Document:

Exhibit 10.2

 

June 30,
2008

 

Hearst-Argyle Television, Inc.

300
West 57th Street, 39th Floor

New
York, New York 10019

 

Re:  Agency Agreement

 

Ladies/Gentlemen:

 

This
Amendment No. 1, (“Amendment 1”) amends the Agency Agreement dated April 2,
2008 by and between Lifetime Entertainment Services and Hearst-Argyle
Television, Inc. (“Hearst”) regarding negotiation with * for the right to
retransmit the signals of certain Hearst broadcast stations (the “Agreement”).  All capitalized terms used herein and not
otherwise defined shall have the meaning set forth in the Agreement.

 

Notwithstanding
anything to the contrary contained in the Agreement, LES and Hearst agree that
the term of any Will Carry Agreement negotiated with * pursuant to the
Agreement shall expire no later than *.

 

The
first paragraph of Appendix C to the Agreement is hereby amended by amending
clause (iii) and adding clauses (iv) and (v) as set forth below.

 

(iii)          For the
period * through *, $*  per subscriber
per month (Contract Year *).

 

(iv)          For the
period * through *, $ * per subscriber per month (Contract Year *).

 

(v)           For the
period * through *, $* per subscriber per month (Contract Year *).

 

If the foregoing comports with your understanding, please
sign and return the enclosed duplicate copy of this letter.

 

	
   

  	
   

  	
  LIFETIME ENTERTAINMENT SERVICES

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
     /s/ Lori Conkling

  
	
   

  	
   

  	
  Name:

  	
  Lori Conkling

  
	
   

  	
   

  	
  Title:

  	
  EVP Distribution

  
	
   

  	
   

  	
   

  
	
  Acknowledged and agreed to

  	
   

  	
   

  
	
  This 30th day of June,
  2008

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  HEARST-ARGYLE TELEVISION, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Jonathan C. Mintzer

  	
   

  	
   

  
	
  Name: Jonathan C. Mintzer

  	
   

  	
   

  
	
  Title: Vice President, General Counsel and SecretaryExhibit 10.1

 

LOAN AND
SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT
(this “Agreement”) dated as of the Effective
Date between (i) SILICON VALLEY BANK,
a California corporation with its principal place of business at 3003 Tasman
Drive, Santa Clara, California 95054 and with a loan production office located
at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton,
Massachusetts 02462 (“Bank”), and (ii) MICROFLUIDICS INTERNATIONAL CORPORATION, a Delaware
corporation and MICROFLUIDICS CORPORATION, a
Delaware corporation, each with offices located at 30 Ossipee Road, Newton,
Massachusetts 02464 (“Borrower”),
provides the terms on which Bank shall lend to Borrower and Borrower shall
repay Bank.  The parties agree as
follows:

 

1              ACCOUNTING
AND OTHER TERMS

 

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

 

2              LOAN AND TERMS OF PAYMENT

 

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

 

2.1.1       Revolving Advances.

 

(a)           Availability.  Subject to the terms and conditions of this
Agreement and to deduction of Reserves, Bank shall make Revolving Line Advances
not exceeding the Availability Amount.  Amounts borrowed hereunder may be
repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to
the applicable terms and conditions precedent herein.

 

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

 

2.1.2       Letters of Credit Sublimit.

 

(a)           As part of the Revolving Line, Bank
shall issue or have issued Letters of Credit for Borrower’s account.  Such aggregate amounts utilized hereunder
shall at all times reduce the amount otherwise available for Advances under the
Revolving Line.  The aggregate face
amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) may not exceed Five Hundred
Thousand Dollars ($500,000) inclusive of the Credit Extensions made pursuant to
Sections 2.1.3 and 2.1.4.  If, on the
Revolving Line Maturity Date, there are any outstanding Letters of Credit, then
on such date Borrower shall either provide replacement letters of credit
acceptable to Bank or provide to Bank cash collateral in an amount equal to one
hundred percent (100%) of the face amount of all such Letters of Credit plus
all interest, fees, and costs due or to become due in connection therewith (as
estimated by Bank in its good faith business judgment), to secure all of the
Obligations relating to said Letters of Credit. 
All Letters of Credit shall be in form and substance acceptable to Bank
in its sole discretion and shall be subject to the terms and conditions of Bank’s
standard Application and Letter of Credit Agreement (the “Letter of
Credit Application”). 
Borrower agrees to execute any further documentation in connection with
the Letters of Credit as Bank may reasonably request.  Borrower
further agrees to be bound by the regulations and interpretations of the issuer
of any Letters of Credit guarantied by Bank and opened for Borrower’s account
or by Bank’s interpretations of any Letter of Credit issued by Bank for
Borrower’s account, and Borrower understands and agrees that Bank shall not be
liable for any error, negligence, or mistake, whether of omission or
commission, in following Borrower’s instructions or those contained in the
Letters of Credit or any modifications, amendments, or supplements thereto.

 

 

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

 

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

 

(d)           To guard against fluctuations in
currency exchange rates, upon the issuance of any Letter of Credit payable in a
Foreign Currency, Bank shall create a reserve (the “Letter of Credit
Reserve”) under the Revolving Line in an amount equal to ten percent
(10%) of the face amount of such Letter of Credit.  The amount of the Letter of Credit Reserve
may be adjusted by Bank from time to time to account for fluctuations in the
exchange rate.  The availability of funds
under the Revolving Line shall be reduced by the amount of such Letter of
Credit Reserve for as long as such Letter of Credit remains outstanding.  Any amounts needed to fully reimburse Bank
will be treated as Advances under the Revolving Line and will accrue interest
at the interest rate applicable to Advances.

 

2.1.3       Foreign Exchange Sublimit.  As part of the Revolving Line, Borrower may
enter into foreign exchange contracts with Bank under which Borrower commits to
purchase from or sell to Bank a specific amount of Foreign Currency (each, a “FX Forward Contract”) on a specified date (the “Settlement Date”).  FX
Forward Contracts shall have a Settlement Date of at least one (1) FX
Business Day after the contract date and shall be subject to a reserve of ten
percent (10%) of each outstanding FX Forward Contract in a maximum aggregate
amount equal to Fifty Thousand Dollars ($50,000) (the “FX Reserve”).  The aggregate amount of FX Forward Contracts
at any one time plus Credit Extensions made pursuant to Sections 2.1.2 and
2.1.4 may not exceed ten (10) times the amount of the FX Reserve.  Any amounts needed to fully reimburse Bank
will be treated as Advances under the Revolving Line and will accrue interest
at the interest rate applicable to Advances.

 

2.1.4       Cash Management Services Sublimit.  Borrower may use up to Five Hundred Thousand
Dollars ($500,000), inclusive of the Credit Extensions made pursuant to
Sections 2.1.2 and 2.1.3, for Bank’s cash management services which may include
merchant services, direct deposit of payroll, business credit card, and check
cashing services identified in Bank’s various cash management services
agreements (collectively, the “Cash Management Services”).  Any amounts Bank pays on behalf of Borrower
for any Cash Management Services will be treated as Advances under the
Revolving Line and will accrue interest at the interest rate applicable to
Advances.

