Document:

AMENDED
AND RESTATED SECURITY AGREEMENT

    

    This
Agreement is effective as of November 30, 2010, by and between Oak Tree
Educational Partners, Inc., a Delaware Corporation, (“Parent”),
the parent company of Valley Anesthesia, Inc., a Delaware corporation (“Borrower”);
and their respective subsidiaries, current and future, as debtor (collectively,
jointly and severally “Debtor”),
and Valley Anesthesia Educational Programs, Inc., an Iowa corporation, as the
Secured Party (“Secured
Party”).

    

    Whereas, Borrower and Valley Anesthesia
Educational Programs, Inc., an Iowa corporation, (“Valley
Seller”) are parties to that certain Agreement of Purchase of Assets
dated August 20, 2009 (the “Purchase
Agreement”), pursuant to which, among other things, Borrower purchased
and acquired all of the Purchased Assets (as defined in the Purchase Agreement)
subject to the terms and conditions set forth therein; and

     

    Whereas, Pursuant to the Purchase
Agreement, Valley Seller agreed to finance a portion of the “Purchase Price” (as
defined in the Purchase Agreement), and Borrower executed and delivered that
certain Six Year Term Note dated as of August 20, 2009, made payable to Valley
Seller in the initial principal amount of $2,000,000 (as amended, supplemented,
replaced or restated from time to time, the “Subordinated
Note”); and

     

    Whereas, in connection with the
Subordinated Note, Borrower and Valley Seller entered into that certain Security
Agreement dated as of August 20, 2009 (the “Original Security
Agreement”), pursuant to which Borrower granted a security interest in
the Purchased Assets, and all additions and accessions thereto as such is
renewed and replenished and all proceeds of its sale or other disposition until
the Purchase Price is paid in full, to Subordinated Lender to secure the
Subordinated Note; and

     

    Whereas,
Borrower and Parent are parties to that certain Loan Agreement dated November
30, 2010, by and among Parent, Borrower, and their respective subsidiaries,
current and future, as borrowers, Deerpath Funding, LP, a Delaware limited
partnership, and the other lenders from time to time party thereto, (“Deerpath”)
and Deerpath, as administrative agent and collateral agent for itself and the
other lenders (the “Senior Loan
Agreement”); and

    

    Whereas, as a material inducement to
the Senior Loan Agreement, Deerpath has required that Valley Seller and Borrower
enter into that certain Subordination and Intercreditor Agreement dated November
30, 2010, (the “Subordination
Agreement”) to subordinate the rights and remedies of Valley Seller under
the Subordinated Note, this Amended and Restated Security Agreement, and other
documents constituting the “Subordinated Debt
Documents”, as defined in the Subordination Agreement, to the rights and
remedies of Deerpath under the Senior Loan Agreement and other documents;
and

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Whereas,
as a condition precedent to Valley Seller entering into the Subordination
Agreement, Valley Seller has required that the obligations of Borrower under the
Subordinated Debt Documents be secured by a security interest in the assets of
Debtor in accordance with the terms of this Security Agreement.

    

    Now,
therefore, in consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Debtor agrees as follows:

    

    1.      AMENDED AND RESTATED SECURITY
AGREEMENT.  This Amended and Restated Security Agreement
amends, restates, and supersedes the Original Security Agreement in its
entirety.

    

    2.      GRANT OF SECURITY INTEREST. As
security for the Obligations (as defined below), but subject at all times to the
subordination provisions of Section 4 below, Debtor hereby grants to Secured
Party a security interest in all assets of Debtor, tangible and intangible, real
or personal, including but not limited to all of Debtor’s inventory now owned or
hereafter acquired; all of Debtor’s accounts, Deposit Accounts, Investment
Property, Letter of Credit Rights, Supporting Obligations, now existing or
hereafter arising, together with all interest of Debtor in any goods, the sale
or lease of which give rise to any of Debtor's accounts, and all chattel paper,
documents and instruments relating to accounts; all of Debtor’s general
intangibles, now owned or hereafter acquired; all of Debtor’s equipment now
owned or hereafter acquired; all of Debtor’s farm products now owned or
hereafter acquired; all of Debtor’s fixtures; together with the proceeds,
products, increase, issue, accessions, attachments, accessories, parts,
additions, repairs, replacements and substitutes of, to, and for all of the
foregoing. All such property in which a security interest is granted is herein
called the "Collateral."

    

    3.           OBLIGATIONS.  The
aforesaid security interests secure payment and performance of all obligations
of Borrower under the Subordinated Debt Documents (the "Obligations").

    

    4.           SUBORDINATION.  This
Security Agreement and the Secured Party’s security interest in the Collateral
is expressly made subject and subordinate to the rights of:

    

    (a)           the
“Senior
Lender” (as defined in the Subordination Agreement) or any other person,
firm or corporation refinancing or otherwise holding the “Senior
Debt” (as defined in the Subordination Agreement), to the extent and as
provided in the Subordination Agreement; and

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    (b)           the
holders of (i) any debt assumed or refinanced in connection with any
Acquisition, and/or (ii) any notes executed and delivered by a Debtor in
connection with any Acquisition that are payable to the seller(s) and
representing seller financing of part or all of the purchase price of such
Acquisition.

    

    For
purposes of this Security Agreement, “Acquisition”
means the purchase and acquisition by Debtor (including by any newly formed
subsidiary of Debtor) of all or substantially all of the assets or securities
and the ongoing business operations of an active commercial enterprise, but
excluding the “Culinary Group
Acquisition” (as defined in the Senior Loan Agreement) and excluding the
acquisition of assets pursuant to the Purchase Agreement.

    

    5.           FURTHER
DOCUMENTS.  Debtor shall, at its sole cost and expense
(including reimbursement of Secured Party’s reasonable attorneys’ fees and
costs), execute, deliver, file or record, or shall cause its subsidiaries and
affiliates to execute, deliver, file or record (in such manner and form as
Secured Party may require) any assignment, financing statement or other paper
that may be necessary or desirable, or that Secured Party may request, in order
to create, preserve or perfect any security interest granted hereby or to enable
Secured Party to exercise and enforce its rights hereunder or under any
Collateral, or otherwise in furtherance of this Security Agreement, including,
but not limited to, the execution of this Security Agreement or a counterpart
thereof by all present and future subsidiaries of Debtor which shall include
(but not be limited to) such parties as are necessary such that the assets
acquired in the Culinary Group Acquisition shall be included in the
Collateral.   Secured Party shall execute and deliver such
documents as may be reasonably required by Debtor or Debtor’s lenders or other
secured parties, in furtherance of Section 4 of this Security
Agreement.

    

    6.           NOTICE OF FUTURE
ACQUISITIONS.  Debtor shall provide Secured Party notice of any
pending Acquisition no less than thirty (30) days prior to closing.

    

    7.           DEBTORS. Each of the
undersigned Debtors executes this Security Agreement as its joint and several
obligation and it shall be binding upon and fully enforceable against any or all
of them.  Unless the context clearly indicates an individual reference
to “each” Debtor, “Debtor” shall refer to Parent, Borrower, and their respective
subsidiaries, current and future, collectively, jointly and severally, or to any
of them.

    

    8.           FINANCING
STATEMENT.  Secured Party is further granted the power, coupled
with an interest, to sign on behalf of Debtor as attorney-in-fact and to file
one or more financing statements under the Uniform Commercial Code naming Debtor
as debtor and Secured Party as secured party and describing the Collateral
herein specified.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

    9.           REPRESENTATIONS AND
AGREEMENTS.  Debtor represents and warrants to Secured Party,
and agrees:

    

    a.           Each
Debtor is authorized to grant a security interest in the Collateral, free and
clear of all liens and encumbrances, except the security interest created hereby
and except the prior liens referenced in Section 4 of this Security
Agreement.

    

    b.           Each
Debtor’s principal place of business is the address shown herein, and Debtor
shall promptly give Secured Party written notice of any change
thereof.

    

    c.           Each
Debtor is duly organized, existing, and is qualified and in good standing in all
states in which it is doing business, and the execution, delivery and
performance of this Security Agreement by each Debtor are within each such
Debtor's powers, have been duly authorized, and are not in contravention of law
or the terms of each such Debtor's charter, bylaws if any, or any indenture,
agreement or undertaking to which each such Debtor is a party, or by which it is
bound. Each Debtor will not change its name, or identity unless written notice
is given in advance to Secured Party.

    

    d.           Debtor
shall maintain insurance upon the Collateral which is tangible property against
all customarily insured risks for the full insurable value thereof, loss to be
payable to Debtor and Secured Party as their respective interests may
appear.   Debtor shall bear all risk of loss or destruction of,
or damage to, the Purchased Assets from any cause whatsoever at all times
subsequent to the execution of this Agreement.   Copies of all
policies insuring the Purchased Assets will be provided to Secured Party upon
request.

    

    e.           Debtor
shall promptly transmit to Secured Party all information that it may have or
receive with respect to Collateral or with respect to any account debtor which
might in any way affect Secured Party's rights or remedies with respect
thereto.

    

    10.         EXPENSES.  Debtor
upon demand shall pay to Secured Party forthwith the amounts of all expenses,
including reasonable attorneys' fees and legal expenses, incurred by Secured
Party in seeking to collect any sums secured hereunder or to enforce any rights
in the Collateral. Such amounts shall be secured hereby, and if not paid on
demand shall bear interest at the highest rate payable on any of the
Obligations.

    

    11.         DEFAULT.  Debtor
will be in default upon the occurrence of any of the following
events:  (a) the failure of Borrower to make payment, when due and
payable of any of the Obligations, (b) failure of the performance of any
obligation or covenant contained herein, (c) dissolution of, termination of
existence of, insolvency of, business failure of, appointment of a receiver of
any part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding under any bankruptcy or insolvency law by or
against, Debtor.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    12.         RIGHTS AND REMEDIES ON
DEFAULT.  After the occurrence of any event of default, subject
at all times to the terms of the Subordination Agreement, Secured Party may
exercise at any time and from time to time any rights and remedies available to
it under applicable law.   Without limiting the foregoing,
subject at all times to the terms of the Subordination Agreement, Secured Party
shall be entitled to take possession of the Purchased Assets and other
Collateral sufficient to satisfy its security interest as provided hereby, in
accordance with applicable law.

    

    13.        GENERAL.

    

    a.           Secured
Party may, as its option, pay any tax, assessment, or other Governmental levy,
or insurance premium or any other expense or charge relating to Collateral which
is payable by Debtor (and not timely paid by it), and further may pay any filing
or recording fees. Any amount or amounts so paid, with interest thereon at the
highest rate payable on any of the obligations (from the date of payment until
repaid) shall be secured hereby and shall be payable upon demand.

    

    b.           Secured
Party shall not be deemed to have waived any of its rights hereunder or under
any other agreement, instrument or paper signed by Debtor unless such waiver be
in writing and signed by Secured Party. No delay or omission on the part of
Secured Party in exercising any right shall operate as a waiver of such right or
any other right. A waiver on any one occasion shall not be construed as a bar
to, or waiver of, any right or remedy on any future occasion.

    

    c.           Any
notice, if mailed, shall be deemed given when mailed postage prepaid, addressed
to Debtor at its address shown below, or at any other address of Debtor
appearing on Secured Party's records.

    

    d.           Covenants,
representations, warranties and agreements herein set forth shall be binding
upon Debtor, its legal representatives, successors and assigns. This Security
Agreement may be assigned by Secured Party and all rights and privileges of
Secured Party under this Security Agreement shall then inure to the benefit of
its successors and assigns.

    

    e.           If
any provision of this Security Agreement shall be for any reason held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Security Agreement shall be construed as if
such invalid or unenforceable provision had never been contained
herein.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

    f.           If
Debtor is a guarantor, endorser, co-maker, or an accommodation party with
respect to the Obligations, Debtor hereby waives the benefit of any and all
defenses and claims of damage which are dependent upon Debtor's character as a
party other than the maker. Each party to any of the Obligations hereby consents
to and waives notice of (1) any and all extensions (whether or not for longer
than the original period) granted as to the time of payment of any or all of the
Obligations, and (2) any renewal of any or all of the Obligations.

    

    g.           Unless
otherwise defined or the context otherwise requires, all terms used herein which
are defined in any applicable Uniform Commercial Code shall have the meanings
therein stated. The rights and remedies herein conferred upon Secured Party
shall be in addition to, and not in substitution or in derogation of, rights and
remedies conferred by any applicable Uniform Commercial Code and other
applicable law.

    

    h.           All
words and phrases used herein shall be construed as in the singular or plural
number, and as masculine, feminine or neuter gender, as the context may
require.

    

    i.           Captions
are inserted for convenience only and shall not be taken as altering the
text.

    

    14.         CERTIFICATION.

    

    a.           Secured
Party and Debtor each certify that they are not acting, directly or indirectly,
for or on behalf of any person, group, entity or nation named by any Executive
Order of the United States Treasury Department as a terrorist, “Specially
Designated National and Blocked Person” or any other banned or blocked person,
entity, nation or transaction pursuant to any law, order, rule or regulation
that is enforced or administered by the Office of Foreign Assets Control; and
are not engaged in this transaction, directly or indirectly on behalf of, or
instigating or facilitating this transaction, directly or indirectly on behalf
of, any such person, group, entity or nation.

    

    b.           Debtor
and Secured Party hereby agrees to defend, indemnify and hold one another
harmless from and against any and all claims, damages, losses, risks,
liabilities and expenses (including attorney’s fees and costs) arising from or
related to any breach of the foregoing certification.

