Document:

EXHIBIT 10.1

 

GENAISSANCE
PHARMACEUTICALS, INC.

 

LOAN AND SECURITY AGREEMENT

 

 

This LOAN AND SECURITY AGREEMENT is entered into as of
September 30, 2003, by and between COMERICA BANK (“Bank”) and GENAISSANCE
PHARMACEUTICALS, INC. (“Borrower”).

 

RECITALS

 

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

 

AGREEMENT

 

The parties agree as
follows:

 

1.             DEFINITIONS
AND CONSTRUCTION.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Cash
Secured Letter of Credit” means the letter of credit issued by Bank on
Borrower’s behalf in March 2003, which is 105% cash secured in a money
market account at Bank.

 

 “Closing Date” means the date of this
Agreement.

 

“Code”
means the California Uniform Commercial Code.

 

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

 

“Contingent
Obligation” means, as applied to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit
issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate
cap agreement, interest rate collar agreement, or other agreement or
arrangement designed to protect such Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided, however, that the
term “Contingent Obligation” shall not include endorsements for collection or
deposit in the ordinary course of business. 
The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determined amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in

 

 

respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.

 

“Credit
Extension” means the Equipment Advance, or any other extension of credit by
Bank for the benefit of Borrower hereunder.

 

“Current
Liabilities” means, as of any applicable date, all amounts that should, in
accordance with GAAP, be included as current liabilities on the consolidated
balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the
extent not already included therein, all outstanding Credit Extensions made
under this Agreement, including all Indebtedness that is payable upon demand or
within one year from the date of determination thereof unless such Indebtedness
is renewable or extendible at the option of Borrower or any Subsidiary to a
date more than one year from the date of determination.

 

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

 

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

 

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

 

(b)           Accounts with respect to
an account debtor, twenty-five percent (25%) of whose Accounts the account debtor
has failed to pay within ninety (90) days of invoice date;

 

(c)           Accounts with respect to
which the account debtor is an officer, employee, or agent of Borrower
(excluding any accounts on which the account debtor is Sciona, Ltd.);

 

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

 

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

 

(f)            Accounts with respect to
which the account debtor is the United States or any department, agency, or
instrumentality of the United States except for Accounts of the United States
if the payee has assigned its payment rights to Bank and the assignment has
been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727);

 

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

 

(h)           Accounts with respect to
an account debtor, including Subsidiaries and Affiliates, whose total
obligations to Borrower exceed twenty-five percent (25%) of all Accounts, to
the extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank, which shall not be unreasonably withheld;

 

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

 

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

 

Notwithstanding
any of the foregoing, Foreign Accounts shall only be considered “Eligible
Accounts” up to the lesser of (i) thirty percent (30%) of all Eligible Accounts
or (ii) One Million Dollars ($1,000,000). 
As used herein, “Foreign Accounts” means those Accounts with respect to which
the account debtor is not invoiced by Borrower at a location in the United
States.

 

No
Account will be excluded from the definition of “Eligible Accounts” solely
because the account debtor does not have its principal place of business in the
United States.

 

 

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

 

“Equipment
Advance” has the meaning set forth in Section 2.1(a).

 

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

 

“Equipment
Maturity Date” means September 30, 2006.

 

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

 

“Event
of Default” has the meaning assigned in Article 0.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Loan
Documents” means, collectively, this Agreement, any note or notes executed by
Borrower, and any other agreement entered into in connection with this
Agreement, all as amended or extended from time to time.  The Warrant to Purchase Stock issued by
Borrower to Bank as of the Closing Date shall be a “Loan Document” only for
purposes of Section 5.2 and the definition of “Bank Expenses”.

 

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

 

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

 

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

 

 

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

 

“Permitted
Indebtedness” means:

 

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

 

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

 

(c)           Indebtedness secured by a
lien described in clause 0 of the defined term “Permitted Liens,” provided
(i) such Indebtedness does not exceed the lesser of the cost or fair
market value of the equipment financed with such Indebtedness and
(ii) such Indebtedness does not exceed $500,000 in the aggregate at any
given time; and

 

(d)           Subordinated Debt.

 

“Permitted Investment” means:

 

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

 

(b)           (i) marketable direct
obligations issued or unconditionally guaranteed by the United States of
America or any agency or any State thereof maturing within one (1) year from
the date of acquisition thereof, (ii) commercial paper maturing no more
than one (1) year from the date of acquisition thereof and currently having
rating of at least A-2 or P-2 from either Standard & Poor’s
Corporation or Moody’s Investors Service, (iii) certificates of deposit
maturing no more than one (1) year from the date of investment therein issued
by Bank and (iv) Bank’s money market accounts;

 

(c)           Acquisitions permitted
pursuant to Section 7.3;

 

(d)           Investments in Sciona,
Ltd. which do not exceed $300,000 during the term of this Agreement;

 

(e)           Investments consisting
solely of the equity securities of Borrower; and

 

(f)            Investments consisting of
joint ventures or licensing arrangements, in which the sole consideration is
equity securities.

 

 “Permitted
Liens” means the following:

 

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

 

(b)           Liens for taxes, fees,
assessments or other governmental charges or levies, either not delinquent or
being contested in good faith by appropriate proceedings, provided the same
have no priority over any of Bank’s security interests;

 

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

 

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

 

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

 

 

“Prime
Rate” means the variable rate of interest, per annum, most recently announced
by Bank, as its “prime rate,” whether or not such announced rate is the lowest
rate available from Bank.

 

“Quick
Assets” means, at any date as of which the amount thereof shall be determined,
the unrestricted cash and marketable securities of Borrower at Bank or Comerica
Securities, Inc. plus 80% of Eligible Accounts, determined in accordance
with GAAP, provided that, for seven (7) Business Days after the Closing Date,
all Borrower’s unrestricted cash and marketable securities shall be included in
the calculation of the Quick Assets.

 

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

 

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

 

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

 

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

 

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

 

2.             LOAN AND TERMS OF PAYMENT.

 

2.1           Credit Extensions.

 

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

 

(a)           Equipment Advance.

 

(i)            Subject to and upon the
terms and conditions of this Agreement, on or within ten (10) days after the
Closing Date, Bank agrees to make an advance (the “Equipment Advance”) to
Borrower in an amount not to exceed the Equipment Line.  The Equipment Advance shall be used only to
refinance Borrower’s existing capital lease obligations with respect to
equipment agreed upon by Bank and Borrower prior to the Closing Date, which
equipment will either be unencumbered on the Closing Date or will be
unencumbered within 30 days after the Closing Date (other than by Bank’s Lien).

 

(ii)           Interest shall accrue from
the date of the Equipment Advance at the rate specified in Section 2.2,
and shall be payable monthly on the first day of each month so long as any
portion of the Equipment Advance remains outstanding.  The Equipment Advance shall be payable in thirty six (36) equal
monthly installments of principal, plus all accrued interest, beginning on
October 31, 2003 and continuing on the last day of each month thereafter
through the Equipment Maturity Date, at which time any outstanding balance of
the Equipment Advance shall be immediately due and payable.  Once repaid, neither the Equipment Advance,
nor any portion thereof, may be reborrowed. 
Borrower may prepay the Equipment Advance in whole or in part from time
to time without penalty or premium.

 

 

(iii)          When Borrower desires to
obtain the Equipment Advance, Borrower shall notify Bank (which notice shall be
irrevocable) by facsimile transmission to be received no later than 3:30 p.m.
Eastern time three (3) Business Days before the day on which the Equipment
Advance is to be made.  Such notice
shall be substantially in the form of Exhibit B.  The notice shall be signed by a Responsible Officer or its
designee and include a detailed schedule of the capital equipment being
financed.

 

2.2           Interest Rates, Payments,
and Calculations.

 

(a)           Interest Rates.  Except as set forth in Section 2.2(b),
the Equipment Advance shall bear interest, on the outstanding Daily Balance
thereof, at a rate equal to two and one half percent (2.5%) above the Prime
Rate.

 

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

 

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

 

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

 

2.3           Crediting Payments.  Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies.  After the occurrence of an Event of Default,
the receipt by Bank of any wire transfer of funds, check, or other item of
payment shall be immediately applied to conditionally reduce Obligations, but
shall not be considered a payment on account unless such payment is of
immediately available federal funds or unless and until such check or other
item of payment is honored when presented for payment.  Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 3:30 p.m.
Eastern time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day.  Whenever any payment to Bank under the Loan Documents would otherwise
be due (except by reason of acceleration) on a date that is not a Business Day,
such payment shall instead be due on the next Business Day, and additional fees
or interest, as the case may be, shall accrue and be payable for the period of
such extension.

 

2.4           Fees.  Borrower shall pay to Bank the following:

 

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

 

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

 

2.5           Additional Costs.  In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):

 

(a)           subjects Bank to any tax
with respect to payments of principal or interest or any other amounts payable
hereunder by Borrower or otherwise with respect to the transactions
contemplated hereby (except for taxes on the overall net income of Bank imposed
by the United States of America or any political subdivision thereof);

 

(b)           imposes, modifies or deems
applicable any deposit insurance, reserve, special deposit or similar
requirement against assets held by, or deposits in or for the account of, or
loans by, Bank; or

 

 

(c)           imposes upon Bank any
other condition with respect to its performance under this Agreement,

 

and the result of any of the
foregoing is to increase the cost to Bank, reduce the income receivable by Bank
or impose any expense upon Bank with respect to the Obligations, Bank shall
notify Borrower thereof.  Borrower
agrees to pay to Bank the amount of such increase in cost, reduction in income
or additional expense as and when such cost, reduction or expense is incurred
or determined, upon presentation by Bank of a statement of the amount and
setting forth Bank’s calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.

 

2.6           Term.  This Agreement shall become effective on the
Closing Date and, subject to Section 0, shall continue in full force and
effect for so long as any Obligations remain outstanding or Bank has any
obligation to make Credit Extensions under this Agreement.  Notwithstanding the foregoing, Bank shall
have the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. 
Notwithstanding termination, Bank’s Lien on the Collateral shall remain
in effect for so long as any Obligations are outstanding.

 

3.           CONDITIONS OF LOANS.

 

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

 

(a)           this Agreement;

 

(b)           securities account control
agreements (Comerica Securities, Inc.);

 

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

 

(d)           UCC National Form
Financing Statement;

 

(e)           a warrant to purchase
stock;

 

(f)            agreement to provide
insurance;

 

(g)           evidence that Borrower has
moved at least Eight Million Dollars ($8,000,000) of its unrestricted cash to
Bank (including the proceeds of the initial Credit Extension);

 

(h)           payment of the fees and
Bank Expenses then due specified in Section 0 hereof;

 

(i)            current financial
statements of Borrower; and

 

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

 

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

 

(a)           timely receipt by Bank of
the Payment/Advance Form as provided in Section 0; and

 

(b)           the representations and
warranties contained in Section 0 shall be true and correct in all
material respects on and as of the date of such Payment/Advance Form and on the
effective date of each Credit Extension as though made at and as of each such
date, and no Event of Default shall have occurred and be continuing, or would
exist after giving effect to such Credit Extension (provided, however, that
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of such date).  The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrower on the date of such
Credit Extension as to the accuracy of the facts referred to in this
Section 0.

 

4.             CREATION OF SECURITY
INTEREST.

 

4.1           Grant of Security Interest.  Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in

 

 

order to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents.  Except as set forth
in the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof.  Borrower also hereby agrees not
to sell, transfer, assign, mortgage, pledge, lease, grant a security interest
in, or encumber any of its intellectual property, other than licenses granted
by Borrower in the ordinary course of its business or in connection with joint
ventures or other similar arrangements.

 

4.2           Delivery of Additional
Documentation Required.  Borrower shall from time to
time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue the
perfection of Bank’s security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.

 

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

 

4.4           Cash Collateral.

 

(a)           Effective only upon the
occurrence of an Event of Default, as set forth in Section 6.10, Borrower
grants and pledges to Bank a continuing security interest in all presently
existing or hereafter arising Cash Collateral (as defined in Section 6.10),
in order to secure prompt repayment of any and all Obligations.  Upon the occurrence of an Event of Default,
(i) Bank may retain control over the Cash Collateral to secure the Obligations
until the Obligations have been satisfied in full, (ii) Borrower hereby
authorizes Bank to place restrictions on Borrower’s ability to withdraw amounts
from accounts holding the Cash Collateral, and (iii)  Borrower authorizes Bank to execute and/or file such documents,
and take such actions, as Bank determines reasonable to perfect its security
interest in the Cash Collateral.  Such
security interest constitutes a valid, first priority security interest in the
Cash Collateral, and will constitute a valid, first priority security interest
in Cash Collateral acquired after the date hereof.  Notwithstanding termination of this Agreement, Bank’s Lien on the
Cash Collateral shall remain in effect for so long as any Obligations are
outstanding.

 

(b)           If the Cash Collateral is
held in a certificate of deposit, then, prior to the maturity of such Cash
Collateral, Borrower and Bank shall agree upon a security or instrument similar
in form, quality and substance to the original Cash Collateral in which the
proceeds of the Cash Collateral can be reinvested on maturity.  Upon maturity of such Cash Collateral in
accordance with its terms, or in the event such Cash Collateral otherwise
becomes payable during the term of this Agreement, such maturing Cash
Collateral may be presented for payment, exchange, or otherwise marketed by Bank
on behalf of Borrower and the proceeds therefrom used to purchase the security
or instrument agreed to by Borrower and Bank in accordance with the immediately
preceding sentence.  If no agreement has
been made, such proceeds shall be placed into an interest bearing account
offered by Bank in which Bank has a first priority security interest until such
time as an agreement as to the security replacing the original Cash Collateral
can be reached.  Bank may retain any
such successor collateral and the proceeds therefrom as Cash Collateral in
accordance with the terms of this Agreement.

 

5.             REPRESENTATIONS AND
WARRANTIES.

 

Borrower represents and warrants as follows:

 

5.1           Due Organization and
Qualification.  Borrower and each Subsidiary is
a corporation duly existing under the laws of its state of incorporation and
qualified and licensed to do business in any state in which the failure to do
so could reasonably be expected to have a Material Adverse Effect.

 

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

 

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

 

 

5.4           Bona Fide Eligible
Accounts.  The Eligible Accounts are bona fide existing
obligations.  The property and services
giving rise to such Eligible Accounts has been delivered or rendered to the
account debtor or to the account debtor’s agent for immediate and unconditional
acceptance by the account debtor.

 

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

 

5.6           Intellectual Property.  Borrower is the licensee or sole owner of
its patents, trademarks, copyrights, and other intellectual property, except for
licenses granted by Borrower to its customers in the ordinary course of
business.  To the knowledge of Borrower,
each of Borrower’s patents is valid and enforceable, and no part of its
intellectual property has been judged invalid or unenforceable, in whole or in
part, and no claim has been made that any part of its intellectual property
violates the rights of any third party.

 

5.7           Name; Location of Chief
Executive Office.  Except as disclosed in the
Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. 
The chief executive office of Borrower is located at the address
indicated in Section 0 hereof. 
Except as disclosed in the Schedule, all Borrower’s Inventory and
Equipment is located only at the location set forth in Section 10 hereof
and Borrower has paid for and owns all Equipment financed by Bank hereunder.

