Document:

exv10w17

Exhibit 10.17

LOAN AND SECURITY AGREEMENT

     THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective Date between
SILICON VALLEY BANK (“Bank”), OXFORD FINANCE CORPORATION (“Oxford”) (Bank and Oxford are sometimes
individually referred to herein as “Lender” and sometimes collectively referred to herein as
“Lenders”) and ZONARE MEDICAL SYSTEMS, INC., a Delaware corporation (“Borrower”), provides the
terms on which Lenders shall lend to Borrower and Borrower shall repay Lenders. The parties agree
as follows:

     1  ACCOUNTING AND OTHER TERMS

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

     2 LOAN AND TERMS OF PAYMENT

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

     2.1.1 Growth Capital Loan Facility.

          (a) Availability. Subject to the terms and conditions of this Agreement, Lenders agree,
severally and not jointly, to lend to Borrower from time to time, advances (each, a “Growth Capital
Advance” and collectively, the “Growth Capital Advances”), according to each Lender’s pro rata
share of the Growth Capital Loan Commitment (based upon the respective Growth Capital Commitment
Percentage of each Lender), as follows: (i) on or as soon after the Effective Date as practical,
one (1) Growth Capital Advance in the amount of Ten Million Dollars ($10,000,000); and (ii) on or
before the Tranche B Availability End Date, an additional Growth Capital Advance in an aggregate
amount not to exceed Five Million Dollars ($5,000,000) (the
“Tranche B Advance”). When repaid, the
Growth Capital Advances may not be re-borrowed.

          (b) Repayment. For each Growth Capital Advance, commencing on the first day of the month
after the Funding Date of such Growth Capital Advance and continuing on the same date of each month
thereafter until paid in full, Borrower shall make thirty-six (36) equal monthly payments of
principal and interest which would fully amortize the outstanding Growth Capital Advance. All
unpaid principal and accrued and unpaid interest is due and payable in full on the Growth Capital
Maturity Date with respect to such Growth Capital Advance. The Growth Capital Advance may only be
prepaid in accordance with Sections 2.1.1(c) or 2.1.1(d).

          (c) Prepayment. Borrower shall have the option, commencing after the first anniversary of the
Effective Date, to prepay all, but not less than all, of the Growth Capital Advances, provided
Borrower, (a) provides written notice to Lenders of its election to prepay the Growth Capital
Advances at least five (5) Business Days prior to such prepayment, and (b) pays, on the date of the
prepayment (i) all outstanding principal and accrued
interest on the Growth Capital Advances; (ii) the Prepayment Fee and the Growth Capital Final
Payment; and (iii) all other sums, including Lenders Expenses, if any, that have become due and
payable hereunder with respect to the Growth Capital Advances.

          (d) Mandatory Prepayment Upon an Acceleration. If the Growth Capital Advances are accelerated
following the occurrence of an Event of Default, Borrower shall immediately pay to Lenders an
amount equal to the sum of: (i) all outstanding principal plus accrued and unpaid interest on the
Growth Capital Advances, (ii) the Prepayment Fee and the Growth Capital Final Payment, plus (iii)
all other sums, if any, that shall have become due and payable, including interest at the Default
Rate with respect to any past due amounts.

 

 

     2.1.2 Revolving Advances.

          (a) Availability. Subject to the terms and conditions of this Agreement and to deduction of
Reserves, Lenders agree, severally and not jointly, to lend to Borrower from time to time prior to
the Revolving Line Maturity Date, according to each Lender’s pro rata share of the Revolving Line
(based upon the respective Revolving Commitment Percentage of each Lender), Revolving Advances not
exceeding the Availability Amount. Amounts borrowed hereunder may be repaid and, prior to the
Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent
herein.

          (b) Streamline Period. Borrower may, at its option, elect not to have any Revolving Advances
outstanding during specified periods of time (each, a “Streamline Period”). At least 10 days prior
to requesting that a Streamline Period be put into effect, Borrower shall give Lenders written
notice thereof, specifying the date the Streamline Period is to begin. On or prior to the Business
Day immediately preceding the commencement of the Streamline Period, Borrower will pay to Lenders,
by wire transfer, an amount sufficient to repay in full all outstanding Revolving Advances, and all
accrued interest thereon. During a Streamline Period, Borrower may not request any Revolving
Advances, and Lenders shall have no obligation to make any Revolving Advances. To terminate a
Streamline Period, Borrower shall provide Lenders at least thirty (30) days prior written notice
thereof together with such information relating to the Eligible Accounts and other Collateral as
Lenders may specify.

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

     2.2 Overadvances. If, at any time, the outstanding principal amount of any Revolving Advances
exceeds the lesser of either the Revolving Line or the Borrowing Base (such amount being an
“Overadvance”), Borrower shall immediately pay to Lenders in cash the ratable amount of such
Overadvance. Without limiting Borrower’s obligation to repay Lenders any amount of the
Overadvance, Borrower agrees to pay Lenders interest on the outstanding amount of any Overadvance,
on demand, at the Default Rate.

     2.3 Lockbox; Account Collection Services.

          (a) Prior to the making of any Revolving Advance and, in any event, by no later than November
30, 2008, Borrower shall direct each Account Debtor (and each depository institution where proceeds
of Accounts are on deposit) to remit payments with respect to the Accounts to a lockbox account
established with Bank
or to wire transfer payments to a cash collateral account that Bank controls (collectively,
the “Lockbox”). It will be considered an immediate Event of Default if the Lockbox is not set-up
and operational as of the date set forth in the preceding sentence.

