Document:

exhibit_4-7.htm

 

 

 

Exhibit 4.7

 

 

 

PHOTOMEDEX, INC.

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

	
$720,000 (the “Principal Amount”)
	
September 1, 2009

	  	  

FOR VALUE RECEIVED, PHOTOMEDEX, INC., a Delaware corporation (the “Company”), promises to pay to the order of Perseus Partners VII, L.P., or its registered assigns (the “Holder”), the Principal Amount,
or such lesser amount as shall then equal the outstanding Principal Amount, together with interest thereon at a rate equal to 8.0% per annum, and computed on the basis of a year consisting of 360 days in accordance with the terms set forth in Section 2 of this Secured Convertible Promissory Note (this “Convertible Note”).

 

This Convertible Note is issued as an Additional Note pursuant to Section 2(a) of the Secured Convertible Promissory Note dated February 27, 2009 and is rendered as the first Additional Note in payment for the first six months of accrued interest under the Secured Convertible
Promissory Note dated February 27, 2009.

 

The following is a statement of the rights of the Holder and the conditions to which this Convertible Note is subject, and to which the Holder hereof, by the acceptance of this Convertible Note, agrees:

 

1. Definitions.  Capitalized terms defined in the Purchase Agreement and used herein without definition have the same meaning herein as in the Purchase Agreement.
In addition, as used in this Convertible Note, the following capitalized terms have the following meanings:

 

“Additional Note” shall have the meaning set forth in Section 2(a) of this Convertible Note.

 

“Conversion Price” means, initially, $5.16152, as adjusted from time to time pursuant to the terms of this Convertible Note.

 

“Date of Issuance” means September 1, 2009.

 

“Default Interest Rate” means the lesser of 16% or the maximum rate allowed by applicable Law.

 

“Event of Default” shall have the meaning set forth in Section 4 of this Convertible Note.

 

“Maturity Date” means February 27, 2014 (or, if such day is not a Business Day, on the next succeeding Business Day).

 

“Obligations” means the principal, interest and other amounts payable under this Convertible Note.

 

  

 

  

 

2. Maturity Date; Interest.

 

(a) All unpaid principal, together with any accrued but unpaid interest and other amounts payable under this Convertible Note, shall be due and payable on (i) the Maturity Date, or (ii) when such amounts are declared
due and payable by the Holder or made automatically due and payable upon or after (A) the occurrence of an Event of Default, (B) the liquidation or dissolution of the Company, or (C) any Change of Control.  Interest on this Convertible Note shall be payable (and if not paid when due, shall be compounded) semi-annually in arrears on each September 1 and March 1 (or, if any such day is not a Business Day, on the next succeeding Business Day) after the Date of Issuance and shall be payable at the option
of the Company either (i) in lawful money of the United States of America, or (ii) by the issuance of an additional Note (an “Additional Note”) identical in all respects to this Convertible Note except that it shall have (x) a principal amount equal to such interest payment, (y) an initial Conversion Price equal to the conversion price in effect under this Convertible Note at the date of issuance of such Additional Note and (z) a different date
of issuance.

 

(b) If the Company elects to pay interest by issuing an Additional Note, it shall give notice to the Holder two Business Days prior to the day such payment is due and deliver such Additional Note to the Holder within
three Business Days after such date.

 

(c) Interest shall be calculated based on the average principal outstanding under this Convertible Note for such period.  The first payment of interest shall be on March 1, 2010 (or, if such day is not a
Business Day, on the next succeeding Business Day), and shall be calculated from the Date of Issuance to such date.

 

(d) Notwithstanding anything to the contrary contained in this Convertible Note, in addition to the rights of the Holder specified in Section 5 of this
Convertible Note, for any period during which an Event of Default has occurred and is continuing, the interest rate on this Convertible Note shall increase to the Default Interest Rate and interest on this Convertible Note shall be payable solely in lawful money of the United States of America.

 

  

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3. Secured Obligations; Collateral. In order to secure the Company’s payment and performance of the Obligations and to secure the Company’s
prompt, full and faithful performance and observance of all of the provisions under this Convertible Note and the other Transaction Documents, the Company has delivered to the Holder a certain Pledge and Security Agreement (the “Pledge Agreement”), dated as of February 27, 2009, between the Company and the Holder, individually and in its capacity as Collateral Agent (the “Collateral Agent”),
pursuant to which the Company has granted to the Collateral Agent as security and collateral for the payment and performance of the Obligations, a security interest in the capital stock of ProCyte Corporation and Photo Therapeutics, Inc. and a portion of the capital stock of Photo Therapeutics Limited, and any assets of the Company that arise primarily out of, or relate primarily to, the Skin Care Business or the PT Business (each as defined in the Pledge Agreement), whether now existing or hereafter arising,
and all as more specifically described, and on the terms and conditions set forth in, the Pledge Agreement. The security interest granted by the Company under the Pledge Agreement, securing the indebtedness evidenced by this  Convertible Note, including all Obligations, is senior to all other liens, security interests or encumbrances securing any other indebtedness of the Company.

 

4. Events of Default.  The occurrence of any of the following shall constitute an “Event
of Default” under this Convertible Note:

 

(a) Failure to Pay this Convertible Note or other Notes.

 

(i) The Company shall fail to pay when due any principal payment on this Convertible Note or any other Note, and such failure continues for three Business Days thereafter; or

 

(ii) The Company shall fail to pay when due any or any interest or other payment (other than principal) required under the terms of this Convertible Note or any other Note, and such failure continues for ten Business
Days thereafter;

 

(b) Breaches of Representations and Warranties.  Any representation or warranty made by the Company in this Convertible Note or in any other
Transaction Document shall not have been true and correct in any material respect when made; provided, that if the facts or events making such representation or warranty untrue are capable of correction or cure, then the Company shall have ten Business Days after notice of the breach is delivered to the Company to correct or cure such breach.  For purposes of this Section 4(b) only, (i) breaches of the representations and warranties contained
in the Purchase Agreement and made as of the First Tranche Closing Date shall be disregarded unless such breaches would, individually or in the aggregate, have given rise to a failure of the condition precedent set forth in Section 6.2(a) of the Purchase Agreement and the Company delivers the certificates required by Section 6.2(d) of the Purchase Agreement, and (ii) breaches of the representations and warranties contained in the Purchase Agreement and made as of the Second Tranche Closing Date shall be disregarded
unless such breaches would have, individually or in the aggregate, given rise to a failure of the condition precedent set forth in Section 6.4(a) of the Purchase Agreement and the Company delivers the certificates required by Section 6.4(d) of the Purchase Agreement, it being noted that there was no Second Tranche Closing Date.

 

  

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(c) Breaches of Other Covenants.  The Company shall fail to observe or to perform any covenant, obligation, condition or agreement contained
in this Convertible Note or any other Transaction Document (other than those specified in Section 4(a) of this Convertible Note) in any material respect; provided, that if such breach is capable of correction or cure, then the Company shall have ten Business Days after notice of the breach is delivered to the Company to correct or cure such breach;

 

(d) Cross-Defaults.  The Company or any of its Subsidiaries shall default under any other agreement, bond, debenture, note or other evidence
of indebtedness for money borrowed (other than a Note), under any guaranty or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its Subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $250,000 being due and payable prior to the date on which it would otherwise become due and payable;

 

(e) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $250,000 in the aggregate shall be rendered against
the Company or any of its Subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive Business Days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment;

 

(f) Voluntary Bankruptcy or Insolvency Proceedings.  The Company or any of its Subsidiaries shall: (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property; (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature; (iii) make a general assignment for the benefit of its or any of its creditors; (iv) be dissolved or liquidated in full or in part; (v) become insolvent (as such term may be defined or interpreted under any applicable statute); (vi) commence a voluntary case or other Proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar Law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other Proceeding commenced against it; or (vii) take any action for the purpose of effecting any of the foregoing; or

 

(g) Involuntary Bankruptcy or Insolvency Proceedings.  Any Proceeding for the appointment of a receiver, trustee, liquidator or custodian
of the Company or any of its Subsidiaries or of all or a substantial part of the property thereof, or an involuntary case or other Proceeding seeking liquidation, reorganization or other relief with respect to the Company or any of its Subsidiaries or the debts thereof under any bankruptcy, insolvency or other similar Law now or hereafter in effect shall be commenced and an order for relief entered, or such case or Proceeding shall not be dismissed or discharged within 30 days of commencement.

 

5. Rights of Holder upon Default.  Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Section
4(f) or Section 4(g) of this Convertible Note) and at any time thereafter during the continuance of such Event of Default, holders of a majority of the outstanding principal amount of the Note(s) may declare all outstanding Obligations payable by the Company under this Convertible Note to be immediately

 

  

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due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained in this Convertible Note or in any other Transaction Document to the contrary notwithstanding.  Upon the occurrence or existence of any Event of Default described in Sections
4(f) or Section 4(g) of this Convertible Note, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained in this Convertible Note or in any other Transaction Document to the contrary notwithstanding.  In addition
to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it pursuant to any Transaction Document or otherwise permitted to it by Law, either by suit in equity or by action at Law, or both.

 

6. Covenants.  The Company hereby covenants and agrees for the benefit of the Holder as follows:

 

(a) Additional Notes.  Any Additional Notes issued pursuant to Section 2(a) of
this Convertible Note will be, when issued, duly authorized, validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents and applicable federal and state securities laws.

 

(b) Conversion Shares.  All Conversion Shares that may be issued upon the conversion of this Convertible Note and any Additional Notes will
be, when issued, duly authorized, validly issued, fully paid and nonassessable, and free from all preemptive rights and Liens other than restrictions on transfer provided for in the Transaction Documents and applicable federal and state securities laws and charges with respect to the issuance thereof.  The Company will at all times have authorized and reserved and kept available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of this Convertible
Note and any Additional Notes, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of this Convertible Note and all Additional Notes.  If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of this Convertible Note and all Additional Notes, the Company will take all such corporate actions as may be necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.

 

(c) Charges, Taxes and Expenses.  Issuance and delivery of the Conversion Shares shall be made without charge to the Holder for any issue
or transfer tax, withholding tax (other than related to the income of the Holder), transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Conversion Shares in a name other than that of the Holder.  The Holder shall be responsible
for all other tax liability that may arise as a result of holding or transferring this Convertible Note or receiving Conversion Shares.

 

  

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7. Prepayment.

 

(a) Except as provided in this Section 7, the Company shall have no right to prepay the principal amount of this Convertible Note prior to the Maturity
Date, or any interest accruing under this Convertible Note prior to the scheduled date for payment of such interest.

 

(b) If the Market Price as of the fourth anniversary of the First Tranche Closing Date shall be no less than 200% of the conversion price then in effect under the First Tranche Note, then the Company shall have the
one-time option to prepay up to one half of the aggregate outstanding principal amount of the Notes, together with accrued but unpaid interest thereon, on the terms and subject to the conditions set forth in Section 5.25 of the Purchase Agreement.

