
technology) or the rendering of services by 
Borrower, whether or not earned by performance.

 

“Additional Amounts”
shall have the meaning set forth in Section 3.6(a).

 

“Advances” shall
have the meaning set forth in Section 2.1.

 

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

 

1

 

“Availability”
means, as of any date of determination, if such date is a Business Day, and
determined at the close of business on the immediately preceding Business Day,
if such date of determination is not a Business Day, the amount that Borrower
is entitled to borrow as Advances under Section 2.1, after giving effect
to all then outstanding Obligations.

 

“Borrower” is
defined in the Introduction hereto and shall extend to all permitted successors
and assigns.

 

“Borrower’s Account”
shall have the meaning set forth in Section 2.9.

 

“Borrower Parties”
means the Borrower and its Subsidiaries other than Iteris, Inc.

 

“Borrowing Base”
shall mean, as of any date of determination, 85% of the amount of Eligible Accounts.

 

“Borrower’s Books”
means all of Borrower’s books and records including without limitation:
ledgers, records concerning Borrower’s assets or liabilities, the Collateral,
business operations or financial condition; and all computer programs or tape
files, and the equipment containing such information.

 

“Borrowing Base
Certificate” shall have the meaning set forth in Section 8.2.

 

“Business Day”
shall mean any day other than Saturday or Sunday or a legal holiday on which
commercial banks are authorized or required by law to be closed for business in
California.

 

“Charges” shall
mean all taxes, charges, fees, imposts, levies or other assessments, including,
without limitation, all net income, gross income, gross receipts, sales, use,
ad valorem, value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social security,
unemployment, excise, severance, stamp, occupation and property taxes, custom
duties, fees, assessments, liens, claims and charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts, imposed by any taxing or other authority, domestic or foreign, upon
the Borrower or any of its Affiliates.

 

“Closing Date”
shall mean February 22, 2002, or such other date as may be agreed to by
the parties hereto.

 

“Code” shall mean
the Internal Revenue Code of 1986, as amended from time to time and the
regulations promulgated thereunder.

 

“Collateral” means
all of the Borrower’s property, other than the Real Property, whether now owned
or hereafter acquired or arising and wherever located, including, without
limitation, the following types or items of property:

 

(a)           Accounts;

 

(b)           Chattel Paper;

 

(c)           Contracts;

 

(d)           Investment Property;

 

2

 

(e)           Inventory;

 

(f)            Equipment;

 

(g)           Inventory;

 

(h)           General Intangibles and Intellectual
Property Collateral;

 

(i)            Goods;

 

(j)            Instruments and letters of credit;

 

(k)           Deposit Accounts;

 

(l)            money, cash or cash equivalents;

 

(m)          money, cash, cash equivalents and
other assets of Borrower that now or hereafter come into the possession,
custody, or control of any member of the Lender;

 

(n)           the
Pledged Stock, and

 

(o)           to
the extent not otherwise included, all of the proceeds and products, whether
tangible or intangible, of any of the foregoing, including proceeds of
insurance covering any or all of the foregoing and all accessions to,
substitutions and replacements for, and rents and profits of each of the
foregoing, and any and all Accounts, Investment Property, Inventory, Equipment,
General Intangibles, money or other tangible or intangible property resulting
from the sale, exchange, collection, or other disposition of any of the
foregoing, or any portion thereof or interest therein, and the proceeds
thereof.

 

“Consents” shall
mean all filings and all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Bodies and other
third parties, domestic or foreign, necessary to carry on the Borrower’s
business, including, without limitation, any Consents required under all
applicable federal, state or other applicable law.

 

“Copyrights” means
any and all copyright rights, copyright applications, copyright registrations
and like protections in each work or authorship and derivative work thereof,
whether published or unpublished and whether or not the same also constitutes a
trade secret, now or hereafter existing, created, acquired or held.

 

“Default” shall
mean an event which, with the giving of notice or passage of time or both,
would constitute an Event of Default.

 

“Default Rate”
shall mean the Interest Rate plus four percent (4%).

 

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

 

“Eligible Accounts”
means those Accounts created by the Borrower Parties in the ordinary course of
their businesses that arise out of the Borrower Parties’ sale of goods or
rendition of services, and that are not excluded as ineligible by virtue of one
or more of the criteria set forth below. 
In determining the amount to be included, Eligible Accounts shall be
calculated net of 

 

3

 

customer deposits and
unapplied cash remitted to the Borrower Parties.  Eligible Accounts shall not include the following:

 

(a)                                  Accounts
that the Account Debtor has failed to pay within the later of (i) 90 days
of the original invoice date, or (ii) 90 days of installation of the
product described in an invoice, not to exceed 120 days of original invoice date;

 

(b)                                 Accounts
with respect to which the Account Debtor is a creditor of Borrower, has or has
asserted a right of setoff, has disputed its liability, or has made any claim
with respect to its obligation to pay the Account, to the extent of such claim,
right of setoff, or dispute;

 

(c)                                  Accounts
with respect to which the Account Debtor is subject to an Insolvency
Proceeding, is insolvent, has gone out of business, or as to which a Borrower
Party has received notice of an imminent insolvency proceeding or a material
impairment of the financial condition of such Account Debtor.

 

(d)                                 Accounts
with respect to an Account Debtor, including Affiliates, whose total
obligations to Borrower exceed twenty percent (20%) of all Accounts, to the
extent such obligations exceed the aforementioned percentage, except as
approved in writing by Lender;

 

(e)                                  Accounts
owed by any single Account Debtor on which over twenty five percent (25%) of
the aggregate account owing has not been paid for within the later of (i) 90
days of the original invoice date, or (ii) 90 days of installation of the
product described in an invoice, not to exceed 120 days from the date of the
invoice;

 

(f)                                    Accounts
with respect to which the Account Debtor does not have its principal place of
business in the United States except for Eligible Foreign Accounts;

 

(g)                                 Accounts
generated by demonstration or promotional equipment, or with respect to which
goods are placed on consignment, guaranteed sale, sale or return, sale on
approval, bill and hold, or other terms by reason of which the payment by the
Account Debtor may be conditional;

 

(h)                                 Accounts
with respect to which the Account Debtor is an Affiliate, officer, employee, or
agent of Borrower;

 

(i)                                     Accounts
with respect to which the Account Debtor disputes liability or makes any claim
with respect thereto as to which Lender believes, in its sole discretion, that
there may be a basis for dispute (but only to the extent of the amount subject
to such dispute or claim); and

 

(j)                                     Accounts
the collection of which Lender reasonably determines after reasonable inquiry
and reasonable consultation with Borrower to be doubtful.

 

“Eligible Foreign
Accounts” means Accounts with respect to which the Account Debtor does not
have its principal place of business in the United States and that are: (1)
covered by credit insurance in form and amount, and by an insurer satisfactory
to Lender less the amount of any deductible(s) which may be or become owing
thereon; or (2) supported by one or more letters of 

 

4

 

credit either advised or
negotiated through Lender or in favor of Lender as beneficiary, in an amount
and of a tenor, and issued by a financial institution, acceptable to Lender; or
(3) that Lender approves on a case-by-case basis.

 

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

 

“Event of Default”
shall mean the occurrence of any of the events set forth in Article IX
hereof.

 

“GAAP” shall mean
generally accepted accounting principles in the United States of America in
effect from time to time.

 

“Governmental Body”
shall mean any nation or government, any state, province or other political
subdivision thereof or any entity exercising the legislative, judicial, regulatory
or administrative functions of or pertaining to a government.

 

“Indebtedness” of
a Person at a particular date shall mean all obligations of such Person which
in accordance with GAAP would be classified upon a balance sheet as liabilities
(except capital stock and surplus earned or otherwise) and in any event,
without limitation by reason of enumeration, shall include all indebtedness,
debt and other similar monetary obligations of such Person whether direct or
guaranteed, and all premiums, if any, due at the required prepayment dates of
such indebtedness, and all indebtedness secured by a Lien on assets owned by
such Person, whether or not such indebtedness actually shall have been created,
assumed or incurred by such Person.  Any
indebtedness of such Person resulting from the acquisition by such Person of
any assets subject to any Lien shall be deemed, for the purposes hereof, to be
the equivalent of the creation, assumption and incurring of the indebtedness
secured thereby, whether or not actually so created, assumed or incurred.

 

“Interest Rate”
shall mean the Prime Rate plus four percent (4.0%).

 

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

 

“Intellectual Property
Collateral” means all of Borrower’s right, title and interest in and to the
following:

 

(a)          Copyrights,
Trademarks, Patents, and Mask Works;

(b)         Any
and all trade secrets, and any and all intellectual rights in computer software
and computer software products now or hereafter existing, created, acquired or
held;

(c)          Any
and all design rights which may be available to Borrower now or hereafter
existing, created, acquired or held;

(d)         Any
and all claims for damages by way of past, present and future infringement of
any of the rights included above, with the right, but not the obligation, to
sue for and collect 

 

5

 

such damages for
said use or infringement of the intellectual property rights identified above;

(e)          All
licenses or other rights to use any of the Copyrights, Patents, Trademarks, or
Mask Works, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;

(f)            All
amendments, renewals and extensions of any of the Copyrights, Trademarks,
Patents or Mask Works; and

(g)         All
proceeds and products of the foregoing, including without limitation all
payments under insurance or any indemnity or warranty payable in respect of any
of the foregoing.

 

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

 

“Lender”
is defined in the Introduction and shall include each Person which becomes a
transferee, successor or assign of any Lender.

 

“Lien” shall mean
any mortgage, deed of trust, pledge, hypothecation, assignment, security
interest, lien (whether statutory or otherwise), Charge, claim or encumbrance,
or preference, priority or other security agreement or preferential arrangement
held or asserted in respect of any asset of any kind or nature whatsoever
including, without limitation, any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of
the foregoing, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code or comparable law of any jurisdiction.

 

“Loan Documents”
means, collectively, this Agreement, any note or notes executed by Borrower,
and any Other Documents, all as amended, extended or restated from time to
time.

 

“Mask Works” means
all mask works or similar rights available for the protection of semiconductor
chips, now owned or hereafter acquired.

 

“Material Adverse
Effect” shall mean a material adverse effect on (a) the condition,
operations, assets or business of the Borrower and its Subsidiaries, taken as a
whole, (b) the Borrower’s ability to pay the Obligations in accordance
with the terms thereof, or (c) the practical realization of the benefits
of the Lender’s rights and remedies under this Agreement and the Other
Documents.

 

“Maximum Commitment”
shall mean $1,250,000; however, Lender, in its sole discretion may elect to
increase (the “Increase”) the Maximum Commitment from $1,250,000 to $3,000,000
subject to and conditioned upon the following: (a) the Increase shall be
effective only upon Lender’s written notice to Borrower and upon execution and
delivery by Borrower to Lender of an amendment to the Note in a form acceptable
to Lender; (b) receipt by Lender in a form acceptable to Lender of a written
consent from Castle Creek Technology Partners, LLC (“Castle Creek”) which
provides for Castle Creek’s consent to this Agreement including consent with
regard to a Maximum Commitment of $3,000,000; and (c) Lender shall not be
obligated under any circumstances to elect to make the Increase notwithstanding
receipt of the above described consent from Castle Creek.

 

“Note” shall mean
the promissory note attached hereto as Exhibit A.

 

6

 

“Obligations”
shall mean and include any and all loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Borrower to the Lender or to any
other direct or indirect subsidiary or affiliate of the Lender of any kind or
nature, present or future (including, without limitation, any interest accruing
thereon after maturity, or after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding relating
to the Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether or not evidenced by any note,
guaranty or other instrument, whether arising under any agreement, instrument
or document, (including, without limitation, this Agreement and the Other
Documents) whether or not for the payment of money, whether arising by reason
of an extension of credit, opening of a letter of credit, loan, equipment lease
or guarantee, under any interest or currency swap, future, option or other
similar agreement, or in any other manner, whether arising out of overdrafts or
deposit or other accounts or electronic funds transfers (whether through
automated clearing houses or otherwise) or out of the Lender’s non-receipt of
or inability to collect funds or otherwise not being made whole in connection
with depository transfer check or other similar arrangements, whether direct or
indirect (including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated, regardless of how
such indebtedness or liabilities arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument,
including, but not limited to, any and all of the Borrower’s Indebtedness
and/or liabilities under this Agreement, the Other Documents or under any other
agreement between the Lender and the Borrower and any amendments, extensions,
renewals or increases and all costs and expenses of the Lender incurred in the
documentation, negotiation, modification, enforcement, collection or otherwise
in connection with any of the foregoing, including but not limited to
reasonable attorneys’ fees and expenses and all obligations of the Borrower to
the Lender to perform acts or refrain from taking any action.

 

“Other Documents”
shall mean the Note and any and all other agreements, instruments and documents,
including, without limitation, guaranties, control agreements, pledgholder
agreements, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by the Borrower or the other Borrower
Parties and/or delivered to the Lender in respect of the transactions
contemplated by this Agreement.

 

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

 

“Payment Office”
shall mean such office of the Lender which it may designate by notice to the
Borrower to be the Payment Office.

 

“Permitted
Encumbrances” shall mean (a) Liens in favor of the Lender;
(b) Liens for taxes, assessments or other governmental charges not
delinquent or being contested in good faith and by appropriate proceedings and
with respect to which proper reserves have been taken by the Borrower; provided,
that, the Lien shall have no effect on the priority of the Liens in
favor of the Lender or the value of the assets in which the Lender has such a
Lien and a stay of enforcement of any such Lien shall be in effect;
(c) Liens disclosed to the Lender in writing prior to the date hereof as
set forth in the Schedule; (d) deposits or pledges to secure obligations
under worker’s compensation, social security or similar laws, or under
unemployment insurance; (e) deposits or

 

7

 

pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of the Borrower’s business; and
(f) judgment Liens that have been stayed or bonded and mechanics’,
workers,’ materialmen’s or other like Liens arising in the ordinary course of
the Borrower’s business with respect to obligations which are not due or which
are being contested in good faith by the Borrower.

 

“Permitted
Indebtedness” means:

 

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

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

(c)          Indebtedness
to trade creditors and with respect to surety bonds and similar obligations
incurred in the ordinary course of business;

(d)         Subordinated
Debt;

(e)          Indebtedness
of Borrower to any Subsidiary and contingent obligations of any Subsidiary with
respect to obligations of Borrower (provided that the primary obligations are
not prohibited  hereby), and
indebtedness of any Subsidiary to any other Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of any other
Subsidiary (provided that the primary obligations are not prohibited hereby);

(f)            Indebtedness
secured by Permitted Encumbrances;

(g)         Capital
leases and indebtedness incurred solely to purchase equipment which is not in
excess of the lesser of the purchase price of such equipment or the fair market
value of such equipment on the date of acquisition provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the
proceeds of such property; and provided that the total aggregate amount of such
capital leases and indebtedness  shall
not exceed $200,000 in any fiscal year;

(h)         Indebtedness
incurred in the ordinary course of business and not exceeding $200,000 in the
aggregate outstanding at any one time;

(i)             Indebtedness
owed to officers, employees and directors for compensation incurred in the ordinary
course of business; and

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

 

“Permitted Investment”
shall mean:

 

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

(b)                                 (i)
marketable direct obligations issued or unconditionally guaranteed by the
United States of America or any agency or any State thereof maturing within one
(1) year from the date of acquisition thereof, (ii)commercial paper maturing no
more than one (1) year from the date of creation thereof and currently having
the highest rating obtainable from either Standard & Poor’s Corporation or
Moody’s Investors Service, Inc., and (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by Lender,
and (iv) any Investments permitted by Borrower’s investment policy, as amended
from time to time, provided that such investment policy (and such amendments
thereto) has been approved by Lender;

 

8

 

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

(d)                                 Investments
accepted in connection with Transfers permitted by Section 6.1;

(e)                                  Investments
consisting of (i) compensation of employees, officers and directors of Borrower
or its Subsidiaries so long as the Board of Directors of Borrower determines
that such compensation is in the best interests of Borrower, (ii) travel
advances, employee relocation loans and other employee loans and advances in
the ordinary course of business, and (iii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower or its
Subsidiaries pursuant to employee stock purchase plans or agreements approved
by Borrower’s Board of Directors;

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

(g)                                 Investments
pursuant to or arising under currency agreements or interest rate agreements
entered into in the ordinary course of business;

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

(i)                                     Investments
constituting acquisitions permitted under Section 6.2;

(j)                                     Deposit
accounts of Borrower in which Lender has a Lien prior to any other Lien;

(k)                                  Deposit
accounts of any Subsidiaries maintained in the ordinary course of business;

(l)                                     Investments
made in the ordinary course of business not exceeding $100,000 in the aggregate
in any fiscal year; and

(m)                               Other
Investments approved by Borrower’s board of directors not exceeding $200,000 in
the aggregate in any fiscal year.

 

“Person” shall
mean any individual, sole proprietorship, partnership, corporation, business
trust, joint stock company, trust, unincorporated organization, association,
limited liability company, institution, public benefit corporation, joint
venture, entity or Government Body.

 

“Pledged Stock”
means all of the issued and outstanding capital stock of Maxxess Systems,
Incorporated, a California corporation, Mariner Networks, Inc., a Delaware
corporation, Iteris, Inc., a Delaware corporation, Zyfer, Inc., a Delaware
corporation, and Broadcast, Inc., a Delaware corporation (collectively, the “Issuers”),
owned from time to time by the Borrower. 
Capital stock as referred to the preceding sentence shall include,
without limitation,  all outstanding
common stock, preferred stock, and warrants issued by the Issuers, and owned
from time to time by the Borrower.

 

“Prime Rate” shall
mean that rate of interest designated as such by Bank of America, or any
successor thereto, as the same may from time to time fluctuate, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate.

 

“Real Property”
means the real property of the Borrower and related property described in the
Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture
Filing made by Borrower for the benefit of Castle Creek Technology Partners,
LLC (“Beneficiary”), 

 

9

 

dated May 29, 2001,
securing a loan made by Beneficiary to Borrower in the principal amount of
$16,000,000.

 

“Receiver” shall
have the meaning set forth in Section 10.1.

 

“Responsible Officer”
means the Chief Executive Officer of Borrower.

 

“Schedule”
means the schedule of exceptions attached hereto, if any.

 

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

 

“Subsidiary” shall
mean a corporation or other entity of whose shares of stock or other ownership
interests having ordinary voting power (other than stock or other ownership
interests having such power only by reason of the happening of a contingency)
to elect a majority of the directors of such corporation, or other Persons
performing similar functions for such entity, are owned, directly or
indirectly, by such Person.

 

“Total
Liabilities” means, as of any applicable date, all
obligations that should, in accordance with GAAP, be classified as liabilities
on the consolidated balance sheet of Borrower, including in any event all
indebtedness, but specifically excluding Subordinated Debt.

 

“Tangible Net
Worth” means, as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication, (i)
the sum of any amounts attributable to (a) goodwill, (b) intangible items such
as unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses, except prepaid
expenses, and (c) all reserves not already deducted from assets, and (ii) Total
Liabilities.

 

“Taxes” shall mean
all taxes, surtaxes, duties, levies, imposts, rates, fees, assessments,
withholdings, dues and other charges of any nature imposed by any Governmental
Body (including income, capital (including large corporations), withholding,
consumption, sales, use, transfer, goods and services or other value-added,
excise, customs, anti-dumping, countervail, net worth, stamp, registration,
franchise, payroll, employment, health, education, business, school, property,
local improvement, development, education development and occupation taxes,
surtaxes, duties, levies, imposts, rates, fees, assessments, withholdings, dues
and charges) together with all fines, interest, penalties on or in respect of,
or in lieu of or for non-collection of, those taxes, surtaxes, duties, levies,
imposts, rates, fees, assessments, withholdings, dues and other charges
(excluding taxes imposed on the net income or capital of the Lender);
excluding, however, the following: 
taxes imposed on the net income or capital of the Lender by the
jurisdiction under the laws of which the Lender is organized or is resident or
carrying on business or any political subdivision thereof and taxes imposed on
its net income or capital by the jurisdiction the Lender’s applicable lending
office or any political subdivision thereof

 

“Term” shall have
the meaning set forth in Section 12.1 hereof.

 

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

 

10

 

1.3           Uniform Commercial Code Terms.  All terms used herein and defined in the
Uniform Commercial Code as in effect from time to time in the State of
California shall have the meaning given therein unless otherwise defined
herein.

 

1.4           Certain Matters of Construction.  In this Agreement and in the Other
Documents, unless otherwise indicated, (a) the term “or” shall not be
exclusive, (b) the term “including” shall mean “including, but not limited to,”
and (c) the terms “below,” “above,” “herein,” “hereof,” “hereto,” “hereunder”
and other terms similar to such terms shall refer to the subject document as a
whole and not merely to the specific section, subsection, paragraph or clause
where such terms may appear.  Any
pronoun used shall be deemed to cover all genders.  Wherever appropriate in the context, terms used herein in the
singular also include the plural and vice  versa.  All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations.  Unless otherwise provided,
all references to any instruments or agreements to which the Lender is a party,
including, without limitation, references to any of the Other Documents, shall
include any and all modifications or amendments thereto and any and all
extensions or renewals thereof.

 

II.            LOAN AND PAYMENT.

 

2.1           Advances.  Subject to the terms and conditions of this
Agreement, during the Term of this Agreement, and so long as an Event of
Default has not occurred and is continuing, the Lender agrees to make advances
(“Advances”) to the Borrower in an amount at any one time outstanding
not to exceed an amount equal to the lesser of (i) the Maximum Commitment, and
(ii) the Borrowing Base; provided, however, that Lender shall not be obligated
to make advances to the Borrower whenever the sum of all Obligations owed to
Lender exceeds either the Borrowing Base or the Maximum Commitment.  Further, Borrower promises to pay to the
order of Lender, in lawful money of the United States of America, the aggregate
unpaid principal amount of all Advances made by Lender to Borrower hereunder.
Borrower shall also pay interest on the unpaid principal amount of such
Advances at rates in accordance with the terms hereof.

 

2.2           Procedure for Borrowing Advances.  The Borrower may notify the Lender prior to
3:00 p.m. (California time) five Business Days in advance of the requested date
of the Advance of Borrower’s request to incur, on such day, an Advance
hereunder.  A form of request for the
initial Advance hereunder is attached hereto as Exhibit B.

 

2.3           Deemed Advances. Should any
amount required to be paid as interest hereunder, or as fees or other charges
under this Agreement or any other agreement with the Lender, or with respect to
any other Obligation, become due, same shall be deemed a request for an Advance
as of the date such payment is due, in the amount required to pay in full such
interest, fee, charge or Obligation under this Agreement or any other agreement
with the Lender, and such request shall be irrevocable.

 

2.4           Disbursement of Advance Proceeds.  All Advances shall be disbursed from
whichever office or other place the Lender may designate from time to time and,
together with any and all other Obligations of the Borrower to the Lender,
shall be charged to the Borrowers’ Account. 
The proceeds of each Advance requested by the Borrower under Section
2.2 hereof or deemed to have been requested by the Borrower under Section
2.3 hereof shall, with respect to requested Advances to the extent the
Lender makes such Advances, be made available to the Borrower on the day so
requested in immediately available funds or, with respect to Advances deemed to
have been 

 

11

 

requested by the
Borrower, be disbursed to the Lender to be applied to the outstanding
Obligations giving rise to such deemed request.

 

2.5           Maximum Commitment.  The aggregate balance of Advances
outstanding at any time shall not exceed the Maximum Commitment.

 

2.6           Repayment of Advances.

 

(a)           The
Advances shall be due and payable in full on the last day of the Term subject
to earlier prepayment as herein provided.

 

(b)           All
payments of principal, interest and other amounts payable hereunder, or under
any of the Other Documents shall be made to the Lender at the Payment Office
not later than 1:00 P.M. (California time) on the due date therefor in lawful
money of the United States of America in funds immediately available to the
Lender.

 

(c)           The
Borrower shall pay principal, interest, and all other amounts payable
hereunder, or under any related agreement, without any deduction whatsoever,
including, but not limited to, any deduction for any setoff or counterclaim.

 

2.7           Repayment of Excess Advances.  The aggregate balance of Advances
outstanding at any time in excess of the Availability shall be immediately due
and payable without the necessity of any demand, at the Payment Office, whether
or not a Default or Event of Default has occurred.

 

2.8           Prepayment.

 

(a)           Voluntary
Prepayment.  The Borrower may not
prepay any Advance hereunder, whether in whole or in part, without the consent
of the Lender, which consent may be given or withheld in the Lender’s sole
discretion.

 

(b)           Mandatory
Prepayment.  If, at any time during
the term, the aggregate Advances outstanding hereunder exceed the Borrowing
Base (as evidenced by a Borrowing Base Certificate delivered to the Lender in
accordance with Section 8.2 below), the Borrower shall immediately
repay to the Lender an amount at least equal to such excess.  Amounts repaid in accordance with this
clause (b) shall be applied first to accrued interest and then to reduce
the principal balance of the Advances outstanding hereunder in reverse
chronological order (i.e., first to the last Advance taken by the Borrower,
then to the immediately preceding Advance, and so on until expended), and
interest thereafter shall only accrue against the principal balance of Advances
remaining outstanding after such mandatory prepayment expended).

 

2.9           Statement of Account.  The Borrower, on the Lender’s behalf, shall
maintain a loan account (“Borrower’s Account”) in the name of the
Borrower in which shall be recorded the date and amount of each Advance made by
the Lender and the date and amount of each payment in respect thereof; provided,
however, that the failure by the Borrower to record the date and amount
of any Advance or to accurately record such information shall not adversely
affect the Lender.  In accordance with Section 8.2,
the Borrower shall send to the Lender a monthly statement showing the
accounting for the Advances made, interest accruing thereon, payments made or
credited in respect thereof, and other transactions between the Lender and the
Borrower during the Term.  Such monthly 

 

12

 

statements shall be
subject to Lender’s review and approval and deemed correct and binding upon the
Lender in the absence of manifest error unless the Borrower receives a written
statement of the Lender’s specific exceptions thereto within thirty (30) days
after such statement is received by the Lender; provided that the foregoing
shall not limit Lender’s ability to contest the calculation of the Borrowing
Base set forth in a Borrowing Base Certificate.

 

2.10         Additional Payments.  Any sums expended by the Lender due to the
Borrower’s failure to perform or comply with its obligations under this
Agreement or any Other Document may at Lender’s request be charged to
Borrower’s Account and added to the Obligations.

 

2.11         Manner of Payment.  All payments (including prepayments) to be
made by the Borrower on account of principal, interest and fees shall be made
without set off or counterclaim and shall be made to the Lender at the Payment
Office, in each case on or prior to 1:00 p.m., California time, in Dollars and
in immediately available funds.

 

2.12         Use of Proceeds.  The Borrower shall apply the proceeds of the
Advances to provide for its general working capital requirements; however,
Borrower shall not directly or indirectly apply any of the proceeds of the
Advances against any obligations owed to any of Borrower’s lenders from time to
time except for obligations owed to Lender. Notwithstanding any term in this
Agreement to the contrary, a breach of this Section 2.12 by Borrower shall be
deemed an Event of Default and shall not be subject to any cure rights.

 

2.13         Extended Credit Facility.  Upon the written agreement between Borrower
and Lender, the Availability under this Agreement and the Note may be increased
by such amount as is mutually agreed; provided that the Collateral is extended
to include the real property owned by Borrower described in Section 4.11(b) pursuant
to a first trust deed securing the additional Obligations.  In the event of any such extension, the
parties shall amend this Agreement, the Note and such other Loan Documents as
Borrower and Lender deem reasonably necessary to evidence such extension.

 

III.           INTEREST AND FEES.

 

3.1           Interest.  Interest on the outstanding principal
balance of each Advance shall accrue and be payable on the third day of each
month until the Obligations are satisfied in full.  Interest charges shall be computed at a rate per annum equal to
the Interest Rate.  Whenever, subsequent
to the date of this Agreement, the Prime Rate is increased or decreased, the
Interest Rate shall be similarly changed without notice or demand of any kind
by an amount equal to the amount of such change in the Prime Rate during the
time such change or changes remain in effect. 
Upon and after the occurrence of an Event of Default, and during the
continuation thereof, the Obligations shall bear interest at the Default Rate.

 

3.2           Computation of Interest and Fees.  Interest and fees hereunder shall be
computed on the basis of a year of 360 days and for the actual number of days
elapsed.  If any payment to be made
hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and interest
thereon shall be payable at the Interest Rate during such extension.

 

3.3           Maximum Charges.  In no event whatsoever shall interest and
other charges charged hereunder exceed the highest rate permissible under
law.  In the event interest and other 

 

13

 

charges as computed
hereunder would otherwise exceed the highest rate permitted under law, such
excess amount shall be first applied to any unpaid principal balance owed by
the Borrower, and if the then remaining excess amount is greater than the
previously unpaid principal balance, the Lender shall promptly refund such
excess amount to the Borrower and the provisions hereof shall be deemed amended
to provide for such permissible rate.

 

3.4           Increased Costs.  In the event that any applicable law, treaty
or governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by the Lender with any request or directive
(whether or not having the force of law) from any financial, monetary or other
authority, shall:

 

(a)           subject the Lender to any tax of any
kind whatsoever with respect to this Agreement or any Other Document or change
the basis of taxation of payments to the Lender of principal, fees, interest or
any other amount payable hereunder or under any Other Documents (except for
changes in the rate of tax on the overall net income the Lender by the
jurisdiction in which it maintains its principal office); or

 

(b)           impose, modify or hold applicable any
reserve, special deposit, assessment or similar requirement against assets held
by, or deposits in or for the account of, advances or loans by, or other credit
extended by, any office of the Lender;

 

and the result of any of
the foregoing is to increase the cost to the Lender of making, renewing or
maintaining its Advances hereunder by an amount that the Lender deems to be
material or to reduce the amount of any payment (whether of principal, interest
or otherwise) in respect of any of the Advances by an amount that the Lender
deems to be material, then, in any case the Borrower shall promptly pay the
Lender, upon its demand, such additional amount as will compensate the Lender
for such additional cost or such reduction, as the case may be.  The Lender shall certify the amount of such
additional cost or reduced amount to the Borrower, and such certification shall
be conclusive absent manifest error.

