Document:

ex10-1.htm

    Exhibit
10.1

     

    
 

    PROXIM
WIRELESS CORPORATION

    

    BRIDGE
BANK, N.A.

    

    LOAN
AND SECURITY AGREEMENT

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    This
Loan
And Security Agreement is entered into as of March 6, 2009, by and
between Bridge
Bank, N.A. (“Bank”) and Proxim
Wireless Corporation (“Borrower”).

     

    Recitals

     

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

     

    Agreement

     

    The
parties agree as follows:

     

    1.           Definitions
and Construction.

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Borrowing
Base” means an amount equal to (i) sixty-five percent (65%) of domestic Eligible
Accounts plus an amount equal to (ii) the lesser of $1,000,000 or fifty percent
(50%) of Eligible Foreign Accounts, as determined by Bank with reference to the
most recent Borrowing Base Certificate delivered by Borrower.

     

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

     

    “Cash”
means unrestricted cash and cash equivalents.

     

    “Cash
Management Sublimit” means a sublimit for cash management transactions approved
by Bank under the Revolving Line subject to the availability under the Revolving
Line and the Borrowing Base in an aggregate amount not to exceed $1,000,000
minus, in each case,
any amounts outstanding under the Letter of Credit Sublimit and the Foreign
Exchange Sublimit.

     

    
      
         

      

      
        1.

        
          

        

      

      
         

      

    

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

     

    “Closing
Date” means the date of this Agreement.

     

    “Code”
means the California Uniform Commercial Code.

     

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

     

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

     

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

     

    “Credit
Extension” means each Advance, Letter of Credit, use of Cash Management Services
or Foreign Exchange Sublimit, or any other extension of credit by Bank for the
benefit of Borrower hereunder.

     

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

     

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

     

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

     

    (b)           Accounts
with respect to an account debtor, thirty-five percent (35%) of whose Accounts
the account debtor has failed to pay within ninety (90) days of invoice
date;

     

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

     

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

     

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

     

    (f)           Accounts
with respect to which the account debtor does not have its
principal

     

    
      
         

      

      
        2.

        
          

        

      

      
         

      

    

    place of
business in the United States or Canada, except for Eligible Foreign
Accounts;

     

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

     

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

     

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

     

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

     

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

     

    “Eligible
Foreign Accounts” means Accounts with respect to which the account debtor does
not have its principal place of business in the United States and that
(i) are supported by one or more letters of credit in an amount and of a
tenor, and issued by a financial institution, acceptable to Bank, or
(ii) that Bank approves on a case-by-case basis.  Unless
otherwise agreed to by Bank, Eligible Foreign Accounts shall not include the
following:

     

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

     

    (b)           Accounts
with respect to an account debtor, thirty-five percent (35%) of whose Accounts
the account debtor has failed to pay within ninety (90) days of invoice
date;

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

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

     

    “Foreign
Exchange Sublimit” means a sublimit for foreign exchange contracts under the
Revolving Line, subject to the availability under the Revolving Line and the
Borrowing Base, in an aggregate amount not to exceed $1,000,000 less, in each
case, any amounts outstanding under the Letter of Credit Sublimit and the Cash
Management Sublimit.

     

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

     

    “Guarantor’
means the Subsidiaries listed on the Schedule as Guarantors.

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Letter
of Credit” means a commercial or standby letter of credit or similar undertaking
issued by Bank at Borrower’s request in accordance with Section
2.1(a).

     

    “Letter
of Credit Sublimit” means a sublimit for Letters of Credit under the Revolving
Line, subject to the availability under the Revolving Line and the Borrowing
Base, in an aggregate amount not to exceed $1,000,000

     

    
      
         

      

      
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    less, in
each case, any amounts outstanding under the Foreign Exchange Sublimit and the
Cash Management Sublimit.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Permitted
Indebtedness” means:

     

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

     

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

     

    (c)           Indebtedness
secured by a lien described in clause (c) of the defined term “Permitted
Liens,” provided (i) such Indebtedness does not exceed the lesser of the
cost or fair market value of the equipment financed with such Indebtedness and
(ii) such Indebtedness does not exceed $100,000 in the aggregate at any
given time;

     

    (d)           Subordinated
Debt;

     

    (e)           Indebtedness
to trade creditors incurred in the ordinary course of business; and

     

    (f)           Extensions,
refinancings and renewals of any items of Permitted Indebtedness, provided that
the principal amount is not increased or the terms modified to impose more
burdensome terms upon Borrower or its Subsidiary, as the case may
be.

     

    “Permitted
Investment” means:

     

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

     

    (b)           (i) marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or any agency or any State thereof maturing within one (1) year from the
date of

     

    
      
         

      

      
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    acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the
date of creation thereof and currently having rating of at least A-2 or P-2
from either Standard & Poor’s Corporation or Moody’s Investors Service,
(iii) certificates of deposit maturing no more than one (1) year from the
date of investment therein issued by Bank and (iv) Bank’s money market
accounts;

     

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

     

    (d)           Travel
advances and employee relocation loans and other employee loans and advances in
the ordinary course of business.

     

    “Permitted
Liens” means the following:

     

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

     

    (b)           Liens
for taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings provided
the Borrower has reserved for the claims to the extent required by
GAAP;

     

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

     

    (d)           Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through (c)
above, provided that any extension, renewal or replacement Lien shall be limited
to the property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not
increase.

     

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

     

    “Prime
Rate” means the variable rate of interest, per annum, that appears in The Wall Street
Journal on the date of measurement, whether or not such announced rate is
the lowest rate available from Bank, provided the Prime Rate in any event shall
not be less than four percent (4%).

     

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

     

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

     

    “Revolving
Line” means a credit extension of up to Five Million Dollars
($5,000,000).

     

    “Revolving
Maturity Date” means March 6, 2010.

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    2.           Loan and
Terms Of Payment.

     

    2.1           Credit
Extensions.

     

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

     

    (a)           Revolving
Advances.

     

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

     

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

     

    (b)           Letters of
Credit.  Subject to the terms and conditions of this Agreement,
at any time prior to the Revolving Maturity Date, Bank agrees to issue letters
of credit for the account of Borrower (each, a “Letter of Credit” and
collectively, the “Letters of Credit”) in an aggregate outstanding face amount
not to exceed the lesser of the Revolving Line or the Borrowing Base provided,
however, that the aggregate face amount of all outstanding Letters of Credit
shall not exceed $1,000,000 less any amounts outstanding under the Cash
Management Sublimit and the Foreign Exchange Sublimit,.  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 form of
standard application and letter of credit agreement (the “Application”), which
Borrower hereby agrees to execute, including Bank’s standard fee.  On
any drawn but unreimbursed Letter of Credit, the unreimbursed amount shall be
deemed an Advance under Section 2.1(a).  Prior to the Revolving
Maturity Date, Borrower shall secure in cash all obligations under any
outstanding Letters of Credit the duration of which extends beyond the Revolving
Maturity Date on terms acceptable to Bank.  The obligation of Borrower
to reimburse Bank for drawings made under Letters of Credit shall

     

    
      
         

      

      
        7.

        
          

        

      

      
         

      

    

    be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement, the Application, and such Letters
of Credit, under all circumstances whatsoever.  Borrower shall
indemnify, defend, protect, and hold Bank harmless from any loss, cost, expense
or liability, including, without limitation, reasonable attorneys’ fees, arising
out of or in connection with any Letters of Credit, except for expenses caused
by Bank’s gross negligence or willful misconduct.