 

8. Conversion.

 

(a) Optional Conversion.  At any time, or from time to time, prior to the Maturity Date, the Holder shall have the option to convert up to
the entire amount outstanding under this Convertible Note (including accrued but unpaid interest) into a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount to be converted by (ii) the Conversion Price then in effect.

 

(b) Mandatory Conversion.  If on any date occurring at least 31 Trading Days following the Date of Issuance, the Market Price as of such date
exceeds 300% of the then-effective Conversion Price, then the entire amount outstanding under this Convertible Note (including accrued but unpaid interest) shall be automatically converted into a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount outstanding under this Convertible Note (including accrued but unpaid interest) by (ii) the Conversion Price then in effect.  The Company shall notify the Holder promptly (and in any event not later than three Business
Days) following any mandatory conversion of this Convertible Note pursuant to this Section 8(b).

 

(c) Mechanics and Effect of Conversion.  No fractional shares of Common Stock shall be issued upon conversion of this Convertible Note.  Upon
the conversion of all of the principal and accrued interest outstanding under this Convertible Note, in lieu of the Company issuing any fractional shares to the Holder, the Company shall pay to the Holder the amount of outstanding principal and accrued interest that is not so converted.  Upon any partial conversion of this Convertible Note, the Company shall issue to the Holder (i) the shares of Common Stock into which the applicable portion of the principal and accrued interest under this Convertible
Note is converted and (ii) a new Note identical in all respects to this Convertible Note except that it shall have a principal amount equal to the difference between (1) the outstanding principal amount of this Convertible Note immediately prior to such conversion minus (2) the portion of such outstanding principal amount converted into shares of Common Stock.  Upon any conversion of this Convertible Note pursuant to this Section 8, the
Holder shall surrender this Convertible Note, duly endorsed, at the principal office of the Company.  At the Company’s expense, the Company shall, as soon as practicable thereafter, and in any event within three (3) Business Days of such surrender, issue and deliver to the Holder at such principal office a certificate or certificates for the number of shares of Common Stock to which

 

  

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 the Holder shall be entitled upon such conversion (bearing such legends as are required by the Purchase Agreement and applicable securities Laws), together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Convertible
Note.  Issuance of this Convertible Note shall constitute full authority to the Company’s officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock issuable upon the conversion of this Convertible Note.

 

(d) Payment of Taxes.  The Company will pay all transfer taxes or charges that may be imposed with respect to the issue or delivery of shares
of Common Stock upon conversion of this Convertible Note, except for any tax or other charge imposed in connection with any transfer involved in the issue and delivery of Conversion Shares in a name other than that in which this Convertible Note was registered.

 

(e) Withholding Taxes.  Notwithstanding any other provision of this Convertible Note, the Company shall: (i) not be obliged to reimburse,
indemnify, make whole or otherwise pay to the Holder, and (ii) be entitled to deduct and withhold from all amounts payable pursuant to this Convertible Note, any amounts required by applicable Law to be deducted or withheld for any and all taxes, so long as the Company promptly pays the full amount deducted or withheld to the applicable Governmental Entity in accordance with applicable Law. Any such amounts deducted and not owed or paid to the applicable Governmental Entity in accordance with applicable Law shall
be returned to the Holder promptly. The Holder shall provide any information reasonably requested by the Company to enable it to determine whether taxes must be withheld or deducted and the amount of such withholding or deduction.

 

9. Conversion Price Adjustments.

 

(a) Adjustments for Splits and Combinations.  If the Company shall at any time or from time to time after the Date of Issuance effect a stock
split of the outstanding shares of Common Stock, the Conversion Price in effect immediately before that stock split shall be proportionately decreased, and, conversely, if the Company shall at any time or from time to time after the Date of Issuance combine the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately before the combination shall be proportionately increased.  In each such case, the Conversion Price shall be adjusted by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such subdivision, combination or reclassification and the denominator of which shall be the number of shares of Common Stock outstanding immediately after giving effect to such subdivision or combination.  Any adjustment under this Section 9(a) shall become effective immediately after the opening of
business on the date the stock split or combination becomes effective.

 

(b) Adjustment for Dividends and Distributions of Common Stock.  If the Company at any time or from time to time after the Date of Issuance
issues, or fixes a record date for the determination of holders of shares of Common Stock entitled to receive, a dividend or other distribution payable solely in additional shares of Common Stock, in each such event the Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (i) the numerator of which is the total number
of

 

  

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 shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the sum of the total number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business
on such record date and thereafter the Conversion Price shall be adjusted pursuant to this Section 9(b) to reflect the actual payment of such dividend or distribution.

 

(c) Adjustments for Other Dividends and Distributions.  If the Company at any time or from time to time after the Date of Issuance issues,
or fixes a record date for the determination of holders of shares of Common Stock entitled to receive, a dividend or other distribution payable in any securities of the Company (other than shares of Common Stock) or in other property, in each such event provision shall be made so that the Holder of this Convertible Note shall receive upon conversion of this Convertible Note, in addition to the number of shares of Common Stock receivable hereupon, the amount of securities of the Company or other property that
such Holder would have received had this Convertible Note been converted into shares of Common Stock immediately prior to the date of such event and had such Holder thereafter, during the period from the date of such event to and including the conversion date, retained such securities or other property receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 9 with respect
to the rights of the Holder or with respect to such other securities or other property by their terms.

 

(d) Adjustment upon Issuances for Consideration Below Conversion Price.  If at any time or from time to time, on or after the Date of Issuance
the Company issues or sells, or in accordance with this Section is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company) for a consideration per share less than the Conversion Price in effect as of immediately prior to such issuance or sale (the “Former Conversion Price”) (such an issuance, a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced (but in no event increased) to an amount equal to a fraction, the numerator of which equals (A) the sum of (1) the product derived by multiplying the Former Conversion Price by the number of shares of Common Stock outstanding on a fully-diluted basis (accounting for Convertible Securities and Options using the treasury stock method) immediately prior to such Dilutive Issuance plus (2) the
consideration, if any, received by the Company in such Dilutive Issuance, and the denominator of which equals (B) the number of shares of Common Stock outstanding on a fully-diluted basis (accounting for Convertible Securities and Options using the treasury stock method) immediately after such Dilutive Issuance.  For purposes of this Section 9(d):

 

(i) If any Convertible Securities are issued by the Company after the Date of Issuance, the shares of Common Stock into which such Convertible Securities are convertible shall be deemed to be issued and sold by the
Company as of the date the Convertible Securities are issued, for consideration per share equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock (A) upon the issuance or sale of the

 

  

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    Convertible Security, and (B) upon the conversion or exchange or exercise of such Convertible Security.

 

(ii) If any Options are issued by the Company after the Date of Issuance, the shares of Common Stock issuable upon exercise of such Option (or upon conversion of the Convertible Securities issuable upon exercise
of such Option) shall be deemed to be issued and sold by the Company as of the date the Options are issued for consideration per share equal to the sum of the of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock (A) upon granting or sale of the Option, (B) upon exercise of the Option and (C) in the case of an Option to acquire a Convertible Security, upon conversion or exchange or exercise of such Convertible Security.

 

(iii) If the purchase price provided for in any Option is reduced after the date of issuance, the additional consideration, if any, payable upon the issue, conversion,  exchange or exercise of any Convertible
Security is reduced after the date of issuance, or the rate at which any Convertible Security is convertible into or exchangeable or exercisable for shares of Common Stock is increased at any time on or after the Date of Issuance, the shares of Common Stock issuable upon exercise of such Option (or upon conversion of the Convertible Securities issuable upon exercise of such Option) or issuable upon exercise of such Convertible Security shall be deemed to be issued and sold by the Company as of the date of such
modification.

 

(iv) If any Options are issued in connection with the issuance of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by
the parties to such transaction, such Options will be deemed to have been issued for the difference between (A) the aggregate fair market value of such Options and other securities of the Company issued in such integrated transaction, less, (B) the fair market value of the securities other than such Option, issued in such transaction, and the other securities issued or sold in such integrated transaction will be deemed to have been issued for the balance of the consideration received by the Company.  If
any Common Stock, Options or Convertible Securities are issued or sold for a consideration consisting as a whole or in part of consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair market value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the closing price of such securities on the date of receipt by the Company.

 

(v) For purposes of this Section 9(d), the fair market value of any non-cash consideration received by the Company upon the issuance of any shares
of Common Stock, Options or Convertible Securities will be as determined in good faith by the Board.

 

(e) Adjustment for Reclassification, Exchange and Substitution.  If at any time or from time to time after the Date of Issuance, the shares
of Common Stock issuable upon the conversion of this Convertible Note are changed into the same or a different number of

 

  

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 shares of any class or series of stock of the Company, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section
9), then in any such event the Holder shall have the right thereafter to convert this Convertible Note into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by the holder of the number of shares of Common Stock into which this Convertible Note could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided in this Convertible Note or with
respect to such other securities or property by the terms thereof.

 

(f) Fundamental Transactions.  If at any time or from time to time after the Date of Issuance (i) the Company effects any merger or consolidation
of the Company with or into (whether or not the Company is the surviving corporation) another Person, (ii) the Company effects any sale, assignment, transfer, conveyance or other disposition of all or substantially all its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of more than 50% of the outstanding shares of Common Stock are permitted to tender or exchange their shares of Common
Stock for other securities, cash or property, (iv) the Company consummates a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or other Persons or (v) the Company effects a capital reorganization of the shares of Common Stock (other than a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section
9) pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each of the foregoing, a “Fundamental Transaction”), then as a part of such Fundamental Transaction provision shall be made so that the Holder shall thereafter be entitled to receive upon conversion of this Convertible Note the same amount and kind of securities, cash or other property as it would have been entitled
to receive if it had been, immediately prior to such Fundamental Transaction, the holder of the number of shares of Common Stock then deliverable upon the conversion in full of this Convertible Note, subject to adjustment in respect of such securities by their terms (the “Alternate Consideration”).  In any such case, (i) the aggregate Conversion Price under this Convertible Note will not be affected, but the Company shall apportion
the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration, (ii) if holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Convertible Note following such Fundamental Transaction, and (iii) appropriate adjustment
shall be made in the application of the provisions of this Section 9 with respect to the rights of the Holder after such Fundamental Transaction to the end that the provisions of this Section 9 (including adjustment of the Conversion Price then in effect and the number of shares of common stock, securities or other property issuable upon conversion of this Convertible Note) shall
be applicable after that event and be as nearly equivalent as practicable.  At the Holder’s request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new secured convertible note consistent with the foregoing provisions and evidencing the Holder’s right to convert such secured convertible note into Alternate Consideration.  The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include
terms requiring

 

  

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 any such successor or surviving entity to comply with the provisions of this Section 9(f) and insuring that this Convertible Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

(g) Certificate of Adjustment.  In each case of an adjustment or readjustment of the Conversion Price for the number of shares of Common Stock
or other securities or property issuable upon conversion of this Convertible Note, the Company, at its own expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions of this Convertible Note and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to the Holder at the Holder’s address as shown in the Company’s books.  The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based.  No adjustment in the Conversion Price shall be required to be made unless it would result in an increase or decrease of at least one cent, but any adjustments not made because of this sentence shall be carried forward and taken into account in any subsequent adjustment otherwise required hereunder.