    

    DEBTOR
ACKNOWLEDGES RECEIPT OF A FULLY COMPLETED COPY OF THIS SECURITY
AGREEMENT.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    
      
        
          
            
              
                	
                        DATED:
      November 30, 2010

                      	 
      
	 
      	 
      
	
                        VALLEY
      ANESTHESIA EDUCATIONAL

                      	 
      
	
                        PROGRAMS, INC. (SECURED
      PARTY)

                      	 
      
	 
      	 
      
	
                        By:

                      	
                        /s/ Barbara J. Paradise

                      	 
      
	 
      	 
      	 
      
	
                        Title:

                      	
                        Vice President

                      	 
      
	 
      	 
      
	
                        1995 County Club Blvd.

                      	 
      
	
                        Number
      and Street

                      	 
      
	
                        Clive

                      	 
      
	
                        City

                      	 
      
	
                        Polk                                                                              IA

                      	 
      
	
                        County                
                                             
           State

                      	
                         

                      
	 
      	 
      
	
                        OAK TREE EDUCATIONAL PARTNERS,
      INC. (DEBTOR)

                      
	 
      	 
      
	
                        By:

                      	
                        /s/ Joseph J. Bianco

                      	 
      
	 
      	 
      	 
      
	
                        Title:

                      	
                        Chief Executive Officer

                      	 
      
	 
      	 
      
	
                        845 Third Avenue, 6th Floor

                      	 
      
	
                        Number
      and Street

                      	 
      
	
                        New York

                      	 
      
	
                        City

                      	 
      
	
                        New
      York                                                                   
      NY

                      	 
      
	
                        County                                                   
              
     State

                      	
                         

                      
	 
      	 
      
	
                        TRAINING DIRECT, LLC
      (DEBTOR)

                      	 
      
	 
      	 
      
	
                        By:

                      	
                        /s/ Joseph Monaco

                      	 
      
	 
      	 
      	 
      
	
                        Title:

                      	
                        President

                      	 
      
	 
      	 
      
	
                        3851 Main Street, 2nd Floor

                      	 
      
	
                        Number
      and Street

                      	 
      
	
                        Bridgeport

                      	 
      
	
                        City

                      	 
      
	
                        Fairfield                                                                        CT

                      	 
      
	
                        County                                                       
            State     
      

                      	
                         

                      

              

            

          

        

      

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            
              
                	
                        EDUCATIONAL INVESTORS, INC.
      (DEBTOR)

                      	 
      
	 
      	 
      
	
                        By:

                      	
                        /s/ Joseph J. Bianco

                      	 
      
	 
      	 
      	 
      
	
                        Title:

                      	
                        Chief Executive Officer

                      	 
      
	 
      	 
      
	
                        845 Third Avenue, 6th Floor

                      	 
      
	
                        Number
      and Street

                      	 
      
	
                        New York

                      	 
      
	
                        City

                      	 
      
	
                        New
      York                                                                
          NY

                      	 
      
	
                        County                                                      
             State

                      	
                         

                      
	 
      	 
      
	
                        VALLEY ANESTHESIA, INC.
      (DEBTOR)

                      	 
      
	 
      	 
      
	
                        By:

                      	
                        /s/ Joseph J. Bianco

                      	 
      
	 
      	 
      	 
      
	
                        Title:

                      	
                        Chief Executive Officer

                      	 
      
	 
      	 
      
	
                        845 Third Avenue, 6th Floor

                      	 
      
	
                        Number
      and Street

                      	 
      
	
                        New York

                      	 
      
	
                        City

                      	 
      
	
                        New
      York                                                                   
       NY

                      	 
      
	
                        County                                                 
               
        State     

                      	
                         

                      

              

            

          

        

      

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    The
undersigned, though not an original party to this Security Agreement, is
executing a counterpart to this Security Agreement, as of the date indicated
below, and for value received, agrees to become a Debtor hereunder and to be
bound as a party hereto.

    
      

      EDUCATIONAL TRAINING INSTITUTE, INC.
(DEBTOR)

      
        (a New
York corporation)

      

      

      
        	
                By:

              	
                /s/
      Joseph Monaco

              	 
      
	
                Name:

              	
                Joseph
      Monaco,

              	 
      
	
                Title:

              	
                President

              	 
      
	 
      	 
      
	
                Date:

              	
                November
      30, 2010

              	 
      
	 
      	 
      
	
                424
      West 33rd Street

              	 
      
	
                Number
      and Street

              	 
      
	
                New
      York

              	 
      
	
                City

              	 
      
	
                New
      York                                                                     NY 
      

              	
                 

              
	
                County                                                     
              State

              	
                 

              

      

       

      
        
           

        

        
          9LOAN
AND SECURITY AGREEMENT

      

      Dated
as of November 17, 2010

      

      between

      

      BACTERIN
INTERNATIONAL HOLDINGS, INC.,

      a
Delaware corporation,

      

      and

      

      BACTERIN
INTERNATIONAL, INC.

      a
Nevada corporation,

      

      each
sometimes individually as a “Borrower” and
sometimes collectively as the “Borrowers”

      

      and

      

      VENTURE
LENDING & LEASING V, INC.,

      a
Maryland corporation,

      

      and

      

      VENTURE
LENDING & LEASING VI, INC.,

      a
Maryland corporation,

      

      each,
as “Lender”

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      LOAN
AND SECURITY AGREEMENT

      

      The Borrowers and each of Venture
Lending & Leasing V, Inc. (“VLL5”) and Venture
Lending & Leasing VI, Inc. (“VLL6”) have entered
or anticipate entering into one or more transactions pursuant to which each
Lender severally and not jointly agrees to make available to Borrowers a loan
facility governed by the terms and conditions set forth in this document and one
or more Supplements executed by Borrowers and Lender which incorporate this
document by reference.  Each Supplement constitutes a supplement to
and forms part of this document, and will be read and construed as one with this
document, so that this document and the Supplement constitute a single agreement
between the parties (collectively referred to as this “Agreement”).

      

      Accordingly, the parties agree as
follows:

      

      ARTICLE
1 - INTERPRETATION

      

      1.1    
      Definitions.  The
terms defined in Article 1 and in the Supplement will have the meanings therein
specified for purposes of this Agreement.

      

      1.2           Inconsistency.  In
the event of any inconsistency between the provisions of any Supplement and this
document, the provisions of the Supplement will be controlling for the purpose
of all relevant transactions.

      

      1.3           Several Obligations of
Lender.  The parties are entering into this single Agreement
for convenience, and this Agreement is and shall be interpreted for all purposes
as separate and distinct agreements between Borrowers and VLL5, on the one hand,
and Borrowers and VLL6, on the other hand, and nothing in this Agreement shall
be deemed a joint venture, partnership or other association between VLL5 and
VLL6.  Each reference in this Agreement to “Lender” shall mean and
refer to each of VLL5 and VLL6, singly and independent of one
another.  Without limiting the generality of the foregoing, the
Commitment, covenants and other obligations of “Lender” under this Agreement are
several and not joint obligations of VLL5 and VLL6, and all rights and remedies
of “Lender” under this Agreement may be exercised by VLL5 and/or VLL6
independently of one another.

      

      ARTICLE
2 - THE COMMITMENT AND LOANS

      

      2.1           The
Commitment.  Subject to the terms and conditions of this
Agreement, Lender agrees to make term loans to Borrowers from time to time from
the Closing Date and to, but not including, the Termination Date in an aggregate
principal amount not exceeding the Commitment.  The Commitment is not
a revolving credit commitment, and Borrowers do not have the right to repay and
reborrow hereunder.  Each Loan requested by Borrowers to be made on a
single Business Day shall be for a minimum principal amount set forth in the
Supplement, except to the extent the remaining Commitment is a lesser
amount.

      

      2.2           Notes Evidencing Loans;
Repayment.  Each Loan shall be evidenced by a separate Note
payable to the order of Lender, in the total principal amount of the
Loan.  Principal and interest of each Loan shall be payable at the
times and in the manner set forth in the Note and regularly scheduled payments
thereof and each Final Payment shall be effected by automatic debit of the
appropriate funds from the Primary Operating Account as specified in the
Supplement hereto.

      

      2.3           Procedures for
Borrowing.

      

      (a)           At
least five (5) Business Days’ prior to a proposed Borrowing Date, Lender shall
have received from the Borrowers a written request for a borrowing hereunder (a
“Borrowing
Request”).  Each Borrowing Request shall be in substantially
the form of Exhibit
“B” to the Supplement, shall be executed by a responsible executive or
financial officer of each of the Borrowers, and shall state how much is
requested, and shall be accompanied by such other information and documentation
as Lender may reasonably request, including the original executed Note(s) for
the Loan(s) covered by the Borrowing Request.

      

      (b)           No
later than 1:00 p.m. Pacific Standard Time on the Borrowing Date, if Borrowers
have satisfied the conditions precedent in Article 4, Lender shall make the Loan
available to Borrowers in immediately available funds.

      

      2.4           Interest.  Except as
otherwise specified in the applicable Note and/or Supplement, Basic Interest on
the outstanding principal balance of each Loan shall accrue daily at the
Designated Rate from the Borrowing Date.  If the outstanding principal
balance of such Loan is not paid at maturity, interest shall accrue at the
Default Rate until paid in full, as further set forth herein.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      2.5           Final
Payment.  Borrowers shall pay the Final Payment, if any, with
respect to each Loan on the date set forth in the Note evidencing such
Loan.

      

      2.6           Interest Rate
Calculation.  Basic Interest, along with charges and fees under
this Agreement and any Loan Document, shall be calculated for actual days
elapsed on the basis of a 360-day year, which results in higher interest, charge
or fee payments than if a 365-day year were used.  In no event shall
Borrowers be obligated to pay Lender interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in
effect.

      

      2.7           Default
Interest.  Any unpaid payments in respect of the Obligations
shall bear interest from their respective maturities, whether scheduled or
accelerated, at the Default Rate.  Borrowers shall pay such interest
on demand.

      

      2.8           Late Charges. If Borrowers are
late in making any payment in respect of the Obligations by more than five (5)
days, then Borrowers agree to pay a late charge of five percent (5%) of the
payment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose of
defraying the expenses incidental to the handling of such delinquent
amounts.  Each Borrower acknowledges that such late charge represents
a reasonable sum considering all of the circumstances existing on the date of
this Agreement and represents a fair and reasonable estimate of the costs that
will be sustained by Lender due to the failure of Borrowers to make timely
payments.  Each Borrower further agrees that proof of actual damages
would be costly and inconvenient.  Such late charge shall be paid
without prejudice to the right of Lender to collect any other amounts provided
to be paid or to declare a default under this Agreement or any of the other Loan
Documents or from exercising any other rights and remedies of
Lender.

      

      2.9           Lender’s
Records.  Principal, Basic Interest, Final Payments and all
other sums owed under any Loan Document shall be evidenced by entries in records
maintained by Lender for such purpose.  Each payment on and any other
credits with respect to principal, Basic Interest, Final Payments and all other
sums outstanding under any Loan Document shall be evidenced by entries in such
records.  Absent manifest error, Lender’s records shall be conclusive
evidence thereof.

      

      2.10         Grant of Security Interests; Filing
of Financing Statements.

      

      (a)    To
secure the timely payment and performance of all of the Obligations, each
Borrower hereby grants to Lender a continuing security interest in all of the
Collateral of such Borrower.  In connection with the foregoing, each
Borrower authorizes Lender to prepare and file any financing statements
describing the Collateral without otherwise obtaining such Borrower’s signature
or consent with respect to the filing of such financing statements.

      

      (b)    In
furtherance of the  grant of the security interests in the Collateral
pursuant to Section 2.10(a) above, Parent hereby pledges and grants to the
Lender a security interest in all the Shares, together with all proceeds and
substitutions thereof, all cash, stock and other moneys and property paid
thereon, all rights to subscribe for securities declared or granted in
connection therewith, and all other cash and noncash proceeds of the foregoing,
as security for the performance of the Obligations.  On the Closing
Date or at any time thereafter following Lender’s request, the certificate or
certificates for the Shares will be delivered to Lender, accompanied by an
instrument of assignment duly executed in blank by Parent, unless such Shares
have not been certificated. To the extent required by the terms and conditions
governing the Shares, Parent shall cause the books of each entity whose Shares
are part of the Collateral and any transfer agent to reflect the pledge of the
Shares.  Upon the occurrence and during the continuance of an Event of
Default hereunder, Lender may effect the transfer of any securities included in
the Collateral (including but not limited to the Shares) into the name of Lender
and cause new certificates representing such securities to be issued in the name
of Lender or its transferee(s).  Parent will execute and deliver such
documents, and take or cause to be taken such actions, as Lender may reasonably
request to perfect or continue the perfection of Lender’s security interest in
the Shares.  Unless an Event of Default shall have occurred and be
continuing, Parent shall be entitled to exercise any voting rights with respect
to the Shares and to give consents, waivers and ratifications in respect
thereof, provided that no vote shall be cast or consent, waiver or ratification
given or action taken which would be inconsistent with any of the terms of this
Agreement or which would constitute or create any violation of any of such
terms.  All such rights to vote and give consents, waivers and
ratifications shall terminate upon the occurrence and continuance of an Event of
Default.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (c)    Each
Borrower is and shall remain absolutely and unconditionally liable, on a joint
and several basis, for the performance of all Obligations, including, without
limitation, any deficiency by reason of the failure of the Collateral to satisfy
all amounts due Lender under any of the Loan Documents.

      

      (d)    All
Collateral pledged by each Borrower under this Agreement and any Supplement
shall secure the timely payment and performance of all Obligations under this
Agreement, the Notes and the other Loan Documents.  Except as
expressly provided in this Agreement, no Collateral pledged under this Agreement
or any Supplement shall be released until such time as all Obligations under
this Agreement and the other Loan Documents have been satisfied and paid in
full.

      

      ARTICLE
3 - REPRESENTATIONS AND WARRANTIES

      

      Each Borrower, jointly and severally,
represents and warrants that, except as set forth in the Supplement or the
Schedule of Exceptions hereto, if any, as of the Closing Date and each Borrowing
Date:

      

      3.1           Due
Organization.  Each Borrower is a corporation duly organized
and validly existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good standing
in each other jurisdiction in which its business is conducted or its properties
are located, except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.

      

      3.2           Authorization, Validity and
Enforceability.  The execution, delivery and performance of all
Loan Documents executed by each Borrower are within each such Borrower’s powers,
have been duly authorized, and are not in conflict with any Borrower’s
certificate of incorporation or by-laws, or the terms of any charter or other
organizational document of any Borrower, as amended from time to time; and all
such Loan Documents constitute valid and binding obligations of each Borrower,
enforceable in accordance with their terms (except as may be limited by
bankruptcy, insolvency and similar laws affecting the enforcement of creditors’
rights in general, and subject to general principles of equity).

      

      3.3           Compliance with Applicable
Laws.  Each Borrower has complied with all licensing, permit
and fictitious name requirements necessary to lawfully conduct the business in
which it is engaged, and to any sales, leases or the furnishing of services by
Borrowers, including without limitation those requiring consumer or other
disclosures, the noncompliance with which would have a Material Adverse
Effect.