 

3.5           Fees.  The Borrower shall pay to the Lender the
following fees and charges, which fees and charges shall be non-refundable and
deemed earned when paid (irrespective of whether this Agreement is terminated
thereafter):

 

(a)           Commitment Fee.  A one-time fee equal to Thirty Thousand
Dollars ($30,000), payable in immediately available funds on the Closing Date;
and

 

(b)           Collateral Management Fee.  For the separate account of the Lender, a
Collateral management fee equal to Two Thousand Dollars ($2,000) per month
during the Term, payable in arrears no later than the third Business Day of the
following month.

 

(c)           Expenses. Upon demand from the
Lender,  including, without limitation,
upon the date hereof, all expenses to which Lender is entitled pursuant to
Section 13.9.

 

3.6           Taxes.

 

(a)           Any and all payments or reimbursements
made by the Borrower hereunder shall be made free and clear of and without
deduction for any and all present and future Taxes.  If the Borrower shall be required by law or by the interpretation
or administration thereof to 

 

14

 

deduct or withhold any
such Taxes from or in respect of any sum payable hereunder or under this
Agreement or any Other Document to the Lender, then the Borrower will pay such
additional amounts (“Additional Amounts”) as may be necessary so that
every net payment under this Agreement (including Additional Amounts) after
withholding or deduction for or on account of such Taxes will not be less than
the amount the Lender would have received if such Taxes had not been withheld
or deducted .  The Borrower will also
(i) make such withholding or deduction and (ii) remit the full amount
deducted or withheld to the relevant authority in accordance with applicable
law.  The Borrower will furnish to the
Lender, within 15 days after the date the payment of any Taxes is due pursuant
to applicable law, certified copies of tax receipts evidencing such payment by
the Borrower.  The Borrower will
indemnify and hold the Lender harmless against and upon written request shall
reimburse the Lender for the amount of (i) any Taxes levied or imposed and
paid by the Lender as a result of payments in respect of any Obligations
(including any such Taxes imposed with respect to such reimbursement) and
(ii) any liability (including penalties, interest and expenses) arising
from or with respect to such Taxes described above.

 

(b)           In the event that, after the date
hereof, (i) any changes in any existing law, regulation, treaty or
directive or in the interpretation or application thereof, (ii) any new
law, regulation, treaty or directive enacted or any interpretation or
application thereof, or (iii) compliance by the Lender with any request or
directive (whether or not having the force of law) from any Governmental Body
does or shall subject the Lender to any tax of any kind whatsoever or causes
the withdrawal or termination of a previously granted tax exemption with
respect to this Agreement, the Other Documents or any Obligations, or change
the basis of taxation of payments to the Lender of principal, fees, interest or
any other amount payable hereunder (except for net income taxes or capital
taxes, or franchise taxes imposed in lieu of net income taxes or capital taxes,
or changes in the rate of tax on the overall net income or capital of the
Lender) and the result of any of the foregoing is to increase the cost to the
Lender of making the Advances or to reduce any amount receivable hereunder;
then, in any such case, the Borrower shall promptly pay to the Lender, upon its
demand, any additional amounts necessary to compensate the Lender, on an
after-tax basis, for such additional cost or reduced amount receivable, as
determined by the Lender with respect to this Agreement or the Other
Documents.  If the Lender becomes
entitled to claim any additional amounts pursuant to this subsection, it shall
promptly notify the Borrower of the event by reason of which the Lender has
become so entitled.  A certificate as to
any additional amounts payable pursuant to the foregoing sentence submitted by
the Lender to the Borrower shall, absent manifest error, be final, conclusive
and binding for all purposes.

 

(c)           Without prejudice to the survival of
any other provision of this Agreement or the Other Documents, the agreements
and obligations of the Borrower contained in this Section shall survive the
expiration of the Term.

 

IV.           SECURITY AGREEMENT.

 

4.1           Security Interest in the
Collateral.  To secure the prompt
payment and performance to the Lender of the Obligations, the Borrower hereby
assigns, pledges and grants to the Lender for its benefit a continuing security
interest in and to all of the Collateral, whether now owned or existing or
hereafter acquired or arising and wheresoever located.  The Borrower shall mark its books and
records as may be necessary or appropriate to evidence, protect and perfect the
Lender’s security interest and shall cause its financial statements to reflect
such security interest. Except as set forth in the Schedule, such security
interest constitutes a valid, first priority security interest in the presently
existing Collateral, and will constitute a valid, first priority security
interest in Collateral 

 

15

 

acquired after the date
hereof, in each case, to the extent that a security interest in such Collateral
can be perfected by the filing of a financing statement or, in the case of
Collateral consisting of instruments, documents, chattel paper or certificated
securities, to the extent that Lender 
takes possession of such Collateral. Borrower acknowledges that Lender
may place a “hold” on any deposit account pledged as Collateral to secure the
Obligations. Notwithstanding termination of this Agreement, Lender’s Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.

 

4.2           Perfection of Security Interest.  The Borrower shall take all action that may
be necessary or desirable, or that the Lender may request, so as at all times
to maintain the validity, perfection, enforceability and priority of the
Lender’s security interest in the Collateral or to enable the Lender to
protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to, (i) delivering to the Lender, endorsed or
accompanied by such instruments of assignment as the Lender may specify, and
stamping or marking, in such manner as the Lender may specify, any and all
chattel paper, instruments, letters of credits and advices thereof and
documents evidencing or forming a part of the Collateral, (ii) entering
into warehousing, lockbox and other custodial arrangements satisfactory to the
Lender, and (iii) executing and delivering financing statements,
instruments of pledge, mortgages, hypothecs notices and assignments, in each
case in form and substance satisfactory to the Lender, relating to the
creation, validity, perfection, maintenance or continuation of the Lender’s
security interest under the Uniform Commercial Code or other applicable
law.  The Lender is hereby authorized to
file financing statements without the signature of Borrower in accordance with
the Uniform Commercial Code or any other applicable law.  All charges, expenses and fees the Lender
may incur in doing any of the foregoing, and any taxes relating thereto, shall,
at Lender’s request, be charged to Borrower’s Account and added to the
Obligations, or, at the Lender’s option, shall be paid to the Lender
immediately upon demand. Lender agrees to execute and deliver to Borrower from
time to time such subordination agreements as Borrower may request and as are
necessary to give to other lenders which finance equipment for Borrower a first
priority security interest in the equipment financed so long as the Liens and
the indebtedness incurred with respect to such equipment financing are
permitted under this Agreement.  Within
21 days after the Closing, Borrower shall cause execution and delivery of
control agreements with Borrower’s deposit accounts in forms reasonably
acceptable to Lender, subject to delays if caused by such banks, and take such
other action as is necessary to perfect Lender’s first lien security interest
in Borrower’s deposit accounts with all of its banks (collectively “Control
Account Perfection”), and Borrower further agrees to obtain Control
Account Perfection within 21 days after any new deposit accounts are
established with any of its banks from time to time. Borrower’s failure to
obtain the Control Account Perfection within 21 days after the Closing and,
with respect to new deposit accounts that are subsequently established, within
21 days after such account or accounts are established, shall in either event
constitute an Event of Default except to the extent delays are caused by or due
to the acts or delay of the applicable banks. Within 14 days of the Closing,
Borrower shall file all necessary filings with the U.S. Patent and Trademark
office, in forms reasonably acceptable to Lender, to evidence and effectuate
Lender’s first lien security interest in the Borrower’s registered Patents and
registered Trademarks.

 

4.3           Preservation of Collateral.  During the continuance of a Default or Event
of Default, in addition to the rights and remedies set forth in Section 10.1
hereof, the Lender may at any time take such steps as the Lender deems
necessary to protect its interest in and to preserve the Collateral and shall
have, and is hereby granted, a right of ingress and egress to the places where
the Collateral is located, and may proceed over and through any of Borrower’s
owned or leased property.  The Borrower
shall cooperate fully with all of the Lender’s efforts to preserve the
Collateral and will 

 

16

 

take such actions to
preserve the Collateral as the Lender may direct.  All of the Lender’s expenses of preserving the Collateral shall,
at Lender’s request, be charged to Borrower’s Account and added to the
Obligations.

 

4.4           Ownership of Collateral.  With respect to the Collateral, at the time
the Collateral becomes subject to the Lender’s security interest:  (a) the Borrower shall be the sole
owner of and fully authorized and able to sell, transfer, pledge and/or grant a
first priority security interest in each and every item of the Collateral to
the Lender; (b) each document and agreement executed by the Borrower or
delivered to the Lender in connection with this Agreement shall be true and
correct in all respects; and (c) all signatures and endorsements of the
Borrower that appear on such documents and agreements shall be genuine and the
Borrower shall have full capacity to execute same.

 

4.5           Defense of Lenders’ Interests.  Until (a) payment and performance in
full of all of the Obligations and (b) termination of this Agreement, the
Lender’s interests in the Collateral shall continue in full force and effect.  During such period the Borrower shall not,
without the Lender’s prior written consent, pledge, sell, assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way, any part of the Collateral.  The Borrower shall defend the Lender’s interests in the Collateral
against any and all Persons whatsoever. 
At any time during the continuance of an Event of Default, the Lender
shall have the right to take possession of the indicia of the Collateral and
the Collateral in whatever physical form contained, including without
limitation, labels, stationery, documents, instruments and advertising
materials.  If the Lender exercises this
right to take possession of the Collateral, the Borrower shall, upon demand,
assemble it in the best manner possible and make it available to the Lender at
a place reasonably convenient to the Lender. 
In addition, with respect to all Collateral, the Lenders shall be
entitled to all of the rights and remedies set forth herein and further
provided by the Uniform Commercial Code or other applicable law.  The Borrower shall, and the Lender may, at
its option, instruct all suppliers, carriers, forwarders, warehousers or others
receiving or holding cash, checks, documents or instruments in which the Lender
holds a security interest to deliver same to the Lender and/or subject to the
Lender’s order and if they shall come into any Borrower Party’s possession,
they, and each of them, shall be held by such Borrower Party in trust as the
Lender’s trustee, and such Borrower Party will immediately deliver them to the
Lender in their original form together with any necessary endorsement.

 

4.6           Books and Records.  The 
Borrower shall keep proper books of record and account in which full,
true and correct entries will be made of all dealings or transactions of or in
relation to its business and affairs, and set up on its books accruals with
respect to all taxes, assessments, charges, levies and claims.  All determinations pursuant to this
subsection shall be made in accordance with, or as required by, GAAP consistently
applied in the opinion of such independent public accountant as shall then be
regularly engaged by the Borrower.

 

4.7           Compliance with Laws.  The Borrower shall comply with all acts,
rules, regulations and orders of any legislative, administrative or judicial
body or official applicable to the Collateral or any part thereof or to the
operation of the Borrower’s business the non-compliance with which could
reasonably be expected to have a Material Adverse Effect on the Borrower.  The Borrower may, however, contest or
dispute any acts, rules, regulations, orders and directions of those bodies or
officials in any reasonable manner, provided that any related Lien is inchoate
or stayed and sufficient reserves are established to the reasonable satisfaction
of the Lender to protect the Lender’s Lien on or security interest in the
Collateral.  The assets of the Borrower
at all times shall be 

 

17

 

maintained in accordance
with the requirements of all insurance carriers which provide insurance with
respect to the assets of the Borrower so that such insurance shall remain in
full force and effect.

 

4.8           Inspection of Premises.  At all reasonable times the Lender shall
have full access to and the right to audit, check, inspect and make abstracts
and copies from the Borrower’s books, records, audits, correspondence and all
other papers relating to the Collateral and the operation of the Borrower’s
business.  The Lender and its agents may
enter upon any of the Borrower Parties’ premises at any time during business
hours and at any other reasonable time, and from time to time, for the purpose
of inspecting the Collateral and any and all records pertaining thereto and the
operation of such Borrower Party’s business.

 

4.9           Insurance.  The Borrower shall bear the full risk of any
loss of any nature whatsoever with respect to the Collateral.  At the Borrower’s own cost and expense in
amounts and with carriers acceptable to the Lender, the Borrower shall keep all
its insurable properties and properties in which each Borrower Party has an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to such Borrower Party’s including, without limitation, business
interruption insurance.  If the Borrower
fails to obtain insurance as hereinabove provided, or to keep the same in
force, the Lender may, if it so elects, obtain such insurance and pay the
premium therefor on behalf of the Borrower, and charge Borrower’s Account
therefor and such expenses so paid shall be part of the Obligations.  All such policies of insurance shall be in
such form, with such companies, and in such amounts as are reasonably
satisfactory to Lender.  So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
of applying the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property; provided, that after the occurrence and during
the continuance of an Event of Default, all proceeds payable under any such
policy shall, at the option of Lender, be payable to Lender to be applied on
account of the Obligations.

 

4.10         Payment of Taxes.  The Borrower will pay, when due, (or, if
contested as set forth below, provide for payment of) all Taxes, assessments
and other Charges lawfully levied or assessed upon the Borrower or any of the
Collateral.  If any tax by any
Governmental Body is or may be imposed on or as a result of any transaction
between the Borrower and the Lender and the Lender may be required to withhold
or pay, or if any Taxes, assessments, or other Charges remain unpaid after the
date fixed for their payment, or if any claim shall be made which, in the
Lender’s opinion, may possibly create a valid Lien on the Collateral, the
Lender may, without notice to the Borrower, pay the Taxes, assessments or other
Charges and the Borrower hereby indemnifies and holds the Lender harmless in
respect thereof.  The Lender will not
pay any taxes, assessments or Charges to the extent that the Borrower has
contested or disputed those taxes, assessments or Charges in good faith, by
expeditious protest, administrative or judicial appeal or similar proceeding
provided that any related tax lien is stayed and sufficient reserves are
established to the reasonable satisfaction of the Lender to protect the
Lender’s security interest in or Lien on the Collateral.  The amount of any payment by the Lender
under this Section shall be charged to Borrowers’ Account and added to the
Obligations and, until the Borrower shall furnish the Lender with an indemnity
therefor (or supply the Lender with evidence satisfactory to the Lender that
due provision for the payment thereof has been made), the Lender may hold
without interest any balance standing to the Borrower’s credit and the Lender
shall retain its security interest in any and all Collateral held by the
Lender.

 

18

 

4.11         Accounts.

 

(a)           Nature of Accounts.  Each of the Accounts shall be a bona fide
and valid account representing a bona fide indebtedness incurred by the
customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be
deemed to be a breach hereof) with respect to an absolute sale or lease and
delivery of goods upon stated terms, or work, labor or services theretofore
rendered by a Borrower Party as of the date each Account is created.  Same shall be due and owing in accordance
with the Borrower’s standard terms of sale.

 

(b)            Locations of Borrower.  The Borrower’s chief executive office is
located at 1515 S. Manchester Avenue. Anaheim, California.  Until written notice is given to the Lender
by the Borrower of any other office at which any Borrower Party keeps its
records pertaining to Accounts, all such records shall be kept at such
executive office.

 

(c)           Notification of Assignment of
Accounts.  At any time following the
occurrence and continuance of an Event of Default past any applicable cure
period, the Lender shall have the right to send notice of the assignment of,
and the Lender’s security interest in, the Accounts to any and all customers or
any third party holding or otherwise concerned with any of the Collateral.  Thereafter, the Lender shall have the sole
right to collect the Accounts, take possession of the Collateral, or both.  The Lender’s actual collection expenses,
including, but not limited to, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any collection personnel
used for collection, may be charged to Borrower’s Account and added to the
Obligations.

 

(d)           Power of Lender to Act on Borrower’s
Behalf.  At any time following the
occurrence and continuance of an Event of Default past any applicable cure
period, the Lender shall have the right to receive, endorse, assign and/or
deliver in the name of the Lender or any Borrower Party any and all checks,
drafts and other instruments for the payment of money relating to the Accounts,
and the Borrower, on behalf of the Borrower Parties, hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed.  At any time following the occurrence and
continuance of an Event of Default, the Borrower hereby constitutes the Lender
or its designee as the Borrower Parties’ attorney with power (i) to
endorse any Borrower Party’s name upon any notes, acceptances, checks, drafts,
money orders or other evidences of payment or Collateral; (ii) to sign any
Borrower Party’s name on any invoice or bill of lading relating to any of the
Accounts, drafts against customers, assignments and verifications of Accounts;
(iii) to send verifications of Accounts to any customer; (iv) to
demand payment of the Accounts; (v) to enforce payment of the Accounts by
legal proceedings or otherwise; (vi) to exercise all of the Borrower
Parties’ rights and remedies with respect to the collection of the Accounts and
any other Collateral; (vii) to settle, adjust, compromise, extend or renew
the Accounts; (viii) to settle, adjust or compromise any legal proceedings
brought to collect Accounts; (ix) to prepare, file and sign any Borrower
Party’s name on a proof of claim in bankruptcy or similar document against any
customer; (x) to prepare, file and sign any Borrower Party’s name on any notice
of Lien, assignment or satisfaction of Lien or similar document in connection
with the Accounts; (xi) to transfer the Intellectual Property Collateral into
the name of Lender; and (xii) to do all other acts and things necessary to
carry out this Agreement.  All acts of
said attorney or designee are hereby ratified and approved, and said attorney
or designee shall not be liable for any acts of omission or commission nor for
any error of judgment or mistake of fact or of law, unless done maliciously or
with gross (not mere) negligence; this power being coupled with an interest is
irrevocable while any of the Obligations remain unpaid.  The Lender shall have the right at any time
following the occurrence of an Event of Default or Default, to change the
address for delivery of mail addressed to any Borrower 

 

19

 

Party to such address as
the Lender may designate and to receive, open and dispose of all mail addressed
to any Borrower Party.

 

(e)           No Liability.  The Lender shall not, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or
payment of any of the Accounts or any instrument received in payment thereof,
or for any damage resulting therefrom. 
Following the occurrence of an Event of Default or Default, the Lender
may, without notice or consent from any Borrower Party, sue upon or otherwise
collect, extend the time of payment of, compromise or settle for cash, credit
or upon any terms any of the Accounts or any other securities, instruments or
insurance applicable thereto and/or release any obligor thereof.  The Lender is authorized and empowered to
accept following the occurrence of an Event of Default or Default the return of
the goods represented by any of the Accounts, without notice to or consent by
any Borrower Party, all without discharging or in any way affecting the
Borrower’s liability hereunder.

 

(f)            Lockbox Account.   Borrower agrees to amend its lockbox
service agreement with City National Bank or such other banks that Borrower may
utilize for lock box services (the “Bank”) to provide that upon written notice
from Lender the Bank will direct all lock box collections to Lender’s bank
account to be established at the Bank, to the extent of outstanding Obligations
then due.

 

4.12         Exculpation of Liability.  Nothing herein contained shall be construed
to constitute the Lender as any Borrower Party’s agent for any purpose
whatsoever, nor shall the Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral wherever
the same may be located and regardless of the cause thereof.  The Lender, whether by anything herein or in
any assignment or otherwise, shall not assume any of the Borrower Parties’
obligations under any contract or agreement assigned to the Lender, and the
Lender shall not be responsible in any way for the performance by any Borrower
Party of any of the terms and conditions thereof.

 

V.            REPRESENTATIONS AND WARRANTIES.

 

The Borrower represents and warrants as follows:

 

5.1           Authority; Conflict; Default.  The Borrower has full power, authority and
legal right to enter into this Agreement and the Other Documents and to perform
all its respective Obligations hereunder and thereunder.  This Agreement and the Other Documents constitute
the legal, valid and binding obligation of the Borrower enforceable in
accordance with their terms, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors’ rights generally.  The
execution, delivery and performance of this Agreement and of the Other
Documents (a) are within the Borrower’s corporate powers, have been duly
authorized, are not in contravention of law or the terms of the Borrower’s
by-laws, certificate of incorporation or other applicable documents relating to
the Borrower’s formation or to the conduct of the Borrower’s business or of any
material agreement or undertaking to which the Borrower is a party or by which
the Borrower is bound, and (b) will not conflict with nor result in any
breach in any of the provisions of or constitute a default under or result in
the creation of any Lien upon any asset of the Borrower Parties under the
provisions of any agreement, charter document, constating documents,
instrument, by-law, or other instrument to which any Borrower Party is a party
or by which it or its property may be bound.

 

20

 

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

 

5.3           No Default.  Except as set forth in the Schedule,
Borrower is not in default under any agreement to which it is a party or by
which it is bound, which default could reasonably be expected to have a
Material Adverse Effect.

 

5.4           No Prior Encumbrances.
Borrower has good and marketable title to the Collateral, free and clear of
Liens, except for Permitted Encumbrances.

 

5.5           Bona Fide Eligible Accounts.
The Eligible Accounts are bona fide existing obligations. The service or
property giving rise to such Eligible Accounts has been performed or delivered
to the Account Debtor or to the Account Debtor’s agent for immediate shipment
to and unconditional acceptance by the Account Debtor. Borrower has not
received notice of actual or imminent Insolvency Proceeding of any Account
Debtor whose accounts are included in any Borrowing Base Certificate as an
Eligible Account.

 

5.6           Merchantable Inventory. All
inventory is in all material respects of good and marketable quality, free from
all material defects, except for damaged, obsolete or slow-moving inventory,
for which reserve accounts have been established.

 

5.7           Intellectual Property.
Borrower is the sole owner of the Intellectual Property Collateral owned by it,
except for nonexclusive licenses granted by Borrower to its customers in the
ordinary course of business and has valid and enforceable licenses to all
Intellectual Property Collateral licensed to Borrower.  Each of the Patents owned by Borrower is
valid and enforceable, and no part of the Intellectual Property Collateral has
been judged invalid or unenforceable, in whole or in part, and to the
Borrower’s knowledge, no claim has been made that any part of the Intellectual
Property Collateral violates the rights of any third party.

 

5.8           Name; Location of Chief Executive
Office. Except as disclosed in  the Schedule,
Borrower has not done business and will not without at least thirty (30) days
prior written notice to Lender, do business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 4.11(b) hereof.

 

5.9           Litigation. Except as set
forth in the Schedule, there are no actions or proceedings pending or, to
Borrower’s knowledge, threatened by or against Borrower or any Subsidiary
before any court or administrative agency in which an adverse decision could
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on Borrower’s interest or Lender’s security interest in the Collateral.

 

5.10         No Material Adverse Change in
Financial Statements. All consolidated financial statements related to
Borrower and any Subsidiary that have been delivered by Borrower to Lender
fairly present in all material respects Borrower’s consolidated financial
condition as of the date thereof and Borrower’s consolidated results of
operations for the period then ended. There has not been a material adverse
change in the consolidated financial condition of Borrower since the date of
the most recent of such financial statements submitted to Lender on or about
the Closing Date.

 

21

 

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

 

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

 

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

 

5.14         Taxes.  Borrower and each Subsidiary has filed or caused to be filed all
tax returns required to be filed on timely basis, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith by proper proceedings with adequate
reserves under GAAP.

 

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

 

5.16         Government Consents. Borrower
and each Subsidiary has obtained all consents, approvals and authorizations of,
made all declarations or filings with and given all notices to all governmental
authorities that are necessary for the continued operation of Borrower’s
business as currently conducted except where the failure got obtain any such
consent, approval or authorization, to make any such declaration or filing, or
to be given any such notice could not reasonably be expected to have a Material
Adverse Effect.

 

5.17         Disclosure.  No representation or warranty made by the Borrower
in this Agreement or in any financial statement, report, certificate or any
other document furnished in connection herewith contains any untrue statement
of a material fact or omits to state any material 

 

22

 

fact necessary to make
the statements herein or therein not misleading.  There is no fact known to the Borrower or which reasonably should
be known by the Borrower which the Borrower has not disclosed to the Lender in
writing which could reasonably be expected to have a Material Adverse Effect on
the Borrower and its Subsidiaries, taken as a whole.

 

VI.           COVENANTS.

 

6.1           Affirmative Covenants.  The Borrower shall, until payment in full of
the Obligations and termination of this Agreement:

 

(a)           Conduct of Business and
Maintenance of Existence and Assets. 
(i) Conduct continuously and operate actively its business
according to good business practices and maintain all of its properties useful
or necessary in its business in good working order and condition (reasonable
wear and tear excepted and except as may be disposed of in accordance with the
terms of this Agreement), including, without limitation, all licenses, patents,
copyrights, design rights, tradenames, trade secrets and trademarks and take all
actions necessary to enforce and protect the validity of any intellectual
property right or other right included in the Collateral; (b) keep in full
force and effect its existence and comply in all material respects with the
laws and regulations governing the conduct of its business where the failure to
do so could reasonably be expected to have a Material Adverse Effect on the
Borrower; and (c) make all such reports and pay all such franchise and
other taxes and license fees and do all such other acts and things as may be
lawfully required to maintain its rights, licenses, leases, powers and
franchises under the laws of the United States and Canada or any political
subdivision thereof where the failure to do so could reasonably be expected to
have a Material Adverse Effect on the Borrower.

 

(b)           Violations.  Promptly notify the Lender in writing of any
violation of any law, statute, regulation or ordinance of any Governmental
Body, or of any agency thereof, applicable to any Borrower which could
reasonably be expected to have a Material Adverse Effect on the Borrower and
its Subsidiaries, taken as a whole.

 

(c)           Execution of Supplemental
Instruments.  Execute and deliver to
the Lender from time to time, upon demand, such supplemental agreements,
statements, assignments and transfers, or instructions or documents relating to
the Collateral, and such other instruments as the Lender may request, in order
that the full intent of this Agreement may be carried into effect, including,
without limitation, control agreements with Borrower’s banks with respect to
perfecting Lender’s first lien security interest in Borrower’s deposit
accounts, sinking fund account, and other bank accounts.

 

(d)           Sinking Fund.  By no later than the six month anniversary
of the Note, the Borrower shall have established a segregated deposit account
with a federally insured financial institution (the “Sinking Fund Account”).  The Borrower shall thereafter commence
making monthly cash deposits into the Sinking Fund Account in an amount,
determined on the date of such deposit, sufficient so that the aggregate
deposits made through the expiration of the Term shall be at least equal to
two-thirds of the aggregate Advances outstanding at the expiration of the Term.

 

EXAMPLE: 
The initial Advance is $1,000,000. 
In July, the Borrower establishes the Sinking Fund Account.  In each of August and September, the
Borrower deposits $111,117 in the Sinking Fund Account (the amount which, if
aggregated on a straight line basis over the last six months of the Term would
result

 

23

 

in $666,667, or two-thirds of the outstanding
Advances, being deposited in the Sinking Fund Account).  Later in September, the Lender makes another
Advance of $1,000,000.  In October, the
Borrower deposits $444,667 in the Sinking Fund Account ($222,233, or the amount
which, if aggregated on a straight line basis over the last six months of the
Term would result in $1,334,000, or two-thirds of the outstanding Advances,
being deposited in the Sinking Fund Account, plus another $222,233,
making whole the two earlier deposits based on the new total of the outstanding
Advances).

 

The funds on deposit in
the Sinking Fund Account shall be immediately available to the Lender upon the
expiration of the Term to pay off the unpaid balance of the Obligations.  The Borrower shall retain complete control
over the Sinking Fund Account, and all interest accruing therefrom shall belong
to the Borrower.  In the event the
amount on deposit in the Sinking Fund Account is less than the amount required
hereunder (an “Underfunded Event”), no Event of Default shall be deemed to
have occurred hereunder, but all outstanding Advances shall accrue interest at
the Default Rate during the period the Sinking Fund Account is underfunded.
Borrower agrees to provide monthly reports to Lender by no later than the first
day of each month during the occurrence of an Underfunded Event describing the
duration of such event, which report shall be subject to Lender’s review and
approval.

 

(e)           Good Standing. Borrower shall
maintain its and each of its Subsidiaries’ corporate existence and good
standing in its jurisdiction of incorporation and maintain qualification in
each jurisdiction in which the failure to so qualify could reasonably be
expected to have a Material Adverse Effect. Borrower shall maintain, and shall
cause each of its Subsidiaries to maintain, to the extent consistent with
prudent management of Borrower’s business, in force all  licenses, approvals and agreements, the loss
of which could reasonably be expected to have a Material Adverse Effect.

 

(f)            Government Compliance.
Borrower shall meet, and shall cause each Subsidiary to meet, the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. Borrower shall comply, and shall cause each  Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Lender’s Lien on
the Collateral.

 

(g)           Financial Covenants.  Borrower shall maintain the financial
covenants set forth on Exhibit D attached hereto, which covenants may be
amended from time to time as agreed between the Borrower and Lender.

 

24

 

6.2           Negative Covenants. Borrower
covenants and agrees that, so long as any Advance or other amounts are owed to
Lender by Borrower hereunder and until payment in full of the outstanding
Obligations or for so long as Lender may have any commitment to make any
Advances, Borrower will not do any of the following:

 

(a)           Liens.  The Borrower shall not, until satisfaction
in full of the Obligations and termination of this Agreement, create or suffer
to exist any Lien or transfer upon or against any of the Collateral, whether
now owned or hereafter acquired, or on the Sinking Fund Account, except
Permitted Encumbrances.

 

(b)           Indebtedness.  The Borrower shall not incur any
Indebtedness (other than Permitted Indebtedness) without the Lender’s prior
written consent, which consent may be given or withheld at the Lender’s sole
discretion and which may be conditioned upon extending to the Lender additional
security for the Obligations.

 

(c)           Sinking Fund Account.  The Borrower shall not sell, transfer or
assign any interest in the Sinking Fund Account, and shall comply with all of
the terms of the account imposed by the financial institution holding such
account.