 

(h) Notices of Record Date.  Upon (i) the establishment by the Company of a record of the holders of any class of securities for the purpose
of determining the holders of such securities who are entitled to receive any dividend or other distribution, or (ii) any capital reorganization of the Company, any reclassification or recapitalization of the shares of the Company, any merger or consolidation of the Company with or into any other Company, or any transfer of all or substantially all the assets of the Company to any other Person or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to the
Holder at least 20 Business Days prior to the record date specified therein a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of shares of Common
Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up.

 

(i) Certain Issues Excepted.  Notwithstanding anything herein to the contrary set forth herein, the following issuances of securities will
not trigger an adjustment to the Conversion Price: (i) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the First Tranche Closing Date, and (ii) Common Stock issued or options to purchase Common Stock granted or issued pursuant to the Company’s equity compensation plans and employee stock purchase plans as they now exist or are hereafter approved by the Company’s Board of Directors.

 

(j) No Impairment.  The Company shall not amend its Certificate of Incorporation or Bylaws or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all

 

  

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 such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the Holder of this Convertible Note against dilution or other impairment as provided herein. If the Company takes any action in breach of this Convertible Note, the Holder shall
be entitled to any and all remedies available at Law or in equity.

 

(k) Fractional Share.  No fractional share of Common Stock shall be issuable upon conversion of this Convertible Note and the number of Conversion
Shares to be issued shall be rounded down to the nearest whole share. If the conversion of this Convertible Note shall result in the issuance of any fractional Conversion share, the Company shall eliminate such fractional share by paying the Holder an amount computed by multiplying such fraction by the fair market value of a full share.

 

(l) Other Adjustments.  If and whenever the Company shall take any action affecting or relating to the shares of Common Stock, other than
any action described in this Section 9, which in the opinion of the Board would prejudicially affect the rights of the Holder, the Conversion Price and, if required, the number of shares of Common Stock or other securities or property to be issued upon conversion of this Convertible Note will be adjusted by the Board in such manner, and at such time, as the Board may, subject to the approval of any stock exchange(s) on which the shares of Common
Stock are listed and posted for trading, reasonably determine to be equitable in the circumstances to such Holder.

 

10. Priority of Obligations.  The Obligations shall not be junior or subordinate to any other Indebtedness of the Company, except for such
de facto subordination as may result from Permitted Liens or Liens in existence as of the date hereof that secure Permitted Indebtedness.  The Company shall not issue any Indebtedness that by its terms is subordinate or junior in any respect to any other Indebtedness of the Company, unless such Indebtedness provides that it is subordinate and junior on the same terms to the Obligations.

 

11. Waiver and Amendment.  Any provision of this Convertible Note may be amended, waived or modified upon the written consent of both the
Company and the holders of a majority of the outstanding principal amount of the Note(s).

 

12. Transfer of this Convertible Note or Securities Issuable on Conversion or Payment Hereunder.  This Convertible Note may not be transferred
in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Convertible Note or securities issuable on conversion of this Convertible Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection
with such restrictions. Subject to the foregoing, transfers of this Convertible Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company.  Prior to presentation of this Convertible Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Convertible Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Convertible
Note shall be overdue and the Company shall not be affected by notice to the contrary.

 

  

12

  

 

 

13. Assignment. Neither this Convertible Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise,
as a whole or in part, by the Company without the prior written consent of the Holder.  The Holder may assign the rights, interests or obligations under this Convertible Note, as a whole or in part, at any time, subject to compliance with Section 12 of this Convertible Note, upon written notice to the Company of such assignment.  Upon request, the Company shall, as soon as practicable (and in any event within three Business Days)
following such request, provide any assignee of all or a portion of this Convertible Note a new Note having terms and conditions identical in all respects to this Convertible Note except that it shall identify the assignee as the payee, and it shall have (x) a principal amount equal to principal amount of this Convertible Note that was assigned, (y) an initial Conversion Price equal to the conversion price in effect under this Convertible Note as of the date of assignment and (z) a different date of issuance.  Notwithstanding
the foregoing, until the Company receives notice in accordance with Section 14, the Company shall treat the registered holder hereof as the owner and holder of this Convertible Note for the purpose of receiving all payments of principal and interest on this Convertible Note and for all other purposes whatsoever, whether or not this Convertible Note shall be overdue.

 

14. Notices.  Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in or otherwise designated by either party pursuant to the Purchase Agreement or on the register maintained by the Company.  Any party hereto may by notice so given change its address or facsimile number for future notice hereunder.  Any and all
notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address specified in this Section prior to 6:30 p.m. (Eastern time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or email
at the facsimile number or email address specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (Eastern time) on any Trading Day, (c) the Trading Day following the date of deposit with a nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.

 

15. Successors and Assigns. Subject to the restrictions on transfer described in Section 12 of
this Convertible Note, the rights and obligations of the Company and the Holder of this Convertible Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

 

16. Expenses; Waivers.  If action is instituted to collect this Convertible Note, the Company shall pay all costs and expenses, including,
without limitation, reasonable attorneys’ fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.

 

17. Governing Law; Venue; Waiver of Jury Trial.  ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND

 

  

13

  

 INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT,
ACTION OR PROCEEDING IS IMPROPER. THE COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO THE COMPANY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THE PURCHASE AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.

 

  

14

  

ISSUED as of the date first above written.

 

 

 

 

	 	PHOTOMEDEX, INC.	 
	 	 	 	 
	
 
	
By: 
	/s/ Dennis M. McGrath	 
	 	 	Name:  Dennis M. McGrath	 
	 	 	Title:  Chief Financial Officer	 
	 	 	 	 

 

 

 

15ex101.htm

    

    
      	
              Exhibit
      10.1

            	
              Loan
      and Security Agreement (Term Loan) dated as of October 30, 2009 between
      the Company and Silicon Valley Bank

            

    

     

     

    LOAN
AND SECURITY AGREEMENT

     

     

    (TERM
LOAN)

     

    THIS LOAN AND SECURITY
AGREEMENT (this “Agreement”) dated as of
October 30, 2009 (the “Effective Date”) among (a)
SILICON VALLEY BANK, a
California corporation with a loan production office located at 8020 Tower
Crescent Drive, Suite 475,
Vienna, Virginia 22182 (“Bank”), and (b) BRAINTECH, INC., a Nevada
corporation (“Braintech, Inc”), BRAINTECH INDUSTRIAL, INC., a
Delaware corporation (“Braintech Industrial”) and BRAINTECH GOVERNMENT & DEFENSE,
INC., a Delaware corporation (“Braintech Government”) (hereinafter,
Braintech, Inc., Braintech Industrial and Braintech Government are jointly and
severally, individually and collectively, referred to as “Borrower”), provides the terms
on which Bank shall lend to Borrower and Borrower shall repay
Bank.  The parties agree as follows:

     

    1 ACCOUNTING AND OTHER
TERMS

     

    Accounting
terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following
GAAP.  Unless otherwise noted herein, all financial calculations
(whether for pricing, covenants, or otherwise) shall be made with regard to
Borrower only and not on a consolidated basis. Capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in
Section 13.  All other terms contained in this Agreement, unless
otherwise indicated, shall have the meaning provided by the Code to the extent
such terms are defined therein.

     

    2 LOAN AND TERMS OF
PAYMENT

     

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

     

    2.1.1 Term Loan.

     

    (a) Availability.  Subject
to the satisfaction of the terms and conditions of this Agreement, Bank agrees
to make from time to time, prior to the Commitment Termination Date, term loan
advances (each a “Term
Advance” and, collectively, the “Term Advances”) in an
aggregate amount not to exceed the Borrowing Base.  Once repaid, Term
Advances may not be reborrowed and, accordingly, any amount borrowed and repaid
shall result in a reduction of the Term Loan Amount by the amount of such
prepayment.

     

    (b) Interest
Payments.  Commencing on the first Payment Date of the month
following the month in which the Funding Date occurs, Borrower shall make
monthly payments of interest at the rate set forth in Section
2.2(a).

     

    (c) Repayment.  Commencing
on the Amortization Date, Borrower shall repay the Term Advances in (i) eighteen
(18) equal installments of principal, plus (ii) monthly payments of accrued
interest at the
rate set forth in Section 2.2(a) (each, a “Term Loan
Payment”).  Borrower’s final Term Loan Payment, due on the Term
Loan Maturity Date, shall include all outstanding principal and accrued interest
under the Term Advances.  Once repaid, no Term Advance may be
reborrowed.

     

    (d) Overadvances.  If,
at any time, the outstanding principal amount of all Term Advances exceeds the
Borrowing Base, Borrower shall immediately pay to Bank in cash such excess
amount, and Borrower hereby irrevocably authorizes to Bank debit any of its
accounts maintained with Bank or any of Bank’ s Affiliates in connection
therewith.

     

    2.2 Payment of Interest on the Credit
Extensions.

     

    

    
      
        
          
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    2.3 Interest
Rate.  Subject to Section 2.2(b), the principal amount of each
Term Advance shall accrue interest at a floating per annum rate equal to one
percentage point (1.0%) above the Prime Rate, which interest shall be payable
monthly.

     

    (a) Default
Rate.  Immediately upon the occurrence and during the
continuance of an Event of Default, Obligations shall bear interest at a rate
per annum which is five percentage points (5.0%) above the rate that is
otherwise applicable thereto (the “Default Rate”) unless Bank
otherwise elects from time to time in its sole discretion to impose a smaller
increase.  Fees and expenses which are required to be paid by Borrower
pursuant to the Loan Documents (including, without limitation, Bank Expenses)
but are not paid when due shall bear interest until paid at a rate equal to the
highest rate applicable to the Obligations.  Payment or acceptance of
the increased interest rate provided in this Section 2.2(b) is not a
permitted alternative to timely payment and shall not constitute a waiver of any
Event of Default or otherwise prejudice or limit any rights or remedies of
Bank.

     

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

     

    (c) Computation; 360-Day
Year.  In computing interest, the date of the making of any
Credit Extension shall be included and the date of payment shall be excluded;
provided, however, that
if any Credit Extension is repaid on the same day on which it is made, such day
shall be included in computing interest on such Credit
Extension.  Interest shall be computed on the basis of a 360-day year
for the actual number of days elapsed.

     

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

     

    (e) Interest Payment
Date.  Unless otherwise provided, interest is payable monthly
on the Payment Date of each month.