 

2.2          Overadvances.  If, at any time the sum of (a) the
outstanding amount of any Advances (including any amounts used for Cash
Management Services) plus (b) the face amount of any outstanding Letters
of Credit (including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve), plus (c) the FX Reserve exceeds the lesser of either the
Revolving Line or the Borrowing Base (such sum being an “Overadvance”),
Borrower shall immediately pay to Bank in cash such Overadvance.  Without limiting Borrower’s obligation to
repay Bank any amount of the Overadvance, Borrower agrees to pay Bank interest
on the outstanding amount of any Overadvance, on demand, at the Default Rate.

 

2.3          Payment of Interest on the Credit Extensions.

 

(a)           Interest Rate; Advances.  Subject to Section 2.3(b), the principal
amount outstanding under the Revolving Line shall accrue interest at a per
annum rate equal to the Prime Rate plus one percent (1.00%).

 

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

 

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

 

2

 

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

 

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

 

(f)            Payment; Interest Computation;
Float Charge.  Interest is payable
monthly on the last Business Day  of each month
through the last day of such month.  In
computing interest on the Obligations, all payments received after 12:00 p.m.
Pacific time on any day shall be deemed received on the next Business Day.  In addition, so long as any principal or
interest with respect to any Credit Extension remains outstanding, Bank shall
be entitled to charge Borrower a “float” charge in an amount equal to three (3) Business
Days interest, at the interest rate applicable to the Credit Extensions, on all
payments received by Bank.  The float
charge for each month shall be payable on the last Business Day of each
month.  Bank shall not, however, be required to credit Borrower’s account for the
amount of any item of payment which is unsatisfactory to Bank in its good faith
business judgment, and Bank may charge Borrower’s Designated Deposit Account
for the amount of any item of payment which is returned to Bank unpaid.

 

2.4          Fees.  Borrower shall pay to Bank:

 

(a)           Commitment
Fee.  A fully earned, non-refundable
commitment fee of Forty Five Thousand Dollars ($45,000), payable as follows (i) Thirty
Thousand Dollars ($30,000) (less the sum of $15,000 previously paid), on the
Effective Date; and (ii) Fifteen Thousand Dollars ($15,000), on the
earlier to occur of (X) the termination of this Agreement, or (Y) the
first anniversary of the Effective Date;

 

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

 

(c)           Unused Revolving Line Facility Fee.  A fee (the “Unused
Revolving Line Facility Fee”), payable monthly, in arrears, on a
calendar year basis, in an amount equal to one-quarter of one percent (0.25%)
per annum of the average unused portion of the Revolving Line, as determined by
Bank.  The unused portion of the Revolving Line, for the purposes of this
calculation, shall include amounts reserved under the Cash Management Services
Sublimit for products provided and under the Foreign Exchange Sublimit for FX
Forward Contracts.  Borrower shall
not be entitled to any credit, rebate or repayment of any Unused Revolving Line
Facility Fee previously earned by Bank pursuant to this Section notwithstanding
any termination of the Agreement, or suspension or termination of Bank’s
obligation to make loans and advances hereunder; and

 

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

 

3              CONDITIONS OF LOANS

 

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

 

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

 

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

 

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

 

(d)           a payoff letter from TD Bank, N.A.;

 

3

 

(e)           evidence that (i) the Liens
securing Indebtedness owed by Borrower to TD Bank, N.A. will be terminated and (ii) the
documents and/or filings evidencing the perfection of such Liens, including
without limitation any financing statements and/or control agreements, have or
will, concurrently with the initial Credit Extension, be terminated.

 

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

 

(g)           the Perfection Certificate executed
by Borrower;

 

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

 

(i)            evidence satisfactory to Bank that
the insurance policies required by Section 6.7 hereof are in full force
and effect, together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements in favor of Bank; and

 

(j)            payment of the fees and Bank
Expenses then due as specified in Section 2.4 hereof.

 

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

 

(a)           except as otherwise provided in Section 3.4,
timely receipt of an executed Transaction Report;

 

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

 

(c)           in Bank’s good faith business
judgment, there has not been any material impairment in the general affairs,
management, results of operation, financial condition or the prospect of
repayment of the Obligations, or there has not been any material adverse
deviation by Borrower from the most recent business plan of Borrower presented
to and accepted by Bank, subject to the notice and cure periods herein set
forth.

 

3.3          Covenant to Deliver.

 

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

 

3.4          Procedures for Borrowing.  Subject to the prior satisfaction of all
other applicable conditions to the making of an Advance set forth in this
Agreement, to obtain an Advance (other than Advances under Sections 2.1.2 or
2.1.4), Borrower shall notify Bank (which notice shall be irrevocable) by
electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the
Funding Date of the Advance.  Together
with such notification, Borrower must promptly deliver to Bank by electronic
mail or facsimile a completed Transaction Report executed by a Responsible
Officer or his or her designee.  Bank
shall credit Advances to the Designated Deposit Account.  Bank may make Advances under this Agreement
based on instructions from a Responsible Officer or his or her 

 

4

 

designee or without instructions if the Advances are
necessary to meet Obligations which have become due.  Bank may rely on any telephone notice given
by a person whom Bank believes is a Responsible Officer or designee.

 

4              CREATION OF SECURITY INTEREST

 

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

 

If this Agreement
is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in
cash.  Upon payment in full in cash of
the Obligations and at such time as Bank’s obligation to
make Credit Extensions has terminated, Bank shall, at Borrower’s sole cost and
expense, release its Liens in the Collateral and all rights therein shall
revert to Borrower.

 

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

 

5              REPRESENTATIONS AND WARRANTIES

 

Borrower
represents and warrants as follows:

 

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

 

The execution, delivery
and performance by Borrower of the Loan Documents to which it is a party have
been duly authorized, and do not (i) conflict with any of Borrower’s
organizational documents, (ii) contravene, conflict with, constitute a
default under or violate any material Requirement of Law, (iii) contravene,
conflict or violate any applicable order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority by which Borrower or any
its Subsidiaries or any of their property or assets may be bound or affected, 

 

5

 

(iv) require
any action by, filing, registration, or qualification with, or Governmental
Approval from, any Governmental Authority (except such Governmental Approvals
which have already been obtained and are in full force and effect or (v) constitute
an event of default under any material agreement by which Borrower is
bound.  Borrower is not in default under
any agreement to which it is a party or by which it is bound in which the
default could have a material adverse effect on Borrower’s business.

 

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

 

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

 

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

 

Borrower is the sole owner of its intellectual
property, except for non-exclusive licenses granted to its customers in the
ordinary course of business.  Each patent
is valid and enforceable and no part of the intellectual property has been
judged invalid or unenforceable, in whole or in part, and to the best of
Borrower’s knowledge, no claim has been made that any part of the intellectual
property violates the rights of any third party.