 

(d)           Dispositions. The Borrower
shall not dispose convey, sell, lease, transfer or otherwise dispose of
(collectively a “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business, (iii) Transfers of worn-out or obsolete Equipment
or Equipment financed by other vendors, (iv) Transfers which constitute
liquidation of Investments permitted under Section 6.2 herein, and (v) other
Transfers not otherwise permitted by this Section 6.2 not exceeding One Hundred
Thousand Dollars ($100,000) in the aggregate in any fiscal year.

 

(e)           Changes in Business, Ownership,
Management or Business Locations The Borrower shall not engage in any
business or permit any of its Subsidiaries to engage in any business, other
than the businesses currently engaged in by Borrower and any business
substantially similar or related thereto (or incidental thereto).  Borrower will not, without at least thirty
(30) days prior written notification to Lender, relocate its chief executive
office or add any new offices or business locations.

 

(f)            Mergers or Acquisitions.
Without prior consent of Lender which will not be unreasonably withheld, the
Borrower shall not merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with or into any other business organization, or acquire,
or permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person.

 

(g)           Distributions. The Borrower
shall not pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock,
provided that (i) Borrower may declare and make any dividend payment or other
distribution payable in its equity securities (ii) Borrower may convert any of
its convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange therefor and (iii) for so long
as an Event of Default has not occurred, or if an Event of Default has
occurred, it has 

 

25

 

been cured, Borrower may
repurchase stock from  former employees
of Borrower in accordance with the terms of repurchase or similar agreements
between Borrower and such employees.

 

(h)           Investments. The Borrower
shall not directly or indirectly acquire or own, or make any Investment in or
to any Person, or permit any of its Subsidiaries so to do, other than Permitted
Investments.

 

(i)            Transactions with Affiliates.
The Borrower shall not directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for transactions
that are in the ordinary course of Borrower’s business, upon fair and
reasonable terms that are no less favorable to Borrower than would be obtained
in an arm’s length transaction with a non-affiliated Person and except for
transactions with a Subsidiary that are upon fair and reasonable terms and
transactions constituting Permitted Investments.

 

(j)            Intellectual Property Agreements.
The Borrower shall not permit the inclusion in any material contract to which
it becomes a party of any provisions that could or might in any way prevent the
creation of a security interest in Borrower’s rights and  interests in any property included within
the definition of the Intellectual Property Collateral acquired under such
contracts.

 

(k)           Subordinated Debt. The
Borrower shall not make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Lender’s prior
written consent.

 

(l)            Inventory. The Borrower shall
not store the Inventory with a bailee, warehouseman, or similar party unless
Lender has received a pledge of any warehouse receipt covering such Inventory.
Except for Inventory sold in the ordinary course of business and except for
such other locations as Lender may approve in writing, Borrower shall keep the
Inventory only at the location set forth in Section 4.11 hereof or as provided
for in the Schedule hereof and such other locations of which Borrower
gives Lender prior written notice and as to which Borrower signs and files a
financing statement where needed to perfect Lender’s security interest.

 

(m)          Compliance.  The Borrower shall not become an “investment
company” or a company controlled by an “investment company,” within the meaning
of the Investment Company Act of 1940, or become principally engaged in, or
undertake as one of its important activities, the business of extending credit
for the purpose of purchasing or carrying margin stock, or use the proceeds of
any Advance for such purpose; fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, which violation could have a Material
Adverse Effect or a material adverse effect on the Collateral or the priority of
Lender’s Lien on the Collateral, or permit any of its Subsidiaries to do any of
the foregoing.

 

VII.          CONDITIONS PRECEDENT.

 

7.1           Conditions to Initial Advance.  The agreement of the Lender to make the
initial Advance requested to be made on the Closing Date is subject to the
satisfaction, or waiver by 

 

26

 

the Lender, immediately
prior to or concurrently with the making of such Advance, of the following
conditions precedent:

 

(a)           Note.  The Lender shall have received the Note and
this Agreement duly executed and delivered by an authorized officer of the
Borrower;

 

(b)           Filings, Registrations and
Recordings.  Each document
(including, without limitation, any Uniform Commercial Code financing
statement) required by this Agreement, any related agreement or under law or
reasonably requested by the Lender to be executed and delivered, filed,
registered or recorded, in a form acceptable to Lender,  including, without limitation, any filings
with the U.S. Patent and Trademark Office to evidence Lender’s security
interest in the Intellectual Property Collateral, in order to create, in favor
of the Lender, a perfected first priority security interest in or Lien upon the
Collateral shall have been executed and delivered, properly filed, registered
or recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and the Lender shall have
received an acknowledgment copy, or other evidence satisfactory to it, of each
such filing, registration or recordation and satisfactory evidence of the
payment of any necessary fee, tax or expense relating thereto;

 

(c)           Pledged Stock.  Stock certificates representing the Pledged
Stock, each accompanied by a stock power duly executed in blank, and a
pledgeholder agreement in a form acceptable to Lender;

 

(d)           Corporate Proceedings of Borrower.  The Board of Directors of the Borrower shall
have authorized: (i) the execution, delivery and performance of this Agreement,
and the Other Documents and (ii) the granting by the Borrower of the security
interests in and Liens upon the Collateral contemplated hereunder;

 

(e)           No Litigation.  (i) No litigation, investigation or
proceeding before or by any arbitrator or Governmental Body shall be continuing
or threatened against the Borrower or its officers or directors (A) in
connection with this Agreement or the Other Documents or any of the
transactions contemplated thereby and which, in the opinion of the Lender, is
deemed material or (B) which could, in the opinion of the Lender, have a
Material Adverse Effect; and (ii) no injunction, writ, restraining order or
other order of any nature materially adverse to the Borrower or the conduct of
its business or inconsistent with the due consummation of the transactions
contemplated hereby shall have been issued by any Governmental Body;

 

(f)            Payment Instructions.  The Lender shall have received written
instructions from the Borrower in the form attached hereto as Exhibit B
directing the application of proceeds of the initial Advance made pursuant to
this Agreement;

 

(g)           Consents.  The Lender shall have received any and all
Consents necessary to permit the effectuation of the transactions contemplated
by this Agreement and the Other Documents; and such Consents and waivers of
such third parties as might assert claims with respect to the Collateral as the
Lender shall deem necessary, including, without limitation, waivers executed by
landlords and mortgagees of any real property on which any Collateral is located;

 

(h)           Commitment Fee.  The Lender shall have received the
Commitment fee and Lender expenses then due as described in Section 3.5(a)
and 3.5(c); and

 

27

 

(i)            Other.  All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated hereby shall be satisfactory in form and substance to
the Lender.

 

(j)            Legal Opinion. The
Lender shall have received a legal opinion from Borrower’s counsel in a form
acceptable to Lender.

 

7.2           Conditions to Each Advance.  The agreement of the Lender to make any
Advance requested to be made on any date (including, without limitation, the
initial Advance), is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:

 

(a)           Representations and Warranties.  Each of the representations and warranties
made by the Borrower in or pursuant to this Agreement and any related
agreements to which it is a party, and each of the representations and
warranties contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement or
any related agreement shall be true and correct in all material respects on and
as of such date as if made on and as of such date;

 

(b)           No Default.  No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Advances requested to be made, on such date; provided, however,
that the Lender, in its sole discretion, may continue to make Advances
notwithstanding the existence of an Event of Default or Default and that any
Advances so made shall not be deemed a waiver of any such Event of Default or
Default; and

 

(c)           Maximum Advances.  In the case of any Advances requested to be
made, after giving effect thereto, the aggregate Advances shall not exceed the
Maximum Commitment.

 

Each request for a Advance by the Borrower hereunder
shall constitute a representation and warranty by the Borrower as of the date
of such Advance that the conditions contained in this subsection shall have
been satisfied.

 

VIII.        INFORMATION AS TO BORROWER.

 

The Borrower shall, until satisfaction in full of the
Obligations and the termination of this Agreement:

 

8.1           Disclosure of Material Matters.  Immediately upon learning thereof, report to
the Borrower all matters materially affecting the value, enforceability or
collectibility of any portion of the Collateral including, without limitation,
any Borrower Party’s reclamation or repossession of, or the return to any
Borrower Party of, a material amount of goods or claims or disputes asserted by
any customer or other obligor.

 

8.2           Reporting Requirements.  The Borrower shall provide the Lender with
the following documents at the following times in form satisfactory to the
Lender and certified by an officer of the Borrower:

 

28

 

	
  Monthly (not later than the 3rd day of the following
  month)

  	
  (a)

  	
  the statement of Borrower’s Account referenced in
  Section 2.9

  
	
   

  	
   

  	
   

  
	
  Monthly (not later than the 15th day of the
  following month)

  	
  (a)

  	
  a detailed calculation of the Borrowing Base
  (including detail regarding those Accounts that are not Eligible Accounts)
  substantially in the form of Exhibit C hereto (the “Borrowing
  Base Certificate”), and  

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  a detailed aging, by total, of the Accounts,
  together with a reconciliation to the detailed calculation of the Borrowing
  Base previously provided to Lender, plus a detailed aging of accounts payable.

  
	
   

  	
   

  	
   

  
	
  Monthly (not later than the 25th day of the
  following month)

  	
  (a)

  	
  financial statements as of and for the previous
  month, consisting of a balance sheet, and income statement and a cash flow
  statement, prepared in accordance with GAAP consistent with past practices

  
	
   

  	
   

  	
   

  
	
  Monthly (not later than the 3rd Business
  Day after receipt of the relevant account statement) after July
     , 2002

  	
  (a)

  	
  the Sinking Fund Account statement

  
	
   

  	
   

  	
   

  
	
  Annually (not later than the 90th day of
  following fiscal year)

  	
  (a)

  	
  the Borrower’s Annual Report on Form 10-K, as filed
  with the U.S. Securities and Exchange Commission, and 

  
	
   

  	
  (b)

  	
  audited financial statements as of and for the
  previous fiscal year, consisting of a balance sheet, and income statement and
  a cash flow statement, prepared in accordance with GAAP

  

 

In addition to the above, Borrower shall provide Lender: (a) within
five (5) days after request from the Lender, copies of all statements, reports
and notices sent or made available generally by Borrower to any holders of
Subordinated Debt and all reports on Form 10-Q and 8-K filed with the
Securities and Exchange Commission; (b) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower
or any Subsidiary that would be reasonably likely to result in damages or costs
to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000).

 

8.3           Material
Occurrences.  Promptly notify the
Lender in writing upon the occurrence of (a) any Event of Default or
Default; (b) any event, development or circumstance whereby any financial
statements or other reports furnished to the Lender fail in any material
respect to present fairly, in accordance with GAAP consistently applied, the
financial condition or operating results of the Borrower as of the date of such
statements; (c) each and every default by any Borrower

 

29

 

Party which might
result in the acceleration of the maturity of any Indebtedness, including the
names and addresses of the holders of such Indebtedness with respect to which
there is a default existing or with respect to which the maturity has been or
could be accelerated, and the amount of such Indebtedness; and (d) any
other development in the business or affairs of any Borrower Party which could
reasonably be expected to have a Material Adverse Effect; in each case
describing the nature thereof and the action the Borrower propose to take with
respect thereto.

 

8.4           Additional
Information.  Furnish the Lender
with such additional information as the Lender shall reasonably request in
order to enable the Lender to determine whether the terms, covenants,
provisions and conditions of this Agreement have been complied with by the
Borrower.

 

8.5           Additional
Documents.  Execute and deliver to
the Lender, upon request, such documents and agreements as the Lender may, from
time to time, reasonably request to carry out the purposes, terms or conditions
of this Agreement.

 

IX.           EVENTS OF DEFAULT.

 

The occurrence of any one or more of the following events shall
constitute an “Event of Default”:

 

9.1           failure by the
Borrower to pay any principal on the Obligations within three days after the
due date, whether at maturity or by reason of acceleration pursuant to the
terms of this Agreement or by required prepayment;

 

9.2           failure by the
Borrower to pay any interest on the Obligations within three days after the due
date, or failure to pay any other liabilities or make any other payment, fee or
charge provided for herein or in any Other Document within three days after the
due date;

 

9.3           any representation
or warranty made or deemed made by the Borrower in this Agreement or any
related agreement or in any certificate, document or financial or other
statement furnished at any time in connection herewith or therewith shall prove
to have been incorrect, untrue, or misleading in any material respect on the
date when made or deemed to have been made; provided, however,
that the Borrower shall have ten Business Days from notice of default to cure
any such failure that is capable of cure before an Event of Default shall be
deemed to have occurred under this Section;

 

9.4           failure by the
Borrower to perform any of the covenants imposed by this Agreement or the Other
Documents (except for the covenants described in Section 9.1, 9.2, 9.3 herein,
and except as to the balance maintained in the Sinking Fund Account, which is
not an Event of Default and the remedy for which is contained in Section 6.1(d)
); provided, however, that the Borrower shall have three Business
Days from notice of the default to cure any such failure that is capable of
cure before an Event of Default shall be deemed to have occurred under this
Section;

 

9.5           the Borrower shall
(i) apply for, consent to or suffer the appointment of, or the taking of
possession by, a receiver, receiver-manager, custodian, trustee, liquidator or
similar fiduciary of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under any state, provincial or federal
bankruptcy, insolvency, reorganization or other similar law of any jurisdiction
(or any readjustment of debt, arrangement, moratorium, dissolution or
liquidation law or statute) (as now or hereafter in

 

30

 

effect),
(iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws,
or (vii) take any action for the purpose of effecting any of the
foregoing;

 

9.6           the Borrower shall
admit in writing its inability, or be generally unable, to pay its debts as
they become due or cease operations of its present business;

 

9.7           any Lien created
hereunder or provided for hereby or under any related agreement for any reason
ceases to be or is not a valid and perfected Lien having a first priority interest;
or

 

9.8           any material
provision of this Agreement or any of the Other Agreements shall, for any
reason, cease to be valid and binding on the Borrower, or the Borrower shall so
claim in writing to the Lender.

 

9.9           If there (i) occurs
a material adverse change in the business, operations, or condition (financial
or otherwise) of Borrower or (ii) is a material impairment of the prospect of
repayment of any portion of the Obligations or (iii) is a material impairment
of the value or priority of Lender’s security interests in the Collateral; provided,
however, that Borrower shall have ten Business Days from notice of
default to cure any such change or impairment that is capable of cure before an
Event of Default shall be deemed to have occurred under this Section.

 

9.10         If any material
portion of Borrower’s assets is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes 
into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgement or other claim becomes a lien or encumbrance upon any material
portion of Borrower’s assets, or if a notice of lien, levy, or assessment is
filed of record with respect to any of Borrower’s assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within ten (10) days after Borrower receives notice thereof, provided that none
of the foregoing shall constitute an Event of 
Default where such action or event is stayed or an adequate bond has
been posted pending a good faith contest by Borrower (provided that no Advances
will be required to be made during such cure period) and the imposition of a
Permitted Lien shall not cause an Event of Default;

 

9.11         If there is a default
in any agreement to which Borrower is a party with a third party or parties
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity of any Indebtedness in an amount in excess of One
Hundred Thousand Dollars ($100,000) or that could reasonably be expect to have
a Material Adverse Effect;

 

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

 

31

 

9.13         If any proceeding is
filed or commenced by or against Borrower or its Subsidiaries for Borrower’s or
any of its Subsidiaries dissolution or liquidation.

 

9.14         Notwithstanding any
term in this Agreement or any related disclosure schedule to the contrary, if
for any reason, including, without limitation, the consummation of the loan
contemplated by this Agreement, (i) there is a default under that certain
Senior Convertible Promissory Note Secured by Deed of Trust dated May 29, 2001
in the principal sum of $16 million held by Castle Creek Technology Partners
LLC (“Holder”), and/or any amendments thereto (collectively, the “Castle Creek
Loan”), resulting in a right by Holder or Holder’s assignee, transferee or successor
to accelerate the maturity of such Castle Creek Loan and (ii) such Holder or
successor notifies in writing Borrower of such default or accelerates the
obligations thereunder or commences foreclosure proceedings.

 

X.            LENDER’S RIGHTS
AND REMEDIES AFTER DEFAULT.

 

10.1         Rights and
Remedies.  Upon the occurrence and
continuance of  an Event of Default pursuant to Article IX, Lender may, at
is election, without notice of its election and without demand, do any one or
more of the following, all of which are authorized by Borrower:

 

(a)           Declare all
Obligations immediately due and payable (provided, however, that if Borrower is
insolvent or is the subject of an Insolvency Proceeding and such action is not
dismissed or stayed within thirty (30) days then all Obligations shall become
immediately due and payable without any action by Lender);

 

(b)           Terminate this
Agreement and the obligation of the Lender to make Advances shall be deemed
terminated;

 

(c)           Exercise any and all
other rights and remedies provided for herein, under the Uniform Commercial
Code and at law or equity generally (all without notice to or consent by the
Borrower except as such notice or consent as expressly provided for hereunder
or required by applicable law), including, without limitation, the right to
foreclose the security interests granted herein and to realize upon any
Collateral by any available judicial procedure and/or to take possession of and
sell any or all of the Collateral with or without judicial process;

 

(d)           Lender may enter any
of any Borrower Party’s premises or other premises without legal process and
without incurring liability to any Borrower Party therefor, and the Lender may
thereupon, or at any time thereafter, in its discretion without notice or
demand, take the Collateral and remove the same to such place as the Lender may
deem advisable and the Lender may require the Borrower to make the Collateral
available to the Lender at a convenient place;

 

(e)           With or without
having the Collateral at the time or place of sale, the Lender may sell the
Collateral, or any part thereof, at public or private sale, at any time or
place, in one or more sales, at such price or prices, and upon such terms,
either for cash, credit or future delivery, as the Lender may elect.  Except as to that part of the Collateral
which is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, the Lender shall give the Borrower
reasonable notification of such sale or sales, it being agreed that in all events
written notice mailed to the Borrower at least five (5) days prior to such sale
or sales is reasonable notification.  At
any public sale, the Lender may credit bid for and become the purchaser,

 

32

 

and the Lender or
any other purchaser at any such sale thereafter shall hold the Collateral sold
absolutely free from any claim or right of whatsoever kind, including any
equity of redemption and such right and equity are hereby expressly waived and
released by the Borrower.  The proceeds
realized from the sale of any Collateral shall be applied as follows: first, to
the reasonable costs, expenses and attorneys’ fees and expenses incurred by the
Lender for collection and for acquisition, completion, protection, removal,
storage, sale and delivery of the Collateral; second, to interest due upon any
of the Obligations and any fees payable under this Agreement; and, third, to
the principal of the Obligations.  If
any deficiency shall arise, the Borrower shall remain liable to the Lender
therefor and immediately pay such deficiency upon demand;

 

(f)            During the
continuance of an Event of Default, the Lender may appoint, remove and
reappoint any person or persons, including any employee or agent of the Lender
to be a receiver (the “Receiver”) which term shall include a receiver
and manager of, or agent for, all or any part of the Collateral.  Any such Receiver shall, as far as concerns
responsibility for his acts, be deemed to be the agent of the Borrower and not
of the Lender, and the Lender shall not in any way be responsible for any
misconduct, negligence or non-feasance of such Receiver, its employees or
agents.  Except as otherwise directed by
the Lender, all money received by such Receiver shall be received in trust for
and paid to the Lender.  Such Receiver
shall have all of the powers and rights of the Lender described in this
Section.  The Lender may, either
directly or through its agents or nominees, exercise any or all powers and
right of a Receiver; and

 

(g)           Lender shall have a
non-exclusive, royalty-free license to use the Intellectual Property Collateral
to the extent reasonably necessary to permit Lender to exercise its rights and
remedies upon the occurrence and continuance of an Event of Default.

 

10.2         Lender’s
Discretion.  The Lender shall have
the right in its sole discretion to determine which rights, Liens, security
interests or remedies the Lender may at any time pursue, relinquish,
subordinate, or modify or to take any other action with respect thereto and
such determination will not in any way modify or affect any of the Lender’s
rights hereunder.

 

10.3         Setoff.  In addition to any other rights which the
Lender may have under applicable law, upon the occurrence of an Event of
Default hereunder, the Lender shall have a right to apply any Borrower Party’s
property held by the Lender to reduce the Obligations.

 

10.4         Rights and
Remedies not Exclusive.  The
enumeration of the foregoing rights and remedies is not intended to be
exhaustive and the exercise of any right or remedy shall not preclude the
exercise of any other right or remedies provided for herein or otherwise
provided by law, all of which shall be cumulative and not alternative.

 

XI.           WAIVERS AND
JUDICIAL PROCEEDINGS.

 

11.1         Waiver of Notice.  The Borrower hereby waives notice of
non-payment of any of the Accounts, demand, presentment, protest and notice
thereof with respect to any and all instruments, notice of acceptance hereof,
notice of loans or advances made, credit extended, Collateral received or
delivered, or any other action taken in reliance hereon, and all other demands
and notices of any description, except such as are expressly provided for
herein.

 

33

 

11.2         Delay.  No delay or omission on the Lender’s part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any default.

 

11.3         Jury Waiver.  EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND
EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

XII.         EFFECTIVE DATE AND
TERMINATION.

 

12.1         Term.  This Agreement shall become effective on the
date hereof and shall continue in full force and effect until February 22,
2003 (the “Term”), unless sooner terminated as herein provided.

 

12.2         Termination.  The termination of the Agreement shall not
affect the Borrower’s or the Lender’s rights, or any of the Obligations having
their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully
disposed of, concluded or liquidated. 
The security interests, Liens and rights granted to the Lenders
hereunder and the financing statements filed hereunder shall continue in full
force and effect until all of the Obligations have been paid or performed in
full after the termination of this Agreement or the Borrower has furnished the
Lender with an indemnification satisfactory to the Lenders with respect
thereto.  All representations,
warranties, covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are paid or performed in full.

 

XIII.        MISCELLANEOUS.

 

13.1         Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of California applied to
contracts to be performed wholly within the State of California.  Any judicial proceeding brought by or
against the Borrower with respect to any of the Obligations, this Agreement or
any related agreement may be brought in any court of competent jurisdiction in
the County of Orange in the State of California (unless otherwise specified in
any Other Document), and, by execution and delivery of this Agreement, the
Borrower accepts for itself and in connection with its properties, generally
and unconditionally, the non-exclusive jurisdiction of the aforesaid courts,
and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement.  The
Borrower hereby waives personal service

 

34

 

of any and all
process upon it and consents that all such service of process may be made by
registered mail (return receipt requested) directed to the Borrower at its
address set forth in Section 13.6 and service so made shall be
deemed completed five (5) days after the same shall have been so deposited in
the mails of the United States of America, or, at the Lender’s option, by
service upon the Borrower.  Nothing
herein shall affect the right to serve process in any manner permitted by law
or shall limit the right of the Lender to bring proceedings against the
Borrower in the courts of any other jurisdiction.  The Borrower waives any objection to jurisdiction and venue of
any action instituted hereunder and shall not assert any defense based on lack
of jurisdiction or venue or based upon forum non conveniens.  Any judicial proceeding by the Borrower
against the Lender involving, directly or indirectly, any matter or claim in
any way arising out of, related to or connected with this Agreement or any
related agreement, shall be brought only in a federal or state court located in
the County of Orange, State of California.

 

13.2         Entire
Understanding.  This Agreement and
the documents executed concurrently herewith contain the entire understanding
between the Borrower and the Lender and supersedes all prior agreements and
understandings, if any, relating to the subject matter hereof.  Any promises, representations, warranties or
guarantees not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by the Borrower and the Lender.  Neither this Agreement nor any portion or
provisions hereof may be changed, modified, amended, waived, supplemented,
discharged, cancelled or terminated orally or by any course of dealing, or in
any manner other than by an agreement in writing, signed by the party to be
charged.  The Borrower acknowledges that
it has been advised by counsel in connection with the execution of this
Agreement and Other Documents and is not relying upon oral representations or
statements inconsistent with the terms and provisions of this Agreement.

 

13.3         Successors and
Assigns; Participation.

 

(a)           This Agreement shall
be binding upon and inure to the benefit of the Borrowers, the Lender, all
future holders of the Obligations and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of the
Lender. which consent may be granted or withheld in Lender’s sole discretion.

 

(b)           Lender shall have the
right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participations in all or any part of, or any interest in,
Lender’s obligations, rights, and benefits hereunder, subject to the provisions
of this Section 13.3. Lender may sell, negotiate or grant participations to
other parties in all or part of the obligations of the Borrower outstanding
under the Loan Documents, without notice to or the approval of Borrower;
provided that any such sale, negotiation or participation shall be in
compliance with the applicable federal and state securities laws and the other
requirements of this Section 13.3. Notwithstanding the sale, negotiation or
grant of participations, Lender shall remain solely responsible for the
performance of its obligations under this Agreement, and Borrower shall
continue to deal solely and directly with Lender in connection with this
Agreement and the other Loan Documents. The grant of a participation interest
shall be on such terms as Lender determines are  appropriate, provided only that the holder of such a participation
interest shall not have any of the rights of Lender under this Agreement
except, if the participation agreement so provides, rights to demand the payment
of costs of the type described in Section 3.4, provided that the aggregate
amount that the Borrower shall be required to pay under Section 3.4 with
respect to any ratable share of the Maximum Commitment or

 

35

 

any Advance
(including amounts paid to participants) shall not exceed the amount that
Borrower would have had to pay if no participation agreements had been entered
into.

 

13.4         Application of
Payments.  The Lender shall have the
continuing and exclusive right to apply or reverse and re-apply any payment and
any and all proceeds of Collateral to any portion of the Obligations.  To the extent that the Lender receives any
payment or proceeds of the Collateral for the Borrower’s benefit which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
to be repaid to a trustee, debtor in possession, receiver, custodian or any
other party under any bankruptcy law, common law or equitable cause, then, to
such extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
the Lender.

 

13.5         Indemnity.  The Borrower shall indemnify the Lender, and
each of its officers, directors, Affiliates, members, managers, employees and
agents, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, fees and
disbursements of counsel) which may be imposed on, incurred by, or asserted
against the Lender in any litigation, proceeding or investigation instituted or
conducted by any Governmental Body or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement or the Other Documents, whether or not the Lender is
a party thereto, except to the extent that any of the foregoing arises out of
the willful misconduct of the party being indemnified.

 

13.6         Notice.  Any notice or request hereunder may be given
to the Borrower or to the Lender at their respective addresses set forth below
or at such other address as may hereafter be specified in a notice designated
as a notice of change of address under this Section.  Any notice or request hereunder shall be given by (a) hand
delivery, (b) overnight courier, (c) registered or certified mail,
return receipt requested, (d) telex or telegram, subsequently confirmed by
registered or certified mail, or (e) telecopy to the number set out below
(or such other number as may hereafter be specified in a notice designated as a
notice of change of address) with electronic confirmation of its receipt.  Any notice or other communication required
or permitted pursuant to this Agreement shall be deemed given (a) when
personally delivered to any officer of the party to whom it is addressed,
(b) on the earlier of actual receipt thereof or three (3) days following
posting thereof by certified or registered mail, postage prepaid, or (c) upon
actual receipt thereof when sent by a recognized overnight delivery service or
(d) upon actual receipt thereof when sent by telecopier to the number set
forth below with electronic confirmation of its receipt, in each case addressed
to each party at its address set forth below or at such other address as has
been furnished in writing by a party to the other by like notice:

 

	
   

  	
  (A)

  	
   

  	
  If to the Lender:

  	
   

  	
  Technology Lending
  Partners, L.L.C.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  424 Via Lido Nord

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Newport Beach, CA 
  92663

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Attention:

  	
  Joel Slutzky

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Telecopier:

  	
  (949) 673-5224

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (B)

  	
   

  	
  If to Borrower:

  	
   

  	
  Odetics, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  1515 S. Manchester Avenue

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Anaheim, CA 92802

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Attention:

  	
  Chief Financial Officer

  

 

36

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
  Telecopier:

  	
  (714) 780-7857

  

 

13.7         Survival.  The obligations of Borrowers under
Sections 4.10, 4.12 and Articles X, XI, XII, and XIII shall
survive termination of this Agreement and the Other Documents and payment in
full of the Obligations.

 

13.8         Severability.  If any part of this Agreement is contrary
to, prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated
thereby and shall be given effect so far as possible.

 

13.9         Expenses.  All costs and expenses including, without
limitation, reasonable legal or attorneys’ fees and disbursements incurred by
the Lender (a) in all efforts made to enforce payment of any Obligation or
effect collection of any Collateral, or (b) in connection with the
modification, amendment, administration and enforcement of this Agreement or
any consents or waivers hereunder and all related agreements, documents and
instruments, or (c) in instituting, maintaining, preserving, enforcing and
foreclosing on the Lender’s security interest in or Lien on any of the
Collateral, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to the Lender’s transactions with any Borrower Party, or (e) in connection
with any advice given to the Lender with respect to its rights and obligations
under this Agreement and all related agreements, may be charged to Borrower’s
Account and shall be part of the Obligations.

 

13.10       Injunctive Relief.  The Borrower recognizes that, in the event
the Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to the Lender; therefore, the Lender shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
that actual damages are not an adequate remedy.

 

13.11       Consequential
Damages.  Neither the Lender nor its
agents or attorneys shall be liable to any Borrower Party for consequential
damages arising from any breach of contract, tort or other wrong relating to
the establishment, administration or collection of the Obligations.

 

13.12       Captions.  The captions at various places in this
Agreement are intended for convenience only and do not constitute and shall not
be interpreted as part of this Agreement.

 

13.13       Counterparts;
Telecopied Signatures.  This
Agreement may be executed in any number of and by different parties hereto on
separate counterparts, all of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same
agreement.  Any signature delivered by a
party by facsimile transmission shall be deemed to be an original signature
hereto.

 

13.14       Construction.  The parties acknowledge that each party and
its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments, schedules or exhibits thereto.

 

13.15       Attachment.  The security interest created hereby is
intended to attach when this Agreement is executed by the Borrower and
delivered to the Lender.