     

    (c)           Cash Management
Sublimit.  Subject to the terms and conditions of this
Agreement and the availability under the Revolving Line and the Borrowing Base,
Borrower may request cash management services which may include merchant
services, direct deposit of payroll, business credit card, and check cashing
services identified in various cash management services agreements related to
such services (the “Cash Management Services”) by delivering to Bank such
applications on Bank’s standard forms as requested by Bank; provided, however,
that the total amount of the Cash Management Services shall not exceed
$1,000,000 less any amounts outstanding under the Letter of Credit Sublimit and
the Foreign Exchange Sublimit, and that availability under the Revolving Line
shall be reduced by the Cash Management Sublimit.  In addition, Bank
may, in its sole discretion, charge as Advances any amounts that become due or
owing to Bank in connection with the Cash Management Services.  If at
any time the Revolving Facility is terminated or otherwise ceases to exist,
Borrower shall immediately secure to Bank’s satisfaction its obligations with
respect to any Cash Management Services, and, effective as of such date, the
balance in any deposit accounts held by Bank and the certificates of deposit
issued by Bank in Borrower’s name (and any interest paid thereon or proceeds
thereof, including any amounts payable upon the maturity or liquidation of such
certificates), shall automatically secure such obligations to the extent of the
then outstanding Cash Management Services.  Borrower authorizes Bank
to hold such balances in pledge and to decline to honor any drafts thereon or
any requests by Borrower or any other Person to pay or otherwise transfer any
part of such balances for so long as the Cash Management Services
continue.

     

    (d)           Foreign Exchange
Sublimit.  Subject to and upon the terms and conditions of this
Agreement and any other agreement that Borrower may enter into with the Bank in
connection with foreign exchange transactions (“FX Contracts”) and subject to
the availability under the Revolving Line and the Borrowing Base, a Borrower may
request Bank to enter into FX Contracts with Borrower due not later than the
Revolving Maturity Date unless cash secured on terms satisfactory to
Bank.  Borrower shall pay any standard issuance and other fees that
Bank notifies Borrower will be charged for issuing and processing FX Contracts
for a Borrower.  The FX Amount shall at all times be equal to or less
than $1,000,000 minus any amounts outstanding under the Letter of Credit
Sublimit and the Cash Management Sublimit.  The “FX Amount” shall
equal the amount determined by multiplying (i) the aggregate amount, in United
States Dollars, of FX Contracts between Borrower and Bank remaining outstanding
as of any date of determination by (ii) the applicable Foreign Exchange Reserve
Percentage as of such date.  The “Foreign Exchange Reserve Percentage”
shall be a percentage as determined by Bank, in its sole discretion from time to
time.  If at any time the Revolving Facility is terminated or
otherwise ceases to exist, Borrower shall immediately secure in cash all
obligations under the Foreign Exchange Sublimit on terms acceptable to
Bank.

     

    2.2           Overadvances.  If
the sum of the outstanding Advances plus any amounts
outstanding under the Letter of Credit Sublimit, the Cash Management Sublimit
and the Foreign Exchange Sublimit exceeds the lesser of the Revolving Line or
the Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash,
the amount of such excess.  Unless otherwise agreed by Bank, such
payment shall be deemed to be made first on account of the
Advances.

     

    2.3           Interest Rates, Payments, and
Calculations.

     

    (a)           Interest Rates. Except as set forth in
Section 2.3(b), the Advances shall bear interest, on the outstanding Daily
Balance thereof, at a rate equal to two and one-half percent (2.5%) above the
Prime Rate.

     

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

     

    
      
         

      

      
        8.

        
          

        

      

      
         

      

    

    Event of
Default.

     

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

     

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

     

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

     

    2.5           Fees.  Borrower
shall pay to Bank the following:

     

    (a)           Facility Fee.  On
the Closing Date, a Facility Fee equal to $25,000, which shall be nonrefundable;
and

     

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

     

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

     

    3.           Conditions
of Loans.

     

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

     

    (a)           this
Agreement;

     

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

     

    
      
         

      

      
        9.

        
          

        

      

      
         

      

    

    (c)           agreement
to provide insurance or certificate(s) of insurance naming Bank as loss payee
and additional insured;

     

    (d)           a
guaranty from each of the Guarantors and a certificate of the Secretary of each
Guarantor with respect to incumbency and resolutions authorizing the execution
and delivery of such guaranty;

     

    (e)           a
letter from Comerica Bank setting forth the terms of the loan payoff upon the
occurrence of which a termination of the UCC financing statement filed with
respect to the lien of Comerica Bank shall be authorized by Comerica
Bank;

     

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

     

    (g)           current
financial statements of Borrower;

     

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

     

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

     

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

     

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

     

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

     

    4.           Creation of
Security Interest.

     

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

     

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

     

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

     

    
      
         

      

      
        10.

        
          

        

      

      
         

      

    

    5.           Representations
and Warranties.

     

    Borrower
represents and warrants as follows:

     

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

     

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

     

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

     

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

     

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

     

    5.6           Intellectual
Property.  Borrower owns or has the right to use the
Intellectual Property.  To the knowledge of Borrower, each of
Borrower’s Patents is valid and enforceable, and no part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in
part.  To the knowledge of Borrower, no claim has been made that any
part of the Intellectual Property violates the rights of any third
party.

     

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

     

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

     

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

     

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

     

    5.11           Regulatory
Compliance.  Borrower and each Subsidiary have met the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA, and no event has occurred

     

    
      
         

      

      
        11.

        
          

        

      

      
         

      

    

    resulting
from Borrower’s failure to comply with ERISA that is reasonably likely to result
in Borrower’s incurring any liability that could reasonably be expected to have
a Material Adverse Effect.  Borrower is not an “investment company” or
a company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940.  Borrower is not engaged principally,
or as one of the important activities, in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulations T and U of the Board of Governors of the Federal Reserve
System).  Borrower has complied in all material respects with all the
provisions of the Federal Fair Labor Standards Act.  Borrower has not
violated any statutes, laws, ordinances or rules applicable to it, violation of
which could reasonably be expected to have a Material Adverse
Effect.

     

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

     

    5.13           Taxes.  Borrower and
each Subsidiary have filed or caused to be filed all material tax returns
required to be filed, and have paid, or have made adequate provision for the
payment of, all material taxes reflected therein except those being contested in
good faith with adequate reserves under GAAP.

     

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

     

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

     

    5.16           Accounts.  Except as
set forth on the Schedule, none of Borrower’s nor any Subsidiary’s Cash,
securities or investment property is maintained or invested with a Person other
than Bank.

     

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

     

    6.           Affirmative
Covenants.

     

    Borrower
shall do all of the following:

     

    6.1           Good
Standing.  Borrower shall maintain its and each of its
Subsidiaries’ corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which it is
required under applicable law, except in each case if failure to so maintain
would not reasonably be expected to cause a Material Adverse
Effect.  Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, in force all licenses, approvals and agreements, the
loss of which could reasonably be expected to have a Material Adverse
Effect.

     

    
      
         

      

      
        12.

        
          

        

      

      
         

      

    

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

     

    6.3           Financial Statements, Reports,
Certificates.  Borrower shall deliver the following to
Bank:  (a) as soon as available, but in any event within thirty
(30) days after the end of each calendar month, a company prepared consolidated
balance sheet, income, and cash flow statement covering Borrower’s consolidated
operations during such period, prepared in accordance with GAAP, consistently
applied, in a form acceptable to Bank and certified by a Responsible Officer;
(b) as soon as available, but in any event within one hundred eighty (180)
days after the end of Borrower’s fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
copies of all statements, reports and notices sent or made available generally
by Borrower to its security holders or to any holders of Subordinated Debt and,
if applicable, all reports on Forms 10-K and 10-Q filed with the Securities
and Exchange Commission; (d) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could reasonably be expected to result in damages or costs to
Borrower or any Subsidiary of Two Hundred Fifty Thousand Dollars ($250,000) or
more; (e) as soon as available, but in any event within thirty (30) days after
fiscal year end, an annual operating plan, approved by Borrower’s board of
directors and in a form reasonably acceptable to Bank; and (f) such
budgets, sales projections, operating plans or other financial information
generally prepared in the ordinary course of business as Bank may reasonably
request from time to time.

     

    When
Advances are outstanding, within twenty (20) days after the last day of each
month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C-1 and Exhibit C-2 attached hereto,
together with aged listings of accounts receivable and accounts
payable.

     

    Borrower
shall deliver to Bank with the monthly financial statements a pipeline (backlog)
report, and a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D
hereto.

     

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

     

    6.4           Inventory;
Returns.  Borrower shall keep all Inventory in good and
marketable condition, free from all material defects except for Inventory for
which adequate reserves have been made.  Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement.  Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than One
Hundred Fifty Thousand Dollars ($150,000).

