Document:

Exhibit 10.4

 

LOAN AND SECURITY AGREEMENT

   

(EXIM PROGRAM)

  

THIS LOAN AND SECURITY
AGREEMENT (EXIM PROGRAM) (this "Agreement") dated as of the Effective Date between SILICON VALLEY BANK, a California
corporation ("Bank"), and LANTRONIX, INC., a Delaware corporation ("Borrower"), provides the terms on which
Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows:

 

1   ACCOUNTING
AND OTHER TERMS

 

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

 

2   LOAN
AND TERMS OF PAYMENT

 

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

 

2.1.1    Revolving
Advances.

 

(a)   Availability.
Subject to the terms and conditions of this Agreement and to deduction of Reserves, Bank will make Advances to Borrower up to an
amount ("Net Borrowing Availability") not to exceed the lesser of: (a) the Revolving Line; or (b) the amounts available
under the Borrowing Base. Notwithstanding the foregoing, the amount of outstanding Advances under this Agreement and that certain
Loan and Security Agreement between Borrower and Bank of approximate even date herewith shall not exceed $5,000,000 in the aggregate.

 

(b)   Streamline
Period. Omitted.

 

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

 

2.1.2    Letters
of Credit Sublimit.

 

(a)   As
part of the Revolving Line, Bank shall issue or have issued Letters of Credit for Borrower's account. The face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed the Availability
Amount. Such aggregate amounts utilized hereunder shall at all times reduce the amount otherwise available for Advances under the
Revolving Line. If, on the Revolving Maturity Date, there are any outstanding Letters of Credit, then on such date Borrower shall
provide to Bank cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit plus all interest,
fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure
all of the Obligations relating to said Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bank
in its sole discretion and shall be subject to the terms and conditions of Bank's standard Application and Letter of Credit Agreement
(the "Letter of Credit Application"). Borrower agrees to execute any further documentation in connection with the Letters
of Credit as Bank may reasonably request. Borrower further agrees to be bound by the regulations and interpretations of the issuer
of any Letters of Credit guarantied by Bank and opened for Borrower's account or by Bank's interpretations of any Letter of Credit
issued by Bank for Borrower's account, and Borrower understands and agrees that Bank shall not be liable for any error, negligence,
or mistake, whether of omission or commission, in following Borrower's instructions or those contained in the Letters of Credit
or any modifications, amendments, or supplements thereto.

 

(b)   The
obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional,
and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the
Letter of Credit Application.

  

     

     

    

   

(c)   Borrower
may request that Bank issue a Letter of Credit payable in a Foreign Currency.

 

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

 

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

 

2.1.3   Foreign
Exchange Sublimit. As part of the Revolving Line, Borrower may enter into foreign exchange contracts with Bank under which
Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency (each, a "FX Forward Contract") on
a specified date (the "Settlement Date"). FX Forward Contracts shall have a Settlement Date of at least one (1) FX Business
Day after the contract date and shall be subject to a reserve of ten percent (10%) of each outstanding FX Forward Contract in a
maximum aggregate amount equal to $2,000,000 (the "FX Reserve"). The aggregate amount of FX Forward Contracts at any one
time may not exceed ten (10) times the amount of the FX Reserve.

  

2.1.4   Cash
Management Services Sublimit. Borrower may use up to $2,000,000 (the "Cash Management Services Sublimit") of the Revolving
Line for Bank's cash management services which may include merchant services, direct deposit of payroll, business credit card,
and check cashing services identified in Bank's various cash management services agreements (collectively, the "Cash Management
Services"). Any amounts Bank pays on behalf of Borrower or any amounts that are not paid by Borrower for any Cash Management
Services will be treated as Advances under the Revolving Line and will accrue interest at the interest rate applicable to Advances.

 

2.1.5   Overall
Aggregate Sublimit. In no event shall the total amount of (i) outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve), and (ii) the FX Reserve, and (iii) the amount of the Revolving Line utilized
for Cash Management Services, at any time exceed $2,000,000 in the aggregate.

 

2.2   Overadvances.
If at any time or for any reason the total of all outstanding Advances and all other monetary Obligations exceeds Net Borrowing
Availability (an "Overadvance"), Borrower shall immediately pay the amount of the excess to Bank, without notice or demand.
Without limiting Borrower's obligation to repay to Bank the amount of any Overadvance, Borrower agrees to pay Bank interest on
the outstanding amount of any Overadvance, on demand, at the Default Rate.

 

2.3   Payment
of Interest on the Credit Extensions.

 

(a)   Interest
Rate; Advances. Subject to Section 2.3(b), the amounts outstanding under the Revolving Line shall accrue interest at a per
annum rate equal to 1.75 percentage points above the Prime Rate, which interest shall be payable monthly.

 

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

 

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

 

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

  

     

     

    

    

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

  

(f)   Minimum
Monthly Interest. Omitted.

  

(g)   Payment;
Interest Computation; Float Charge. Interest is payable monthly on the last calendar day of each month. In computing interest
on the Obligations, all Payments received after 12:00 p.m. Pacific time on any day shall be deemed received on the next Business
Day. In addition, so long as any principal or interest with respect to any Hard Credit Extension (defined as Credit Extensions
other than for Letters of Credit, FX Forward Contracts or amounts utilized for Cash Management Services) remains outstanding, Bank
shall be entitled to charge Borrower a "float" charge in an amount equal to three (3) Business Days interest, at the interest rate
applicable to the Advances, on all Payments received by Bank. Said float charge is not included in interest for purposes of computing
Minimum Monthly Interest (if any) under this Agreement. The float charge for each month shall be payable on the last day of the
month. Bank shall not, however, be required to credit Borrower's account for the amount of any item of payment which is unsatisfactory
to Bank in its good faith business judgment, and Bank may charge Borrower's Designated Deposit Account for the amount of any item
of payment which is returned to Bank unpaid.