 

Except as noted on the Perfection Certificate, Borrower
is not a party to, nor is bound by, any material license or other agreement
with respect to which Borrower is the licensee (a) that prohibits or
otherwise restricts Borrower from granting a security interest in Borrower’s
interest in such license or agreement or any other property, or (b) for
which a default under or termination of could interfere with the Bank’s right
to sell any Collateral.  Borrower shall
provide written notice to Bank within thirty (30) days of entering or becoming
bound by any such license or agreement (other than over-the-counter software
that is commercially available to the public). 
Borrower shall take such steps as Bank requests to obtain the consent
of, or waiver by, any person whose consent or waiver is necessary for (x) all
such licenses or agreements to be deemed “Collateral” and for Bank to have a
security interest in it that might otherwise be restricted or prohibited by law
or by the terms of any such license or agreement, whether now existing or
entered into in the future, and (y) Bank to have the ability in the event
of a liquidation of any Collateral to dispose of such Collateral in accordance
with Bank’s rights and remedies under this Agreement and the other Loan
Documents.

 

5.3          Accounts Receivable; Inventory.

 

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

 

(b)           All
statements made and all unpaid balances appearing in all invoices, instruments
and other documents evidencing the Eligible Accounts are and shall be true and
correct and all such invoices, instruments and other documents, and all of
Borrower’s Books are genuine and in all respects what they purport to be.  Whether or not an Event of Default has occurred
and is continuing, Bank may notify any Account Debtor owing Borrower money of
Bank’s security interest in such funds and verify the amount of such Eligible
Account.  All sales and other
transactions underlying or giving rise to each Eligible Account shall comply in
all material respects with all applicable laws and governmental rules and
regulations.  Borrower has no knowledge
of any actual or imminent Insolvency Proceeding of any Account Debtor whose
accounts are Eligible Accounts in any Transaction Report.  To the best of Borrower’s knowledge, all
signatures and endorsements on all documents, instruments, and agreements
relating to all Eligible Accounts are genuine, and all such documents,
instruments and agreements are legally enforceable in accordance with their
terms.

 

(c)           For any item of Inventory consisting
of Eligible Inventory in any Transaction Report, such Inventory:

 

6

 

(i) consists of (A) raw
materials, (B) work-in-process and (C) finished goods (in good, new,
and salable condition), in each case which is not perishable, returned,
recalled, consigned, obsolete, not sellable, damaged, or defective, and is not
comprised of demonstrative or custom inventory, inventory sold on consignment,
packaging or shipping materials, or supplies;

 

(ii) meets all
applicable governmental standards;

 

(iii) has been
manufactured in compliance with the Fair Labor Standards Act;

 

(iv) is subject to a
first priority Lien granted or in favor of Bank under this Agreement or any of
the other Loan Documents;

 

(v) is located in
the United States at the locations identified by Borrower in the Perfection
Certificate where it maintains Inventory (or any location in the United States
permitted under Section 7.2);

 

(vi) is not subject
to any offsetting claims;

 

(vii) is not in the
possession of a processor or bailee, or located on premises leased or subleased
by Borrower, or on premises subject to a mortgage in favor of a Person other
than Bank, unless such bailee, processor, mortgagee, lessor or sublessor of
such premises, as the case may be, has executed and delivered all documentation
which Bank shall require to evidence the subordination or other limitation or
extinguishment of such Person’s rights with respect to such Inventory;

 

(viii) is not used
for defense or military purposes, or is not sold to a defense or military
agency (other than a United States government entity or any department, agency,
or instrumentality thereof); and

 

(ix) is not
proprietary software not intended for resale.

 

5.4          Litigation.  Except for the Cowls claim set forth in the
Perfection Certificate, there are no actions or proceedings pending or, to the
knowledge of the Responsible Officers, threatened in writing by or against
Borrower or any of its Subsidiaries involving more than Twenty Five Thousand
Dollars ($25,000).

 

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

 

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

 

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

 

5.8          Subsidiaries; Investments.  Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.

 

7

 

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

 

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

 

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

 

6              AFFIRMATIVE COVENANTS

 

Borrower shall do all of
the following:

 

6.1          Government Compliance.

 

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

 

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

 

6.2          Financial Statements, Reports, Certificates.

 

(a)           Borrower
shall provide Bank with the following:

 

                (i) weekly,
on the last Business Day of each week, and with each Advance request, a
Transaction Report (and any schedules related thereto);

 

                (ii) within
fifteen (15) days after the end of each month, (A) monthly accounts
receivable agings, aged by invoice date, (B) monthly accounts payable
agings, aged by invoice date, and outstanding or held check registers, if any, (C) monthly
reconciliations of accounts receivable agings (aged by invoice date),
transaction reports and general ledger, and (D) monthly perpetual
inventory reports for Inventory valued on a first-in, first-out basis at the
lower of cost or market (in accordance with GAAP) or such other inventory
reports as are requested by Bank in its good faith business judgment;

 

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

 

8

 

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

 

(v) within thirty (30) days if possible prior to the end
of each fiscal year (but no later than February 1st of the
subsequent year) of Borrower, (A) annual operating budgets (including
income statements, balance sheets and cash flow statements) for the upcoming
fiscal year of Borrower, and (B) annual financial projections for the
following fiscal year (on a quarterly basis) as approved by Borrower’s
management, together with any related business forecasts used in the
preparation of such annual financial projections; and

 

(vi) as
soon as available, and in any event within one hundred fifty (150) days
following the end of Borrower’s fiscal year, annual consolidated and
consolidating financial statements certified by, and with an unqualified
opinion of, independent certified public accountants acceptable to Bank.

 

(b)           Within five (5) days after
filing, all reports on Form 10-K, 10-Q and 8-K filed with the Securities
and Exchange Commission or a link thereto on Borrower’s or another website on
the Internet.

 

(c)           Prompt written notice of (i) any
material change in the composition of the intellectual property, (ii) the
registration of any copyright, including any subsequent ownership right of
Borrower in or to any copyright, patent or trademark not shown in the IP
Security Agreement, or (iii) Borrower’s knowledge of an event that
materially adversely affects the value of the intellectual property.

 

6.3          Accounts Receivable.

 

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

 

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

 

(c)           Collection of Accounts.  Borrower shall have the right to collect all
Accounts, unless and until a Default or an Event of Default has occurred and is
continuing.  All payments on, and
proceeds of, Accounts shall be deposited directly by the applicable Account
Debtor into a lockbox account, or such other “blocked account” as Bank may
specify, pursuant to a blocked account agreement in form and substance
satisfactory to Bank in its sole discretion. 
Whether or not an Event of Default has occurred and is continuing,
Borrower shall hold all payments on, and proceeds of, Accounts in trust for
Bank, and Borrower shall immediately deliver all such payments and proceeds to
Bank in their original form, duly endorsed, to be applied to the Obligations
pursuant to the terms of Section 9.4 hereof.

 

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

 

9

 

and
during the continuance of any Event of Default, Borrower shall hold the
returned Inventory in trust for Bank, and immediately notify Bank of the
return of the Inventory.

 

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

 

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

 

6.4          Remittance of Proceeds.  Except as otherwise provided in Section 6.3(c),
deliver, in kind, all proceeds arising from the disposition of any Collateral
to Bank in the original form in which received by Borrower not later than the
following Business Day after receipt by Borrower, to be applied to the
Obligations pursuant to the terms of Section 9.4 hereof; provided that, if
no Default or Event of Default has occurred and is continuing, Borrower shall
not be obligated to remit to Bank the proceeds of the sale of worn out or
obsolete Equipment disposed of by Borrower in good faith in an arm’s length
transaction for an aggregate purchase price of Twenty Five Thousand Dollars ($25,000) or less (for all such transactions in
any fiscal year).  Borrower agrees that
it will not commingle proceeds of Collateral with any of Borrower’s other funds
or property, but will hold such proceeds separate and apart from such other
funds and property and in an express trust for Bank.  Nothing in this Section limits the
restrictions on disposition of Collateral set forth elsewhere in this
Agreement.