     

    2.4 Fees.  Borrower
shall pay to Bank:

     

    (a) Commitment
Fee.  A fully earned, non-refundable commitment fee of
Seventeen Thousand Five Hundred Dollars ($17,500.00) (the “Commitment Fee”) is earned
upon execution of this Agreement and is due and payable as follows: (a) Eight
Thousand Seven Hundred Fifty Dollars ($8,750.00) is due and payable upon
execution of this Agreement; and (b) Eight Thousand Seven Hundred Fifty Dollars
($8,750.00) is due and payable upon the earlier to occur of (i) one (1) year
from the Effective Date, (ii) the occurrence of an Event of Default, and (iii)
the early termination of this Agreement;

     

    (b) Good Faith
Deposit.  Borrower has paid to Bank a Good Faith Deposit of
Fourteen Thousand Six Hundred Dollars ($14,600.00) (the “Good Faith Deposit”) to
initiate Bank’s due diligence review process.  The Good Faith Deposit
will be applied to the portion of the Commitment Fee which is due upon execution
of this Agreement; and

     

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

     

    2.5 Payments; Application of
Payments.

     

    (a) All
payments (including prepayments) to be made by Borrower under any Loan Document
shall be made in immediately available funds in U.S. Dollars, without setoff or
counterclaim, before 12:00 p.m. Eastern time on the date when
due.  Payments of principal and/or interest received after 12:00 p.m.
Eastern time are considered received at the opening of business on the next
Business Day.  When a payment is due on a day that is not a Business
Day, the payment shall be due the next Business Day, and additional fees or
interest, as applicable, shall continue to accrue until paid.

     

    
      (b)           Bank
shall apply the whole or any part of collected funds against the Term Advances
or credit such collected funds to a depository account of Borrower with Bank (or
an account maintained by an Affiliate of Bank), the order and method of such
application to be in the sole discretion of Bank.  Borrower shall have
no right to specify the order or the accounts to which Bank shall allocate or
apply any payments required to be made by

    

    

    
      
        
          
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      Borrower
to Bank or otherwise received by Bank under this Agreement when any such
allocation or application is not specified elsewhere in this
Agreement.

    

    

    3 CONDITIONS OF
LOANS

     

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

     

    (a) delivery
of the Working Capital Loan Agreement and completion of all of the conditions
precedent in connection therewith;

     

    (b) duly
executed original signatures to the Loan Documents;

     

    (c) Borrower’s
Operating Documents and a good standing certificate of Borrower certified by (i)
with respect to Braintech, Inc., the Secretary of State of the State of Nevada,
and (ii) with respect to Braintech Industrial and Braintech Government, the
Secretary of State of the State of Delaware, as of a date no earlier than thirty
(30) days prior to the Effective Date;

     

    (d) a
certificate of the Secretary of each Borrower with respect to articles, bylaws,
incumbency and resolutions authorizing the execution and delivery of this
Agreement;

     

    (e) termination
of the UCC financing statement in favor of Royal Bank of Canada;

     

    (f) amendment
to the existing UCC financing statement removing Owen Jones as a secured
party;

     

    (g) subordination
letter from each of Peter Speros, Angie Speros, and Speros Ventures LLC
(collectively, the “Speros
Parties”);

     

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

     

    (i) the
Perfection Certificates of Borrower, together with the duly executed original
signatures thereto;

     

    (j) Non-Recourse
Letter of Credit Agreement from Rick Weidinger;

     

    (k) Non-Recourse
Pledged Account Agreement  and a Pledge Agreement from each of Kenneth
Brooks, David Baird, Frederick Bohlander, and Colin Eagen;

     

    (l) Letter of
Credit with an aggregate face value and/or the establishment of Pledged Accounts
containing an aggregate amount equal to at least the amount of the initial Term
Advance hereunder;

     

    (m) Subordination
Agreement from each of the Pledgors;

     

    (n) a legal
opinion of Borrower’s counsel dated as of the Effective Date together with the
duly executed original signature thereto;

     

    (o) evidence
satisfactory to Bank that the insurance policies required by Section 6.4 hereof
are in full force and effect, together with appropriate evidence showing lender
loss payable and/or additional insured clauses or endorsements in favor of Bank;
and

     

    (p) payment
of the fees and Bank Expenses then due as specified in Section 2.3
hereof.

     

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

     

    

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

     

    (a) (i)
Bank’s receipt of the Letter of Credit and/or (ii) the establishment of Pledged
Accounts, with an aggregate face value (for the Letter of Credit) or containing
pledged funds (for the Pledged Accounts) equal to at least the sum of (A) the
amount of the initial Term Advance, (B) the amount of any Term Advances
subsequent to the initial Term Advance, and (C) the amount of the Term Advance
requested by the Payment/Advance Form described in Section 3.2(a)
above;

     

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

     

    (c) in Bank’s
sole discretion, there has not been any material impairment in the general
affairs, management, results of operation, financial condition or the prospect
of repayment of the Obligations, or any material adverse deviation by Borrower
from the most recent business plan of Borrower presented to and accepted by
Bank.

     

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

     

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

     

    4 CREATION
OF SECURITY INTEREST

     

    4.1 Grant of Security
Interest.  Borrower hereby grants Bank, to secure the payment
and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products
thereof.

     

    4.2 Priority of Security
Interest.  Borrower represents, warrants, and covenants that
the security interest granted herein is and shall at all times continue to be a
first priority perfected security interest in the Collateral (subject only to
Permitted Liens that may have superior priority to Bank’s Lien under this
Agreement).  If Borrower shall acquire a commercial tort claim,
Borrower shall promptly notify Bank in a writing signed by Borrower of the
general details thereof and grant to Bank in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance reasonably satisfactory to
Bank.

     

    If this
Agreement is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in
cash.  Upon payment in full in cash of the Obligations
and

     

    

    
      
        
          
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    at such
time as Bank’s obligation to make Credit Extensions has terminated, Bank shall,
at Borrower’s sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower.

     

    4.3 Authorization to File Financing
Statements.  Borrower hereby authorizes Bank to file financing
statements, without notice to Borrower, with all appropriate jurisdictions to
perfect or protect Bank’s interest or rights hereunder, including a notice that
any disposition of the Collateral, by either Borrower or any other Person, shall
be deemed to violate the rights of Bank under the Code.  Such
financing statements may indicate the Collateral as “all assets of the Debtor”
or words of similar effect, or as being of an equal or lesser scope, or with
greater detail, all in Bank’s discretion.

     

    5 REPRESENTATIONS AND
WARRANTIES

     

    Borrower
represents and warrants as follows:

     

    5.1 Due Organization and
Authorization.  Except for Shafi, Inc. and Shafi Innovation,
Inc., Borrower and each of its Subsidiaries are duly existing and in good
standing as Registered Organizations in their respective jurisdictions of
formation and are qualified and licensed to do business and are in good standing
in any jurisdiction in which the conduct of their respective business or
ownership of property requires that they be qualified except where the failure
to do so could not reasonably be expected to have a material adverse effect on
Borrower’s business.  In connection with this Agreement, Borrower has
delivered to Bank a completed certificate signed by Borrower (the “Perfection
Certificate”).  Borrower represents and warrants to Bank that (a)
Borrower’s exact legal name is that indicated on the Perfection Certificate and
on the signature page hereof; (b) Borrower is an organization of the type
and is organized in the jurisdiction set forth in the Perfection Certificate;
(c) the Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate accurately sets forth Borrower’s place of business, or,
if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) Borrower (and
each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries (except for Shafi, Inc. and Shafi Innovation, Inc.) is
accurate and complete (it being understood and agreed that Borrower may from
time to time update certain information in the Perfection Certificate after the
Effective Date to the extent permitted by one or more specific provisions in
this Agreement).  If Borrower is not now a Registered Organization but
later becomes one, Borrower shall promptly notify Bank of such occurrence and
provide Bank with Borrower’s organizational identification number.

     

    The
execution, delivery and performance by Borrower of the Loan Documents to which
it is a party have been duly authorized, and do not (i) conflict with any of
Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any its Subsidiaries or any of their property or assets may be
bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect), or (v) constitute an event of default under any
material agreement by which Borrower is bound.  Borrower is not in
default under any agreement to which it is a party or by which it is bound in
which the default could have a material adverse effect on Borrower’s
business.

     

    5.2 Collateral.  Borrower
has good title, has rights in, and the power to transfer each item of the
Collateral upon which it purports to grant a Lien hereunder, free and clear of
any and all Liens except Permitted Liens.  Borrower has no deposit
accounts other than the deposit accounts with Bank, the deposit accounts, if
any, described in the Perfection Certificate delivered to Bank in connection
herewith, or of which Borrower has given Bank notice and taken such actions as
are necessary to give Bank a perfected security interest therein.  The
Accounts are bona fide, existing obligations of the Account
Debtors.  All Inventory is in all material respects of good and
marketable quality, free from material defects.

     

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

     

    

    
      
        
          
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    Borrower is the sole owner of its
intellectual property, except for non-exclusive licenses granted to its
customers in the ordinary course of business.  Each patent is valid
and enforceable, and no part of the intellectual property has been judged
invalid or unenforceable, in whole or in part, and to the best of Borrower’s
knowledge, no claim has been made that any part of the intellectual property
violates the rights of any third party except to the extent such claim could not
reasonably be expected to have a material adverse effect on Borrower’s
business.  Except as noted on the Perfection Certificate, Borrower is
not a party to, nor is bound by, any material license or other agreement with
respect to which Borrower is the licensee (a) that prohibits or otherwise
restricts Borrower from granting a security interest in Borrower’s interest in
such license or agreement or any other property, or (b) for which a default
under or termination of could interfere with Bank’s right to sell any
Collateral.  Without prior consent from Bank, Borrower shall not enter
into, or become bound by, any such license or agreement which is reasonably
likely to have a material impact on Borrower’s business or financial
condition.  Borrower shall take such steps as Bank requests to obtain
the consent of, or waiver by, any person whose consent or waiver is necessary
for all such licenses or contract rights to be deemed “Collateral” and for Bank
to have a security interest in it that might otherwise be restricted or
prohibited by law or by the terms of any such license or agreement, whether now
existing or entered into in the future.

     

    5.3 Litigation.  Except
as set forth on the Perfection Certificate, there are no actions or proceedings
pending or, to the knowledge of Borrower’s Responsible Officers, threatened in
writing by or against Borrower or any Subsidiary in which an adverse decision
could reasonably be expected to cause a Material Adverse Change.

     

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

     

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

     

    5.6 Regulatory
Compliance.  Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended.  Borrower is not engaged as one of its important
activities in extending credit for margin stock (under Regulations X, T and U of
the Federal Reserve Board of Governors).  Neither Borrower nor any of
its Subsidiaries is a “holding company” or an “affiliate” of a “holding company”
or a “subsidiary company” of a “holding company” as each term is defined and
used in the Public Utility Holding Company Act of 2005.  Borrower has
complied in all material respects with the Federal Fair Labor Standards
Act.  Borrower has not violated any laws, ordinances or rules, the
violation of which could reasonably be expected to cause a Material Adverse
Change.  None of Borrower’s or any Subsidiary’s properties or assets
has been used by Borrower or any Subsidiary or, to the best of Borrower’s
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally.  Borrower and
each of its Subsidiaries have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all Government Authorities that are necessary to continue their respective
businesses as currently conducted.