 

2.4    Fees.
Borrower shall pay to Bank:

 

(a)   Commitment
Fee. A fully earned, non-refundable commitment fee of $33,750, on the Effective Date; and

 

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

 

(c)   Termination
Fee. Subject to the terms of Section 4.1, a termination fee; and

 

(d)   Unused
Revolving Line Facility Fee. A fee (the "Unused Revolving Line Facility Fee"), which fee shall be paid quarterly, in
arrears, on a calendar year basis, in an amount equal to 0.50% per annum of the average unused portion of the Revolving Line, as
determined by Bank. Borrower shall not be entitled to any credit, rebate or repayment of any Unused Revolving Line Facility Fee
previously earned by Bank pursuant to this Section notwithstanding any termination of the within Agreement, or suspension or termination
of Bank's obligation to make loans and advances hereunder, including during any Streamline Period; and

 

(e)   Collateral
Monitoring Fee. Omitted; and

 

(f)   Bank
Expenses. All Bank Expenses (including reasonable attorneys' fees and expenses, and expenses for documentation and negotiation
of this Agreement) incurred through and after the Effective Date, when due.

 

(g)   Anniversary
Fee. A fully earned, non-refundable fee of $33,750, on the first anniversary of the Effective Date; and if this Agreement is
terminated prior to the first anniversary of the Effective Date, either by Borrower or Bank, Borrower shall pay such Anniversary
Fee to Bank in addition to any Termination Fee.

 

3   CONDITIONS
OF LOANS

 

3.1   Conditions
Precedent to Initial Credit Extension. Bank's obligation to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate, including, without limitation:

 

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

 

(b)   Borrower
shall have delivered its Operating Documents and a good standing certificate of Borrower certified by the Secretary of State of
the State of Delaware as of a date no earlier than thirty (30) days prior to the Effective Date;

     

     

    

     

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

 

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

 

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

 

(f)   Borrower
shall have delivered the insurance policies and/or endorsements required pursuant to Section 6.5 hereof; and

 

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

 

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

 

(a)   except
as otherwise provided in Section 3.4(a), timely receipt of an executed Payment/Advance Form;

 

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

 

(c)   in
Bank's sole discretion, there has not been a Material Adverse Change.

 

3.3    Covenant
to Deliver.

 

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

   

3.4   Procedures
for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in
this Agreement, to obtain an Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile,
or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance. Together with such notification, Borrower must promptly
deliver to Bank by electronic mail or facsimile a completed Transaction Report executed by a Responsible Officer or his or her
designee. Bank shall credit Advances to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions
from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which
have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee.

 

4   CREATION
OF SECURITY INTEREST

 

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

  

     

     

    

   

This Agreement may be terminated
prior to the Revolving Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given
to Bank or if Bank's obligation to fund Credit Extensions terminates pursuant to the terms of Section 2.1.1(c). Notwithstanding
any such termination, Bank's lien and security interest in the Collateral shall continue until Borrower fully satisfies its Obligations.
If such termination is at Borrower's election or at Bank's election due to the occurrence and continuance of an Event of Default,
Borrower shall pay to Bank, in addition to the payment of any other expenses or fees then-owing, a termination fee in an amount
equal to 2.0% of the Revolving Line if termination occurs on or before the first anniversary of the Effective Date, and 1.0% of
the Revolving Line if termination occurs after the first anniversary of the Effective Date and on or before the second anniversary
of the Effective Date; provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new
facility from another division of Silicon Valley Bank. Upon payment in full of the Obligations and at such time as Bank's obligation
to make Credit Extensions has terminated, Bank shall release its liens and security interests in the Collateral and all rights
therein shall revert to Borrower.

 

4.2   Authorization
to File Financing Statements. Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions to perfect or protect Bank's interest or rights hereunder, including a notice that any disposition
of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.

 

5   REPRESENTATIONS
AND WARRANTIES

 

Borrower represents and
warrants as follows:

 

5.1   Due
Organization and Authorization. Borrower and each of its Subsidiaries are duly existing and in good standing in their respective
jurisdictions of formation and are qualified and licensed to do business and are in good standing in any jurisdiction in which
the conduct of their business or their ownership of property requires that they be qualified except where the failure to do so
could not reasonably be expected to have a Material Adverse Change. In connection with this Agreement, Borrower has delivered to
Bank a completed certificate signed by Borrower entitled "Perfection Certificate". Borrower represents and warrants to Bank that
(a) Borrower's exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower
is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection
Certificate accurately sets forth Borrower's organizational identification number or accurately states that Borrower has none;
(d) the Perfection Certificate accurately sets forth Borrower's place of business, or, if more than one, its chief executive office
as well as Borrower's mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors)
has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational
number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower
and each of its Subsidiaries is accurate and complete. If Borrower is not now a Registered Organization but later becomes one,
Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower's organizational identification number.

 

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

  

5.2   Collateral.
Borrower has good title to the Collateral, free of Liens except Permitted Liens. Borrower has no deposit account other than
the deposit accounts with Bank and deposit accounts described in the Perfection Certificate delivered to Bank in connection herewith.

 

The Collateral is not in
the possession of any third party bailee (such as a warehouse). Except as hereafter disclosed to Bank in writing by Borrower, none
of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate. In the
event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee, then
Borrower will first receive the written consent of Bank and such bailee must acknowledge in writing that the bailee is holding
such Collateral for the benefit of Bank.

 

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

 

     

     

    

 

Borrower is the sole owner
of its Intellectual Property, except for non-exclusive licenses granted to its customers in the ordinary course of business. Each
Patent is valid and enforceable and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or
in part, and to the best of Borrower's knowledge, no claim has been made that any part of the Intellectual Property violates the
rights of any third party except to the extent such claim could not reasonably be expected to cause a Material Adverse Change.

 

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

 

5.3    Accounts
Receivable.

 

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

 

(b)   All
statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Accounts are
and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower's Books are genuine and
in all respects what they purport to be. All sales and other transactions underlying
or giving rise to each Account shall comply in all material respects with all applicable laws and governmental rules and regulations.
Borrower has and will have no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are
shown as Eligible Accounts in any Borrowing Base Certificate. To the best of Borrower's knowledge, all signatures and endorsements
on all documents, instruments, and agreements relating to all Accounts are and
will be genuine, and all such documents, instruments and agreements are and will be legally enforceable in accordance with their
terms.