 

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

 

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

 

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

 

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

 

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

 

5.13         Taxes.  Borrower and each Subsidiary have filed or
caused to be filed all tax returns required to be filed, and have paid, or have
made adequate provision for the payment of, all taxes reflected therein.

 

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

 

5.15         Government Consents.  Borrower and each Subsidiary have obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower’s business as currently conducted, the
failure to obtain which could have a Material Adverse Effect.

 

 

5.16         Accounts.  None of Borrower’s nor any Subsidiary’s
property is maintained or invested with a Person other than Bank.

 

5.17         Full Disclosure.  No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.

 

6.             AFFIRMATIVE COVENANTS.

 

Borrower covenants and agrees that, until payment in
full of all outstanding Obligations, and for so long as Bank may have any
commitment to make a Credit Extension hereunder, Borrower shall do all of the
following:

 

6.1           Good Standing.  Borrower shall maintain its and each of its
Subsidiaries’ corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which it is
required under applicable law and the failure to do so could cause a Material
Adverse Effect.  Borrower shall maintain,
and shall cause each of its Subsidiaries to maintain, in force all governmental
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.

 

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

 

6.3           Financial Statements,
Reports, Certificates. Borrower shall deliver the following to Bank in each case at both the
Inglewood and the Boston addresses referenced in Section 10:  (a) as soon as available, but in any event
within forty five (45) days after the end of each quarter, a company prepared
consolidated balance sheet, income, and cash flow statement, together with aged
listings of accounts receivable and accounts payable, covering Borrower’s
consolidated operations during such period, prepared in accordance with GAAP,
consistently applied in a form acceptable to Bank and certified by a
Responsible Officer; (b) as soon as available, but in any event within ninety (90)
days after the end of Borrower’s fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
copies of all material statements, reports and notices sent or made available
generally by Borrower to its security holders or to any holders of Subordinated
Debt and all reports on Forms 10-K and 10-Q filed with the Securities and
Exchange Commission; (d) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of Two Hundred
Fifty Thousand Dollars ($250,000) or more; (e) no more than thirty (30) days
after each fiscal year end, Borrower’s annual financial forecast for the
subsequent year, broken down by quarter, as approved by Borrower’s Board of
Directors; and (f) such other financial information as Bank may reasonably
request from time to time.

 

Borrower shall deliver to Bank, with the quarterly
financial statements, a Compliance Certificate signed by a Responsible Officer
in substantially the form of Exhibit C hereto.

 

 

6.4           Inventory; Returns.  Borrower shall keep all Inventory in good
and marketable condition, free from all material defects except for Inventory
for which adequate reserves have been made. 
Returns and allowances, if any, as between Borrower and its account
debtors shall be on the same basis and in accordance with the usual customary
practices of Borrower, as they exist at the time of the execution and delivery
of this Agreement.  Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Two
Hundred Fifty Thousand Dollars ($250,000).

 

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

 

6.6           Insurance.

 

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

 

(b)           All such policies of
insurance shall be in such form, with such companies, and in such amounts as
reasonably satisfactory to Bank.  All
such policies of property insurance shall contain a lender’s loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof, and all liability insurance policies shall show the Bank as an
additional insured and shall specify that the insurer shall endeavor to give at
least thirty (30) days notice (or ten (10) days notice for nonpayment) to Bank
before canceling its policy for any reason. 
Upon Bank’s request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor.  All proceeds payable under
any such policy shall, at the option of Bank, be payable to Bank to be applied
on account of the Obligations. 
Notwithstanding the foregoing, so long as no Event of Default has
occurred and is continuing, Borrower shall have the option of applying the
proceeds of any casualty policy up to $500,000 toward the replacement or repair
of damaged or destroyed property.

 

6.7           Accounts.  As of the date which is 60 days after the
Closing Date and at all times thereafter, Borrower shall maintain and shall
cause each of its Subsidiaries to maintain its depository, operating, and
investment accounts with Bank and/or, if securities account control agreements
acceptable to Bank have been entered into, Comerica Securities, Inc.

 

6.8           Quick Ratio.  Borrower shall maintain at all times a ratio
of Quick Assets to Current Liabilities plus, to the extent not already included
therein, all Indebtedness (including without limitation any Contingent
Obligations) owing from Borrower to Bank (excluding the Cash Secured Letter of
Credit), less the current portion of any deferred revenue, of at least 1.25 to
1.00.  Bank may decline to honor any
checks, drafts or other items of payment if, after giving effect to the payment
of any such item, Borrower will not be in compliance with this Section.

 

6.9           Minimum Cash.  At all times until seven (7) Business Days
after the Closing Date, Borrower shall maintain a balance of unrestricted cash
at Bank of at least Eight Million Dollars ($8,000,000).  Thereafter, Borrower shall maintain at all
times unrestricted cash and marketable securities at Bank and/or Comerica
Securities, Inc. of at least the greater of (i) two (2) times the aggregate
amount of all Indebtedness (including without limitation any Contingent
Obligations but excluding the Cash Secured Letter of Credit) owing from
Borrower to Bank (the “Comerica Indebtedness Amount”) or (ii) Three Million
Dollars ($3,000,000) plus the Comerica Indebtedness Amount.  Bank may decline to honor any checks, drafts
or other items of payment if, after giving effect to the payment of any such
item, Borrower will not be in compliance with this Section.

 

6.10         Cash Collateral.  Upon the occurrence of an Event of Default,
Borrower shall immediately pledge to Bank and shall thereafter maintain at all
times unencumbered cash (together with all proceeds thereof, interest paid
thereon, and substitutions therefor, and with all accounts, securities,
instruments, securities entitlements and financial assets arising out of any of
the foregoing, the “Cash Collateral”) in an amount equal to at least 105% of
the outstanding balance of all Indebtedness (including without limitation any
Contingent Obligations) owing from Borrower to Bank.  Unrestricted cash pledged pursuant to this Section 6.10
shall count toward the cash balance required under Section 6.9 (and the
cash required under Section 6.9 is not in addition to cash pledged hereunder).

 

 

6.11         Intellectual Property.  Borrower shall use commercially reasonable
efforts to (i) protect, defend and maintain the validity and
enforceability of its trademarks, patents and copyrights, (ii) detect
infringements of its trademarks, patents and copyrights and promptly advise
Bank in writing of material infringements detected and (iii) not allow any
material trademarks, patents or copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld.

 

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

 

7.             NEGATIVE COVENANTS.

 

Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Credit Extensions, Borrower will not do any of the following without the
prior written consent of Bank which shall not be unreasonably withheld:

 

7.1           Dispositions.  Convey, sell, lease, transfer or otherwise
dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, including without
limitation its intellectual property, other than:  (i) Transfers of Inventory in the ordinary course of
business; (ii) Transfers of licenses and similar arrangements for the use
of the property of Borrower or its Subsidiaries in the ordinary course of
business or in connection with joint ventures or other similar arrangements;
(iii) Transfers of worn-out or obsolete Equipment which was not financed
by Bank; or (iv) a Transfer of the DNA.com domain name.

 

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

 

7.3           Mergers or Acquisitions.  Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.  Notwithstanding the foregoing, this
Section 7.3 shall not apply to transactions in which (i) the sole
consideration is (A) Borrower’s stock and/or (B) cash which does not exceed
$100,000 (the “Cash Cap”) in the aggregate during the term of this Agreement
(provided that Investments in Sciona, Ltd. shall not be subject to this cap,
but shall instead be subject to the cap set forth in subsection (d) of the
defined term “Permitted Investments”), (ii) Borrower is the surviving entity,
and (iii) after giving effect to such transaction, there is no Change in
Control, provided that at the time of any such transaction an Event of Default
has not occurred which is continuing and no Event of Default would exist after
giving effect to any such transaction. 
For purposes of clarity, Bank hereby acknowledges that the Cash Cap
applies only to Borrower’s Investment itself; it is not a limitation on
Borrower’s out of pocket fees and expenses incurred in connection with the
Investment.

 

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

 

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

 

7.6           Distributions.  Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock, or permit any of its Subsidiaries to do so, except that
(i) Borrower may repurchase the stock of former employees pursuant to stock
repurchase agreements, (ii) Borrower may pay dividends in an aggregate amount
not to exceed $1,160,000 during the term of this Agreement, and (iii) Borrower
may repurchase stock in an aggregate amount not to exceed $250,000 during the
term of this Agreement pursuant to stock repurchase plans approved by
Borrower’s Board of Directors, in each case as long as an Event of Default does
not exist prior to such repurchase or dividend and would not exist after giving
effect to such repurchase or dividend.

 

7.7           Investments.  Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments; or maintain or invest any of its
property with a Person other than Bank or permit any of its Subsidiaries to do
so unless such Person has entered into an account control agreement with Bank
in form

 

 

and
substance satisfactory to Bank; or suffer or permit any Subsidiary to be a
party to, or be bound by, an agreement that restricts such Subsidiary from
paying dividends or otherwise distributing property to Borrower.

 

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

 

7.9           Subordinated Debt.  Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except to the extent such payments are permitted under a subordination
agreement between Bank and the applicable subordinated creditor, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank’s prior written consent.

 

7.10         Inventory and Equipment. Store the Inventory or
the Equipment with a bailee, warehouseman, or other third party unless the
third party has been notified of Bank’s security interest and Bank (a) has
received an acknowledgment from the third party that it is holding or will hold
the Inventory or Equipment for Bank’s benefit or (b) is in pledge possession of
the warehouse receipt, where negotiable, covering such Inventory or Equipment.
Store or maintain any Equipment or Inventory at a location other than the
location set forth in Section 10 of this Agreement.

 

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

 

7.12         Negative Pledge Agreements.  Permit the inclusion in any contract to
which it or a Subsidiary becomes a party of any provisions that could restrict
or invalidate the creation of a security interest in any of Borrower’s or such
Subsidiary’s property.

 

8.             EVENTS OF DEFAULT.

 

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

 

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

 

8.2           Covenant Default.

 

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

 

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

 

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

 

8.4           Attachment.  If any portion of Borrower’s assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10) days after
Borrower receives notice thereof, or if Borrower is enjoined, restrained, or in
any way prevented by court order from continuing to conduct all or any material
part of its business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower’s assets, or if a notice of
lien, levy, or assessment is filed of record with respect to any of Borrower’s
assets by the United

 

 

States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within ten (10) days after Borrower receives notice thereof, provided that none
of the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good faith
contest by Borrower (provided that no Credit Extensions will be required to be
made during such cure period);

 

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

 

8.6           Other Agreements.  If there is a default or other failure to
perform (i) in any agreement to which Borrower is a party or by which it is
bound resulting in a right by a third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount in
excess of Two Hundred Fifty Thousand Dollars ($250,000) or which could have a
Material Adverse Effect or (ii) under the CII Notes (as defined in
Section 8.7);

 

8.7           Subordinated Debt.  If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank, or if Borrower makes any
payment to CII (as defined in Section 8.10) on account of the Indebtedness
owing by Borrower to CII other than regularly scheduled payments of interest
and principal pursuant to that certain Promissory Note made by Borrower in
favor of CII dated December 1, 1999 in the amount of $2,720,000, that
certain Promissory Note made by Borrower in favor of CII dated July 26,
2000 in the amount of $1,500,000, and that certain Promissory Note made by
Borrower in favor of CII dated September 15, 1998 in the amount of
$950,000, each in the form delivered to Bank prior to the Closing Date
(collectively, the “CII Notes”).

 

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

 

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

 

8.10         Subordination Agreement.  If, within thirty (30) days after the
Closing Date, Connecticut Innovations, Inc. (“CII”) has not entered into an
agreement with Bank, in form and substance reasonably satisfactory to Bank
providing that CII (i) will not interfere with the exercise by Bank of its
remedies hereunder, (ii) has no claim to the Collateral, (iii) will not accept
any prepayment of any amounts owing from Borrower to CII, and (iv) will notify
Bank of any default under the CII Notes (as defined in Section 8.7).

 

9.0           BANK’S RIGHTS AND REMEDIES.

 

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

 

(a)           Declare all Obligations,
whether evidenced by this Agreement, by any of the other Loan Documents, or
otherwise, immediately due and payable (provided that upon the occurrence of an
Event of Default described in Section 0, all Obligations shall become immediately
due and payable without any action by Bank);

 

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

 

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

 

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

 

 

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

 

(f)            Ship, reclaim, recover,
store, finish, maintain, repair, prepare for sale, advertise for sale, and sell
(in the manner provided for herein) the Collateral.  Bank is hereby granted subject to the rights of third parties a
license or other right, solely pursuant to the provisions of this Section 0,
to use, without charge, Borrower’s labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank’s exercise of its rights under this
Section 0, Borrower’s rights under all licenses and all franchise
agreements shall inure to Bank’s benefit;

 

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

 

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

 

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

 

9.2           Power of Attorney. Effective only upon the
occurrence and during the continuance of an Event of Default, Borrower hereby
irrevocably appoints Bank (and any of Bank’s designated officers, or employees)
as Borrower’s true and lawful attorney to: 
(a) send requests for verification of Accounts or notify account debtors
of Bank’s security interest in the Accounts; (b) endorse Borrower’s name on any
checks or other forms of payment or security that may come into Bank’s
possession; (c) sign Borrower’s name on any invoice or bill of lading relating
to any Account, drafts against account debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to account debtors; (d)
dispose of any Collateral; (e) make, settle, and adjust all claims under and
decisions with respect to Borrower’s policies of insurance with respect to the
Collateral; (f) settle and adjust disputes and claims respecting the accounts
directly with account debtors, for amounts and upon terms which Bank determines
to be reasonable; and (g) to file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral; provided Bank may exercise such power of attorney to sign the
name of Borrower on any of the documents described in Section 4.2 regardless
of whether an Event of Default has occurred. 
The appointment of Bank as Borrower’s attorney in fact, and each and
every one of Bank’s rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank’s obligation to provide Credit Extensions hereunder is terminated.

 

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

 

9.4           Bank Expenses.  If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following after reasonable notice to Borrower: 
(a) make payment of the same or any part thereof; (b) set up
such reserves under a facility in Section 2.1 as Bank deems necessary to
protect Bank from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type discussed in Section 0 of this
Agreement, and take any action with respect to such policies as Bank deems
prudent.  Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral.  Any payments made by Bank shall not constitute an agreement by
Bank to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.

 

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

 

9.5           Remedies Cumulative.  Bank’s rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be
cumulative.  Bank shall have all other
rights and remedies not inconsistent herewith as provided under the Code, by
law, or in equity.  No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of
any Event of Default on Borrower’s part shall be deemed a continuing
waiver.  No delay by Bank shall
constitute a waiver, election, or

 

 

acquiescence
by it.  No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.

 

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

 

10.           NOTICES.

 

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

 

	
  If to Borrower:

  	
   

  	
  GENAISSANCE PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
  5 Science Park

  
	
   

  	
   

  	
  New Haven, CT 06511

  
	
   

  	
   

  	
  Attn:  Chief Financial Officer

  
	
   

  	
   

  	
  FAX:  (203) 562-9377

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Hale & Dorr LLP

  
	
   

  	
   

  	
  60 State Street

  
	
   

  	
   

  	
  Boston, MA 02109

  
	
   

  	
   

  	
  Attn:  Steven Singer, Esq.