     

    5.7 Subsidiaries;
Investments.  Except for Shafi, Inc. and Shafi Innovation,
Inc., Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

     

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

     

    

    
      
        
          
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    5.9 result in
any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental
agency.

     

    5.10 Use of
Proceeds.  Borrower shall use the proceeds of the Credit
Extensions solely as working capital, to repay amounts owed by Borrower to the
Pledgors and the Speros Parties in connection with their payment on Borrower’s
behalf of Borrower’s Indebtedness to Royal Bank of Canada, and to fund its
general business requirements and not for personal, family, household or
agricultural purposes.

     

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

     

    5.12           Inactive
Subsidiary.  Braintech Consumer & Service, Inc., Borrower’s
Subsidiary, does not and will not conduct any business or own any assets and
will remain an inactive entity.  Bank hereby reserves the right to
require that such entity be joined as a co-borrower or guarantor in the future,
and Borrower hereby agrees to execute all documentation required by Bank in
connection with such joinder.

     

    6 AFFIRMATIVE
COVENANTS

     

    Borrower
shall do all of the following:

     

    6.1 Government
Compliance.

     

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

     

    (b)           Obtain
all of the Governmental Approvals necessary for the performance by Borrower of
its obligations under the Loan Documents to which it is a party and the grant of
a security interest to Bank in all of its property.  Borrower shall
promptly provide copies of any such obtained Governmental Approvals to
Bank.

     

    6.2 Financial Statements, Reports,
Certificates.

     

    (a) Deliver
to Bank:  (i) as soon as available, but no later than thirty (30)
days after the last
day of each month, a company prepared unconsolidated balance sheet and income
statement covering Borrower’s operations during the period certified by a
Responsible Officer and in a form acceptable to Bank; (ii) as soon as available,
but no later than the earlier to occur of ninety (90) days after the last day of
Borrower’s fiscal year and the due date with the Securities and Exchange
Commission, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm reasonably
acceptable to Bank; (iii) within ten (10) days of filing, copies of all filings
made with the Securities and Exchange Commission including, without limitation,
statements, reports and notices made available to Borrower’s security holders or
to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K;
(iv) a prompt report of any legal actions pending or threatened against Borrower
or any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary (except for Shafi, Inc. and Shafi Innovation, Inc.) of One Hundred
Thousand Dollars ($100,000.00) or more; (v) as soon as available, but no later
than ten (10) days following board approval, and contemporaneously with any
updates thereto, board-approved projections; (vi) prompt notice of any material
change in the composition of the Intellectual Property Collateral, or the
registration of any copyright, including any subsequent ownership right of
Borrower in or to any copyright, patent or trademark not shown in the IP
Agreement or knowledge of an event that materially adversely affects the value
of the Intellectual Property Collateral; and (vii) budgets, sales
projections, operating plans or other financial
information reasonably requested by Bank.

     

    

    
      
        
          
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    (b) Within
thirty (30) days
after the last day of each month, deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in the form
of Exhibit
C.

     

    6.3 Taxes.  Borrower
shall make, and cause each Subsidiary (except for Shafi, Inc. and Shafi
Innovation, Inc.) to make, timely payment of all federal, state, and local taxes
or assessments (other than taxes and assessments which Borrower is contesting in
good faith, with adequate reserves maintained in accordance with GAAP) and will
deliver to Bank, on demand, appropriate certificates attesting to such
payments.

     

    6.4 Insurance.  Keep its
business and the Collateral insured for risks and in amounts standard for
companies in Borrower’s industry and location, and as Bank may reasonably
request.  Insurance policies shall be in a form, with companies, and
in amounts that are satisfactory to Bank.  All property policies shall
have a lender’s loss payable endorsement showing Bank as the sole lender loss
payee and waive subrogation against Bank, and all liability policies shall show,
or have endorsements showing, Bank as an additional insured.  All
policies (or the loss payable and additional insured endorsements) shall provide
that the insurer must give Bank at least twenty (20) days notice before
canceling, amending, or declining to renew its policy.  At Bank’s
request, Borrower shall deliver certified copies of policies and evidence of all
premium payments. Proceeds payable under any policy shall, at Bank’s option, be
payable to Bank on account of the Obligations.  If Borrower fails to
obtain insurance as required under this Section 6.4 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section 6.4, and take any action under the policies Bank deems
prudent.

     

    6.5 Accounts.

     

    (a) To permit
Bank to monitor Borrower’s financial performance and condition, Borrower, and
all Borrower’s Subsidiaries, shall maintain all of Borrower’s and such
Subsidiaries’, depository and operating accounts and securities accounts with
Bank and Bank’s affiliates.  Any Guarantor
shall maintain all depository and
operating accounts with Bank, and, with respect to securities accounts, with an
affiliate of Bank. 

     

    (b) Borrower
shall identify to Bank, in writing, any deposit or securities account opened by
Borrower with any institution other than Bank.  In addition, for each
such account that Borrower or Guarantor at any time opens or maintains, Borrower
shall, at Bank’s request and option, pursuant to an agreement in form and
substance acceptable to Bank, cause the depository bank or securities
intermediary to agree that such account is the collateral of Bank pursuant to
the terms hereunder, which control agreement may not be terminated without the
prior written consent of Bank.  The provisions of the previous
sentence shall not apply to deposit accounts exclusively used for payroll,
payroll taxes and other employee wage and benefit payments to or for the benefit
of Borrower’s employees.

     

    6.6 Inventory;
Returns.  Keep all Inventory in good and marketable condition,
free from material defects.  Returns and allowances between Borrower
and its Account Debtors shall follow Borrower’s customary practices as they
exist at the Effective Date.  Borrower must promptly notify Bank of
all returns, recoveries, disputes and claims that involve more than One Hundred
Thousand Dollars ($100,000.00).

     

    6.7 Financial
Covenants.

     

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

     

    (a) EBITDA.  EBITDA
for the three-month period ending on the last day of such month of at least
$1.00 for the three-month periods ending on March 31, 2010, April 30, 2010, May
31, 2010, June 30, 2010, July 31, 2010 and August 31, 2010.

     

    (b) Net
Income.  Net Income for the three-month period ending on the
last day of such month of at least $1.00 for the three-month period ending on
September 30, 2010 and for the three-month period ending on the last day of each
month thereafter.

     

     

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

     

    

    
      
        
          
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    6.9 Borrower
(i) obtains any patent, registered trademark or servicemark, registered
copyright, registered mask work, or any pending application for any of the
foregoing, whether as owner, licensee or otherwise, or (ii) applies for any
patent or the registration of any trademark or servicemark, then Borrower shall
promptly provide written notice thereof to Bank and shall execute such
intellectual property security agreements and other documents and take such
other actions as Bank shall request in its good faith business judgment to
perfect and maintain a first priority perfected security interest in favor of
Bank in such property.  If Borrower decides to register any copyrights
or mask works in the United States Copyright Office, Borrower shall:
(x) provide Bank with at least fifteen (15) days prior written notice of
Borrower’s intent to register such copyrights or mask works together with a copy
of the application it intends to file with the United States Copyright Office
(excluding exhibits thereto); (y) execute an intellectual property security
agreement and such other documents and take such other actions as Bank may
request in its good faith business judgment to perfect and maintain a first
priority perfected security interest in favor of Bank in the copyrights or mask
works intended to be registered with the United States Copyright Office; and
(z) record such intellectual property security agreement with the United
States Copyright Office contemporaneously with filing the copyright or mask work
application(s) with the United States Copyright Office.  Borrower
shall promptly provide to Bank copies of all applications that it files for
patents or for the registration of trademarks, servicemarks, copyrights or mask
works, together with evidence of the recording of the intellectual property
security agreement necessary for Bank to perfect and maintain a first priority
perfected security interest in such property.

     

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

     

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

     

    7 NEGATIVE
COVENANTS

     

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

     

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

     

    7.2 Changes in Business, Ownership,
Management, or Business Locations.  Engage in or permit any of
its Subsidiaries to engage in any business other than the businesses currently
engaged in by Borrower or reasonably related thereto, or have a material change
in its ownership (other than by the sale of Borrower’s equity securities in a
public offering or to venture capital investors so long as Borrower identifies
to Bank the venture capital investors prior to the closing of the investment),
or have a change in management such that any Key Person ceases to hold such
office with Borrower and a replacement reasonably satisfactory to Bank is not
made within ninety (90) days after such Key Person’s departure from
Borrower.  Borrower shall not, without at least thirty (30) days prior
written notice to Bank: (a) relocate its chief executive office, or add any new
offices or business locations, including warehouses  (unless such new
offices or business locations contain less than Fifty Thousand Dollars
($50,000.00) in Borrower’s assets or property), or (b) change its jurisdiction
of organization, or (c) change its organizational structure or type, or (d)
change its legal name, or (e) change any organizational number (if any) assigned
by its jurisdiction of organization.

     

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

     

    7.4 Indebtedness.  Create,
incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do
so, other than (a) Permitted Indebtedness, and (b) with respect to Shafi, Inc.
and Shafi Innovation, Inc., Indebtedness existing on the Effective Date and
disclosed on the Perfection Certificate.

     

    

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

     

    7.6 Distributions;
Investments.  (a) Directly or indirectly acquire or own any
Person, or make any Investment in any Person, other than Permitted Investments,
or permit any of its Subsidiaries to do so; or (b) pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital
stock.

     

    7.7 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.