 

6.5          Taxes;
Pensions.  Except as same are
legally extended in compliance with all applicable requirements, timely file,
and require each of its Subsidiaries to timely file, all required tax returns
and reports and timely pay, and require each of its Subsidiaries to timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions owed by Borrower and each of its Subsidiaries, except for
deferred payment of any taxes contested pursuant to the terms of Section 5.9
hereof, and shall deliver to Bank, on demand, appropriate certificates
attesting to such payments, and pay all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance with
their terms.

 

6.6          Access to Collateral; Books and Records.  At reasonable times, on one (1) Business
Day’s notice (provided no notice is required if an Event of Default has
occurred and is continuing), Bank, or its agents, shall have the right, on a
semi-annual basis (or more frequently, as Bank shall determine necessary in its
sole discretion), to inspect the Collateral and the right to audit and copy
Borrower’s Books.  The foregoing
inspections and audits shall be at Borrower’s expense, and the charge therefor
shall be $750 per person per day (or such higher amount as shall represent Bank’s
then-current standard charge for the same), plus reasonable out-of-pocket
expenses.  In the event Borrower and Bank
schedule an audit more than ten (10) days in advance, and Borrower cancels
or seeks to reschedules the audit with less than ten (10) days written
notice to Bank, then (without limiting any of Bank’s rights or remedies),
Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses
incurred by Bank to compensate Bank for the anticipated costs and expenses of
the cancellation or rescheduling.

 

6.7          Insurance.  Keep its
business and the Collateral insured for risks and in amounts standard for
companies in Borrower’s industry and location and as Bank may reasonably
request.  Insurance policies shall be in
a form, with companies, and in amounts that are satisfactory to Bank.  All property policies shall have a loss
payable endorsement showing Bank as an additional loss payee and waive
subrogation against Bank, and all liability policies shall show, or have
endorsements showing, Bank as an additional insured.  All policies (or the loss payable and
additional insured endorsements) shall provide that the insurer shall endeavor
to give Bank at least twenty (20) days notice before canceling, amending, or
declining to renew its policy.  At Bank’s
request, Borrower shall deliver certified copies of policies and evidence of
all premium payments.  Proceeds payable
under any property policy shall, at Bank’s option, be payable to Bank on
account of the Obligations. 
Notwithstanding the foregoing, (a) so long as no Event of Default
has occurred and is continuing, Borrower shall have the option of applying the
proceeds of any casualty policy up to Two Hundred Fifty Thousand Dollars
($250,000) with respect to any loss, but not exceeding Two Hundred Fifty
Thousand Dollars ($250,000) in the aggregate for all losses under all casualty
policies in any one year, toward the replacement or repair of destroyed or
damaged property; provided that any such replaced or repaired property (i) shall
be of equal or like value as the replaced or repaired Collateral and (ii) shall
be deemed 

 

10

 

Collateral in which Bank has been granted a first priority security
interest, and (b) after the occurrence and during the continuance of an
Event of Default, all proceeds payable under such casualty policy shall, at the
option of Bank, be payable to Bank on account of the Obligations.  If Borrower fails to obtain insurance as
required under this Section 6.7 or to pay any amount or furnish any
required proof of payment to third persons and Bank, Bank may make all or part
of such payment or obtain such insurance policies required in this Section 6.7,
and take any action under the policies Bank deems prudent.

 

6.8          Operating Accounts.

 

(a)         Subject to the following, maintain all
of its operating and other deposit accounts and securities accounts with Bank and
Bank’s Affiliates:

 

                (i)            Borrower is permitted to maintain
the existing Bank of America, N.A. account number 0006827055 and the existing
TD Bank, N.A. account number 8242351851 (collectively, the “Borrower Bank Accounts”), provided  that (A) the
Control Agreements are delivered in accordance with the terms of the
Post-closing Letter; and (B) such Borrower Bank Accounts shall be closed
within sixty (60) days of the Effective Date, and the proceeds of such Borrower
Bank Accounts shall be transferred for deposit into an account at Bank.  In any event, Borrower shall promptly notify
its Account Debtors to remit payments to Borrower’s Collateral Account
maintained at Bank.

 

                (ii)           Borrower is permitted to maintain its
Certificate of Deposit number 8731024878 (the “CD”) at TD Bank, N.A.; provided
that (X) within ten (10) days of the Effective Date, Borrower
shall deliver a Control Agreement over the Collateral Account holding such CD,
in form and substance acceptable to Bank in its sole discretion, subordinate
only to the rights and interests of TD Bank, N.A. in such CD; and (Y) within
thirty (30) days of the Effective Date, such CD shall either (1) be
transferred to an account at Bank or Bank’s Affiliate (and if transferred to
Bank’s Affiliate, Borrower will execute a Control Agreement with such Bank
Affiliate in favor of Bank) or (2) be liquidated, and the proceeds
therefrom shall be deposited at an account with Bank.

 

(b)           Provide Bank five (5) days
prior-written notice before establishing any Collateral Account at or with any
bank or financial institution other than Bank or Bank’s Affiliates.  For each Collateral Account that Borrower at
any time maintains, Borrower shall cause the applicable bank or financial
institution (other than Bank) at or with which any Collateral Account is
maintained to execute and deliver a Control Agreement or other appropriate
instrument with respect to such Collateral Account to perfect Bank’s Lien in
such Collateral Account in accordance with the terms hereunder.  The provisions of the previous sentence shall
not apply to deposit accounts exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of Borrower’s
employees and identified to Bank by Borrower as such.

 

(c)           Notwithstanding the foregoing,
Borrower is permitted to maintain its existing Deposit Account #5800495 00
located at Deutsche Bank –  Adenauerplatz
1 69115 Heidelberg, Germany; provided that such Deposit Account shall not
maintain a balance in excess of Seventy-Five Thousand Dollars ($75,000) at any
time outstanding.

 

6.9          Financial Covenants.

 

Borrower shall
maintain at all times, unless otherwise noted:

 

 (a)          Liquidity.  Borrower’s consolidated unrestricted cash and
Cash Equivalents plus Committed Availability of at least Five Hundred
Thousand Dollars ($500,000).

 

(b)           Tangible Net Worth.  Tangible Net Worth tested (i) as of the
last day of each of the first two months of each fiscal quarter of the
Borrower, measured on a consolidated basis, of at least Two Million Five Hundred
Thousand Dollars ($2,500,000); and (ii) as of the last day of the third
month of each fiscal quarter of the Borrower, measured on a consolidated basis,
of at least Three Million Dollars ($3,000,000).