 

37

 

13.16       Representations
Regarding Usury.  Lender and
Borrower represent and warrant that the officers, directors, controlling
persons or managers of Lender and Borrower, respectively, have a preexisting
personal or business relationship with the officers, directors, controlling
persons or managers of the other party and that each has the capacity to
protect its own interests in connection with the Loan Documents.  Borrower further represents and warrants,
that the Obligations evidenced by this Agreement and the Note are not
guaranteed by an individual, a revocable trust having one or more individuals
as trustors, or partnership in which, at the time of issuance of the Note, one
or more individuals are general partners.

 

38

 

Each of the parties has signed this Agreement as of the day and year
first above written.

 

	
   

  	
  ODETICS, INC.,

  	
   

  
	
   

  	
  a Delaware corporation

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ GREG A.
  MINER

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Greg A. Miner

  	
   

  
	
   

  	
  Title:

  	
   

  	
  CEO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TECHNOLOGY LENDING PARTNERS, L.L.C.

  
	
   

  	
  a California limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ JOEL SLUTZKY

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Joel Slutzky

  	
   

  
	
   

  	
  Title:

  	
   

  	
  Manager

  	
   

  
													

 

39

 

Exhibit A

 

 

ODETICS, INC.

 

SECURED PROMISSORY NOTE

 

	
  $1,250,000

  	
   

  	
  February 22, 2002

  

 

FOR VALUE RECEIVED, ODETICS, INC., a Delaware
corporation (the “Company”), promises to pay to the order of TECHNOLOGY LENDING
PARTNERS, L.L.C., a California limited liability company (the “LLC”), or holder
(either, the “Holder”), on the Maturity Date (as defined below), unless sooner
paid as provided in Section 4 hereof, the principal sum of One
Million Two Hundred and Fifty Thousand Dollars ($1,250,000.00), or such lesser
amount as shall equal the aggregate of the Advances made or deemed made by the
Holder to the Company hereunder, plus accrued unpaid interest thereon.  The outstanding principal balance of each
Advance made pursuant to this Note shall bear interest at the Interest Rate, as
set forth below, from the date of such Advance to the date the principal sum of
such Advance is paid in full. Payments of interest shall be due no later than
the third Business Day of each month that this Note is outstanding.  All payments under this Note shall be made
without right of offset, deduction or counterclaim, shall be made to the order
of the Holder at the Payment Office, or such other address as Holder may
designate in writing to the Company, and shall be applied first to late charges
and costs, then accrued unpaid interest, if any, and then to principal,

 

1.                                       Loan and Security Agreement. 
This Note is issued and secured pursuant to that certain Loan and
Security Agreement, dated February 22, 2002 (the “Loan Agreement”), by and
between the Company and the LLC, a copy of which may be obtained by the Holder
from the Company without charge.  Any
Holder, by taking possession hereof, shall be entitled to the benefits and
bound by the obligations set forth in the Loan Agreement.  Capitalized terms used herein without
definition shall have the meanings given them in the Loan Agreement. This Note
is secured by the security agreement provisions contained in the Loan
Agreement. In the event of any conflict between any provision of the Loan
Agreement and any provision of this Note, the provision of the Loan Agreement
shall control.

 

2.                                       Advances.  The Company may make draw-downs (“Advances”)
under this Note from time to time in an aggregate amount not to exceed the
lesser of the principal amount of this Note and the Borrowing Base.  Such Advances shall be recorded by the
Company on the Borrower’s Account as provided in the Loan and Security
Agreement.

 

3.                                       Maturity
Date.  The date that this Note shall
mature, and the principal amount outstanding hereunder, plus accrued unpaid
interest thereon and any charges pertaining thereto, shall become due and
payable (the “Maturity Date”) shall be February 22, 2003.

 

4.                                       Interest
Rate.  (a) The Interest Rate shall
accrue at a floating rate of four percent (4.0%) per annum in excess of the
prime rate of interest as designated as such by Bank of America, or any
successor thereto, as the same may from time to time fluctuate, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate.  Such prime

 

 

rate represents an index above, at, or below which the
interest rate to be charged on certain loans is determined.  Said Interest Rate is to be adjusted on the
day the prime rate changes and is to be computed on the basis of a 360-day
year, but accrued on the actual number of days elapsed.  In the event that Bank of America or its
successor ceases to publish its “prime rate”, then, for purposes of this Note,
the “prime rate” shall then be deemed to be the average prime interest rate (or
equivalent interest rate, however designated) for each calendar month of the
three largest (total assets) banking institutions in the continental United
States then publishing a prime interest rate (or equivalent interest rate, however
designated).

 

(b)           The
Interest Rate shall increase to the sum of the prime rate plus Eight Percent
(8%) upon and after the occurrence of an Event of Default, and during the
continuation thereof, and during the period of time that there is an Underfunded
Event, as defined in Section 6.1(d) of the Loan Agreement.

 

5.                                       Prepayments.  The Company may not voluntarily prepay this
Note, either in whole or in part.  Under
certain circumstances set forth in the Loan Agreement, the Borrower may have to
make mandatory prepayments of all or part of the Advances.  Such repayments shall be recorded by the
Borrower on the Borrower’s Account pursuant to the Loan Agreement.

 

6.                                       Waivers.  The Company hereby waives diligence,
presentment for payment, demand, protest, notice of non-payment, notice of
dishonor, notice of protest, and any and all other notices and demands
whatsoever.  The Company shall remain
bound under this Note until all principal and interest and any other amounts that
are payable hereunder have been paid in full, notwithstanding any extensions or
renewals granted with respect to this Note or the release of any party liable
hereunder.  The Company, and any and all
endorsers hereof, also waive the right to plead any and all statutes of
limitations as a defense to any demand on this Note or any and all obligations
or liabilities arising out of or in connection with this Note, to the fullest
extent permitted by law.

 

7.                                       Events
of Default.  Upon the occurrence of
any Event of Default, as defined in the Loan Agreement, at Holder’s option,
Holder may declare immediately due and payable, and on any such declaration
there shall become immediately due and payable, the entire unpaid principal
balance of this Note, together with all accrued and unpaid interest under this
Note and any other sums owing at the time of such declaration pursuant to this
Note, and Holder shall be entitled to exercise all rights and remedies
available to Holder hereunder and under applicable law, all of which rights and
remedies shall be cumulative.

 

8.                                       No
Waiver by Holder.  Any delay or
omission on the part of Holder to exercise any of Holder’s rights or remedies
hereunder or under applicable law, including, without limitation, the right to
accelerate amounts owing under this Note, shall not be deemed a waiver of that
right or remedy or of any other right or remedy of Holder in respect
thereof.  The acceptance by Holder of
any payment pursuant to the terms of this Note which is less than payment in
full of all amounts due and payable at the time of such payment shall not
constitute a waiver of the right to exercise any of the Holder’s rights or
remedies under this Note or under applicable law at that time or at any
subsequent time or nullify any prior exercise of any such rights or remedies without
the express written consent of Holder, except as and to the extent provided to
the contrary by applicable law.

 

2

 

9.                                       Governing
Law.  This Note shall be governed by
and construed according to and enforced under the internal laws of the State of
California without giving effect to its choice of laws rules.

 

10.                                 Binding
Nature.  The provisions of this Note
shall be binding on the Company and shall inure to the benefit of the Holder.

 

11.                                 Usury
Savings Provisions.  In the event
Holder receives any sums under this Note which constitute interest in an amount
in excess of that permitted by any applicable law, then, all such sums
constituting interest in excess of that permitted to be paid under applicable
law shall, at Holder’s option, either be credited to the payment of principal
owing hereunder or returned to the Company.

 

12.                                 Severability.  If, but only to the extent that, any
provision of this Note shall be invalid or unenforceable, then, such offending
provision shall be deleted from this Note, but only to the extent necessary to
preserve the validity and effectiveness of this Note to the fullest extent
permitted by applicable law.

 

	
   

  	
  ODETICS, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Its:

  	
   

  

 

3

 

REQUEST FOR ADVANCE

 

Date                   

 

TECHNOLOGY LENDING PARTNERS, LLC

424 Via Lido Nord

Newport Beach, CA. 92663

 

Ladies and Gentlemen:

 

The undersigned, Odetics, Inc., refers to that certain
Loan and Security Agreement, dated as of February 22, 2002 (as amended
from time to time, the “Loan Agreement,” the terms defined therein being used
herein as therein defined), by and between the undersigned and you, and hereby
gives you notice pursuant to Section 2.2 of the Loan Agreement, that the
undersigned hereby requests an Advance under the Loan Agreement, and in that
connection sets forth below the information relating to such Advance (the
“Proposed Advance”).

 

(i)            The
Business Day of the Proposed Advance is
                  ,
200  .

 

(ii)           The
aggregate principal amount of the Proposed Advance is
$                    .

 

The undersigned hereby certifies that the following
statements are true on the date hereof, and will be true on the date of the
Proposed Advance:

 

(A)          the
representations and warranties of the undersigned contained in the Loan
Agreement are correct as though made on and as of such date (except to the
extent that such representations and warranties are made as of a specified
earlier date); and

 

(B)           no
Default or Event of Default has occurred and is continuing, or would result
from such Proposed Advance or from the application of the proceeds thereof.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  Odetics, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  

 

 

Exhibit C

 

 

ODETICS, INC.

 

Borrowing Base
Certificate

 

 

Pursuant to that certain Loan and Security Agreement,
dated as of February 22, 2002 (the “Loan Agreement”), between ODETICS,
INC. a Delaware corporation (the “Borrower”), and TECHNOLOGY LENDING PARTNERS,
L.L.C., a California limited liability company, the undersigned does hereby
certify as follows (capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Loan Agreement).

 

(a)                                  The
undersigned is the duly appointed and acting
                                                 
of the Borrower.

 

(b)                                 Attached
hereto as Schedule A is a true and complete copy of:

 

(i)                                     the
calculation of the Borrowing Base as at the close of business on the last
Business Day of
                                       ,
200  ,

 

(ii)                                  an
aged trial balance of all Accounts of Borrower as of such date, indicating
which Accounts are current, up to 90 days from the invoice date or installation
date, if later (not to exceed 120 days from invoice date), and 90 days or more
past the invoice date or installation date, if later (not to exceed 120 days
from invoice date), and

 

(iii)                               calculations
demonstrating that the aggregate outstanding principal amount of the Advances
does not exceed the Availability.

 

IN WITNESS WHEREOF, I have signed my name and executed
this Certificate on this         day of
                          ,
200 .

 

 

	
  ODETICS, INC.

  
	
   

  
	
   

  
	
   

  	
   

  
	
  By:

  
	
  Title:

  

 

 

Exhibit D

 

Financial Covenants

 

Borrower shall maintain the financial covenants set
forth below:

 

(a) Debt to Equity Ratio.  Borrower shall maintain a ratio of Total Liabilities to
stockholder’s equity of (i) not more than 28 to 1 as of the last day of each
calendar month if the real property upon which Borrower maintains its chief
executive offices is not sold and the debt secured by such property is not
retired prior to the measurement date, or (ii) not more than 19 to 1 as of the
last day of each calendar month if the real property upon which Borrower
maintains its chief executive offices is sold and the debt secured by such
property is retired prior to the measurement date, measured on a consolidated
basis.

 

(b) Quarterly Tangible Net Worth.  Borrower shall maintain, as of the last day
of each calendar quarter, a Tangible Net Worth of (i) not less than negative
$1.3 million if the real property upon which Borrower maintains its chief
executive offices is sold and the debt secured by such property is retired
prior to the measurement date, or (ii) not less than negative $7.3 million if
the real property upon which Borrower maintains its chief executive offices is
not sold and the debt secured by such property is not retired prior to the
measurement date, measured on a consolidated basis.

 

(c) Monthly Tangible Net Worth.  Borrower shall maintain, as of the last day
of each calendar month, a Tangible Net Worth of (i) not less than negative $2.5
million if the real property upon which Borrower maintains its chief executive
offices is sold and the debt secured by such property is retired prior to the
measurement date, or (ii) not less than negative $8.5 million if the real
property upon which Borrower maintains its chief executive offices is not sold
and the debt secured by such property is not retired prior to the measurement
date, measured on a consolidated basis.

 

 

Schedule A

 

 

Borrowing Base Certificate

 

Odetics, Inc.

Accounts Receivable Collateral:

Balance as of:

 

	
   

  	
   

  	
  TOTAL

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A/R Aging
  Totals:

  	
   

  	
  $

  	
  (1)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Less
  Ineligible Calculations:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.

  	
  Accounts Over 90 days from
  invoice date or installation date, if later, but not to exceed 120 days from
  invoice date:

  	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
  Contra-accounts

  	
   

  	
   

  	
   

  
	
   

  	
  3.

  	
  Intercompany

  	
   

  	
   

  	
   

  
	
   

  	
  4.

  	
  Insolvency

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total -
  Ineligible

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Eligible A/R
  Collateral

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Advance Rate

  	
   

  	
  85

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Borrowing
  Base

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(1) - Supported by fiscal month end Accounts
Receivable AgingExhibit 10.21
 
RECEIVABLES PURCHASE AGREEMENT
 
Dated as of October 18, 2002
 
 
among
 
 
Odetics, Inc.,
 
and
 
 
TECHNOLOGY LENDING PARTNERS, LLC,
 
as the Buyer
 
 
RECEIVABLES PURCHASE AGREEMENT
 
THIS RECEIVABLES PURCHASE AGREEMENT (“Agreement”), dated as of October 18, 2002, is by and among Odetics, Inc., a Delaware corporation (“Seller”), and Technology Lending Partners, LLC, a California limited liability company (“Buyer”). Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I hereto.
 
 
PRELIMINARY STATEMENTS
 
A.The parties hereto intend that all transfers of Receivables hereunder, be true sales to the Buyer by the Seller of the Receivables originated by it, providing the Buyer with the full benefits of ownership of such Receivables, and the Seller and the Buyer do not intend these transactions to be, or for any purpose to be characterized as loans from the Buyer to the Seller.
 
NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
 
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASE
 

Section
1.1  Purchase of Receivables.

 
(a)           Effective on the Closing Date, in consideration for the Purchase Price to be paid to the Seller and upon the terms and subject to the conditions set forth herein, the Seller does hereby sell, assign, transfer, set-over and otherwise convey to the Buyer, and the Buyer does hereby purchase from the Seller, all of the Seller’s right, title and interest in and to the Receivables, together, in each case, with all Related Security relating thereto. In accordance with the preceding

 

1

 

sentence, on the Closing Date,  the Buyer shall acquire all of the Seller’s right, title and interest in and to the Receivables, together with all of the Seller’s rights in and to all Related Security relating thereto. The Buyer shall be obligated to pay the Purchase Price for the Receivables purchased hereunder from the Seller in accordance with Section 1.2.
 
(b)           On each Monthly Reporting Date, the Buyer shall submit a report to Seller which reflects the details of the Collections received since the Closing Date.
 
(c)           It is the intention of the parties hereto that the Purchase of Receivables from Seller made hereunder shall constitute a sale, which sale is absolute and irrevocable and provides the Buyer with the full benefits of ownership of the Receivables originated by the Seller. The sale of Receivables hereunder by the Seller is made with recourse to Seller as described herein, and this sale does not constitute and is not intended to result in an assumption by the Buyer or any assignee thereof of any obligation of the Seller or any Person arising in connection with the Receivables, the related Contracts and /or other Related Security or any other obligations of the Seller. In view of the intention of the parties hereto that the Purchase of Receivables hereunder shall constitute a sale of such Receivables rather than loans secured thereby, the Seller agrees that it will, on or prior to the date hereof and in accordance with Section 4.1 (e)(ii), mark its master data processing records relating to the Receivables originated by it with a legend properly evidencing that the Buyer has purchased such Receivables as provided in this Agreement and to note in its financial statements that its Receivables have been sold to the Buyer. Upon the request of the Buyer, the Seller will execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate perfect and maintain the perfection of the Buyer’s ownership interest in the Receivables originated by such Seller and the Related Security with respect thereto, or as the Buyer may reasonably request.
 

Section 1.2  Payment for the Purchase.

 
(a)           The Purchase Price in the amount of $438,444.38 for the Purchase from the Seller of the Receivables, as described in Exhibit I attached hereto, shall be payable in full at the Closing  by the Buyer to the Seller in immediately available funds, less legal fees incurred by Buyer in connection with the drafting and execution of this Agreement (“Legal Fees”).
 
(b)           The Purchase Price reflects in part a 20% discount (the “Discount”) from the Original Balance of the Receivables. A portion of the Discount expressed as a percentage of the Original Balance of the Receivable in question shall be rebated (“Rebate”) and paid to Seller as described below:
 

	Days until Receivable is collected
(commencing on the Closing Date)
	 
	Rebate of Discount
	 
	Net Discount
	 

	10 or less
	 
	19.5
	%
	.5
	%

	11-20 days
	 
	19
	%
	1
	%

	21-30 days
	 
	18.5
	%
	1.5
	%

	31-40
	 
	18
	%
	2
	%

	41-50
	 
	17.5
	%
	2.5
	%

	51-60
	 
	17
	%
	3.0
	%

	61-70
	 
	16.5
	%
	3.5
	%

	71-80
	 
	16
	%
	4
	%

	81-90
	 
	15.5
	%
	4.5
	%

	each 10 days thereafter
	 
	subtract an additional 1⁄2
	%
	add an additional  1⁄2
	%

 
2

 
For example, assuming the Purchase Price is $450,000 (net of the original 20% Discount and the 5% Collection Fee), and assuming that the Original Balance was $600,000, and assuming $400,000 of the total Original Balance of the Receivables was outstanding for 25 days before it was collected and received by Buyer, and the balance of the Original Balance in the amount of $200,000 was outstanding for 120 days before it was collected and received by Buyer, then:
 
$400,000 x 18.5% = $74,000
$200,000 x  14% = $28,000
Total Rebate: $102,000 less offsets and claims for other amounts owed, if any, as described below.
 
The Rebate shall be determined by Buyer and paid to Seller within 5 days after the earlier of (a) Buyer has received Collections equal to 100% of the Original Balance of Receivables, or (b) Buyer receives Collections from Receivables equal to the sum of the following: $438,444.38 plus the Collection Fee of $29,229.62 plus the Net Discount then due and applicable as of the date in question plus Legal Fees. In the case of subparagraph (b) in the preceding sentence, the Rebate would not be paid in cash but would be payable solely in the form of an assignment by Buyer of the uncollected Receivables to Seller without recourse. For example, the Rebate would be due and payable, in the form of uncollected Receivables, by the 65th day after the Closing if Buyer received from Collections of Receivables on the 60th day after the Closing Date: (i)  $438,444.38; plus (ii) the Collection Fee; plus (iii) $17,537.78 (i.e. 3% times the Original Balance of the Receivables) based on the Net Discount that applies if the Receivables are outstanding for 51 to 60 days since the Closing Date; plus (iv) Legal Fees. The amount of the applicable Rebate, if any, shall be reduced by the amount of the accrued unpaid interest, if any, and all costs and expenses and indemnification obligations owed by Seller under the terms of this Agreement.  Upon payment in full of all amounts owed to Buyer under this Agreement, Buyer shall assign the remaining uncollected Receivables, if any, to Seller without recourse and on an as is basis and without any warranties and representations.
 
(c)           If for any reason and to the extent Buyer does not receive Collections equal to 100% of the Original Balance by the date that is 120 days after the Closing Date, upon written demand by Buyer (the “Buy Back Notice”), which demand made be made by Buyer at any time on or after such 120 day period, Seller agrees to purchase the applicable  remaining uncollected Receivables (the “Sold Back Receivables”) from Buyer upon demand and in accordance with the following: (1) the purchase price for such Sold Back Receivables shall equal (1) the Outstanding Balance of the Sold Back Receivables, less the original 20% Discount, and plus the Net Discount that would have applied if the Sold Back Receivables were collected on the Sold Back Closing Date,  plus accrued interest at the Default Rate on such purchase price amount accruing commencing on the 120th day after the Closing Date (2) the closing (“Sold Back Closing Date”) of the purchase by Seller of the Sold Back Receivables shall occur by no later than 5 days after Buyer sends the Buy Back Notice to Seller; (3) the purchase price shall be paid by Seller without offset or deduction and in good funds at the Sold Back Closing Date by wire transfer to Buyer’s designated account; (4) Upon receipt by Buyer of the purchase price in good funds as described above in this paragraph, Buyer shall execute and deliver to Seller such documents as are reasonably necessary to terminate Buyer’s security interest in such Sold Back Receivables and to transfer, assign and sell the Sold Back Receivables and Related Security, without recourse, to

 

3

 

Seller, and without any warranties or representations, express or implied, except that Buyer shall warrant that such Sold Back Receivables have not been liened or encumbered or assigned by Buyer except as provided for in this Agreement.
 
An example of the calculation of the purchase price for Sold Back Receivables that Seller will be required to pay as described above in paragraph 1.2(c) above is as follows:
 
If the Sold Back Closing Date is 145 days from the Closing Date and assuming the Outstanding Balance of the Sold Back Receivables is $100,000 as of the Sold Back Closing Date, then the purchase price would be:
 

	 
	 
	150/10 x .5% = 7.5% x $100,000 = $7500 (Net Discount)
	 

	 
	 
	80% x $100,000 = $80,000 (original purchase price net of Discount))
	 

	 
	 
	 
	 

	 
	 
	$87,500  (total purchase price to be paid by Seller)
	 

 

Section 1.3  Other Buy Back Rights. If on any day:

 
(a)       the Outstanding Balance of a Receivable purchased is:
 
(i)                                     reduced as a result of any defective or rejected or  returned goods or services, any discount or any adjustment or
(ii)                                  otherwise by the Seller (other than to reflect cash Collections on account of such Receivable), or
(iii)                               reduced or canceled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction), or
 
(b)                     any of the representations and warranties set forth in Section 2.1(i), (l), (p), (q), (r),(s) or (t) hereof is not true when made or deemed made with respect to any Receivable, or
 
(c)                      It is determined by Buyer in its sole discretion that any portion of the Receivables cannot be collected for any reason, including, without limitation, the inability or the unwillingness of the Obligor to pay the amount owed with respect to the  Receivable in question
 
then, in each such event, the Buyer may elect by written notice to Seller, at any time thereafter, with respect to the Receivable in question,  to cause Seller to purchase from Buyer within 5 days of written demand such Receivable for cash equal to:  the Outstanding Balance of the Receivable in question, less the original 20% Discount, and plus the Net Discount that would have applied if the Receivable in question were collected on the date that the sale back of such Receivable occurs.  An example of the calculation of the purchase price as described in the preceding sentence is provided in Section 1.2(c) above except that the closing date would be the date that is 5 days after written demand from Buyer. Buyer shall, at the time of payment from Seller of the purchase price in good funds, execute such documents as reasonably necessary to assign back to Seller the Outstanding Balance of the Receivable in question without recourse and in its as —is condition, and otherwise without any warranties or representations, express or implied except that Buyer has not liened or encumbered or assigned such returned Receivables except as provided for in this Agreement.

 

4

 

Section 1.4  Payments and Computations. Etc. All amounts to be paid or deposited by the Buyer hereunder shall be paid or deposited in accordance with the terms hereof on the day when due in immediately available funds to the account of the Seller designated by the Seller or as otherwise directed by the Seller. In the event that any payment owed by any Person hereunder becomes due on a day that is not a Business Day, then such payment shall be made on the next succeeding Business Day. If Seller fails to pay any amount hereunder when due, Seller agrees to pay, on demand, the Default Rate in respect thereof until paid in full; provided, however, that such Default Rate shall not at any time exceed the maximum rate permitted by applicable law. All computations of interest payable hereunder shall be made on the basis of a year of 360 days for the actual number of days elapsed.
 
Section 1.5  Transfer of Collection Records; License of Software; Access to Contracts. In connection with, and in consideration of, the Purchase from the Seller of Receivables originated by it, the Seller, upon written request by Buyer, will deliver to the Buyer originals or copies (in written, photostatic, electronic or other mutually acceptable form) of such Seller’s Collection Records relating to the Receivables. The Seller shall permit the Buyer during such Seller’s normal business hours, at the expense of the Seller, to inspect and copy all such collection Records and other books and records regarding the Receivables and the Contracts solely for purposes of administering and collecting the Receivables hereunder. In order to facilitate such administration, collection and servicing of such Receivables, the Seller hereby grants to each of the Buyer an irrevocable, non-exclusive license to use, without royalty or payment of any kind, all software used by the Seller to account for such Receivables, to the extent necessary to administer such Receivables, whether such software is owned by the Seller or is owned by others and used by the Seller under license agreements with respect thereto, provided that should the consent of any licensor of such software be required for the grant of the license described herein, to be effective, the Seller hereby agrees that upon the request of the Buyer, the Seller will use its reasonable efforts to obtain the consent of such third-party licensor. The license granted hereby shall be irrevocable until date on which this Agreement terminates in accordance with its terms.
 
Section 1.6  Characterization. If, notwithstanding the intention of the-parties expressed in Section 1.1(c), any sale by an Seller to the Buyer of Receivables hereunder shall be characterized as a secured loan and not a sale or such sale shall for any reason be ineffective or unenforceable, then this Agreement shall be deemed to constitute a security agreement under the UCC and other applicable law. For this purpose and without being in derogation of the parties’ intention that the sale of Receivables by the Seller hereunder shall constitute a true sale thereof, the Seller hereby grants to the Buyer a duly perfected security interest in all of the Seller’s right, title and interest in and to all Receivables of the Seller which exist as of the date hereof, together with all Related Security with respect thereto, all other rights and payments relating to such Receivables and all proceeds of the foregoing, to secure the prompt and complete payment of a loan deemed to have been made in an amount equal to the Purchase Price of the Receivables purchased from such Seller together with any Purchase Interest applicable thereto and all other obligations of the Seller hereunder, which security interest shall be prior to all other Adverse Claims thereto. Upon the occurrence of a Event of Default, the Buyer shall have, in addition to the rights and remedies which it may have under this Agreement, all other rights and remedies provided to a secured creditor upon default under the UCC and other applicable law, which rights and remedies shall be cumulative.

 

5

 

Section 1.7 Security Agreement for Seller’s Obligations

 

(a)           Security Interest in
the Collateral.  To secure the prompt
payment and performance to the Buyer of the Obligations, the Seller hereby
assigns, pledges and grants to the Buyer for its benefit a continuing security
interest in and to all of the Collateral, whether now owned or existing or
hereafter acquired or arising and wheresoever located.  The Seller shall mark its books and records
as may be necessary or appropriate to evidence, protect and perfect the Buyer’s
security interest and shall cause its financial statements to reflect such
security interest. Such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof, in each case, to the extent that a security interest in such Collateral
can be perfected by the filing of a financing statement or, in the case of
Collateral consisting of instruments, documents, chattel paper or certificated
securities, to the extent that Buyer 
takes possession of such Collateral. Seller acknowledges that Buyer may
place a “hold” on any deposit account pledged as Collateral to secure the
Obligations. Notwithstanding termination of this Agreement, Buyer’s Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.  Further, Buyer agrees that
any security interest or Lien held in favor of Buyer with respect to assets of
Seller in connection with and/or as security for the repayment of  any other amounts or obligations owed by
Seller to Buyer under any other agreements shall also secured the obligations
of Seller under this Agreement, and Seller agrees to execute such further documents
as are reasonably necessary to further evidence such security interest of
Buyer, and that notwithstanding any prior agreement between Seller and Buyer to
the contrary, Buyer’s security interest in Seller’s assets shall not terminate
until all obligations owed to Buyer by Seller under this Agreement or any other
agreements are fully satisfied.

 

(b)           Perfection of
Security Interest.  The Seller shall
take all action that may be necessary or desirable, or that the Buyer may
request, so as at all times to maintain the validity, perfection,
enforceability and priority of the Buyer’s security interest in the Collateral
or to enable the Buyer to protect, exercise or enforce its rights hereunder and
in the Collateral, including, but not limited to, (i) delivering to the
Buyer, endorsed or accompanied by such instruments of assignment as the Buyer
may specify, and stamping or marking, in such manner as the Buyer may specify,
any and all chattel paper, instruments, letters of credits and advices thereof
and documents evidencing or forming a part of the Collateral,
(ii) entering into warehousing, lockbox and other custodial arrangements
satisfactory to the Buyer, and (iii) executing and delivering financing
statements, instruments of pledge, mortgages, hypothecs notices and
assignments, in each case in form and substance satisfactory to the Buyer,
relating to the creation, validity, perfection, maintenance or continuation of
the Buyer’s security interest under the Uniform Commercial Code or other
applicable law.  The Buyer is hereby
authorized to file financing statements without the signature of Seller in
accordance with the Uniform Commercial Code or any other applicable law.  All charges, expenses and fees the Buyer may
incur in doing any of the foregoing, and any taxes relating thereto, shall, at
Buyer’s request, be charged to Seller’s Account and added to the Obligations,
or, at the Buyer’s option, shall be paid to the Buyer immediately upon demand.
Buyer agrees to execute and deliver to Seller from time to time such
subordination agreements as Seller may request and as are necessary to give to
other Buyers which finance equipment for Seller a first priority security
interest in the equipment financed so long as the Liens and the indebtedness
incurred with respect to such equipment financing are permitted under this
Agreement.  Within 21 days after demand,
Seller shall cause execution and delivery of control agreements with Seller’s
deposit accounts in forms reasonably acceptable to Buyer, subject to delays if
caused by such banks, and take such other action as is necessary to perfect
Buyer’s first lien security interest in Seller’s deposit accounts with all of
its banks (collectively “Control Account Perfection”), and, upon
request by Buyer, Seller further agrees to obtain Control Account Perfection
within 21 days after any new deposit accounts are established with any of its
banks from time to time. Seller’s failure to obtain the Control Account
Perfection within 21 days

 

6

 

after the Closing and, with respect to new deposit accounts that are
subsequently established, within 21 days after such account or accounts are
established, shall in either event constitute an Event of Default except to the
extent delays are caused by or due to the acts or delay of the applicable
banks. Within 14 days of the Closing, , Seller shall file all necessary filings
with the U.S. Patent and Trademark office, in forms reasonably acceptable to
Buyer, to evidence and effectuate Buyer’s first lien security interest in the
Seller’s registered Patents and registered Trademarks.