          (b) Until such Lockbox is established, the proceeds of the Accounts shall be paid by the
Account Debtors to an address consented to by the Lenders, and Borrower shall deliver to the
Lenders, on a weekly basis, a detailed cash receipts journal. Upon receipt by Borrower of such
proceeds, Borrower shall immediately transfer and deliver same to Bank, for the ratable benefit of
the Lenders. Provided no Event of Default exists or an event that with notice or lapse of time will
be an Event of Default, within two (2) Business Days of receipt of such amounts by Bank, Bank will
turn over to Borrower the proceeds of the Accounts, less any amounts then due to Lenders, such as
payments due to the Lender, other fees and expenses, or otherwise, then due. This Section does not
impose any affirmative duty on any Lender to perform any act other than as specifically set forth
herein. All Accounts and the proceeds thereof are Collateral and if an Event of Default occurs and
during the continuation of any such Event of Default, Bank may apply the proceeds of such Accounts
to the Obligations. Without limiting the foregoing, the Lenders may exercise dominion and control
over the Lockbox (and the amounts in the Lockbox) in their sole discretion, subject to the terms
and conditions of this Agreement.

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     2.4 Payment of Interest on the Credit Extensions.

          (a) Interest Rate.

               (i) Revolving Advances. Subject to Section 2.3(b), the principal amount outstanding under the
Revolving Line shall accrue interest at a per annum rate equal to one quarter of one percent
(0.25%) above the Prime Rate, which interest shall be payable monthly in arrears as set forth in
Section 2.4(f).

               (ii) Growth Capital Advances. Subject to Section 2.3(b), the principal amount outstanding for
each Growth Capital Advance shall accrue interest, which interest shall be payable monthly in
arrears as set forth in Section 2.4(f), at a per annum rate equal to the greater of (i) 10.78% and
(ii) 800 basis points (8.00%) above the Treasury Rate as of the date three (3) days prior to such
Growth Capital Advance.

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

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

          (d) 360-Day Year. Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.

          (e) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts, including the
Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes
Lenders when due. Without duplication with the foregoing, Oxford may debit any of Borrower’s
deposit accounts, including the Designated Deposit Account, through automatic debit of such
accounts, Automated Clearinghouse (“ACH”) or other transfers, for principal and interest payments
or any other amounts Borrower owes Oxford when due. These debits shall not constitute a set-off.

          (f) Payments; Interest Computation; Float Charge. Unless otherwise provided, interest is
payable monthly on the first calendar day of each month. Payments of principal and/or interest
received after 12:00 p.m. Pacific time are considered received at the opening of business on the
next Business Day. When a payment is due on a day that is not a Business Day, the payment is due
the next Business Day and additional fees or interest, as applicable, shall continue to accrue. In
addition, Lenders shall be entitled to charge Borrower a “float” charge in an amount equal to two
(2) Business Days interest, at the interest rate applicable to the Revolving Advances, on all
Payments received by each Lender. The float charge for each month shall be payable on the first day
of the month. Lenders shall not, however, be required to credit Borrower’s account for the amount
of any item of payment which is unsatisfactory to Lenders in their good faith business judgment,
and Lenders may charge Borrower’s Designated Deposit Account for the amount of any item of payment
which is returned to any Lender unpaid.

     2.5 Fees. Borrower shall pay to Lenders:

          (a) Loan Fee. A fully earned, non-refundable loan fee of One Hundred Fifty Thousand Dollars
($150,000) (to be shared between Bank ($50,000) and Oxford ($100,000)), on the Effective Date.
Lenders acknowledge receipt of Seventy-Five Thousand Dollars ($75,000) prior to the date of this
Agreement ($25,000 for Bank and $50,000 for Oxford);

          (b) Revolving Commitment Fee. A fully earned, non-refundable commitment fee on account of the
Revolving Line in the amount of $50,000, of which $25,000 shall be paid on
the Effective Date and an additional $25,000 shall be paid on the first anniversary thereof; in each case, to be shared among the
Lenders pro rata according to their Revolving Commitment Percentages of the Revolving Line;

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          (c) Growth Capital Final Payment. The Growth Capital Final Payment when due on the applicable
Growth Capital Maturity Date or pursuant to the terms of Sections 2.1.1(c) or 2.1.1(d);

          (d) Prepayment Fee. The Prepayment Fee, when due hereunder; and

          (e) Lenders Expenses. All Lenders Expenses (including reasonable attorneys’ fees and expenses
incurred in connection with the documentation and negotiation of this Agreement) incurred through
and after the Effective Date, when due.

     3 CONDITIONS OF LOANS

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

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

          (b) a duly executed original signature to the Warrant to be issued to Oxford and a duly
executed original signature to the Warrant to be issued to Bank;

          (c) its certificate of incorporation and a good standing certificate of Borrower certified by
the Secretary of State of the States of Delaware and California as of a date no earlier than thirty
(30) days prior to the Effective Date, together with Borrower’s by-laws;

          (d) duly executed original signatures to the completed Borrowing Resolutions for Borrower (one
set for each Lender);

          (e) a payoff letter from Comerica Bank;

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

          (g) two Perfection Certificates executed by Borrower (one for each Lender);

          (h) a copy of its executed Investors’ Rights Agreement and any amendments thereto;

          (i) evidence satisfactory to Lenders that the insurance policies required by Section 6.5
hereof are in full force and effect, together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements in favor of each Lender; and

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

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

          (a) Borrower shall have duly executed and delivered to Lenders a Payment/Advance Form,
together with an executed Transaction Report;

          (b) Borrower shall have duly executed and delivered to each Lender a Note in the amount of
such Lender’s Revolving Advance and Growth Capital Advance.