     

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

     

    6.6           Insurance.

     

    (a)           Borrower,
at its expense, shall keep the Collateral insured against loss or

     

    
      
         

      

      
        13.

        
          

        

      

      
         

      

    

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

     

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

     

    6.7           Accounts.  Borrower
shall maintain and shall cause each of its Subsidiaries to maintain all of its
depository, operating, and investment accounts with Bank except as set forth in
the Schedule. Borrower may maintain one account with Silicon Valley Bank,
provided (i) the balance in that account may not exceed $10,000 and (ii) such
account shall at all times be subject to a Deposit Account Control Agreement in
form reasonably acceptable to Bank.

     

    6.8           Asset Coverage
Ratio.  Borrower shall maintain at all times a ratio of Cash at
Bank plus Eligible Accounts plus Eligible Foreign Accounts to Indebtedness to Bank
of at least 1.50 to 1.00, measured as at the end of each month.

     

    6.9           Performance to Plan
(Revenue).  Borrower shall maintain at least eighty percent
(80%) of planned revenue as set forth in Exhibit E attached hereto on a
rolling 90-day average, measured as at the end of each month.

     

    6.10           Performance to Plan (Net
Income).  On a rolling 90-day average, measured as at the end
of each month, Borrower shall maintain net income of at least the projected net
income set forth in Exhibit
E attached hereto minus the greater of (i) $50,000 or (ii) 20% of such
projection.

     

    6.11           Intellectual Property
Rights.

     

    (a)           Borrower
shall promptly give Bank written notice of any applications or registrations of
intellectual property rights filed with the United States Patent and Trademark
Office, including the date of such filing and the registration or application
numbers, if any.  Borrower shall promptly give Bank written notice of
the filing of any applications or registrations with the United States Copyright
Office, including the title of such intellectual property rights to be
registered, as such title will appear on such applications or registrations, and
the date such applications or registrations were filed.

     

    (b)           Bank
may audit Borrower's Intellectual Property to confirm compliance with this
Section, provided such audit may not occur more often than twice per year,
unless an Event of Default has occurred and is continuing.

     

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

     

    7.           Negative
Covenants.

     

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

     

    7.1           Dispositions.  Convey,
sell, lease, transfer or otherwise dispose of (collectively, a“Transfer”), or
permit any of its Subsidiaries to Transfer, all or any part of its business or
property, other than:

     

    
      
         

      

      
        14.

        
          

        

      

      
         

      

    

    (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of excess or
obsolete Inventory in an aggregate maximum amount not to exceed $250,000 in any
fiscal year; (iii) Transfers of licenses and similar arrangements for the
use of the property of Borrower or its Subsidiaries in the ordinary course of
business; or (iv) Transfers of worn-out, excess, or obsolete Equipment
which was not financed by Bank; and (v) Transfers of other assets of Borrower or
its Subsidiaries that do not in the aggregate exceed $250,000 during any fiscal
year.

     

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

     

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

     

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

     

    7.5           Encumbrances.  Create,
incur, assume or suffer to exist any Lien with respect to any of its property,
or assign or otherwise convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries so to do, except for Permitted
Liens, or agree with any Person other than Bank not to grant a security interest
in, or otherwise encumber, any of its property, or permit any Subsidiary to do
so.

     

    7.6           Distributions.  Pay
any dividends or make any other distribution or payment on account of or in
redemption, retirement or purchase of any capital stock, except that Borrower
may repurchase the stock of former employees pursuant to stock repurchase
agreements as long as an Event of Default does not exist prior to such
repurchase or would not exist after giving effect to such
repurchase.

     

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

     

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

     

    7.9           Subordinated
Debt.  Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision affecting
Bank’s rights contained in any documentation relating to the Subordinated Debt
without Bank’s prior written consent.

     

    7.10           Inventory and Equipment. Store
(except as provided in the Schedule) the Inventory or the Equipment with a
bailee, warehouseman, or other third party unless the third party has been
notified of Bank’s security interest and Bank (a) has received an acknowledgment
from the third party that it is holding or will hold the Inventory or Equipment
for Bank’s benefit or (b) is in pledge possession of the warehouse receipt,
where negotiable, covering such Inventory or Equipment.  Except for
Inventory sold in the ordinary course of business, except as provided in the
Schedule, and except for such other locations as Bank may approve in writing,
store or maintain any

     

    
      
         

      

      
        15.

        
          

        

      

      
         

      

    

    Equipment
or Inventory at a location other than the location set forth on the
Schedule.

     

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

     

    8.           Events of
Default.

     

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

     

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

     

    8.2           Covenant Default.

     

    (a)           If
Borrower fails to perform any obligation under Article 6 or violates any of the
covenants contained in Article 7 of this Agreement; or

     

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

     

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

     

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

     

    8.5           Insolvency.  If
Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by
Borrower, or if an Insolvency Proceeding is commenced against Borrower and is
not dismissed or stayed within thirty (30) days (provided that no Credit
Extensions will be made prior to the dismissal of such Insolvency
Proceeding);

     

    
      
         

      

      
        16.

        
          

        

      

      
         

      

    

    8.6           Other
Agreements.  If there is a default or other failure to perform
in any agreement to which Borrower is a party or by which it is bound resulting
in a right by a third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount in excess of Two Hundred Fifty
Thousand Dollars ($250,000) or which could reasonably be expected to have a
Material Adverse Effect;

     

    8.7           Judgments.  If a
judgment or judgments for the payment of money in an amount, individually or in
the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000) shall
be rendered against Borrower and shall remain unsatisfied and unstayed for a
period of ten (10) days (provided that no Credit Extensions will be made prior
to the satisfaction or stay of such judgment); or

     

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

     

    8.9           Guaranty.  If any
guaranty of all or a portion of the Obligations (a “Guaranty”) ceases for any
reason to be in full force and effect, or any guarantor fails to perform any
obligation under any Guaranty or a security agreement securing any Guaranty
(collectively, the “Guaranty Documents”), or any event of default occurs under
any Guaranty Document or any guarantor revokes or purports to revoke a Guaranty,
or any material misrepresentation or material misstatement exists now or
hereafter in any warranty or representation set forth in any Guaranty Document
or in any certificate delivered to Bank in connection with any Guaranty
Document, or if any of the circumstances described in Sections 8.3 through 8.8
occur with respect to any guarantor or any guarantor dies or becomes subject to
any criminal prosecution, or any circumstances arise causing Bank, in good
faith, to become insecure as to the satisfaction of any of any guarantor’s
obligations under the Guaranty Documents.

     

    9.           Bank’s
Rights and Remedies.

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        17.

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

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

     

    9.4           Bank Expenses.  If
Borrower fails to pay any amounts or furnish any required proof of payment due
to third persons or entities, as required under the terms of this Agreement,
then Bank may do any or all of the following after reasonable notice to
Borrower:  (a) make payment of the same or any part thereof;
(b) set up such reserves under a loan facility in Section 2.1 as Bank deems
necessary to protect Bank from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in
Section 6.6 of this Agreement, and take any action with respect to such
policies as Bank deems prudent.  Any amounts so paid or deposited by
Bank shall constitute Bank Expenses, shall be immediately due and payable, and
shall bear interest at the then applicable rate hereinabove provided, and shall
be secured by the Collateral.  Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.

     

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

     

    
      
         

      

      
        18.

        
          

        

      

      
         

      

    

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

     

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

     

    10.           Notices.

     

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

     

    
      	
               
      

            	
              If
      to Borrower:

            	
              PROXIM
      WIRELESS CORPORATION

            

    

    
      	
               
      

            	
              1561
      Buckeye Drive

            

    

    
      	
               
      

            	
              Milpitas,
      CA 95035

            

    

    
      	
               
      

            	
              Attn:  Pankaj
      Manglik, CEO / Tom Twerdahl, Interim
CFO

            

    

    
      	
               
      

            	
              FAX:  (408)
      383-7680

            

    

    

    
      	
               
      

            	
              If
      to Bank:

            	
              Bridge
      Bank, N.A.