 

(c)           Preservation of
Collateral.  During the continuance of a
Default or Event of Default, in addition to the rights and remedies set forth
in this Agreement, the Buyer may at any time take such steps as the Buyer deems
necessary to protect its interest in and to preserve the Collateral and shall
have, and is hereby granted, a right of ingress and egress to the places where
the Collateral is located, and may proceed over and through any of Seller’s
owned or leased property.  The Seller
shall cooperate fully with all of the Buyer’s efforts to preserve the
Collateral and will take such actions to preserve the Collateral as the Buyer
may direct.  All of the Buyer’s expenses
of preserving the Collateral shall, at Buyer’s request, be charged to Seller,
bear interest at the Default Rate and be added to the Obligations.

 

(d)           Ownership of
Collateral.  With respect to the
Collateral, at the time the Collateral becomes subject to the Buyer’s security
interest:  (a) the Seller shall be
the sole owner of and fully authorized and able to sell, transfer, pledge
and/or grant a first priority security interest in each and every item of the
Collateral to the Buyer; (b) each document and agreement executed by the
Seller or delivered to the Buyer in connection with this Agreement shall be
true and correct in all respects; and (c) all signatures and endorsements
of the Seller that appear on such documents and agreements shall be genuine and
the Seller shall have full capacity to execute same.

 

(e)           Defense of Buyers’
Interests.  Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, the Buyer’s interests in the Collateral shall continue in full force
and effect.  During such period the
Seller shall not, without the Buyer’s prior written consent, pledge, sell,
assign, transfer, create or suffer to exist a Lien upon or encumber or allow or
suffer to be encumbered in any way, any part of the Collateral.  The Seller shall defend the Buyer’s
interests in the Collateral against any and all Persons whatsoever.  At any time during the continuance of an
Event of Default, the Buyer shall have the right to take possession of the
indicia of the Collateral and the Collateral in whatever physical form
contained, including without limitation, labels, stationery, documents,
instruments and advertising materials. 
If the Buyer exercises this right to take possession of the Collateral,
the Seller shall, upon demand, assemble it in the best manner possible and make
it available to the Buyer at a place reasonably convenient to the Buyer.  In addition, with respect to all Collateral,
the Buyer shall be entitled to all of the rights and remedies set forth herein
and further provided by the Uniform Commercial Code or other applicable
law.  The Seller shall, and the Buyer
may, at its option, instruct all suppliers, carriers, forwarders, warehousers
or others receiving or holding cash, checks, documents or instruments in which
the Buyer holds a security interest to deliver same to the Buyer and/or subject
to the Buyer’s order and if they shall come into any Seller’s possession, they,
and each of them, shall be held by Seller in trust as the Buyer’s trustee, and  Seller will immediately deliver them to the
Buyer in their original form together with any necessary endorsement.

 

(f)            Books and
Records.  The  Seller shall keep proper books of record and
account in which full, true and correct entries will be made of all dealings or
transactions of or in relation to its business and affairs, and set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims.  All determinations pursuant to
this subsection shall be made in accordance with, or as required by, GAAP
consistently applied in the opinion of such independent public accountant as
shall then be regularly engaged by the Seller.

 

7

 

(g)           Compliance with
Laws.  The Seller shall comply with
all acts, rules, regulations and orders of any legislative, administrative or
judicial body or official applicable to the Collateral or any part thereof or
to the operation of the Seller’s business the non-compliance with which could
reasonably be expected to have a Material Adverse Effect on the Seller.  The Seller may, however, contest or dispute
any acts, rules, regulations, orders and directions of those bodies or
officials in any reasonable manner, provided that any related Lien is inchoate
or stayed and sufficient reserves are established to the reasonable
satisfaction of the Buyer to protect the Buyer’s Lien on or security interest
in the Collateral.  The assets of the
Seller at all times shall be maintained in accordance with the requirements of
all insurance carriers which provide insurance with respect to the assets of
the Seller so that such insurance shall remain in full force and effect.

 

(h)           Inspection of
Premises.  At all reasonable times
the Buyer shall have full access to and the right to audit, check, inspect and
make abstracts and copies from the Seller’s books, records, audits,
correspondence and all other papers relating to the Collateral and the
operation of the Seller’s business.  The
Buyer and its agents may enter upon any of the Seller Parties’ premises at any
time during business hours and at any other reasonable time, and from time to
time, for the purpose of inspecting the Collateral and any and all records
pertaining thereto and the operation of such Seller’s business.

 

(i)            Insurance.  The Seller shall bear the full risk of any
loss of any nature whatsoever with respect to the Collateral.  At the Seller’s own cost and expense in
amounts and with carriers acceptable to the Buyer, the Seller shall keep all its
insurable properties and properties in which each Seller has an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to such Seller’s including, without limitation, business interruption
insurance.  If the Seller fails to
obtain insurance as hereinabove provided, or to keep the same in force, the
Buyer may, if it so elects, obtain such insurance and pay the premium therefor
on behalf of the Seller, and charge Seller’s Account therefor and such expenses
so paid shall be part of the Obligations. 
All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Buyer.  So long as no Event of Default has occurred
and is continuing, Seller shall have the option of applying the proceeds of any
casualty policy to the replacement or repair of destroyed or damaged property;
provided, that after the occurrence and during the continuance of an Event of
Default, all proceeds payable under any such policy shall, at the option of
Buyer, be payable to Buyer to be applied on account of the Obligations.

 

(j)            Payment of Taxes.  The Seller will pay, when due, (or, if contested
as set forth below, provide for payment of) all Taxes, assessments and other
Charges lawfully levied or assessed upon the Seller or any of the
Collateral.  If any tax by any
Governmental Body is or may be imposed on or as a result of any transaction
between the Seller and the Buyer and the Buyer may be required to withhold or
pay, or if any Taxes, assessments, or other Charges remain unpaid after the
date fixed for their payment, or if any claim shall be made which, in the
Buyer’s opinion, may possibly create a valid Lien on the Collateral, the Buyer
may, without notice to the Seller, pay the Taxes, assessments or other Charges
and the Seller hereby indemnifies and holds the Buyer harmless in respect
thereof.  The Buyer will not pay any
taxes, assessments or Charges to the extent that the Seller has contested or
disputed those taxes, assessments or Charges in good faith, by expeditious
protest, administrative or judicial appeal or similar proceeding provided that
any related tax lien is stayed and sufficient reserves are established to the
reasonable satisfaction of the Buyer to protect the Buyer’s security interest
in or Lien on the Collateral.  The
amount of any payment by the Buyer under this Section shall be charged to
Sellers’ Account and added to the Obligations and, until the Seller shall
furnish the Buyer with an indemnity therefor (or supply the Buyer with evidence
satisfactory to the Buyer that due provision for the payment thereof has been

 

8

 

made), the Buyer may hold without interest any balance standing to the
Seller’s credit and the Buyer shall retain its security interest in any and all
Collateral held by the Buyer.

 

(k)           Accounts.

 

i.              Nature of
Accounts.  Each of the Accounts
shall be a bona fide and valid account representing a bona fide indebtedness
incurred by the customer therein named, for a fixed sum as set forth in the
invoice relating thereto (provided immaterial or unintentional invoice errors
shall not be deemed to be a breach hereof) with respect to an absolute sale or
lease and delivery of goods upon stated terms, or work, labor or services
theretofore rendered by Seller as of the date each Account is created.  Same shall be due and owing in accordance
with the Seller’s standard terms of sale.

 

ii.             Locations of
Seller.  The Seller’s chief
executive office is located at 1515 S. Manchester Avenue. Anaheim,
California.  Until written notice is
given to the Buyer by the Seller of any other office at which Seller keeps its
records pertaining to Accounts, all such records shall be kept at such
executive office.

 

iii.            Notification of
Assignment of Accounts.  At any time
following the occurrence and continuance of an Event of Default past any
applicable cure period, the Buyer shall have the right to send notice of the
assignment of, and the Buyer’s security interest in, the Accounts to any and
all customers or any third party holding or otherwise concerned with any of the
Collateral.  Thereafter, the Buyer shall
have the sole right to collect the Accounts, take possession of the Collateral,
or both.  The Buyer’s actual collection
expenses, including, but not limited to, stationery and postage, telephone and
telegraph, secretarial and clerical expenses and the salaries of any collection
personnel used for collection, may be charged to Seller’s Account and added to
the Obligations.

 

iv.            Power of Buyer
to Act on Seller’s Behalf.  At any
time following the occurrence and continuance of an Event of Default past any
applicable cure period, the Buyer shall have the right to receive, endorse,
assign and/or deliver in the name of the Buyer or Seller any and all checks,
drafts and other instruments for the payment of money relating to the Accounts,
and the Seller hereby waives notice of presentment, protest and non-payment of
any instrument so endorsed.  At any time
following the occurrence and continuance of an Event of Default, the Seller
hereby constitutes the Buyer or its designee as the Seller Parties’ attorney
with power (i) to endorse  Seller’s
name upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral; (ii) to sign Seller’s name on any
invoice or bill of lading relating to any of the Accounts, drafts against
customers, assignments and verifications of Accounts; (iii) to send
verifications of Accounts to any customer; (iv) to demand payment of the
Accounts; (v) to enforce payment of the Accounts by legal proceedings or
otherwise; (vi) to exercise all of the Seller’s rights and remedies with
respect to the collection of the Accounts and any other Collateral;
(vii) to settle, adjust, compromise, extend or renew the Accounts; (viii)
to settle, adjust or compromise any legal proceedings brought to collect
Accounts; (ix) to prepare, file and sign any Seller’s name on a proof of claim
in bankruptcy or similar document against any customer; (x) to prepare, file
and sign Seller’s name on any notice of Lien, assignment or satisfaction of
Lien or similar document in connection with the Accounts; (xi) to transfer the
Intellectual Property Collateral into the name of Buyer; and (xii) to do all
other acts and things necessary to carry out this Agreement.  All acts of said attorney or designee are
hereby ratified and approved, and said attorney or designee shall not be liable
for any acts of omission or commission nor for any error of judgment or mistake
of fact or of law, unless done maliciously or with gross (not mere) negligence;
this power being coupled with an interest is irrevocable while any of the
Obligations remain unpaid.  The Buyer
shall have the right at any time following the occurrence

 

9

 

of an Event of Default or Default, to change the address for delivery
of mail addressed to Seller  to such
address as the Buyer may designate and to receive, open and dispose of all mail
addressed to Seller.

 

v.             No Liability.  The Buyer shall not, under any circumstances
or in any event whatsoever, have any liability for any error or omission or
delay of any kind occurring in the settlement, collection or payment of any of
the Accounts or any instrument received in payment thereof, or for any damage
resulting therefrom.  Following the
occurrence of an Event of Default or Default, the Buyer may, without notice or
consent from any Seller, sue upon or otherwise collect, extend the time of
payment of, compromise or settle for cash, credit or upon any terms any of the
Accounts or any other securities, instruments or insurance applicable thereto
and/or release any obligor thereof.  The
Buyer is authorized and empowered to accept following the occurrence of an
Event of Default or Default the return of the goods represented by any of the
Accounts, without notice to or consent by any Seller, all without discharging
or in any way affecting the Seller’s liability hereunder.

 

vi.            Lockbox Account.   Upon request by Buyer, Seller agrees to
amend its lockbox service agreement with its primary banks or such other banks
that Seller may utilize for lock box services (the “Bank”) to provide that upon
written notice from Buyer the Bank will direct all lock box collections to
Buyer’s bank account to be established at the Bank, to the extent of
outstanding Obligations then due.

 

(l)            Exculpation of
Liability.  Nothing herein contained
shall be construed to constitute the Buyer as any agent of Seller for any
purpose whatsoever, nor shall the Buyer be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause
thereof.  The Buyer, whether by anything
herein or in any assignment or otherwise, shall not assume any of the Seller’s
obligations under any contract or agreement assigned to the Buyer, and the Buyer
shall not be responsible in any way for the performance by Seller of any of the
terms and conditions thereof.

 
ARTICLE II
REPRESENTATIONS AND WARRANTIES
 
Section 2.1  Representations and Warranties of Seller. The Seller hereby represents and warrants to the Buyer on the date hereof and on the Closing Date that:
 
(a)           Existence and Power. The Seller is a corporation, duly organized, validly existing and in good standing under the laws of the state set forth after its name in the preamble to this Agreement, and are duly qualified to do business and are in good standing as a foreign entity, and have and hold all organizational power, and all governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is conducted except where the failure to so qualify or so hold is not reasonably likely to have a Material Adverse Effect.
 
(b)           Power and Authority; Due Authorization, Execution and Delivery. The execution and delivery by the Seller  of this Agreement and each other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder, and the Seller’s use of the proceeds of the Purchase made from it hereunder, are within its corporate powers and authority and have been duly authorized by all necessary corporate action on its part. This Agreement and each other Transaction Document to which such Seller is a party has been duly executed and delivered by the Seller.

 

10

 

(c)           No Conflict. The execution and delivery by the Seller  of this Agreement and each other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder do not contravene or violate (i) its Organizational Documents, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to which it is a party or by which it or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree applicable to it, and do not result in the creation or imposition of any Adverse Claim on assets of the Seller or its Subsidiaries (except as created hereunder)except, in any case, where such contravention or violation is not reasonably likely to have a Material Adverse Effect; and no transaction contemplated hereby requires compliance with any bulk sales act or similar law.
 
(d)           Governmental Authorization. Other than the filing of the financing statements required hereunder, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by the Seller of this Agreement and each other Transaction Document to which it is a party and the performance of its obligations hereunder and thereunder.
 
(e)           Actions, Suits. There are no actions, suits or proceedings pending, or to the best of the Seller’s knowledge, threatened, before any court, arbitrator or other body, that could reasonably be expected to have a Material Adverse Effect, except as previously disclosed or for which reserves in reasonable amounts have been established. The Seller is a not in default with respect to any order of any court, arbitrator or governmental body.
 
(f)            Binding Effect. This Agreement and each other Transaction Document to which the Seller is a  party  constitute the legal, valid and binding obligations of the Seller and, with respect to Article VII of this Agreement, enforceable against the Seller  (as applicable)in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
 
(g)           Accuracy of Information. All written information heretofore furnished by the Seller or any of its Affiliates to the Buyer for purposes of or in connection with this Agreement, any of the other Transaction Documents or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by the Seller or any of its Affiliates to the Buyer, as of the date thereof, does not and will not contain any material misstatement of fact or omit to state a material fact necessary to make the statements contained therein, in light the circumstances under which they were made, not misleading.
 
(h)           Use of Proceeds. No payment made to Seller hereunder will be used for a purpose that violates Regulation T, U or X of the Board of Governors of the Federal Reserve System.
 
(i)            Good Title. Each Receivable which is sold to the Buyer hereunder shall be owned by the Seller, free and clear of any Adverse Claim, except as provided herein or except as may be granted by the Buyer. Whenever the Buyer makes a purchase hereunder, it shall have acquired and shall continue to have maintained a valid ownership interest (free and clear of any Adverse Claim) in the respective Seller’s entire right, title and interest in and to each Receivable and the Related Security with respect thereto. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC of all appropriate jurisdictions to 

 

11

 

perfect the Buyer’s ownership interest in such Receivables and the Related Security to the extent such interest can be perfected by filing a financing statement under the UCC.
 
(j)            Places of Business and Locations of Collection Records. The principal places of business and chief executive office of the Seller and the offices where it keeps its Collection Records are located at the address(es) listed on Exhibit II or such other locations of which the Buyer has been notified in accordance with Section 4.2(a) in jurisdictions where all action required by Section 4.2(a) has been taken and completed.
 
(k)           Collections. Seller has directed the Obligors to send all payments for the Receivables to the Buyer’s address as indicated in the Notice section of this Agreement, and Seller agrees to promptly and on demand endorse such checks and other payments in favor of Buyer, in the form requested by Buyer so that Buyer can deposit such Collections into Buyer’s bank account. The Seller irrevocably authorizes the Buyer at any time and from time to time in the sole discretion of the Buyer, and appoints the Buyer as its attorney(ies)-in-fact, to act on behalf of the Seller (i) endorse and pay over all checks and other forms of Collection payments to Buyer and to deposit such payments into Buyer’s bank account. This appointment is coupled with an interest.
 
(l)            Material Adverse Effect. Since September 30, 2002, no event has occurred that would have a Material Adverse Effect with respect to Seller.
 
(m)          Names. In the 5 years ending on the date of this Agreement, Seller has not used any corporate name in which a financing statement naming the Seller (or any entity which has merged with and into the Seller)as a debtor may be properly recorded and effective to grant a security interest under the UCC as in effect in any applicable jurisdiction other than (i) the name in which it has executed this Agreement, and (ii) as listed on Exhibit II.
 
(n)           Not a Holding Company or an Investment Company. The Seller is not a “holding company” or a “subsidiary holding company” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935, as amended, or any successor statute. The Seller is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended, or any successor statute.
 
(o)           Compliance with Law. Each Receivable together with the Invoice related thereto, does not violate any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), except where such violation is not reasonably likely to have a Material Adverse Effect.
 
(p)           Compliance with Credit and Collection Policy. The Seller has complied in all material respects with the Credit and Collection Policy with regard to each Receivable originated by it and the related Contract, and has not made any change since the Closing Date to such Credit and Collection Policy, except such material change as to which the Buyer has been notified and has consented, as required, in accordance with Section 4.1 (a)(vi).
 
(q)           Payments to the Seller. With respect to each Receivable the Purchase Price and the Collection Fees received by the Seller constitutes fair and reasonably equivalent value in consideration therefor.
 
12

 
(r)            Enforceability of Receivables. Each Receivable is a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and accrued Finance Charges (if any) thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
 
(s)           Eligible Receivables. Each Receivable was an Eligible Receivable on the date of its acquisition by the Buyer hereunder.
 
(t)            Accounting. The manner in which the Seller accounts for the transactions contemplated by this Agreement does not jeopardize the characterization of the transactions contemplated herein as being true sales.

 

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

 

(v)           Taxes.  Seller and each Subsidiary have each filed
or caused to be filed all tax returns required to be filed on timely basis, and
has paid, or has made adequate provision for the payment of, all taxes
reflected therein, except those being contested in good faith by proper
proceedings with adequate reserves under GAAP.

 
 
ARTICLE III
CONDITIONS OF PURCHASE
 
Section 3.1      Conditions Precedent to Purchase. The Purchase from Seller under this Agreement is subject to the conditions precedent that the Buyer shall have received on or before the date thereof the documents listed on Schedule A.
 
Notwithstanding the foregoing conditions precedent, and subject to the Seller’s receipt of payment of the Purchase Price for any Receivable, all of the Seller’s right, title and interest in and under such  Receivable and the Related Security with respect thereto shall vest in the Buyer, whether or 

 

13

 

not the conditions precedent to the Buyer’s obligation to pay for such Receivable were in fact satisfied. The failure of the Seller to satisfy any of the foregoing conditions precedent may, however, give rise to a claim for indemnity under Article VI of this Agreement.
 
 
ARTICLE IV
COVENANTS
 
Section 4.1      Affirmative Covenants of Seller. Until the date on which this Agreement terminates in accordance with its terms, the Seller hereby covenants as set forth below:
 
(a)           Financial Reporting. The Seller will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with GAAP, and furnish to the Buyer:
 
(i)      Annual Reporting. Promptly upon the filing thereof, and within 90 days after the close of each of Parent’s fiscal years, audited, unqualified consolidated financial statements (which shall include balance sheets, statements of earnings and stockholders’ equity and cash flows) for Parent and its consolidated Subsidiaries (which include the Seller) for such fiscal year, accompanied by an opinion of independent public accountants of recognized national or regional standing.
 
(ii)     Monthly Reporting. Promptly upon the filing thereof, and within 30 days after the close of the first three (3) quarterly periods of Parent’s fiscal years, consolidated balance sheets of Parent and its consolidated Subsidiaries (including the Seller) as at the close of each such period and consolidated statements of earnings and stockholders’ equity and cash flows for Parent and its consolidated Subsidiaries for the period from the beginning of such fiscal year to the end of such quarter, all certified by a Responsible Financial Officer of Parent.
 
(iii)    Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit IV signed by an Authorized Officer of Parent and dated the date of such annual financial statement or such quarterly financial statement, as the case may be.
 
(iv)    Shareholders’ Statements and Reports. Promptly upon the furnishing thereof generally to the shareholders of Parent, copies of all financial statements, reports and proxy statements so furnished.
 
(v)     S.E.C. Filings. Promptly upon the filing thereof, copies of all registration statements (other than registration statements on Forms S-8 or S-3 covering benefit or compensation plans, stock purchase or dividend repurchase plans, or for purposes of resales of securities by holders) and annual, quarterly or other periodic reports which Parent or any of its Subsidiaries files with the Securities and Exchange Commission.
 
(vi)    Other Information. Promptly, from time to time, such other information, documents, records or reports relating to the Receivables originated by the Seller or the condition or operations, financial or otherwise, of the Seller as the Buyer may from time to time reasonably request in order to protect the interests of the Buyer under or as contemplated by this Agreement; provided, however, that the Buyer shall keep all such information which is not otherwise in the public domain confidential and require a confidentiality agreement from any third party that may properly request such information.

 

14

 

(b)           Notices. The Seller will notify the Buyer in writing of any of the following promptly upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto:
 
(i)      Event of Defaults or Unmatured Event of Defaults. The occurrence of each Event of Default and each Unmatured Event of Default, by a statement of an Authorized Officer of the Seller.
 
(ii)     Material Adverse Effect. The occurrence of any event or condition that has had, or is reasonably likely to have, a Material Adverse Effect.
 
(iii)    ERISA Events. The occurrence of any ERISA Event.
 
(c)           Compliance with Laws and Preservation of Existence. Such Seller will comply in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to so comply is not reasonably likely to have a Material Adverse Effect. The Seller will preserve and maintain its legal existence, rights, franchises and privileges in the jurisdiction of its organization, and qualify and remain qualified in good standing as a foreign entity in each jurisdiction where its business is conducted, except where the failure to so qualify or remain in good standing is not reasonably likely to have a Material Adverse Effect.
 
(d)           Audits. The Seller will furnish to the Buyer from time to time such information with respect to it and the Receivables sold by it as the Buyer may reasonably request; provided, however, that prior to receipt of such information, Buyer shall deliver to Seller a signed nondisclosure agreement in a form reasonably satisfactory to Seller and Buyer shall require any third party, to the extent allowed by law, to sign a similar nondisclosure agreement in a form reasonably acceptable to Seller with respect to any information about Seller or the Receivables. The Seller will, from time to time during regular business hours as requested by the Buyer upon not less than two (2) Business Days’ prior written notice unless a Event of Default has occurred, permit the Buyer or their respective agents or representatives: (i) to examine and make copies of and abstracts from all Other Records in the possession or under the control of the Seller relating to the Receivables and the Related Security, including, without limitation, the related Contracts to the extent permitted by Section 1.5, and (ii) to visit the offices and properties of the Seller for the purpose of examining such materials described in clause (i) above, and to discuss, on a confidential basis, matters relating to the Seller’s financial condition or the Receivables and the Related Security or the Seller’s performance under any of the Transaction Documents or the Seller’s performance under the Contracts and, in each case, with any of the officers or employees of such Seller having knowledge of such matters.
 
(e)           Keeping and Marking of Records and Books.
 
(i)      The Seller will maintain administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the immediate identification of all Collections of and adjustments to each existing Receivable). Such Seller will give the Buyer notice of any material change in the administrative and operating procedures referred to in the previous sentence.

 

15

 

(ii)     The Seller will (A) on or prior to the date hereof, mark its master data processing records and other books and records relating to the Receivables with a legend or code describing the Buyer’s ownership interests in the Receivables and (B) upon the request of the Buyer following the occurrence of a Event of Default, mark each Invoice applicable to any Receivable sold by the Seller to the Buyer hereunder with a legend or code describing the Buyer’s ownership thereof.
 
(f)            Compliance with Contracts and Credit and Collection Policy. The Seller will timely (i) perform and comply in all material respects with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables originated by it, and (ii) comply in all material respects with the Credit and Collection Policy in regard to each such Receivable and the related Contract.
 
(g)           Ownership. The Seller will take all necessary action to establish and maintain, irrevocably, the Buyer’s right, title and interest in and to the Receivables, and to keep the Receivables and  associated Related Security and Collateral, in each case, free and clear of any Adverse Claims other than Adverse Claims in favor of the Buyer (including, without limitation, the filing of all financing  statements, continuation statements and/or financing statement amendments necessary under the UCC of all appropriate jurisdictions to perfect the Buyer’s interest in such Receivables and Related Security and Collateral to the extent such interest can be perfected by filing any of the foregoing under the UCC and such other action to perfect, protect or more fully evidence the interest of the Buyer as the Buyer may reasonably request).
 
(h)           Taxes. To the extent not handled by Parent, the Seller will file all tax returns and reports required by law to be filed by it and promptly pay all taxes and governmental charges at any time owing, except any such taxes which are not yet delinquent or are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. The Seller will pay when due any taxes payable in connection with the Receivables originated by it, exclusive of taxes on or measured by income or gross receipts of the Buyer and its assigns.
 

(i)            Inventory.
The Seller shall not store the Inventory with a bailee, warehouseman, or
similar party unless Seller has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Seller may approve in writing,
Seller shall keep the Inventory only its current location and such other
locations of which Seller gives Seller prior written notice and as to which
Seller signs and files a financing statement where needed to perfect Seller’s
security interest.

 
(j)            Execution of Supplemental Instruments.  Execute and deliver to the Seller from time to time, upon demand, such supplemental  agreements, statements, assignments and transfers, or instructions or documents relating to the Receivables and the Collateral, and such other instruments as the Seller may request, in order that the full intent of this Agreement may be carried into effect, including, without limitation, control agreements with Seller’s banks with respect to perfecting Seller’s first lien security interest in Seller’s deposit accounts, sinking fund account, and other bank accounts
 
(k)           If there is an Event of Default under this Agreement, upon written request by Buyer, the Seller shall directed all Obligors  on the Receivables existing on or after the date hereof to make payments thereon directly to a Collection Account or Lock-Box of the Buyer which is listed on Exhibit III hereto as the same may be amended from time to time by the Buyer.

 

16

 

Section 4.2  Negative Covenants of Seller. Until the date on which  this Agreement terminates in accordance with its terms, the Seller hereby covenants that:
 
(a)           Name Change, Offices and Collection Records. The Seller  will not (i) change its state of organization, (ii) change its legal name, or (iii) change its identity or corporate structure (within the meaning of Section 9-402(7) of any applicable enactment of the UCC), (iv) relocate its chief executive office (so long as its chief executive office determines the place of perfection of the Buyer’s ownership interest in the Receivables), or (v) relocate any office where Collection Records are kept by or on behalf of the Seller unless, in each of the foregoing cases, it shall have: (A) given the Buyer at least 30 days’ prior written notice thereof and (B) delivered to the Buyer all financing statements, instruments and other documents requested by the Buyer in connection with such change or relocation.
 
(b)           Change in Payment Instructions to Obligors. The Seller will not direct any Obligor on the Receivables sold by it to the Buyer hereunder to make payments to any location other than to one of the Buyer’s Lock-Boxes or Collection Accounts listed on Exhibit III hereto as the same may be amended from time to time by the Buyer upon not less than 30 days’ prior written notice to the Seller.
 
(c)           Modifications to Credit and Collection Policy. Seller will not, and will not make any material change to the Credit and Collection Policy that would materially decrease the collectibility of the Receivables generally.
 
(d)           Sales, Liens. The Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Receivable or the Related Security, or upon or with respect to any Contract under which any Receivable arises, or assign any right to receive income with respect thereto (other than, in each case, the creation of the interests therein in favor of the Buyer provided for herein), and the Seller will defend the right, title and interest of the Buyer in, to and under any of the foregoing property, against all claims of third parties claiming through or under such Seller.
 
(e)           Accounting for Purchases. The Seller will not account for the transactions contemplated hereby in any manner other than the sale for financial accounting purposes by the Seller to the Buyer of the Receivables sold and transferred by the Seller herein, together with the associated Related Security, except to the extent that such transactions are not recognized on account of consolidated financial reporting in accordance with generally accepted accounting principles.
 
ARTICLE V
EVENT OF DEFAULTS
 
Section 5.1  Event of Defaults. The occurrence of any one or more of the following events shall constitute a Event of Default:
 
(a)           The Seller shall fail to make any payment required hereunder when due, or to perform or observe any term, covenant or agreement hereunder or under any other Transaction Document to which it is a party and such failure shall continue for 20 days after written notice of such failure is given.

 

17

 

(b)           The Seller fails to perform or observe in any material respect, within 15 days after written notice thereof, any other material term, covenant or agreement contained in this Agreement or any Transaction Document on its part to be performed or observed;
 
(c)           the Buyer shall fail to have a valid and enforceable first priority, perfected (i)ownership interest in, or (ii) security interest in, each Receivable and the associated Related Security, and in the Collateral, in each case free and clear of any Adverse Claim;
 
(d)           there shall have occurred any event not otherwise covered by this  definition which has or will have a Material Adverse Effect.
 
(e)           Any representation, warranty, certification or statement made by the Seller in this Agreement, any other Transaction Document to which it is a party, or in any other document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made or deemed made; provided that the materiality threshold in the preceding clause shall not be applicable with respect to any representation or warranty which itself contains a materiality threshold.
 
(f)            Failure of Seller to pay any Indebtedness when due in excess of $50,000 (“Material Debt”); or the default by Seller in the performance of any term, provision or condition contained in any agreement under which any Material Debt was created or is governed, the effect of which is to cause, or to permit the holder or holders of such Material Debt to cause, such Indebtedness to become due prior to its stated maturity; or any Material Debt of Seller shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity thereof.
 