     

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

     

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

     

    8 EVENTS OF
DEFAULT

     

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

     

    8.1 Payment
Default.  Borrower fails to (a) make any payment of
principal or interest on any Credit Extension on its due date, or (b) pay
any other Obligations within three (3) Business Days after such Obligations are
due and payable (which three (3) Business Day cure period shall not apply to
payments due on the Term Loan Maturity Date).  During the cure period,
the failure to make or pay any payment specified under clause (a) or (b)
hereunder is not an Event of Default (but no Credit Extension will be made
during the cure period);

     

    8.2 Covenant Default.

     

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

     

    (b)
Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement or any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and

     

    

    
      
        
          
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    within
such reasonable time period the failure to cure the default shall not be deemed
an Event of Default (but no Credit Extensions shall be made during such cure
period).  Cure periods provided under this section shall not apply,
among other things, to financial covenants or any other covenants set forth in
clause (a) above;

     

    8.3 Material Adverse
Change.  A Material Adverse Change occurs;

     

    8.4 Attachment; Levy; Restraint on
Business.  (a) (i) The service of process seeking to attach, by
trustee or similar process, any funds of Borrower or of any entity under control
of Borrower (including a Subsidiary except for Shafi, Inc. and Shafi Innovation,
Inc.) on deposit with Bank or any Bank Affiliate, or (ii) a notice of lien,
levy, or assessment is filed against any of Borrower’s assets by any government
agency, and the same under subclauses (i) and (ii) hereof are not, within ten
(10) days after the occurrence thereof, discharged or stayed (whether through
the posting of a bond or otherwise); provided, however, no Credit Extensions
shall be made during any ten (10) day cure period; and (b) (i) any material
portion of Borrower’s assets is attached, seized, levied on, or comes into
possession of a trustee or receiver, or (ii) any court order enjoins,
restrains, or prevents Borrower from conducting any part of its
business;

     

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

     

    8.6 Other
Agreements.  If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000.00) or that could result in a Material Adverse Change;

     

    8.7 Judgments.  One or
more judgments, orders, or decrees for the payment of money in an amount,
individually or in the aggregate, of at least One Hundred Thousand Dollars
($100,000.00) (not covered by independent third-party insurance as to which
liability has been accepted by such insurance carrier) shall be rendered against
Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of
ten (10) days after the entry thereof (provided that no Credit Extensions will
be made prior to the satisfaction, vacation, or stay of such judgment, order, or
decree);

     

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

     

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

     

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

     

    8.11 Governmental
Approvals.  Any Governmental Approval shall have been
(a) revoked, rescinded, suspended, modified in an adverse manner or not
renewed in the ordinary course for a full term or (b) subject to any
decision by a Governmental Authority that designates a hearing with respect to
any applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) has, or could reasonably be expected to have, a
Material Adverse Change, or (ii) adversely affects the legal qualifications
of Borrower or any of its Subsidiaries (except for Shafi, Inc. and Shafi
Innovation, Inc.) to hold such Governmental Approval in any applicable
jurisdiction and such revocation, rescission, suspension, modification or
non-renewal could reasonably be expected to affect the status of or legal
qualifications of Borrower

     

    

    
      
        
          
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    8.12 or any of
its Subsidiaries (except for Shafi, Inc. and Shafi Innovation, Inc.) to hold any
Governmental Approval in any other jurisdiction;

     

    8.13 Letter of Credit/Pledged
Accounts.  The occurrence of any of the following: (a) the
Pledged Amount is less than the outstanding principal amount of the Term
Advances; or (b) the Letter of Credit is, pursuant to its terms, set to mature
or expire on a date that is earlier than one hundred twenty (120) days following
the Term Loan Maturity Date; or (c) the breach or violation of any
representation, warranty, or covenant by any one of the Pledgors under any of
(i) that certain Non-Recourse Letter of Credit Agreement each dated as of the
Effective Date, (ii) those certain Non-Recourse Pledged Account Agreements each
dated as of the Effective Date, or (iii) those certain Pledge Agreements each
dated as of the Effective Date; or

     

    8.14 Working Capital Loan
Agreement.  An Event of Default (as such term is defined in the
Working Capital Loan Agreement) occurs under the Working Capital Loan
Agreement.

     

    9 BANK’S RIGHTS AND
REMEDIES

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    9.2 Power of
Attorney.  Borrower hereby irrevocably appoints Bank as its
lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to: (a) endorse Borrower’s name on any
checks or other forms of payment or security; (b) sign Borrower’s name on any
invoice or bill of lading for any Account or drafts against Account Debtors; (c)
settle and adjust disputes and claims about the Accounts directly

     

    

    
      
        
          
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    9.3 with
Account Debtors, for amounts and on terms Bank determines reasonable; (d) make,
settle, and adjust all claims under Borrower’s insurance policies; (e) pay,
contest or settle any Lien, charge, encumbrance, security interest, and adverse
claim in or to the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; and (f) transfer the Collateral
into the name of Bank or a third party as the Code permits.  Borrower
hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on
any documents necessary to perfect or continue the perfection of Bank’s security
interest in the Collateral regardless of whether an Event of Default has
occurred until all Obligations have been satisfied in full and Bank is under no
further obligation to make Credit Extensions hereunder.  Bank’s
foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights
and powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Bank’s obligation to provide Credit
Extensions terminates.

     

    9.4 Protective
Payments.  If Borrower fails to obtain the insurance called for
by Section 6.4 or fails to pay any premium thereon or fails to pay any other
amount which Borrower is obligated to pay under this Agreement or any other Loan
Document, Bank may obtain such insurance or make such payment, and all amounts
so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest rate applicable to the Obligations, and secured by
the Collateral.  Bank will make reasonable efforts to provide Borrower
with notice of Bank obtaining such insurance at the time it is obtained or
within a reasonable time thereafter.  No payments by Bank are deemed
an agreement to make similar payments in the future or Bank’s waiver of any
Event of Default.

     

    9.5 Application of Payments and Proceeds
Upon Default.  If an Event of Default has occurred and is
continuing, Bank may apply any funds in its possession, whether from Borrower
account balances, payments, proceeds realized as the result of any collection of
Accounts or other disposition of the Collateral, or otherwise, to the
Obligations in such order as Bank shall determine in its sole
discretion.  Any surplus shall be paid to Borrower or other Persons
legally entitled thereto; Borrower shall remain liable to Bank for any
deficiency.  If Bank, in its good faith business judgment, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Bank shall have the option, exercisable at
any time, of either reducing the Obligations by the principal amount of the
purchase price or deferring the reduction of the Obligations until the actual
receipt by Bank of cash therefor.  Notwithstanding the foregoing, Bank
shall apply the proceeds of any drawing under the Letter of Credit or the
proceeds of any Pledged Account in satisfaction of Obligations arising under
this Agreement exclusively, and shall not apply them in satisfaction of any
Obligations under the Working Capital Loan Agreement.

     

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

     

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

     

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

     

    9.9 Borrower
Liability.  Any Borrower may, acting singly, request Credit
Extensions hereunder.  Each Borrower hereby appoints the others as agent
for the other for all purposes hereunder, including with respect to requesting
Credit Extensions hereunder.  Each Borrower hereunder shall be jointly
and severally obligated to repay all Credit Extensions made hereunder,
regardless of which Borrower actually receives said Credit Extension, as if each
Borrower hereunder directly received all Credit Extensions.  Each Borrower
waives (a) any suretyship defenses available to it under the Code or any
other applicable law, and (b) any right to require Bank to: (i) proceed
against

     

    

    
      
        
          
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    9.10 any
Borrower or any other person; (ii) proceed against or exhaust any security;
or (iii) pursue any other remedy.  Bank may exercise or not exercise any
right or remedy it has against any Borrower or any security it holds (including
the right to foreclose by judicial or non-judicial sale) without affecting any
Borrower’s liability.  Notwithstanding any other provision of this
Agreement or other related document, each Borrower irrevocably waives all rights
that it may have at law or in equity (including, without limitation, any law
subrogating Borrower to the rights of Bank under this Agreement) to seek
contribution, indemnification or any other form of reimbursement from any other
Borrower, or any other Person now or hereafter primarily or secondarily liable
for any of the Obligations, for any payment made by Borrower with respect to the
Obligations in connection with this Agreement or otherwise and all rights that
it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by Borrower with respect to the
Obligations in connection with this Agreement or otherwise.  Any agreement
providing for indemnification, reimbursement or any other arrangement prohibited
under this Section shall be null and void.  If any payment is made to a
Borrower in contravention of this Section, such Borrower shall hold such payment
in trust for Bank and such payment shall be promptly delivered to Bank for
application to the Obligations, whether matured or unmatured.

     

    10 NOTICES

     

    All
notices, consents, requests, approvals, demands, or other communication by any
party to this Agreement or any other Loan Document must be in writing and shall
be deemed to have been validly served, given, or delivered: (a) upon the earlier
of actual receipt and three (3) Business Days after deposit in the U.S. mail,
first class, registered or certified mail return receipt requested, with proper
postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below.  Bank or Borrower may change its mailing or electronic mail
address or facsimile number by giving the other party written notice thereof in
accordance with the terms of this Section 10.

    
       

    

     

     

    
      If to
Borrower:                                        Braintech,
Inc.

                                                                                       
Braintech Industrial, Inc.

        Braintech Government &
Defense,
Inc.
                                                                           
1750 Tysons Boulevard, Suite
350
                                                                           
McLean, VA 22102

                                                                                       
Attn:           Thomas E.
McCabe

       
Fax:        703-637-9772

                                                                                        Email:     tmccabe@braintech.com

       

      

       

      If to
Bank:                                                
Silicon Valley Bank

         8020 Towers Crescent
Drive, Suite 475

         Vienna, Virginia
22182

        
Attn:         Ms. Heather
Parker

                                                                                        
Fax:           (703)
356-7643

                                                                                        
Email:        HParker@svb.com

      

      

       

      With a
copy
to:                                       Riemer
& Braunstein,
LLP
                                                                                  
Three
Center
Plaza
                                                                                   Boston,
Massachusetts  02108
                                                                                  
Attn:         David
A. Ephraim, Esquire
                           Fax:           (617)
880-3456

                                                                        
Email:         DEphraim@riemerlaw.com

    

     

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

     

    Massachusetts
law governs the Loan Documents without regard to principles of conflicts of
law.  Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Boston, Massachusetts; provided, however, that
nothing in this Agreement shall be deemed to operate to preclude Bank from
bringing suit or taking other legal action in any other jurisdiction to realize
on the Collateral or any other security for the Obligations, or to enforce a
judgment or other court order in favor of Bank.  Borrower expressly
submits and consents in advance to such jurisdiction in any action or suit
commenced in any such court, and Borrower hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue, or forum
non

    

    
      
        
          
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    conveniens
and hereby consents to the granting of such legal or equitable relief as is
deemed appropriate by such court.  Borrower hereby waives personal
service of the summons, complaints, and other process issued in such action or
suit and agrees that service of such summons, complaints, and other process may
be made by registered or certified mail addressed to Borrower at the address set
forth in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower’s actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage
prepaid.

    

     

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

     

    12 GENERAL
PROVISIONS

     

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

     

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

     

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

     

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

     

    12.5 Correction of Loan
Documents.  Bank may correct patent errors and fill in any
blanks in the Loan Documents consistent with the agreement of the
parties.

     

    12.6 Amendments in Writing; Waiver;
Integration.  No purported amendment or modification of any
Loan Document, or waiver, discharge or termination of any obligation under any
Loan Document, shall be enforceable or admissible unless, and only to the
extent, expressly set forth in a writing signed by the party against which
enforcement or admission is sought.  Without limiting the generality
of the foregoing, no oral promise or statement, nor any action, inaction, delay,
failure to require performance or course of conduct shall operate as, or
evidence, an amendment, supplement or waiver or have any other effect on any
Loan Document.  Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver.  The Loan
Documents represent the entire agreement about this subject matter and supersede
prior negotiations or agreements.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of the Loan Documents merge into the Loan
Documents.

     

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

     

    12.8 Survival.  All
covenants, representations and warranties made in this Agreement continue in
full force until this Agreement has terminated pursuant to its terms and all
Obligations (other than inchoate indemnity

     

    

    
      
        
          
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    12.9 obligations
and any other obligations which, by their terms, are to survive the termination
of this Agreement) have been paid in full and satisfied.  The
obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the
statute of limitations with respect to such claim or cause of action shall have
run.