            

    

    
      	
               
      

            	
              55
      Almaden Blvd., Suite 100

            

    

    
      	
               
      

            	
              San
      Jose, CA 95113

            

    

    
      	
               
      

            	
              Attn:  Chris
      Hill / Asaf Arieli

            

    

    
      	
               
      

            	
              FAX:  (408)
      282-1681

            

    

    

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

     

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

     

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

     

    If the
jury waiver set forth in this Section is not enforceable, then any dispute,
controversy or claim arising out of or relating to this Agreement, the Loan
Documents or any of the transactions contemplated therein shall be settled by
judicial reference pursuant to Code of Civil Procedure Section 638 et seq.
before a referee sitting without

     

    
      
         

      

      
        19.

        
          

        

      

      
         

      

    

    a jury,
such referee to be mutually acceptable to the parties or, if no agreement is
reached, by a referee appointed by the Presiding Judge of the California
Superior Court for Santa Clara County.  This Section shall not
restrict a party from exercising remedies under the Code or from exercising
pre-judgment remedies under applicable law.

     

    12.           General
Provisions.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        20.

        
          

        

      

      
         

      

    

    disclosed
to Bank by a third party, provided Bank does not have actual knowledge that such
third party is prohibited from disclosing such information.

     

    12.9           Patriot Act.  Bank
notifies Borrower that pursuant to the requirements of the USA Patriot Act, it
is required to obtain, verify and record information that identifies Borrower,
which information includes the name and address of Borrower and other
information that will allow Bank to identify Borrower in accordance with such
law.

     

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

     

    
      	 
      	
              PROXIM
      WIRELESS CORPORATION

               

              By:
      /s/ Thomas S.
      Twerdahl

               

              Title:
      Interim CFO
      & Treasurer

               

            
	 
      	
              BRIDGE
      BANK, N.A.

               

              By:
      /s/ Christopher
      Hill

               

              Title:
      Vice
      President

            

    

    

     

    

     

    
      
         

      

      
        21.

        
          

        

      

      
         

      

    

    DEBTOR:                                           PROXIM
WIRELESS CORPORATION

     

    SECURED
PARTY:                          BRIDGE
BANK, N.A.

     

    EXHIBIT
A

     

    COLLATERAL
DESCRIPTION ATTACHMENT

    TO
LOAN AND SECURITY AGREEMENT

     

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

     

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

     

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

     

    Notwithstanding
the foregoing, the Collateral shall not include any copyrights, patents,
trademarks, servicemarks and applications therefor, trade secrets, rights in
computer software or computer software products, design rights, licenses or
other rights relating to the foregoing intellectual property rights, now owned
or hereafter acquired, or any claims for damages by way of any past, present and
future infringement of any of the foregoing (collectively, the “Intellectual
Property”); provided, however, that the Collateral shall include all accounts
and general intangibles that consist of rights to payment and proceeds from the
sale, licensing or disposition of all or any part, or rights in, the foregoing
(the “Rights to Payment”); and the Collateral shall not include any such
property (i) that is nonassignable by its terms without the consent of the
licensor thereof or another party (but only to the extent such prohibition on
transfer is enforceable under applicable law, including, without limitation,
Sections 9406 and 9408 of the Code), provided that upon the cessation of any
such restriction, such property shall automatically become part of the
Collateral or (ii) constitutes the capital stock of a controlled foreign
corporation (as defined in the IRC) in excess of 65% of the voting power of all
classes of capital stock of such controlled foreign corporations entitled to
vote.  Notwithstanding the foregoing, if a judicial authority
(including a U.S. Bankruptcy Court) holds that a security interest in the
underlying Intellectual Property is necessary to have a security interest in the
Rights to Payment, then the Collateral shall automatically, and effective as of
the Closing Date, include the Intellectual Property to the extent necessary to
permit perfection of Bank’s security interest in the Rights to
Payment.kl03017_ex10-1.htm

    
      

    

    EXHIBIT
10.1

     

    EMPLOYMENT
AGREEMENT

     

    THIS
AGREEMENT (the “Agreement”), made in New York, New York as of January 22, 2007,
between SIGA Technologies, Inc., a Delaware corporation (the “Company”),
and Ayelet Dugary
(“Executive”).

     

    WHEREAS,
the Company desires to employ Executive as its Director of Finance and
Controller, and Executive desires to accept such employment on the terms and
conditions hereinafter set forth;

     

    NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants and agreements hereinafter
set forth, the Company and Executive agree as follows:

     

    1.    Term.  Unless
earlier terminated in accordance with Section 4 hereof, the term of this
Agreement shall be the one-year period commencing as of the date hereof and
ending on January 22, 2008 (the “Term” and such
year, a “Term Year”). In addition, unless either party hereto provides notice of
its desire not to renew this Agreement thirty (30) days prior to the expiration
of the Term, this Agreement shall automatically renew for additional one (1)
year periods commencing upon the expiration of the initial Term (or any such
subsequent Term), with each such additional year thereafter being made part of
the Term and each such additional year, thereafter a Term Year.

     

    2.    Employment.

     

    (a)    Employment by the Company;
Director.  Executive agrees to be employed by the Company
during the Term upon the terms and subject to the conditions set forth in this
Agreement.  Executive shall serve as the Director of Finance and
Controller of the Company and shall report to the Board of Directors and
Chief Financial Officer of the Company.

     

    (b)    Performance of
Duties.  Throughout her employment with the Company, Executive
shall faithfully and diligently perform Executive’s duties in conformity with
the directions of the Company and serve the Company to the best of Executive’s
ability.  Executive shall devote her full business time and best
efforts to the business and affairs of the Company.  In her capacity
as the Director of Finance and Controller of the Company, Executive shall have
such duties and responsibilities as he may be assigned by the Board of Directors and
Chief Financial Officer of the Company not inconsistent with her position as
Director of Finance and Controller of the
Company.

     

    3.    Compensation and
Benefits.

     

    (a)    Base
Salary.  The Company agrees to pay to Executive a base salary
(“Base Salary”) at the annual rate of $180,000, subject to any cost of living
adjustments as may be approved by the Board of Directors of the
Company.  Payments of the Base Salary shall be payable in equal
installments in accordance with the Company’s standard payroll
practices.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    (b)    Annual
Bonus.   The Company will pay Executive an annual cash
bonus of $40,000.  The Company may also, in its sole discretion, pay
to Executive an additional bonus in an amount to be determined by the Board of
Directors in its sole discretion.  Such  additional bonus,
if any, may be payable in cash or options to purchase Common Stock or restricted
shares of Common Stock, as determined by the Board of Directors in its sole
discretion.  Any such cash bonus shall be paid, and any such options
or restricted shares shall be issued, no later than March 15 of the year
following the year in which the Board of Directors determined such bonus, or, if
later, by the date that is 21⁄2 months following the end of the Company’s fiscal
year in which the Board of Directors determined such bonus.

     

    (c)    Benefits and
Perquisites.  Executive shall be entitled to participate in, to
the extent Executive is otherwise eligible under the terms thereof, the benefit
plans and programs, and receive the benefits and perquisites, generally provided
by the Company to senior executives of the Company, including without limitation
family medical insurance (subject to applicable employee
contributions).  Executive shall be entitled to receive vacation days
in accordance with Company policy, such days to be accrued in accordance with
Company policy.

     

    (d)    Business
Expenses.  The Company agrees to reimburse Executive for all
reasonable and necessary travel, business entertainment and other business
expenses incurred by Executive in connection with the performance of her duties
under this Agreement.  Such reimbursements shall be made by the
Company on a timely basis upon submission by Executive of vouchers in accordance
with the Company’s standard procedures.

     

    (e)    Indemnification.  The
Company shall indemnify Executive, to the fullest extent permitted by its
certificate of incorporation, for any and all liabilities to which he may be
subject as a result of, in connection with or arising out of her employment by
the Company hereunder, as well as the costs and expenses (including reasonable
attorneys’ fees) of any legal action brought or threatened to be brought against
her or the Company as a result of, in connection with or arising out of such
employment or board service.  Executive shall be entitled to the full
protection of any insurance policies which the Company may elect to maintain
generally for the benefit of its officers.