  
	
   

  	
   

  	
  FAX:  (617) 526-5000

  
	
   

  	
   

  	
   

  
	
  If to Bank:

  	
   

  	
  Comerica Bank

  
	
   

  	
   

  	
  9920 S. La Cienega Blvd., Suite 1401

  
	
   

  	
   

  	
  Inglewood, CA 90301

  
	
   

  	
   

  	
  Attn:  Manager

  
	
   

  	
   

  	
  FAX:  (310) 338-6110

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  COMERICA BANK

  
	
   

  	
   

  	
  100 Federal Street, 28th Floor

  
	
   

  	
   

  	
  Boston, MA 02110

  
	
   

  	
   

  	
  Attn:  Kristen Kosofsky &
  Gauri Ponappa

  
	
   

  	
   

  	
  FAX:  (617) 757-6310

  

 

Notwithstanding
the foregoing, notice sent to Borrower in accordance with this Section 10
shall be effective despite any failure to provide a copy of such notice to
Borrower’s counsel.  The parties hereto
may change the address at which they are to receive notices hereunder, by
notice in writing in the foregoing manner given to the other.

 

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

 

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

 

 

12.           GENERAL
PROVISIONS.

 

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

 

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

 

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

 

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

 

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

 

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

 

12.7         Survival.  All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding or Bank has any obligation to make
Credit Extensions to Borrower.  The
obligations of Borrower to indemnify Bank with respect to the expenses, damages,
losses, costs and liabilities described in Section 0 shall survive until
all applicable statute of limitations periods with respect to actions that may
be brought against Bank have run.

 

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

 

 

	
   

  	
  GENAISSANCE PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /s/ Ben Kaplan

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President & CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COMERICA BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /s/ Kristen Kosofsky

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

 

	
  DEBTOR:

  	
   

  	
  GENAISSANCE PHARMACEUTICALS, INC.

  
	
  SECURED PARTY:

  	
   

  	
  COMERICA BANK

  

 

EXHIBIT
A

 

COLLATERAL DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT

 

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

 

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

 

(e)           any and all cash proceeds and/or noncash proceeds of any of the
foregoing, including, without limitation, insurance proceeds, and all
supporting obligations and the security therefor or for any right to
payment.  All terms above have the
meanings given to them in the California Uniform Commercial Code, as amended or
supplemented from time to time, including revised Division 9 of the Uniform
Commercial Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45),
Section 35, operative July 1, 2001.

 

 

EXHIBIT
B

 

TECHNOLOGY & LIFE SCIENCES DIVISION

LOAN ANALYSIS

LOAN ADVANCE/PAYDOWN REQUEST FORM
DEADLINE FOR EQUIPMENT ADVANCE IS 3:30 P.M. E.S.T.** 

DEADLINE FOR WIRE TRANSFERS IS 3:30 P.M. E.S.T.

**Subject to 3 day advance notice.

 

	
  TO:  Loan Analysis

  	
  DATE:

  	
   

  	
   

  	
  TIME:

  	
   

  	
   

  
	
  FAX #:  (650) 846-6840

  	
   

  	
   

  

 

	
  FROM:

  	
  GENAISSANCE PHARMACEUTICALS, INC.

  	
  TELEPHONE REQUEST (For Bank Use Only):

  
	
   

  	
  Borrower’s Name

  	
   

  
	
   

  	
   

  	
  The following person is authorized to request the loan payment
  transfer/loan advance on the designated account and is known to me.

  
	
  FROM:

  	
   

  	
   

  	
   

  
	
   

  	
  Authorized Signer’s Name

  	
   

  
	
  FROM:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Authorized Signature (Borrower)

  	
   

  	
  Authorized Request & Phone #

  	
   

  
	
  PHONE #:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Received by (Bank) & Phone #

  	
   

  
	
  FROM ACCOUNT#:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (please include Note number, if applicable)

  	
   

  	
   

  	
   

  
	
  TO ACCOUNT #:

  	
   

  	
   

  	
   

  	
  Authorized Signature (Bank)

  	
   

  
	
  (please include Note number, if applicable)

  	
   

  

 

	
   

  	
   

  	
   

  
	
  REQUESTED TRANSACTION TYPE

  	
  REQUESTED DOLLAR AMOUNT

  	
  For Bank Use Only

  
	
   

  	
   

  	
   

  
	
  PRINCIPAL INCREASE* (ADVANCE)

  	
  $

  	
  Date Rec’d:

  
	
  PRINCIPAL PAYMENT (ONLY)

  	
  $

  	
  Time:

  
	
   

  	
   

  	
  Comp. Status:

  	
  YES

  	
  NO

  
	
  OTHER INSTRUCTIONS:

  	
   

  	
  Status Date:

  
	
   

  	
   

  	
  Time:

  
	
   

  	
   

  	
  Approval:

  

 

All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of the
date of the telephone request for and advance confirmed by this Borrowing
Certificate, including without limitation the representation that Borrower has
paid for and owns the equipment financed by the Bank; provided, however, that those
representations and warranties the date expressly referring to another date
shall be true, correct and complete in all material respects as of such date. 

 

*IS THERE A WIRE REQUEST TIED TO THIS LOAN
ADVANCE?  (PLEASE CIRCLE
ONE)      YES      NO

If YES, the Outgoing Wire Transfer Instructions must be completed
below.

 

	
  OUTGOING WIRE TRANSFER INSTRUCTIONS

  	
  Fed Reference Number

  	
  Bank Transfer Number

  
	
   

  	
   

  	
   

  
	
  The items marked with an asterisk (*) are
  required to be completed.

  
	
   

  	
   

  
	
  *Beneficiary Name

  	
   

  
	
  *Beneficiary Account Number

  	
   

  
	
  *Beneficiary Address

  	
   

  
	
  Currency Type

  	
  US DOLLARS ONLY

  
	
  *ABA Routing Number (9 Digits)

  	
   

  
	
  *Receiving Institution Name

  	
   

  
	
  *Receiving Institution Address

  	
   

  
	
  *Wire Account

  	
  $

  
				

 

 

EXHIBIT C

 

COMPLIANCE CERTIFICATE

 

	
  TO:

  	
   

  	
  COMERICA BANK

  
	
   

  	
   

  	
   

  
	
  FROM:

  	
   

  	
  GENAISSANCE PHARMACEUTICALS, INC.

  

 

The undersigned
authorized officer of GENAISSANCE PHARMACEUTICALS, INC. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending
                      
with all required covenants except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are true and
correct as of the date hereof.  Attached
herewith are the required documents supporting the above certification.  The Officer further certifies that these are
prepared in accordance with Generally Accepted Accounting Principles (GAAP) and
are consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.

 

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

 

	
  Reporting Covenant

  	
   

  	
  Required

  	
   

  	
   

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Quarterly financial statements

  	
   

  	
  Quarterly within 45 days

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Annual (CPA Audited)

  	
   

  	
  FYE within 90 days

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  10K and 10Q

  	
   

  	
  When filed with SEC

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  A/R & A/P Agings

  	
   

  	
  Quarterly within 45 days

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Annual Budget

  	
   

  	
  FYE within 30 days

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Total amount of Borrower’s cash and investments

  	
   

  	
  Amount:  $

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Total amount of Borrower’s cash and investments maintained with Bank

  	
   

  	
  Amount:  $

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  

 

	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum Quick Ratio

  	
   

  	
  1.25:1.00

  	
   

  	
  :1.00

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Minimum Unrestricted Cash Balance

  	
   

  	
  *

  	
   

  	
  $

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
										

 

* Borrower shall maintain at all times unrestricted cash at Bank and/or
Comerica Securities, Inc. of at least the greater of (i) two (2) times the
aggregate amount of all Indebtedness (including without limitation any
Contingent Obligations but excluding the Cash Secured Letter of Credit) owing
from Borrower to Bank (the “Comerica Indebtedness Amount”) or (ii) Three
Million Dollars ($3,000,000) plus the Comerica Indebtedness Amount.

 

	
  Comments Regarding
  Exceptions: 
  See Attached.

  	
   

  	
   

  
	
   

  	
   

  	
  No

  
	
   

  	
   

  	
  Received by:

  	
   

  	
   

  
	
  Sincerely,

  	
   

  	
  AUTHORIZED SIGNER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  	
   

  
	
  SIGNATURE

  	
   

  	
  AUTHORIZED SIGNER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
  TITLE

  	
   

  	
   

  
	
   

  	
   

  	
  Compliance Status

  	
  Yes

  
	
   

  	
   

  	
   

  
	
  DATE

  	
   

  	
   

  
										

 

 

SCHEDULE OF EXCEPTIONS

 

Permitted Indebtedness  (Section 1.1)

 

Connecticut Innovations, Incorporated in the amount of $4,650,000.

 

General Electric Capital Corporation (aka Oxford Venture Capital) in
the amount of $1,861,000.

 

Permitted Investments  (Section 1.1)

 

Investments in Epigenix, Inc. (aka Asilas Genomic Systems, Inc.) consisting
solely of equity securities.

 

Investments in Sciona Limited (provided that investments made after the
Closing Date will be subject to the limitations set forth in
subsection (d) of the defined term “Permitted Investments”).

 

Permitted Liens  (Section 1.1)

 

Connecticut Innovations, Incorporated covering leasehold improvements
and related rights.

 

Prior Names  (Section 5.7)

 

BIOS Laboratories, Inc.

 

Additional Locations
(Section 5.7)

 

3500 Paramount Parkway

 

Morrisville, NC

 

Litigation  (Section 5.8)

 

None

 

Environmental  (Section 5.12)

 

Genaissance leases space in New Haven, CT that previously housed a gun
and ammunition manufacturing company. 
To the best of our knowledge, any potential environmental issues were
addressed in the renovation of the building and surrounding grounds.  To the best of our knowledge, the lease
space is not currently and has not in the past been designated or identified in
any manner pursuant to any environmental protection statute.

 

 

COMERICA
BANK

Member FDIC

 

ITEMIZATION
OF AMOUNT FINANCED

DISBURSEMENT INSTRUCTIONS

 

	
  Name(s):  GENAISSANCE
  PHARMACEUTICALS, INC.

  	
  Date:  September 30, 2003

  
	
   

  
	
  $

  	
  credited to deposit account No.
                       
  when Credit Extensions are requested by Borrower

  
	
   

  
	
  Amounts paid to others on your behalf:

  
	
  $

  	
  to COMERICA BANK for Loan Fee

  
	
  $

  	
  to Bank counsel fees and expenses

  
	
  $

  	
  to

  
	
  $

  	
  to

  
	
  $5,000,000

  	
  TOTAL (AMOUNT FINANCED)

  
				

 

Upon consummation of this transaction, this document
will also serve as the authorization for COMERICA BANK to disburse the loan
proceeds as stated above.

 

	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
  Signature

  

 

 

AGREEMENT TO PROVIDE INSURANCE

 

	
  TO:

  	
   

  	
  COMERICA BANK

  	
   

  	
  Date:  September 30, 2003

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  attn:  Collateral Operations,
  M/C 4604

  	
   

  	
   

  
	
   

  	
   

  	
  9920 South La Cienega Blvd, 14th Floor

  	
   

  	
   

  
	
   

  	
   

  	
  Inglewood, CA  90301

  	
   

  	
  Borrower:  GENAISSANCE
  PHARMACEUTICALS, INC.

  

 

In
consideration of a loan in the amount of $5,000,000, secured by all tangible
personal property including inventory and equipment.

 

I/We
agree to obtain adequate insurance coverage to remain in force during the term
of the loan.

 

I/We
also agree to advise the below named agent to add COMERICA BANK as lender’s
loss payable on the new or existing insurance policy, and to furnish Bank at
above address with a copy of said policy/endorsements and any subsequent
renewal policies.

 

I/We
understand that the policy must contain:

 

1.             Fire and extended
coverage in an amount sufficient to cover:

 

(a)           The amount of the loan,
OR

 

(b)           All existing
encumbrances, whichever is greater,

 

But
not in excess of the replacement value of the improvements on the real
property.

 

2.             Lender’s “Loss
Payable” Endorsement Form 438 BFU in favor of COMERICA BANK, or any other
form acceptable to Bank.

 

INSURANCE
INFORMATION

 

	
  Insurance Co./Agent

  	
  Telephone No.:

  
	
   

  	
   

  
	
  Agent’s Address:

  	
   

  
	
   

  
	
   

  	
  Signature of Obligor:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Signature of Obligor:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
					

 

	
  FOR BANK USE ONLY

  
	
   

  
	
  INSURANCE VERIFICATION: Date:

  
	
   

  
	
  Person Spoken to:

  
	
   

  
	
  Policy Number:

  
	
   

  
	
  Effective From:

  	
   

  	
  To:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Verified by:

  	
   

  	
   

  
						

 

 

	
  COMERICA BANK

  	
   

  	
   

  
	
  California’s Business Banks

  	
   

  	
  AUTOMATIC DEBIT AUTHORIZATION

  
	
  Member FDIC

  	
   

  	
   

  

 

	
  To:  COMERICA BANK

  
	
   

  
	
  Re:  Loan #

  
	
   

  
	
  You are hereby authorized and instructed to charge account No.
                                          
  in the name of GENAISSANCE PHARMACEUTICALS, INC.

  
	
  for principal and interest payments due on above referenced loan as
  set forth below and credit the loan referenced above.

  
	
   

  
	
   

  	
  ý               Debit
  each interest payment as it becomes due according to the terms of the note
  and any renewals or amendments thereof. 

  
	
   

  	
   

  	
   

  
	
   

  	
  ý               Debit
  each principal payment as it becomes due according to the terms of the note
  and any renewals or amendments thereof.

  
	
   

  
	
  This Authorization is to remain in full force and effect until
  revoked in writing.

  

 

	
  Borrower Signature

  	
   

  	
   

  	
  Date

  	
   

  	
   

  
	
   

  	
  September 30, 2003

  

 

 

	
   

  	
   

  	
  COMERICA
  BANK/BOSTON OFFICE

  
	
  Phone:

  	
  (800) 413-4624

  	
   

  	
  CLIENT
  AUTHORIZATION

  
	
  Fax

  	
  (617) 956-0557

  	
   

  	
   

  

 

General Authorization

I hereby authorize COMERICA BANK to use my company
name, logo, and information relating to our banking relationship in its marketing
and advertising campaigns which is intended for COMERICA BANK’s customers,
prospects and shareholders.

 

COMERICA BANK will forward any advertising or
article including client for prior review and approval.

 

	
   

  
	
  Signature

  
	
   

  
	
   

  
	
   

  
	
  Printed Name

  	
  Title

  
	
   

  
	
   

  
	
   

  
	
  Company

  
	
   

  
	
   

  
	
   

  
	
  Mailing Address

  
	
   

  
	
   

  
	
   

  
	
  City, State, Zip Code

  
	
   

  
	
   

  
	
   

  
	
  Phone Number

  
	
   

  
	
   

  
	
   

  
	
  Fax Number

  
	
   

  
	
   

  
	
   

  
	
  E-Mail

  
	
   

  
	
   

  
	
   

  
	
  Date

  

 

 

	
  DEBTOR:

  	
   

  	
  GENAISSANCE PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
   

  
	
  SECURED
  PARTY:

  	
   

  	
  COMERICA
  BANK

  

 

EXHIBIT A

 

COLLATERAL DESCRIPTION ATTACHMENT

TO UCC-1 FINANCING STATEMENT

 

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

 

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

 

(b)           any and all cash
proceeds and/or noncash proceeds of any of the foregoing, including, without
limitation, insurance proceeds, and all supporting obligations and the security
therefor or for any right to payment. 
All terms above have the meanings given to them in the California
Uniform Commercial Code, as amended or supplemented from time to time,
including revised Division 9 of the Uniform Commercial Code-Secured
Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative
July 1, 2001.Exhibit
10.28

 

 

ASSET PURCHASE
AGREEMENT

 

By and Between

 

MDC SYSTEMS &
SERVICES, INC.