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

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

     3.3 Covenant to Deliver.

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

     3.4 Procedures for Borrowing.

          (a) Revolving Advances. Subject to the prior satisfaction of all other applicable conditions
to the making of a Revolving Advance set forth in this Agreement, to obtain a Revolving Advance,
Borrower shall notify Lenders (which notice shall be irrevocable) by electronic mail, facsimile, or
telephone by 12:00 p.m. Pacific time five (5) Business Days prior to the Funding Date of the
Revolving Advance. Together with such notification, Borrower must promptly deliver to Lenders by
electronic mail or facsimile a completed Transaction Report executed by a Responsible Officer or
his or her designee. Lenders shall credit Revolving Advances to the Designated Deposit Account.
Lenders may make Revolving Advances under this Agreement based on instructions from a Responsible
Officer or his or her designee or without instructions if the Revolving Advances are necessary to
meet Obligations which have become due. On the Funding Date, each Lender shall credit and/or
transfer (as applicable) to Borrower’s Designated Deposit Account, an amount equal to its Revolving
Commitment Percentage multiplied by the amount of the Revolving Advance. Lenders may rely on any
telephone notice given by a person whom Lenders believe is a Responsible Officer or designee.

          (b) Growth Capital Advances. To obtain a Growth Capital Advance, Borrower must notify Lenders
by facsimile or telephone by 12:00 p.m. Pacific Time five (5) Business Days prior to the date the
Growth Capital Advance is to be made. If such notification is by telephone, Borrower must promptly
confirm the notification by delivering to Lenders a completed Payment/Advance Form in the form
attached as Exhibit B. On the Funding Date, each Lender shall credit and/or transfer (as
applicable) to Borrower’s deposit account, an amount equal to its Growth Capital Commitment
Percentage multiplied by the amount of the Growth Capital Advance. Each Lender may rely on any
telephone notice given by a person whom such Lender reasonably believes is a Responsible Officer.
Borrower shall indemnify each Lender for any loss Lender suffers due to such reliance.

     4 CREATION OF SECURITY INTEREST

     4.1 Grant of Security Interest. Borrower hereby grants Lenders, to secure the payment and
performance in full of all of the Obligations, a continuing security interest in, and pledges to
Lenders, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and
all proceeds and products thereof. Borrower represents, warrants, and covenants that the security
interest granted herein is and shall at all times continue to be a first priority perfected
security interest in the Collateral (subject only to Permitted Liens that may

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have superior priority to Lenders’ Lien under this Agreement). If Borrower shall acquire a
commercial tort claim, Borrower shall promptly notify Lenders in a writing signed by Borrower of
the general details thereof and grant to Lenders in such writing a security interest therein and in
the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and
substance reasonably satisfactory to Lenders. In addition, Borrower hereby grants to Bank, as agent
on behalf of Lenders, to secure the payment and performance in full of all of the Obligations, a
continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower
acknowledges and agrees
that Bank may enter into any Control Agreement (subject to Section 6.8) as to which Lenders shall
be perfected via control and any such Control Agreement shall secure the Obligations hereunder.

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

     4.2 Authorization to File Financing Statements. Borrower hereby authorizes each Lender to file
financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or
protect Lenders’ interest or rights hereunder, including a notice that any disposition of the
Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of
Lenders under the Code.

     5 REPRESENTATIONS AND WARRANTIES

          Borrower represents and warrants as follows:

     5.1 Due Organization and Authorization. Borrower and each of its Subsidiaries are duly
existing and in good standing in their respective jurisdictions of formation and are qualified and
licensed to do business and are in good standing in any jurisdiction in which the conduct of their
business or their ownership of property requires that they be qualified except where the failure to
do so could not reasonably be expected to have a Material Adverse Change. In connection with this
Agreement, Borrower has delivered to each Lender a completed certificate in the form provided by
Lenders signed by Borrower, entitled “Perfection Certificate.” Borrower represents and warrants to
Lenders that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on
the signature page hereof; (b) Borrower is an organization of the type and is organized in the
jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately
sets forth Borrower’s organizational identification number or accurately states that Borrower has
none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if
more than one, its chief executive office as well as Borrower’s mailing address (if different than
its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five
(5) years, changed its state of formation, organizational structure or type, or any organizational
number assigned by its jurisdiction; and (f) all other information set forth on the Perfection
Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete. If
Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify
Lenders of such occurrence and provide Lenders with Borrower’s organizational identification
number.

     The execution, delivery and performance by Borrower of the Loan Documents have been duly
authorized, and do not (i) conflict with Borrower’s Operating Documents, (ii) contravene, conflict
with, constitute a default under or violate any material Requirement of Law, (iii) contravene,
conflict or violate any applicable order, writ, judgment, injunction, decree, determination or
award of any Governmental Authority by which Borrower or any its Subsidiaries or any of their
property or assets may be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority (except such
Governmental Approvals which have already been obtained and are in full force and effect or filings
with respect to perfection of the Lenders’ Liens), nor (v) constitute a default under any material
agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is
a party or by which it is bound in which the default could have a Material Adverse Change.

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

     The Collateral is not in the possession of any third party bailee (such as a warehouse) except
as otherwise provided in the Perfection Certificate.

     Borrower is the sole owner of its intellectual property, except for non-exclusive licenses
granted to its customers in the ordinary course of business or as otherwise disclosed to the
Lenders in writing. Each patent is valid and enforceable, and no part of the intellectual property
has been judged invalid or unenforceable, in whole or in part, and to the best of Borrower’s
knowledge, no claim has been made that any part of the intellectual property violates the rights of
any third party except to the extent such claim could not reasonably be expected to have a material
adverse effect on Borrower’s business.

     5.3 Accounts Receivable; Inventory.

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

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

     5.4 Litigation. There are no actions or proceedings pending or, to the knowledge of the
Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries
involving more than One Hundred Thousand Dollars ($100,000) or in which a likely adverse decision
could reasonably be expected to result in a Material Adverse Change.

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

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

     5.7 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled”
by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not
engaged as one of its important activities in extending credit for margin stock (under Regulations
X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material
respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is
a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a
“holding company” as each term is defined and used in the Public Utility Holding Company Act of
2005. Borrower has not violated any laws, ordinances or rules, the violation of which could
reasonably be expected to have a Material Adverse Change. None of Borrower’s or any of its
Subsidiaries’

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properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s
knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all
consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all Government Authorities that are
necessary to continue their respective businesses as currently conducted.