     

    (f)    No Other Compensation or
Benefits; Payment.  The compensation and benefits specified in
this Section 3 and in Section 5 of this Agreement shall be in lieu of any and
all other compensation and benefits.  Payment of all compensation and
benefits to Executive specified in this Section 3 and in Section 5 of this
Agreement (i) shall be made in accordance with the relevant Company policies in
effect from time to time to the extent the same are consistently applied,
including normal payroll practices, and (ii) shall be subject to all legally
required and customary withholdings.

     

    (g)    Cessation of
Employment.  In the event Executive shall cease to be employed
by the Company for any reason, Executive’s compensation and benefits shall cease
on the date of such event, except as otherwise specifically provided herein or
in any applicable employee benefit plan or program or as required by
law.

     

     

     

    
      
        
        

      

      
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    4.    Termination of
Employment.  Executive’s employment hereunder may be terminated
prior to the end of the Term under the following circumstances.

     

    (a)    Death.  Executive’s
employment hereunder shall terminate upon Executive’s death.

     

    (b)    Executive Becoming Totally
Disabled.  The Company may terminate Executive’s employment
hereunder at any time after Executive becomes “Totally Disabled.”  For
purposes of this Agreement, Executive shall be “Totally Disabled” in the event
Executive is unable to perform the duties and responsibilities contemplated
under this Agreement for a period of either (A) 120 consecutive days or (B) 6
months in any 12-month period due to physical or mental incapacity or
impairment.  During any period that Executive fails to perform
Executive’s duties hereunder as a result of incapacity due to physical or mental
illness (the “Disability Period”), Executive shall continue to receive the
compensation and benefits provided by Section 3 of this Agreement until
Executive’s employment hereunder is terminated; provided, however, that the
amount of base compensation and benefits received by Executive during the
Disability Period shall be reduced by the aggregate amounts, if any, payable to
Executive under any disability benefit plan or program provided to Executive by
the Company.

     

    (c)    Termination by the Company
for Cause.  The Company may terminate Executive’s employment
hereunder for Cause at any time after providing written notice to
Executive.  For purposes of this Agreement, the term “Cause” shall
mean any of the following:  (i) Executive’s neglect or failure or
refusal to perform her duties under this Agreement (other than as a result of
total or partial incapacity due to physical or mental illness); (ii) any act by
or omission of Executive constituting gross negligence or willful misconduct in
connection with the performance of her duties that could reasonably be expected
to materially injure the reputation, business or business relationships of the
Company or any of its affiliates; (iii) perpetration of an intentional and
knowing fraud against or affecting the Company or any of its affiliates or any
customer, client, agent, or employee thereof; (iv) the commission by or
indictment of Executive for (A) a felony or (B) any misdemeanor involving moral
turpitude, deceit, dishonesty or fraud (“indictment,” for these purposes,
meaning a United States-based indictment, probable cause hearing or any other
procedure pursuant to which an initial determination of probable or reasonable
cause with respect to such offense is made); (v) the breach of a covenant set
forth in Section 6; or (vi) any other material breach of this
Agreement.

     

    (d)    Termination by the Company
Without Cause.  The Company may terminate Executive’s
employment hereunder at any time for any reason or no reason by giving Executive
thirty (30) days prior written notice of the termination.  Following
any such notice, the Company may reduce or remove any and all of Executive’s
duties, positions and titles with the Company.

     

    (e)    Termination by Executive for
Good Reason.  Executive may terminate her employment hereunder
for Good Reason at any time after providing written notice to the
Company.  For purposes of this Agreement, the term “Good Reason” shall
mean any of the following:  (i) the Company fails to pay the
compensation described in Section 3(a) of this Agreement (in accordance with,
and subject to, such provisions); (ii) Executive no longer holds the office of
Director of Finance and Controller or offices of equivalent
stature, or her functions

     

     

     

    
      
        
        

      

      
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    and/or
duties as Director of Finance and Controller are materially
diminished; or (iii) Executive’s job site is relocated to a location which is
more than fifty (50) miles from New York City, unless the parties mutually agree
to such relocation.

     

    (f)    Termination Upon a Change in
Control.  If the Company terminates Executive’s employment
hereunder without Cause within 90 days after the occurrence of the Change in
Control Executive shall be entitled to the payments provided for by Section
5(d).  For purposes of this Agreement, a “Change in Control” shall be
conclusively deemed to have occurred if any of the following shall have taken
place:

     

    (i)     the
consummation of a transaction or a series of related transactions pursuant to
which any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934 (“Exchange Act”), other than the Executive, her
designee(s) or “affiliate(s)” (as defined in Rule 12b-2 under the Exchange Act),
is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
forty percent (40%) or more of the combined voting power of the Company’s then
outstanding securities;

     

    (ii)    stockholders
of the Company approve a merger or consolidation of the Company with any other
entity, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than eighty percent (80%) of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation;
or

     

    (iii)   the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of, or the
Company sells or disposes of, all or substantially all of the Company’s
assets.

     

    (g)    Termination by Executive
Without Good Reason.  Executive may terminate her employment
hereunder at any time for any reason or no reason by giving the Company thirty
(30) days prior written notice of the termination.  Following any such
notice, the Company may reduce or remove any and all of Executive’s duties,
positions and titles with the Company, and any such reduction or removal shall
not constitute Good Reason.

     

    5.    Compensation Following
Termination.  In the event that Executive’s employment
hereunder is terminated, Executive shall be entitled only to the following
compensation and benefits upon such termination:

     

    (a)    General.  On
any termination of Executive’s employment prior to the end of the Term,
Executive shall be entitled to the following (collectively, the “Standard
Termination Payments”):

     

    (i)     any
accrued but unpaid Base Salary for services rendered through the date of
termination; provided, however, that in the event Executive’s employment is
terminated pursuant to Section 4(b), the amount of Base Salary received by
Executive during the Disability Period shall be reduced by the aggregate
amounts, if any, payable to

     

     

     

    
      
        
        

      

      
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    Executive
under any disability benefit plan or program provided to Executive by the
Company;

     

    (ii)     any
vacation accrued to the date of termination, in accordance with Company
policy;

     

    (iii)    any
accrued but unpaid expenses through the date of termination required to be
reimbursed in accordance with Section 3(d) of this Agreement; and

     

    (iv)    any
benefits to which he may be entitled upon termination pursuant to the plans,
programs and grants referred to in Section 3(c) hereof in accordance with the
terms of such plans, programs and grants.

     

    (b)    Termination Prior to the
Expiration of the Term by Reason of Death or Executive Becoming Totally
Disabled; Termination Prior to the Expiration of the Term by the Company for
Cause; Termination Prior to the Expiration of the Term by Executive Without Good
Reason.  In the event that Executive’s employment is terminated
prior to the expiration of the Term (i) by reason of Executive’s death pursuant
to Section 4(a) or Executive becoming Totally Disabled pursuant to Section 4(b),
(ii) by the Company for Cause pursuant to Section 4(c) or (iii) by Executive
without Good Reason pursuant to Section 4(g), Executive (or her estate, as the
case may be) shall be entitled only to the Standard Termination
Payments.

     

    (c)    Termination Prior to the
Expiration of the Term by the Company Without Cause; Termination Prior to the
Expiration of the Term by Executive for Good Reason.  In the
event that Executive’s employment is terminated prior to the expiration of the
Term by the Company without Cause pursuant to Section 4(d) or by Executive for
Good Reason pursuant to Section 4(e), Executive shall be entitled only to the
following:

     

    (i)    the
Standard Termination Payments; and

     

    (ii)    the
continued payment of the Base Salary (as determined pursuant to Section 3(a))
for one year (such sums to be paid at the times and in the amounts such Base
Salary would have been paid had Executive’s employment not terminated);
provided, however, that if necessary to comply with Section 409A(a)(2)(B)(i) of
the Internal Revenue Code of 1986, as amended (the “Code”), and applicable
administrative guidance and regulations, the payment of such sums shall be made
as follows:  (A) no payments shall be made for a six-month period
following the date of termination, (B) an amount equal to six months of Base
Salary shall be paid in a lump sum six months following the date of termination,
and (C) during the period beginning six months following the date of termination
through the remainder of the twelve-month period, payment of the Base Salary
shall be made at the times and in the amounts such Base Salary would have been
paid had Executive’s employment not terminated.