 

11

 

6.10        Protection and Registration of Intellectual Property Rights.  Borrower shall: (a) protect, defend and
maintain the validity and enforceability of its intellectual property; (b) promptly
advise Bank in writing of material infringements of its intellectual property;
and (c) not allow any intellectual property material to Borrower’s
business to be abandoned, forfeited or dedicated to the public without Bank’s
written consent.  If Borrower (i) obtains
any patent, registered trademark or servicemark, registered copyright,
registered mask work, or any pending application for any of the foregoing,
whether as owner, licensee or otherwise, or (ii) applies for any patent or
the registration of any trademark or servicemark, then Borrower shall
immediately provide written notice thereof to Bank and shall execute such
intellectual property security agreements and other documents and take such
other actions as Bank shall request in its good faith business judgment to
perfect and maintain a first priority perfected security interest in favor of
Bank in such property.  If Borrower
decides to register any copyrights or mask works in the United States Copyright
Office, Borrower shall: (x) provide Bank with at least fifteen (15) days
prior written notice of Borrower’s intent to register such copyrights or mask
works together with a copy of the application it intends to file with the
United States Copyright Office (excluding exhibits thereto); (y) execute
an intellectual property security agreement and such other documents and take
such other actions as Bank may request in its good faith business judgment to
perfect and maintain a first priority perfected security interest in favor of
Bank in the copyrights or mask works intended to be registered with the United
States Copyright Office; and (z) record such intellectual property
security agreement with the United States Copyright Office contemporaneously
with filing the copyright or mask work application(s) with the United
States Copyright Office.  Borrower shall
promptly provide to Bank copies of all applications that it files for patents
or for the registration of trademarks, servicemarks, copyrights or mask works,
together with evidence of the recording of the intellectual property security
agreement necessary for Bank to perfect and maintain a first priority perfected
security interest in such property.

 

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

 

6.12        Further Assurances.  Execute any further instruments and take
further action as Bank reasonably requests to perfect or continue Bank’s Lien
in the Collateral or to effect the purposes of this Agreement.  Deliver to Bank,  within
five (5) days after the same are sent or received, copies of all
correspondence, reports, documents and other filings with any Governmental
Authority regarding compliance with or maintenance of Governmental Approvals or
Requirements of Law or that could reasonably be expected to have a material
effect on any of the Governmental Approvals or otherwise on the operations of
Borrower or any of its Subsidiaries.

 

7              NEGATIVE COVENANTS

 

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

 

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

 

7.2             Changes in Business, Management, Ownership Control, or
Business Locations.  (a) Engage
in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower and such Subsidiary, as applicable,
or reasonably related thereto; (b) liquidate or dissolve; or (c) permit
or suffer any Change in Control. 
Borrower shall not, without at least thirty (30) days prior written
notice to Bank: (1) add any new offices or business locations, including
warehouses (unless such new offices or business locations contain less than Ten
Thousand Dollars ($10,000) in Borrower’s assets or property), (2) change
its jurisdiction of organization, (3) change its organizational structure
or type, (4) change its legal name, or (5) change any organizational
number (if any) assigned by its jurisdiction of organization.

 

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

 

12

 

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

 

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

 

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

 

7.7          Distributions; Investments.  (a) Pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock
provided that (i) Borrower may convert any of its convertible securities
into other securities pursuant to the terms of such convertible securities or
otherwise in exchange thereof, (ii) Borrower may pay dividends solely in
common stock; and (iii) Borrower may repurchase the stock of former
employees or consultants pursuant to stock repurchase agreements so long as an
Event of Default does not exist at the time of such repurchase and would not
exist after giving effect to such repurchase, provided such repurchase does not
exceed in the aggregate of Fifty Thousand Dollars ($50,000) per fiscal year; or
(b) directly or indirectly make any Investment other than Permitted
Investments, or permit any of its Subsidiaries to do so.

 

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

 

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

 

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

 

8             EVENTS
OF DEFAULT

 

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

 

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

 

13

 

8.2          Covenant Default.

 

(a) Borrower fails
or neglects to perform any obligation in Sections 6.2, 6.5, 6.7, 6.8, 6.9,
6.12, or violates any covenant in Section 7; or

 

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

 

8.3          Material Adverse Change.  A Material Adverse Change occurs;

 

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

 

8.5          Insolvency.  (a) Borrower is unable to pay its debts
(including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within forty-five (45) days (but
no Credit Extensions shall be made while of any of the conditions described in
clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6          Other Agreements.  There is a default in any agreement to which
Borrower or any Guarantor is a party with a third party or parties resulting in
a right by such third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount in excess of Fifty Thousand
Dollars ($50,000) or that could have a material adverse effect on Borrower’s or
any Guarantor’s business;

 

8.7          Judgments.  One or more judgments, orders, or decrees for
the payment of money in an amount, individually or in the aggregate, of at
least Fifty Thousand Dollars ($50,000) (not covered by independent third-party
insurance as to which liability has been accepted by such insurance carrier)
shall be rendered against Borrower and shall remain unsatisfied, unvacated, or
unstayed for a period of ten (10) days after the entry thereof (provided
that no Credit Extensions will be made prior to the satisfaction, vacation, or
stay of such judgment, order, or decree);

 

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

 

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

 

8.10        Governmental Approvals.  Any Governmental Approval shall have been (a) revoked,
rescinded, suspended, modified in an adverse manner or not renewed in the
ordinary course for a full term or (b) subject to any decision by a
Governmental Authority that designates a hearing with respect to any
applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission,
suspension, modification or non-renewal

 

14

 

(i) has, or could reasonably be expected to have,
a Material Adverse Change, or (ii) adversely affects the legal
qualifications of Borrower or any of its Subsidiaries to hold such Governmental
Approval in any applicable jurisdiction and such revocation, rescission,
suspension, modification or non-renewal could reasonably be expected to affect
the status of or legal qualifications of Borrower or any of its Subsidiaries to
hold any Governmental Approval in any other jurisdiction.

 

9             BANK’S
RIGHTS AND REMEDIES

 

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

 

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

 

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

 

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

 

(d)           terminate any FX Forward Contracts;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

9.2          Power of Attorney.  Borrower hereby irrevocably appoints Bank as
its lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to:  (a) endorse
Borrower’s 

 

15

 

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

 

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

 

9.4          Application of Payments and Proceeds.  Borrower shall have no right to specify the
order or the accounts to which Bank shall allocate or apply any payments
required to be made by Borrower to Bank or otherwise received by Bank under
this Agreement when any such allocation or application is not specified
elsewhere in this Agreement.  If an Event
of Default has occurred and is continuing, Bank may apply any funds in its
possession, whether from Borrower account balances, payments, proceeds realized
as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations in such order as Bank shall
determine in its sole discretion.  Any
surplus shall be paid to Borrower by credit to the Designated Deposit Account
or to other Persons legally entitled thereto; Borrower shall remain liable to
Bank for any deficiency.  If Bank, in its
good faith business judgment, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any sale of
Collateral, Bank shall have the option, exercisable at any time, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Bank of
cash therefor.