      

      3.4           No Conflict.  The
execution, delivery, and performance by each Borrower of all Loan Documents to
which it is a party are not in conflict with any law, rule, regulation, order or
directive applicable to each Borrower, or any material indenture, agreement, or
undertaking to which each Borrower is a party or by which each Borrower may be
bound.  Without limiting the generality of the foregoing, the issuance
of the Warrant to Lender (or its designee) and the grant of registration rights
in connection therewith do not violate any agreement or instrument by which
Parent is bound or require the consent of any holders of Parent’s securities
other than consents which have been obtained prior to the Closing
Date.

      

      3.5           No Litigation, Claims or
Proceedings.  There is no litigation, tax claim, proceeding or
dispute pending, or, to the knowledge of any Borrower, threatened  in
writing against any Borrower, its property or the conduct of its business which
could reasonably be expected to result in a Material Adverse
Effect.

      

      3.6           Correctness of Financial
Statements.  The Consolidated financial statements of Parent
which have been delivered to Lender fairly and accurately reflect the financial
condition of Parent and its Subsidiaries in accordance with GAAP (except with
respect to unaudited financial statements, for the absence of footnotes and
subject to normal year-end adjustments) as of the latest date of such financial
statements; and, since that date there has been no Material Adverse
Change.

      

      3.7           No
Subsidiaries.  Bacterin International, Inc. is wholly owned by
Parent.  As of the date hereof, Bacterin International, Inc. is not a
majority owner or in a control relationship with any other business entity. As
of the date hereof, Parent is not a majority owner of or in a control
relationship with any business entity other than Bacterin International,
Inc.

      

      3.8           Environmental
Matters.  To its knowledge each Borrower is in compliance with
Environmental Laws, except to the extent a failure to be in such compliance
could not reasonably be expected to have a Material Adverse
Effect.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      3.9           No Event of
Default.  No Default or Event of Default has occurred and is
continuing.

      

      3.10                 Full
Disclosure.  None of the representations or warranties made by
any Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of any
Borrower in connection with the Loan Documents (including disclosure materials
delivered by or on behalf of any Borrower to Lender prior to the Closing Date or
pursuant to Section 5.2 hereof), contains any untrue statement of a material
fact or omits any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
are made, not misleading as of the time when made or delivered (it being
recognized by Lender that projections and estimates as to future events are not
to be viewed as facts and that the actual results during the period or periods
covered by any such projections and estimates may differ from projected or
estimated results).

      

      3.11         Specific Representations Regarding
Collateral.

      

      (a)  Title.  Except for
the security interests created by this Agreement and Permitted Liens, (i) each
Borrower is and will be the unconditional legal and beneficial owner of the
Collateral, and (ii) the Collateral is genuine and subject to no Liens, rights
or defenses of others.  There exist no prior assignments or
encumbrances of record with the U.S. Patent and Trademark Office or U.S.
Copyright Office affecting any Collateral in favor of any third party, other
than Lender.

      

      (b)  Rights to
Payment.  The names of the obligors, amount owing to each
Borrower, due dates and all other information with respect to the Rights to
Payment are and will be correctly stated in all material respects in all Records
relating to the Rights to Payment.  Each Borrower further represents
and warrants, to its knowledge, that each Person appearing to be obligated on a
Right to Payment has authority and capacity to contract and is bound as it
appears to be.

      

      (c)  Location of
Collateral.  Each Borrower’s’ chief executive office,
Inventory, Records, Equipment (other than certain Equipment not to exceed
$25,000 in aggregate value), and any other offices or places of business are
located at the address(es) shown on the Supplement or such other locations that
Borrowers have notified Lender of pursuant to Section 5.1(d).

      

      (d)  Business
Names.  Other than its full corporate name, no Borrower has
conducted business using any trade names or fictitious business names except as
shown on the Supplement.

      

      3.12 Copyrights, Patents, Trademarks
and Licenses.

      

      (a)  Each Borrower owns
or is licensed or otherwise has the right to use all of the patents, trademarks,
service marks, trade names, copyrights, contractual franchises, authorizations
and other similar rights that are reasonably necessary for the operation of its
business, without, to its knowledge, conflict with the rights of any other
Person.

      

      (b)  To each
Borrower’s knowledge, no slogan or other advertising device, product, process,
method, substance, part or other material now employed, or now contemplated to
be employed, by any Borrower infringes upon any rights held by any other
Person.

      

      (c)  No claim or
litigation regarding any of the foregoing is pending or, to each Borrowr’s
knowledge, threatened in writing, which could reasonably be expected to have a
Material Adverse Effect.

      

      3.13         Regulatory Compliance.
Each Borrower has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA.  No event has occurred resulting from any Borrower’s
failure to comply with ERISA that is reasonably likely to result in any Borrower’s
incurring any liability that could reasonably be expected to have a Material
Adverse Effect.  No Borrower is an “investment company” or a company
“controlled” by an “investment company” within the meaning of the Investment
Company Act of 1940.  No Borrower is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations T and U
of the Board of Governors of the Federal Reserve System).  Each
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      3.14         Shares.  Parent
has full power and authority to create a first priority Lien on the Shares and
no disability or contractual obligation exists that would prohibit Parent from
pledging the Shares pursuant to this Agreement.  To Parent’s
knowledge, there are no subscriptions, warrants, rights of first refusal or
other restrictions on transfer relative to, or options exercisable with respect
to the Shares.  The Shares have been and will be duly authorized and
validly issued, and are fully paid and non-assessable.  To Parent’s
knowledge, the Shares are not the subject of any present or threatened suit,
action, arbitration, administrative or other proceeding, and Parent knows of no
reasonable grounds for the institution of any such proceedings.

      

      3.15        
Survival. The representations and warranties of Borrowers as set forth in
this Agreement survive the execution and delivery of this
Agreement.

      

      ARTICLE
4 - CONDITIONS PRECEDENT

      

      4.1           Conditions to First
Loan.  The obligation of Lender to make its first Loan
hereunder is, in addition to the conditions precedent specified in Section 4.2
and in any Supplement, subject to the fulfillment of the following conditions
and to the receipt by Lender of the documents described below, duly executed and
in form and substance satisfactory to Lender and its counsel:

      

      (a)         
  Resolutions.  A
certified copy of the resolutions of the Board of Directors of each Borrower, as
applicable, authorizing the execution, delivery and performance by each such
Borrower of the Loan Documents.

      

      (b)          
 Incumbency and
Signatures.  A certificate of the secretary of each Borrower,
in each case certifying the names of the officer or officers of each such
Borrower authorized to sign the Loan Documents, together with a sample of the
true signature of each such officer.

      

      (c)          
 Legal
Opinion.  The opinion of legal counsel for Borrowers as to such
matters as Lender may reasonably request, in a form reasonably acceptable to
Lender.

      

      (d)           
Articles/Certificate and
Bylaws.  Certified copies of the Articles or Certificate of
Incorporation and Bylaws of each Borrower, as amended through the Closing
Date.

      

      (e)            This
Agreement.  Original counterparts of this Agreement and the
initial Supplement, together with the Disclosure Letter, disclosing such
information as is acceptable to Lender.

      

      (f)             Financing
Statements.  Filing copies (or other evidence of filing
satisfactory to Lender and its counsel) of such UCC financing statements,
collateral assignments, account control agreements, and termination statements,
with respect to the Collateral as Lender shall request.

      

      (g)            Intellectual Property Security
Agreement.  An Intellectual Property Security Agreement
executed by each Borrower substantially in the form attached as Exhibit “G” to the
Supplement.

      

      (h)            Lien Searches. UCC lien,
judgment, bankruptcy and tax lien searches of each Borrower from such
jurisdictions or offices as Lender may reasonably request, all as of a date
reasonably satisfactory to Lender and its counsel.

      

      (i)             Good Standing
Certificate.  A certificate of status or good standing of each
Borrower as of a date acceptable to Lender from the jurisdiction of such
Borrower’s organization and any foreign jurisdictions where a Borrower is
qualified to do business.

      

      (j)             Warrant(s).  An
original warrant issued by Parent to Lender (or its designee) exercisable for
such number, type and class of shares of Parent’s capital stock, and for an
initial exercise price as is specified in the Supplement.

      

      (k)             Insurance Certificates.
Insurance certificates showing Lender as loss payee or additional
insured.

      

      (l)             Shares.  A stock
power executed by Parents, together with the stock certificate, if any,
representing the Shares.

      

      (m)           Other Documents. Such other
documents and instruments as Lender may reasonably request to effectuate the
intents and purposes of this Agreement.

      

      4.2           Conditions to All
Loans.  The obligation of Lender to make its initial Loan and
each subsequent Loan is subject to the following further conditions precedent
that:

      

      (a)     
      No Default.  No
Default or Event of Default has occurred and is continuing or will result from
the making of any such Loan, and the representations and warranties of Borrowers
contained in Article 3 of this Agreement and Part 3 of the Supplement are true
and correct as of the Borrowing Date of such Loan, except to the extent that
such representations and warranties relate solely to an earlier
date.

      

      (b)      
     No Material Adverse
Change.  No event has occurred  that has had or could
reasonably be expected to have a Material Adverse Change.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (c)           Borrowing
Request.  Borrowers shall have delivered to Lender a Borrowing
Request for such Loan.

      

      (d)           Note.  Borrowers
shall have delivered an original executed Note evidencing such Loan,
substantially in the form attached to the Supplement as an exhibit.

      

      (e)           Supplemental Lien
Filings.  Each Borrower shall have executed and delivered such
amendments or supplements to this Agreement and additional Security
Documents,  financing statements and third party waivers as Lender may
reasonably request in connection with the proposed Loan, in order to create,
protect or perfect or to maintain the perfection of Lender’s Liens on the
Collateral.

      

      (f)          
Financial
Projections.  Parent shall have delivered to Lender Parent’s
business plan and/or financial projections or forecasts as most recently
approved by Parent’s Board of Directors. 

      

      ARTICLE
5 - AFFIRMATIVE COVENANTS

      

      During the term of this Agreement and
until its performance of all Obligations (other than inchoate indemnity
obligations), each Borrower will:

      

      5.1          
Notice to
Lender.  Promptly give written notice to Lender
of:

      

      (a)           Any
litigation or administrative or regulatory proceeding affecting any Borrower
where the amount claimed against any Borrower is at the Threshold Amount or
more, or where the granting of the relief requested could reasonably be expected
have a Material Adverse Effect; or of the acquisition by a Borrower of any
commercial tort claim, including brief details of such claim and such other
information as Lender may reasonably request to enable Lender to better perfect
its Lien in such commercial tort claim as Collateral.

      

      (b)           Any
substantial dispute which may exist between any Borrower and any governmental or
regulatory authority.

      
 

      (c)           The
occurrence of any Default or any Event of Default.

      

      (d)           Any
change in the location of any of Borrower’s places of business or Collateral
(other than Equipment in aggregate value not to exceed $25,000) in advance of
such change, or of the establishment of any new, or the discontinuance of any
existing, place of business.

       

      (e)           Any
dispute or default by any Borrower or any other party under any joint venture,
partnering, distribution, cross-licensing, strategic alliance, collaborative
research or manufacturing, license or similar agreement which could reasonably
be expected to have a Material Adverse Effect.

      

      (f)            Any
other matter which has resulted or could reasonably be expected to result in a
Material Adverse Change.

      
 

      5.2           Financial
Statements.  Deliver to Lender or cause to be delivered to
Lender, in form and detail satisfactory to Lender the following financial and
other information, which each Borrower warrants shall be accurate and complete
in all material respects:

      

      (a)            Monthly Financial
Statements.  As soon as available but no later than the earlier
of (i) forty five (45) days after the end of each month and (ii) the date Bank
requires delivery, Parent’s balance sheet as of the end of such period, and
Parent’s income statement for such period and for that portion of Parent’s
financial reporting year ending with such period, prepared on a Consolidated
basis in accordance with GAAP (except with respect to unaudited financial
statements, for the absence of footnotes and subject to normal year-end
adjustments) and attested by a responsible financial officer of Parent as fairly
presenting in all material respects Parent’s financial condition and the results
of operations.

      

      (b)            Year-End Financial
Statements.  Within 90 days after the end of each financial
reporting year, a complete copy of Parent’s financial statements, which shall
include balance sheet, income statement, statement of changes in equity and
statement of cash flows for such year, prepared on a Consolidated basis in
accordance with GAAP and certified by an independent certified public accountant
selected by Borrowers and satisfactory to Lender (the “Accountant”).  The
Accountant’s certification shall not be qualified or limited due to a restricted
or limited examination by the Accountant of any material portion of any
Borrower’s records or otherwise.

      

      (c)       
    Compliance
Certificates.  Simultaneously with the delivery of each set of
financial statements referred to in paragraphs (a) and (b) above, a certificate
of the chief financial officer of each Borrower (or other executive officer)
substantially in the form of Exhibit “C” to the
Supplement stating whether any Default or Event of Default exists on the date of
such certificate, and if so, setting forth the details thereof and the action
which each such Borrower is taking or proposes to take with respect
thereto.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (d)       
    Government Required Reports; Press
Releases.  Promptly after sending, issuing, making available,
or filing, copies of all statements released to any news media for publication,
all reports, proxy statements, and financial statements that any Borrower sends
or makes available to its stockholders, and, not later than five (5) days after
actual filing or the date such filing was first due, all registration statements
and reports that any Borrower files or is required to file with the Securities
and Exchange Commission, or any other governmental or regulatory
authority.

      

      (e)         
  Other
Information.  Such other statements, lists of property and
accounts, budgets (as updated), sales projections, forecasts, reports, 409A
valuation reports, operating plans, financial exhibits, capitalization tables
(as updated) and information relating to equity financings consummated after the
Closing Date (including post-closing capitalization table(s)), or other
information as Lender may from time to time reasonably request.

      

      5.3
Reserved.  

      

      5.4           Existence.  Maintain
and preserve each Borrower’s existence, present form of business, and all rights
and privileges necessary or desirable in the normal course of its business
except that Bacterin International, Inc. may merge with and into Parent so long
as Parent is the surviving entity; and keep all of each Borrower’s property in
good working order and condition, ordinary wear and tear excepted.