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

     5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance with their terms, and
Borrower has not withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to, any such plan which
could reasonably be expected to result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

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

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

     6 AFFIRMATIVE COVENANTS

     Borrower shall do all of the following:

     6.1 Government Compliance. Maintain its and all its Subsidiaries’ legal existence and good
standing in their respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could reasonably be expected to have a Material
Adverse Change. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances
and regulations to which it is subject, noncompliance with which could have a Material Adverse
Change.

     6.2 Financial Statements, Reports, Certificates.

          (a) Borrower shall provide each Lender with the following:

          (i) within fifteen (15) days after the end of each month, (A) a Transaction Report (and
any schedules related thereto), (B) monthly accounts receivable agings, aged by invoice
date, (C) monthly accounts payable agings, aged by invoice date, and outstanding or held
check registers, if any, and (D) monthly reconciliations of accounts receivable agings (aged
by invoice date), transaction reports and general ledger;

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

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

          (iv) within forty-five (45) days after the end of each fiscal year of Borrower, (A)
annual operating budgets (including income statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of Borrower, and (B) annual financial
projections for the following fiscal year (on a quarterly basis), together with any related
business forecasts used in the preparation of such annual financial projections; in each
case, as approved by Borrower’s board of directors and provided to Borrower’s equity
investors; and

          (v) as soon as available, and in any event within 180 days following the end of
Borrower’s fiscal year, annual financial statements certified by, and with an unqualified
opinion of, independent certified public accountants acceptable to Lenders.

          (b) In the event that Borrower becomes subject to the reporting requirements under the
Securities Exchange Act of 1934, as amended, within five (5) days after filing, all reports on Form
10-K, 10-Q and 8-K filed with the Securities and Exchange Commission or a link thereto on
Borrower’s or another website on the Internet.

          (c) Borrower shall allow Lenders to audit or inspect Borrower’s Collateral at Borrower’s
expense (not to exceed $7,500 per audit or inspection, unless a Default or an Event of Default has
occurred and is continuing). Such audits or inspections shall be conducted no more often than once
every twelve (12) months unless a Default or an Event of Default has occurred and is continuing.
Without limiting the foregoing, Lenders shall conduct an audit of the Collateral, the results of
which shall be satisfactory to Lenders, within 90 days of the Effective Date.

     6.3 Accounts Receivable.

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

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

          (c) Collection of Accounts. Borrower shall have the right to collect all Accounts, unless and
until a Default or an Event of Default has occurred and is continuing. Whether or not an Event of
Default has occurred and is continuing, Borrower shall hold all payments on, and proceeds of,
Accounts in trust for Lenders, and Borrower shall immediately deliver all such payments and
proceeds to Bank, for the ratable benefit of the Lenders, in their original form, duly endorsed, to
be applied to the Obligations pursuant to the terms of Section 9.4 hereof.

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Lenders may, in its good faith business judgment, require that all proceeds of Accounts be
deposited by Borrower into a lockbox account, or such other “blocked account” as Lenders may
specify, pursuant to a blocked account agreement in such form as Lenders may specify in its good
faith business judgment.

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

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

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

          (g) All sales and other transactions underlying or giving rise to each Eligible Account shall
comply in all material respects with all applicable laws and governmental rules and regulations.

     6.4 Remittance of Proceeds. Except as otherwise provided in Section 6.3(c), deliver, in kind,
all proceeds arising from the disposition of any Collateral to Bank, for the ratable benefit of the
Lenders, in the original form in which received by Borrower not later than the following Business
Day after receipt by Borrower, to be applied to the Obligations pursuant to the terms of Section
9.4 hereof; provided that, if no Default or Event of Default has occurred and is continuing,
Borrower shall not be obligated to remit to Bank the proceeds of the sale of worn out or obsolete
Equipment disposed of by Borrower in good faith in an arm’s length transaction for an aggregate
purchase price of Two Hundred Fifty Thousand Dollars ($250,000) or less (for all such transactions
in any fiscal year) so long as (i) such amount is reinvested in replacement Equipment (or other
Collateral) within ninety (90) days of the date of such sale, and (ii) Borrower notifies Lenders of
such sale in writing within one (1) Business Day of such sale. Borrower agrees that it will not
commingle proceeds of Collateral with any of Borrower’s other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express trust for Lenders.
Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in
this Agreement.

     6.5 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all
required tax returns and reports and timely pay, and require each of its Subsidiaries to timely
file, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries, provided that if Borrower (a) in good faith contests its
obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and
conducted, (b) notifies Lenders in writing of the commencement of, and any material development in,
the proceedings, (c) posts bonds or takes any other steps required to prevent the Governmental
Authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is
other than a “Permitted Lien,” then Borrower may defer payment of any such taxes. Borrower shall
deliver to Lenders, on demand, appropriate certificates attesting to such payments, and pay all
amounts necessary to fund all present pension, profit sharing and deferred compensation plans in
accordance with their terms.

     6.6 Access to Collateral; Books and Records. At reasonable times, on three (3) Business Days
notice (provided no notice is required if an Event of Default has occurred and is continuing), the
Lenders (together
and not separately, unless an Event of Default has occurred and is continuing), or their
agents, shall have the right to inspect the Collateral and the right to audit and copy Borrower’s
Books. So long as no Event of Default has occurred and is continuing, such inspections or audits
shall occur no more often than every six (6) months. The

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foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be
$750 per person per day (or such higher amount as shall represent such Lender’s then-current
standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and
any Lender schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to
reschedule the audit with less than ten (10) days written notice to Lenders, then (without limiting
any of each Lender’s rights or remedies), Borrower shall pay such Lender a fee of $1,000 plus any
out-of-pocket expenses incurred by such Lender to compensate such Lender for the anticipated costs
and expenses of the cancellation or rescheduling.