(g)           (i)  Seller or any of its Material Subsidiaries shall generally not pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or (ii) any proceeding shall be instituted by or against Seller or any of its Material Subsidiaries seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property or (iii) Seller or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth in the foregoing clauses (i) or (ii) of this subsection (g).
 
(h)           A Change of Control shall occur.
 
(i)            One or more final judgments for the payment of money in an amount in excess of $50,000, individually or in the aggregate, shall be entered against Seller on claims not covered by insurance or as to which the insurance carrier has denied its responsibility, and such judgment shall continue unsatisfied and in effect for thirty (30) consecutive days without a stay of execution.
 
(j)            The California Franchise Tax Board or Internal Revenue Service shall file any notice of lien on any of the Receivables or the Related Security.
 

(k)           The
Seller shall admit in writing its inability, or be generally unable, to pay its
debts as they become due or cease operations of its present business;

 

18

 

(l)            any
Lien created hereunder or provided for hereby or under any related agreement
for any reason ceases to be or is not a valid and perfected Lien having a first
priority interest; or

 

(m)          any
material provision of this Agreement 
shall, for any reason, cease to be valid and binding on the Seller, or
the Seller shall so claim in writing to Buyer.

 

(n)           If
there (i) occurs a material adverse change in the business, operations, or
condition (financial or otherwise) of Seller 
or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Buyer’s security interests in the Collateral; provided, however,
that Seller shall have ten Business Days from notice of default to cure any such
change or impairment that is capable of cure before an Event of Default shall
be deemed to have occurred under this Section.

 

(o)           If
any material portion of Seller’s assets is attached, seized, subjected to a
writ or distress warrant, or is levied upon, or comes  into the possession of any trustee, receiver or person acting in
a similar capacity and such attachment, seizure, writ or distress warrant or
levy has not been removed, discharged or rescinded within ten (10) days, or if
Seller is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrance upon any material portion
of  or Seller’s assets, or if a notice
of lien, levy, or assessment is filed of record with respect to any of  or Seller’s assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within ten (10) days after the applicable or Seller receives notice thereof,
provided that none of the foregoing shall constitute an Event of  Default where such action or event is stayed
or an adequate bond has been posted pending a good faith contest by Seller , as
applicable;

 
(p)           If any proceeding is filed or commenced by or against Seller or Seller’s Subsidiaries or Seller’s or any of its Subsidiaries dissolution or liquidation.
 
(q)           There shall have occurred an Event of Default under any loan or other agreement between Buyer and Seller.
 
Section 5.2  Remedies.
 
(a)           Upon the occurrence and during the continuation of an Event of Default, the Buyer may take any of the following actions: to the fullest extent permitted by applicable law, declare that the Default Rate shall accrue with respect to any amounts then due and owing by the Seller to the Buyer. The aforementioned rights and remedies shall be without limitation and shall be in addition to all other rights and remedies of the Buyer otherwise available under any other provision of this Agreement, by operation of law, at equity or otherwise, all of which are hereby expressly preserved, including, without limitation, the following:
 

(i)            Exercise
any and all other rights and remedies provided for herein, under the Uniform
Commercial Code and at law or equity generally (all without notice to or
consent by the Seller except as such notice or consent as expressly provided
for hereunder or required by applicable law), including, without limitation,
the right to foreclose the security interests granted herein and to realize
upon any Collateral by any available judicial procedure and/or to take
possession of and sell any or all of the Collateral with or without judicial
process;

 

19

 

(ii)           Buyer
may enter any of any Seller’s premises or other premises without legal process
and without incurring liability to any Seller therefor, and the Buyer may
thereupon, or at any time thereafter, in its discretion without notice or
demand, take the Collateral and remove the same to such place as the Buyer may
deem advisable and the Buyer may require the Seller to make the Collateral
available to the Buyer at a convenient place;

 

(iii)          With
or without having the Collateral at the time or place of sale, the Buyer may
sell the Collateral, or any part thereof, at public or private sale, at any
time or place, in one or more sales, at such price or prices, and upon such
terms, either for cash, credit or future delivery, as the Buyer may elect.  Except as to that part of the Collateral
which is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, the Buyer shall give the Seller
reasonable notification of such sale or sales, it being agreed that in all
events written notice mailed to the Seller at least five (5) days prior to such
sale or sales is reasonable notification. 
At any public sale, the Buyer may credit bid for and become the purchaser,
and the Buyer or any other purchaser at any such sale thereafter shall hold the
Collateral sold absolutely free from any claim or right of whatsoever kind,
including any equity of redemption and such right and equity are hereby
expressly waived and released by the Seller. 
The proceeds realized from the sale of any Collateral shall be applied
as follows: first, to the reasonable costs, expenses and attorneys’ fees and
expenses incurred by the Buyer for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral; second, to
interest due upon any of the Obligations and any fees payable under this
Agreement; and, third, to the principal of the Obligations.  If any deficiency shall arise, the Seller
shall remain liable to the Buyer therefor and immediately pay such deficiency
upon demand;

 

(iv)          During
the continuance of an Event of Default, the Buyer may appoint, remove and
reappoint any person or persons, including any employee or agent of the Buyer
to be a receiver (the “Receiver”) which term shall include a receiver
and manager of, or agent for, all or any part of the Collateral.  Any such Receiver shall, as far as concerns
responsibility for his acts, be deemed to be the agent of the Seller and not of
the Buyer, and the Buyer shall not in any way be responsible for any
misconduct, negligence or non-feasance of such Receiver, its employees or
agents.  Except as otherwise directed by
the Buyer, all money received by such Receiver shall be received in trust for
and paid to the Buyer.  Such Receiver shall
have all of the powers and rights of the Buyer described in this Section.  The Buyer may, either directly or through
its agents or nominees, exercise any or all powers and right of a Receiver; and

 

(v)           Buyer
shall have a non-exclusive, royalty-free license to use the Intellectual
Property Collateral to the extent reasonably necessary to permit Buyer to
exercise its rights and remedies upon the occurrence and continuance of an
Event of Default.

 

(b) Buyer’s Discretion.  The Buyer shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies the
Buyer may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of the Buyer’s rights hereunder.

 

(c) Setoff.  In addition to any other rights which the Buyer may have under
applicable law, upon the occurrence of an Event of Default hereunder, the Buyer
shall have a right to apply any Seller’s property held by the Buyer to reduce
the Obligations.

 

(d) Rights and Remedies not Exclusive.  The enumeration of the foregoing rights and
remedies is not intended to be exhaustive and the exercise of any right or
remedy shall not 

 

20

 

preclude the exercise of any other right or remedies provided for
herein or otherwise provided by law, all of which shall be cumulative and not
alternative.

 
ARTICLE VI
INDEMNIFICATION
 
Section 6.1  Indemnities, by Seller. Without limiting any other rights that the Buyer may have hereunder or under applicable law, the Seller hereby agrees to indemnify (and pay upon demand to) the Buyer and its assigns, officers, directors, agents and employees (each an “Indemnified Party”) from and against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including reasonable attorneys’ fees and disbursements (all of the foregoing being collectively referred to as “Indemnified Amounts”) awarded against and actually paid or actually incurred by any of them arising out of or as a result of this Agreement or the purchase, either directly or indirectly, by the Buyer of any interest in the Receivables, excluding, however:
 
(a)           Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking indemnification; or
 
(b)           taxes imposed by the jurisdiction in which such Indemnified Party’s principal executive office is located, on or measured by the overall net income or gross receipts of such Indemnified Party; provided, however, that nothing contained in this sentence shall limit the liability of the Seller or limit the recourse of the Buyer to such Seller for amounts otherwise specifically provided to be paid by such Seller under the terms of this Agreement.
 
Without limiting the generality of the foregoing indemnification, but subject in each case to clauses (a)and (b) above, the Seller shall indemnify the Buyer for Indemnified Amounts relating to or resulting from:
 
(i)            any representation or warranty made by the Seller(or any officers of the Seller) under or in connection with this Agreement, any other Transaction Document or any other information or report delivered by the Seller pursuant hereto or thereto;
 
(ii)           the failure by the Seller, to comply with any applicable law, rule or regulation with respect to any Receivable or Contract related thereto or any Collateral, or the nonconformity of any Receivable or Contract included therein or any Collateral with any such applicable law, rule or regulation or any failure of the Seller to keep or perform any of its obligations, express or implied, with respect to any Contract;
 
(iii)          any failure of the Seller to perform its duties, covenants or other obligations in accordance with the provisions of this Agreement or any other Transaction Document;
 
(iv)          any products liability, personal injury or damage, suit or other similar claim arising out of or in connection with goods or services that are the subject of any Contract or any Receivable or Collateral;
 
(v)           any dispute, claim, offset or defense (including a  discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding 

 

21

 

obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the goods or service related to such Receivable or the furnishing or failure to furnish such goods or services;
 
(vi)          any Collections received, directly or indirectly by the Seller (or its agent) which are not promptly remitted to Buyer;
 
(vii)         any investigation, litigation or proceeding related to or arising from this Agreement or any other Transaction Document, the transactions contemplated hereby, the Seller’s use of the proceeds of the Purchase from it hereunder, the ownership of the Receivables originated by the Seller or any other investigation, litigation or proceeding relating to the Seller in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby;
 
(viii)        any inability to litigate any claim against any Obligor in respect of any Receivable reflected in any Purchase Report as being an Eligible Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding;
 
(ix)           any Event of Default described in Section 5.1(d);
 
(x)            any failure to vest and maintain vested in the Buyer, or to transfer to the Buyer, ownership of the Receivables originated by the Seller and purported to be conveyed to the Buyer hereunder, together with the associated Related Security, in each case, free and clear of any Adverse Claim;
 
(xi)           the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction with respect to any Receivable and the Related Security with respect thereto, and the proceeds of any thereof, whether at the time of the Purchase from the Seller hereunder or at any subsequent time;
 
(xii)          any action or omission by the Seller which impairs the rights of the Buyer with respect to any Receivable or  reduces the value of any such Receivable (for any reason other than the application of Collections thereto); and
 
(xiii)         the failure of any Receivable to be an Eligible Receivable at the time acquired by the Buyer.
 
Section 6.2  Other Costs and Expenses. The Seller shall pay to the Buyer on demand all reasonable costs and out-of-pocket expenses actually incurred in connection with the preparation, execution and delivery of this Agreement, the transactions contemplated hereby and the other documents to be delivered hereunder. In addition to the foregoing, the Seller shall pay, on demand, any and all reasonable costs and expenses, including reasonable counsel fees and expenses, actually incurred by the Buyer in connection with (i) any amendment to or waiver of this Agreement, and/or (ii) the enforcement of this Agreement and the other documents delivered hereunder following a Event of Default.

 

22

 
ARTICLE VII
MISCELLANEOUS
 
Section 7.1  Waivers and Amendments.
 
(a)           No failure or delay on the part of the Buyer  in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law.   Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given.
 
(b)           No provision of this Agreement may be amended, supplemented, modified or waived except in writing signed by the Seller and the Buyer.
 
Section 7.2  Notices. All communications and notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other parties hereto at their respective addresses or telecopy numbers set forth on the signature pages hereof or at such other address or telecopy number as such Person may hereafter specify for the purpose of notice to each of the other parties hereto. Each such notice or other communication shall be effective (a) if given by telecopy, upon the receipt thereof, (b) if given by mail, three (3) Business Days after the time such communication is deposited in the mail with first class postage prepaid or (c) if given by any other means, when received at the address specified in this Section 7.2.
 
Section 7.3  Protection of Ownership Interests of the Buyer.
 
(a)           The Seller agrees that from time to time, at  its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that may be necessary or desirable, or that the Buyer may request, to perfect, protect or more fully evidence the interest of the Buyer hereunder, or to enable the Buyer to exercise and enforce their rights and remedies hereunder. At any time following a Event of Default, the Buyer may, at the Seller’s sole cost and expense, direct the Seller to notify the Obligors of Receivables of the ownership interests of the Buyer under this Agreement and may also direct that payments of all amounts due or that become due under any or all Receivables be made directly to the Buyer’s designee.
 
(b)           If Seller fails to perform any of its obligations hereunder, the Buyer may (but shall not be required to) perform, or cause performance of, such obligations, and the Buyer’s (or such assigns’) costs and expenses incurred in connection therewith shall be payable by the Seller as provided in Section 6.2. The Seller irrevocably authorizes the Buyer at any time and from time to time in the sole discretion of the Buyer, and appoints the Buyer as its attorney(ies)-in-fact, to act on behalf of the Seller (i) to execute on behalf of the Seller as debtor, in the event the Seller fails to timely execute, and to file financing statements necessary in the Buyer’s reasonable opinion to perfect and to maintain the perfection and priority of the interest in the Receivables and (ii) in the event the Seller fails to deliver any financing statement requested pursuant to the preceding clause (i), to file a carbon photographic or other reproduction of this Agreement or any financing statement with respect to receivables as a financing statement in such offices as the Buyer in its sole discretion deem necessary or desirable to perfect and to maintain the perfection and priority of the Buyer’s interest in the Receivables. This appointment is coupled with an interest and is able.
 
Section 7.4  CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF CALIFORNIA.
 
23

 
Section 7.5  CONSENT TO JURISDICTION. SELLER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR CALIFORNIA STATE COURT SITTING IN ORANGE COUNTY, CALIFORNIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SELLER PURSUANT TO THIS AGREEMENT AND SELLER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF BUYER (OR ITS ASSIGNS) TO BRING PROCEEDINGS AGAINST SELLER IN THE COURTS OF ANY OTHER JURISDICTION.
 
Section 7.6  WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED  APPLICABLE LAW, EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY SELLER PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.
 
Section 7.7  Integration; Binding Effect; Survival of Terms.
 
(a)           The Transaction Documents contain the final and complete integration of all prior expressions by the parties hereto with respect to the sale and collection of the Receivables and Related Security and shall constitute the entire agreement among the parties hereto with respect to such subject matter, superseding all prior oral or written understandings with respect to the sale and collection of the Receivables and Related Security.
 
(b)           Nothing contained herein or in any other Transaction Document shall be deemed to prohibit or limit any merger or consolidation of Seller with another Seller so long as any necessary financing statements are filed, promptly after the effectiveness of such merger or consolidation, under the UCC in all jurisdictions necessary to make the representations and warranties contained in this Agreement true and correct after giving effect to such merger or consolidation. This Agreement shall be binding upon and inure to the benefit of the Seller, the Buyer and their respective successors and permitted assigns (including any trustee in bankruptcy). No Seller may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the Buyer; provided, however, that no consent of the Buyer shall be required in connection with an assignment by operation of law to the surviving Seller in a merger or consolidation described in the first sentence of this Section 8.9(b). The Buyer may pledge or assign at any time its rights and obligations hereunder and interests herein to any other Person without the consent of Seller. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the  rights and remedies with respect to (i) any breach of any representation and warranty made by Seller pursuant to Article II; (ii) the indemnification and payment provisions of Article VI; and (iii) Section 8.4 shall be continuing and shall survive any assignment or termination of this Agreement.
 
24

 
Section 7.8 Counterparts; Severability; Section References. This Agreement may be executed in any number of counterparts and by facsimile (and each party agrees to deliver original signature pages to each other within 2 days of the Closing Date) by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise expressly indicated, all references herein to “Article,” “Section,” “Schedule” or “Exhibit” shall mean articles and sections of, and schedules and exhibits to, this Agreement.
 

Section 7.9   Attachment.  The security interest created hereby is
intended to attach when this Agreement is executed by the Seller and delivered
to the Buyer.

 

Section 7.10 Representations Regarding Usury.  Buyer and Seller represent and warrant that the officers,
directors, controlling persons or managers of Buyer and Seller, respectively,
have a preexisting personal or business relationship with the officers,
directors, controlling persons or managers of the other party and that each has
the capacity to protect its own interests in connection with this
Agreement.  Seller further represents
and warrants, that the Obligations evidenced by this Agreement are not
guaranteed by an individual, a revocable trust having one or more individuals
as trustors, or partnership in which, at the time of this Agreement, one or
more individuals are general partners.

 
7.11 Confidentiality. The Buyer (and, accordingly, each of its assigns) shall maintain, and shall cause each of its employees, officers and agents to maintain, the confidentiality of any information obtained by it regarding the Seller and in respect of the Receivables (including, without limitation, credit losses and delinquency levels) and any other proprietary or confidential information with respect to the Obligors, the Receivables, and the Seller in communications with third parties; provided, however, such information may be disclosed to third parties to the extent such disclosure is (i) required to comply with any applicable law (including federal and state securities laws) or order of any judicial or administrative proceeding, or (ii) required in response to any summons or subpoena or in connection with any litigation.
 
(Signature pages follows)
 
25

 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof in Anaheim, California.
 
 

	 
	 
	Odetics, Inc., a Delaware corporation

	 
	 
	 

	 
	 
	 
	By:
	 
	/s/ GREGORY A. MINER
	 

	 
	 
	 
	Name:
	 
	Gregory A. Miner
	 

	 
	 
	 
	Title:
	 
	CEO
	 

	 
	 
	 

	
   

  	
   

  	
  Address:  Odetics, Inc.

  
	
   

  	
   

  	
  1515 S. Manchester Avenue

  
	
   

  	
   

  	
  Anaheim, CA 92802

  
	
   

  	
   

  	
  Attention: Chief Financial
  Officer

  
	
   

  	
   

  	
  Telecopier:            (714) 780-7857

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	 
	TECHNOLOGY LENDING PARTNERS, LLC, 

a California limited liability company

	 
	 

	 
	 

	 
	By:
	 
	/s/ JOEL SLUTZKY
	 

	 
	Name:
	Joel Slutzky, Manager
	 

	 
	 

	
   

  	
   

  	
  Address:  Technology Lending Partners, LLC

  
	
   

  	
   

  	
   

  	
  424 Via Lido Nord

  
	
   

  	
   

  	
   

  	
  Newport Beach, CA  92663

  
	
   

  	
   

  	
  Attention:              Joel Slutzky

  
	
   

  	
   

  	
   

  	
  Telecopier:            (949) 673-5224

  
															

 
26

 
Exhibit I
 
Definitions
 
This is Exhibit I to the Agreement (as hereinafter defined). As used in the Agreement and the Exhibits and Schedules thereto, capitalized terms have the meanings set forth in this Exhibit I (such meanings to be equally applicable to the singular and plural forms thereof).
 

“Accounts” means all of the Seller’s now
owned or hereafter acquired right, title, and interest with respect to
“accounts” (as that term is defined in the California Uniform Commercial Code),
and any and all supporting obligations in respect thereof.  Without limiting the generality of the
foregoing, the term “Accounts” shall further include all presently existing and
hereafter arising accounts, contract rights, and all other forms of obligations
owing to Seller arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Seller, whether or not earned by performance.

 
“Accrued Interest” means the interest accruing under Section 1.2(d).
 
“Adverse Claim” means a lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person’s assets or properties in favor of any other Person.
 
“Affiliate” of any Person shall mean any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, such Persons, managers and members
 
“Agreement” means the Receivables Purchase Agreement, dated as of October 18, 2002, among Seller and the Buyer, as the same may be amended, restated or otherwise modified.
 
“Business Day” means any day on which banks are not authorized or required to close in California.
 
“Buyer” has the meaning set forth in the preamble to the Agreement.
 
“Calculation Period” means each fiscal month of the Buyer or portion thereof which elapses during the term of the Agreement. The first Calculation Period shall commence on the date of the Purchases hereunder and the final Calculation Period shall terminate on the Termination Date. For purposes of the use of this term in other definitions in Exhibit I to this Agreement, Calculation Periods occurring prior to the date of the Purchases hereunder shall
mean a fiscal month of the Buyer.
 
“Change of Control” means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of Parent, or Parent ceases to own, directly or indirectly, all of the outstanding shares of voting stock of the Seller.

 

“Charges” shall mean all taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem,
 
27

 
value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation and property taxes, custom duties, fees, assessments, liens, claims and charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts, imposed by any taxing or other authority, domestic or foreign, upon the Seller or any of its Affiliates.

 

“Collateral” means all of the Seller’s property, whether now owned or hereafter acquired or arising and wherever located, including, without limitation, the following types or items of property:

 

i.                       Accounts;

 

ii.                    Chattel Paper;

 

iii.                 Contracts;

 

iv.                Investment
Property;

 

v.                   Inventory;

 

vi.                Equipment;

 

vii.             General
Intangibles and Intellectual Property Collateral;

 

viii.          Goods;

 

ix.                  Instruments and
letters of credit;

 

x.                     Deposit Accounts;

 

xi.                  money, cash or
cash equivalents;

 

xii.               money, cash,
cash equivalents and other assets of Seller that now or hereafter come into the
possession, custody, or control of any member of the Seller; and

 

(m) to the extent not otherwise included, all of the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of each of the foregoing, and any and all Accounts, Investment Property, Inventory, Equipment, General Intangibles, money or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof.
 
“Collection Accounts” means those accounts shown on Exhibit III, as the same may be amended from time to time by the Buyer in accordance with the terms hereof.
 
 “Collection Records” means, with respect to any Receivable, all Invoices and all other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) relating to amounts paid on or owing in respect of such Receivable.
 
28

 
“Collections” means, with respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without limitation, all Finance Charges or other related amounts accruing in respect thereof and all cash proceeds of Related Security with respect to such Receivable.
 
“Collection Fee” means the fee charged by Seller to advance the Purchase Price and to collect the Receivables, which fee shall equal five percent (5%) of the Original Balance.
 
“Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a letter of credit.
 
“Contract” means, with respect to any Receivable, any and all instruments and agreements, if any, pursuant to which such Receivable arises but excluding any Invoice.

 

“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.
 
“Credit and Collection Policy” means the Seller’s credit and collection policies and practices relating to Contracts and Receivables existing on and as administered historically prior to the date hereof and summarized in Exhibit V, as modified from time to time in accordance with the Agreement.
 
“Default Rate” means a per annum rate of interest equal to 15% per annum; provided, however, that such Default Rate shall not at any time exceed the maximum rate permitted by applicable law.
 
“Defaulted Receivable” means a Receivable: (i) as to which the Obligor thereof has suffered an Event of Bankruptcy; (ii) which, consistent with the Credit and Collection Policy, would be written off Seller’s books as uncollectible; or (iii) as to which any payment, or part thereof, remains unpaid for 91 days or more from the original due date for such payment.
 
 “Delinquent Receivable” means a Receivable as to which any payment, or part thereof, remains unpaid for 31-60 days from the original due date for such payment.
 
“Eligible Receivable” means, at any time, a Receivable:
 
(i)            the Obligor of which (a) if a natural person, is a resident of the United States or, if a corporation or other business organization, is organized under the laws of the United States or any political subdivision of the United States and has its chief executive office in the United States; (b) is not an Affiliate of any of the parties hereto; and (c) is not a government or a governmental subdivision or agency,
 
(ii)           which is not a Defaulted Receivable,
 
29

 
(iii)          which was not a Delinquent Receivable on the Closing Date.
 
(iv)          which (A) by its terms is due and payable within 30 days of the original billing date therefor, and  (B) has not had its payment terms extended more than once.
 
(v)           which is an “account,” a “general intangible” or “chattel paper” within the meaning of Article 9 of the UCC in the applicable jurisdiction, and is not evidenced by an “instrument” within the meaning of Article 9 of the UCC,
 
(vi)          which is denominated and payable only in United States Dollars in the United States,
 
(vii)         which is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor enforceable against such Obligor in accordance with its terms,
 
(viii)        which (A) does not require the Obligor’s consent to the transfer, sale, pledge or assignment of the rights of the Seller under the applicable Contract or Invoice and (B) does not contain a confidentiality provision that purports to restrict the ability of the Buyer to exercise its rights under this Agreement, including, without limitation, its right to review the Contract or Invoice applicable thereto,
 
(ix)           which represents an obligation to pay a specified sum of money, contingent only upon (A) the sale of goods or the provision of services by the applicable Seller (which sale has been consummated or services have been performed), and (B) satisfaction by the Seller of any applicable warranty claims which have not yet been made or asserted,
 
(x)            which does not contravene any law, rule or regulation applicable thereto (including, without limitation, any law, rule and regulation relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy),
 
(xi)           which satisfies all applicable requirements of the applicable Credit and Collection Policy,
 
(xii)          which was generated in the ordinary course of the applicable Seller’s business,
 
(xiii)         which arises solely from the sale (and not the lease) of goods or the provision of services to the related Obligor by the applicable Seller or a predecessor to the Seller, and not by any other Person(in whole or in part),
 
(xiv)        which is not the subject of, to the Seller’s knowledge, any dispute, counterclaim, right of rescission, set-off, counterclaim or any other defense (including defenses arising out of violations of usury laws) of the applicable Obligor against the applicable Seller or any other Adverse Claim, and the Obligor thereon holds no right as against such Seller to cause the Seller to repurchase the goods or merchandise the sale of which shall have given rise to such Receivable (except with  respect to sale discounts effected pursuant to the Contract, or defective goods returned in accordance with the terms of the Contract); provided, however, that if such dispute, offset, counterclaim or defense affects only a portion of the Outstanding Balance of such Receivable, then such Receivable may be deemed an Eligible Receivable to the extent of the portion of such Outstanding Balance which is not so affected, and provided, further, that Receivables of any Obligor which has any accounts payable by    the Seller or by a wholly-owned Subsidiary of such Seller (thus giving rise to a potential offset against such Receivables) may be treated as Eligible Receivables to the extent that the Obligor of such Receivables has agreed 
 
30

 
pursuant to a written agreement in form and substance satisfactory to the Buyer, that such Receivables shall not be subject to such offset,
 
(xv)         as to which the applicable Seller has satisfied and fully performed all obligations on its part with respect to such Receivable required to be fulfilled by it, and no further action is required to be performed by any Person with respect thereto other than payment thereon by the applicable Obligor, and
 
(xvi)        as to which each of the representations and warranties  contained in Sections 2.1(i), (1) and (s) is true and correct.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder.
 
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with Seller within the meaning of Section 4 14(b)or (c) of the Code (and Sections 4 14(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
 
“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by Seller or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001 (a) (2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by Seller or any ERISA Affiliate from a Multiemployer Plan or notification that a  Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 404 IA of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Tide IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Seller or any ERISA Affiliate.
 
“Event of Default” has the meaning set forth in Section 5.1 of the Agreement.
 
“Finance Charges” means, with respect to any Contract, any finance, interest, late payment charges or similar charges owing by an Obligor pursuant to such Contract.
 
“Governmental Body” shall mean any nation or government, any state, province or other political subdivision thereof or any entity exercising the legislative, judicial, regulatory or administrative functions of or pertaining to a government.
 
“Indebtedness” of a Person means such Person’s (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person’s business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) capitalized lease obligations, (vi) net liabilities under interest rate swap, exchange or cap agreements, (vii) Contingent Obligations and (viii) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA.
 
31

 
“Closing Date” means the day that this Agreement is executed by all of the parties hereto as reflected on the signature page of this Agreement.
 

“Intellectual Property Collateral” means all of
Seller’s right, title and interest in and to the following:

 

(a)               Copyrights, Trademarks, Patents, and Mask
Works;

(b)              Any and all trade secrets, and any and all
intellectual rights in computer software and computer software products now or
hereafter existing, created, acquired or held;

(c)               Any and all design rights which may be
available to Seller now or hereafter existing, created, acquired or held;

(d)              Any and all claims for damages by way of
past, present and future infringement of any of the rights included above, with
the right, but not the obligation, to sue for and collect such damages for said
use or infringement of the intellectual property rights identified above;

(e)               All licenses or other rights to use any of
the Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;

(f)                 All amendments, renewals and extensions of
any of the Copyrights, Trademarks, Patents or Mask Works; and

(g)              All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.

 

“Invoice” means any paper or
electronic invoice evidencing any Receivable.

 

“Lien” shall mean any
mortgage, deed of trust, pledge, hypothecation, assignment, security interest,
lien (whether statutory or otherwise), Charge, claim or encumbrance, or
preference, priority or other security agreement or preferential arrangement
held or asserted in respect of any asset of any kind or nature whatsoever
including, without limitation, any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of
the foregoing, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code or comparable law of any jurisdiction.

 
“Lock-Boxes” means those lock-boxes shown on Exhibit III, as the same may  be amended from time to time by the Buyer in accordance with the terms hereof.
 

 

“Mask Works” means all mask works or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired.

 
“Material Adverse Effect” means a material adverse effect on (i) the financial condition or results of operations of Parent and its Subsidiaries, considered as a whole, (ii) the ability of Seller to perform its obligations under this Agreement or any other Transaction Document to which such Seller is a party, (iii) the legality, validity or enforceability of this Agreement or any other Transaction Document to which the Seller is a party, (iv) Seller’s, the Buyer’s interest in the Receivables generally or in any significant portion of the Receivables or the Related Security with respect thereto, or (v) the collectibility of the Receivables generally or of any material portion of the Receivables.
 
32

 

“Material Subsidiary” means,
as of the date of any determination thereof, any Subsidiary that either: (a)
owns assets having a book value equal to or greater than 5% of the consolidated
total assets shown on the consolidated balance sheet of Parent and its
consolidated subsidiaries, or (b) had net income for any prior period of four
consecutive fiscal quarters equal to or greater than 5% of the Parent’s and its
consolidated subsidiaries consolidated net income shown on the statements of
earnings for the same four fiscal quarter period.

 

“Monthly Reporting Date”
means the 10th business day of each calendar month hereafter (or if
any such day is not a Business Day, the next succeeding Business Day
thereafter).

 

“Multiemployer Plan” means a
“multiemployer plan,” within the meaning of Section 4001(a)(3) of ERISA, to
which Seller or any ERISA Affiliate makes, is making, or is obligated to make
contributions or, during the preceding three calendar years, has made, or been
obligated to make, contributions.

 

“Obligor” means a Person
obligated to make payments on a Receivable.