 

AND

 

VANTAGEMED
CORPORATION

 

 

Dated as of
September 19, 2003

 

 

ASSET PURCHASE
AGREEMENT

 

This ASSET PURCHASE AGREEMENT (together with the
recital, the Schedules and Exhibits attached hereto, this “Agreement”)
is entered into as of the 19th day of September, 2003 by and between MDC
Systems & Services, Inc., a/k/a MDC Services, Inc., a North Carolina
corporation (“Purchaser”), and VANTAGEMED Corporation, a Delaware corporation
and Trend Sierra Corporation, a Delaware corporation, a wholly-owned subsidiary
of VantageMed Corporation (“Seller”).

 

WHEREAS,
the Seller desires to sell to the Purchaser, and the Purchaser wishes to
acquire from the Seller, certain assets and property of the Seller being
certain software, equipment, hardware, contracts and certain intangibles and
contracts used or useful in connection with the Seller’s business currently
operated under the trade names of “DentalMate” and “VantageMed” and located in,
among others, Rancho Cordova, California (the “Business”); and

 

NOW,
THEREFORE, in reliance upon the respective representations
and warranties made herein and in consideration of the mutual promises,
agreements and covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:

 

ARTICLE 1

DEFINITIONS AND INTERPRETATION

 

1.1                                 Definitions.  As used in this Agreement, the following
terms have the meaning specified or referred to in this Article 1:

 

“Actions” is defined in Section 5.6.

 

“Affiliate” of a specified Person is a Person
that (i) directly or indirectly, through one or more intermediaries, Controls,
is Controlled by or is under common Control with the Person specified, or (ii)
in the case of a natural person, is a spouse, linear ancestor, linear
descendant or legal representative or trustee of any such specified natural
person, or (iii) is an officer, director, trustee, employee, stockholder,
member, partner, principal or trust for the benefit of any Person referred to
in the preceding clause (i) or (ii).

 

“Agreement” is defined in the preamble to this
Agreement.

 

“Allocation Schedule” is defined in Section
3.2.

 

“Assumed Contracts” is defined in Section
5.7.

 

“Assumed Liabilities” means those Liabilities
of Seller which are: (i) attributable to periods after the Closing under any or
all the Assumed Contracts; or (ii) listed on Schedule 2.3 hereto.

 

2

 

“Bill of Sale” is defined in Section 4.2(a).

 

“Administrative Services Arrangement”
is defined in Section 7.6.

 

“Claims” means, with respect to Seller, all
claims, damages, losses, liabilities, costs, causes of action, choses in
action, rights of recovery and rights of set-off of whatever kind or
description against any Person or arising out of or relating to the VantageMed
Corporation.

 

“Closing” is defined in Section 4.1.

 

“Closing Date” is defined in Section 4.1.

 

“Code” means the Internal Revenue Code of 1986,
as amended from time to time.

 

“Competitive Activity” is defined in Section
7.11.

 

“Contract” means any of the agreements,
arrangements, contracts, leases, notes, loans, evidences of indebtedness,
purchase orders, letters of credit, joint venture agreements, co-branding
agreements, intellectual property agreements, distributor agreements, franchise
agreements, undertakings, confidentiality agreements, covenants not to compete,
employment agreements, licenses, instruments, obligations, commitments,
policies, purchase and sales orders, quotations and other executory
commitments, in each case, related to, used or useful in the DentalMate
Business, to which Seller is a party or to which any of its assets are subject,
whether oral or written, express or implied.

 

“Control” means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through (i) the ownership of voting shares, (ii)
general partnership or limited liability company or membership interests, (iii)
common directors or trustees or (iv) by contract or otherwise.

 

“Damages” is defined in Section 9.1.

 

“Diligence Documents” means all information,
representations, reports, agreements, certificates, instruments and other
documents delivered, or required to be delivered, to Purchaser, MDC Services,
Inc. or their Affiliates or their advisors or legal counsel pursuant to
Purchaser’s due diligence investigation of Seller in connection with the
transactions contemplated hereby.

 

“DentalMate Business” means Seller’s business
of developing, creating, producing, 
distributing and selling products and services relating to the
DentalMate product.

 

“Encumbrances” means any claim, lien, pledge,
option, charge, easement, security interest, encumbrance or other right of
third parties.

 

 “MDC”
means MDC Systems & Services, Inc., a/k/a MDC Services, Inc., a North
Carolina corporation.

 

“Excluded Assets” is defined in Section 2.2.

 

3

 

“Financial Statements” means, collectively, the
Unaudited Financial Statements previously furnished to MDC.

 

“Governmental Authority” means the federal
government, or any state or other political subdivision thereof, or any agency,
court or body of the federal government, any state or political subdivision
thereof, exercising executive, legislative, judicial, regulatory or
administrative functions.

 

“Governmental Permits” is defined in Section
5.13.

 

“Law” means any law, statute, rule, regulation,
ordinance, standard, code, order, judgment, decision, writ, injunction, decree,
award or other governmental restriction including, without limitation, any
policy or procedure issued or enforced by any Governmental Authority.

 

“Liability” of a Person means any direct or
indirect liability, indebtedness, obligation, expense, claim, loss, damage,
deficiency, guaranty or endorsement of or by such Person, absolute or
contingent, accrued or unaccrued, due or to become due, liquidated or
unliquidated.

 

“Material Adverse Effect” means a material
adverse effect on the business, properties, assets, or condition (financial or
otherwise) of a Person, or on the right or ability of a Person to execute,
deliver or perform this Agreement or any Other Document.

 

“Noncompetition Agreements” is defined in Section
4.2(a).

 

“Other Document” means all other agreements,
documents, certificates and instruments contemplated to be delivered or entered
into by this Agreement including, without limitation, the Noncompetition
Agreements.

 

“Permitted Encumbrances” means (i) liens for
taxes and other governmental charges and assessments which are not yet due and
payable, (ii) liens of landlords and liens of carriers, warehousemen, mechanics
and materialmen and other like liens arising in the ordinary course of business
for sums not yet due and payable and (iii) liens which do not interfere with
the use or transfer or detract from the value of the assets so encumbered.

 

“Person” means any natural person, business
trust, corporation, partnership, limited liability company, joint stock
company, proprietorship, association, joint venture, unincorporated association
or other legal entity of whatever nature.

 

“Product on Order” is defined in Section
2.1(b).

 

“Proprietary Rights” is defined in Section 5.9(a).

 

“Purchase Price” is defined in Section
3.1(a).

 

“Purchaser” is defined in the preamble to this
Agreement.

 

“Seller” is defined in the preamble to this
Agreement.

 

4

 

“Tax” means any federal, state, local or
foreign income, gross receipts, property, sales, use, license, franchise,
employment, unemployment, payroll, withholding, required deposits, alternative
or add-on minimum, ad valorem, value added, transfer or excise tax, any
liability for Taxes imposed under Treasury Regulations §1.1502-6 and any
liability as a successor or transferee, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, imposed by any Governmental Authority.

 

“Tax Return” means any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.

 

“Trade Secrets” is defined in Section 5.9(b).

 

“Transferred Assets” is defined in Section
2.1.

 

“Unaudited Financial Statements” is defined in Section
5.8(b).

 

1.2                                 Singular
and Plural; Gender.  Whenever
appropriate in the context, terms used in this Agreement in the singular also
include the plural, and vice versa, and each masculine, feminine or neuter
pronoun shall also include the other genders.

 

1.3                                 Meaning
of “Including”.  As used herein, the
word “including” shall be deemed to mean “including, without limitation” unless
otherwise expressly provided in any instance.

 

1.4                                 Headings.  The article, section and other headings in
this Agreement are used for convenience of reference only and shall not be
deemed to alter or affect the meaning or interpretation of any provision of
this Agreement.

 

1.5                                 Drafting.  The parties have participated jointly in the
negotiation and drafting of this Agreement, and they agree that any ambiguity
or question of intent or interpretation that may arise shall be construed as if
drafted jointly by the parties, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provision of this Agreement.

 

ARTICLE 2

PURCHASE AND SALE OF ASSETS

 

2.1                                 Transferred
Assets.  Upon the terms and subject
to the conditions of this Agreement and of the Other Documents, on the Closing
Date, Seller shall sell, transfer, assign, convey and otherwise deliver to
Purchaser, and Purchaser shall purchase from Seller, all of Seller’s right,
title and interest in, to and under all of the assets of the DentalMate
Business, other than the Excluded Assets, free and clear of any and all
Encumbrances wherever located and

 

5

 

whether or not carried or reflected on the books and records of Seller
(collectively, the “Transferred Assets”), including, without limitation,
the following:

 

(a)                                  all
software, hardware, inventory, software development, tools, supplies and other
personal property constituting fixed assets and tangible personal property, in
each case owned, used or held for use by Seller in operating the DentalMate
Business;

 

(b)                                 all
of Seller’s right, title and interest in and arising out of its ownership of
the Transferred Assets including, without limitation, all utility deposits which
are owned or held by the Seller in connection with the DentalMate Business and
all rights in and to the Assumed Contracts;

 

(c)                                  all
rights in and to the names “DentalMate” including assumed or fictitious names,
product names and logos, all rights to any and all associated logos, artwork or
stylized designs, and to all trademarks, service marks, whether or not
registered and all applications therefor, and whether under any statute or
common law;

 

(d)                                 all
of Seller’s right, title and interest in, to and under all of the following
irrespective of where any of the same were issued, are pending or exist: United
States and foreign trademarks and other marks, trade names, and other trade
rights, whether or not registered and all applications therefor, in each case,
which relate to or are used or useful in connection with the DentalMate
Business; licenses, and other contractual rights with respect to the foregoing
and other such property and intangible rights owned, used or held for use by
Seller in connection with the DentalMate Business, together with all goodwill
of Seller in connection therewith;

 

(e)                                  all
procedures, designs, ideas, research records, inventions, records of
inventions, test information, technical information, marketing know-how,
proprietary statistical techniques, know-how, methodologies, trade secrets,
market analyses, client delivery systems, processes, formulae, whether patented
or patentable or not and other operating systems (and all related manuals,
books, files, journals, plans, design specifications, descriptions, data, art
work, software, computer programs and source code data related thereto
including all current and historical data bases) owned, used or held for use by
Seller in connection with the DentalMate Business;

 

(f)                                    all
books, records, customer lists (past, present and future), customer
information, marketing materials and information, copies of documents
evidencing Intellectual Property Rights, new product development materials,
creative materials, advertising and promotional materials, studies, reports,
manuals and other documents, including, any confidential information which has
been reduced to writing relating to Seller and the DentalMate Business;

 

(g)                                 all
computer hardware and computer software, used, licensed or held for use by
Seller in the conduct of the DentalMate Business;

 

(h)                                 all
right, title and interest of Seller in and to all Assumed Contracts;

 

6

 

(i)                                     all
right, title and interest of Seller in and to the DentalMate Business as a
going concern, including its goodwill and all other tangible and intangible
assets associated therewith;

 

(j)                                     all
franchises, approvals, permits, authorizations, licenses, orders,
registrations, certificates, variances, and other similar permits or rights
obtained from any Governmental Authority relating to the DentalMate Business or
to the Transferred Assets and all pending applications therefor;

 

(k)                                  all
present telephone numbers used or held for use by Seller in the conduct of the
DentalMate Business; and

 

(l)                                     any
and all other personal and intangible property, licenses and permits useful or
necessary to operate the DentalMate Business.

 

2.2                                 Excluded
Assets.  Notwithstanding anything to
the contrary contained herein, including Section 2.1 above, Seller shall retain
all of its right, title and interest in and to, and shall not transfer to the
Purchaser, any asset of Seller set forth below (collectively, the “Excluded
Assets”):

 

(a)                                  the
Purchase Price, cash, on hand and on deposit with banking institutions,
securities and investments;

 

(b)                                 All
accounts,  demand deposits, “cash
collateral” (as defined in 11 U.S.C. Section 363 (a)), notes, bills, drafts,
chattel paper, acceptances, instruments, tax refunds, insurance proceeds,
prepaid expenses (except Products on Order), 
deposits which are owned or held by the Seller in connection with the
DentalMate Business (collectively, the “Accounts”);

 

(c)                                  any
insurance claims or recoveries for claims arising prior to the Closing Date;

 

(d)                                 any
minute books, stock records, tax returns and similar records and any other
documents which Seller is required by law to retain in its possession, and such
writings pertinent to financial or administrative matters to the extent not
germane to the DentalMate Business, the Transferred Assets or the Assumed
Liabilities (including records and documents relating to the Excluded Assets
and Excluded Liabilities);

 

2.3                                 Assumption
of Liabilities.  At the Closing,
subject to the terms and conditions of this Agreement, Purchaser agrees to
assume and become responsible for all of the Assumed Liabilities. Purchaser
agrees to accept all service obligations on products sold by the Seller prior
to the Closing as part of the Business but does not accept or assume any other
obligations or liability in connection thereof. Except for obligations related
to both the Contracts and Assumed Contracts, and assumed by the Purchaser in
accordance with this Agreement, the liability to perform customer support for
prepaid maintenance agreements and certain accrued vacation time set forth
below for employees of the Seller, the Purchaser shall assume no

 

7

 

liabilities or obligations of the Seller of any kind or nature
whatsoever (whether fixed or contingent, direct or indirect), whether known or
unknown, absolute or otherwise with respect to any debts, liabilities,
contracts, commitments, obligations or otherwise, whether or not relating to
the Seller, the DentalMate Business, or any of the Assets.  Particularly, but without limiting the
foregoing, the Purchaser shall not be liable for, and the Seller shall remain
solely liable for, any and all obligations other than accrued vacation pay not
to exceed $16,527.31 in the aggregate relating to the Seller’s employees
accrued as of the Closing, the deferred revenue amounting to $49,265.09 and any
duties to perform related to those deferred revenues, the payroll (including
taxes) paid by Seller through September 30, 2003 for the days subsequent to the
Closing and the prepayment of benefits by the Seller for Seller’s employees for
the period of paid coverage following the closing date.  Other than said accrued vacation pay,
deferred revenue, subsequent payroll and prepaid benefits, the Purchaser shall
have no obligation to hire any of the Seller’s employees or to honor any of the
Seller’s obligations or commitments to the Seller’s employees including,
without limitation, any amounts due to the Seller’s employees for sick pay or
any other statutory employee entitlements.