     6.7 Insurance. Keep its business and the Collateral insured for risks and in amounts standard
for companies in Borrower’s industry and location and as Lenders may reasonably request. Insurance
policies shall be in a form, with companies, and in amounts that are satisfactory to Lenders. All
property policies shall have a lender’s loss payable endorsement showing each Lender as an
additional lender loss payee and waive subrogation against Lenders, and all liability policies
shall show, or have endorsements showing, each Lender as an additional insured. All policies (or
the loss payable and additional insured endorsements) shall provide that the insurer must give each
Lender at least thirty (30) days notice before canceling, amending, or declining to renew its
policy. At Lenders’ request, Borrower shall deliver certified copies of policies and evidence of
all premium payments. Proceeds payable under any policy shall, at Lenders’ option, be payable to
Lenders on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of
Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of
any casualty policy up to Twenty Five Thousand Dollars ($25,000) per occurrence, and One Hundred
Thousand Dollars ($100,000), in the aggregate in any year, toward the replacement or repair of
destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of
equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in
which Lenders have been granted a first priority security interest, and (b) after the occurrence
and during the continuance of an Event of Default, all proceeds payable under such casualty policy
shall, at the option of Lenders, be payable to Lenders on account of the Obligations. If Borrower
fails to obtain insurance as required under this Section 6.7 or to pay any amount or furnish any
required proof of payment to third persons and Lenders, Lenders may make all or part of such
payment or obtain such insurance policies required in this Section 6.7, and take any action under
the policies Lenders deem prudent.

     6.8 Operating Accounts.

          (a) On or prior to November 30, 2008, close all domestic deposit, operating and security
accounts not maintained with Bank or Bank’s Affiliates and transfer all funds therein to Collateral
Accounts maintained with Bank or Bank’s Affiliates; provided however that, except for amounts used
to pay off the existing debt from Comerica Bank and to pay legal fees and expenses incurred in
connection with the documentation and negotiation of this Agreement, all Growth Capital Advances
shall be deposited into an account with Bank or Bank’s Affiliates and all such funds shall not be
transferred to another financial institution. Thereafter, Borrower shall maintain its primary
domestic depository, operating and securities accounts with Bank and Bank’s Affiliates.
Notwithstanding the foregoing, (i) Borrower shall not maintain accounts with foreign institutions
except for an account in Canada with an aggregate balance not to exceed Two Hundred Thousand
Dollars ($200,000) (U.S.) at any time; and (ii) each of Borrower’s foreign Subsidiaries may
maintain accounts with foreign institutions with aggregate balances not to exceed Five Hundred
Thousand Dollars ($500,000) per Subsidiary; provided that, in each case of (i) and (ii) above,
Borrower shall deliver to each Lender a monthly statement from each such account.

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

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

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

     6.11 Creation/Acquisition of Subsidiaries. In the event Borrower or any Subsidiary creates or
acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Lenders of the creation
or acquisition of such new Subsidiary and take all such action as may be reasonably required by
Lenders to cause each such domestic Subsidiary to guarantee the Obligations of Borrower under the
Loan Documents and grant a continuing pledge and security interest in and to the assets of such
Subsidiary (substantially as described on Exhibit A hereto); and Borrower shall grant and pledge to
Bank a perfected security interest in the stock, units or other evidence of ownership of each
Subsidiary (not to exceed 65% of such stock units or other evidence of ownership in the case of a
foreign Subsidiary). Without limiting the foregoing, Borrower shall cause the Lenders’ security
interests in Borrower’s ownership interests in each of Zonare Medical Systems GmbH, Zonare Medical
Systems Canada, Ltd., and Zonare Medical Systems UK Limited, to be perfected (in form and substance
reasonably acceptable to the Lenders) no later than thirty (30) days from the Effective Date.

     6.12 Further Assurances. Borrower shall execute any further instruments and take further
action as Lenders reasonably request to perfect or continue each Lender’s Lien in the Collateral or
to effect the purposes of this Agreement.

     7 NEGATIVE COVENANTS

     Borrower shall not do any of the following without Lenders’ prior written consent (not to be
unreasonably withheld or delayed):

     7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively,
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or
property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out
or obsolete Equipment; (c) in connection with Permitted Liens and Permitted Investments; and (d) of
non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary
course of business, and (e) non-exclusive licenses of Borrower’s intellectual property in the
ordinary course of business and licenses of intellectual property that could not result in a legal
transfer of title of the licensed property that may be exclusive in respects other than territory
and that may be exclusive as to territory only as to discreet geographical areas outside of the
United States.

     7.2 Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or permit
any of its Subsidiaries to engage in any business other than the businesses currently engaged in by
Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or
dissolve; or (c) (i) have a change in management or (ii) enter into any transaction or series of
related transactions in which the stockholders of Borrower immediately prior to the first such
transaction own less than 65% of the voting stock of Borrower immediately after giving effect to
such transaction or related series of such transactions (other than by the sale of Borrower’s
equity securities in a public offering or to venture capital investors so long as Borrower
identifies to Lenders the venture capital investors prior to the closing of the transaction).
Borrower shall not, without at least thirty (30) days prior written notice to Lenders: (1) add any
new offices or business locations, including warehouses (unless such new
offices or business locations contain less than Fifty Thousand Dollars ($50,000) in Borrower’s
assets or property), (2) change its jurisdiction of organization, (3) change its organizational
structure or type, (4) change its legal name, or (5) change any organizational number (if any)
assigned by its jurisdiction of organization. None of the components of the Collateral shall be
maintained at locations other than as provided in the Perfection Certificate or as Borrower has
given Lenders notice pursuant to this Section 7.2. In the event that Borrower, after the date
hereof, intends to store or otherwise deliver any portion of the Collateral (having a value in
excess of Fifty Thousand Dollars $50,000) to a bailee, then Borrower will first receive the written
consent of Lenders and such bailee must execute and deliver a bailee agreement in form and
substance reasonably satisfactory to Lenders in their sole

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discretion. Notwithstanding and without limiting the foregoing, Borrower shall (x) use commercially
reasonable efforts to cause the landlord of Borrower’s leased premises identified in Section 10
hereof to execute and deliver to the Lenders a “Consent to Removal of Personal Property” (or
similar) and (y) cause each warehouseman or bailee identified in the Perfection Certificate to
deliver to Lenders a “Bailee Agreement” (or similar); in each case (A) within thirty days of the
Effective Date; and (B) in form and content reasonably acceptable to the Lenders.