 
“Obligations” shall mean and include any and all loans, advances, debts, liabilities, obligations, covenants and duties owing by the Seller to the Buyer or to any other direct or indirect subsidiary or affiliate of the Buyer of any kind or nature, present or future (including, without limitation, any interest accruing thereon after maturity, or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to the Seller, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether or not evidenced by any note, guaranty or other instrument, whether arising under any agreement, instrument or document, (including, without limitation, this Agreement) whether or not for the payment of money, whether arising by reason of an extension of credit, opening of a letter of credit, loan, equipment lease or guarantee, under any interest or currency swap, future, option or other similar agreement, or in any other manner, whether arising out of overdrafts or deposit or other accounts or electronic funds transfers (whether through automated clearing houses or otherwise) or out of the Buyer’s non-receipt of or inability to collect funds or otherwise not being made whole in connection with depository transfer check or other similar arrangements, whether direct or indirect (including those acquired by assignment or participation), absolute or contingent, joint or several, due or to become due, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, regardless of how such indebtedness or liabilities arise or by what agreement or instrument they may be evidenced or whether evidenced by any agreement or instrument, including, but not limited to, any and all of the Seller’s obligations under Section 1.2(e) and Section 1.3 of this Agreement to purchase certain Receivables from Buyer, and/or liabilities under this Agreement, or under any other agreement between the Buyer and the Seller and any amendments, extensions, renewals or increases and all costs and expenses of the Buyer incurred in the documentation, negotiation, modification, enforcement, collection or otherwise in connection with any of the foregoing, including but not limited to reasonable attorneys’ fees and expenses and all obligations of the Seller to the Buyer to perform acts or refrain from taking any action.
 

“Organizational Documents”
means, for any Person, the documents for its formation and organization, which,
for example, (a) for a corporation are its corporate charter and bylaws, (b)
for a partnership are its certificate of partnership (if applicable) and
partnership agreement, (c) for a limited liability company are its certificate
of formation or organization and its operating agreement, regulations or the
like and (d) for a trust is the trust agreement, declaration of trust,
indenture or bylaws under which it is created.

 
33

 

“Original Balance” means $584,592.50
which is the sum of the outstanding balance of the Receivables owed to Seller
as of the Closing Date.

 

“Seller” has the meaning set
forth in the preamble to the Agreement.

 

“Other Records” means, with
respect to any Receivable: (a) all Contracts and (b) all other documents,
books, records and other information (including, without limitation, computer
programs, tapes, disks, punch cards, data processing software and related
property and rights) relating to the creditworthiness of any Obligor in respect
thereof.

 

“Outstanding Balance” of any
Receivable at any time means then outstanding principal balance thereof.

 

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

 

“Parent” means Odetics,
Inc., a Delaware corporation, and its successors.

 

“PBGC” means the Pension
Benefit Guaranty Corporation, or any successor thereto.

 

“Pension Plan” means a
pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA
which Seller sponsors or maintains, or to which it makes, is making, or is
obligated to make contributions, or in the case of a multiple employer plan (as
described in Section 4064(a) of ERISA) has made contributions at any time
during the immediately preceding five plan years.

 

“Person” means an
individual, partnership, corporation (including a business trust), limited
liability company, joint stock company, trust, unincorporated association,
joint venture or other entity, or a government or any political subdivision or
agency thereof.

 

“Plan” means an employee
benefit plan (as defined in Section 3(3) of ERISA) which Seller or any of its
ERISA Affiliates sponsors or maintains or to which Seller or any of its ERISA
Affiliates makes, is making, or is obligated to make contributions and includes
any Pension Plan, other than a Plan maintained outside the United States
primarily for the benefit of Persons who are not U.S. residents.

 

“Purchase” means the
purchase by the Buyer from Seller pursuant to Section 1.1(a) of the Agreement
of the Receivables originated by the Seller and the Related Security related
thereto, together with all related rights in connection therewith.

 

“Purchase Price” means, with
respect to the Purchase from the Seller, the aggregate price to be paid by the
Buyer to the Seller for the Purchase in accordance with Section 1.2 of the
Agreement, which price is further described in Exhibit VI.

 

“Receivables” means the
indebtedness and other obligations owed to Seller as of the date of this
Agreement as described in the attached Schedule I which schedule reflects
a copy of each invoice and the balance owed by the customer with respect to
such invoices, together with the obligation, if any, to pay any Finance Charges
with respect thereto and all proceeds thereof. The individual invoices and any
amounts owed with respect to a particular invoice may be referred to in this
Agreement as a “Receivable” and all of the invoices collectively as the “Receivables.”
For 

 

34

 

purposes of this Agreement, indebtedness and
other rights and obligations arising from any one transaction, including,
without limitation, indebtedness and other rights and obligations represented
by an individual invoice, shall constitute a Receivable separate from a
Receivable consisting of the indebtedness and other rights and obligations
arising from any other transaction; provided, further, that any indebtedness,
rights or obligations referred to in the immediately preceding sentence shall
be a Receivable regardless or whether the account debtor or the Seller treats
such indebtedness, rights or obligations as a separate payment obligation.

 
“Related Security” means, with respect to any Receivable:
 
(i)      all of the applicable Seller’s interest, if any, in the goods (including returned or repossessed goods), the sale of which by the Seller gave rise to such Receivable,
 
(ii)     all other security interests or liens and property  subject thereto from time to time, if any, purporting to secure payment of such Receivable, together with all financing statements and security agreements describing any collateral securing such Receivable,
 
(iii)    all guaranties, letters of credit, credit insurance and other agreements or arrangements of whatever character from time to time supporting payment of such Receivable,
 
(iv)    all service contracts and agreements, if any, associated with such Receivable,
 
(v)     all Collections, and
 
(vi)    all other proceeds and insurance proceeds of any of the foregoing or of any Receivable.
 
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder.
 
“Responsible Financial Officer” means chief financial officer.
 

“Subsidiary” shall mean a corporation or other
entity of whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other Persons performing similar functions
for such entity, are owned, directly or indirectly, by such Person.

 

“Taxes” means all taxes, surtaxes, duties, levies,
imposts, rates, fees, assessments, withholdings, dues and other charges of any
nature imposed by any Governmental Body (including income, capital (including
large corporations), withholding, consumption, sales, use, transfer, goods and
services or other value-added, excise, customs, anti-dumping, countervail, net
worth, stamp, registration, franchise, payroll, employment, health, education,
business, school, property, local improvement, development, education
development and occupation taxes, surtaxes, duties, levies, imposts, rates,
fees, assessments, withholdings, dues and charges) together with all fines,
interest, penalties on or in respect of, or in lieu of or for non-collection of,
those taxes, surtaxes, duties, levies, imposts, rates, fees, assessments,
withholdings, dues and other charges (excluding taxes imposed on the net income
or capital of the Seller); excluding, however, the following:  taxes imposed on the net income or capital
of the Seller by the jurisdiction under the laws of which the Seller is
organized or is resident or carrying on business

 

35

 

or any political subdivision thereof and taxes imposed on its net
income or capital by the jurisdiction the Seller’s applicable lending office or
any political subdivision thereof

 
“Transaction Documents” means, collectively, this Agreement and all exhibits and schedules relating thereto.
 
“Uniform Commercial Code”  means the California Uniform Commercial Code in effect from time to time.

 

“Uniform Commercial Code Terms.” All terms used herein and defined in the Uniform Commercial Code as in effect from time to time in the State of California shall have the meaning given therein unless otherwise defined herein.
 
“Unmatured Event of Default” means an event which, with the passage of time or the giving of notice, or both, would constitute a Event of Default.
 
All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the Uniform Commercial Code in the State of CALIFORNIA, and not specifically defined herein, are used herein as defined in such
Article 9.
 
Exhibit II
 
 
Places of Business; Locations of Collection Records
 
Places of Business and Location of Collection Records:
 

	
   

  	
  Odetics,
  Inc.

  
	
   

  	
  1515 S. Manchester Avenue

  
	
   

  	
  Anaheim, CA 92802

  
	
   

  	
  Attention:      Chief Financial
  Officer

  
	
   

  	
  Telecopier:     (714) 780-7857

  

 
Legal, Trade and Assumed Names: Zyfer, Inc.
 
EXHIBIT III
 
Lock-Boxes and Collection Accounts
 
LOCK-BOX: none at this time.
 
BUYER’S COLLECTION ACCOUNT:
 
Bank: City National Bank
Account No. 402 136 685
 
ABA No.
 
36

 
The foregoing may be changed by the Buyer at any time upon 15 days prior written notice to the Seller.
 
Exhibit IV
 
Form of Compliance Certificate
 
 
This Compliance Certificate is furnished pursuant to that certain Receivables Purchase Agreement dated as of October 18, 2002, between Odetics, Inc. and TECHNOLOGY LENDING PARTNERS, LLC (as amended, restate or otherwise modified from time to time in accordance with the Transaction Documents, the “Agreement”). Capitalized terms used and not otherwise defined herein are used with the meanings attributed thereto in the Agreement.
 
THE UNDERSIGNED HEREBY CERTIFIES:
 
1.         I am the duly elected                         and, accordingly, a Responsible Financial Officer, of Odetics, Inc., a Delaware corporation (the “Parent”).
 
2.         I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of Parent and its Subsidiaries during the accounting period covered by the attached financial statements.
 
3.         The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Event of Default or an Unmatured Event of Default, as each such term is defined under the Agreement, during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate.
 
4.         Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Parent and its Subsidiaries have taken, is taking, or proposes to take with respect to each such condition or event: see below.
 
The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this        day of October, 2002.
 

	 
	 
	 
	 
	 

	 
	 
	 
	Name:
	 
	 

	 
	 
	 
	Title: 
	 
	 

	 
	 
	 
	 

 
37

 
Exhibit V
 
Credit and Collection Policy
 
[see Schedule A]
 
Exhibit VI
 
Purchase Price
 

	Aggregate Outstanding Balance of Receivables as of the date hereof:
	 
	$
	584,592.50
	 

	 
	 
	 
	 

	Less:       Collection Fee(5%)
	 
	$
	29,229.62
	 

	 
	 
	 
	 

	Equals: Gross Purchase Price Payable:
	 
	$
	555,362.88
	 

	 
	 
	 
	 

	Less Discount: (20% of Outstanding Balance):
	 
	$
	[116,918.50
	]

	 
	 
	 
	 

	Equals: Net Cash Purchase Price:
	 
	$
	438,444.38
	 

 
Schedule A
 
DOCUMENTS TO BE DELIVERED TO BUYER
ON OR PRIOR TO THE CLOSING
 
1.                    Executed copies of the Receivables Purchase Agreement, duly executed by the parties thereto.
 
2.       Credit and Collection Policy: Seller intends to pursue prompt collection per its normal collection procedures and a written copy of such procedures is waived.
 
3.                    A certificate of the Seller’s Secretary certifying:
 
(a)       A copy of the Resolutions of the Board of Directors of such Seller, authorizing Seller’s execution, delivery and performance of the Receivables Purchase and Sale Agreement and the other documents to be delivered by it thereunder;
 
(b)      A copy of the Organizational Documents of the Seller (also certified, to the extent that such documents are filed with any governmental authority, by the Secretary of State of the jurisdiction of organization of the Seller on or within thirty (30) days prior to closing);
 
(c)       Good Standing Certificates for the Seller issued by the Secretaries of State of its state of incorporation and the State of CALIFORNIA; and
 
38

 
(d)      The names and signatures of the officers authorized on its behalf to execute the Receivables Purchase Agreement and any other documents to be delivered by it thereunder.
 
4.       Duly executed UCC financing statements, in form appropriate for filing in all jurisdictions as may be necessary or, in the opinion of the Buyer desirable, under the UCC of all appropriate jurisdictions or any comparable law in order to perfect the transfer of the ownership interests contemplated by the Receivables Purchase Agreement.
 
6.       Duly executed UCC termination statements, in form suitable for filing, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts Related Security previously granted by the Seller.
 
7.       A Certificate of a Responsible Financial Officer of the Seller certifying that, as of the Closing date, no Event of Default or Unmatured Event of Default exists and is continuing.
 
8.       Executed copies of (i) all consents from and authorizations by any Persons and (ii) all waivers and amendments to existing credit facilities, that are necessary in connection with the Receivables Purchase Agreement.
 
39

 
SCHEDULE I
 
List of Receivables:
 
Zyfer, Inc. invoice number 140-945, 140 944, 140 936,140 938.
 
40

 
AMENDMENT NUMBER ONE TO
RECEIVABLES PURCHASE AGREEMENT
 
 
Dated as of November 27, 2002
 
 
among
 
 
Odetics, Inc.,
 
and
 
 
TECHNOLOGY LENDING PARTNERS, LLC,
 
as the Buyer
 
1

 
AMENDMENT NUMBER ONE TO RECEIVABLES PURCHASE AGREEMENT
 
THIS AMENDMENT NUMBER ONE TO RECEIVABLES PURCHASE AGREEMENT (“Agreement”), dated as of November 27, 2002, is by and among Odetics, Inc., a Delaware corporation (“Seller”), and Technology Lending Partners, LLC, a California limited liability company (“Buyer”). This Agreement is intended to amend and modify the terms of that certain Receivables Purchase Agreement (“Original Agreement”) dated October 18, 2002 among Seller and Buyer as described herein. Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I of  the Original Agreement.
 
 
PRELIMINARY STATEMENTS
 
A. The parties hereto intend to amend the Original Agreement to provide for an additional purchase of specific accounts receivables (the “Receivables”), which are listed in Schedule I attached hereto, and that all transfers of such Receivables hereunder, be true sales to the Buyer by the Seller of the Receivables originated by it, providing the Buyer with the full benefits of ownership of such Receivables, and the Seller and the Buyer do not intend these transactions to be, or for any purpose to be characterized as loans from the Buyer to the Seller. Reference to “Receivables” in this Agreement shall mean the accounts receivable that are described in Schedule I attached hereto
 
B. The parties intend that the purchase of the Receivables herein shall be governed by all of  the terms and conditions of the Original Agreement except as specifically provided for herein.
 
NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
 
1.  Purchase of Receivables.
 
(a) Effective on the Closing Date, in consideration for the purchase price to be paid to the Seller and upon the terms and subject to the conditions set forth herein, the Seller does hereby sell, assign, transfer, set-over and otherwise convey to the Buyer, and the Buyer does hereby purchase from the Seller, all of the Seller’s right, title and interest in and to the Receivables, together, in each case, with all Related Security relating thereto. In accordance with the preceding sentence, on the Closing Date,  the Buyer shall acquire all of the Seller’s right, title and interest in and to the Receivables, together with all of the Seller’s rights in and to all Related Security relating thereto. The Buyer shall be obligated to pay the purchase price for the Receivables purchased hereunder from the Seller in accordance with Section 2 herein.
 
(b) On each Monthly Reporting Date, the Buyer shall submit a report to Seller which reflects the details of the Collections relating to the Receivables received since the Closing Date.
 
(c) It is the intention of the parties hereto that the purchase of Receivables from Seller made hereunder shall constitute a sale, which sale is absolute and irrevocable and 
 
2

 
provides the Buyer with the full benefits of ownership of the Receivables originated by the Seller. The sale of Receivables hereunder by the Seller is made with recourse to Seller as described herein, and this sale does not constitute and is not intended to result in an assumption by the Buyer or any assignee thereof of any obligation of the Seller or any Person arising in connection with the Receivables, the related Contracts and /or other Related Security or any other obligations of the Seller. In view of the intention of the parties hereto that the purchase of Receivables hereunder shall constitute a sale of such Receivables rather than loans secured thereby, the Seller agrees that it will, on or prior to the date hereof and in accordance with Section 4.1 (e)(ii) of the Original Agreement, mark its master data processing records relating to the Receivables originated by it with a legend properly evidencing that the Buyer has purchased such Receivables as provided in this Agreement and to appropriately disclose in its financial statements that its Receivables have been sold to the Buyer. Upon the request of the Buyer, the Seller will execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate perfect and maintain the perfection of the Buyer’s ownership interest in the Receivables originated by such Seller and the Related Security with respect thereto, or as the Buyer may reasonably request.
 
2.  Payment for the Purchase.
 
(a)  The purchase price (“Purchase Price”) in the amount of $300,252.35 for the Purchase from the Seller of the Receivables, as described in Exhibit I attached hereto, shall be payable in full at the Closing  by the Buyer to the Seller in immediately available funds, less legal fees incurred by Buyer in connection with the drafting and execution of this Agreement (“Legal Fees”).
 
(b)  The Purchase Price reflects in part a 20% discount (the “Discount”) from the Original Balance of the Receivables. A portion of the Discount expressed as a percentage of the Original Balance of the Receivable in question shall be rebated (“Rebate”) and paid to Seller as described below:
 

	Days until Receivable is collected
(commencing on the Closing Date)
	 
	Rebate of Discount
	 
	Net Discount
	 

	10 or less
	 
	19.5
	%
	.5
	%

	11-20 days
	 
	19
	%
	1
	%

	21-30 days
	 
	18.5
	%
	1.5
	%

	31-40
	 
	18
	%
	2
	%

	41-50
	 
	17.5
	%
	2.5
	%

	51-60
	 
	17
	%
	3.0
	%

	61-70
	 
	16.5
	%
	3.5
	%

	71-80
	 
	16
	%
	4
	%

	81-90
	 
	15.5
	%
	4.5
	%

	each 10 days thereafter
	 
	subtract an additional 1⁄2
	%
	add an additional  1⁄2
	%

 
The manner of determining the applicable Rebate and when it shall be paid is described in Section 1.2(b) of the Original Agreement.
 
(c) The Rebate shall be determined by Buyer and paid to Seller within 5 days after the earlier of (a) Buyer has received Collections equal to 100% of the Original Balance of 
 
3

 
Receivables, or (b) Buyer receives Collections from Receivables equal to the sum of the following: $300,252.35 plus the Collection Fee of $20,016.82 plus the Net Discount then due and applicable as of the date in question plus Legal Fees. In the case of subparagraph (b) in the preceding sentence, the Rebate would not be paid in cash but would be payable solely in the form of an assignment without recourse by Buyer of the uncollected Receivables to Seller. An example of the foregoing is described in Section 1.2(b) of the Original Agreement.
 
(d) The amount of the applicable Rebate, if any, shall be reduced by the amount of the accrued unpaid interest, if any, and all costs and expenses and indemnification obligations owed by Seller under the terms of this Agreement.  Upon payment in full of all amounts owed to Buyer under this Agreement, Buyer shall assign the remaining uncollected Receivables, if any, to Seller without recourse and on an as is basis and without any warranties and representations.
 
(e) If for any reason and to the extent Buyer does not receive Collections equal to 100% of the Original Balance by the date that is 120 days after the Closing Date, upon written demand by Buyer (the “Buy Back Notice”), which demand made be made by Buyer at any time on or after such 120 day period, Seller agrees to purchase the applicable  remaining uncollected Receivables (the “Sold Back Receivables”) from Buyer upon demand and in accordance with the following: (1) the purchase price for such Sold Back Receivables shall equal (1) the Outstanding Balance of the Sold Back Receivables, less the original 20% Discount, and plus the Net Discount that would have applied if the Sold Back Receivables were collected on the Sold Back Closing Date (defined below),  plus accrued interest at the Default Rate on such purchase price amount accruing commencing on the 120th day after the Closing Date (2) the closing (“Sold Back Closing Date”) of the purchase by Seller of the Sold Back Receivables shall occur by no later than 5 days after Buyer sends the Buy Back Notice to Seller; (3) the purchase price shall be paid by Seller without offset or deduction and in good funds at the Sold Back Closing Date by wire transfer to Buyer’s designated account; (4) Upon receipt by Buyer of the purchase price in good funds as described above in this paragraph, Buyer shall execute and deliver to Seller such documents as are reasonably necessary to terminate Buyer’s security interest in such Sold Back Receivables and to transfer, assign and sell the Sold Back Receivables and Related Security, without recourse, to Seller, and without any warranties or representations, express or implied, except that Buyer shall warrant that such Sold Back Receivables have not been liened or encumbered or assigned by Buyer except as provided for in this Agreement.
 
(f) An example of the calculation of the purchase price for Sold Back Receivables that Seller will be required to pay as described above in paragraph 2(e) above is described in the Original Agreement.
 
 
3.  The Purchase from Seller under this Agreement is subject to the conditions precedent that the Buyer shall have received on or before the date thereof the documents listed on Schedule A attached hereto.
 
4. Notwithstanding the foregoing conditions precedent, and subject to the Seller’s receipt of payment of the Purchase Price for any Receivable, all of the Seller’s right, title and interest in and under such  Receivable and the Related Security with respect thereto shall vest in the Buyer, whether or not the conditions precedent to the Buyer’s obligation to pay for such Receivable were 
 
4

 
in fact satisfied. The failure of the Seller to satisfy any of the foregoing conditions precedent may, however, give rise to a claim for indemnity under Article VI of the Original Agreement.
 
5. Article V (Event of Default) of the Original Agreement is hereby amended for clarification as follows::
 
(a)                                Section 5.1(a) of the Original Agreement is hereby restated  as follows: “ (a)     The Seller shall fail to make any payment required hereunder (and/or under any amendments to this Agreement) when due, or to perform or observe any term, covenant or agreement hereunder or under any other Transaction Document to which it is a party and such failure shall continue for 20 days after written notice of such failure is given.”
(b)                               Section 5.1(b) of the Original Agreement is hereby restated as follows: “The Seller fails to perform or observe in any material respect, within 15 days after written notice thereof, any other material term, covenant or agreement contained in this Agreement or any amendment to this Agreement that may be entered into from time to time or any Transaction Document on its part to be performed or observed;”
(c)                                  Section 5.1(c) of the Original Agreement is hereby restated as follows: “The Buyer shall fail to have a valid and enforceable first priority, perfected (i)ownership interest in, or (ii) security interest in, each Receivable herein as well as each Receivable purchased by Buyer pursuant to any amendments to this Agreement and the associated Related Security, and in the Collateral, in each case free and clear of any Adverse Claim;
 
6.                 If there is an Event of Default under the Original Agreement, as modified by this Agreement, including, without limitation, the failure of Seller to perform any obligations under this Agreement, then all or Buyer’s rights and remedies under Section 5.2 ( Remedies) shall apply.
7.                 Reference to “Receivables” in Section 1.3 through the end of Article VII of the Original Agreement shall mean the Receivables that were purchased under the Original Agreement plus the Receivables that are purchased under this Agreement, as defined in Schedule I, plus any other accounts receivables of Seller that are purchased by Buyer pursuant to any other agreements between Seller and Buyer, if any.
8.                 The Seller shall pay to the Buyer on demand all reasonable costs and out-of-pocket expenses actually incurred in connection with the preparation, execution and delivery of this Agreement, the transactions contemplated hereby and the other documents to be delivered hereunder. In addition to the foregoing, the Seller shall pay, on demand, any and all reasonable costs and expenses, including reasonable counsel fees and expenses, actually incurred by the Buyer in connection with (i) any amendment to or waiver of this Agreement, and/or (ii) the enforcement of this Agreement and the other documents delivered hereunder following an Event of Default.
9.                 Reference to “Obligations” of Seller in the Original Agreement shall include, in addition to all of Seller’s obligations under the Original Agreement, all obligations of Seller under this Agreement and all obligations of Seller under all other agreements, if any, to be entered into between Seller and Buyer from time to time.  Further, the Original Agreement shall not terminate until all obligations of Seller under the Original Agreement and this Agreement are fully satisfied.
10.           With respect to the Receivables and as otherwise provided for in the Original Agreement, the Seller’s warranties and representations contained in Article II of the Original Agreement  and the Seller’s indemnity obligations contained in Article VI of the Original Agreement, 
 
5

 
are hereby incorporated herein by reference, and such warranties and representations plus the warranties and representation made herein,  are being made by Seller as of the date hereof and as of the Closing Date to induce Buyer to enter into  this Agreement, and Buyer has  relied, and will continue to rely, upon such representations and warranties from  and after the date hereof and on the Closing Date and thereafter.
11.           Reference to “Agreement” in the Original Agreement shall mean the Original Agreement as modified by this Agreement.
12.           Reference to “Purchase” in the Original Agreement means: (a) with respect to the accounts receivables that are purchased by the Buyer under the Original Agreement,  the purchase by the Buyer from Seller pursuant to Section 1.1(a) of the Agreement of the Receivables originated by the Seller and the Related Security related thereto, together with all related rights in connection therewith; and (b) with respect to the Receivables that are purchased by the Buyer under this Agreement,  the purchase by the Buyer from Seller pursuant to Section 1 of this Agreement of the Receivables originated by the Seller and the Related Security related thereto, together with all related rights in connection therewith.
13.           The terms of Section 1.3 through the end of Article 7 of the Original Agreement are hereby incorporated herein by reference and shall apply with respect to the Receivables that are the subject of this Agreement.
14.           Seller hereby affirms its obligations to Buyer under the Original Agreement, as amended herein and with respect to the Receivables as described herein, and  Seller agrees to perform all of its obligations under the Original Agreement, as amended pursuant to this Agreement.

15.           Within two (2) days of the Closing Date, the Seller send notice
(“Notice”) to the Obligors of the assignment to Buyer of the Receivables and
Seller shall instruct such Obligors to (a) make all payments directly to Buyer
with regard to the Receivables; and (b) to send all such payments to Buyer’s
address as indicated in the signature block of this Agreement.   Such Notice shall be in a form reasonably
acceptable to Buyer. In addition, if any payments from Obligors are received by
Seller, Seller agrees to immediately: (i) notify Buyer in writing of such
receipt, and (ii) endorse such payments over to Buyer and/or to take such other
actions as  requested by Buyer to cause
such payments to be deposited into Buyer’s bank account, as directed by Buyer.

16.           Except as expressly provided for in this Agreement, all of the terms of
the Original Agreement as amended herein hereby shall continue to apply and
shall remain in full force and effect.

 

17.           MISCELLANEOUS

 
(a)          No failure or delay on the part of the Buyer  in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law.   Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given.
(b)         No provision of this Agreement may be amended, supplemented, modified or waived except in writing signed by the Seller and the Buyer.
(c)          The Original Agreement as modified by this Agreement contain the final and complete integration of all prior expressions by the parties hereto with respect to the sale and collection of the Receivables as defined in Schedule I attached hereto and the Related Security with respect to such Receivables and shall constitute the entire 
 
6

 
agreement among the parties hereto with respect to such subject matter, superseding all prior oral or written understandings with respect to the sale and collection of such Receivables and Related Security.
(d)         This Agreement shall be binding upon and inure to the benefit of the Seller, the Buyer and their respective successors and permitted assigns (including any trustee in bankruptcy). No Seller may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the Buyer. The Buyer may pledge or assign at any time its rights and obligations hereunder and interests herein to any other Person without the consent of Seller. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the  rights and remedies with respect to (i) any breach of any representation and warranty made by Seller herein; and (ii) the indemnification and payment provisions made herein and under the Original Agreement shall be continuing and shall survive any assignment or termination of this Agreement.
(e)          This Agreement may be executed in any number of counterparts and by facsimile (and each party agrees to deliver original signature pages to each other within 2 days of the Closing Date) by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise expressly indicated, all references herein to “Article,” “Section,” “Schedule” or “Exhibit” shall mean articles and sections of, and schedules and exhibits to, this Agreement.
(f)            Buyer and Seller represent and warrant that the officers, directors, controlling persons or managers of Buyer and Seller, respectively, have a preexisting personal or business relationship with the officers, directors, controlling persons or managers of the other party and that each has the capacity to protect its own interests in connection with this Agreement.  Seller further represents and warrants, that the Obligations evidenced by this Agreement are not guaranteed by an individual, a revocable trust having one or more individuals as trustors, or partnership in which, at the time of this Agreement, one or more individuals are general partners.
(g)         The Buyer (and, accordingly, each of its assigns) shall maintain, and shall cause each of its employees, officers and agents to maintain, the confidentiality of any information obtained by it regarding the Seller and in respect of the Receivables (including, without limitation, credit losses and delinquency levels) and any other proprietary or confidential information with respect to the Obligors, the Receivables, and the Seller in communications with third parties; provided, however, such information may be disclosed to third parties to the extent such disclosure is (i) required to comply with any applicable law (including federal and state securities laws) or order of any judicial or administrative proceeding, or (ii) required in response to any summons or subpoena or in connection with any litigation.
 
(Signature pages follows)
 
7

 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof in Anaheim, California.
 
 

	 
	 
	 
	 
	Odetics, Inc., a Delaware corporation

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	By: 
	 

	 
	 
	 
	 
	 
	Name:  
	 

	 
	 
	 
	 
	 
	Title:
	 

	
   

  	
   

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Address:  Odetics, Inc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  1515 S. Manchester Avenue

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Anaheim,
  CA 92802

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Attention:  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Telecopier:

  	
  (714)
  780-7857

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	 
	 
	 
	TECHNOLOGY LENDING PARTNERS, LLC, a 

California limited liability company

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	By: 
	 
	 
	 

	 
	 
	 
	Name:
	Joel Slutzky, Manager
	 
	 

	 
	 
	 
	Date:
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	
   

  	
   

  	
   

  	
  Address:  

  	
  Technology Lending Partners, LLC

  
	
   

  	
   

  	
   

  	
   

  	
  424
  Via Lido Nord

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Newport
  Beach, CA  92663

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Attention:

  	
  Joel
  Slutzky

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Telecopier:

  	
  (949)
  673-5224

  	
   

  
																

 

8

 

Exhibit I
 
Definitions
 
This is Exhibit I to the attached Agreement (as defined therein). As used in the Agreement and the Exhibits and Schedules thereto, capitalized terms have the meanings set forth in Exhibit I of the Original Agreement except for the definitions listed below. (such meanings to be equally applicable to the singular and plural forms thereof). It is intended that any reference to “Receivables” for purposes of this Agreement shall mean the Receivables listed on Schedule I and in all other respects the definitions of Exhibit I of the Original Agreement shall apply to this Agreement except as specifically provided for otherwise in this Exhibit I or in the attached Agreement.
 