 

ARTICLE 3

CONSIDERATION

 

3.1                                 Consideration.  In consideration of the sale, transfer,
assignment, conveyance, and delivery by Seller of the Transferred Assets and
Assumed Liabilities on the Closing Date, and in reliance upon the
representations, warranties, covenants and agreements made herein by Seller,
Purchaser shall pay to Seller (a) cash in the amount of Five Hundred Thousand
Dollars ($500,000.00) by wire transfer or other immediately available funds
(“Initial Purchase Price”), (b) its promissory note and security agreement in
the form of Exhibits A and C attached hereto in the principal amount of Fifty
Thousand Dollars ($50,000.00) and its promissory note and security agreement in
the form of Exhibits B and D attached hereto in the principal amount of Fifty
Thousand Dollars ($50,000.00) (the amounts referenced herein in this Section
3.1(a) and (b) are hereinafter collectively referred to as the “Purchase
Price”); and (c) assume the Assumed Liabilities in accordance with the
terms herein and the Other Documents. The Initial Purchase Price shall be paid
by the Purchaser to the Seller in cash, wire transfer, bank or certified check
or other form of immediately available funds at the Closing As of the day prior
to the Closing Date, the parties conducted, or caused to be conducted, a
physical inventory of all of the inventory of the Seller both on hand and on
order including, but not limited to, raw materials, work-in-progress and
finished goods (the “Inventory”). The seller shall pay for the $2,874.99 for
the pre-payment of October benefits for the current DentalMate employees. The
Seller shall assign any purchase orders for Inventory items as of the Closing
Date to the Purchaser and the cost of such ordered Inventory items is included
in the value of the total Inventory. 
Accordingly, the Seller shall pay the invoice related to such ordered
Inventory items that are included in the Inventory.

 

3.2                                 Tax
Allocations.  Purchaser and Seller
shall endeavor in good faith to determine the allocation for tax purposes of
the Purchase Price among the Transferred Assets and prepare an allocation
schedule (the “Allocation Schedule”) in connection therewith in
accordance with Section 1060 of the Code and the regulations thereunder. Within
thirty (30)

 

8

 

days of the Closing Date, Purchaser and Seller shall each sign the
Allocation Schedule and return an executed copy thereof to the other
party.  Purchaser and Seller each agree
to file IRS Form 8594, and all federal, state, local and foreign (if any) tax
returns in accordance with the Allocation Schedule.  Purchaser and Seller each agree to provide the other promptly
with any other information required to complete IRS Form 8594.  Purchaser and Seller agree they will not take
or cause to be taken any action that would be inconsistent with such
allocation.  Each of the parties to this
Agreement agrees that all tax returns made by such party, or by any Affiliate,
will accurately reflect such allocation.

 

ARTICLE 4

CLOSING

 

4.1                                 Closing.  The closing of the transactions provided for
in this Agreement (the “Closing”) will take place simultaneously with
the execution and delivery of this Agreement at the offices of Seller, at 10
a.m. (P.D.T.) on September 19, 2003, or at such other place or at such other
time as shall be mutually agreed upon by Seller and Purchaser (the “Closing
Date”).  Time shall be of the essence for all purposes under this Agreement.

 

4.2                                 Deliveries
on the Closing Date.

 

(a)                                  At
the Closing, Seller will deliver, or cause to be delivered, to Purchaser the
following:

 

(i)                                     the
Transferred Assets;

 

(ii)                                  a
Bill of Sale in the form attached hereto as Exhibit B, duly executed by
Seller;

 

(iii)                               the
Assignment and Assumption Agreement in the form attached hereto as Exhibit E
(the “Assignment and Assumption Agreement”) duly executed by Seller;

 

(iv)                              a
certificate of an officer of Seller, dated the Closing Date, that attaches (i)
the resolutions of the Board of Directors and the stockholders of Seller
authorizing the execution of this Agreement and the performance of the
contemplated transactions and (ii) an incumbency certification and signatures
of the officers of Seller executing this Agreement in form satisfactory to
Purchaser;

 

(v)                                 various
certificates, instruments, and documents referred to in this Agreement, and
such other certificates, instruments, and documents, as Purchaser shall deem
necessary in its reasonable discretion in order to effectuate the transactions
contemplated herein, in form and substance reasonably satisfactory to
Purchaser.

 

9

 

(b)                                 At
the Closing, the Purchaser shall deliver to the Seller the Purchase Price and
the Assignment and Assumption Agreement duly executed by the Purchaser.

 

4.3                                 Manner
of Payment of Purchase Price.  The
Purchase Price shall be paid to Seller by wire transfer of funds to an account
as specified in writing by Seller prior to the Closing Date.

 

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF SELLER

 

As an inducement to Purchaser to enter into this
Agreement and to consummate the transactions contemplated hereby, Seller
represents and warrants to Purchaser on the date hereof and as of the Closing
Date:

 

5.1                                 Organization;
Certificate of Incorporation; Bylaws. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own or lease and to
operate and use the Transferred Assets and the DentalMate Business, and is duly
licensed or qualified and in good standing as a foreign corporation in each
jurisdiction set forth on Schedule 5.1 annexed hereto, constituting the
only jurisdictions in which the nature of the DentalMate Business and the
Transferred Assets makes such qualification necessary.  Seller has heretofore delivered to Purchaser
complete and correct copies of the certificate of incorporation and bylaws of
Seller as currently in effect.

 

5.2                                 Authority;
Due Execution.  Seller has all
requisite corporate power and authority to execute, deliver and perform this
Agreement and the Other Documents and to consummate the transactions
contemplated hereby and thereby.  The
execution, delivery and performance of this Agreement and each Other Document
to which Seller is a party, by Seller have been duly authorized and approved by
Seller’s board of directors and stockholders and do not require any further
authorization or consent of Seller or its stockholders. This Agreement and each
Other Document to which such Seller is a party have been duly executed and
delivered by such Seller and (assuming due execution and delivery by Purchaser)
this Agreement and each Other Document when executed and delivered, will
constitute a legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization or similar laws affecting creditors’ rights
generally or by general equitable principles.

 

5.3                                 Subsidiaries
and Equity Investments.  Seller has
no subsidiaries and does not own, directly or indirectly, any investments,
capital stock or other equity or ownership interests in any other Person which
relate to the DentalMate Business.

 

5.4                                 No
Violation; No Consents.  Neither the
execution and delivery of this Agreement or of any of the Other Documents by
Seller, nor the consummation of any of the transactions contemplated hereby or
thereby, nor compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof will:

 

10

 

(a)                                  conflict
with, result in a violation, breach of the terms, conditions or provisions of,
or constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation or a loss of rights under, or result
in the creation or imposition of any Encumbrance (other than a Permitted
Encumbrance and Encumbrances which will be discharged as of the Closing Date)
upon any of the Transferred Assets or the DentalMate Business, under (i) any of
the terms, conditions or provisions of the certificate of incorporation or
bylaws of Seller, (ii) any other note, instrument, agreement, mortgage, lease,
license, franchise, permit or other authorization, right, restriction or
obligation to which Seller is a party or any of the Transferred Assets is
subject or by which Seller is bound or (iii) to Seller’s knowledge any Law
applicable to Seller or to the Transferred Assets; or

 

(b)                                 except
with respect to the contract specified within Section 7.5 (c) of this
Agreement, no contracts require the consent, approval, order, action or
authorization of, or registration, declaration or filing with or notice to, any
Person in connection with the execution and delivery of this Agreement, any of
the Other Documents or the performance by Seller of the transactions
contemplated hereby or thereby to be performed by it.

 

5.5                                 No
Third-Party Options.  There are no
existing agreements with, options or rights of, or commitments to, any Person
to acquire Seller or any portion or all of the Transferred Assets, the
DentalMate Business or any interest therein.

 

5.6                                 Litigation.  Except as disclosed in Schedule 5.6, there
is no charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim in writing, suit, litigation, proceeding, labor dispute,
or arbitral action (collectively, “Actions”) pending or to Seller’s
knowledge threatened or anticipated against, relating to or affecting the
transactions contemplated by this Agreement, the Seller, the Transferred
Assets, the Assumed Contracts or the Assumed Liabilities. Seller is not in
default with respect to any judgment, order, writ, injunction or decree of any
Governmental Authority, and there are no unsatisfied judgments against Seller.
No event has occurred, circumstances exist or investigation that, to Seller’s
knowledge, could reasonably be expected to give rise to or serve as a basis for
the commencement of any Action.

 

5.7                                 Contracts.  Each of the Contracts listed on Schedule
5.7 (the “Assumed Contracts”) is a legal, valid, and binding
obligation of Seller and, to Seller’s knowledge, of each other party thereto,
subject as to enforceability to applicable bankruptcy, insolvency,
reorganization, moratorium, and similar Laws affecting creditors’ rights and
remedies generally, and general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).  Neither Seller nor any other party to any of
the Assumed Contracts is in breach, violation or default (whether with or
without the giving of notice, lapse of time, or both) thereunder.

 

5.8                                 Financial
Statements and Related Matters.

 

(a)                                  Interim
Financial Statements. Seller has also delivered to Purchaser the unaudited
consolidated balance sheet of the Seller’s DentalMate Business for the months

 

11

 

of June, July and August 2003 and the related
consolidated statements of income for the months then ended (the “Unaudited
Financial Statements”).  The
Unaudited Financial Statements present fairly, in all material respects, the
financial position and results of operations of Seller’s DentalMate Business as
of the dates and periods indicated in each case in accordance with GAAP, subject
to normal recurring year-end adjustments (which would not be material in the
aggregate) and the absence of notes.

 

(b)                                 Accounts
Receivable.  The accounts receivable
reflected on the Financial Statements present fairly, in all material respects,
the financial position with respect to the accounts receivable for all periods
stated.  All accounts receivable
reflected in the Financial Statements and all accounts receivable arising after
the date thereof up to and including the Closing Date arose and will arise from
bona fide transactions in the ordinary course of business except as set forth
in Section 7.14.

 

5.9                                 Intellectual
Property.

 

(a)                                  Proprietary
Rights.

 

(i)                                     Schedule
5.9(a) sets forth (A) all of the federal, state or foreign registrations of
trademarks, service marks and other marks or trade names of owned by Seller and
used or usable in the DentalMate Business and all pending applications for any
such registrations, (B) all of the federal and foreign patent, and
copyright (including proprietary software) registrations and all pending
applications for any such registrations relating to the DentalMate Business and
(C) all other patents, copyrights, trademarks, service marks and other marks,
trade names and other intellectual property, except generally available
off-the-shelf programs, used or licensed by or for Seller in connection with
the DentalMate Business (the items referred to in clauses (A) through (C) above
are collectively referred to herein as “Proprietary Rights”), which are
owned, used or licensed by Seller.  Each
of the registered Proprietary Rights listed on Schedule 5.9(a) has the
registration number and issue date set forth therein and each of the
applications for registration listed Schedule 5.9(a) has the application
number and filing date set forth therein.

 

(ii)                                  Except
as disclosed on Schedule 5.9(a) (ii), Seller is the exclusive owner of
all right, title and interest in and to each of the Proprietary Rights listed
on Schedule 5.9(a), free and clear of any and all Encumbrances, and no
other Person has the right to use any of such Proprietary Rights in commerce
either in the identical form or in such near resemblance thereto as may be
likely to cause confusion or to cause mistake or to deceive within the context
of common law and statutory principles applicable to intellectual property
matters.  All of the registrations for
the Proprietary Rights listed on Schedule 5.9(a) are valid and in force
and all applications for registration listed on Schedule 5.9(a) are
pending and in good standing, all without challenge of any kind.

 

(iii)                               All
licenses pursuant to which Seller licenses or otherwise has the right to use
any Proprietary Rights are listed on Schedule 5.9(a) (iii).  All of such

 

12

 

licenses are in full force and effect and no breach or
default thereunder (or any event which would constitute a breach or default
with notice or lapse of time or both) have occurred.  Except as disclosed on Schedule 5.9(a) (iii), (A) no
Person has a right to receive any royalty or similar payment in respect of any
Proprietary Rights, whether pursuant to any contractual arrangements entered
into by Seller or otherwise and (B) upon consummation of the transactions
contemplated by this Agreement and the Other Documents, Purchaser will be
entitled to continue to use all Proprietary Rights without the payment of any
additional fees, licenses or other payments as a result of such
transactions.  Seller has delivered to
Purchaser true, complete and correct copies of all of the licenses listed on Schedule 5.9(a)
(iii).

 

(iv)                              All
of the Proprietary Rights of Seller are valid and enforceable rights of Seller
and will not cease to be valid and in full force and effect by reason of the
execution and delivery of this Agreement or the Other Documents or the
consummation of the transactions contemplated hereby or thereby.

 

(v)                                 Schedule
5.9(a) identifies each registered and unregistered trademark, trade name,
service mark, service name and other proprietary mark or fictitious name at any
time owned by Seller or under which Seller has ever conducted business or
marketed any products or services relating to the DentalMate Business.

 

(b)                                 Trade
Secrets.

 

(i)                                     Seller
owns exclusively, and has the exclusive and unrestricted right to use, all
trade secrets, including “know-how,” inventions, designs, customer lists,
processes and technical data and information relating to the DentalMate
Business (collectively, “Trade Secrets”), free and clear of any and all
Encumbrances, including, without limitation, any claim of any present or former
employee of or consultant to Seller.  Schedule
5.9(b) contains a list of the headings or titles and, where appropriate, a
general, non-confidential description of all Trade Secrets.

 

(ii)                                  Seller
has taken reasonable security or other appropriate measures to protect the
secrecy, confidentiality and value of all Trade Secrets.

 

(c)                                  Infringements.  To Seller’s knowledge neither (i) the use of
each of the Proprietary Rights and the Trade Secrets by Seller nor (ii) any of
Seller’s other activities or business operations has infringed upon or
otherwise violated, or is infringing upon or otherwise violating, any
intellectual property rights of any third Person, and no proceeding has been
instituted or threatened against, and Seller has received no notice (and there
is no basis for any claim) alleging that the use of any of the Proprietary
Rights or Trade Secrets by Seller, or any of its other activities or business,
infringes upon or otherwise violates the rights of any third Person or which
otherwise challenges the validity, ownership or use of any of the Proprietary
Rights or Trade Secrets by Seller. 
Seller has not given notice to any Person that it is infringing on any
of the Proprietary

 

13

 

Rights or Trade Secrets, and to Seller’s knowledge no
Person is infringing on any of the Proprietary Rights or Trade Secrets.

 

(d)                                 Adequacy
of Intellectual Property.  The
Proprietary Rights, the Trade Secrets and the generally available off-the-shelf
programs used in the DentalMate Business constitute all of the intellectual
property used by Seller in, and constitute all of the intellectual property
necessary for, the conduct of the DentalMate Business as presently conducted.

 

5.10                           Taxes
and Tax Returns.

 

(a)                                  Seller
has timely filed in accordance with Applicable Laws, all Tax Returns required
to be filed with respect to the DentalMate Business (other than the Tax Returns
set forth on Schedule 5.10), operations or Transferred Assets, and all
Taxes shown as due on such Tax Returns have been timely paid, except for Taxes
that are being contested in good faith by appropriate proceedings (all of which
are disclosed on Schedule 5.10). 
All Tax Returns filed by Seller were prepared in compliance with all
Applicable Laws and were true, complete and correct as of the date on which
they were filed or as subsequently amended to the date hereof and no facts have
later become known to Seller to the contrary.