 

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

 

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

 

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

 

10           NOTICES

 

All notices, consents,
requests, approvals, demands, or other communication by any party to this
Agreement or any other Loan Document must be in writing and shall be deemed to
have been validly served, given, or delivered: (a) upon the earlier of
actual receipt and three (3) Business Days after deposit in the U.S. mail,
first 

 

16

 

class, registered
or certified mail return receipt requested, with proper postage prepaid; (b) upon
transmission, when sent by electronic mail or facsimile transmission; (c) one
(1) Business Day after deposit with a reputable overnight courier with all
charges prepaid; or (d) when delivered, if hand-delivered by messenger,
all of which shall be addressed to the party to be notified and sent to the
address, facsimile number, or email address indicated below.  Bank or Borrower may change its mailing or
electronic mail address or facsimile number by giving the other party written
notice thereof in accordance with the terms of this Section 10.

 

	
  If to Borrower:

  	
   

  	
  Microfluidics
  International Corporation

  
	
   

  	
   

  	
  30 Ossipee Road

  
	
   

  	
   

  	
  Newton, Massachusetts
  02464

  
	
   

  	
   

  	
  Attn: Brian LeClair,
  Executive Vice President and CFO

  
	
   

  	
   

  	
  Fax:
                                                 

  
	
   

  	
   

  	
  Email:
                                             

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  McCarter &
  English, LLP

  
	
   

  	
   

  	
  265 Franklin Street

  
	
   

  	
   

  	
  Boston, Massachusetts
  02110

  
	
   

  	
   

  	
  Attn: Jeffrey M.
  Stoler, Esquire

  
	
   

  	
   

  	
  Fax:
                                                  

  
	
   

  	
   

  	
  Email:
                                               

  
	
   

  	
   

  	
   

  
	
  If to Bank:

  	
   

  	
  Silicon Valley Bank

  
	
   

  	
   

  	
  One Newton Executive
  Park, Suite 200

  
	
   

  	
   

  	
  2221 Washington Street

  
	
   

  	
   

  	
  Newton, Massachusetts
  02462

  
	
   

  	
   

  	
  Attn: Michael Tramack

  
	
   

  	
   

  	
  Fax: 617.969.5962

  
	
   

  	
   

  	
  Email: mtramack@svb.com

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Riemer & Braunstein LLP

  
	
   

  	
   

  	
  Three Center Plaza

  
	
   

  	
   

  	
  Boston, Massachusetts 02108

  
	
   

  	
   

  	
  Attn: Charles W. Stavros, Esquire

  
	
   

  	
   

  	
  Fax: 617-692-3441

  
	
   

  	
   

  	
  Email: cstavros@riemerlaw.com

  

 

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

 

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

 

TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE
LOAN DOCUMENTS OR ANY 

 

17

 

CONTEMPLATED TRANSACTION, INCLUDING CONTRACT,
TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT
FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. 
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12           GENERAL PROVISIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

18

 

Bank may use confidential
information for any purpose, including, without limitation, for the development
of client databases, reporting purposes, and market analysis, so long as Bank
does not disclose Borrower’s identity or the identity of any person associated
with Borrower unless otherwise expressly permitted by this Agreement.  The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.

 

12.10      Borrower
Liability.  Either
Borrower may, acting singly, request Credit Extensions hereunder.  Each Borrower hereby appoints the other as
agent for the other for all purposes hereunder, including with respect to
requesting Credit Extensions hereunder. 
Each Borrower hereunder shall be jointly and severally obligated to
repay all Credit Extensions made hereunder, regardless of which Borrower
actually receives said Credit Extension, as if each Borrower hereunder directly
received all Credit Extensions. 
Each Borrower waives any suretyship defenses available to it under the
Code or any other applicable law.  Each
Borrower waives any right to require Bank to: (i) proceed against any
Borrower or any other Person; (ii) proceed against or exhaust any
security; or (iii) pursue any other remedy.  Bank may exercise or not exercise any right
or remedy it has against any Borrower or any security it holds (including the
right to foreclose by judicial or non-judicial sale) without affecting any
Borrower’s liability hereunder. 
Notwithstanding any other provision of this Agreement or any other Loan
Document, each Borrower irrevocably waives all rights that it may have at law
or in equity (including, without limitation, any law subrogating Borrower to
the rights of Bank under this Agreement) to seek contribution, indemnification
or any other form of reimbursement from any other Borrower, or any other Person
now or hereafter primarily or secondarily liable for any of the Obligations,
for any payment made by Borrower with respect to the Obligations in connection
with this Agreement, any other Loan Document or otherwise and all rights that
it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by Borrower with respect to the
Obligations in connection with this Agreement or otherwise but only until such
time as the Bank has been paid in full. 
Any agreement providing for indemnification, reimbursement or any other
arrangement prohibited under this Section 12.12 shall be null and
void.  If any payment is made to a
Borrower in contravention of this Section 12.12, such Borrower shall hold
such payment in trust for Bank and such payment shall be promptly delivered to
Bank for application to the Obligations, whether matured or unmatured.

 

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

 

13           DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

“Agreement” is
defined in the preamble hereof.

 

19

 

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

 

“Bank” is
defined in the preamble hereof.

 

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

 

“Borrower” is
defined in the preamble hereof.

 

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

 

“Borrowing Base”
is (a) eighty (80%) of Eligible Accounts plus (b) fifty (50%)
of the value of Borrower’s Eligible Inventory (valued at the lower of cost or
wholesale fair market value) (provided, however, such amount in
clause (b) shall not exceed the lesser of (i) Four Hundred
Thousand Dollars ($400,000) or (ii) one-third (33.3%) of the sum of
clause (a) plus clause (b)), in each case as determined by Bank
from Borrower’s most recent Transaction Report; provided, however,
that Bank may decrease the foregoing amounts and/or percentages in its good
faith business judgment based on events, conditions, contingencies, or risks
which, as determined by Bank, may adversely affect Collateral.

 

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

 

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

 

“Cash Equivalents”
means (a) marketable direct obligations issued or unconditionally
guaranteed by the United States or any agency or any State thereof having
maturities of not more than one (1) year from the date of acquisition; (b) commercial
paper maturing no more than one (1) year after its creation and having the
highest rating from either Standard & Poor’s Ratings Group or Moody’s
Investors Service, Inc.; and (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue.

 

“Cash Management Services”
is defined in Section 2.1.4.

 

“Change in Control” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange Act”)), other than a trustee or other fiduciary holding securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Borrower, representing twenty-five percent (25%) or more of the combined voting power of Borrower’s then outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of Borrower (together with any new directors whose election by the board of directors of Borrower was approved by a vote of at least two-thirds of the directors then still in office who either were directions at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office.

 

20

 

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

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

 

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

 

“Committed Availability”
means, as the date of determination, an amount equal to the lesser of (i) the
Revolving Line or (ii) the Borrowing Base minus all outstanding
Credit Extensions.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Default Rate”
is defined in Section 2.3(b).