“Closing Date” means the day that this Agreement is executed by all of the parties hereto as reflected on the signature page of this Agreement.
 
“Collection Fee” means the fee charged by Seller to advance the Purchase Price and to collect the Receivables, which fee shall equal five percent (5%) of the Original Balance.
 
“Original Balance” means $400, 336.46 which is the sum of the outstanding balance of the Receivables owed to Seller as of the Closing Date.
 
“Outstanding Balance” of any Receivable at any time means then outstanding principal balance thereof.
 
“Purchase Price” means, with respect to the Purchase from the Seller, the aggregate price to be paid by the Buyer to the Seller for the purchase in accordance with Section 1 and 2 of the Agreement, which price is further described in Exhibit III.
 
“Receivables” means the indebtedness and other obligations owed to Seller as of the date of this Agreement as described in the attached Schedule I which schedule reflects a copy of each invoice and the balance owed by the customer with respect to such invoices, together with the obligation, if any, to pay any Finance Charges with respect thereto and all proceeds thereof. The individual invoices and any amounts owed with respect to a particular invoice may be referred to in this Agreement as a “Receivable” and all of the invoices collectively as the “Receivables.” For purposes of this Agreement, indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; provided, further, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless or whether the account debtor or the Seller treats such indebtedness, rights or obligations as a separate payment obligation.
 
9

 
Exhibit II
 
Form of Compliance Certificate
 
This Compliance Certificate is furnished pursuant to that certain Amendment Number One to Receivables Purchase Agreement dated as of November 27, 2002, between Odetics, Inc. and TECHNOLOGY LENDING PARTNERS, LLC (as amended, restate or otherwise modified from time to time in accordance with the Transaction Documents, the “Agreement”). Capitalized terms used and not otherwise defined herein are used with the meanings attributed thereto in the Agreement.
 
THE UNDERSIGNED HEREBY CERTIFIES:
 
1.   I am the duly elected                          and, accordingly, a Responsible Financial Officer, of Odetics, Inc., a Delaware corporation (the “Parent”).
 
2.   I have reviewed the terms of the Agreement and the Original Agreement, I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of Parent and its Subsidiaries during the accounting period covered by the attached financial statements.
 
3.   The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Event of Default or an Unmatured Event of Default, as each such term is defined under the Original Agreement, during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate.
 
4.  Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Parent and its Subsidiaries have taken, is taking, or proposes to take with respect to each such condition or event: 
 

	 

	 

(write “none” if no exceptions).
 
The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this        day of             , 2002.
 

	 
	 
	 
	 
	 

	 
	 
	 
	Name: 
	 
	 

	 
	 
	 
	Title: 
	 
	 

							

 
 
Attachment: financial statements.
 
 
10

 
Exhibit III
Purchase Price
 

	Aggregate Outstanding Balance of Receivables as of the date hereof:
	 
	$
	400,336.46
	 

	 
	 
	 
	 

	Less:  Collection Fee(5%)
	 
	$
	20,016.82
	 

	 
	 
	 
	 

	Equals: Gross Purchase Price Payable:
	 
	$
	380,319.64
	 

	 
	 
	 
	 

	Less Discount: (20% of Outstanding Balance):
	 
	$
	[80,067.29]
	 

	 
	 
	 
	 

	Equals: Net Cash Purchase Price:
	 
	$
	300,252.35
	 

 
 
11

 
Schedule A
 
DOCUMENTS TO BE DELIVERED TO BUYER
ON OR PRIOR TO THE CLOSING
 
1.   Executed copies of Amendment Number One to Receivables Purchase Agreement, duly executed by the parties thereto.
 
2.   A certificate of the Seller’s Secretary certifying:
 
(a)  A copy of the Resolutions of the Board of Directors of such Seller, authorizing Seller’s execution, delivery and performance of the Receivables Purchase and Sale Agreement and the other documents to be delivered by it thereunder; and
 
(d)  The names and signatures of the officers authorized on its behalf to execute the Amendment Number One to Receivables Purchase Agreement and any other documents to be delivered by it thereunder.
 
4.    Duly executed UCC financing statements, in form appropriate for filing in all jurisdictions as may be necessary or, in the opinion of the Buyer desirable, under the UCC of all appropriate jurisdictions or any comparable law in order to perfect the transfer of the ownership interests contemplated by Amendment Number One to Receivables Purchase Agreement.
 
6.   Duly executed UCC termination statements, in form suitable for filing, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts Related Security previously granted by the Seller.
 
7.   A Certificate of a Responsible Financial Officer of the Seller certifying that, as of the Closing date, no Event of Default or Unmatured Event of Default exists and is continuing.
 
8.  Executed copies of (i) all consents from and authorizations by any Persons and (ii) all waivers and amendments to existing credit facilities, that are necessary in connection with this Amendment Number One to Receivables Purchase Agreement.
 
12

 
SCHEDULE I
 
List and description of Receivables:
 

	
  Invoice Listing

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Customer

  	
   

  	
  Customer P.O. #

  	
   

  	
  Invoice Date

  	
   

  	
  Invoice #

  	
   

  	
  Amount

  	
   

  
	
  The Boeing Company

  	
   

  	
  Prime Cont # NAS10-11500,
  Sub P.O. # M5P7XXW-482082

  	
   

  	
  9/4/2002

  	
   

  	
  I40-879

  	
   

  	
  82,489.64

  	
   

  
	
  The Boeing Company

  	
   

  	
  Prime Cont # NAS10-12200,
  Sub P.O. # RR95K0000024

  	
   

  	
  9/4/2002

  	
   

  	
  I40-880

  	
   

  	
  31,792.82

  	
   

  
	
  United Space Alliance

  	
   

  	
  6000075510 C/O #1

  	
   

  	
  11/20/2002

  	
   

  	
  I40-1000

  	
   

  	
  80,654.00

  	
   

  
	
  Harris Corporation

  	
   

  	
  2938900

  	
   

  	
  11/14/2002

  	
   

  	
  I40-977

  	
   

  	
  41,080.00

  	
   

  
	
  Harris Corporation

  	
   

  	
  2938900

  	
   

  	
  11/16/2002

  	
   

  	
  I40-980

  	
   

  	
  164,320.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  400,336.46

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  @ .80

  	
   

  	
  320,269.17

  	
   

  

 

 

[ATTACH COPIES OF INVOICES]

 

 

13

 

AMENDMENT NUMBER TWO TO
RECEIVABLES PURCHASE AGREEMENT
 
 
Dated as of January 7, 2003
 
 
among
 
 
Odetics, Inc.,
 
and
 
 
TECHNOLOGY LENDING PARTNERS, LLC,
 
as the Buyer
 
1

 
AMENDMENT NUMBER TWO TO RECEIVABLES PURCHASE AGREEMENT
 
THIS AMENDMENT NUMBER TWO TO RECEIVABLES PURCHASE AGREEMENT (“Agreement”), dated as of January 7, 2003, is by and among Odetics, Inc., a Delaware corporation (“Seller”), and Technology Lending Partners, LLC, a California limited liability company (“Buyer”). This Agreement is intended to amend and modify the terms of that certain Receivables Purchase Agreement (“Original Agreement”) dated October 18, 2002 among Seller and Buyer as described herein. Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I of the Original Agreement.
 
PRELIMINARY STATEMENTS
 
A.The parties hereto intend to amend the Original Agreement to provide for an additional purchase of specific accounts receivables (the “Receivables”), which are listed in Schedule I attached hereto, and that all transfers of such Receivables hereunder, be true sales to the Buyer by the Seller of the Receivables originated by it, providing the Buyer with the full benefits of ownership of such Receivables, and the Seller and the Buyer do not intend these transactions to be, or for any purpose to be characterized as loans from the Buyer to the Seller. Reference to “Receivables” in this Agreement shall mean the accounts receivable that are described in Schedule I attached hereto
 
B. The parties intend that the purchase of the Receivables herein shall be governed by all of the terms and conditions of the Original Agreement except as specifically provided for herein.
 
NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
 
1.  Purchase of Receivables.
 
(a) Effective on the Closing Date, in consideration for the purchase price to be paid to the Seller and upon the terms and subject to the conditions set forth herein, the Seller does hereby sell, assign, transfer, set-over and otherwise convey to the Buyer, and the Buyer does hereby purchase from the Seller, all of the Seller’s right, title and interest in and to the Receivables, together, in each case, with all Related Security relating thereto. In accordance with the preceding sentence, on the Closing Date,  the Buyer shall acquire all of the Seller’s right, title and interest in and to the Receivables, together with all of the Seller’s rights in and to all Related Security relating thereto. The Buyer shall be obligated to pay the purchase price for the Receivables purchased hereunder from the Seller in accordance with Section 2 herein.
 
(b) On each Monthly Reporting Date, the Buyer shall submit a report to Seller which reflects the details of the Collections relating to the Receivables received since the Closing Date.
 
(c) It is the intention of the parties hereto that the purchase of Receivables from Seller made hereunder shall constitute a sale, which sale is absolute and irrevocable and 

 

2

 

provides the Buyer with the full benefits of ownership of the Receivables originated by the Seller. The sale of Receivables hereunder by the Seller is made with recourse to Seller as described herein, and this sale does not constitute and is not intended to result in an assumption by the Buyer or any assignee thereof of any obligation of the Seller or any Person arising in connection with the Receivables, the related Contracts and /or other Related Security or any other obligations of the Seller. In view of the intention of the parties hereto that the purchase of Receivables hereunder shall constitute a sale of such Receivables rather than loans secured thereby, the Seller agrees that it will, on or prior to the date hereof and in accordance with Section 4.1 (e)(ii) of the Original Agreement, mark its master data processing records relating to the Receivables originated by it with a legend properly evidencing that the Buyer has purchased such Receivables as provided in this Agreement and to appropriately disclose in its financial statements that its Receivables have been sold to the Buyer. Upon the request of the Buyer, the Seller will execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate perfect and maintain the perfection of the Buyer’s ownership interest in the Receivables originated by such Seller and the Related Security with respect thereto, or as the Buyer may reasonably request.
 
2.  Payment for the Purchase.
 
(a) The purchase price (“Purchase Price”) in the amount of $184,975.22 for the Purchase from the Seller of the Receivables, as described in Exhibit I attached hereto, shall be payable in full at the Closing by the Buyer to the Seller in immediately available funds, less legal fees incurred by Buyer in connection with the drafting and execution of this Agreement (“Legal Fees”).
 
(b) The Purchase Price reflects in part a 20% discount (the “Discount”) from the Original Balance of the Receivables. A portion of the Discount expressed as a percentage of the Original Balance of the Receivable in question shall be rebated (“Rebate”) and paid to Seller as described below:
 

	Days until Receivable is collected

(commencing on the Closing Date)
	 
	Rebate of Discount
	 
	Net Discount
	 

	 
	 
	 
	 
	 
	 

	10 or less
	 
	19.5
	%
	.5
	%

	11-20 days
	 
	19
	%
	1
	%

	21-30 days
	 
	18.5
	%
	1.5
	%

	31-40
	 
	18
	%
	2
	%

	41-50
	 
	17.5
	%
	2.5
	%

	51-60
	 
	17
	%
	3.0
	%

	61-70
	 
	16.5
	%
	3.5
	%

	71-80
	 
	16
	%
	4
	%

	81-90
	 
	15.5
	%
	4.5
	%

	each 10 days thereafter
	 
	subtract an additional 1⁄2
	%
	add an additional  1⁄2
	%

 
The manner of determining the applicable Rebate and when it shall be paid is described in Section 1.2(b) of the Original Agreement.
 
(c) The Rebate shall be determined by Buyer and paid to Seller within 5 days after the earlier of (a) Buyer has received Collections equal to 100% of the Original Balance of

 

3

 

Receivables, or (b) Buyer receives Collections from Receivables equal to the sum of the following: $300,252.35 plus the Collection Fee of $12,331.68 plus the Net Discount then due and applicable as of the date in question plus Legal Fees. In the case of subparagraph (b) in the preceding sentence, the Rebate would not be paid in cash but would be payable solely in the form of an assignment without recourse by Buyer of the uncollected Receivables to Seller. An example of the foregoing is described in Section 1.2(b) of the Original Agreement.
 
(d) The amount of the applicable Rebate, if any, shall be reduced by the amount of the accrued unpaid interest, if any, and all costs and expenses and indemnification obligations owed by Seller under the terms of this Agreement.  Upon payment in full of all amounts owed to Buyer under this Agreement, Buyer shall assign the remaining uncollected Receivables, if any, to Seller without recourse and on an as is basis and without any warranties and representations.
 
(e) If for any reason and to the extent Buyer does not receive Collections equal to 100% of the Original Balance by the date that is 120 days after the Closing Date, upon written demand by Buyer (the “Buy Back Notice”), which demand made be made by Buyer at any time on or after such 120 day period, Seller agrees to purchase the applicable remaining uncollected Receivables (the “Sold Back Receivables”) from Buyer upon demand and in accordance with the following: (1) the purchase price for such Sold Back Receivables shall equal (1) the Outstanding Balance of the Sold Back Receivables, less the original 20% Discount, and plus the Net Discount that would have applied if the Sold Back Receivables were collected on the Sold Back Closing Date (defined below),  plus accrued interest at the Default Rate on such purchase price amount accruing commencing on the 120th day after the Closing Date (2) the closing (“Sold Back Closing Date”) of the purchase by Seller of the Sold Back Receivables shall occur by no later than 5 days after Buyer sends the Buy Back Notice to Seller; (3) the purchase price shall be paid by Seller without offset or deduction and in good funds at the Sold Back Closing Date by wire transfer to Buyer’s designated account; (4) Upon receipt by Buyer of the purchase price in good funds as described above in this paragraph, Buyer shall execute and deliver to Seller such documents as are reasonably necessary to terminate Buyer’s security interest in such Sold Back Receivables and to transfer, assign and sell the Sold Back Receivables and Related Security, without recourse, to Seller, and without any warranties or representations, express or implied, except that Buyer shall warrant that such Sold Back Receivables have not been liened or encumbered or assigned by Buyer except as provided for in this Agreement.
 
(f) An example of the calculation of the purchase price for Sold Back Receivables that Seller will be required to pay as described above in paragraph 2(e) above is described in the Original Agreement.
 
 
3.  The Purchase from Seller under this Agreement is subject to the conditions precedent that the Buyer shall have received on or before the date thereof the documents listed on Schedule A attached hereto.
 
4. Notwithstanding the foregoing conditions precedent, and subject to the Seller’s receipt of payment of the Purchase Price for any Receivable, all of the Seller’s right, title and interest in and under such Receivable and the Related Security with respect thereto shall vest in the Buyer, whether or not the conditions precedent to the Buyer’s obligation to pay for such Receivable were 
 
4

 
in fact satisfied. The failure of the Seller to satisfy any of the foregoing conditions precedent may, however, give rise to a claim for indemnity under Article VI of the Original Agreement.
 
5. Article V (Event of Default) of the Original Agreement is hereby amended for clarification as follows::
 
(a)                                Section 5.1(a) of the Original Agreement is hereby restated as follows: “ (a) The Seller shall fail to make any payment required hereunder (and/or under any amendments to this Agreement) when due, or to perform or observe any term, covenant or agreement hereunder or under any other Transaction Document to which it is a party and such failure shall continue for 20 days after written notice of such failure is given.”
(b)                               Section 5.1(b) of the Original Agreement is hereby restated as follows: “The Seller fails to perform or observe in any material respect, within 15 days after written notice thereof, any other material term, covenant or agreement contained in this Agreement or any amendment to this Agreement that may be entered into from time to time or any Transaction Document on its part to be performed or observed;”
(c)                                  Section 5.1(c) of the Original Agreement is hereby restated as follows: “The Buyer shall fail to have a valid and enforceable first priority, perfected (i) ownership interest in, or (ii) security interest in, each Receivable herein as well as each Receivable purchased by Buyer pursuant to any amendments to this Agreement and the associated Related Security, and in the Collateral, in each case free and clear of any Adverse Claim;
 
6.                 If there is an Event of Default under the Original Agreement, as modified by this Agreement, including, without limitation, the failure of Seller to perform any obligations under this Agreement, then all or Buyer’s rights and remedies under Section 5.2 (Remedies) shall apply.
7.                 Reference to “Receivables” in Section 1.3 through the end of Article VII of the Original Agreement shall mean the Receivables that were purchased under the Original Agreement plus the Receivables that are purchased under this Agreement, as defined in Schedule I, plus any other accounts receivables of Seller that are purchased by Buyer pursuant to any other agreements between Seller and Buyer, if any.
8.                 The Seller shall pay to the Buyer on demand all reasonable costs and out-of-pocket expenses actually incurred in connection with the preparation, execution and delivery of this Agreement, the transactions contemplated hereby and the other documents to be delivered hereunder. In addition to the foregoing, the Seller shall pay, on demand, any and all reasonable costs and expenses, including reasonable counsel fees and expenses, actually incurred by the Buyer in connection with (i) any amendment to or waiver of this Agreement, and/or (ii) the enforcement of this Agreement and the other documents delivered hereunder following an Event of Default.
9.                 Reference to “Obligations” of Seller in the Original Agreement shall include, in addition to all of Seller’s obligations under the Original Agreement, all obligations of Seller under this Agreement and all obligations of Seller under all other agreements, if any, to be entered into between Seller and Buyer from time to time.  Further, the Original Agreement shall not terminate until all obligations of Seller under the Original Agreement and this Agreement are fully satisfied.
10.           With respect to the Receivables and as otherwise provided for in the Original Agreement, the Seller’s warranties and representations contained in Article II of the Original Agreement and the Seller’s indemnity obligations contained in Article VI of the Original Agreement, 
 
5

 
are hereby incorporated herein by reference, and such warranties and representations plus the warranties and representation made herein, are being made by Seller as of the date hereof and as of the Closing Date to induce Buyer to enter into  this Agreement, and Buyer has  relied, and will continue to rely, upon such representations and warranties from  and after the date hereof and on the Closing Date and thereafter.
11.           Reference to “Agreement” in the Original Agreement shall mean the Original Agreement as modified by this Agreement.
12.           Reference to “Purchase” in the Original Agreement means: (a) with respect to the accounts receivables that are purchased by the Buyer under the Original Agreement, the purchase by the Buyer from Seller pursuant to Section 1.1(a) of the Agreement of the Receivables originated by the Seller and the Related Security related thereto, together with all related rights in connection therewith; and (b) with respect to the Receivables that are purchased by the Buyer under this Agreement, the purchase by the Buyer from Seller pursuant to Section 1 of this Agreement of the Receivables originated by the Seller and the Related Security related thereto, together with all related rights in connection therewith.
13.           The terms of Section 1.3 through the end of Article 7 of the Original Agreement are hereby incorporated herein by reference and shall apply with respect to the Receivables that are the subject of this Agreement.
14.           Seller hereby affirms its obligations to Buyer under the Original Agreement, as amended herein and with respect to the Receivables as described herein, and Seller agrees to perform all of its obligations under the Original Agreement, as amended pursuant to this Agreement.

15.           Within
two (2) days of the Closing Date, the Seller send notice (“Notice”) to the
Obligors of the assignment to Buyer of the Receivables and Seller shall
instruct such Obligors to (a) make all payments directly to Buyer with regard
to the Receivables; and (b) to send all such payments to Buyer’s address as
indicated in the signature block of this Agreement.   Such Notice shall be in a form reasonably acceptable to Buyer.
In addition, if any payments from Obligors are received by Seller, Seller
agrees to immediately: (i) notify Buyer in writing of such receipt, and (ii)
endorse such payments over to Buyer and/or to take such other actions as
requested by Buyer to cause such payments to be deposited into Buyer’s bank
account, as directed by Buyer.

16.           Except
as expressly provided for in this Agreement, all of the terms of the Original
Agreement as amended herein hereby shall continue to apply and shall remain in
full force and effect.

 

17.           MISCELLANEOUS

 
(a)          No failure or delay on the part of the Buyer in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law.   Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given.
(b)         No provision of this Agreement may be amended, supplemented, modified or waived except in writing signed by the Seller and the Buyer.
(c)          The Original Agreement as modified by this Agreement contain the final and complete integration of all prior expressions by the parties hereto with respect to the sale and collection of the Receivables as defined in Schedule I attached hereto and the Related Security with respect to such Receivables and shall constitute the entire 

 

6

 

agreement among the parties hereto with respect to such subject matter, superseding all prior oral or written understandings with respect to the sale and collection of such Receivables and Related Security.
(d)         This Agreement shall be binding upon and inure to the benefit of the Seller, the Buyer and their respective successors and permitted assigns (including any trustee in bankruptcy). No Seller may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the Buyer. The Buyer may pledge or assign at any time its rights and obligations hereunder and interests herein to any other Person without the consent of Seller. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to (i) any breach of any representation and warranty made by Seller herein; and (ii) the indemnification and payment provisions made herein and under the Original Agreement shall be continuing and shall survive any assignment or termination of this Agreement.
(e)          This Agreement may be executed in any number of counterparts and by facsimile (and each party agrees to deliver original signature pages to each other within 2 days of the Closing Date) by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise expressly indicated, all references herein to “Article,” “Section,” “Schedule” or “Exhibit” shall mean articles and sections of, and schedules and exhibits to, this Agreement.
(f)            Buyer and Seller represent and warrant that the officers, directors, controlling persons or managers of Buyer and Seller, respectively, have a preexisting personal or business relationship with the officers, directors, controlling persons or managers of the other party and that each has the capacity to protect its own interests in connection with this Agreement.  Seller further represents and warrants, that the Obligations evidenced by this Agreement are not guaranteed by an individual, a revocable trust having one or more individuals as trustors, or partnership in which, at the time of this Agreement, one or more individuals are general partners.
(g)         The Buyer (and, accordingly, each of its assigns) shall maintain, and shall cause each of its employees, officers and agents to maintain, the confidentiality of any information obtained by it regarding the Seller and in respect of the Receivables (including, without limitation, credit losses and delinquency levels) and any other proprietary or confidential information with respect to the Obligors, the Receivables, and the Seller in communications with third parties; provided, however, such information may be disclosed to third parties to the extent such disclosure is (i) required to comply with any applicable law (including federal and state securities laws) or order of any judicial or administrative proceeding, or (ii) required in response to any summons or subpoena or in connection with any litigation.
 
(Signature pages follow)
 
7

 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof in Anaheim, California.
 

	 
	Odetics, Inc., a Delaware corporation

	 
	 
	 
	 

	 
	By: 
	 
	 

	 
	Name:
	 
	 

	 
	Title:
	 
	 

	 
	
  Date:

  	 
	 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:  Odetics, Inc.

  
	
   

  	
   

  	
  1515 S.
  Manchester Avenue

  
	
   

  	
   

  	
  Anaheim, CA
  92802

  
	
   

  	
   

  	
  Attention:
  Chief Executive Officer

  
	
   

  	
   

  	
  Telecopier:  (714) 780-7857

  
	
   

  	
   

  	
   

  
	 
	TECHNOLOGY LENDING PARTNERS, LLC, a California limited liability company

	 
	 
	 

	 
	By: 
	 
	 

	 
	Name:
	Joel Slutzky, Manager
	 

	 
	
  Date:

  	 
	 

	 
	 
	 

	
   

  	
  Address:  Technology Lending Partners, LLC

  
	
   

  	
   

  	
  424 Via Lido
  Nord

  
	
   

  	
   

  	
  Newport
  Beach, CA  92663

  
	
   

  	
   

  	
  Attention:    Joel
  Slutzky

  
	
   

  	
   

  	
  Telecopier:  (949)
  673-5224

  
										

 
8

 
Exhibit I
 
Definitions
 
This is Exhibit I to the attached Agreement (as defined therein). As used in the Agreement and the Exhibits and Schedules thereto, capitalized terms have the meanings set forth in Exhibit I of the Original Agreement except for the definitions listed below. (Such meanings to be equally applicable to the singular and plural forms thereof). It is intended that any reference to “Receivables” for purposes of this Agreement shall mean the Receivables listed on Schedule I and in all other respects the definitions of Exhibit I of the Original Agreement shall apply to this Agreement except as specifically provided for otherwise in this Exhibit I or in the attached Agreement.
 
“Closing Date” means the day that this Agreement is executed by all of the parties hereto as reflected on the signature page of this Agreement.
 
“Collection Fee” means the fee charged by Seller to advance the Purchase Price and to collect the Receivables, which fee shall equal five percent (5%) of the Original Balance.
 
“Original Balance” means $246,633.63 which is the sum of the outstanding balance of the Receivables owed to Seller as of the Closing Date.
 
“Outstanding Balance” of any Receivable at any time means then outstanding principal balance thereof.
 
“Purchase Price” means, with respect to the Purchase from the Seller, the aggregate price to be paid by the Buyer to the Seller for the purchase in accordance with Section 1 and 2 of the Agreement, which price is further described in Exhibit III.
 
“Receivables” means the indebtedness and other obligations owed to Seller as of the date of this Agreement as described in the attached Schedule I which schedule reflects a copy of each invoice and the balance owed by the customer with respect to such invoices, together with the obligation, if any, to pay any Finance Charges with respect thereto and all proceeds thereof. The individual invoices and any amounts owed with respect to a particular invoice may be referred to in this Agreement as a “Receivable” and all of the invoices collectively as the “Receivables.” For purposes of this Agreement, indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; provided, further, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless or whether the account debtor or the Seller treats such indebtedness, rights or obligations as a separate payment obligation.
 
9

 
Exhibit II
 
Form of Compliance Certificate
 
 
This Compliance Certificate is furnished pursuant to that certain Amendment Number Two to Receivables Purchase Agreement dated as of January  7, 2003, between Odetics, Inc. and TECHNOLOGY LENDING PARTNERS, LLC (as amended, restate or otherwise modified from time to time in accordance with the Transaction Documents, the “Agreement”). Capitalized terms used and not otherwise defined herein are used with the meanings attributed thereto in the Agreement.
 
THE UNDERSIGNED HEREBY CERTIFIES:
 
1.   I am the duly elected                         and, accordingly, a Responsible Financial Officer, of Odetics, Inc., a Delaware corporation (the “Parent”).
 
2.   I have reviewed the terms of the Agreement and the Original Agreement, I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of Parent and its Subsidiaries during the accounting period covered by the attached financial statements.
 
3.   The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Event of Default or an Unmatured Event of Default, as each such term is defined under the Original Agreement, during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate.
 
4.  Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Parent and its Subsidiaries have taken, is taking, or proposes to take with respect to each such condition or event: 

 

	
   

  
	
  (write
  “none” if no exceptions).

  

 

The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this           day of             , 2003.
 

	 
	 
	 

	 
	Name: 
	 
	 

	 
	Title:
	 
	 

					

 
Attachment: financial statements.
 
10

 
Exhibit III
Purchase Price
 

	Aggregate Outstanding Balance of Receivables

as of the date hereof:
	 
	$
	246,633.63
	 

	 
	 
	 
	 

	Less:  Collection Fee (5%)
	 
	$
	12,331.68
	 

	 
	 
	 
	 

	Equals: Gross Purchase Price Payable:
	 
	$
	234,301.95
	 

	 
	 
	 
	 

	Less Discount: (20% of Outstanding Balance):
	 
	$
	[61,658.41
	]

	 
	 
	 
	 

	Equals: Net Cash Purchase Price:
	 
	$
	184,975.22
	 

 
11

 
Schedule A
 
DOCUMENTS TO BE DELIVERED TO BUYER
ON OR PRIOR TO THE CLOSING
 
1.   Executed copies of Amendment Number Two to Receivables Purchase Agreement, duly executed by the parties thereto.
 
2.    A certificate of the Seller’s Secretary certifying:
 
(a)  A copy of the Resolutions of the Board of Directors of such Seller, authorizing Seller’s execution, delivery and performance of the Receivables Purchase and Sale Agreement and the other documents to be delivered by it thereunder; and
 
(d)  The names and signatures of the officers authorized on its behalf to execute the Amendment Number Two to Receivables Purchase Agreement and any other documents to be delivered by it thereunder.
 
4.    Duly executed UCC financing statements, in form appropriate for filing in all jurisdictions as may be necessary or, in the opinion of the Buyer desirable, under the UCC of all appropriate jurisdictions or any comparable law in order to perfect the transfer of the ownership interests contemplated by Amendment Number Two to Receivables Purchase Agreement.
 
6.   Duly executed UCC termination statements, in form suitable for filing, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts Related Security previously granted by the Seller.
 
7.   A Certificate of a Responsible Financial Officer of the Seller certifying that, as of the Closing date, no Event of Default or Unmatured Event of Default exists and is continuing.
 
8.  Executed copies of (i) all consents from and authorizations by any Persons and (ii) all waivers and amendments to existing credit facilities, that are necessary in connection with this Amendment Number Two to Receivables Purchase Agreement.
 
12

 
SCHEDULE I
 
List and description of Receivables:
 

Invoice Listing

 

	
  Customer

  	
   

  	
  Contract/PO#

  	
   

  	
  Invoice Date

  	
   

  	
  Invoice #

  	
   

  	
  Amount

  	
   

  
	
  United Space Alliance

  	
   

  	
  RR96K0180

  	
   

  	
  10/8/2002

  	
   

  	
  I40-937

  	
   

  	
  93,975.43

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Lockheed Martin Shared Services

  	
   

  	
  605725, ALT#
  11

  	
   

  	
  12/20/2002

  	
   

  	
  I40-1054

  	
   

  	
  83,447.00

  	
   

  
	
  Spawar

  	
   

  	
  GS-24F-1448C

  	
   

  	
  12/16/2002

  	
   

  	
  I40-1038

  	
   

  	
  35,769.60

  	
   

  
	
  Spawar

  	
   

  	
  GS-24F-1448C

  	
   

  	
  12/16/2002

  	
   

  	
  I40-1039

  	
   

  	
  33,441.60

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  246,633.63

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  @ .80

  	
   

  	
  184,975.22

  	
   

  

 

[ATTACH COPIES OF INVOICES]

 

13

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00054-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00054-of-00352.parquet"}]]