      

      5.5           Insurance.  Obtain
and keep in force insurance in such amounts and types as is usual in the type of
business conducted by each Borrower, with insurance carriers having a
policyholder rating of not less than “A” and financial category rating of Class
VII in “Best’s Insurance Guide,” unless otherwise approved by
Lender.  Such insurance policies must be in form and substance
satisfactory to Lender, and shall list Lender as an additional insured or loss
payee, as applicable, on endorsement(s) in form reasonably acceptable to
Lender.  Each Borrower shall furnish to Lender such endorsements, and
upon Lender’s request, copies of any or all such policies.  So long as
no Event of Default exists, Lender agrees to remit any proceeds of insurance
received by Lender to the applicable Borrower and such Borrower shall have the
right to use such proceeds for the purchase of property useful in the business
of Borrower, provided that any such property which is purchased to replace
Collateral shall be deemed Collateral in which Lender has been granted a first
priority Lien, subject to Permitted Liens.  If an Event of Default has
occurred and is continuing, then at Lender’s option proceeds payable under any
casualty policy will be payable to Lender toward the satisfaction of the
Obligations in accordance with the terms of this Agreement.

      

      5.6           Accounting
Records.  Maintain adequate books, accounts and records, and
prepare all financial statements in accordance with GAAP (except with respect to
unaudited financial statements, for the absence of footnotes and subject to
normal year-end adjustments), and in compliance with the regulations of any
governmental or regulatory authority having jurisdiction over any Borrower or
any such Borrower’s business; and permit employees or agents of Lender at such
reasonable times as Lender may request, upon reasonable prior notice but no more
than twice a year unless an Event of Default has occurred and is continuing, at
Borrowers’ expense, to inspect each Borrower’s properties, and to examine, and
make copies and memoranda of each Borrower’s books, accounts and
records.

      

      5.7           Compliance With
Laws.  Comply with all laws (including Environmental Laws),
rules, regulations applicable to, and all orders and directives of any
governmental or regulatory authority having jurisdiction over, any Borrower or
any such Borrower’s business, and with all material agreements to which a
Borrower is a party, except where the failure to so comply could not reasonably
be expected to have a Material Adverse Effect.

      

      5.8           Taxes and Other
Liabilities.  Pay all of each Borrower’s Indebtedness when due;
pay all material taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be contested
in good faith by the appropriate procedures and for which such Borrower shall
maintain appropriate reserves; and timely file all material required tax
returns.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      5.9          
Special Collateral
Covenants.

      

      (a)          
Maintenance of Collateral;
Inspection.  Do all things reasonably necessary to maintain,
preserve, protect and keep all Collateral in good working order and salable
condition, ordinary wear and tear excepted, deal with the Collateral in all ways
as are considered good practice by owners of like property, and use the
Collateral lawfully and, to the extent applicable, only as permitted by each
Borrower’s insurance policies.  Maintain, or cause to be maintained,
complete and accurate Records relating to the Collateral.  Upon
reasonable prior notice at reasonable times during normal business hours, each
Borrower hereby authorizes Lender’s officers, employees, representatives and
agents to inspect the Collateral and to discuss the Collateral and the Records
relating thereto with each such Borrower’s officers and employees, and, in the
case of any Right to Payment, with any Person which is or may be obligated
thereon.

      

      (b)          
Documents of Title.  Not sign or authorize the signing of any
financing statement or other document naming any Borrower as debtor or obligor,
or acquiesce or cooperate in the issuance of any bill of lading, warehouse
receipt or other document or instrument of title with respect to any Collateral,
except those negotiated to Lender, or those naming Lender as secured party, or
if solely to create, perfect or maintain a Permitted Lien.

      

      (c)          
Change in Location or Name.  Without at least 30 days’ prior
written notice to Lender:  (a) not relocate any Collateral (except for
Equipment with an aggregate value not to exceed $25,000) or Records, its chief
executive office, or establish a place of business at a location other than as
specified in the Supplement; and (b) not change its name, mailing address,
location of Collateral, jurisdiction of incorporation or its legal
structure.

      

      (d)          
Decals, Markings.  At the request of Lender, firmly affix a
decal, stencil or other marking to designated items of Equipment, indicating
thereon the security interest of Lender.

      

      (e)          
Agreement With Persons in Possession of Collateral.  Obtain and
maintain such acknowledgments, consents, waivers and agreements (each a “Waiver”) from the owner, operator,
lienholder, mortgagee, landlord or any Person in possession of tangible
Collateral in excess of $25,000 per location as Lender may require, all in form
and substance satisfactory to Lender.

      

      (f)          
Certain Agreements on Rights to Payment.  Other than in the
ordinary course of business, not make any material discount, credit, rebate or
other reduction in the original amount owing on a Right to Payment or accept in
satisfaction of a Right to Payment less than the original amount
thereof.

      

      5.10       
Authorization for Automated Clearinghouse Funds Transfer.  (i)
Authorize Lender to initiate debit entries to the Primary Operating Account,
specified in the Supplement hereto, through Automated Clearinghouse (“ACH”) transfers, in
order to satisfy the regularly scheduled payments of principal, interest and
Final Payments (if any); (ii) provide Lender at least thirty (30) days notice of
any change in the Primary Operating Account; and (iii) grant Lender any
additional authorizations necessary to begin ACH debits from a new account which
becomes the Primary Operating Account.

      

      5.11        
Relationship between Borrowers.  Bacterin International, Inc.
shall at all times remain a wholly-owned subsidiary of Parent.

      

      ARTICLE
6 - NEGATIVE COVENANTS

      

      During the term of this Agreement and
until the performance of all Obligations (other than inchoate indemnity
obligations), each Borrower will not:

      

      6.1           Indebtedness.  Be
indebted for borrowed money, the deferred purchase price of property, or leases
which would be capitalized in accordance with GAAP; or become liable as a
surety, guarantor, accommodation party or otherwise for or upon the obligation
of any other Person, except:

      

      (a)           Indebtedness
incurred for the acquisition of supplies or inventory on normal trade
credit;

      

      (b)           Indebtedness
incurred pursuant to one or more transactions permitted under Section
6.4;

      

      (c)           Indebtedness
of each Borrower under this Agreement;

      

      (d)           Subordinated
Debt;

      

      (e)           subject
to the terms of Part 2, Section 3 of the Supplement, Indebtedness of Borrowers
to Bank under the A/R Facility;

      

      (f)           
Indebtedness of Borrowers secured by a Lien described in (i) clause (c)
of the definition of Permitted Liens, not to exceed [$50,000] in aggregate amount
outstanding at any time or (ii) clause (o) of the definition of Permitted
Liens;

      

      (g)           Other
Indebtedness of Borrowers not otherwise permitted by this Section 6.1 in an
aggregate amount not to exceed $100,000;

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (h)           Indebtedness
arising from the endorsement of instruments in the ordinary course of
business;

      

      (i)           
Indebtedness of Borrowers pursuant to corporate credit cards in the ordinary
course of business in an aggregate amount not to exceed $50,000;

      

      (j)           
any Indebtedness approved by Lender prior to the Closing Date as shown on Schedule 6.1 to the
Disclosure Letter; and

      

      (k)          
extensions, refinancings, modifications, amendments and restatements of any item
of permitted Indebtedness (a) through (j) above, so long as the principal amount
of such Indebtedness is not increased or the maturity date
decreased.

      

      6.2           Liens.  Create,
incur, assume or permit to exist any Lien, or grant any other Person a negative
pledge (except negative pledges granted to holders of Permitted Liens or
existing in an agreement providing for the acquisition of any Borrower), on any
Borrower’s property, except Permitted Liens.  Borrowers and Lender
agree that this covenant is not intended to constitute a lien, deed of trust,
equitable mortgage, or security interest of any kind on any of each Borrower’s
real property, and this Agreement shall not be recorded or
recordable.  Notwithstanding the foregoing, however, violation of this
covenant by Borrowers shall constitute an Event of Default.

      

      6.3           Dividends.  Pay any
dividends or purchase, redeem or otherwise acquire or make any other
distribution with respect to any either Borrower’s capital stock, except (a)
dividends or other distributions solely of capital stock of such Borrower, (b)
dividends or other distributions by Bacterin International, Inc. to Parent, and
(c) so long as no Event of Default has occurred and is continuing, repurchases
of stock from employees, directors or consultants upon termination of employment
or service under reverse vesting or similar repurchase plans by (i) cash not to
exceed $100,000 in any calendar year or (ii) cancellation of
indebtedness.

      

      6.4           Changes/Mergers. Liquidate or
dissolve; or enter into any consolidation, merger or other combination in which
the stockholders of any Borrower immediately prior to the first such transaction
own less than 50% of the voting stock of such Borrower immediately after giving
effect to such transaction or related series of such transactions, except that
any Borrower may consolidate or merge so long as: (A) the entity that results
from such merger or consolidation (the “Surviving Entity”)
shall have executed and delivered to Lender an agreement in form and substance
reasonably satisfactory to Lender, containing an assumption by the Surviving
Entity of the due and punctual payment and performance of all Obligations and
performance and observance of each covenant and condition of such Borrower in
the Loan Documents; (B) all such obligations of the Surviving Entity to Lender
shall be guaranteed by any entity that directly or indirectly owns or controls
more than 50% of the voting stock of the Surviving Entity; (C) immediately after
giving effect to such merger or consolidation, no Event of Default or, event
which with the lapse of time or giving of notice or both, would result in an
Event of Default shall have occurred and be continuing; and (D) the credit risk
to Lender, in its sole discretion, of the Surviving Entity shall not be
increased.  In determining whether the proposed merger or
consolidation would result in an increased credit risk, Lender may consider,
among other things, changes in each Borrower’s management team, employee base,
access to equity markets, venture capital support, financial position and/or
disposition of intellectual property rights which may reasonably be anticipated
as a result of the transaction.  Notwithstanding anything to the
contrary in this Section 6.4, Bacterin International, Inc. shall be permitted to
(i) liquidate or dissolve in a transaction pursuant to which its assets are
transferred to Parent, and (ii) merge with or into Parent in a transaction in
which Parent is the surviving entity.

      

      6.5           Sales of Assets. Sell,
transfer, lease, license or otherwise dispose of (a “Transfer”) any
Borrower’s assets except (i) exclusive or non-exclusive licenses of Intellectual
Property in the ordinary course of business consistent with industry practice,
provided that such licenses of Intellectual Property neither result in a legal
transfer of title of the licensed Intellectual Property nor have the same effect
as a sale of such Intellectual Property; (ii) Transfers of worn-out, obsolete or
surplus property (each as determined by each Borrower in its reasonable
judgment); (iii) Transfers of Inventory in the ordinary course of business; (iv)
Transfers constituting Permitted Liens; (v) Transfers permitted in Sections 6.3,
6.4 and 6.6 hereunder; and (vi) Transfers of Collateral (other than Intellectual
Property) for fair consideration and in the ordinary course of its
business.

      

      6.6           Loans/Investments.  Make
or suffer to exist any loans, guaranties, advances, or investments,
except:

      

      (a)           accounts
receivable in the ordinary course of each Borrower’s business;

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (b)           investments
in domestic certificates of deposit issued by, and other domestic investments
with, financial institutions organized under the laws of the United States or a
state thereof, having at least One Hundred Million Dollars ($100,000,000) in
capital and a rating of at least “investment grade” or “A” by Moody’s or any
successor rating agency;

      

      (c)           investments
in marketable obligations of the United States of America and in open market
commercial paper given the highest credit rating by a national credit agency and
maturing not more than one year from the creation thereof;

      

      (d)           temporary
advances to cover incidental expenses to be incurred in the ordinary course of
business;

      

      (e)           investments
in joint ventures, strategic alliances, licensing and similar arrangements
customary in the Borrowers’ industry and which do not require a Borrower to
assume or otherwise become liable for the obligations of any third party not
directly related to or arising out of such arrangement or, without the prior
written consent of Lender, require a Borrower to transfer ownership of non-cash
assets to such joint venture or other entity;

      

      (f)        
   investments in wholly-owned subsidiaries of a
Borrower;

      

      (g)           investments
consisting of loans to employees,  consultants or directors relating
to the purchase of equity securities of any Borrower pursuant to employee stock
purchase plans or agreements approved by such Borrower’s Board of
Directors;

      

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

      

      (i)            investments
consisting of deposit and investment accounts in which Lender has been granted a
perfected Lien to the extent such accounts are located in the United
States;

      

      (j)        
   investments accepted in connection with Transfers permitted by
Section 6.5;

      

      (k)        
  investments permitted by Parent’s investment policy as approved by
Parent’s Board of Directors;

      

      (l)     
      investments consisting of the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business;

      

      (m) 
        other investments by Borrowers
not otherwise permitted by Section 6.6 not exceeding One Hundred Thousand
Dollars ($100,000) in cash in the aggregate outstanding at any
time.

      

      6.7         
 Transactions With Related Persons.  Directly or
indirectly enter into any transaction with or for the benefit of a Related
Person on terms more favorable to the Related Person than would have been
obtainable in an “arms’ length” dealing, except for:  (i) transactions
between each Borrower and its Subsidiaries that are not otherwise prohibited by
this Agreement; (ii) Subordinated Debt and issuance of equity securities to
existing investors that are Related Persons in a bona fide equity financing, and
(iii) compensation and fees payable to and indemnity arrangements with officers
and directors.

      

      6.8           Other
Business.  Engage in any material line of business other than
the business each Borrower conducts as of the Closing Date and any business
related or incidental to such business.

      

      6.9           Financing Statements and Other
Actions.  Fail to execute and deliver to Lender all financing
statements, notices and other documents (including, without limitation, any
filings with the United States Patent and Trademark Office and the United States
Copyright Office) from time to time reasonably requested by Lender to maintain a
perfected first priority security interest in the Collateral in favor of Lender,
subject to Permitted Liens; perform such other acts, and execute and deliver to
Lender such additional conveyances, assignments, agreements and instruments, as
Lender may at any time request in connection with the administration and
enforcement of this Agreement or Lender’s rights, powers and remedies
hereunder.

      

      6.10       
 Compliance.  Become an “investment company” or controlled
by an “investment company,” within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Loan for such
purpose.  Fail to meet the minimum funding requirements of ERISA,
permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to
occur, fail to comply with the Federal Fair Labor Standards Act or violate any
law or regulation, which violation could reasonably be expected to have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Lender’s Lien on the Collateral, or permit any of its subsidiaries
to do any of the foregoing.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      6.11      
 Other Deposit and Securities Accounts.  Maintain any
deposit accounts or accounts holding securities owned by a Borrower except (i)
Deposit Accounts and investment/securities accounts as set forth in the
Supplement, and (ii) other Deposit Accounts and securities/investment accounts,
in each case, with respect to which such Borrower and Lender shall have taken
such action as Lender reasonably deems necessary to obtain a perfected first
priority security interest therein, provided that Lender shall not require
control agreements for (i) non-U.S. accounts, and (ii) accounts with deposits
limited to deposits subject to a Lien described in clause (l) of the definition
of Permitted Liens.  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 Borrowers’
employees.