 

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

 

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

 

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

 

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

 

21

 

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

 

“Eligible Accounts”
means Accounts which arise in the ordinary course of Borrower’s business that
meet all Borrower’s representations and warranties in Section 5.3.  Eligible Accounts shall not include:

 

(a)           Accounts that the
Account Debtor has not paid within ninety (90) days of invoice date regardless
of invoice payment period terms;

 

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

 

(c)           Accounts billed in
the United States and owing from an Account Debtor which does not have its
principal place of business in the United States unless such Accounts are otherwise
Eligible Accounts and (i) covered in full by credit insurance satisfactory
to Bank, less any deductible, (ii) supported by letter(s) of credit
acceptable to Bank, or (iii) that Bank otherwise approves of in writing;

 

(d)           Accounts billed and
payable outside of the United States;

 

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

 

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

 

(g)           Accounts with credit
balances over ninety (90) days from invoice date;

 

(h)           Other than as
provided for in clause hereof, Accounts owing from an Account Debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five (25%) of all
Accounts (other than Accounts of GlaxoSmithKline generated on or before June 30,
2008, for which such concentration limit shall not apply), for the amounts that
exceed that percentage, unless Bank approves in writing;

 

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

 

(j)            Accounts for
demonstration or promotional equipment, or in which goods are consigned, or
sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other
terms if Account Debtor’s payment may be conditional;

 

(k)           Accounts owing from an Account Debtor
that has not been invoiced or where goods or services have not yet been
rendered to the Account Debtor (sometimes called memo billings or
pre-billings);

 

(l)            Accounts subject to contractual
arrangements between Borrower and an Account Debtor where payments shall be
scheduled or due according to completion or fulfillment requirements where the
Account Debtor has a right of offset for damages suffered as a result of
Borrower’s failure to perform in accordance with the contract (sometimes called
contracts accounts receivable, progress billings, milestone billings, or
fulfillment contracts);

 

(m)          Accounts owing from an Account Debtor
the amount of which may be subject to withholding based on the Account Debtor’s
satisfaction of Borrower’s complete performance (but only to the extent of the
amount withheld; sometimes called retainage billings);

 

(n)           Accounts subject to trust provisions,
subrogation rights of a bonding company, or a statutory trust;

 

(o)           Accounts owing from an Account Debtor
that has been invoiced for goods that have not been shipped to the Account
Debtor unless Bank, Borrower, and the Account Debtor have entered into an
agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges
that (i) it has title to and has 

 

22

 

ownership of the goods wherever located, (ii) a bona fide sale of
the goods has occurred, and (iii) it owes payment for such goods in
accordance with invoices from Borrower (sometimes called “bill and hold”
accounts);

 

(p)           Accounts owing from an Account Debtor
with respect to which Borrower has received Deferred Revenue (but only to the
extent of such Deferred Revenue);

 

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

 

(r)            Accounts that represent non-trade
receivables or that are derived by means other than in the ordinary course of
Borrower’s business;

 

(s)           Accounts subject to chargebacks or
others payment deductions taken by an Account Debtor (but only to the extent
the chargeback is determined invalid and subsequently collected by Borrower);

 

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

 

(u)           Accounts for which Bank in its good
faith business judgment determines collection to be doubtful.

 

“Eligible Inventory”
means Inventory that meets all of Borrower’s representations and warranties in Section 5.3(c) and
is otherwise acceptable to Bank in all respects.

 

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

 

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

 

“Event of Default”
is defined in Section 8.

 

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

 

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

 

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

 

“FX Forward Contract”  is defined in Section 2.1.3.

 

“FX Reserve”  is defined in Section 2.1.3.

 

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

 

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

 

23

 

pending (whether in
contract, tort or otherwise), insurance policies (including without limitation
key man, property damage, and business interruption insurance), payments of
insurance and rights to payment of any kind.

 

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

 

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

 

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

 

“Indemnified Person”
is defined in Section 12.3.

 

“Initial Audit”
is Bank’s inspection of the Collateral, and Borrower’s Books.

 

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

 

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

 

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

 

“IP Agreement”
is that certain Intellectual Property Security Agreement executed and delivered
by Borrower to Bank dated as of the Effective Date.

 

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

 

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

 

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

 

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

 

“Liquidity” is
Borrower’s unrestricted cash and Cash Equivalents at Bank plus Committed
Availability.

 

“Loan Documents”
are, collectively, this Agreement, the Perfection Certificate, the IP
Agreement, the Post-closing Letter, any subordination or intercreditor
agreement entered into with respect to any Subordinated Debt, any note, or
notes or guaranties executed by Borrower or any Guarantor, and any other
present or future agreement between Borrower any Guarantor and/or for the
benefit of Bank in connection with this Agreement, all as amended, restated, or
otherwise modified.

 

“Material Adverse Change”
is (a) a material impairment in the perfection or priority of Bank’s Lien
in the Collateral or in the value of such Collateral; (b) a material
adverse change in the business, operations, or condition (financial or
otherwise) of Borrower; (c) a material impairment of the prospect of
repayment of any portion of the Obligations or  (d) Bank
determines, based upon information available to it and in its reasonable
judgment, that there 

 

24

 

is a reasonable
likelihood that Borrower shall fail to comply with one or more of the financial
covenants in Section 6 during the next succeeding financial reporting
period.

 

“Net Income”
means, as calculated on a consolidated basis for Borrower and its Subsidiaries
for any period as at any date of determination, the net profit (or loss), after
provision for taxes, of Borrower and its Subsidiaries for such period taken as
a single accounting period.

 

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

 

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

 

“Overadvance” is
defined in Section 2.2.

 

“Perfection Certificate”
is defined in Section 5.1.

 

“Permitted Indebtedness”
is:

 

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

 

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

 

(c)           Subordinated Debt;

 

(d)           unsecured Indebtedness to trade creditors; and

 

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

 

“Permitted Investments”
are:

 

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

 

(b)           Cash Equivalents;

 

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

 

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

 

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

 

25

 

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

 

“Permitted Liens”
are:

 

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

 

(b)           Liens for taxes, fees, assessments or
other government charges or levies, either not delinquent or being contested in
good faith and for which Borrower maintains adequate reserves on its Books, provided
that no notice of any such Lien has been filed or recorded under the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations adopted
thereunder;

 

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

 

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

 

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

 

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

 

(g)           Liens arising from
attachments or judgments, orders or decrees in circumstances not constituting
an Event of Default under Sections 8.4 and 8.7; and

 

(h)           Liens securing Permitted Investments.

 

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

 

“Post-closing Letter” is that
certain letter agreement of even date executed by Borrower in favor of Bank
with respect to the timing of delivery of various closing documents in the form
attached hereto as Exhibit C.

 

“Prime Rate” is
the greater of (i) five percent (5.00%) or (ii) Bank’s most recently
announced “prime rate,” even if it is not Bank’s lowest rate.

 

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

 

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

 

“Reserves” means, as of any date of determination, such
amounts as Bank may from time to time establish and revise in its good faith
business judgment, reducing the amount of Advances and other financial
accommodations which would otherwise be available to Borrower (a) to
reflect events, conditions, contingencies or risks which, as determined by Bank
in its good faith business judgment, do or may adversely affect (i) the
Collateral 

 

26

 

or
any other property which is security for the Obligations or its value
(including without limitation any increase in delinquencies of Accounts), (ii) the
assets, business or prospects of Borrower or any Guarantor, or (iii) the
security interests and other rights of Bank in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Bank’s
good faith belief that any collateral report or financial information furnished
by or on behalf of Borrower or any Guarantor to Bank is or may have been
incomplete, inaccurate or misleading in any material respect; or (c) in
respect of any state of facts which Bank determines in good faith constitutes
an Event of Default or may, with notice or passage of time or both, constitute
an Event of Default.