     

    (iii)    the
Company shall take all such action as is necessary such that all stock options
and other stock-based grants to Executive shall, immediately and irrevocably
vest and become exercisable as of the date of termination and shall remain
exercisable for a period of not less than one (1) year from the date of
termination.

     

     

     

    
      
        
        

      

      
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    (d)    Termination Upon a Change of
Control.  In the event that the Company terminates Executive’s
employment upon a Change in Control other than for Cause pursuant to Section
4(f), Executive shall be entitled only to the following:

     

    (i)     
the
Standard Termination Payments;

     

    (ii)     the
continued payment of the Base Salary (as determined pursuant to Section 3(a))
for one year (such sums to be paid at the times and in the amounts such Base
Salary would have been paid had Executive’s employment not terminated);
provided, however, that if necessary to comply with Section 409A(a)(2)(B)(i) of
the Internal Revenue Code of 1986, as amended (the “Code”), and applicable
administrative guidance and regulations, the payment of such sums shall be made
as follows:  (A) no payments shall be made for a six-month period
following the date of termination, (B) an amount equal to six months of Base
Salary shall be paid in a lump sum six months following the date of termination,
and (C) during the period beginning six months following the date of termination
through the remainder of the twelve-month period, payment of the Base Salary
shall be made at the times and in the amounts such Base Salary would have been
paid had Executive’s employment not terminated; and

     

    (iii)    the
Company shall take all such action as is necessary such that all stock options
and other stock-based grants to Executive shall, immediately and irrevocably
vest and become exercisable as of the date of termination and shall remain
exercisable for a period of not less than one (1) year from the date of
termination.

     

    (e)    Effect of Material Breach of
Section 6 on Compensation and Benefits Following Termination of Employment
Pursuant to Sections 5(c)(ii) or 5(d)(ii).  If, at the time of
termination of Executive’s employment for any reason prior to the expiration of
the Term or any time thereafter, Executive is in material breach of any covenant
contained in Section 6 hereof, Executive (or her estate, as applicable) shall
not be entitled to any payment (or if payments have commenced, any continued
payment) under Sections 5(c)(ii) or 5(d)(ii).

     

    (f)    No Further Liability;
Release.  Payment made and performance by the Company in
accordance with this Section 5 shall operate to fully discharge and release the
Company and its directors, officers, employees, affiliates, stockholders,
successors, assigns, agents and representatives from any further obligation or
liability with respect to Executive’s employment and termination of
employment.  Other than providing the compensation and benefits
provided for in accordance with this Section 5, the Company and its directors,
officers, employees, affiliates, stockholders, successors, assigns, agents and
representatives shall have no further obligation or liability to Executive or
any other person under this Agreement.  The payment of any amounts
pursuant to this Section 5 (other than payments required by law) is expressly
conditioned upon the delivery by Executive to the Company of a release in form
and substance reasonably satisfactory to the Company of any and all claims
Executive may have against the Company and its directors, officers, employees,
affiliates, stockholders, successors, assigns, agents and representatives
arising out of or related to Executive’s employment by the Company and the
termination of such employment.

     

     

    
      
        
        

      

      
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    6.    Exclusive Employment;
Non-competition; Non-solicitation; Nondisclosure of Proprietary Information;
Surrender of Records; Inventions and Patents; Code of
Ethics.

     

    (a)    No Conflict; No Other
Employment.  During the period of Executive’s employment with
the Company, Executive shall not:  (i) engage in any activity which
conflicts or interferes with or derogates from the performance of Executive’s
duties hereunder nor shall Executive engage in any other business activity,
whether or not such business activity is pursued for gain or profit and
including service as a director of any other company, except as approved in
advance in writing by the Company; provided, however, that Executive shall be
entitled to manage her personal investments and otherwise attend to personal
affairs, including charitable, social and political activities, in a manner that
does not unreasonably interfere with her responsibilities hereunder, or (ii)
accept or engage in any other employment, whether as an employee or consultant
or in any other capacity, and whether or not compensated therefor.

     

    (b)    Non-competition;
Non-solicitation.

     

    (i)     Executive
acknowledges and recognizes the highly competitive nature of the Company’s
business and that access to the Company’s confidential records and proprietary
information renders her special and unique within the Company’s
industry.  In consideration of the payment by the Company to Executive
of amounts that may hereafter be paid to Executive pursuant to this Agreement
(including, without limitation, pursuant to Sections 3 and 5 hereof) and other
obligations undertaken by the Company hereunder, Executive agrees that during
(i) her employment with the Company and (ii) twenty-four months thereafter (the
“Covered Time”), Executive shall not, directly or indirectly, engage (as owner,
investor, partner, stockholder, employer, employee, consultant, advisor,
director or otherwise) in any Competing Business, provided that the provisions
of this Section 6(b) will not be deemed breached merely because Executive owns
less than 1% of the outstanding common stock of a publicly-traded
company.  For purposes of this Agreement, “Competing Business” shall
mean (i) any business in which the Company or its affiliates are currently
engaged anywhere in the world; and (ii) any other business in which the Company
engages in anywhere in the world during the Term.

     

    (ii)    In
further consideration of the payment by the Company to Executive of amounts that
may hereafter be paid to Executive pursuant to this Agreement (including,
without limitation, pursuant to Sections 3 and 5 hereof) and other obligations
undertaken by the Company hereunder, Executive agrees that during her employment
and the Covered Time, he shall not, directly or indirectly, (i) solicit,
encourage or attempt to solicit or encourage any of the employees, agents,
consultants or representatives of the Company or any of its affiliates to
terminate her, her, or its relationship with the Company or such affiliate;
(ii) solicit, encourage or attempt to solicit or encourage any of the
employees, agents, consultants or representatives of the Company or any of its
affiliates to become employees, agents, representatives or consultants of any
other person or entity; (iii) solicit or attempt to solicit any customer, vendor
or distributor of the Company or any of its affiliates with respect to any
product or service being furnished, made, sold or leased by the Company or such
affiliate; or (iv)
persuade or seek to persuade any customer of the Company or any affiliate to
cease to do

     

     

     

    
      
        
        

      

      
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    business
or to reduce the amount of business which any customer has customarily done or
contemplates doing with the Company or such affiliate, whether or not the
relationship between the Company or its affiliate and such customer was
originally established in whole or in part through Executive’s
efforts.  For purposes of this Section 6(b) only, the terms
“customer,” “vendor” and “distributor” shall mean a customer, vendor or
distributor who has done business with the Company or any of its affiliates
within twelve months preceding the termination of Executive’s
employment.

     

    (iii)    During
Executive’s employment with the Company and during the Covered Time, Executive
agrees that upon the earlier of Executive’s (i) negotiating with any Competitor
(as defined below) concerning the possible employment of Executive by the
Competitor, (ii) receiving an offer of employment from a Competitor, or (iii)
becoming employed by a Competitor, Executive will (A) immediately provide notice
to the Company of such circumstances and (B) provide copies of Section 6 of this
Agreement to the Competitor.  Executive further agrees that the
Company may provide notice to a Competitor of Executive’s obligations under this
Agreement, including without limitation Executive’s obligations pursuant to
Section 6 hereof.  For purposes of this Agreement, “Competitor” shall
mean any entity (other than the Company or any of its affiliates) that engages,
directly or indirectly, in any Competing Business.

     

    (iv)    Executive
understands that the provisions of this Section 6(b) may limit her ability to
earn a livelihood in a business similar to the business of the Company or its
affiliates but nevertheless agrees and hereby acknowledges that the
consideration provided under this Agreement, including any amounts or benefits
provided under Sections 3 and 5 hereof and other obligations undertaken by the
Company hereunder, is sufficient to justify the restrictions contained in such
provisions.  In consideration thereof and in light of Executive’s
education, skills and abilities, Executive agrees that he will not assert in any
forum that such provisions prevent her from earning a living or otherwise are
void or unenforceable or should be held void or unenforceable.