      

      6.12         Prepayment of Indebtedness.
Prepay, redeem or otherwise satisfy in any manner prior to the scheduled
repayment thereof any Indebtedness (other than the
Loans).  Notwithstanding the foregoing, Lender agrees that the
conversion or exchange into any Borrower’s equity securities of any Indebtedness
(other than the Loans) shall not be prohibited by this Section
6.12.

      

      6.13         Repayment of Subordinated
Debt. Repay, prepay, redeem or otherwise satisfy in any manner any
Subordinated Debt, except in accordance with the terms of any subordination
agreement among any Borrower, Lender and the holder(s) of such Subordinated
Debt.  Notwithstanding the foregoing, Lender agrees that the
conversion or exchange into a Borrower’s equity securities of any Subordinated
Debt and the payment of cash in lieu of fractional shares shall not be
prohibited by this Section 6.13.

      

      6.14         Subsidiaries.

      

      (a)    Sell,
transfer, encumber or otherwise dispose of a Borrower’s ownership interest in
any Subsidiary other than Permitted Liens and Transfers permitted under Section
6.5.

      

      (b)    Cause or
permit a Subsidiary to do any of the following:  (a) grant Liens on
such Subsidiary’s assets, except for Liens that would constitute Permitted Liens
if incurred by a Borrower and Liens on any property held or acquired by such
Subsidiary in the ordinary course of its business securing Indebtedness incurred
or assumed for the purpose of financing all or any part of the cost of acquiring
such property; provided, that such
Lien attaches solely to the property acquired with such Indebtedness and that
the principal amount of such Indebtedness does not exceed one hundred percent
(100%) of the cost of such property; and (b) issue any additional
Shares.

      

      6.15         Leases.  Create,
incur, assume or suffer to exist any obligation as lessee for the rental or hire
of any personal property in an aggregate amount not to exceed
$250,000.

      

      ARTICLE
7 - EVENTS OF DEFAULT

      

      7.1           Events of Default;
Acceleration.  Upon the occurrence and during the continuation
of any Default, the obligation of Lender to make any additional Loan shall be
suspended.  The occurrence of any of the following that has not been
cured within any applicable cure period or otherwise waived by Lender (each, an
“Event of
Default”) shall terminate any obligation of Lender to make any additional
Loan; and shall, at the option of Lender (1) make all sums of Basic Interest and
principal, all Final Payments, and any Obligations and other amounts owing under
any Loan Documents immediately due and payable without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor
or any other notices or demands, and (2) give Lender the right to exercise any
other right or remedy provided by contract or applicable law:

      

      (a)           Borrowers
shall fail to pay any principal, interest or Final Payment under this Agreement
or any Note, or fail to pay any fees or other charges when due under any Loan
Document, and such failure continues for three (3) Business Days or more after
the same first becomes due; or an Event of Default as defined in any other Loan
Document shall have occurred.

      

      (b)           Any
representation or warranty made, or financial statement, certificate or other
document provided, by any Borrower under any Loan Document to which such entity
is a party shall prove to have been false or misleading in any material respect
when made or deemed made herein (it being recognized by Lender that projections
and estimates as to future events are not to be viewed as facts and that the
actual results during the period or periods covered by any such projections and
estimates may differ from projected or estimated results).

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (c)           (i)
Any Borrower shall fail to pay its debts generally as they become due; or (ii)
or shall commence any Insolvency Proceeding with respect to itself, an
involuntary Insolvency Proceeding shall be filed against any Borrower, or a
custodian, receiver, trustee, assignee for the benefit of creditors, or other
similar official, shall be appointed to take possession, custody or control of
the properties of any Borrower, and such involuntary Insolvency Proceeding,
petition or appointment is acquiesced to by any Borrower or is not dismissed
within forty five (45) days; or the dissolution, winding up, or termination of
the business or cessation of operations of any Borrower; or a Borrower shall
take any corporate action for the purpose of effecting, approving, or consenting
to any of the foregoing.

      

      (d)           Any
Borrower shall be in default beyond any applicable period of grace or cure under
any other agreement involving the borrowing of money, the purchase of property,
the advance of credit or any other monetary liability of any kind to Lender or
to any Person which results in the acceleration of payment of such obligation in
an amount in excess of the Threshold Amount.

      

      (e)           Any
governmental or regulatory authority shall take any judicial or administrative
action that has, or would reasonably be expected to have, the effect of
suspending or terminating any material portion of a Borrower’s business; or any
defined benefit pension plan maintained by a Borrower shall have any unfunded
liabilities in excess of the Threshold Amount.

      

      (f)        
   Except as permitted in Sections 6.4 and 6.5 of this Agreement,
any sale, transfer or other disposition of all or a substantial or material part
of the assets of any Borrower, including without limitation to any trust or
similar entity, shall occur.

      

      (g)           Any
judgment(s) singly or in the aggregate in excess of the Threshold Amount shall
be entered against any Borrower which remain unsatisfied, unvacated or unstayed
pending appeal in the case of any judgment rendered in a federal court for ten
(10) Business Days or more after entry thereof, or in the case of any judgment
rendered in a state court, for twenty (20) Business Days or more days after
entry thereof.

      

      (h)           Reserved.

      

      (i)       
   Any Borrower shall fail to perform or observe any covenant
contained in Article 6 of this Agreement.

      

      (j)           Any
Borrower shall fail to perform or observe any covenant contained in Article 5 or
elsewhere in this Agreement or any other Loan Document (other than a covenant
which is dealt with specifically elsewhere in this Article 7) and, if capable of
being cured, the breach of such covenant is not cured within 30 days after the
sooner to occur of such Borrower’s receipt of notice of such breach from Lender
or the date on which such breach first becomes known to any officer of such
Borrower; provided, however that if such
breach is not capable of being cured within such 30-day period and such Borrower
timely notifies Lender of such fact and such Borrower diligently pursues such
cure, then the cure period shall be extended to the date requested in such
Borrower’s notice but in no event more than 90 days from the initial breach;
provided, further, that such
additional 60-day opportunity to cure shall not apply in the case of any failure
to perform or observe any covenant which has been the subject of a prior failure
within the preceding 180 days or which is a willful and knowing breach by such
Borrower.

      

      (k)           The
occurrence of any default or event of default (howsoever defined) under the A/R
Facility.

      

      7.2           Remedies Upon
Default.  Upon the occurrence and during the continuance of an
Event of Default, Lender shall be entitled to, at its option, exercise any or
all of the rights and remedies available to a secured party under the UCC or any
other applicable law, and exercise any or all of its rights and remedies
provided for in this Agreement and in any other Loan Document.  The
obligations of Borrowers under this Agreement shall continue to be effective or
be reinstated, as the case may be, if at any time any payment of any Obligations
is rescinded or must otherwise be returned by Lender upon, on account of, or in
connection with, the insolvency, bankruptcy or reorganization of any Borrower or
otherwise, all as though such payment had not been made.

      

      7.3           Sale of
Collateral.  Upon the occurrence and during the continuance of
an Event of Default, Lender may sell all or any part of the Collateral, at
public or private sales, to itself, a wholesaler, retailer or investor, for
cash, upon credit or for future delivery, and at such price or prices as Lender
may deem commercially reasonable.  To the extent permitted by law,
each Borrower hereby specifically waives all rights of redemption and any rights
of stay or appraisal which it has or may have under any applicable law in effect
from time to time.  Any such public or private sales shall be held at
such times and at such place(s) as Lender may determine.  In case of
the sale of all or any part of the Collateral on credit or for future delivery,
the Collateral so sold may be retained by Lender until the selling price is paid
by the purchaser, but Lender shall not incur any liability in case of the
failure of such purchaser to pay for the Collateral and, in case of any such
failure, such Collateral may be resold.  Lender may, instead of
exercising its power of sale, proceed to enforce its security interest in the
Collateral by seeking a judgment or decree of a court of competent
jurisdiction.  Without limiting the generality of the foregoing, if an
Event of Default is in effect,

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (1)           Subject
to the rights of any third parties, Lender may license, or sublicense, whether
general, special or otherwise, and whether on an exclusive or non-exclusive
basis, any Copyrights, Patents or Trademarks included in the Collateral
throughout the world for such term or terms, on such conditions and in such
manner as Lender shall in its sole discretion determine;

      

      (2)           Lender
may (without assuming any obligations or liability thereunder), at any time and
from time to time, enforce (and shall have the exclusive right to enforce)
against any licensee or sublicensee all rights and remedies of any Borrower in,
to and under any Copyright Licenses, Patent Licenses or Trademark Licenses and
take or refrain from taking any action under any thereof, and each Borrower
hereby releases Lender from, and agrees to hold Lender free and harmless from
and against any claims arising out of, any lawful action so taken or omitted to
be taken with respect thereto other than claims arising out of Lender’s gross
negligence or willful misconduct; and

      

      (3)           Upon
request by Lender, each Borrower will execute and deliver to Lender a power of
attorney, in form and substance reasonably satisfactory to Lender for the
implementation of any lease, assignment, license, sublicense, grant of option,
sale or other disposition of a Copyright, Patent or Trademark.  In the
event of any such disposition pursuant to this clause 3, each
Borrower shall supply its know-how and expertise relating to the products or
services made or rendered in connection with Patents, the manufacture and sale
of the products bearing Trademarks, and its customer lists and other records
relating to such Copyrights, Patents or Trademarks and to the distribution of
said products, to Lender.

      

      (4)           If,
at any time when Lender shall determine to exercise its right to sell the whole
or any part of the Shares hereunder, such Shares or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under the
Securities Act (or any similar statute), then Lender may, in its discretion
(subject only to applicable requirements of law), sell such Shares or part
thereof by private sale in such manner and under such circumstances as Lender
may deem necessary or advisable, but subject to the other requirements of this
Article 7, and
shall not be required to effect such registration or to cause the same to be
effected.  Without limiting the generality of the foregoing, in any
such event, Lender in its discretion may (i) in accordance with applicable
securities laws proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Shares or part
thereof could be or shall have been filed under the Securities Act (or similar
statute), (ii) approach and negotiate with a single possible purchaser to effect
such sale, and (iii) restrict such sale to a purchaser who is an accredited
investor under the Securities Act and who will represent and agree that such
purchaser is purchasing for its own account, for investment and not with a view
to the distribution or sale of such Shares or any part thereof.  In
addition to a private sale as provided above in this Article 7, if any of
the Shares shall not be freely distributable to the public without registration
under the Securities Act (or similar statute) at the time of any proposed sale
pursuant to this Article 7, then
Lender shall not be required to effect such registration or cause the same to be
effected but, in its discretion (subject only to applicable requirements of
law), may require that any sale hereunder (including a sale at auction) be
conducted subject to restrictions:

      

      (A)         as
to the financial sophistication and ability of any Person permitted to bid or
purchase at any such sale;

       

      (B)          as
to the content of legends to be placed upon any certificates representing the
Shares sold in such sale, including restrictions on future transfer
thereof;

       

      (C)          as
to the representations required to be made by each Person bidding or purchasing
at such sale relating to such Person’s access to financial information about a
Borrower or any of its Subsidiaries and such Person’s intentions as to the
holding of the Shares so sold for investment for its own account and not with a
view to the distribution thereof; and

       

      (D)          as
to such other matters as Lender may, in its discretion, deem necessary or
appropriate in order that such sale (notwithstanding any failure so to register)
may be effected in compliance with the Bankruptcy Code and other laws affecting
the enforcement of creditors’ rights and the Securities Act and all applicable
state securities laws.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (5)           Each
Borrower recognizes that Lender may be unable to effect a public sale of any or
all the Shares and may be compelled to resort to one or more private sales
thereof in accordance with clause (4)
above.  Each Borrower also acknowledges that any such private sale may
result in prices and other terms less favorable to the seller than if such sale
were a public sale and, notwithstanding such circumstances, agrees that any such
private sale shall not be deemed to have been made in a commercially
unreasonable manner solely by virtue of such sale being
private.  Lender shall be under no obligation to delay a sale of any
of the Shares for the period of time necessary to permit the applicable
Subsidiary to register such securities for public sale under the Securities Act,
or under applicable state securities laws, even if Borrowers and/or the
Subsidiary would agree to do so.

      

      7.4           Borrower’s Obligations Upon
Default.  Upon the request of Lender after the occurrence and
during the continuance of an Event of Default, each Borrower will:

      

      (a)           Assemble
and make available to Lender the Collateral at such place(s) as Lender shall
reasonably designate, segregating all Collateral so that each item is capable of
identification; and

      

      (b)           Subject
to the rights of any lessor, permit Lender, by Lender’s officers, employees,
agents and representatives, to enter any premises where any Collateral is
located, to take possession of the Collateral, to complete the processing,
manufacture or repair of any Collateral, and to remove the Collateral, or to
conduct any public or private sale of the Collateral, all without any liability
of Lender for rent or other compensation for the use of each Borrower’s
premises.

       

      ARTICLE
8 - SPECIAL COLLATERAL PROVISIONS

      

      8.1           Compromise and
Collection.  Borrowers and Lender recognize that setoffs,
counterclaims, defenses and other claims may be asserted by obligors with
respect to certain of the Rights to Payment; that certain of the Rights to
Payment may be or become uncollectible in whole or in part; and that the expense
and probability of success of litigating a disputed Right to Payment may exceed
the amount that reasonably may be expected to be recovered with respect to such
Right to Payment.  Borrowers hereby authorizes Lender, after and
during the continuance of an Event of Default, to compromise with the obligor,
accept in full payment of any Right to Payment such amount as Lender shall
negotiate with the obligor, or abandon any Right to Payment.  Any such
action by Lender shall be considered commercially reasonable so long as Lender
acts in good faith based on information known to it at the time it takes any
such action.