 

(b)                                 With
respect to the employees and former employees of Seller’s DentalMate Business,
Seller has complied with all Applicable Laws relating to the withholding of
Taxes and have timely collected or withheld and paid over (and up to but not
including the Closing Date, will have timely collected or withheld and paid
over) to the proper Governmental Authorities all amounts required to be so
collected or withheld and paid over for all periods up to (but not including)
the Closing Date under all Applicable Laws.

 

(c)                                  Except
for waivers and extensions disclosed on Schedule 5.10, there are no
waivers or extensions of any applicable statute of limitations for the
assessment or collection of Taxes with respect to any Tax Return that relates
to or could effect the operations or Transferred Assets, which waivers or
extensions currently are in effect, and no request for any such waiver or
extension is currently pending.

 

(d)                                 There
are no Tax rulings, request for rulings or closing agreements relating to
Seller which could affect the operations or Transferred Assets for any period
after the Closing Date.

 

(e)                                  (A)
Seller is not a party to, bound by or subject to any Tax allocation or Tax
sharing agreement (or similar agreement), by which Purchaser will be bound,
will be subject to, or will owe any amounts under after the Closing, (B) Seller
does not have any current or potential contractual obligation to indemnify any
other person with respect to Taxes under which it will be obligated or will owe
amounts after the Closing which could result in any Liability to Purchaser.

 

(f)                                    Schedule
5.10 sets forth a list of states, territories and jurisdictions in which
Seller is required to file Tax Returns for the DentalMate Business.  No written

 

14

 

claim has ever been made by a taxing authority in a
jurisdiction where Seller does not file Tax Returns that it is or may be
subject to taxation by such jurisdiction.

 

(g)                                 There
are no Liens for Taxes (other than for Taxes not yet due and payable) upon the
Transferred Assets, except with respect to Taxes that are not yet due and
payable (all of which are disclosed on Schedule 5.10) and for payment of
which Taxes adequate reserves have been disclosed to Purchaser.  No tax liabilities of Seller will adversely
affect Purchaser’s ownership or use of the Transferred Assets.

 

(h)                                 No
power of attorney has been granted by Seller with respect to any matter
relating to Taxes of Seller or the Transferred Assets which power of will
remain in force on or after the Closing Date with respect to any Transferred
Assets.  Any such power of attorney with
respect to periods beginning on or after the Closing Date will be revoked prior
to the Closing.

 

5.11                           Title
to and Adequacy of Transferred Assets. 
(a)  Seller has, and Seller shall
convey to Purchaser at Closing, good, valid, and marketable title to or a valid
leasehold interest in all of the Transferred Assets, whether real or personal,
tangible or intangible, including, without limitation, those reflected on the
Financial Statements free and clear of all Encumbrances.

 

(b)                                 (1)
The Transferred Assets owned, leased or licensed by Seller on the date hereof
constitute all of the assets used by, necessary for, or usable by Seller in,
and constitute all of the assets necessary for, the operation of the Transferred
Assets and the conduct of the DentalMate Business as currently conducted.  (2) To Seller’s knowledge, all of the
tangible Transferred Assets material to the operation of the DentalMate
Business owned, leased or licensed by Seller are (i) structurally sound with no
material defects, (ii) in good operating condition and repair, subject to
ordinary wear and tear and (iii) not in need of maintenance or repair except
for ordinary, routine maintenance and repair.

 

5.12                           Leased
Personal Property.  Schedule 5.12
contains a list as of the Closing Date of all machinery, equipment, computer
hardware and related peripheral equipment, vehicles, furniture and other
tangible personal property leased by Seller and used in the DentalMate
Business.  Schedule 5.12 contains
a list of all leases or other agreements or rights, whether written or oral,
under which Seller is a lessee of, or holds or operates, any such tangible
personal property in connection with the DentalMate Business.  Seller has a valid and existing leasehold
interest in all such leased property, the other parties thereto are not in
breach of or default under (including any circumstances that would result in a
breach or default under such leases with notice or lapse of time or both) any
such leases and all such leases are in full force and effect.  True, complete and correct copies of all
written leases referred to on Schedule 5.12 have been delivered to
Purchaser.  Consummation of the
transaction contemplated by this Agreement and the Other Documents does not
require the consent of any lessor under any such lease.

 

15

 

5.13                           Governmental
Permits.

 

(a)                                  Seller
owns, holds or possesses all governmental licenses, franchises, permits,
privileges, variances, immunities, approvals, certificates, rights and other
authorizations which are necessary or required to entitle it to own, lease,
operate and use the Transferred Assets and properties and to carry on and
conduct the DentalMate Business as currently conducted or as proposed to be
conducted (collectively, “Governmental Permits”).  Schedule 5.13 sets forth a list of
each Governmental Permit held by Seller as of the date of this Agreement.  True, complete and correct copies of all of
the Governmental Permits listed on Schedule 5.13 have been delivered to
Purchaser.

 

(b)                                 Seller
has fulfilled and performed its obligations under each of its respective
Governmental Permits, and to Seller’s knowledge, no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under, or would permit
revocation or termination of, any such Governmental Permit.  Each of the Governmental Permits is valid, subsisting
and in full force and effect.  The
consummation of the transactions contemplated by this Agreement and the Other
Documents (including the transfer or assignment of the Governmental Permits to
Purchaser) will not result in any breach or default (or event which would
constitute a breach or default with notice or lapse of time or both) or
forfeiture of rights under any Governmental Permit.

 

5.14                           Insurance.  Seller’s existing insurance policies and
binders are in full force and effect and all premiums required to be paid
thereunder on or prior to the date hereof have been paid and all such premiums
required to be paid on or prior to the Closing Date shall have been paid on or
prior to such date. Seller has complied with each of such insurance policies
and binders and has not failed to give any notice or present any claim
thereunder in a due and timely manner. 
There are no outstanding unpaid claims under any of such insurance
policies or binders for damages which have not been repaired by Seller.  Other than insurance on the boiler/turbine
generator, Seller has not received any notice of cancellation or nonrenewal of
any such policy or binder, and Seller has no knowledge of any facts or
circumstances that might form the basis for termination of any such policies or
binders.  Such policies and binders are
adequate in accordance with the practices prevailing in the industries in which
Seller conducts the DentalMate Business to insure fully, less standard
deductibles, against all risks to which Seller and its properties or
Transferred Assets are exposed.  At no
time was there a period in which Seller lacked such insurance coverage with
respect to the DentalMate Business as then conducted.  Seller has no knowledge of any facts or circumstances that are
reasonably likely to form the basis for any claim against Seller not fully
covered by such policies or binders.

 

5.15                           Customers
and Suppliers.  Schedule 5.15
sets forth the current customers and clients of Seller’s DentalMate
Business.  No such customer or client
has notified Seller that it is terminating, cancelling, limiting or otherwise
changing its business relationship with the DentalMate Business, and, to
Seller’s knowledge, no such customer or client has threatened to do so,
including as a result of the consummation of the transactions contemplated by
this Agreement and the Other Documents.

 

5.16                           Brokers,
Finders and Agents.  Neither Seller
nor any Person acting on its behalf has paid or become obligated to pay any fee
or commission to any broker, finder, agent,

 

16

 

intermediary, or Person in any other similar capacity, for or on
account of the transactions contemplated by this Agreement.

 

5.17                           Solvency.
After consummation of the transactions called for by this Agreement and the
Other Documents, Seller is and shall continue as a going concern and has
sufficient capital and assets to pay and satisfy all obligations as they become
due.

 

5.18                           Compliance
with Law. To Seller’s knowledge, Seller has complied in all material
respects with each Law of any Governmental Authority to which it is subject and
is not currently in material violation or in default under any such Law.

 

5.19                           Disclosure.

 

(a)                                  No
Misstatements or Omissions.  No (i)
representation or warranty made by Seller contained in this Agreement or any of
the Other Documents, (ii) written statement attached to this Agreement or any
of the Other Documents as an annex, schedule or Exhibit, (iii) certificate
furnished or to be furnished by Seller to Purchaser or its representatives in
connection with this Agreement or any of the Other Documents or pursuant hereto
or thereto or (iv) Diligence Document, in the case of any of the foregoing
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to make the statements herein or
therein contained not false or misleading taken as a whole as of the date of
this Agreement.

 

(b)                                 Disclosure
of Adverse Facts.  Seller has
disclosed to Purchaser all adverse material facts relating to (i) Seller, the
DentalMate Business, the Transferred Assets, including with respect to its
properties, condition (financial and otherwise), results of operations,
liabilities, customers, suppliers or prospects or (ii) the ability of Seller to
perform under this Agreement and the Other Documents and to carry out the
transactions contemplated herein and therein.

 

(c)                                  Copies.  All documents (including, without
limitation, all agreements, contracts, leases, permits and corporate,
partnership, limited liability company or other organizational documents)
furnished to Purchaser, hereunder or in connection herewith or under or in
connection with the Other Documents are in effect and are true, complete and
correct copies of the originals thereof and any originals delivered are true and
complete.

 

5.20                           Employees.  All of the Seller’s employees are at-will
employees.  The Seller does not have any
employment contracts or other agreements with persons employed or engaged by
the Seller in the operation of the DentalMate Business.

 

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser represents and warrants to Seller that:

 

17

 

6.1                                 Organization.  Purchaser is a corporation validly existing
and in good standing under the laws of the State of North Carolina.

 

6.2                                 Corporate
Authority; Due Execution.  Purchaser
has full corporate power and authority to enter into this Agreement and each
Other Document to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Purchaser of this Agreement and of each Other Document to which it is a party
has been duly authorized by all requisite corporate action.  This Agreement has been, and each of the
Other Documents to which Purchaser is a party will be, as of the Closing Date,
duly executed and delivered by Purchaser, and (assuming due execution and
delivery by Seller and the other parties thereto) this Agreement constitutes,
and each of such Other Documents, when executed and delivered, will constitute,
a valid and binding obligation of Purchaser, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
moratorium, fraudulent conveyance, reorganization or similar laws affecting
creditors’ rights generally or by general equitable principles.

 

6.3                                 Brokers,
Finders and Agents.  Neither
Purchaser nor any Person acting on its behalf has paid or become obligated to
pay any fee or commission to any broker, finder, agent, intermediary, or Person
in any other similar capacity, for or on account of the transactions
contemplated by this Agreement.  

 

6.4                                 Solvency.
After consummation of the transactions called for by this Agreement and the
Other Documents, Purchaser is and shall continue as a going concern and has
sufficient capital and assets to pay and satisfy all obligations as they become
due.

 

6.5                                 No
Conflicts; No Consents.  Neither the
execution and delivery of this Agreement or of any of the Other Documents by
Purchaser nor the consummation of any of the transactions contemplated hereby
or thereby, nor compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof will:

 

(a)                                  conflict
with, result in a violation, breach of the terms, conditions or provisions of,
or constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation or a loss of rights under (i) any of
the terms, conditions or provisions of the certificate of incorporation or
bylaws of the Purchaser, (ii) any other note, instrument, agreement, mortgage,
lease, license, franchise, permit or other authorization, right, restriction or
obligation to which Purchaser is a party or by which Purchaser is bound or
(iii) any order, judgment, or decree, law, statute, rule, or regulation
applicable to the Purchaser; or

 

(b)                                 legally
requires the consent, approval, order, action or authorization of, or
registration, declaration or filing with or notice to, any Person in connection
with the execution and delivery of this Agreement, any of the Other Documents
or the performance by the Purchaser of the transactions contemplated hereby or
thereby to be performed by it.

 

18

 

ARTICLE 7

CERTAIN COVENANTS

 

7.1                                 Retained
Liabilities.  Except for the Assumed
Liabilities, Seller shall timely pay all Liabilities arising or resulting from
or in connection with (i) the Transferred Assets or Seller’s conduct of the
DentalMate Business and (ii) any and all assets of Seller other than the
Transferred Assets.  Purchaser shall pay
each of the Assumed Liabilities in accordance with their respective terms.

 

7.2                                 Tax
Matters.  Except for sales and use
taxes imposed by any taxing authority on Purchaser as a result of Purchaser’s
purchase of the Transferred Assets, all bulk sales, documentary, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by Seller
when due, and Seller will, at its own expense, file all necessary Tax Returns
and other documentation with respect to such transfer, documentary, stamp,
registration and other Taxes and fees, including bulk sales filing
requirements.

 

7.3                                 Change
of Name.  From and after the Closing
Date, neither Seller not its Affiliates shall use the name or any trademark,
service mark, trade name or other symbol or designation confusingly similar to
any trademark service mark, trade name or other symbol or designation used or
usable in or associated with the DentalMate Business for any purpose
whatsoever.

 

7.4                                 Employee
Matters.  Purchaser may, as
Purchaser shall determine in its sole discretion, extend offers of employment
to any employee or employees of Seller necessary to conduct the operations of
the DentalMate Business.  For
clarification and not by reason of limitation, neither Purchaser, nor any of
their Affiliates, shall be under any limitation or restriction whatsoever in
hiring or solicitation of any of DentalMate Business’s employees, customers or
venders, upon or after the Closing. 
Nothing in this Agreement shall be construed to limit Purchaser’s or
Seller’s right to terminate the employment of any employee hired by Purchaser
pursuant to this Section 7.4.

 

7.5                                 Transition
of Business.  Seller shall enter
into an agreement with Purchaser (“ Administrative Services Agreement”)
providing for such services as defined therein in Exhibit 7.5.  Seller shall also provide the following:

 

(a)  Preparation and provision of technical design document which
shall meet the specifications outlined by Purchaser via side letter and the
source code of the Software at Closing;

 

(b)  Customary
notification of Agreement and Assignment of individual contracts via letters to
all clients and vendors specified by Purchaser in the form to be provided by
Purchaser to mutually agreed to by Seller ;

 

(c)  Seller
shall make best efforts to obtain either a signed current copy of the agreement
with WebMD or written acknowledgment of same by WebMD in form and substance
satisfactory to Purchaser.

 

19

 

7.6                                 Tax
and Financial Reporting.  For tax
and financial reporting purposes, Seller shall report for all results and be
responsible, including with respect to all Taxes attributable to or derived
from the DentalMate Business and income therefrom, for the DentalMate Business
through the Closing Date and Purchaser shall report all results and be
responsible for tax purposes for the DentalMate Business thereafter.

 

7.7                                 Use
of Purchase Price.  Seller agrees to
first use all or up to all of the Purchase Price to repay after the Closing any
and all secured obligations of Seller on the Closing Date in such amounts to
remove all Encumbrances relating to or affecting the DentalMate Business.

 

7.8                                 Corporate
Examinations and Investigations. 
Prior to the Closing Date, Purchaser shall be entitled, through their
employees, advisors, consultants, representatives, contractors, counsel and
independent accountants, to make such investigation of the assets, properties,
business and operations of Seller’s DentalMate Business and such examination of
the books, records and financial condition of Seller’s DentalMate Business as
Purchaser determines appropriate, provided that any such investigation and
examination shall be conducted at reasonable times and under reasonable
circumstances and in a manner so as not to interfere with the normal business
operations of Seller.  Seller shall make
available to such persons during such period all such information and copies of
all such documents concerning its affairs as such persons may reasonably
request, and shall cause its officers, employees, consultants, agents,
accountants and attorneys to cooperate with such persons in connection with
their review and examination.