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

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

     7.5 Encumbrance. Create, incur, or allow any Lien on any of the Collateral, or assign or
convey any right to receive income, including the sale of any Accounts, or permit any of its
Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the
first priority security interest granted herein. Borrower shall not sell, transfer, assign,
mortgage, pledge, lease, grant a security interest in, or encumber, or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Lenders) with any Person
which directly or indirectly prohibits or has the effect of prohibiting Borrower from selling,
transferring, assigning, mortgaging, pledging, leasing, granting a security interest in or upon, or
encumbering any of Borrower’s intellectual property, except for Transfers permitted under Section
7.1(d) or 7.1(e) hereof.

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

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

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

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

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

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     7.11 Indebtedness Payments.

        (i) Prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the
scheduled repayment thereof any Indebtedness for borrowed money (other than amounts due under this
Agreement or due any Lender) or lease obligations, (ii) amend, modify or otherwise change the terms
of any Indebtedness for borrowed money or lease obligations so as to accelerate the scheduled
repayment thereof or (iii) repay any notes to officers, directors or shareholders.

     8 EVENTS OF DEFAULT

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

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

     8.2 Covenant Default.

          (a) Borrower fails or neglects to perform any obligation in Sections 6.1, 6.2, 6.3, 6.4, 6.5,
6.7 or 6.8 or violates any covenant in Section 7; or

          (b) Borrower fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement, any Loan Documents, and as to any
default (other than those specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within ten (10) days after
the occurrence thereof; provided, however, that if the default cannot by its nature be cured within
the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10)
day period, and such default is likely to be cured within a reasonable time, then Borrower shall
have an additional period (which shall not in any case exceed twenty (20) days) to attempt to cure
such default, and within such reasonable time period the failure to cure the default shall not be
deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace
periods provided under this section shall not apply, among other things, to financial covenants or
any other covenants set forth in subsection (a) above;

     8.3 Material Adverse Change. A Material Adverse Change occurs;

     8.4 Attachment.

          (a) (i) The service of process seeking to attach, by trustee or similar process, any funds of
Borrower or of any entity under control of Borrower (including a Subsidiary) on deposit with Bank
or any Bank Affiliate, or (ii) a notice of lien, levy, or assessment is filed against any of
Borrower’s assets by any government
agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after
the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise);
provided, however, no Credit Extensions shall be made during any ten (10) day cure period; and

          (b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes
into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents
Borrower from conducting any part of its business;

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

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

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

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

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

     8.10 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any reason to be
in full force and effect; (b) any Guarantor does not perform any obligation or covenant under any
guaranty of the Obligations; (c) any circumstance described in Sections 8.3, 8.4, 8.5, 8.6, or 8.7
occurs with respect to any Guarantor, or (d) the liquidation, winding up, or termination of
existence of any Guarantor; or

     8.11 Priority of Security Interest. There is a material impairment in the priority of Lenders’
security interest in the Collateral.

     9 LENDERS’ RIGHTS AND REMEDIES

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

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

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

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

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

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

          (f) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Each Lender is hereby granted a non-exclusive, royalty-free license
or other right to use, without charge, Borrower’s labels, patents, copyrights, mask works, rights
of use of any name, trade secrets, trade

15

 

names, trademarks, service marks, and advertising matter, or any similar property as it pertains to
the Collateral, in completing production of, advertising for sale, and selling any Collateral and,
in connection with such Lender’s exercise of its rights under this Section, Borrower’s rights under
all licenses and all franchise agreements inure to Lenders’ benefit;

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

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

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

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

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

     9.4 Application of Payments and Proceeds. Unless an Event of Default has occurred and is
continuing, Lenders shall apply any funds in their possession, whether from Borrower account
balances, payments, or proceeds realized as the result of any collection of Accounts or other
disposition of the Collateral, first, to Lenders Expenses then due, including without limitation,
the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Lenders in
the exercise of their rights under this Agreement; second, to the interest then due upon any of the
Obligations; and third, to the principal of the Obligations then due and any applicable fees and
other charges, in such order as Lenders shall determine in their sole discretion. Any surplus
shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable
to Lenders for any deficiency. If an Event of Default has occurred and is continuing, Lenders may
apply any funds in their possession, whether from Borrower account balances, payments, proceeds
realized as the result of any collection of Accounts or other disposition of the Collateral, or
otherwise, to the Obligations in such order as Lenders shall determine in their sole discretion.
Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall
remain liable to Lenders for any deficiency. If Lenders, in their good faith business judgment,
directly or indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Lenders shall have the option, exercisable at any time, of
either reducing the Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Lenders of cash therefor.

16

 

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

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

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

     10 NOTICES

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

	 	 	 	 	 
	 

	 	If to Borrower:
	 	ZONARE MEDICAL SYSTEMS, INC.
	 