      

      8.2           Performance of Borrowers’
Obligations.  Without having any obligation to do so, upon
reasonable prior notice to any Borrower, Lender may perform or pay any
obligation which such Borrower have agreed to perform or pay under this
Agreement, including, without limitation, the payment or discharge of taxes or
Liens levied or placed on or threatened against the Collateral.  In so
performing or paying, Lender shall determine the action to be taken and the
amount necessary to discharge such obligations.  Each Borrower shall
reimburse Lender on demand for any amounts paid by Lender pursuant to this
Section, which amounts shall constitute Obligations secured by the Collateral
and shall bear interest from the date of demand at the Default
Rate.

      

      8.3           Power of
Attorney.  For the purpose of protecting and preserving the
Collateral and Lender’s rights under this Agreement, each Borrower hereby
irrevocably appoints Lender, with full power of substitution, as its
attorney-in-fact with full power and authority, after the occurrence and during
the continuance of an Event of Default, to do any act which each such Borrower
is obligated to do hereunder; to exercise such rights with respect to the
Collateral as each such Borrower might exercise; to use such Inventory,
Equipment, Fixtures or other property as Borrowers might use; to enter each
Borrower’s premises; to give notice of Lender’s security interest in, and to
collect the Collateral; and before or after Default, to execute and file in each
Borrower’s name any financing statements, amendments and continuation
statements, account control agreements or other Security Documents necessary or
desirable to create, maintain, perfect or continue the perfection of Lender’s
security interests in the Collateral.  Each Borrower hereby ratifies
all that Lender shall lawfully do or cause to be done by virtue of this
appointment.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      8.4           Authorization for Lender to Take
Certain Action.  The power of attorney created in Section 8.3
is a power coupled with an interest and shall be irrevocable.  The
powers conferred on Lender hereunder are solely to protect its interests in the
Collateral and shall not impose any duty upon Lender to exercise such
powers.  Lender shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and in no event shall Lender
or any of its directors, officers, employees, agents or representatives be
responsible to any Borrower for any act or failure to act, except for gross
negligence or willful misconduct.  After the occurrence and during the
continuance of an Event of Default, Lender may exercise this power of attorney
without notice to or assent of any Borrower, in the name of any such Borrower,
or in Lender’s own name, from time to time in Lender’s sole discretion and at
Borrower’s expense.  To further carry out the terms of this Agreement,
after the occurrence and during the continuance of an Event of Default, Lender
may:

      

      (a)           Execute
any statements or documents or take possession of, and endorse and collect and
receive delivery or payment of, any checks, drafts, notes, acceptances or other
instruments and documents constituting Collateral, or constituting the payment
of amounts due and to become due or any performance to be rendered with respect
to the Collateral.

      

      (b)           Sign
and endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts; drafts, certificates and statements under any commercial or
standby letter of credit relating to Collateral; assignments, verifications and
notices in connection with Accounts; or any other documents relating to the
Collateral, including without limitation the Records.

      

      (c)           Use
or operate Collateral or any other property of any Borrower for the purpose of
preserving or liquidating Collateral.

      

      (d)           File
any claim or take any other action or proceeding in any court of law or equity
or as otherwise deemed appropriate by Lender for the purpose of collecting any
and all monies due or securing any performance to be rendered with respect to
the Collateral.

      

      (e)           Commence,
prosecute or defend any suits, actions or proceedings or as otherwise deemed
appropriate by Lender for the purpose of protecting or collecting the
Collateral.  In furtherance of this right, upon the occurrence and
during the continuance of an Event of Default, Lender may apply for the
appointment of a receiver or similar official to operate each Borrower’s
business.

      

      (f)           Prepare,
adjust, execute, deliver and receive payment under insurance claims, and collect
and receive payment of and endorse any instrument in payment of loss or returned
premiums or any other insurance refund or return, and apply such amounts at
Lender’s sole discretion, toward repayment of the Obligations or replacement of
the Collateral.

      

      8.5           Application of
Proceeds.  Any Proceeds and other monies or property received
by Lender pursuant to the terms of this Agreement or any Loan Document may be
applied by Lender first to the payment of expenses of collection, including
without limitation reasonable attorneys’ fees, and then to the payment of the
Obligations in such order of application as Lender may elect.

      

      8.6           Deficiency.  If the
Proceeds of any disposition of the Collateral are insufficient to cover all
costs and expenses of such sale and the payment in full of all the Obligations,
plus all other sums required to be expended or distributed by Lender, then each
Borrower shall be liable, on a joint and several basis, for any such
deficiency.

      

      8.7           Lender
Transfer.  Upon the transfer of all or any part of the
Obligations, Lender may transfer all or part of the Collateral and shall be
fully discharged thereafter from all liability and responsibility with respect
to such Collateral so transferred, and the transferee shall be vested with all
the rights and powers of Lender hereunder with respect to such Collateral so
transferred, but with respect to any Collateral not so transferred, Lender shall
retain all rights and powers hereby given.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      8.8           Lender’s
Duties.

      

            (a)             Lender
shall use reasonable care in the custody and preservation of any Collateral in
its possession.  Without limitation on other conduct which may be
considered the exercise of reasonable care, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of such Collateral if
such Collateral is accorded treatment substantially equal to that which Lender
accords its own property, it being understood that Lender shall not have any
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, declining value, tenders or other matters
relative to any Collateral, regardless of whether Lender has or is deemed to
have knowledge of such matters; or taking any necessary steps to preserve any
rights against any Person with respect to any Collateral.  Under no
circumstances shall Lender be responsible for any injury or loss to the
Collateral, or any part thereof, arising from any cause beyond the reasonable
control of Lender.

      

      (b)           Lender
may at any time deliver the Collateral or any part thereof to any Borrower and
the receipt of such Borrower shall be a complete and full acquittance for the
Collateral so delivered, and Lender shall thereafter be discharged from any
liability or responsibility therefor.

      

      (c)           Neither
Lender, nor any of its directors, officers, employees, agents, attorneys or any
other person affiliated with or representing Lender shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by any Borrower or any other party through the ordinary
negligence of Lender, or any of its directors, officers, employees, agents,
attorneys or any other person affiliated with or representing
Lender.

      

      8.9           Termination of Security
Interests.   Upon the payment in full of the Obligations
(other than inchoate indemnity obligations) and satisfaction of all Borrowers’
obligations under this Agreement and the other Loan Documents, and if Lender has
no further obligations under its Commitment, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to
Borrowers.  Upon any such termination, the Lender shall, at Borrowers’
expense, execute and deliver to Borrowers such documents as Borrowers shall
reasonably request to evidence such termination.

      

      ARTICLE
9 - GENERAL PROVISIONS

      

      9.1           Notices.  Any notice
given by any party under any Loan Document shall be in writing and personally
delivered, sent by overnight courier, or United States mail, postage prepaid, or
sent by facsimile, or other authenticated message, charges prepaid, to the other
party’s or parties’ addresses shown on the Supplement.  Each party may
change the address or facsimile number to which notices, requests and other
communications are to be sent by giving written notice of such change to each
other party.  Notice given by hand delivery shall be deemed received
on the date delivered; if sent by overnight courier, on the next Business Day
after delivery to the courier service; if by first class mail, on the third
Business Day after deposit in the U.S. Mail; and if by facsimile, on the date of
transmission.

      

      9.2           Binding Effect.  The
Loan Documents shall be binding upon and inure to the benefit of each Borrower
and Lender and their respective successors and assigns; provided, however, that
no Borrower may assign or transfer such Borrower's rights or obligations under
any Loan Document.  Lender reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, Lender's rights and obligations under the Loan
Documents.  In connection with any of the foregoing, Lender may
disclose all documents and information which Lender now or hereafter may have
relating to the Loans, any Borrower, or such Borrower’s business, provided that
the person who receives such information shall have agreed in writing in advance
to maintain the confidentiality of such information on terms no less protective
of such Borrower than those set forth in Section 9.13.

      

      9.3           No Waiver.  Any
waiver, consent or approval by Lender of any Event of Default or breach of any
provision, condition, or covenant of any Loan Document must be in writing and
shall be effective only to the extent set forth in writing.  No waiver
of any breach or default shall be deemed a waiver of any later breach or default
of the same or any other provision of any Loan Document.  No failure
or delay on the part of Lender in exercising any power, right, or privilege
under any Loan Document shall operate as a waiver thereof, and no single or
partial exercise of any such power, right, or privilege shall preclude any
further exercise thereof or the exercise of any other power, right or
privilege.  Lender has the right at its sole option to continue to
accept interest and/or principal payments due under the Loan Documents after
default, and such acceptance shall not constitute a waiver of said default or an
extension of the maturity of any Loan unless Lender agrees otherwise in
writing.

      

      9.4           Rights
Cumulative.  All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      9.5           Unenforceable
Provisions.  Any provision of any Loan Document executed by
Borrowers which is prohibited or unenforceable in any jurisdiction, shall be so
only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of any such Loan Document
shall remain valid and enforceable.

      

      9.6           Accounting
Terms.  Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined and
prepared in accordance with GAAP.

      

      9.7           Indemnification;
Exculpation.  Borrowers shall pay and protect, defend and
indemnify Lender and Lender’s employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Lender,
collectively “Agents”) against, and
hold Lender and each such Agent harmless from, all claims, actions, proceedings,
liabilities, damages, losses, expenses (including, without limitation,
attorneys’ fees and costs) and other amounts incurred by Lender and each such
Agent, arising from (i) the matters contemplated by this Agreement or any other
Loan Documents, (ii) any dispute between a Borrower and a third
party,  or (iii) any contention that any Borrower has failed to comply
with any law, rule, regulation, order or directive applicable to any Borrower’s
business; provided,
however, that this indemnification shall not apply to any of the
foregoing incurred solely as the result of Lender’s or any Agent’s gross
negligence or willful misconduct.  This indemnification shall survive
the payment and satisfaction of all of Borrowers’ Obligations to
Lender.

      

      9.8           Reimbursement.  Subject
to the limitation set forth in Section 6 of the Supplement, Borrowers shall
reimburse Lender for all reasonable costs and expenses, including without
limitation reasonable attorneys’ fees and disbursements expended or incurred by
Lender in any arbitration, mediation, judicial reference, legal action or
otherwise in connection with (a) the preparation and negotiation of the Loan
Documents, (b) the amendment and enforcement of the Loan Documents, including
without limitation during any workout, attempted workout, and/or in connection
with the rendering of legal advice as to Lender’s rights, remedies and
obligations under the Loan Documents, (c) collecting any sum which becomes due
Lender under any Loan Document, (d) any proceeding for declaratory relief, any
counterclaim to any proceeding, or any appeal, or (e) the protection,
preservation or enforcement of any rights of Lender.  For the purposes
of this section, attorneys’ fees shall include, without limitation, fees
incurred in connection with the following:  (1) contempt proceedings;
(2) discovery; (3) any motion, proceeding or other activity of any kind in
connection with an Insolvency Proceeding; (4) garnishment, levy, and debtor and
third party examinations; and (5)  postjudgment motions and
proceedings of any kind, including without limitation any activity taken to
collect or enforce any judgment.  All of the foregoing costs and
expenses shall be payable upon demand by Lender, and if not paid within
forty-five (45) days of presentation of invoices shall bear interest at the
Default Rate.

      

      9.9           Execution in
Counterparts.  This Agreement may be executed in any number of
counterparts which, when taken together, shall constitute but one
agreement.

      

      9.10         Entire
Agreement.  The Loan Documents are intended by the parties as
the final expression of their agreement and therefore contain the entire
agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof.  This Agreement may
be amended only in a writing signed by each Borrower and Lender.

      

      9.11         Governing Law and
Jurisdiction.

      

      (a)           THIS
AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.

      

      (b)           ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE
UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF AND
IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.
EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO.  BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF
ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY CALIFORNIA LAW.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      9.12         Waiver of Jury
Trial.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW,
BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR
OTHERWISE.  BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY.  WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT
THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION
AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.  THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

      

      9.13         Obligations and Restrictions
Regarding Confidential Information.  Lender shall maintain the
confidentiality of Borrowers’ confidential information.  Lender’s
standard of care shall be deemed to have been complied with under this Section
9.13, if in handling any confidential information of the Borrowers’, Lender
shall exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Lender’s
subsidiaries or Affiliates in connection with their business with any Borrower
(subject to the same confidentiality obligation set forth herein); (ii) to
prospective transferees or purchasers of any interest in the Loans (subject to
the same confidentiality obligation set forth herein); (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with
Lender’s examination or audit; (v) as Lender considers appropriate in exercising
remedies under this Agreement; and (vi) to Lender’s attorneys, accountants and
other advisors.

      

      ARTICLE
10 – CROSS-CORPORATE GUARANTEES

      

      10.1        
Guaranty.   In
consideration of the execution and delivery by Lender of this Agreement and the
making of Loans to Borrowers hereunder, Borrowers hereby jointly and severally
guarantee absolutely and unconditionally to Lender the due and punctual payment,
when and as due (whether upon demand, at maturity, by reason of acceleration or
otherwise), of all liabilities and obligations under this Agreement and the
other Loan Documents and agree to pay any and all expenses (including reasonable
legal fees and disbursements) which may be incurred by Lender in enforcing its
rights under this guaranty.  The liability of Borrowers under this
guaranty shall be joint and several, unlimited and unconditional, and this
guaranty shall be a continuing guaranty of any and all Notes given as evidence
of or in extension or renewal of any of the Obligations.  Each
Borrower acknowledges that it will benefit from extensions of credit by Lender
to the other Borrower, as their businesses and operations are interdependent and
a part of a single enterprise.

      

      10.2       
 Waivers.   Each
Borrower, to the fullest extent permitted by applicable law, hereby waives
(i) diligence, presentment, demand and protest with respect to any
instrument at any time evidencing any of the Obligations, (ii) any
requirement that Lender exhaust any right or take any action against any other
Person or any of the Collateral or other property at any time securing any of
the Obligations, (iii) the benefit of all principles or provisions of
applicable law which are or might be in conflict with the terms of this
guaranty, (iv) notice of acceptance hereof, (v) notice of the occurrence of
an Event of Default, (vi) notice of any and all favorable and unfavorable
information, financial or other, about any other Borrower, heretofore, now or
hereafter learned or acquired by a Borrower, (vii) notice of the existence
or creation of any of the Obligations, (viii) notice of any alterations,
amendments, increase, extension or exchange of any of the Obligations so long as
the same are effected in accordance with the terms of this Agreement;
(ix) notice of any amendments, modifications or supplements of or to the
Intellectual Property Security Agreement so long as the same are effected in
accordance with the terms of the Intellectual Property Security Agreement,
(x) all diligence in collection or protection of or realization upon the
Obligations or the Collateral and (xi) the right to require Lender to
proceed against the Borrowers or any Borrower on any of the
Obligations.  Each Borrower hereby further consents that the time of
payment of any of the Obligations may be extended and the Borrowers will remain
bound under this guaranty notwithstanding such extensions, whether or not
referred to above, which might otherwise constitute a legal or equitable
discharge of a guaranty.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      10.3      
  Subrogation;
Subordination.   No Borrower shall have any right of
subrogation, contribution, reimbursement or indemnity whatsoever, nor any right
of recourse to security for any of the Obligations, and nothing shall discharge
or satisfy the liability of any Borrower hereunder, until the termination of
this Agreement and the irrevocable satisfaction in full of, or provision for,
the Obligations; and any and all present and future debts and obligations of
each Borrower to the others are hereby postponed in favor of and subordinated to
the full payment and performance of all present and future
Obligations.