 

5.4           Litigation.
There are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against
Borrower or any of its Subsidiaries involving more than $

 

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

 

5.6           Solvency.
Borrower is able to pay its debts (including trade debts) as they mature.

 

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

 

5.8           Subsidiaries;
Investments. Borrower does have any Subsidiaries, other than the Subsidiaries listed in the Perfection Certificate and other
Subsidiaries organized with the prior written consent of Bank, and does not own any stock, partnership interest or other equity
securities in any other Person, except for Permitted Investments.

   

     

     

    

  

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

 

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

 

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

 

6   AFFIRMATIVE
COVENANTS

 

Borrower shall do
all of the following:

 

6.1   Government
Compliance. Maintain its and all its Subsidiaries' legal existence and good standing in their respective jurisdictions
of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to
cause a Material Adverse Change. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations
to which it is subject, noncompliance with which could reasonably be expected to cause a Material Adverse Change.

 

6.2    Financial
Statements, Reports, Certificates.

 

(a)           Borrower
shall provide Bank with the following:

 

(i)    a
Transaction Report weekly and at the time of each request for an Advance if there are any Hard Credit Extensions; otherwise within
fifteen (15) days after the end of each month;

 

(ii)   within
fifteen (15) days after the end of each month,

 

(A)  monthly
accounts receivable agings, aged by invoice date,

 

(B)  monthly
accounts payable agings, aged by invoice date, and outstanding or held check registers, if any,

 

(C)  monthly
reconciliations of accounts receivable agings (aged by invoice date), transaction reports, and general ledger,

 

(iii)    as
soon as available, and in any event within thirty (30) days after the end of each month, monthly unaudited financial statements;

   

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

  

     

     

    

  

(v)   [omitted];

 

(vi)   within
thirty (30) days after the end of each fiscal year of Borrower, (A) annual operating budgets (including income statements, balance
sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower, and (B) annual financial projections for the
following fiscal year (on a quarterly basis) as approved by Borrower's board of directors, together with any related business forecasts
used in the preparation of such annual financial projections and (C) any interim updates thereof; and

 

(vii)   [omitted].

 

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

 

(c)   Prompt
written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any Copyright,
including any subsequent ownership right of Borrower in or to any Copyright, Patent or Trademark not shown in the IP Security Agreement,
or (iii) Borrower's knowledge of an event that materially adversely affects the value of the Intellectual Property.

 

6.3    Accounts
Receivable.

 

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

 

(b)   Disputes.
Borrower shall promptly notify Bank of all disputes or claims relating to Accounts. Borrower may forgive (completely or partially),
compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Borrower does
so in good faith, in a commercially reasonable manner, in the ordinary course of business, in arm's-length transactions, and reports
the same to Bank in the regular reports provided to Bank; and (ii) no Default or Event of Default has occurred and is continuing;
and (iii) after taking into account all such discounts, settlements and forgiveness, the total outstanding Advances will not exceed
the lesser of the Revolving Line or the Borrowing Base.

 

(c)   Collection
of Accounts. Borrower shall have the right to collect all Accounts, unless and until a Default or an Event of Default has occurred
and is continuing. Wire transfer payments will be remitted to Borrower's cash collateral account maintained with Bank; all other
forms of payments shall be remitted to the lockbox to be established pursuant to the terms hereof. Whether or not an Event of Default
has occurred and is continuing, Borrower shall hold all payments on, and proceeds of, Accounts in trust for Bank, and Borrower
shall immediately deliver all such payments and proceeds to Bank in their original form, duly endorsed, to be applied to the Obligations
pursuant to the terms of Section 9.4 hereof. Bank may, in its good faith business judgment, require that all proceeds of
Accounts be deposited by Borrower into a lockbox account, or such other "blocked account" as Bank may specify, pursuant to a blocked
account agreement in such form as Bank may specify in its good faith business judgment. All collections shall be applied to against
any outstanding Obligations (as provided for in Section 9.4 hereof); provided, however, if Borrower's outstanding Hard Credit Extensions
are less than $2,500,000 and no Default or Event of Default has occurred and is continuing, the collections will be placed in Borrower's
general operating account maintained with Bank.

   

     

     

    

 

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

 

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

 

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

 

6.4    Remittance
of Proceeds. Except as otherwise provided in Section 6.3(c), deliver, in kind, all proceeds arising from the disposition of
any Collateral to Bank in the original form in which received by Borrower not later than the following Business Day after receipt
by Borrower, to be applied to the Obligations pursuant to the terms of Section 9.4 hereof; provided that, if no Default or Event
of Default has occurred and is continuing, Borrower shall not be obligated to remit to Bank the proceeds of the sale of worn out
or obsolete Equipment disposed of by Borrower in good faith in an arm's length transaction for an aggregate purchase price of $50,000
or less (for all such transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of Collateral with
any of Borrower's other funds or property, but will hold such proceeds separate and apart from such other funds and property and
in an express trust for Bank. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.

 

6.5    Taxes;
Pensions. Timely file all required tax returns and reports and timely pay all foreign, federal, state and local taxes, assessments,
deposits and contributions owed by Borrower except for deferred payment of any taxes contested pursuant to the terms of Section
5.9 hereof, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance
with their terms.

 

6.6    Access
to Collateral; Books and Records. At reasonable times, on one (1) Business Day's notice (provided no notice is required if
an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to inspect the Collateral and the
right to audit and copy Borrower's Books. The initial audit of Borrower's Collateral and Books will be conducted on the earlier
of: (a) within sixty (60) days of the Effective Date or (b) prior to the initial Advance hereunder, and thereafter, the parties
contemplate that such audits will be performed no more frequently than semi-annually, but nothing herein restricts Bank's right
to conduct such audits more frequently if (i) Bank believes that it is advisable to do so in Bank's good faith business judgment,
or (ii) Bank believes in good faith that a Default or Event of Default has occurred. The foregoing inspections and audits shall
be at Borrower's expense, and the charge therefor shall be $750 per person per day (or such higher amount as shall represent Bank's
then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an
audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedules the audit with less than ten (10) days written
notice to Bank, then (without limiting any of Bank's rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket
expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.