	 	 	 	420 Bernardo Avenue
	 

	 	 	 	Mountain View, CA 94043
	 

	 	 	 	Attn: Chief Financial Officer
	 

	 	 	 	Fax: (650) 230-2825
	 

	 	 	 	Email: tmarcotte@zonare.com
	 
	 	 	 	 
	 

	 	If to Bank:
	 	Silicon Valley Bank
	 

	 	 	 	2400 Hanover Street
	 

	 	 	 	Palo Alto, CA 94304
	 

	 	 	 	Attn: Rob Freelen
	 

	 	 	 	Fax: (650) 320-0016
	 

	 	 	 	Email: rfreelen@svb.com
	 
	 	 	 	 
	 

	 	If to Oxford:
	 	Oxford Finance Corporation
	 

	 	 	 	133 N. Fairfax Street
	 

	 	 	 	Alexandria, VA 22314
	 

	 	 	 	Attn: Tim A. Lex, Chief Operating Officer
	 

	 	 	 	Fax: (703) 519-5225
	 

	 	 	 	Email: tlex@oxfordfinance.com

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

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

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

     WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT
TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the
parties hereto agree that any and all disputes or controversies of any nature between them arising
at any time shall be decided by a reference to a private judge, mutually selected by the parties
(or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior
Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to
comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the
federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby
submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to
and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1,
inclusive. The private judge shall have the power, among others, to grant provisional relief,
including without limitation, entering temporary restraining orders, issuing preliminary and
permanent injunctions and appointing receivers. All such proceedings shall be closed to the public
and confidential and all records relating thereto shall be permanently sealed. If during the
course of any dispute, a party desires to seek provisional relief, but a judge has not been
appointed at that point pursuant to the judicial reference procedures, then such party may apply to
the Santa Clara
County, California Superior Court for such relief. The proceeding before the private judge
shall be conducted in the same manner as it would be before a court under the rules of evidence
applicable to judicial proceedings. The parties shall be entitled to discovery which shall be
conducted in the same manner as it would be before a court under the rules of discovery applicable
to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery
rules and order applicable to judicial proceedings in the same manner as a trial court judge. The
parties agree that the selected or appointed private judge shall have the power to decide all
issues in the action or proceeding, whether of fact or of law, and shall report a statement of
decision thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in this
paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose
against collateral, or obtain provisional remedies. The private judge shall also determine all
issues relating to the applicability, interpretation, and enforceability of this paragraph.

     12 GENERAL PROVISIONS

     12.1 Termination of Revolving Line Prior to Revolving Line Maturity Date. The Revolving Line
Agreement may be terminated prior to the Revolving Line Maturity Date by Borrower, effective three
(3) Business Days after written notice of termination is given to Lenders. Notwithstanding any such
termination, Lenders’ liens and security interests in the Collateral shall continue until Borrower
fully satisfies its Obligations. If such termination is at Borrower’s election, or at any Lender’s
election due to the occurrence and continuance of an Event of Default, Borrower shall pay to
Lenders, in addition to the payment of any other expenses or fees then-owing, a
termination fee in an amount equal to One Hundred Thousand Dollars ($100,000); in each case, to be
shared among the Lenders pro rata according to their Revolving Commitment Percentages of the
Revolving Line.

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     12.2 Successors and Assigns. This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any rights or
obligations under it without Lenders’ prior written consent (which may be granted or withheld in
Lenders’ discretion). Subject to the terms of this Section 12.2, any Lender may make an assignment
to an assignee of, at any time, only such Lender’s entire interest in such Lender’s Growth Capital
Advances and Revolving Advances, including such Lender’s rights, title, interests, remedies, powers
or duties thereunder. Any assignment by a Lender shall: (i) except in the case of an assignment to
a Qualified Assignee, require the consent of Borrower and of each Lender (which consent shall not
be unreasonably withheld, conditioned or delayed), (ii) require the execution of an assignment
agreement in form and substance reasonably satisfactory to the other Lender(s) and (iii) be
conditioned on such assignee Lender representing to the Lenders that it is purchasing the
applicable Growth Capital Advances and applicable Revolving Advances to be assigned to it for its
own account, for investment purposes and not with a view to the distribution thereof. In the case
of an assignment by a Lender under this Section 12.2, the assignee shall have, to the extent of
such assignment, the same rights, benefits and obligations as all other Lenders hereunder. The
assigning Lender shall be relieved of its obligations hereunder with respect to its Growth Capital
Advances and Revolving Advances from and after the date of such assignment. Borrower hereby
acknowledges and agrees that any assignment shall give rise to a direct obligation of Borrower to
the assignee and that the assignee shall be considered to be a “Lender” hereunder. Notwithstanding
the foregoing, no consent of Borrower shall be required with respect to any assignment if an Event
of Default has occurred and is continuing.

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

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

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

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

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

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

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

19

 

     12.10 Confidentiality. In handling any confidential information, each Lender shall exercise
the same degree of care that it exercises for its own proprietary information, but disclosure of
information may be made: (a) to such Lender’s Subsidiaries or Affiliates; (b) to prospective
transferees or purchasers of any interest in the Credit Extensions (provided, however, such Lender
shall use commercially reasonable efforts to obtain such prospective transferee’s or purchaser’s
agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other
order; (d) to such Lender’s regulators or as otherwise required in connection with such Lender’s
examination or audit; and (e) as Lenders consider appropriate in exercising remedies under this
Agreement. Confidential information does not include information that either: (i) is in the public
domain or in such Lender’s possession when disclosed to such Lender, or becomes part of the public
domain after disclosure to such Lender; or (ii) is disclosed to a Lender by a third party, if such
Lender does not know that the third party is prohibited from disclosing the information.

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

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

     13  DEFINITIONS

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

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

     “Account Debtor” is any “account debtor” as defined in the Code.

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

     “Agreement” is defined in the preamble hereof.

     “Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the Borrowing Base
minus (b) the outstanding principal balance of any Revolving Advances.

     “Bank” is defined in the preamble hereof.

     “Borrower” is defined in the preamble hereof

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

     “Borrowing Base” is 80% of Eligible Accounts, as determined by Lenders from Borrower’s most
recent Transaction Report; provided, however, that Lenders may decrease the foregoing percentages
in their good faith business judgment based on events, conditions, contingencies, or risks which,
as determined by Lenders, may adversely affect Collateral.