 

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

 

“Revolving Line”
is an Advance or Advances in an amount equal to One Million Two Hundred Fifty
Thousand Dollars ($1,250,000).

 

“Revolving Line Maturity
Date” is June    , 2010.

 

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

 

“Settlement Date”  is defined in Section 2.1.3.

 

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

 

“Subsidiary”
means, with respect to any Person, any Person of which more than fifty percent
(50.00%) of the voting stock or other equity interests (in the case of Persons
other than corporations) is owned or controlled directly or indirectly by such
Person or one or more of Affiliates of such Person.

 

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

 

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

 

“Transaction Report”
is the Bank’s standard transaction reporting package that Bank shall provide to
Borrower.

 

“Transfer” is
defined in Section 7.1.

 

“Unused Revolving Line
Facility Fee” is defined in Section 2.4(c).

 

 

[Signature page follows.]

 

27

 

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

 

	
  BORROWER:

  	
   

  
	
   

  	
   

  
	
  MICROFLUIDICS INTERNATIONAL CORPORATION

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Brian E. LeClair

  	
   

  
	
  Name:

  	
  Brian E. LeClair

  	
   

  
	
  Title:

  	
  Exec. V.P. & CFO

  	
   

  
	
   

  	
   

  	
   

  
	
  MICROFLUIDICS CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Brian E. LeClair

  	
   

  
	
  Name:

  	
  Brian E. LeClair

  	
   

  
	
  Title:

  	
  Exec. V.P. & CFO

  	
   

  
	
   

  	
   

  	
   

  
	
  BANK:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SILICON VALLEY BANK

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Mark Sperling

  	
   

  
	
  Name:

  	
  Mark Sperling

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
						

Effective Date: June 30, 2008

 

 

[Signature Page – Loan and Security Agreement]

 

 

EXHIBIT A

 

Collateral Description

 

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

 

(i)            all goods, Accounts (including health-care receivables),
Equipment, Inventory, contract rights or rights to payment of money, leases,
license agreements, franchise agreements, General Intangibles, commercial tort
claims, documents, instruments (including any promissory notes), chattel paper
(whether tangible or electronic), cash, deposit accounts, fixtures, letters of
credit rights (whether or not the letter of credit is evidenced by a writing),
securities, and all other investment property, supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located;
and

 

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

 

 

EXHIBIT B - COMPLIANCE CERTIFICATE

 

	
  TO:

  	
  SILICON VALLEY BANK

  	
  Date:

  	
   

  

 

FROM:  MICROFLUIDICS INTERNATIONAL CORPORATION AND
MICROFLUIDICS CORPORATION

 

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

 

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

 

	
  Reporting Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Transaction
  Reports (with all applicable schedules)

  	
   

  	
  Weekly
  and with each request for an Advance

  	
   

  	
  Yes  No

  
	
  A/R
  and A/P agings, held check registers, general ledger and inventory
  reports

  	
   

  	
  Monthly,
  within 15 days

  	
   

  	
  Yes  No

  
	
  Monthly unaudited financial statements

  	
   

  	
  Monthly,
  within 30 days

  	
   

  	
  Yes  No

  
	
  Compliance Certificate

  	
   

  	
  Monthly,
  within 30 days

  	
   

  	
  Yes  No

  
	
  Annual
  audited financial statement (CPA Audited) + CC

  	
   

  	
  FYE
  within 150 days

  	
   

  	
  Yes  No

  
	
  Projections

  	
   

  	
  Within
  30 days prior to FYE

  	
   

  	
  Yes  No

  
	
  10-Q,
  10-K and 8-K

  	
   

  	
  Within
  5 days after filing with SEC

  	
   

  	
  Yes  No

  

 

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

  

 

	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maintain
  at all times:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liquidity

  	
   

  	
  $

  	
  500,000

  	
   

  	
  $

  	
    

  	
   

  	
  Yes  No

  
	
  Minimum
  Tangible Net Worth (tested monthly)

  	
   

  	
  $

  	
  2,500,000

  	
   

  	
  $

  	
    

  	
   

  	
  Yes  No

  

 

 

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

 

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

 

 

	
  Microfluidics International Corporation

  	
   

  	
  BANK
  USE ONLY

  
	
  Microfluidics Corporation

  	
   

  	
   

  
	
   

  	
   

  	
  Received
  by:

  	
   

  
	
   

  	
   

  	
   

  	
  AUTHORIZED
  SIGNER

  
	
  By:

  	
   

  	
   

  	
  Date:

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Verified:

  	
   

  
	
   

  	
   

  	
   

  	
  AUTHORIZED
  SIGNER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Compliance Status:

  	
  Yes     No

  
												

 

 

Schedule
1 to Compliance Certificate

 

Financial Covenants of Borrower

 

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

 

Dated:

 

I.              Liquidity (Section 6.9(a))

 

Required: Borrower’s
unrestricted cash and Cash Equivalents plus Committed Availability of at least
Five Hundred Thousand Dollars ($500,000).

 

Actual:

 

	
  A.

  	
   

  	
  Unrestricted
  cash and Cash Equivalents held at Bank

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
   

  	
  Lesser of
  the Revolving Line or the Borrowing Base

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C.

  	
   

  	
  Outstanding
  Credit Extensions

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  D.

  	
   

  	
  Availability
  (line B minus line C)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E.

  	
   

  	
  Liquidity
  (line A plus line D)

  	
   

  	
  $

  	
   

  

 

Is line E equal to or
greater than $500,000?

 

 

II.            Tangible Net Worth (Section 6.9(b))

 

Required:  Tangible Net Worth tested (i) as of the
last day of each of the first two months of each fiscal quarter of the
Borrower, measured on a consolidated basis, of at least Two Million Five
Hundred Thousand Dollars ($2,500,000); and (ii) as of the last day of the
third month of each fiscal quarter of the Borrower, measured on a consolidated
basis, of at least Three Million Dollars ($3,000,000).

 

Actual:

 

	
  A.

  	
   

  	
  Aggregate value of
  total assets of Borrower and its Subsidiaries

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
   

  	
  Aggregate value of
  goodwill of Borrower and its Subsidiaries

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C.

  	
   

  	
  Aggregate value of
  intangible assets of Borrower and its Subsidiaries

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  D.

  	
   

  	
  Aggregate value of any
  notes, accounts receivable and other obligations owing to Borrower from
  officers or Affiliates

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E.

  	
   

  	
  Aggregate value of
  Reserves not already deducted from assets

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  F.

  	
   

  	
  Aggregate value of
  Total Liabilities listed on Borrower’s balance sheet

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  G.

  	
   

  	
  Sum of Line B plus
  Line C plus Line D plus Line E plus Line F

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  H.

  	
   

  	
  TANGIBLE NET WORTH
  (Line A minus Line G)

  	
   

  	
  $

  	
   

  

 

Is line H equal to or
greater than [$2,500,000] [$3,000,000]?

 

	
   

  	
  o

  	
  No, not in compliance

  	
  o

  	
  Yes, in compliance

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00144-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00144-of-00352.parquet"}]]