 

6.7    Insurance.
Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower's industry and location
and as Bank may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory
to Bank. All property policies shall have a lender's loss payable endorsement showing Bank as an additional lender loss payee and
waive subrogation against Bank, and all liability policies shall show, or have endorsements showing, Bank as an additional insured.
All policies (or the loss payable and additional insured endorsements) shall provide that the insurer must give Bank at least twenty
(20) days notice before canceling, amending, or declining to renew its policy. At Bank's request, Borrower shall deliver certified
copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Bank's option, be payable
to Bank on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing,
Borrower shall have the option of applying the proceeds of any casualty policy up to $50,000, in the aggregate, toward the replacement
or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like
value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority
security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such
casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations. If Borrower fails to obtain insurance
as required under this Section 6.7 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank
may make all or part of such payment or obtain such insurance policies required in this Section 6.7, and take any action under
the policies Bank deems prudent.

  

     

     

    

  

6.8    Operating
Accounts.

 

(a)   Maintain
its primary depository and operating accounts and securities accounts with Bank and Bank's affiliates which accounts shall represent
at least 85% of the dollar value of Borrower's accounts at all financial institutions.

 

(b)   Provide
Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution
other than Bank or its Affiliates. In addition, Borrower covenants and agrees that the Collateral Account maintained at Morgan
Stanley shall be closed within 60 days of the Effective Date. The provisions of the previous sentence shall not apply to deposit
accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower's
employees and identified to Bank by Borrower as such.

 

6.9    Financial
Covenants.

 

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

 

(a)   Tangible
Net Worth. A Tangible Net Worth of at least $1,500,000 ("Minimum Tangible Net Worth") plus (i) 50% of all consideration
received after the date hereof for equity securities and subordinated debt of the Borrower, plus (ii) 50% of the Borrower's net
income in each fiscal quarter ending after the date hereof. Increases in the Minimum Tangible Net Worth based on consideration
received for equity securities and subordinated debt of the Borrower shall be effective as of the end of the month in which such
consideration is received, and shall continue effective thereafter. Increases in the Minimum Tangible Net Worth based on net income
shall be effective on the last day of the fiscal quarter in which said net income is realized, and shall continue effective thereafter.
In no event shall the Minimum Tangible Net Worth be decreased.

 

6.10   Intellectual
Property Rights. Borrower shall: (a) protect, defend and maintain the validity and enforceability of its intellectual property;
(b) promptly advise Bank in writing of material infringements of its intellectual property; and (c) not allow any intellectual
property material to Borrower's business to be abandoned, forfeited or dedicated to the public without Bank's written consent.
If Borrower decides to register any copyrights or mask works in the United States Copyright Office, Borrower shall: (x) provide
Bank with at least fifteen (15) days prior written notice of its intent to register such copyrights or mask works together with
a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (y) execute
an intellectual property security agreement or such other documents as Bank may reasonably request to maintain the perfection and
priority of Bank's security interest in the copyrights or mask works intended to be registered with the United States Copyright
Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously
with filing the copyright or mask work application(s) with the United States Copyright Office. Borrower shall promptly provide
to Bank a copy of the application(s) filed with the United States Copyright Office together with evidence of the recording of the
intellectual property security agreement necessary for Bank to maintain the perfection and priority of its security interest in
such copyrights or mask works. Borrower shall provide written notice to Bank of any application filed by Borrower in the United
States Patent and Trademark Office for a patent or to register a trademark or service mark within 30 days after any such filing.

 

6.11   Litigation
Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without
expense to Bank, Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Bank may
deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect
to any Collateral or relating to Borrower.

 

6.12    Omitted.

   

     

     

    

  

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

 

7   NEGATIVE
COVENANTS

 

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

 

7.1   Dispositions.
Convey, sell, lease, transfer or otherwise dispose of (collectively, "Transfer"), or permit any of its Subsidiaries
to Transfer, all or any part of its business or property, except for (a) Transfers of Inventory in the ordinary course of business;
(b) Transfers of worn-out or obsolete Equipment; and (c) Transfers consisting of Permitted Liens and Permitted Investments.

 

7.2    Changes
in Business, Management, Ownership, or Business Locations.

 

(a)   Engage
in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such
Subsidiary, as applicable, or reasonably related thereto;

 

(b)   liquidate
or dissolve; or

 

(c)   permit
a change in the record or beneficial ownership of an aggregate of more than 20% of the outstanding shares of stock of Borrower,
in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof
(other than by the sale of Borrower's equity securities in a public offering or to venture capital investors so long as Borrower
identifies to Bank the venture capital investors prior to the closing of the transaction); or

 

(d)   without
at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless
such new offices or business locations contain assets and property of Borrower with an aggregate value of less than $10,000),
(2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5)
change its organizational number (if any) assigned by its jurisdiction of organization.

 

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

 

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

 

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

 

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

 

7.7   Investments;
Distributions, (a) Directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries
to do so; or (b) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock, provided
that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible
securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase
the stock of former employees or consultants pursuant to stock repurchase agreements so long as no Default or Event of Default
has occurred at the time of such repurchase and would not exist after giving effect to such repurchase, provided such repurchase
does not exceed in the aggregate of 550,000 per fiscal year.

   

     

     

    

   

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

 

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

 

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

 

8   EVENTS
OF DEFAULT

 

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

 

8.1   Payment
Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay
any other Obligations within three (3) Business Days after such Obligations are due and payable. During the cure period, the failure
to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);

 

8.2           Covenant
Default.

 

(a)   Borrower
fails or neglects to perform any obligation in Sections 6.2, 6.3, 6.4, 6.6, 6.8, or 6.9, or violates any covenant in Section 7;
or

 

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

 

8.3           Material
Adverse Change. A Material Adverse Change occurs;

 

8.4           Attachment.
(a) Any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in ten (10) days; (b) the service of process upon Bank seeking to attach, by
trustee or similar process, any funds of Borrower, or any entity under control of Borrower (including a subsidiary) on deposit
with Bank; (c) Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d)
a judgment or other claim in excess of $10,000 becomes a Lien on any of Borrower's assets; or (e) a notice of lien, levy, or assessment
is filed against any of Borrower's assets by any government agency and not paid within ten (10) days after Borrower receives notice.
These are not Events of Default if stayed or if a bond is posted pending contest by Borrower within ten days after the date such
events occur (but no Credit Extensions shall be made during the cure period);

  

     

     

    

  

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

 