     

    (c)    Proprietary
Information.  Executive acknowledges that during the course of
her employment with the Company he will necessarily have access to and make use
of proprietary information and confidential records of the Company and its
affiliates.  Executive covenants that he shall not during the Term or
at any time thereafter, directly or indirectly, use for her own purpose or for
the benefit of any person or entity other than the Company, nor otherwise
disclose, any proprietary information to any individual or entity, unless such
disclosure has been authorized in writing by the Company or is otherwise
required by law.  Executive acknowledges and understands that the term
“proprietary information” includes, but is not limited to:  (a)
inventions, trade secrets, ideas, processes, formulas, source and object codes,
data, programs, other works of authorship, know-how, improvements, research,
discoveries, developments, designs, and techniques regarding any of the
foregoing utilized by the Company or any of its affiliates; (b) the name
and/or address of any customer or vendor of the Company or any of its affiliates
or any information concerning the transactions or relations of any customer or
vendor of the Company or any of its affiliates with the Company or such
affiliate or any of its or their partners, principals, directors, officers or
agents; (c) any information concerning any product, technology, or procedure
employed by the Company or any of its affiliates but not generally known to its
or their customers, vendors or competitors, or

     

     

     

    
      
        
        

      

      
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    under
development by or being tested by the Company or any of its affiliates but not
at the time offered generally to customers or vendors; (d) any information relating
to the pricing or marketing methods, sales margins, cost of goods, cost of
material, capital structure, operating results, borrowing arrangements or
business plans of the Company or any of its affiliates; (e) any information
which is generally regarded as confidential or proprietary in any line of
business engaged in by the Company or any of its affiliates; (f) any business
plans, budgets, advertising or marketing plans; (g) any information contained in
any of the written or oral policies and procedures or manuals of the Company or
any of its affiliates; (h) any information belonging to customers or vendors of
the Company or any of its affiliates or any other person or entity which the
Company or any of its affiliates has agreed to hold in confidence; (i) any
inventions, innovations or improvements covered by this Agreement; and
(j) all written, graphic and other material relating to any of the
foregoing.   Executive acknowledges and understands that
information that is not novel or copyrighted or patented may nonetheless be
proprietary information.  The term “proprietary information” shall not
include information generally available to and known by the public or
information that is or becomes available to Executive on a non-confidential
basis from a source other than the Company, any of its affiliates, or the
directors, officers, employees, partners, principals or agents of the Company or
any of its affiliates (other than as a result of a breach of any obligation of
confidentiality).

     

    (d)    Confidentiality and
Surrender of Records.  Executive shall not during the Term or
at any time thereafter (irrespective of the circumstances under which
Executive’s employment by the Company terminates), except as required by law,
directly or indirectly publish, make known or in any fashion disclose any
confidential records to, or permit any inspection or copying of confidential
records by, any individual or entity other than in the course of such
individual’s or entity’s employment or retention by the Company.  Upon
termination of employment for any reason or upon request by the Company,
Executive shall deliver promptly to the Company all property and records of the
Company or any of its affiliates, including, without limitation, all
confidential records.  For purposes hereof, “confidential records”
means all correspondence, reports, memoranda, files, manuals, books, lists,
financial, operating or marketing records, magnetic tape, or electronic or other
media or equipment of any kind which may be in Executive’s possession or under
her control or accessible to her which contain any proprietary
information.  All property and records of the Company and any of its
affiliates (including, without limitation, all confidential records) shall be
and remain the sole property of the Company or such affiliate during the Term
and thereafter.

     

    (e)    Inventions and
Patents.

     

    (i)    The
Executive agrees that all processes, technologies and inventions (collectively,
"Inventions"), including new contributions, improvements, ideas and discoveries,
whether patentable or not, conceived, developed, invented or made by her during
the Term shall belong to the Company, provided that such Inventions grew out of
the Executive's work with the Company or any of its subsidiaries or affiliates,
are related in any manner to the business (commercial or experimental) of the
Company or any of its subsidiaries or affiliates or are conceived or made on the
Company's time or with the use of the Company's facilities or
materials.  The Executive shall further:  (a) promptly
disclose such Inventions to the Company; (b) assign to the Company, without
additional compensation, all patent and other rights to such

     

     

     

    
      
        
        

      

      
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    Inventions
for the United States and foreign countries; (c) sign all papers necessary to
carry out the foregoing; and (d) give testimony in support of the Executive's
inventorship.

     

    (ii)     If any
Invention is described in a patent application or is disclosed to third parties,
directly or indirectly, by the Executive within two years after the termination
of the Executive's employment by the Company, it is to be presumed that the
Invention was conceived or made during the Term.

     

    (iii)    The
Executive agrees that the Executive will not assert any rights to any Invention
as having been made or acquired by the Executive prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in writing
prior to the date hereof.

     

    (iv)    The
Company shall be the sole owner of all the products and proceeds of the
Executive's services hereunder, including, but not limited to, all materials,
ideas, concepts, formats, suggestions, developments, arrangements, packages,
programs and other intellectual properties that the Executive may acquire,
obtain, develop or create in connection with and during the Term, free and clear
of any claims by the Executive (or anyone claiming under the Executive) of any
kind or character whatsoever (other than the Executive's right to receive
payments hereunder).  The Executive shall, at the request of the
Company, execute such assignments, certificates or other instruments as the
Company may from time to time deem necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend its right, title or
interest in or to any such properties.

     

    (f)    Enforcement.  Executive
acknowledges and agrees that, by virtue of her position, her services and access
to and use of confidential records and proprietary information, any violation by
her of any of the undertakings contained in this Section 6 would cause the
Company and/or its affiliates immediate, substantial and irreparable injury for
which it or they have no adequate remedy at law.  Accordingly,
Executive agrees and consents to the entry of an injunction or other equitable
relief by a court of competent jurisdiction restraining any violation or
threatened violation of any undertaking contained in this Section
6.  Executive waives posting by the Company or its affiliates of any
bond otherwise necessary to secure such injunction or other equitable
relief.  Rights and remedies provided for in this Section 6 are
cumulative and shall be in addition to rights and remedies otherwise available
to the parties hereunder or under any other agreement or applicable
law.

     

    (g)    Code of
Ethics.  Nothing in this Section 6 is intended to limit, modify
or reduce Executive’s obligations under the Company’s Code of
Ethics.  Executive’s obligations under this Section 6 are in addition
to, and not in lieu of, Executive’s obligations under the Code of
Ethics.  To the extent there is any inconsistency between this Section
6 and the Code of Ethics which would permit Executive to take any action or
engage in any activity pursuant to this Section 6 which he would be barred from
taking or engaging in under the Code of Ethics, the Code of Ethics shall
control.

     

     

     

    
      
        
        

      

      
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    7.    Assignment and
Transfer.

     

    (a)    Company.  This
Agreement shall inure to the benefit of and be enforceable by, and may be
assigned by the Company without Executive’s consent to, any purchaser of all or
substantially all of the Company’s business or assets, or to any successor to
the Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise).

     

    (b)    Executive. The
parties hereto agree that Executive is obligated under this Agreement to render
personal services during her employment of a special, unique, unusual,
extraordinary and intellectual character, thereby giving this Agreement special
value.  Executive’s rights and obligations under this Agreement shall
not be transferable by Executive by assignment or otherwise, and any purported
assignment, transfer or delegation thereof shall be void; provided, however,
that if Executive shall die, all amounts then payable to Executive hereunder
shall be paid in accordance with the terms of this Agreement to Executive’s
estate.

     

    8.    Miscellaneous.

     

    (a)    Cooperation.  Following
termination of employment with the Company for any reason, Executive shall
cooperate with the Company, as requested by the Company, to effect a transition
of Executive’s responsibilities and to ensure that the Company is aware of all
matters being handled by Executive.