      

      10.4         Release of
Collateral.   The joint and several liability of Borrowers
shall continue notwithstanding and shall not be impaired and affected by any
release of any Collateral or by the release of any one or more Persons liable
for any of the Obligations, whether as principal, surety, guarantor, indemnitor
or otherwise.

      

      10.5         Other Waivers.  To
the extent permitted by law, each Borrower hereby
waives any right of set-off and any and all other rights, benefits, protections
and other defenses available to a surety or guarantor now or at any time
hereafter, including, without limitation, under California Civil Code 2787 to
2855, inclusive, and similar applicable laws of other
jurisdictions.

      

      10.6         Statutory Waiver of Rights and
Defenses Regarding Election of Remedies.   Each Borrower
hereby waives all rights and defenses arising out of the election of remedies by
Lender, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for a guaranteed obligation, has destroyed such
Borrower’s rights of subrogation and reimbursement against the other Borrower by
the operation of Section 580d of the California Code of Civil Procedure or
otherwise.

      

      10.7         Financial Condition of
Borrowers.   Each Borrower represents and warrants that it
is fully aware of the financial condition of the other Borrower, and each
Borrower delivers its guarantee based solely upon its own independent
investigation of such other Borrower’s financial condition and in no part upon
any representation or statement of Lender with respect thereto.  Each
Borrower further represents and warrants that it is in a position to and hereby
does assume full responsibility for obtaining such additional information
concerning the other Borrower’s financial condition as such Borrower may deem
material to its obligations hereunder, and such Borrower is not relying upon,
nor expecting Lender to furnish it any information in Lender’s possession
concerning the other Borrower’s financial condition or concerning any
circumstances bearing on the existence or creation, or the risk of nonpayment or
nonperformance of the Obligations.

      

      10.8       
 Advice of
Counsel.   Each Borrower acknowledges that it has either
obtained the advice of counsel or has had the opportunity to obtain such advice
in connection with the terms and provisions of this Section 10.

      

      10.9         Limitation of Guarantee
Obligations.   In any action or proceeding involving any
state corporate law, or any state or federal bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally, if the
obligations of a Borrower under its guarantee in this Section 10 would otherwise
be held or determined to be void, invalid or unenforceable, or subordinated to
the claims of any other creditors, on account of the amount of its liability
under its guarantee, then, notwithstanding, any other provision of this Section
10, to the contrary, the amount of such liability shall, without further action
of such Borrower, Lender or any other person, be automatically limited and
reduced to the highest amount which is valid and enforceable and not
subordinated to the claims of other creditors as determined in such action or
proceeding.

      

      ARTICLE
11 - DEFINITIONS

      

      The definitions appearing in this
Agreement or any Supplement shall be applicable to both the singular and plural
forms of the defined terms:

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      “Account” means any “account,” as such
term is defined in the UCC, now owned or hereafter acquired by a Borrower or in
which a Borrower now holds or hereafter acquires any interest and, in any event,
shall include, without limitation, all accounts receivable, book debts and other
forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by
or belonging or owing to a Borrower (including, without limitation, under any
trade name, style or division thereof) whether arising out of goods sold or
services rendered by such Borrower or from any other transaction, whether or not
the same involves the sale of goods or services by such Borrower (including,
without limitation, any such obligation that may be characterized as an account
or contract right under the UCC) and all of a Borrower’s rights in, to and under
all purchase orders or receipts now owned or hereafter acquired by it for goods
or services, and all of such Borrower’s rights to any goods represented by any
of the foregoing (including, without limitation, unpaid seller’s rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), and all monies due or to become due
to a Borrower under all purchase orders and contracts for the sale of goods or
the performance of services or both by such Borrower or in connection with any
other transaction (whether or not yet earned by performance on the part of such
Borrower), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.

      

      “Affiliate” means any Person which
directly or indirectly controls, is controlled by, or is under common control
with any Borrower.  “Control,” “controlled by” and “under common
control with” mean direct or indirect possession of the power to direct or cause
the direction of management or policies (whether through ownership of voting
securities, by contract or otherwise); provided, that control shall be
conclusively presumed when any Person or affiliated group directly or indirectly
owns five percent (5%) or more of the securities having ordinary voting power
for the election of directors of a corporation.

      

      “Agreement” means this Loan and Security
Agreement and each Supplement thereto, as each may be amended or supplemented
from time to time.

      

      “Bankruptcy
Code” means the
Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as
amended.

      

      “A/R
Facility” is
defined in the Supplement.

      

      “Bank”
is defined in the Supplement.

      

      “Basic
Interest” means
the fixed rate of interest payable on the outstanding balance of each Loan at
the applicable Designated Rate.

      

      “Borrowing
Date” means the
Business Day on which the proceeds of a Loan are disbursed by
Lender.

      

      “Borrowing
Request” means a
written request from Borrowers in substantially the form of Exhibit “B” to the
Supplement, requesting the funding of one or more Loans on a particular
Borrowing Date.

      

      “Business
Day” means any
day other than a Saturday, Sunday or other day on which commercial banks in New
York City or San Francisco are authorized or required by law to
close.

      

      “Chattel
Paper” means any
“chattel paper,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrowers or in which Borrowers now holds or hereafter acquires any
interest.

      

      “Closing
Date” means the
date of this Agreement.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      “Collateral” means, with respect to a
Borrower, all of such Borrower’s right, title and interest in and to the
following property, whether now owned or hereafter acquired and wherever
located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all
General Intangibles; (e) all Inventory; (f) all Investment Property; (g) all
Deposit Accounts; (h) all Shares; (i) all other Goods and personal property
of Borrowers, whether tangible or intangible and whether now or hereafter owned
or existing, leased, consigned by or to, or acquired by, Borrowers and wherever
located; (j) all Records; and (k) all Proceeds of each of the foregoing and all
accessions to, substitutions and replacements for, and rents, profits and
products of each of the foregoing.  Notwithstanding the foregoing the
term “Collateral” shall not include (i) more than sixty-five percent (65%) of
the issued and outstanding capital stock, membership units or other securities
entitled to vote owned or held of record by any Borrower in any Subsidiary that
is a controlled foreign corporation (as defined in the Internal Revenue Code);
(ii) property (including any attachments, accessions or replacements) that is
subject to a Lien that is permitted pursuant to clause (c) of the definition of
Permitted Liens, if the grant of a security interest with respect to such
property pursuant to this Agreement would be prohibited by the agreement
creating such Permitted Lien or would otherwise constitute a default thereunder,
provided, that such property will be deemed “Collateral” hereunder upon the
termination and release of such Permitted Lien; (iii) “intent-to-use” trademarks
at all times prior to the first use thereof, whether by the actual use thereof
in commerce, the recording of a statement of use with the United States Patent
and Trademark Office or otherwise, but only to the extent the granting of a
security interest in such “intent to use” trademarks would be contrary to
applicable law; (iv) any contract, instrument or chattel paper in which any
Borrower has any right, title or interest if and to the extent such contract,
instrument or chattel paper includes a provision containing a restriction on
assignment such that the creation of a security interest in the right, title or
interest of such Borrower therein would be prohibited and would, in and of
itself, cause or result in a default thereunder enabling another person party to
such contract, instrument or chattel paper to enforce any remedy with respect
thereto; provided, however, that the foregoing exclusion shall not apply if (x)
such prohibition has been waived or such other person has otherwise consented to
the creation hereunder of a security interest in such contract, instrument or
chattel paper, or (y) such prohibition would be rendered ineffective pursuant to
Sections 9-407(a) or 9-408(a) of the UCC, as applicable and as then in effect in
any relevant jurisdiction, or any other applicable law (including the Bankruptcy
Code) or principles of equity); provided further that immediately upon the
ineffectiveness, lapse or termination of any such provision, the term
“Collateral” shall include, and each Borrower shall be deemed to have granted a
security interest in, all its rights, title and interests in and to such
contract, instrument or chattel paper as if such provision had never been in
effect; and provided further that the foregoing exclusion shall in no way be
construed so as to limit, impair or otherwise affect Lender’s unconditional
continuing security interest in and to all rights, title and interests of any
Borrowers in or to any payment obligations or other rights to receive monies due
or to become due under any such contract, instrument or chattel paper and in any
such monies and other proceeds of such contract, instrument or chattel paper;
(v) deposits subject to a Lien described in clauses (l) of the definition of
Permitted Liens, or (vi) any real property of any Borrower.

      

      “Commitment” means the obligation of
Lender to make Loans to Borrowers up to the aggregate principal amount set forth
in the Supplement.

      

      “Copyright
License” means
any written agreement granting any right to use any Copyright or Copyright
registration now owned or hereafter acquired by Borrowers or in which Borrowers
now holds or hereafter acquires any interest.

      

      “Copyrights” means all of the following
now owned or hereafter acquired by Borrowers or in which Borrowers now holds or
hereafter acquires any interest:  (i) all copyrights, whether
registered or unregistered, held pursuant to the laws of the United States, any
State thereof or of any other country; (ii) all registrations, applications and
recordings in the United States Copyright Office or in any similar office or
agency of the United States, any State thereof or any other country; (iii) all
continuations, renewals or extensions thereof; and (iv) any registrations to be
issued under any pending applications.

      

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

      

      “Default
Rate” means
eighteen percent (18%) per annum.

      

      “Deposit
Accounts” means
any “deposit accounts,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrowers or in which Borrowers now holds or hereafter
acquires any interest.

      

      “Designated
Rate” means the
rate of interest per annum described in the Supplement as being applicable to an
outstanding Loan from time to time.

      

      “Disclosure
Letter” means
that certain letter, dated as of the date of this Agreement, containing certain
schedules, delivered by Borrowers to Lender.

      

      “Documents” means any “documents,” as
such term is defined in the UCC, now owned or hereafter acquired by Borrowers or
in which Borrowers now holds or hereafter acquires any interest.

      

      “Environmental
Laws” means all
federal, state or local laws, statutes, common law duties, rules, regulations,
ordinances and codes, together with all administrative orders, directed duties,
requests, licenses, authorizations and permits of, and agreements with, any
governmental authorities, in each case relating to environmental, health, or
safety matters.

      

      “Equipment” means any “equipment,” as
such term is defined in the UCC, now owned or hereafter acquired by Borrowers or
in which Borrowers now holds or hereafter acquires any interest and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      “Event of
Default” means
any event described in Section 7.1.

      

      “Final
Payment” means,
with respect to a Loan, an amount equal to that percentage of the original
principal amount of such Loan and payable at the time specified in the
Supplement or the Note evidencing such Loan.

      

      “Fixtures” means any “fixtures,” as
such term is defined in the UCC, now owned or hereafter acquired by Borrowers or
in which Borrowers now holds or hereafter acquires any interest.

      

      “GAAP” means generally accepted
accounting principles and practices consistent with those principles and
practices promulgated or adopted by the Financial Accounting Standards Board and
the Board of the American Institute of Certified Public Accountants, their
respective predecessors and successors.  Each accounting term used but
not otherwise expressly defined herein shall have the meaning given it by
GAAP.

      

      “General
Intangibles”
means any “general intangibles,” as such term is defined in the UCC, now owned
or hereafter acquired by Borrowers or in which Borrowers now holds or hereafter
acquires any interest and, in any event, shall include, without limitation, all
right, title and interest that Borrowers may now or hereafter have in or under
any contract, all customer lists, Copyrights, Trademarks, Patents, websites,
domain names, and all applications therefor and reissues, extensions, or
renewals thereof, other rights to Intellectual Property, interests in
partnerships, joint ventures and other business associations, Licenses, permits,
trade secrets, proprietary or confidential information, inventions (whether or
not patented or patentable), technical information, procedures, designs,
knowledge, know-how, software, data bases, data, skill, expertise, recipes,
experience, processes, models, drawings, materials and records, goodwill
(including, without limitation, the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License),
claims in or under insurance policies, including unearned premiums,
uncertificated securities, money, cash or cash equivalents, deposit, checking
and other bank accounts, rights to sue for past, present and future infringement
of Copyrights, Trademarks and Patents, rights to receive tax refunds and other
payments and rights of indemnification.

      

      “Goods” means any “goods,” as such
term is defined in the UCC, now owned or hereafter acquired by Borrowers or in
which Borrowers now holds or hereafter acquires any interest.

      

      “Indebtedness” of any Person means at any
date, without duplication and without regard to whether matured or unmatured,
absolute or contingent:  (i) all obligations of such Person for
borrowed money; (ii) all obligations of such Person evidenced by bonds,
debentures, notes, or other similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business; (iv) all
obligations of such Person as lessee under capital leases; (v) all obligations
of such Person to reimburse or prepay any bank or other Person in respect of
amounts paid under a letter of credit, banker’s acceptance, or similar
instrument, whether drawn or undrawn; (vi) all obligations of such Person
to purchase securities which arise out of or in connection with the sale of the
same or substantially similar securities; (vii) all obligations of such Person
to purchase, redeem, exchange, convert or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire such
capital stock, now or hereafter outstanding, except to the extent that such
obligations remain performable solely at the option of such Person; (viii) all
obligations to repurchase assets previously sold (including any obligation to
repurchase any accounts or chattel paper under any factoring, receivables
purchase, or similar arrangement); (ix) obligations of such Person under
interest rate swap, cap, collar or similar hedging arrangements; and
(x) all obligations of others of any type described in clause (i) through
clause (ix) above guaranteed by such Person.