8.6           Other
Agreements. There is a default in any agreement to which Borrower or any Guarantor 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 $50,000 or that could result in a Material Adverse Change with respect to Borrower's or any Guarantor; provided,
however, that the Event of Default under this Section 8.6 caused by the occurrence of a default under such other agreement shall
be cured or waived for purposes of this Agreement upon Bank receiving written notice from the party asserting such default of such
cure or waiver of the default under such other agreement, if at the time of such cure or waiver under such other agreement

 

(a)   Bank
has not declared an Event of Default under this Agreement and/or exercised any rights with respect thereto;

 

(b)   any
such cure or waiver does not result in an Event of Default under any other provision of this Agreement or any Loan Document; and
(c) in connection with any such cure or waiver under such other agreement, the terms of any agreement with such third party are
not modified or amended in any manner which could in the good faith judgment of Bank be materially less advantageous to Borrower
or any Guarantor;

 

8.7   Judgments.
A judgment or judgments for the payment of money in an amount, individually or in the aggregate, of $50,000 or more (not covered
by independent third-party insurance) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period
of ten (10) days after the entry thereof (provided that no Credit Extensions will he made prior to the satisfaction or stay of
such judgment);

 

8.8   Misrepresentations.
Borrower or any Person acting for Borrower makes any representation,

warranty, or other statement
now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement
or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

 

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

 

8.10   Guaranty.
(a) Any guaranty of any Obligations terminates or ceases for any reason to be in full force and effect; (b) any Guarantor does
not perform any obligation or covenant under any guaranty of the Obligations; (c) any circumstance described in Sections 8.3, 8.4,
8.5, 8.7, or 8.8. occurs with respect to any Guarantor, or (d) the death, liquidation, winding up, or termination of existence
of any Guarantor; or (e) (i) a material impairment in the perfection or priority of Bank's Lien in the collateral provided by Guarantor
or in the value of such collateral or (ii) a material adverse change in the general affairs, management, results of operation,
condition (financial or otherwise) or the prospect of repayment of the Obligations occurs with respect to any Guarantor.

 

9   BANK'S
RIGHTS AND REMEDIES

 

9.1   Rights
and Remedies. If an Event of Default has occurred and is continuing, Bank may, without notice or demand, do any or all of the
following:

 

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

 

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

 

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

 

(d)   terminate
any FX Contracts;

  

     

     

    

   

(e)   demand
payment of, and collect any Accounts and General Intangibles comprising Collateral, settle or adjust disputes and claims directly
with Account Debtors for amounts, on terms, and in any order that Bank considers advisable, notify any Account Debtor or other
Person owing Borrower money of Bank's security interest in such funds, verify the amount of the same and collect the same;

 

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

 

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

 

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

 

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

 

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

 

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

 

9.2           Power
of Attorney. Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and
during the continuance of an Event of Default, to: (a) endorse Borrower's name on any checks or other forms of payment or security;
(b) sign Borrower's name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust
disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d)
make, settle, and adjust all claims under Borrower's insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance,
security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate
or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby
appoints Bank as its lawful attorney-in-fact to sign Borrower's name on any documents necessary to perfect or continue the perfection
of any security interest regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full
and Bank is under no further obligation to make Credit Extensions hereunder. Bank's foregoing appointment as Borrower's attorney
in fact, and all of Bank's rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid
and performed and Bank's obligation to provide Credit Extensions terminates.

 

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

   

     

     

    

 

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

 

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

 

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

 

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

 

10   NOTICES

 

All notices, consents, requests,
approvals, demands, or other communication (collectively, "Communication"), other than Advance requests made pursuant to Section
3.4, by any party to this Agreement or any other Loan Document must be in writing and be delivered or sent by facsimile at the
addresses or facsimile numbers listed below. Bank or Borrower may change its notice address by giving the other party written notice
thereof. Each such Communication shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the U.S. mail, registered or certified mail, return receipt requested, with
proper postage prepaid; (b) upon transmission, when sent by facsimile transmission (with such facsimile promptly confirmed by delivery
of a copy by personal delivery or United States mail as otherwise provided in this Section 10); (c) one (1) Business Day after
deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all
of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated below. Advance requests
made pursuant to Section 3.4 must be in writing and may be in the form of electronic mail, delivered to Bank by Borrower at the
e­mail address of Bank provided below and shall be deemed to have been validly served, given, or delivered when sent (with
such electronic mail promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided
in this Section 10). Bank or Borrower may change its address, facsimile number, or electronic mail address by giving the other
party written notice thereof in accordance with the terms of this Section 10.

   

     

     

    

   

	 	If to Borrower:	
        Lantronix, Inc.

        15353 Barranca Parkway

        Irvine, CA 92618

        Attn: James Kerrigan, Chief Financial Officer

        Fax: 949-450-7285

        Email: jim.kerrigan@lantronix.com

	 	 	 
	 	If to Bank:	
        Silicon Valley Bank

        38 Technology Drive, Suite 150

        Irvine, CA 92618

        Attn: Mr. Kurt Miklinski

        Fax: 949-789-1930

        Email: kmiklinski@svbank.com

   

11   CHOICE
OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE.

 

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

 

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

 

WITHOUT INTENDING IN ANY
WAY TO LIMIT THE PARTIES' AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising
at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by
the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil
Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction
of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction
of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code
of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional
relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and
appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall
be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been
appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California
Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before
a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall
be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings.
The private judge shall oversee discovery and may enforce all discovery rules and order applicable to judicial proceedings in the
same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide
all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to
the California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time
to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine
all issues relating to the applicability, interpretation, and enforceability of this paragraph.

   

     

     

    

  

12   GENERAL
PROVISIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

12.8   Survival.
All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated
pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their
terms, are to survive the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.2 to indemnify
Bank shall survive until the statute of limitations with respect to all claims and causes of action with respect to which indemnity
is given to Bank shall have run.

  

     

     

    

  

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

 

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

 

13   DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

"Agreement" is
defined in the preamble hereof.

 

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

 

"Bank" is
defined in the preamble hereof.

 

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

 

"Bankruptcy-Related
Defaults" is defined in Section 9.1. "Borrower" is defined in the preamble hereof.