 

7.9                                 Conduct
of Business Prior to the Closing Date. 
Except as set forth in Section 7.14, Seller agrees that prior to the
Closing Date (a) the DentalMate Business shall be conducted only in the
ordinary course consistent with past practice; (b) it shall not enter into any
material agreement, commitment or instrument, except in the ordinary course of
business, (c) it shall not sell, lease, transfer or otherwise dispose of, or
mortgage or pledge, or impose or suffer to be imposed any Encumbrance on, any
of the assets or properties of the Seller relating to the DentalMate Business,
except in the ordinary course of business consistent with past practices.

 

7.10                           Non-Compete.  Seller hereby agrees not to engage in any
Competitive Activity during the period commencing on the Closing Date and
ending on the third (3rd  ) anniversary of the Closing Date.  For these purposes, a “Competitive Activity”
shall mean, directly or indirectly, (i) owning, managing, operating, joining,
controlling, participating in or becoming employed by (including without
limitation, acting as a member of the board of directors of), (ii) rendering
any services to (including without limitation, consulting or management
services), advise or assistance of any nature on behalf of, or (iii) investing
or acquiring any interest in (whether beneficial or not), in the case of any of
the foregoing clauses (i), (ii) or (iii) above, any Person which operates a
business which is competitive with the DentalMate Business as of the Closing
Date anywhere in the world; provided, however, passive investments of no more
than 5% in the aggregate of the equity securities of any such Person, which
equity securities are publicly traded and listed for trading on any
internationally recognized securities exchange (including without limitation,
the National Association of Securities Dealers Automated Quotation system)
shall not constitute Competitive Activities. 
Seller further acknowledges that such restrictions are reasonable and
necessary to protect the

 

20

 

legitimate interests of Purchaser and its Affiliates and that any
violation would result in irreparable injury to Purchaser and its Affiliates.

 

7.11                           Survival.  The representations, warranties, covenants
and obligations contained in this Agreement, the Other Documents and each other
document delivered in connection with the consummation of the transaction
contemplated by this Agreement will survive the Closing for the time from and
after the Closing Date as set forth in Section 10.4.  The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment
of Damages, or other remedy based on such representations, warranties,
covenants and obligations.

 

7.12                           Access
to Records.  The Purchaser will
permit representatives of the Seller to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Purchaser, to all books and records of or pertaining to the
Seller’s operation of its business prior to the Closing Date and of or
pertaining to DentalMate, an Affiliate of the Seller.

 

7.13                           Collection
of Accounts Receivable.  For a
period of twelve (12) months commencing on the Closing Date, Purchaser shall
use reasonable efforts to collect all accounts receivable of the Seller (the
“Accounts”) which are specifically identified to Purchaser and set forth in
Schedule 7.13 and sent to the Premises with sufficient detail to identify the
invoice relating to said Account. 
Schedule 7.13 shall be provided by the Seller to the Purchaser at
Closing. Purchaser’s efforts shall include directing its billing staff to continue
to collect and post the Accounts using current procedures and billing software
during this 12-month period including crediting customer payments to invoices
specified with such payments and, in the event that the customer fails to
identify specifically the invoice to be paid, Seller and Purchaser shall
cooperate with each other in good faith to identify whether said payment is
allocable to Seller or Purchaser.  All
monies collected by Purchaser on behalf of Seller shall be disbursed to a bank
account identified by Seller in writing on a monthly basis no later than ten
(10) days from the preceding month. 
Purchaser shall provide monthly accounting statements to Seller together
with other documents pertaining to the Accounts as are reasonably requested by
Seller and as are sufficient to identify the invoice pertaining to such
payments provided such documents were provided to Purchaser at Closing.  At the end of the 12-month period set forth
in this Section, Purchaser shall have no further obligation to collect the
Accounts, shall provide Seller with a final statement of the Accounts.

 

ARTICLE 8

CLOSING CONDITIONS

 

8.1                                 Conditions
to Purchaser’s Consummation of the Acquisition.  The obligation of Purchaser to consummate the Acquisition shall
be subject to the satisfaction, on or

 

21

 

prior to the Closing Date, of each of the following conditions, each of
which may be waived by Purchaser except as otherwise provided by law:

 

(a)                                  Representations
and Warranties True.  Each of the
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects as of the date hereof and as of the
Closing as through made on the Closing Date.

 

(b)                                 Performance
by Seller.  Each of the covenants
and obligations of Seller to be performed by it on or before the Closing Date
pursuant to the terms of this Agreement, and each of the provisions hereof to
be complied with by Seller on or before such date, shall have been duly
performed and complied with in all material respects.

 

(c)                                  Authorization
of Transaction.  All corporate or
other organizational action required to be taken by or on the part of Seller to
authorize the execution, delivery and performance of this Agreement and the
Other Documents and the consummation of the transactions contemplated hereby
and thereby shall have been duly and validly taken, and Seller shall have full
right and power to consummate transactions contemplated by this Agreement and
the Other Documents on the terms and conditions provided herein and therein.

 

(d)                                 Absence
of Litigation.  No action, suit or
proceeding by or before any Governmental Authority shall have been instituted
or threatened by any Governmental Authority or Person whatsoever which shall
seek to restrain, prohibit or invalidate the transactions contemplated by this
Agreement or the Other Documents or which may affect the right of Purchaser to
own or use the Transferred Assets or operate the DentalMate Business after the
Closing.

 

(e)                                  Assignment
of Transferred Assets. Seller shall have executed and delivered to
Purchaser an Assignment and Assumption Agreement.

 

(f)                                    Termination
of Encumbrances.  Purchaser shall
have received to its satisfaction documentation with respect to the full
cancellation and release of all Encumbrances on the Transferred Assets,
including without limitation, executed UCC-3 Termination Statements or, in the
alternative, a pay-off letter from the secured lenders of Seller stating that
its Encumbrances on the Transferred Assets will be released upon payment to
such lender of a sum certain.

 

(g)                                 Corporate
Name.  Seller shall have executed
and delivered to Purchaser such documents, instruments, certificates and
assignments and taken such other actions as required by Purchaser or any
Governmental Authority to sell, assign, convey and transfer to Purchaser all
right, title and interest in and to the name DentalMate and any and all
variations thereof used by Seller to identify the DentalMate Business as
currently conducted.

 

(h)                                 No
Adverse Change.  There shall have
been no events which have resulted in or are likely to result in a Material
Adverse Effect.

 

22

 

(i)                                     Due
Diligence.  Purchaser shall be
satisfied in its sole discretion as to the results of its due diligence
investigation of the DentalMate Business operations, properties, assets,
liabilities and condition, financial or otherwise.

 

(j)                                     Conduct
of Business Prior to the Closing Date. 
Seller (i) shall have conducted the DentalMate Business only in the
ordinary course consistent with past practice; (ii) shall not have entered into
material agreement, commitment or instrument, except in the ordinary course of
business, (iii) shall not have sold, leased, transferred or otherwise disposed
of, or mortgaged or pledged, or imposed or suffered to be imposed any
Encumbrance on, any of the assets or properties of the Seller relating to the
DentalMate Business, except in the ordinary course of business consistent with
past practices.

 

(k)                                  Certificates
and Other Documents.  Seller shall
have furnished Purchaser with such certificates of Seller as Purchaser may
reasonably request to evidence or certify compliance with the conditions set
forth in this Section 8.1.  The form and
substance of all opinions, certificates and other documents hereunder shall be
satisfactory in all respects to Purchaser and its counsel.

 

8.2                                 Conditions
to Seller’s Consummation of the Acquisition.  The obligations of Seller to consummate the Acquisition shall be
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, each of which may be waived by Seller except as otherwise
provided by law:

 

(a)                                  Representations
and Warranties True.  Each of the
representations and warranties of Purchaser contained in this Agreement shall
be true and correct in all material respects as of the Closing Date as though
made on the Closing Date.

 

(b)                                 Purchaser’s
Performance.  Each of the
obligations of Purchaser to be performed by it on or before the Closing Date
pursuant to the terms of this Agreement, and each of the provisions hereof to
be complied with by Purchaser on or before such date, shall have been duly
performed and complied with in all respects.

 

(c)                                  Authorization
of Transaction.  All corporate
action required to be taken by or on the part of Purchaser to authorize the
execution, delivery and performance of this Agreement and the Other Documents
and the consummation of the transactions contemplated hereby and thereby shall
have been duly and validly taken, and Purchaser shall have full right and power
to consummate the Acquisition and the other transactions contemplated by this
Agreement and the Other Documents on the terms and conditions provided herein
and therein.

 

(d)                                 Absence
of Litigation.  No action, suit or
proceeding by or before any Governmental Authority shall have been instituted
or threatened by any Governmental Authority or Person which shall seek to
restrain, prohibit or invalidate the transactions contemplated by this
Agreement or the Other Documents or which may affect the right of Seller to
transfer the Transferred Assets.

 

23

 

(e)                                  Assignment
and Assumption Agreement.  Purchaser
shall have executed and delivered to Seller the Assignment and Assumption
Agreement.

 

(f)                                    Certificates
and Other Documents.  Purchaser
shall have furnished Seller with such certificates of Purchaser as Seller may
reasonably request to evidence or certify compliance with the conditions set
forth in this Section 8.2.  The form and
substance of all opinions, certificates and other documents hereunder shall be
satisfactory in all respects to Seller and its counsel.

 

(g)                                 Purchase
Price.  Purchaser shall have
delivered to Seller the Purchase Price in immediately available funds.

 

ARTICLE
9

INDEMNIFICATION

 

9.1                                 Indemnification
by Seller.  Seller shall indemnify,
defend and hold harmless Purchaser, its Affiliates, and the officers,
directors, employees and agents of Purchaser and its Affiliates, and each of
their respective successors and assigns, from and against all Claims
(including, without limitation, Claims by third parties), damages, losses,
Liabilities, Taxes, costs and expenses (including, without limitation,
settlement costs and any reasonable legal, accounting or other expenses for
investigating or defending any actions or threatened actions) (collectively, “Damages”)
arising out of or caused by (i) the failure of any representation or warranty
made by Seller in this Agreement or any Other Document to be true and correct
in all material respects when made, (ii) any breach of any covenant, agreement
or obligation of Seller contained in this Agreement or any Other Document (iii)
the ownership or operation of the DentalMate Business prior to the Closing Date
(whether notice of such occurred before, on or after the Closing Date), and
(iv) any liabilities relating to Taxes attributable to any taxable period of
Seller, or relating to the use or ownership of any Transferred Asset, prior to
or including the Closing Date.

 

9.2                                 Indemnification
by Purchaser.  Purchaser shall
indemnify, defend and hold harmless Seller, its Affiliates, and the officers,
directors, employees and agents of Seller and its Affiliates, and their
respective successor and assigns from and against any Damages arising out of or
caused by (i) the failure of any representation or warranty made by Purchaser
in this Agreement or any Other Document to be true and correct in all respects
when made, (ii) any breach of any covenant, agreement or obligation of the
Purchaser contained in this Agreement or the Other Documents, (iii) the
ownership or operation of the DentalMate Business after the Closing Date, or
(iv) any of the Assumed Liabilities.

 

9.3                                 Indemnification
Procedures.

 

(a)                                  Notice
of Claim.  An indemnified party
hereunder shall promptly give notice to the indemnifying party after learning
of the assertion of any third party claim against the indemnified party as to
which recovery may be sought against the indemnifying party pursuant to this
Article 9.  The failure to give or
delay in giving

 

24

 

notice as required by this Section 9.3(a)
in a timely fashion shall not result in a waiver of any right to
indemnification hereunder except to the extent the indemnifying party is
prejudiced thereby and then only to the extent of such prejudice.

 

(b)                                 Assumption
of Defense by Indemnifying Party. 
With respect to any third party claim for which any party may be
entitled to indemnification pursuant to Sections 9.1 and 9.2, the indemnified
party may assume primary responsibility for the defense of such claim, and may
select legal counsel reasonably acceptable to the indemnifying party to conduct
the defense of such claim.  If the
indemnified party assumes and undertakes a defense of a third party claim or
claims in accordance with the immediately preceding sentence, the indemnifying
party shall be liable to the indemnified party for any reasonable attorneys’
fees and expenses incurred by the indemnified party in connection with such
matter, after receiving notice from the indemnified party to the effect that it
intends to take advantage of the provisions set forth in the immediately
preceding sentence.  In the event the
indemnified party assumes primary responsibility for the defense of any claim,
the indemnifying party shall continue to pay the legal fees and expenses of
counsel for the indemnified party and the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified
party.  The indemnified party shall have
the right, with the consent of the indemnifying party (which consent shall not
be unreasonably withheld, conditioned or delayed) to settle or compromise any
such action on terms satisfactory to it; provided, however, that
in the event the indemnifying party shall have failed to pay any of the
payments required pursuant to Section 9.3(c) within sixty (60) days after
receipt of an invoice therefor, then, in such event, the indemnified party
shall be entitled to settle or compromise any such action without the consent
of the indemnifying party.  The
indemnified party agrees to keep the indemnifying party (or its legal
representative) fully apprised of any such defense until the disposition of the
claim.

 

(c)                                  Payment
by Indemnifying Party.  Without
limiting the generality of this Article 9, the indemnifying party shall
promptly pay or reimburse the indemnified party for (i) the amount of any
judgment rendered or settlement entered into, (ii) all Damages and expenses,
legal or otherwise, incurred by the indemnified party in connection with the
defense against such third party claim or litigation and (iii) all costs
incurred by the indemnified party in the securing of such party’s rights under
this Article 9.

 

9.4                                 INDEMNIFICATION
LIMITATIONS.  In the event the
Seller breaches any of its representations, warranties, and covenants contained
in this Agreement, and, provided that the Purchaser makes a written claim for
indemnification against the Seller pursuant to Section 9 within the requisite
survival period, then the Seller shall indemnify the Purchaser through and
after the date of the claim for indemnification resulting from the breach. All
of the representations and warranties of the Seller and the Purchaser contained
in this Agreement shall survive the Closing and continue in full force and
effect for a period of twenty four (24) months thereafter (“Indemnity Period”).

 

25

 

ARTICLE 10

MISCELLANEOUS

 

10.1                           Further
Assurances.  Each party hereto will
fully cooperate with each other and execute and deliver any and all instruments
and take any and all other actions, after the date hereof and before the
Closing and after the Closing, which may be necessary, proper or advisable, in
good faith, to effectuate or evidence the provisions of this Agreement and the
Other Documents and to consummate the transactions contemplated hereby and
thereby.

 

10.2                           Waiver.  Any failure of Seller to comply with any of
its obligations or agreements herein contained may be waived only in writing by
Purchaser.  Any failure of Purchaser to
comply with any of its obligations or agreements herein contained may be waived
only in writing by Seller.

 

10.3                           Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given upon
receipt of: hand delivery; certified or registered mail, return receipt
requested; or facsimile transmission with confirmation of receipt:

 

(a)                                  If
to Seller, to:

VANTAGEMED Corporation

3017 Kilgore Road, Suite 180

Rancho Cordova, CA 95670

Facsimile: XXX-XXX-XXXX

Telephone: XXX-XXX-XXXX

Attention:  Philip Ranger

(with a copy to)

 

(b)                                 If
to Purchaser, to:

MDC Services, Inc.