      

      “Insolvency
Proceeding” means
with respect to a Person (a) any case, action or proceeding before any court or
other governmental authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors with
respect to such Person, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of such Person’s creditors generally or any substantial
portion of its creditors, undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code, but in each case, excluding any avoidance or
similar action against such Person commenced by an assignee for the benefit of
creditors, bankruptcy trustee, debtor in possession, or other representative of
another Person or such other Person’s estate.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      “Instruments” means any “instrument,” as
such term is defined in the UCC, now owned or hereafter acquired by Borrowers or
in which Borrowers now holds or hereafter acquires any interest.

      

      “Intellectual
Property” means
all Copyrights, Trademarks, Patents, Licenses, trade secrets, source codes,
customer lists, proprietary or confidential information, inventions (whether or
not patented or patentable), technical information, procedures, designs,
knowledge, know-how, software, data bases, skill, expertise, experience,
processes, models, drawings, materials, records and goodwill associated with the
foregoing.

      

      “Intellectual
Property Security Agreement” means any Intellectual
Property Security Agreement executed and delivered by Borrowers in favor of
Lender, as the same may be amended, supplemented, or restated from time to
time.

      

      “Inventory” means any “inventory,” as
such term is defined in the UCC, wherever located, now owned or hereafter
acquired by a Borrower or in which a Borrower now holds or hereafter acquires
any interest, and, in any event, shall include, without limitation, all
inventory, goods and other personal property that are held by or on behalf of
such Borrower for sale or lease or are furnished or are to be furnished under a
contract of service or that constitute raw materials, work in process or
materials used or consumed or to be used or consumed in such Borrower’s
business, or the processing, packaging, promotion, delivery or shipping of the
same, and all finished goods, whether or not the same is in transit or in the
constructive, actual or exclusive possession of such Borrower or is held by
others for such Borrower’s account, including, without limitation, all goods
covered by purchase orders and contracts with suppliers and all goods billed and
held by suppliers and all such property that may be in the possession or custody
of any carriers, forwarding agents, truckers, warehousemen, vendors, selling
agents or other Persons.

      

      “Investment
Property” means
any “investment property,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrowers or in which Borrowers now holds or hereafter
acquires any interest.

      

      “Letter of
Credit Rights”
means any “letter of credit rights,” as such term is defined in the UCC, now
owned or hereafter acquired by Borrowers or in which Borrowers now holds or
hereafter acquires any interest, including any right to payment under any letter
of credit.

      

      “License” means any Copyright License,
Patent License, Trademark License or other license of rights or interests now
held or hereafter acquired by Borrowers or in which Borrowers now holds or
hereafter acquires any interest and any renewals or extensions
thereof.

      

      “Lien” means any mortgage, deed of
trust, pledge, hypothecation, assignment for security, security interest,
encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or
arising by operation of law or otherwise, against any property, any conditional
sale or other title retention agreement, any lease in the nature of a security
interest, and the filing of any financing statement (other than a precautionary
financing statement with respect to a lease that is not in the nature of a
security interest) under the UCC or comparable law of any
jurisdiction.

      

      “Loan” means an extension of credit
by Lender under this Agreement.

      

      “Loan
Documents” means,
individually and collectively, this Loan and Security Agreement, each
Supplement, each Note, the Intellectual Property Security Agreement, and any
other security or pledge agreement(s), any Warrants issued by Parent (or its
designee) in connection with this Agreement, and all other contracts,
instruments, addenda and documents executed by any Borrower in connection with
this Agreement or the extensions of credit which are the subject of this
Agreement.

      

      “Material
Adverse Effect”
or “Material
Adverse Change” means, with respect to Parent and its Subsidiaries on a
Consolidated basis, (a) a material adverse change in, or a material adverse
effect upon, the operations, business, properties, or condition (financial or
otherwise) of Parent and its Subsidiaries; (b) a material impairment of the
ability of such Borrower to perform under any Loan Document; or (c) a material
adverse effect upon the legality, validity, binding effect or enforceability
against a Borrower of any Loan Document.

      

      “Note” means a promissory note
substantially in the form attached to the Supplement as Exhibit “A”, executed
by Borrowers evidencing each Loan.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      “Obligations” means with respect to each
Borrower, all debts, obligations and liabilities of such Borrower to Lender
currently existing or now or hereafter made, incurred or created under, pursuant
to or in connection with this Agreement or any other Loan Document (other than
any Warrants issued to either Lender or any of its affiliates or designees),
whether voluntary or involuntary and however arising or evidenced, whether
direct or acquired by Lender by assignment or succession, whether due or not
due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether such Borrower may be liable individually or jointly,
or whether recovery upon such debt may be or become barred by any statute of
limitations or otherwise unenforceable; and all renewals, extensions and
modifications thereof; and all attorneys’ fees and costs incurred by Lender in
connection with the collection and enforcement thereof as provided for in any
Loan Document (other than any Warrants issued to either Lender or any of its
affiliates or designees).

      

      “Parent” means Bacterin International
Holdings, Inc., a Delaware corporation.

      

      “Patent
License” means
any written agreement granting any right with respect to any invention on which
a Patent is in existence now owned or hereafter acquired by Borrowers or in
which Borrowers now holds or hereafter acquires any interest.

      

      “Patents” means all of the following
property now owned or hereafter acquired by Borrowers or in which Borrowers now
holds or hereafter acquires any interest: (a) all letters patent of, or rights
corresponding thereto in, the United States or any other country, all
registrations and recordings thereof, and all applications for letters patent
of, or rights corresponding thereto in, the United States or any other country,
including, without limitation, registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof or any other country; (b) all
reissues, continuations, continuations-in-part or extensions thereof; (c) all
petty patents, divisionals, and patents of addition; and (d) all patents to be
issued under any such applications.

      

      “Permitted
Lien”
means:

      

      (a)        
   involuntary Liens which, in the aggregate, would not have a
Material Adverse Effect and which in any event would not exceed, in the
aggregate, the Threshold Amount;

      

      (b)         
  Liens for current taxes or other governmental or regulatory
assessments which are not delinquent, or which are contested in good faith by
the appropriate procedures and for which appropriate reserves are
maintained;

      

      (c)         
  security interests on any property (including any accessions,
additions, replacements or substitutions) held or acquired by a Borrower in the
ordinary course of business securing Indebtedness incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such property;
provided, that
such Lien attaches solely to the property acquired with such Indebtedness and
that the principal amount of such Indebtedness does not exceed one hundred
percent (100%) of the cost of such property;

      

      (d)         
  Liens in favor of Lender;

      

      (e)            bankers’
liens, rights of setoff and similar Liens incurred on deposits made in the
ordinary course of business as
long as an account control agreement  (or equivalent) for each account
in which such deposits are held in a form acceptable to Lender has been executed
and delivered to Lender;

      

      (f)         
   materialmen’s, mechanics’, repairmen’s, employees’ or other like
Liens arising in the ordinary course of business and which are not delinquent
for more than 45 days or are being contested in good faith by appropriate
proceedings;

      

      (g)           
any judgment, attachment or similar Lien, unless the judgment it secures has not
been discharged or execution thereof effectively stayed and bonded against
pending appeal within 30 days of the entry thereof;

      

      (h)           
licenses or sublicenses of Intellectual Property in accordance with the terms of
Section 6.5 hereof;

      

      (i)
            Liens
securing Subordinated Debt;

      

      (j)            
Liens securing Indebtedness of Borrowers to Bank under the A/R
Facility;

      

      (k)         
  Liens arising in connection with worker’s compensation, unemployment
insurance, social security and other similar laws, or to secure the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure indemnity, performance or other similar bonds for the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations (other than liens arising under ERISA or
environmental liens) or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds; all, in the ordinary course of a Borrower’s
business;

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (l)        
    Liens on Borrowers’ deposits not to exceed $50,000 in
aggregate amount securing corporate credit cards;

      

      (m)           Liens
in favor of customs and revenue authorities arising as a matter of law, in the
ordinary course of each Borrower's business, to secure payment of customs duties
in connection with the importation of goods;

      

      (n)        
   Liens on insurance proceeds securing the payment of financed
insurance premiums if and to the extent a Borrower finances such
premiums;

      

      (o)          
 Lien on real property of any Borrower; and

      

      (p)           
Liens which have been approved by Lender in writing prior to the Closing Date,
as shown on the Disclosure Letter hereto.

      

      “Person” means any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public benefit
corporation, other entity or government (whether federal, state, county, city,
municipal, local, foreign, or otherwise, including any instrumentality,
division, agency, body or department thereof).

      

      “Proceeds” means “proceeds,” as such
term is defined in the UCC and, in any event, shall include, without limitation,
(a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of
money or currency or other proceeds payable to a Borrower from time to time in
respect of the Collateral, (b) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to a Borrower from time to time with respect to any
of the Collateral, (c) any and all payments (in any form whatsoever) made or due
and payable to a Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) any claim of a Borrower against third parties
(i) for past, present or future infringement of any Copyright, Patent or
Patent License or (ii) for past, present or future infringement or dilution of
any Trademark or Trademark License or for injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License and (e) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.

      

      “Receivables” means all of a Borrower’s
Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, and
letters of credit and Letter of Credit Rights.

      

      “Records” means all of a Borrower’s
computer programs, software, hardware, source codes and data processing
information, all written documents, books, invoices, ledger sheets, financial
information and statements, and all other writings concerning such Borrower’s
business.

      

      “Related
Person” means any
Affiliate of a Borrower, or any officer, employee, director or equity security
holder of such Borrower or any Affiliate.

      

      “Rights to
Payment” means
all of a Borrower’s accounts, instruments, contract rights, documents, chattel
paper and all other rights to payment, including, without limitation, the
Accounts, all negotiable certificates of deposit and all rights to payment under
any Patent License, any Trademark License, or any commercial or standby letter
of credit.

      

      “Security
Documents” means
this Loan and Security Agreement, the Supplement hereto, the Intellectual
Property Security Agreement, and any and all account control agreements,
collateral assignments, chattel mortgages, financing statements, amendments to
any of the foregoing and other documents from time to time executed or filed to
create, perfect or maintain the perfection of Lender’s Liens on the
Collateral.

      

      “Shares” means: (a) one hundred
percent (100%) of the issued and outstanding capital stock, membership units or
other securities owned or held of record by a Borrower in any domestic
Subsidiary, and (b) 65% of the issued and outstanding capital stock, membership
units or other securities entitled to vote owned or held of record by a Borrower
in any Subsidiary that is a controlled foreign corporation (as defined in the
Internal Revenue Code).

      

      “Subordinated
Debt” means Indebtedness (i) approved by Lender; and (ii) where the
holder’s right to payment of such Indebtedness, the priority of any Lien
securing the same, and the rights of the holder thereof to enforce remedies
against the Borrower following default have been made subordinate to the Liens
of Lender and to the prior payment to Lender of the Obligations, pursuant to a
written subordination agreement approved by Lender in its sole but reasonable
discretion.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      “Subsidiary” means any Person a majority
of the equity ownership or voting stock of which is at the time owned by a
Borrower.

      

      “Supplement” means that certain
supplement to the Loan and Security Agreement, as the same may be amended or
restated from time to time, and any other supplements entered into between
Borrowers and Lender, as the same may be amended or restated from time to
time.

      

      “Supporting
Obligations”
means any “supporting obligations,” as such term is defined in the UCC, now
owned or hereafter acquired by Borrowers or in which Borrowers now holds or
hereafter acquires any interest.

      

      “Termination
Date” has the
meaning specified in the Supplement.

      

      “Threshold
Amount” has the
meaning specified in the Supplement.

      

      “Trademark
License” means
any written agreement granting any right to use any Trademark or Trademark
registration now owned or hereafter acquired by Borrowers or in which Borrowers
now holds or hereafter acquires any interest.

      

      “Trademarks” means all of the following
property now owned or hereafter acquired by Borrowers or in which Borrowers now
holds or hereafter acquires any interest: (a) all trademarks, tradenames,
corporate names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and any applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political subdivision
thereof and (b) reissues, extensions or renewals thereof.

      

      “UCC” means the Uniform Commercial
Code as the same may, from time to time, be in effect in the State of
California; provided, 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, Lender’s
Lien on any Collateral is governed by the Uniform Commercial Code as enacted and
in effect in a jurisdiction other than the State of California, the term “UCC”
shall mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority or remedies and for purposes of definitions
related to such provisions.  Unless otherwise defined herein, terms
that are defined in the UCC and used herein shall have the meanings given to
them in the UCC.

      

      11.2     
   Construction
of Collateral Definitions. In the definition of Collateral and in all
terms defined directly or indirectly within the definition of Collateral, all
references to “Borrower” or “Borrower’s” shall be interpreted as referring to
“any Borrower” or to “each Borrower,” as the context may require for purposes of
any Loan Document, including any security agreement, charge registration or
financing statement executed by any Borrower from time to time pursuant to this
Agreement.

      

      [Signature
page follows]

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      [Signature
page to Loan and Security Agreement]

      

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

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          	
                                                                  BORROWERS:

                                                                	 
	 
      	 
	
                                                                  BACTERIN
      INTERNATIONAL HOLDINGS, INC.

                                                                	 
	 
      	 
	
                                                                  By:

                                                                	/s/
      John Gandolfo  	 
	
                                                                  Name:

                                                                	John
      Gandolfo  	 
	
                                                                  Title:

                                                                	CFO 
      	 
	 
      	 
	
                                                                  BACTERIN
      INTERNATIONAL, INC.

                                                                	 
	 
      	 
	
                                                                  By:

                                                                	/s/
      John Gandolfo  	 
	
                                                                  Name:

                                                                	John
      Gandolfo  	 
	
                                                                  Title:

                                                                	CFO 
      	 
	 
      	 
	
                                                                  LENDER:

                                                                	 
	 
      	 
	
                                                                  VENTURE
      LENDING & LEASING V, INC.

                                                                	 
	 
      	 
	
                                                                  By:

                                                                	/s/
      Maurice Werdegar  	 
	
                                                                  Name:

                                                                	Maurice
      Werdegar  	 
	
                                                                  Title:

                                                                	President
      and CEO  	 
	 
      	 
	
                                                                  LENDER:

                                                                	 
	 
      	 
	
                                                                  VENTURE
      LENDING & LEASING VI, INC.

                                                                	 
	 
      	 
	
                                                                  By:

                                                                	/s/
      Maurice Werdegar  	 
	
                                                                  Name:

                                                                	Maurice
      Werdegar  	 
	
                                                                  Title:

                                                                	President
      and CEO

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