 

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

 

"Borrowing Base" is
(a) 90% of Eligible Accounts, plus (b) 50% of Eligible Distributor Accounts which cannot exceed 50% of the Advances
made pursuant to subclause (a) above, as determined by Bank from Borrower's most recent Transaction Report; provided, however,
that Bank may decrease the foregoing percentages in its good faith business judgment based on events, conditions, contingencies,
or risks which, as determined by Bank, may adversely affect Collateral.

   

     

     

    

  

"Borrowing Resolutions"
are, with respect to any Person, those resolutions adopted by such Person's Board of Directors and delivered by such Person
to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a
certificate executed by its secretary on behalf of such Person certifying that (a) such Person has the authority to execute, deliver,
and perform its obligations under each of the Loan Documents to which it is a party, (b) sets forth the resolutions then in full
force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which
it is a party, (c) the names of the Persons authorized to execute the Loan Documents on behalf of such Person, together with a
sample of the true signatures of such Persons, and (d) that Bank may conclusively rely on such certificate unless and until such
Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

 

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

 

"Cash Equivalents" means
(a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof
having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1)
year after its creation and having the highest rating from either Standard & Poor's Ratings Group or Moody's Investors Service,
Inc., (c) Bank's certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least
ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c)
of this definition.

 

"Cash Management
Services" is defined in Section 2.1.4.

 

"Cash Management
Services Sublimit" is defined in Section 2.1.4.

 

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

 

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

   

"Collateral
Account" is any Deposit Account, Securities Account, or Commodity Account.

 

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

 

"Communication"
is defined in Section 10.

 

"Compliance Certificate"
is that certain certificate in the form attached hereto as Exhibit E.

 

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

 

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

    

     

     

    

  

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

   

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

 

"Default Rate"
is defined in Section 2.3(b).

 

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

 

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

 

"Designated Deposit Account"
is Borrower's deposit account, account number 3300187719, maintained with Bank.

 

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

    

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

 

"Eligible Accounts" are
Accounts which arise in the ordinary course of Borrower's business that meet all Borrower's representations and warranties
in Section 5.3 and which constitute "Eligible Export-Related Accounts Receivables" (as defined in the Exim Borrower Agreement (defined
in Section 14 hereof)). Bank reserves the right at any time and from time to time after the Effective Date, to adjust any of the
criteria set forth below and to establish new criteria in its good faith business judgment. Unless Bank agrees otherwise in writing,
Eligible Accounts shall not include:

 

(a)   Accounts
for which the Account Debtor has not been invoiced;

 

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

 

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

 

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

 

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

 

(f)   omitted;

 

(g)   Accounts
owing from an Account Debtor which is a federal, state or local government entity or any department, agency, or instrumentality
thereof except for Accounts of the United States if Borrower has assigned its payment rights to Bank and the assignment has been
acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

 

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

 

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

   

     

     

    

   

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

 

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

 

(1)           Accounts
owing from an Account Debtor with respect to which Borrower has received deferred revenue (but only to the extent of such deferred
revenue);

 

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

 

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

 

"Eligible Distributor
Account" means an otherwise Eligible Account for which Borrower has not yet recognized revenue.

 

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

 

"ERISA" is the Employment
Retirement Income Security Act of 1974, and its regulations. "Event of Default" is defined in Section 8.

 

"Foreign Currency" means
lawful money of a country other than the United States.

 

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

 

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

   

"FX Forward Contract"
is defined in Section 2.1.3. "FX Reserve" is defined in Section 2.1.3.

 

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

 

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

 

"Guarantor" is any
present or future guarantor of the Obligations.

   

     

     

    

  

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

 

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

 

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

 

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

 

"IP Agreement" is
that certain Intellectual Property Security Agreement executed and delivered by Borrower to Bank dated as of the date hereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

"Payment/Advance Form"
is that certain form attached hereto as Exhibit B. 

 

"Perfection Certificate"
is defined in Section 5.1.

  

     

     

    

  

"Permitted Indebtedness"
is:

   

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

 

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

 

(c)           Subordinated
Debt;

 

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

 

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

 

(f)           Indebtedness
secured by Permitted Liens;

 

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

 

"Permitted Investments"
are:

 

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

 

(b)   Cash
Equivalents;

 

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

 

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

 

(e)   Investments
accepted in connection with Transfers permitted by Section 7.1;

 

(f)    Investments
of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed $250,000 in the
aggregate in any fiscal year;

 

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

 

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

 

(i)    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 shall not apply to Investments of Borrower in any Subsidiary.

 

"Permitted Liens"
are:

 

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

 

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

 

(c)   purchase
money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more
than $50,000 in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property
and improvements and the proceeds of the Equipment;

 

     

     

    

 

(d)   statutory
Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other Persons imposed without
action of such parties, provided, they have no priority over any of Bank's Lien and the aggregate amount of such Liens does not
at any time exceed $50,000;

 

(e)   Liens
to secure payment of workers' compensation, employment insurance, old-age pensions, social security and other like obligations
incurred in the ordinary course of business, provided, they have no priority over any of Bank's Liens and the aggregate amount
of the Indebtedness secured by such Liens does not at any time exceed $50,000;

 

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

 

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

 

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

 

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

 

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

 

"Prime Rate" is Bank's
most recently announced "prime rate," even if it is not Bank's lowest rate.

 

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

 

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

 

"Revolving Line" is
an Advance or Advances in an aggregate amount of up to $2,250,000 outstanding at any time.

 

"Revolving Line Maturity
Date" is the earliest of (a) Two years from the Effective Date or (b) the occurrence of an Event of Default.

 

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

 

"Settlement Date" is
defined in Section 2.1.3.

 

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

 

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

 

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

  

     

     

    

   

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

  

"Transaction Report"
is a report in such form as Bank shall specify.

  

"Transfer" is defined
in Section 7.1.

 

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

 

14   Exim
Provisions

 

14.1   Exim
Guaranty. Borrower shall cause the Export Import Bank of the United States (the "Exim Bank") to continue to guarantee the Loans
made under this Agreement, pursuant to a Master Guarantee Agreement, Loan Authorization Agreement and (to the extent applicable)
Delegated Authority Letter Agreement (collectively, the "Exim Guaranty"), and Borrower shall cause the Exim Guaranty to be in full
force and effect throughout the term of this Agreement and so long as any Advances hereunder are outstanding. If, for any reason,
the Exim Guaranty shall cease to be in full force and effect, of if the Exim Bank declares the Exim Guaranty void or revokes any
obligations thereunder or denies liability thereunder, Bank shall have the right to accelerate the Obligations. Nothing in any
confidentiality agreement in this Agreement or in any other agreement shall restrict Bank's right to make disclosures and provide
information to the Exim Bank in connection with the Exim Guaranty.