XXX

XXXXX

Facsimile: XXX-XXX-XXXX

Telephone: XXX-XXX-XXXX

Attention: John M. Simpson

 

26

 

(with a copy to)

Cummins & Hession, P.C.

415 North LaSalle, Suite 603

Chicago, Illinois 60610

Facsimile:                                            XXX-XXX-XXXX

Telephone:                                    XXX-XXX-XXXX

Attention:  John J. Cummins, Esq.

 

Such names and addresses may be changed by written notice
to each person listed above.

 

10.4                           GOVERNING
LAW AND CONSENT TO JURISDICTION. 
(a)  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS, AND
NOT THE CHOICE OF LAW RULES, OF THE STATE OF DELAWARE WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.

 

(b)                                 THE
PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENT TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
FOR ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE OTHER DOCUMENTS (AS DEFINED HEREIN) OR THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY, AND AGREES NOT TO COMMENCE ANY ACTION, SUIT OR
PROCEEDING RELATED THERETO EXCEPT IN SUCH COURTS.  SELLER AND PURCHASER FURTHER HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY LAWSUIT,
CLAIM OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE, (II) IRREVOCABLY AND
UNCONDITIONALLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM AN INCONVENIENT FORUM,
AND (III) COVENANT AND AGREE NOT TO INSTITUTE ANY ACTION OR PROCEEDING IN ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE.

 

10.5                           Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.  A facsimile, telecopy or other reproduction of this Agreement may
be executed by one or more parties hereto, and an executed copy of this
Agreement may be delivered by one or more parties hereto by facsimile or
similar instantaneous electronic transmission device pursuant to which the
signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes as
of the date first written above.  At the
request of any party hereto, all parties hereto agree to execute an original of
this Agreement as well as any facsimile, telecopy or other reproduction hereof.

 

10.6                           Entire
Agreement.  This Agreement,
including the Exhibits and Schedules hereto and the documents referred to
herein, embodies the entire agreement and understanding of

 

27

 

the parties hereto in respect of the subject matter contained
herein.  This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter, including without limitation the Letter of Intent, dated
June 2, 2003, between MDC and Seller.

 

10.7                           Amendment
and Modification.  This Agreement
may be amended or modified only by written agreement of the parties hereto.

 

10.8                           Binding
Effect; Benefits.  This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; nothing in this Agreement, express or
implied, is intended to confer on any Person other than the parties hereto and
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

 

10.9                           Assignability.  This Agreement shall not be assignable by
any party hereto without the prior written consent of the other party except by
operation of law.

 

10.10                     Bulk Sales. The Seller and
the Purchaser hereby agree and acknowledge that compliance with the provisions
of the bulk sales law of the State of North Carolina in connection with the
transactions contemplated by this Agreement is waived.

 

10.11                     Attorneys’ Fees, Prevailing
Parties.  In the event either party seeks
judicial enforcement of its rights under this Agreement, then the prevailing
party in such action shall be entitled to recover its costs incurred in such
action including, but not limited to, reasonable attorneys’ fees.

 

 

[Signature
page follows]

 

28

 

IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the 19th day of September, 2003.

 

 

	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
  VANTAGEMED
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard M.
  Brooks

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Richard M.
  Brooks

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive
  Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TREND SIERRA
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Richard M. Brooks

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Richard M.
  Brooks

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  PURCHASER:

  
	
   

  	
   

  	
   

  
	
   

  	
  MDC SYSTEMS
  & SERVICES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ John M. Simpson

  	
   

  
	
   

  	
   

  	
  Name:

  	
  John M. Simpson

  
	
   

  	
   

  	
  Title:

  	
  PRESIDENT

  
					

 

[Signature
Page to Asset Purchase Agreement]  

 

29

 

EXHIBIT A

 

 

PROMISSORY NOTE 

 

	
  $50,000.00

  	
   

  	
  Date: September 19, 2003

  

 

 

1.               MDC Services, Inc. (“Borrower”) promises to
pay to VantageMed Corporation (“Lender”), or order, in lawful money of the
United States of America, the principal amount of Fifty Thousand Dollars
($50,000) or so much as may be outstanding on the unpaid outstanding principal
balance.

2.               Interest shall not accrue on this Note.
Borrower shall pay lender at Lender’s address or at such other place as Lender
may designate in writing.

3.               The Borrower shall pay the outstanding
principal in a single payment six months after the date written above.

4.               Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due.

5.               The terms of this Promissory Note may be
amended by written consent of both parties to this agreement.

6.               Borrower will be in default if any of the
following occurs:

a.               Borrower fails to make any payment when due;

b.              Borrower defaults in any promise Borrower has
made to Lender in connection with this Note, or Borrower fails to perform
promptly at the time and manner provided in this Note after 15 days notice and
opportunity to cure;

c.               A receiver is appointed for any part of
Borrower’s property, Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by borrower or against Borrower under any
bankruptcy or insolvency laws.

7.               Upon default, Lender at its sole discretion
may declare the entire unpaid principal balance on the Note due within 15 days
notice of such default if default is not cured, and then Borrower will pay that
amount. Subject to any limits under applicable law, Borrower

 

30

 

shall be responsible for, in the event of default, Lender’s reasonable
attorneys’ fees which may now or hereafter be permitted by law and Lender’s
legal expenses whether or not there is a lawsuit, including reasonable
attorneys’ fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction) appeals, and any
anticipated post-judgment collection services. If not prohibited by applicable
law, Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender’s request to submit to the jurisdiction of the courts of the State of
California. This Note shall be governed by and construed in accordance with the
laws of the State of California.

8.               Lender may delay or forego enforcing any of
its rights or remedied under this Note without losing them. Borrower and any
other person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Note, and unless otherwise expressly
stated in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability.

 

PRIOR
TO SIGNING THIS NOTE, BORROWER HAS READ AND UNDERSTOOD ALL OF THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.

 

	
  “Buyer”

  	
   

  	
  “Seller”

  
	
  MDC
  Services, Inc.

  	
   

  	
  VantageMed
  Corporation

  
	
  By:
  John M. Simpson, President

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/
  John M. Simpson

  	
   

  	
   

  	
  By:

  	
  /s/
  Richard M. Brooks

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Richard
  M. Brooks

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
							

 

31

 

EXHIBIT
B

 

 

PROMISSORY NOTE 

 

	
  $50,000.00

  	
   

  	
  Date: September 19, 2003

  

 

 

1.               MDC Services, Inc. (“Borrower”) promises to
pay to VantageMed Corporation (“Lender”), or order, in lawful money of the
United States of America, the principal amount of Fifty Thousand Dollars
($50,000) or so much as may be outstanding on the unpaid outstanding principal
balance.

2.               Interest shall not accrue on this Note.
Borrower shall pay lender at Lender’s address or at such other place as Lender
may designate in writing.

3.               The Borrower shall pay the outstanding
principal in a single payment twelve months after the date written above.

4.               Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due.

5.                The terms of this Promissory Note may be
amended by written consent of both parties to this agreement.

6.               Borrower will be in default if any of the
following occurs:

a.               Borrower fails to make any payment when due;

b.              Borrower defaults in any promise Borrower has
made to Lender in connection with this Note, or Borrower fails to perform
promptly at the time and manner provided in this Note after 15 days notice and
opportunity to cure;

c.               A receiver is appointed for any part of
Borrower’s property, Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by borrower or against Borrower under any
bankruptcy or insolvency laws.

7.               Upon default, Lender at its sole discretion
may declare the entire unpaid principal balance on the Note due within 15 days
notice of such default if default is not cured, and then Borrower will pay that
amount. Subject to any limits under applicable law, Borrower shall be responsible
for, in the event of default, Lender’s reasonable attorneys’ fees which may now
or hereafter be permitted by law and Lender’s legal expenses whether or not
there is a lawsuit, including reasonable attorneys’ fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction) appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will pay any court
costs, in addition to all other sums provided by law. This Note has been
delivered to Lender and accepted by Lender in the State of California. If there
is a lawsuit, Borrower agrees upon Lender’s request to submit to the
jurisdiction of the courts of the State of California. This Note shall be governed
by and construed in accordance with the laws of the State of California.

8.               Lender may delay or forego enforcing any of
its rights or remedied under this Note without losing them. Borrower and any
other person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive presentment, demand for payment, protest

 

32

 

and notice of dishonor. Upon any change in the terms of this Note, and
unless otherwise expressly stated in writing, no party who signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be released
from liability.

 

PRIOR
TO SIGNING THIS NOTE, BORROWER HAS READ AND UNDERSTOOD ALL OF THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.

 

 

	
  “Buyer”

  	
   

  	
  “Seller”

  
	
  MDC
  Services, Inc.

  	
   

  	
  VantageMed
  Corporation

  
	
  By:
  John M. Simpson, President

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/
  John M. Simpson

  	
   

  	
   

  	
  By:

  	
  /s/
  Richard M. Brooks

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Richard
  M. Brooks

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
							

 

33

 

EXHIBIT
C

 

SECURITY
AGREEMENT

 

 

This SECURITY AGREEMENT is made on this 19th day of September, 2003
between VantageMed Corporation, (“Secured Party”) and MDC Services, Inc.
(“Debtor”).

 

1.               SECURITY INTEREST.    Debtor
grants to Secured Party a security interest in the DentalMate Software and the
customer lists as defined in the Exhibit attached hereto. The Security Interest
shall secure the payment and performance of the Debtor’s promissory notes
attached hereto in Exhibit A in the principal amount of Fifty Thousand
($50,000.00) Dollars.

2.               COVENENTS.    Debtor hereby
warrants and covenants:

a.               The DentalMate Software will be maintained in
full working condition and the Debtors will make every effort to maintain high
quality support to the Customers;

b.              The Debtor will not sell, dispose, or
otherwise transfer the collateral or any interest therein without the prior
written consent of Secured Party, and the Debtor shall keep the collateral free
from unpaid charges (including consultants), taxes, and liens (except liens
placed on assets by Buyer’s financial institutions).

c.               The Debtor shall execute alone or with
Secured Party any Financing Statement or other document or procure any
document, and pay the cost of filing same in all public offices wherever filing
is deemed by Secured Party to be necessary.

d.              Debtor shall maintain insurance at all times
with respect to all collateral against risks of fire, theft,, and other such
risks and in such amounts as Secured Party may require. The policies shall be
payable to both the Secured Party and the Debtor as their interest appear and
shall provide for ten (10) days written notice of cancellation to Secured
Party.

e.               The Debtor shall make all enhancements,
additions, and improvements necessary to maintain any software in good working
order and condition.

3.               DEFAULT.    The Debtor shall
be in default under this Agreement upon the happening of any of the following:

a.               Any misrepresentation in connection with this
Agreement on the part of the Debtor.

b.              Any non-compliance with or non-performance of
the Debtor’s obligations under the Note or this Agreement.

c.               If Debtor is involved in any financial
difficulty as evidenced by

i.                  An assignment for the benefit of creditors,
or

ii.               An attachment or receivership of assets not
dissolved within thirty (30) days, or

iii.            The institution of Bankruptcy proceedings,
whether voluntary or involuntary, which is not dismissed within thirty (30)
days from the date on which it is filed. Upon default and at any time
thereafter, Secured Party

 

34

 

may declare all obligations secured hereby immediately due and payable
and shall have the remedies of a Secured Party under the Uniform Commercial
Code. Secured Party may require the Debtor to make it available to Secured
Party at a place mutually convenient. No waiver by Secured Party of any default
shall operate as a waiver of any other default or of the same default on a
future occasion. This Agreement shall inure to the benefit of and bind the
heirs, executors, administrators, successors, and assigns of the parties. This
Agreement shall have the effect of an instrument under seal.

 

 

	
  “Buyer”

  	
   

  	
  “Seller”

  
	
  MDC
  Services, Inc.

  	
   

  	
  VantageMed
  Corporation

  
	
  By:
  John M. Simpson, President

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/
  John M. Simpson

  	
   

  	
   

  	
  By:

  	
  /s/
  Richard M. Brooks

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Printed
  Name:

  	
  Richard
  M. Brooks

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  CEO

  
								

 

 

EXHIBIT
D

 

SECURITY
AGREEMENT

 

 

This SECURITY AGREEMENT is made on this 19th day of September, 2003
between VantageMed Corporation, (“Secured Party”) and MDC Services, Inc.
(“Debtor”).

 

4.               SECURITY INTEREST.    Debtor
grants to Secured Party a security interest in the DentalMate Software and the
customer lists as defined in the Exhibit attached hereto. The Security Interest
shall secure the payment and performance of the Debtor’s promissory notes
attached hereto in Exhibit B in the principal amount of Fifty Thousand
($50,000.00) Dollars.

 

35

 

5.               COVENENTS.    Debtor hereby
warrants and covenants:

a.               The DentalMate Software will be maintained in
full working condition and the Debtors will make every effort to maintain high
quality support to the Customers;

b.              The Debtor will not sell, dispose, or
otherwise transfer the collateral or any interest therein without the prior
written consent of Secured Party, and the Debtor shall keep the collateral free
from unpaid charges (including consultants), taxes, and liens (except liens
placed on assets by Buyer’s financial institutions).

c.               The Debtor shall execute alone or with
Secured Party any Financing Statement or other document or procure any
document, and pay the cost of filing same in all public offices wherever filing
is deemed by Secured Party to be necessary.

d.              Debtor shall maintain insurance at all times
with respect to all collateral against risks of fire, theft,, and other such
risks and in such amounts as Secured Party may require. The policies shall be
payable to both the Secured Party and the Debtor as their interest appear and
shall provide for ten (10) days written notice of cancellation to Secured
Party.

e.               The Debtor shall make all enhancements,
additions, and improvements necessary to maintain any software in good working
order and condition.

6.               DEFAULT.    The Debtor shall
be in default under this Agreement upon the happening of any of the following:

a.               Any misrepresentation in connection with this
Agreement on the part of the Debtor.

b.              Any non-compliance with or non-performance of
the Debtor’s obligations under the Note or this Agreement.

c.               If Debtor is involved in any financial
difficulty as evidenced by

i.                  An assignment for the benefit of creditors,
or

ii.               An attachment or receivership of assets not
dissolved within thirty (30) days, or

iii.            The institution of Bankruptcy proceedings,
whether voluntary or involuntary, which is not dismissed within thirty (30)
days from the date on which it is filed. Upon default and at any time
thereafter, Secured Party may declare all obligations secured hereby
immediately due and payable and shall have the remedies of a Secured Party
under the Uniform Commercial Code. Secured Party may require the Debtor to make
it available to Secured Party at a place mutually convenient. No waiver by
Secured Party of any default shall operate as a waiver of any other default or
of the same default on a future occasion. This Agreement shall inure to the
benefit of and bind the heirs, executors, administrators, successors, and
assigns of the parties. This Agreement shall have the effect of an instrument
under seal.

 

 

	
  “Buyer”

  	
   

  	
  “Seller”

  
	
  MDC
  Services, Inc.

  	
   

  	
  VantageMed
  Corporation

  
	
  By:
  John M. Simpson, President

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/
  John M. Simpson

  	
   

  	
   

  	
  By:

  	
  /s/
  Richard M. Brooks

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Printed
  Name:

  	
  Richard
  M. Brooks

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  CEO

  
								

 

36

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