     

    (b)    Mitigation.  Executive
shall not be required to mitigate damages or the amount of any payment provided
to her under Section 5 of this Agreement by seeking other employment or
otherwise, nor shall the amount of any payments provided to Executive under
Section 5 be reduced by any compensation earned by Executive as the result of
employment by another employer after the termination of Executive’s employment
or otherwise.

     

    (c)    Protection of
Reputation.  During the Term and thereafter, Executive agrees
that he will take no action which is intended, or would reasonably be expected,
to harm the Company or any of its affiliates or its or their reputation or which
would reasonably be expected to lead to unwanted or unfavorable publicity to the
Company or its affiliates.  Nothing herein shall prevent Executive
from making any truthful statement in connection with any legal proceeding or
investigation by the Company or any governmental authority.

     

    (d)    Governing Law; Consent to
Jurisdiction.  This Agreement shall be governed by and
construed (both as to validity and performance) and enforced in accordance with
the internal laws of the State of New York applicable to agreements made and to
be performed wholly within such jurisdiction, without regard to the principles
of conflicts of law or where the parties are located at the time a dispute
arises.  In the event of any controversy or claim arising out of or
relating to this Agreement or the breach or alleged breach hereof, each of the
parties hereto irrevocably (a) consents to the jurisdiction of any state court
sitting in the County of New York, State of New York, or federal court sitting
in the County of New York, State of New York. (b) waives any objection which it
may have at any time to the laying of venue of any action or proceeding brought
in any such court and (c) waives any claim that such action or proceeding has
been brought in an inconvenient forum.

     

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

     

                    (e)    Injunctive
Relief.  Notwithstanding anything to the contrary contained
herein, the Company and any affiliate of the Company (if applicable) shall have
the right to seek injunctive or other equitable relief from a court of competent
jurisdiction to enforce Section 6 of this Agreement without any obligation to
post a bond.

     

    (f)    Entire
Agreement.  This Agreement (including the plans referenced in
Section 3(c) of this Agreement) contain the entire agreement and understanding
between the parties hereto in respect of Executive’s employment from and after
the date hereof and supersede, cancel and annul any prior or contemporaneous
written or oral agreements, understandings, commitments and practices between
them respecting Executive’s employment from and after the date hereof, including
all prior employment agreements between the Company and Executive.

     

    (g)    Amendment.  This
Agreement may be amended only by a writing which makes express reference to this
Agreement as the subject of such amendment and which is signed by Executive and,
on behalf of the Company, by its duly authorized officer.

     

    (h)    Severability. If any
provision of this Agreement or the application of any such provision to any
party or circumstances shall be determined by any court of competent
jurisdiction or arbitration panel to be invalid or unenforceable to any extent,
the remainder of this Agreement, or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid or unenforceable, shall not be affected thereby, and each provision
hereof shall be enforced to the fullest extent permitted by law.  If
any provision of this Agreement, or any part thereof, is held to be invalid or
unenforceable because of the scope or duration of or the area covered by such
provision, the parties hereto agree that the court or arbitration panel making
such determination shall reduce the scope, duration and/or area of such
provision (and shall substitute appropriate provisions for any such invalid or
unenforceable provisions) in order to make such provision enforceable to the
fullest extent permitted by law and/or shall delete specific words and phrases,
and such modified provision shall then be enforceable and shall be
enforced.  The parties hereto recognize that if, in any judicial or
arbitral proceeding, a court or arbitration panel shall refuse to enforce any of
the separate covenants contained in this Agreement, then that invalid or
unenforceable covenant contained in this Agreement shall be deemed eliminated
from these provisions to the extent necessary to permit the remaining separate
covenants to be enforced.  In the event that any court or arbitration
panel determines that the time period or the area, or both, are unreasonable and
that any of the covenants is to that extent invalid or unenforceable, the
parties hereto agree that such covenants will remain in full force and effect,
first, for the greatest time period, and second, in the greatest geographical
area that would not render them unenforceable.

     

    (i)    Construction.  The
headings and captions of this Agreement are provided for convenience only and
are intended to have no effect in construing or interpreting this
Agreement.  The language in all parts of this Agreement shall be in
all cases construed according to its fair meaning and not strictly for or
against the Company or Executive.  As used herein, the words “day” or
“days” shall mean a calendar day or days.

     

    (j)    Non-waiver.  Neither
any course of dealing nor any failure or neglect of either party hereto in any
instance to exercise any right, power or privilege hereunder

     

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

     

    or under
law shall constitute a waiver of any other right, power or privilege or of the
same right, power or privilege in any other instance.  All waivers by
either party hereto must be contained in a written instrument signed by the
party to be charged and, in the case of the Company, by its duly authorized
officer.

     

    (k)    Notices.  Any
notice required or permitted hereunder shall be in writing and shall be
sufficiently given if personally delivered or if sent by registered or certified
mail, postage prepaid, with return receipt requested, addressed:

     

    (i)       
in the
case of the Company, to :

     

    
      	
                                          If to
      the Company:

            
	
                                          SIGA
      Technologies, Inc.

            
	
                                          420
      Lexington Avenue, Suite 408

            
	
                                          New
      York, NY 10170

            
	
                                          Attention:

            	
              Chief
      Financial Officer

            
	
                                          Telephone
      Number:

            	
              (212)
      672-9100

            
	
                                          Facsimile
      Number:

            	
              (212)
      697-3130

            

    

    

    
      	
                                          With a
      copy to:

               

            
	
                                          James
      A. Grayer, Esq.

            
	
                                          Kramer
      Levin Naftalis & Frankel LLP

            
	
                                          1177
      Avenue of the Americas

            
	
                                          New
      York, NY 10036

            
	
                                          Telephone
      Number:

            	
              (212)
      715-9479

            
	
                                          Facsimile
      Number:

            	
              (212)
      715-8050

            

    

    

    (ii)    in the
case of Executive, to Executive’s last known address as reflected in the
Company’s records, or to such other address as Executive shall designate by
written notice to the Company.

     

    Any
notice given hereunder shall be deemed to have been given at the time of receipt
thereof by the person to whom such notice is given if personally delivered or at
the time of mailing if sent by registered or certified mail.

    

    (l)    Assistance in Proceedings,
Etc.  Executive shall, without additional compensation, during
and after the Term, upon reasonable notice, furnish such information and proper
assistance to the Company as may reasonably be required by the Company in
connection with any legal or quasi-legal proceeding, including any external or
internal investigation, involving the Company or any of its
affiliates.

     

    (m)    Survival.  Cessation
or termination of Executive’s employment with the Company shall not result in
termination of this Agreement.  The respective obligations of
Executive and the Company as provided in Sections 5, 6, 7 and 8 of this
Agreement shall survive cessation or termination of Executive’s employment
hereunder.

     

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

     

    (n)    Section 409A of the
Code.

     

    (i)    It is the
parties’ intention that this Agreement not result in any tax being imposed under
Section 409A of the Code and in the case of any ambiguity the Agreement shall be
construed in such manner.

     

    (ii)    Notwithstanding
the foregoing, the Company makes no representations regarding the tax
implications of the compensation and benefits to be paid to Executive under this
Agreement, including, without limitation, under Section 409A of the
Code.  The parties agree that in the event a qualified tax advisor to
the Company or to Executive (neither party being required to retain such
advisor) reasonably advises that the terms hereof would result in Executive
being subject to tax under Section 409A of the Code, Executive and the Company
shall negotiate in good faith to amend this Agreement to the extent necessary to
prevent the assessment of any such tax, including by delaying the payment dates
of any amounts hereunder.

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

     

     

    
      
        
        

      

      
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    IN
WITNESS WHEREOF, the Company has caused this Agreement to be duly executed on
its behalf by an individual thereunto duly authorized and Executive has duly
executed this Agreement, all as of the date and year first written
above.

     

     

                                                    SIGA TECHNOLOGIES,
INC.

     

     

                                                    By: /s/ Thomas N.
Konatich            

                                                       Name: Thomas N.
Konatich

                                                       Title:   Chief
Financial Officer

     

     

                                                    Ayelet
Dugary                                   

                                                    Name:  
Ayelet Dugary

     

     

     

     

     

     

     

    15

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