 

14.2   Exim
Borrower Agreement; Costs. Borrower shall approximately concurrently herewith execute and deliver a Borrower Agreement, in
the form specified by the Exim Bank, in favor of Bank and the Exim Bank (the "Exim Borrower Agreement"). This Agreement is subject
to all of the terms and conditions of the Exim Borrower Agreement, all of which are hereby incorporated herein by this reference.
Borrower expressly agrees to perform all of the obligations and comply with all of the affirmative and negative covenants and all
other terms and conditions set forth in the Exim Borrower Agreement as though the same were expressly set forth herein. In the
event of any conflict between the terms of the Exim Borrower Agreement and the other terms of this Agreement, whichever terms are
more restrictive shall apply. Borrower shall reimburse Bank for all fees and all out of pocket costs and expenses incurred by Bank
with respect to the Exim Guaranty and the Exim Borrower Agreement, including without limitation all facility fees and usage fees,
and Silicon is authorized to debit Borrower's account with Bank for such fees, costs and expenses when paid by Bank.

 

14.3   Non-Exim
Agreement; Cross-Collateralization; Cross-Default. Bank and the Borrower are parties to that certain Loan and Security Agreement
of even date herewith (as amended from time to time, the "Non­Exim Agreement"). Both this Agreement and the Non-Exim Agreement
shall continue in full force and effect, and all rights and remedies under this Agreement and the Non-Exim Agreement are
cumulative. The term "Obligations" as used in this Agreement and in the Non-Exim Agreement shall include without limitation the
obligation to pay when due all Advances made pursuant to this Agreement (the "Exim Loans") and all interest thereon and the obligation
to pay when due all Advances made pursuant to the Non-Exim Agreement (the "Non-Exim Loans") and all interest thereon. Without limiting
the generality of the foregoing, all "Collateral" as defined in this Agreement and as defined in the Non-Exim Agreement shall secure
all Exim Loans and all Non-Exim Loans and all interest thereon, and all other Obligations. Any Event of Default under this Agreement
shall also constitute an Event of Default under the Non-Exim Agreement, and any Event of Default under the Non-Exim Agreement shall
also constitute an Event of Default under this Agreement. In the event Bank assigns its rights under this Agreement and/or under
any Note evidencing Exim Loans and/or its rights under the Non-Exim Agreement and/or under any Note evidencing Non-Exim Loans,
to any third party, including without limitation the Exim Bank, whether before or after the occurrence of any Event of Default,
Bank shall have the right (but not any obligation), in its sole discretion, to allocate and apportion Collateral to the Agreement
and/or Note assigned and to specify the priorities of the respective security interests in such Collateral between itself and the
assignee, all without notice to or consent of the Borrower.

 

[Signature page follows.]

   

     

     

    

    

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed as of the Effective Date.

 

  

	BORROWER:	 
	 	 
	LANTRONIX, INC.	 
	 	 
	By: /s/ James N. Kerrigan	 
	Name: James N. Kerrigan	 
	Title: CFO	 
	 	 
	BANK:	 
	 	 
	SILICON VALLEY BANK	 
	 	 
	By: /s/ Kurt Miklinski	 
	Name: Kurt Miklinski	 
	Title: Vice President	 
	 	 
	 	 
	 	 

 

Exhibits

A    "Collateral"

B    [intentionally
omitted]

C    [intentionally omitted]

D    [intentionally
omitted]

E    Compliance
Certificate

F    Transaction
Report

    

     

     

    

     

     

    

 

EXHIBIT A

 

 

 

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

 

All goods, Accounts (including
health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise
agreements, General Intangibles, commercial tort claims, documents, instruments (including any promissory notes), chattel paper
(whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit
is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether
now owned or hereafter acquired, wherever located; and all Borrower's Books relating to the foregoing, and any and all claims,
rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements
to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

   

     

     

    

EXHIBIT E

 

COMPLIANCE CERTIFICATE

 

TO:    SILICON VALLEY BANK

FROM:     LANTRONIX,
INC.

 

Date: _____________________

   

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

   

	Please indicate compliance status by circling Yes/No under “Complies” column.
	 
	Reporting Covenant	Required	Complies
	 	 	 
	Monthly financial statements with Compliance Certificate	Monthly within 30 days	Yes   No
	Annual Operating Budget and Financial Projections	Within 30 days after start of Fiscal Year	Yes   No
	10-Q, 10-K and 8-K	Within 5 days after filing with SEC	Yes   No
	A/R & A/P Agings and Reconciliations	Monthly within 15 days	Yes   No
	Transaction Report	
        Weekly and with each request for an Advance if Hard Credit Extensions outstanding; otherwise, monthly
        within 15 days
	Yes   No
	 
	
        The following Intellectual Property was registered after the Effective Date (if no registrations, state
        “None”)

        ____________________________________________________________________________

         

 

	Financial Covenant	Required	Actual	Complies
	 	 	 	 
	Maintain on a Monthly Basis:	 	 	 
	Minimum Tangible Net Worth	
        $1,500,000 plus (i) 50% o new equity an subordinated debt plus (ii) 50% of
        quarterly net income
	$_______	Yes   No

  

     

     

    

   

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

 

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

 

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________

 

  

	
        LANTRONIX, INC.