     

    12.10 Confidentiality.  In
handling any confidential information, Bank shall exercise the same degree of
care that it exercises for its own proprietary information, but disclosure of
information may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to
prospective transferees or purchasers of any interest in the Credit Extensions
(provided, however, Bank shall use its best efforts to obtain any prospective
transferee’s or purchaser’s agreement to the terms of this provision);
(c) as required by law, regulation, subpoena, or other order; (d) to
Bank’s regulators or as otherwise required in connection with Bank’s examination
or audit; (e) as Bank considers appropriate in exercising remedies under
the Loan Documents; and (f) to third-party service providers of Bank so long as
such service providers have executed a confidentiality agreement with Bank with
terms no less restrictive than those contained herein.  Confidential
information does not include information that is either: (i) in the public
domain or in Bank’s possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (ii) disclosed to Bank by a third
party if Bank does not know that the third party is prohibited from disclosing
the information.

     

    Bank may
use confidential information for the development of databases, reporting
purposes, and market analysis so long as such confidential information is
aggregated and anonymized prior to distribution unless otherwise expressly
permitted by Borrower.  The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.

     

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

     

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

     

    12.13 Electronic Execution of
Documents.  The words “execution,” “signed,” “signature” and
words of like import in any Loan Document shall be deemed to include electronic
signatures or the keeping of records in electronic form, each of which shall be
of the same legal effect, validity and enforceability as a manually executed
signature or the use of a paper-based recordkeeping systems, as the case may be,
to the extent and as provided for in any applicable law, including, without
limitation, any state law based on the Uniform Electronic Transactions
Act.

     

    12.14 Captions.  The
headings used in this Agreement are for convenience only and shall not affect
the interpretation of this Agreement.

     

    12.15 Construction of
Agreement.  The parties mutually acknowledge that they and
their attorneys have participated in the preparation and negotiation of this
Agreement.  In cases of uncertainty this Agreement shall be construed
without regard to which of the parties caused the uncertainty to
exist.

     

    12.16 Relationship.  The
relationship of the parties to this Agreement is determined solely by the
provisions of this Agreement.  The parties do not intend to create any
agency, partnership, joint venture, trust, fiduciary or other relationship with
duties or incidents different from those of parties to an arm’s-length
contract.

     

    12.17 Third
Parties.  Nothing in this Agreement, whether express or
implied, is intended to: (a) confer any benefits, rights or remedies under or by
reason of this Agreement on any persons other than the express parties to it and
their respective permitted successors and assigns; (b) relieve or discharge the
obligation or liability of any person not an express party to this Agreement; or
(c) give any person not an express party to this Agreement any right of
subrogation or action against any party to this Agreement.

     

    

    
      
        
          
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    12.18 DEFINITIONS

     

    12.19 Definitions.  As
used in the Loan Documents, the word “shall” is mandatory, the word “may” is
permissive, the word “or” is not exclusive, the words “includes” and “including”
are not limiting, the singular includes the plural, and numbers denoting amounts
that are set off in brackets are negative.  As used in this Agreement,
the following capitalized terms have the following meanings:

     

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

     

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

     

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

     

    “Agreement” is defined in the
preamble hereof.

     

    “Amortization Date” shall mean
the first (1st)
calendar day of the month following the eighteen (18) month anniversary of the
Effective Date, provided, that, if the Effective Date occurs on the first
(1st)
calendar day of a month, the Amortization Date shall be the eighteen (18) month
anniversary of the Effective Date.

     

    “Bank” is defined in the
preamble hereof.

     

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

     

    “Borrower” is defined in the
preamble hereof.

     

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

     

    “Borrowing Base” is the lesser
of (a) the Term Loan Amount, and (b) the Pledged Amount.

     

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

     

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

     

    “Cash Equivalents” means
(a) marketable direct obligations issued or unconditionally guaranteed by
the United States or any agency or any State thereof having maturities of not
more than one (1) year from the date of acquisition; (b) commercial paper
maturing no more than one (1) year after its creation and having the highest
rating from either Standard & Poor’s Ratings Group or Moody’s Investors
Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than
one (1) year after issue; and (d) money market funds at least ninety-five
percent (95.0%) of the assets of which constitute Cash Equivalents of the kinds
described in clauses (a) through (c) of this definition.

     

    

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

     

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

     

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

     

    “Commitment Fee” is defined in
Section 2.3.

     

    “Commitment Termination Date”
is April 30, 2011.

     

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

     

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

     

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

     

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

     

    “Credit Extension” is any Term
Advance, or any other extension of credit by Bank for Borrower’s
benefit.

     

    “Default Rate” is defined in
Section 2.2(b).

     

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

     

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

     

    “Dollars,” “dollars” or use of the sign
“$” means only lawful
money of the United States and not any other currency, regardless of whether
that currency uses the “$” sign to denote its currency or may be readily
converted into lawful money of the United States.

     

    “Dollar Equivalent” is, at any
time, (a) with respect to any amount denominated in Dollars, such amount, and
(b) with respect to any amount denominated in a Foreign Currency, the equivalent
amount therefor in Dollars as determined by Bank at such time on the basis of
the then-prevailing rate of exchange in San Francisco, California, for sales of
the Foreign Currency for transfer to the country issuing such Foreign
Currency.

     

    

    
      
        
          
            --

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    “EBITDA” means earnings before
(a) interest, taxes, depreciation and amortization, each in accordance with
GAAP, and (b) non-cash expense items.

     

    “Effective Date” is defined in
the preamble hereof.

     

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

     

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

     

    “Event of Default” is defined
in Section 8.

     

    “Exchange Act” is the
Securities Exchange Act of 1934, as amended.

     

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

     

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

     

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

     

    “Good Faith Deposit” is defined
in Section 2.3.

    

    “Governmental Approval” is any
consent, authorization, approval, order, license, franchise, permit,
certificate, accreditation, registration, filing or notice, of, issued by, from
or to, or other act by or in respect of, any Governmental
Authority.

    

    “Governmental Authority” is any
nation or government, any state or other political subdivision thereof, any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities exchange
and any self-regulatory organization.

     

    “Guarantor” is any present or future
guarantor of the Obligations.  For the avoidance of doubt, the
Pledgors are not Guarantors.

     

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

     

    “Indemnified Person” is defined
in Section 12.2.

     

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

     

    “Intellectual Property
Collateral” is defined in the IP Agreement.

     

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

     

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

     

    

    
      
        
          
            --

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    “IP Agreement” is (a) that
certain Intellectual Property Security Agreement dated as of the Effective Date
between Bank and Braintech, Inc., (b) that certain Intellectual Property
Security Agreement dated as of the Effective Date between Bank and Braintech
Industrial, and (c) that certain Intellectual Property Security Agreement dated
as of the Effective Date between Bank and Braintech Government.

     

    “Key Person” is either of
Borrower’s Chief Executive Officer or Chief Financial Officer.

     

    “Letter of Credit” is that
certain letter of credit from Rick Weidinger, issued by a financial institution
acceptable to Bank in its sole and absolute discretion, which lists Bank as
beneficiary, has an expiration date at least one hundred twenty (120) days
following the Term Loan Maturity Date, permits Bank to draw thereon, and is
otherwise in form and substance acceptable to Bank in its sole and absolute
discretion.

     

    “Lien” is a claim, mortgage,
deed of trust, levy, charge, pledge, security interest or other encumbrance of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise against any property.

     

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

     

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

     

    “Net Income” is determined
according to GAAP but shall not include non-cash expense items.

     

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

     

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

     

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

     

    “Payment Date” is the first day
of each calendar month.

     

    “Perfection Certificate” is
defined in Section 5.1.

     

    “Permitted Indebtedness”
is:

     

    (a)           Borrower’s
indebtedness to Bank under this Agreement, the Working Capital Loan Agreement,
or the Loan Documents;

     

    (b)           Subordinated
Debt;

     

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

     

    (d)           Indebtedness
secured by Permitted Liens.

     

    

    
      
        
          
            --

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    “Permitted Investments” are:
(i)  marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any state maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard &
Poor’s Corporation or Moody’s Investors Service, Inc., (iii) Bank’s certificates
of deposit issued maturing no more than 1 year after issue, (iv) any other
investments administered through Bank, and (v) investments made on or prior to
December 31, 2010 in Braintech Canada, Inc. for the ordinary and necessary
current operating expenses of such entity in an aggregate amount not to exceed
(a) Two Hundred Thousand Dollars ($200,000.00) from September 1, 2009 through
and including December 31, 2009, and (b) One Hundred Thousand Dollars
($100,000.00) from January 1, 2010 through and including December 31,
2010.

     

    “Permitted Liens”
are:

     

    (a)           Liens
arising under this Agreement, the Working Capital Loan Agreement, or other Loan
Documents;

     

    (b)           Liens
in favor of the Pledgors so long as such liens are in respect of Subordinated
Debt (Bank acknowledges that, as of the Effective Date, such liens are in
respect of Subordinated Debt and shall continue to be in respect of Subordinated
Debt so long as the applicable subordination agreements executed as of the
Effective Date remain in full force and effect);

     

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

     

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

     

    (e)           Leases
or subleases and non-exclusive licenses or sublicenses granted in the ordinary
course of Borrower’s business, if the leases,
subleases, licenses and sublicenses permit granting Bank a security interest;
and

     

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

     

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

     

    “Pledged Accounts” are those
certain money market accounts pledged to Bank from (a) Kenneth Brooks, (b David
Baird, (c) Frederick Bohlander, and (d) Colin Eagen.

     

    “Pledged Amount” is the
aggregate of (a) the undrawn amount of the Letter of Credit, plus (b) the
aggregate amount of cash in the Pledged Accounts.

     

    “Pledgors” are Rick Weidinger,
Kenneth Brooks, David Baird, Frederick Bohlander, and Colin Eagen.

     

    “Prime Rate” is the greater of
(a) four percent (4.0%) and (b) Bank’s most recently announced “prime rate,”
even if it is not Bank’s lowest rate.

     

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

     

    “Requirement of Law” is as to
any Person, the organizational or governing documents of such Person, and any
law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

     

    

    
      
        
          
            --

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

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

     

    “SEC” shall mean the Securities
and Exchange Commission, any successor thereto, and any analogous Governmental
Authority.

     

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

     

    “Speros Parties” is defined in
Section 3.1.

     

    “Subordinated Debt” is
indebtedness incurred by Borrower subordinated to all of Borrower’s now or
hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or
other similar agreement in form and substance satisfactory to Bank entered into
between Bank and the other creditor), on terms acceptable to
Bank.  For the avoidance of doubt, “Subordinated Debt” includes
amounts owed at any time by Borrower to the Pledgors in connection with the
Pledgors’ issuing, maintaining and/or extending the Letter of Credit or Pledged
Accounts, and such amounts shall continue to be Subordinated Debt so long as the
applicable subordination agreements executed as of the Effective Date remain in
full force and effect.