         

         

        By:__________________________

        Name:________________________

        Title:_________________________
	
        BANK USE ONLY

         

        Received by: _____________________

        authorized signer

        Date:                    _________________________

         

        Verified: ________________________

        authorized signer

        Date:                    _________________________

         

        Compliance Status:                                         Yes     No

         

     

     

    

 

Schedule I to Compliance Certificate

 

Financial Covenants
of Borrower

Dated: ____________________

   

Tangible Net Worth (Section
6.9(a))

	Required Amount:	
        $1,500,000 plus (i) 50% of consideration for equity securities and subordinated  debt plus (ii)
        50% of Borrower's quarterly net income

 

Actual:

	A.	Aggregate value of total assets of Borrower and its Subsidiaries	
        $           

         

	B.	Aggregate value of goodwill of Borrower and its Subsidiaries	
        $           

         

	C.	Aggregate value of intangible assets of Borrower and its Subsidiaries	
        $           

         

	D.	
        Aggregate value of investments of Borrower and its Subsidiaries consisting of minority investments in
        companies which investments are not publicly-traded

         
	
        $           

         

	E.	Aggregate value of any reserves not already deducted from assets	
        $           

         

	F.	Aggregate value of liabilities of Borrower and its Subsidiaries (including all Indebtedness) and current portion of Subordinated Debt permitted by Bank to be paid by Borrower (but no other Subordinated Debt)	
         

        $           

         

	G.	Aggregate value of Indebtedness of Borrower subordinated to Borrower’s Indebtedness to Bank	
        $           

         

	H.	Tangible Net Worth (line A minus line B minus line C minus line D minus line E minus line F plus line G)	
        $           

         

Is line H equal to or greater
than Required Amount?

________  No, not
in compliance                                                                             ________
Yes, in complianceEX - 4.1 2012.9.30-10Q

Exhibit 4.1
SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of July 23, 2012, among Advantage Health Care Management Company LLC, a Delaware limited liability company (“AHCM”), Arizona Health Partners, LLC, an Arizona limited liability company (“AHP”), BHS Accountable Care, LLC, a Delaware limited liability company (“BHS-AC”), BHS Integrated Physician Partners, LLC, a Delaware limited liability company (“BHS-IPP”), C7 Technologies, LLC, a Delaware limited liability company (“C7”), DMC Shared Savings ACO, LLC, a Delaware limited liability company (“DMC-ACO”), New Dimensions, LLC, an Illinois limited liability company (“ND”), Resolute Health Family Urgent Care, Inc., a Delaware corporation (“RESOLUTE”), Total Accountable Care Organization, LLC, a Delaware limited liability company (“TACO”), Vanguard IT Services, LLC, a Delaware limited liability company (“VITS”),  Vanguard Medical Specialists, LLC, a Delaware limited liability company (“VMS”), VHS of Michigan Staffing, Inc., a Delaware corporation (“VHS-Staff”) and Chicago Health System ACO, LLC, an Illinois limited liability company (“CHS”), (AHCM, AHP, BHS-AC, BHS-IPP, C7, DMC-ACO, ND, RESOLUTE, TACO, VITS, VMS, VHS-Staff and CHS, collectively, the “New Guarantors”), each a subsidiary of Vanguard Health Holding Company II, LLC, a Delaware limited liability company (“VHS Holdco II”), Vanguard Holding Company II, Inc., a Delaware corporation and a wholly owned subsidiary of VHS Holdco II (together with VHS Holdco II, the “Issuers”), and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).
WITNESSETH
WHEREAS, the Issuers and the existing Guarantors have heretofore executed and delivered to the Trustee an indenture (as amended, supplemented or otherwise modified, the “Indenture”), dated as of January 26, 2011 providing for the issuance of 7.750% Senior Notes due 2019 (the “Notes”);
WHEREAS, Section 4.13 of the Indenture provides that under certain circumstances the New Guarantors shall execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantors shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Guarantee”); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the Issuers are authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantors, the Issuers and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1.    Defined Terms.  Defined terms used herein without definition shall have the meanings assigned to them in the Indenture.

1

2.    Agreement to Guarantee.  The New Guarantors hereby agree, jointly and severally with all existing Guarantors (if any), to provide an unconditional Guarantee on the terms and subject to the conditions set forth in Article X of the Indenture and to be bound by all other applicable provisions of the Indenture and the Notes and to perform all of the obligations and agreements of a Guarantor under the Indenture.
3.    No Recourse Against Others.  No past, present or future director, manager, officer, employee, incorporator, stockholder or member of the Issuers, any parent entity of the Issuers or any Subsidiary, as such, shall have any liability for any obligations of the Issuers or the Guarantors under the Notes, this Indenture, the Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation.  Each Holder of Notes by accepting a Note waives and releases all such liability.  The waiver and release are part of the consideration for issuance of the Notes.  The waiver may not be effective to waive liabilities under the federal securities laws.
4.    Notices.  All notices or other communications to the New Guarantors shall be given as provided in Section 12.02 of the Indenture.
5.    Ratification of Indenture; Supplemental Indentures Part of Indenture.  Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect.  This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
6.    GOVERNING LAW.  THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
7.    Counterparts.  The parties may sign any number of copies of this Supplemental Indenture.  Each signed copy shall be an original, but all of them together represent the same agreement.
8.    Effect of Headings.  The section headings herein are for convenience only and shall not affect the construction hereof.
9.    Trustee Makes No Representation.  The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
[The rest of this page is intentionally blank]

2

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
Dated:  July 23, 2012

	
		
	 
	 

	 
	 

	 
	ADVANTAGE HEALTH CARE MANAGEMENT COMPANY, LLC

	 
	 

	 
	By:    /s/ James H. Spalding            

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	ARIZONA HEALTH PARTNERS, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	BHS ACCOUNTABLE CARE, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	BHS INTEGRATED PHYSICIAN PARTNERS, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	C7 TECHNOLOGIES, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	DMC SHARED SAVINGS ACO, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

3

	
		
	 
	NEW DIMENSIONS, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	RESOLUTE HEALTH FAMILY URGENT CARE, INC.

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	TOTAL ACCOUNTABLE CARE ORGANIZATION, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	VANGUARD IT SERVICES, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	VANGUARD MEDICAL SPECIALISTS, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	VHS OF MICHIGAN STAFFING, INC.

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	CHICAGO HEALTH SYSTEM ACO, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	 

	 
	 

4

	
		
	 
	VANGUARD HEALTH HOLDING COMPANY II, LLC

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	VANGUARD HOLDING COMPANY II, INC.

	 
	 

	 
	By:    /s/ James H. Spalding

	 
	Name: James H. Spalding

	 
	Title: Executive Vice President

	 
	 

	 
	 

	 
	U.S. BANK NATIONAL ASSOCIATION, as Trustee

	 
	

	 
	By:    /s/ Joshua A. Hahn

	 
	Authorized Signatory

	 
	 

5

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