     

    “Subsidiary” is, as to any
Person, a corporation, partnership, limited liability company or other entity of
which shares of stock or other ownership interests having ordinary voting power
(other than stock or such other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such
Person.  Unless the context otherwise requires, each reference to a
Subsidiary herein shall be a reference to a Subsidiary of Borrower.

     

    “Term Advance” or “Term Advances” is defined in
Section 2.1.1(a).

     

    “Term Loan Amount” is,
initially, an amount equal to Two Million Two Hundred Thousand Dollars
($2,200,000.00), provided, however, upon the prepayment of a Term Advance, the
Term Loan Amount shall reduce by an amount equal to the amount of such
prepayment.

     

    “Term Loan Maturity Date” is
the first (1st)
calendar day of the month that is the seventeenth (17th)
month following the Amortization Date.

     

    “Term Loan Payment” is defined
in Section 2.1.1(c).

     

     “Transfer” is defined in
Section 7.1.

     

    “Working Capital Loan
Agreement” is that certain Loan and Security Agreement (Accounts
Receivable Line of Credit) between Borrower and Bank dated as of the Effective
Date, together with all documents delivered in connection therewith, as amended
from time to time.

     

    [Signature page follows.]

     

    

    
      
        
          
            --

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

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

     

    BORROWER:

     

    BRAINTECH,
INC.

     

    By:_________________________________________

     

    Name:______________________________________

     

    Title:_______________________________________

     

    

     

    BRAINTECH
INDUSTRIAL, INC.

     

    By:_________________________________________

     

    Name:______________________________________

     

    Title:_______________________________________

     

    

     

    BRAINTECH
GOVERNMENT & DEFENSE, INC.

     

    By:_________________________________________

     

    Name:______________________________________

     

    Title:_______________________________________

     

    

     

    BANK:

     

    SILICON
VALLEY BANK

     

    By:_________________________________________

     

    Name:______________________________________

     

    Title:_______________________________________

     

    
 

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    EXHIBIT A – COLLATERAL
DESCRIPTION

    

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

     

    All
goods, equipment, inventory, contract rights or rights to payment of money,
leases, license agreements, franchise agreements, general intangibles (including
payment intangibles) accounts (including health-care receivables), documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), commercial tort claims,
securities, and all other investment property, supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located; and
any copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, now owned or later acquired; any patents, trademarks, service marks
and applications therefor; trade styles, trade names, any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing; and

     

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

     

    

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    EXHIBIT B
– LOAN PAYMENT/ADVANCE REQUEST FORM

    

    Deadline
for same day processing is Noon Eastern Time

    

    Fax
To:                                                                                                       Date:
_____________________

     

    
      	 
      
              
                      
                  
                          
                      
                              
                          
                            Loan Payment:

                          

                          
                            BRAINTECH,
      INC.

                            BRAINTECH INDUSTRIAL,
      INC.

                            BRAINTECH GOVERNMENT
      & DEFENSE, INC.

                            

                          

                          
                            From
      Account
      #________________________________                        To
      Account 

                            #__________________________________________________

                          

                          
                            (Deposit
      Account
      #)                                                                                            (Loan
      Account #)

                          

                          
                            Principal
      $____________________________________                           and/or
      Interest

                             $________________________________________________

                            

                          

                          
                            Authorized
      Signature:________________________                             Phone
      Number: ______________________________                                                             

                          

                          
                            Print
      Name/Title: __________________________                                                                                                        

                          

                        

                      

                    

                  

                

              

            

    

    

    
      

      

    

    
      
        	 
      
                
                        
                    
                            
                        
                          Loan
      Advance:

                          

                          Complete
      Outgoing Wire
      Request section below if all or a portion of the funds from this
      loan advance are for an outgoing wire.

                          

                          From
      Account
      #________________________________           To
      Account 

                          #__________________________________________________

                        

                        
                          (Loan
      Account
      #)                                                                                  (Deposit
      Account #)

                        

                        
                          

                          Amount
      of Advance $___________________________

                          

                          All
      Borrower’s representations and warranties in the Loan and Security
      Agreement are true, correct and complete in all material respects on the
      date of the request for an advance; provided, however, that such
      materiality qualifier shall not be applicable to any representations and
      warranties that already are qualified or modified by materiality in the
      text thereof; and provided, further that those representations and
      warranties expressly referring to a specific date shall be true, accurate
      and complete in all material respects as of such date:

                          

                        

                        
                          Authorized
      Signature: ________________________                                                  Phone
      Number:   ______________________________                                                          

                        

                        
                          Print
      Name/Title: _____________________________                                                   

                        

                      

                    

                  

                

              

    

    

    
           

    

    
      
        	 
      
                
                        
                    
                      Outgoing
      Wire Request:

                      Complete
      only if all or a portion of funds from the loan advance above is to be
      wired.

                      Deadline
      for same day processing is noon, Eastern Time

                      

                    

                    
                      Beneficiary
      Name:
      ____________________________          Amount
      of Wire:
      $ ___________________                                                                                                                                           

                      Beneficiary
      Bank:
      _____________________________         Account
      Number:  ___________________                                                                                                                                          

                    

                    
                      City
      and
      State:                                                             

                    

                    
                      

                    

                    
                      Beneficiary
      Bank Transit (ABA) #: _______________ Beneficiary Bank Code (Swift, Sort, Chip,
      etc.):  _________________ 

                                                                                                                                       
      (For
      International Wire Only)

                    

                    
                      

                    

                    
                      Intermediary
      Bank: ___________________________ Transit (ABA)
      #:   _________________________________________                                                                      

                      For
      Further Credit
      to:_______________________________________________________________                                                                                                                                            

                    

                    
                      

                    

                    
                      Special
      Instruction:                                                                                                                                            

                    

                    
                      

                      By
      signing below, I (we) acknowledge and agree that my (our) funds transfer
      request shall be processed in accordance with and subject to the terms and
      conditions set forth in the agreements(s) covering funds transfer
      service(s), which agreements(s) were previously received and executed by
      me
(us).

                    

                  

                

              

    

    

    
      
        

        

      

    

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    
      	 
      
              
                Authorized
      Signature:
      ___________________________                       
      2nd
      Signature (if required): 

                _______________________________________

                Print
      Name/Title:
      ______________________________                          Print
      Name/Title: 

                   

                   

                   

                

                ______________________________________________

              

              
                Telephone
      #: ___________________                                                          Telephone
      #:

              

            

    

    
       

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
C

    

    COMPLIANCE
CERTIFICATE

    

    

    TO:                
SILICON VALLEY
BANK                                                                                                     Date:

    FROM:         
 BRAINTECH, INC.

    BRAINTECH INDUSTRIAL, INC.

    BRAINTECH GOVERNMENT & DEFENSE,
INC.

    

    The
undersigned authorized officer of BRAINTECH, INC., BRAINTECH INDUSTRIAL, INC.,
and BRAINTECH GOVERNMENT & DEFENSE, INC. (collectively, “Borrower”)
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (as amended, the “Agreement”):

     

    (1) Borrower
is in complete compliance for the period ending _______________ with all
required covenants except as noted below; (2) there are no Events of
Default; (3) all representations and warranties in the Agreement are true
and correct in all material respects on this date except as noted below;
provided, however, that such materiality qualifier shall not be applicable to
any representations and warranties to the extent that they are already qualified
or modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date;
(4) Borrower, and each of its Subsidiaries (except for Shafi, Inc. and
Shafi Innovation, Inc.), has timely filed all required tax returns and reports,
and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except as otherwise
permitted pursuant to the terms of Section 5.8 of the Agreement; and (5) no
Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank.

    

    Attached
are the required documents supporting the certification.  The
undersigned certifies that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.  The undersigned acknowledges that
no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is
delivered.  Capitalized terms used but not otherwise defined herein
shall have the meanings given them in the Agreement.

     

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

            
	 
      
	
              Reporting Covenant

            	
              Required

            	
              Complies

            
	 
      	 
      	 
      
	
              Monthly
      financial statements with

              Compliance
      Certificate

            	
              Monthly
      within 30 days

            	
              Yes   No

            
	
              Annual
      financial statement (CPA Audited)

            	
              FYE
      within 90 days

            	
              Yes   No

            
	
              10-Q,
      10-K and 8-K

            	
              Within
      5 days after filing with SEC

            	
              Yes   No

            
	
              Board-approved
      projections

            	
              Annually,
      within 10 days of board-approval, and contemporaneously with
      updates

            	
              Yes   No

            
	 
      
	
              The
      following intellectual property was registered (or a registration
      application submitted) after the Effective Date (if no registrations,
      state “None”)

              ___________________________________________________________________________________________

              ___________________________________________________________________________________________

               

            

    

    

    
      	
              Financial Covenant

            	
              Required

            	
              Actual

            	
              Complies

            
	 
      	 
      	 
      	 
      
	
              Maintain
      on a Monthly Basis:

            	 
      	 
      	 
      
	
                   EBITDA
      (three-month)

            	
              $1.00

            	
              $_________

            	
                          Yes   No    N/A*

            
	
                   Net
      Income (three-month)

            	
              $1.00

            	
              $_________

            	
              Yes   No    N/A*

            

    

    

    *     *
As set forth in Section 6.7 of the Agreement.

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

    

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

    

    ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    

    
      	
              BRAINTECH,
      INC.

              BRAINTECH
      INDUSTRIAL, INC.

              BRAINTECH
      GOVERNMENT & DEFENSE, INC.

               

               

              By: ___________________________                                                      

              Name: _________________________                                                      

              Title: __________________________                                                     

               

            	
              BANK
      USE ONLY

               

              Received
      by: _____________________

              authorized
      signer

              Date:  _________________________

               

              Verified:
      ________________________

              authorized
      signer

              Date:  _________________________

               

              Compliance
      Status:     Yes     No

            

    

    

    

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    Schedule 1 to Compliance
Certificate

    

    Financial Covenants of
Borrower

    

    In the event of a conflict between this
Schedule and the Loan Agreement, the terms of the Loan Agreement shall
govern.

    

    Dated:           ____________________

    

    I.           EBITDA (Section
6.7(a))

    

    Required:                      See
chart below

    

    
      	
              Period

            	
              EBITDA

            
	
              Three-month
      periods ending March 31, 2010, April 30, 2010, May 31, 2010, June 30,
      2010, July 31, 2010 and August 31, 2010

            	
              $1.00

            

    

    

    Actual:                                $______

    

     

     

              ______  No,
not in
compliance                                                                                     ______ Yes,
in compliance

     

    

     

    

     

    II.           Net Income (Section
6.7(b))

     

    

    Required:                      See
chart below

    

    
      	
              Period

            	
              Net
      Income

            
	
              Three-month
      period ending September 30, 2010, and as of the last day of each
      three-month period thereafter

            	
              $1.00

            

    

    

    

    Actual:                                $______

     

     

     

              ______  No,
not in
compliance                                                                                     ______ Yes,
in compliance

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00165-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00165-of-00352.parquet"}]]