20

 

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

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

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

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

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

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

     “Communication” is defined in Section 10.

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

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

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

     “Credit Extension” is any Growth Capital Advance, Revolving Advance or any other extension of
credit by any Lender for Borrower’s benefit.

21

 

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

     “Default Rate” is defined in Section 2.4(b).

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

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

     “Designated Deposit Account” is Borrower’s deposit account, account number 3300625326,
maintained with Bank.

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

     “Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any
state or territory thereof or the District of Columbia.

     “Effective Date” is the date on which Lenders have executed and delivered this Agreement, as
indicated on the signature page hereof.

     “Eligible Accounts” means Accounts which arise in the ordinary course of Borrower’s business
that meet all Borrower’s representations and warranties in Section 5.3. Lenders reserve the right
at any time after the Effective Date to adjust any of the criteria set forth below and to establish
new criteria in its good faith business judgment. Eligible Accounts shall not include:

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

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

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

          (d) Accounts billed and payable outside of the United States unless the Lenders have a first
priority, perfected security interest or other enforceable Lien in such Accounts;

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

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

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

          (h) Accounts owing from an Account Debtor, including Affiliates, whose total obligations to
Borrower exceed twenty-five (25%) of all Accounts, for the amounts that exceed that percentage,
unless Lenders approve in writing;

22

 

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

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

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

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

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

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

          (o) Accounts owing from an Account Debtor that has been invoiced for goods that have not been
shipped to the Account Debtor unless Lenders, Borrower, and the Account Debtor have entered into an
agreement acceptable to Lenders in their sole discretion wherein the Account Debtor acknowledges
that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of
the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from
Borrower (sometimes called “bill and hold” accounts);

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

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

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

          (s) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90
days;

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

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

          (v) Accounts for which Lenders in their good faith business judgment determines collection to
be doubtful.

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

23

 

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

     “Event of Default” is defined in Section 8.

     “Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

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

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

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

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

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

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

     “Growth Capital Commitment Percentage” means 33.3333% with respect to SVB, and 66.6667% with
respect to Oxford.

     “Growth Capital Final Payment” means a fee in the amount of four percent (4.00%) of the total
amount of the Growth Capital Advances.

     “Growth Capital Loan Commitment” is Fifteen Million Dollars ($15,000,000).

     “Growth Capital Maturity Date” is, for each Growth Capital Advance, the earliest of (a) thirty
six (36) months from the date of such Growth Capital Advance, or (b) the occurrence of an Event of
Default.

     “Guarantor” is any present or future guarantor of the Obligations.

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

     “Indemnified Person” is defined in Section 12.3.

24

 

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

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

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

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

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

     “Loan Documents” are, collectively, this Agreement, the Warrants, the Perfection Certificate,
the Subordination Agreements, any Note, or Notes or guaranties executed by Borrower or any
Guarantor, and any other present or future agreement between Borrower any Guarantor and/or for the
benefit of any Lender in connection with this Agreement, all as amended, restated, or otherwise
modified.

     “Material Adverse Change” is (a) a material impairment in the perfection or priority of
Lenders’ Lien in the Collateral or in the value of such Collateral; (b) a material adverse change
in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material
impairment of the prospect of repayment of any portion of the Obligations.

     “Note” means for each Growth Capital Advance and the Revolving Advances, one of the secured
promissory notes of Borrower substantially in the form of Exhibit E.

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

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

     “Overadvance” is defined in Section 2.2.

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

     “Perfection Certificate” is defined in Section 5.1.

25

 

     “Permitted Indebtedness” is:

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

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

          (c) Subordinated Debt;

          (d) unsecured Indebtedness to trade creditors and with respect to surety bonds and similar
obligations incurred in the ordinary course of business;

          (e) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;

          (f) Indebtedness in an aggregate principal amount not to exceed One Hundred Thousand Dollars
($100,000) secured by Permitted Liens;

          (g) extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (f) above, provided that the then-outstanding principal amount
thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon
Borrower or its Subsidiary, as the case may be.

     “Permitted Investments” are:

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

          (b) any Investments permitted by Borrower’s investment policy, as amended from time to time,
provided that such investment policy (and any such amendment thereto) has been approved by Lenders;

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

          (d) Investments consisting of Collateral Accounts in which Lenders have a perfected security
interest;

          (e) Investments accepted in connection with Transfers permitted by Section 7.1;

          (f) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by
Borrower in Subsidiaries not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate in any fiscal year;

          (g) Investments consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors
which do not exceed Fifty Thousand Dollars ($50,000) in the aggregate in any year, provided that no
cash loans under this clause (ii) may be made if an Event of Default is then occurring or would
otherwise upon the making thereof;

          (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; and

26

 

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

     Notwithstanding the foregoing, Permitted Investments shall not include, and Borrower and each
Subsidiary is prohibited from purchasing, purchasing participations in, entering into any type of
swap or other equivalent derivative transaction, or otherwise holding or engaging in any ownership
interest in any type of debt instrument, including, without limitation, any corporate or municipal
bonds with a long-term nominal maturity for which the interest rate is reset through a dutch
auction and more commonly referred to as an “auction rate security.”

     “Permitted Liens” are:

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

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

          (c) statutory Liens securing claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other Persons imposed without action of such parties, provided, they
have no priority over any of Lenders’ Liens and the aggregate amount of such Liens does not at any
time exceed Fifty Thousand Dollars ($50,000);

          (d) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions,
social security and other like obligations incurred in the ordinary course of business, provided,
they have no priority over any of Lenders’ Liens and the aggregate amount of the Indebtedness
secured by such Liens does not at any time exceed Twenty Five Thousand Dollars ($25,000);

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

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

          (g) non-exclusive license of intellectual property granted to third parties in the ordinary
course of business, and licenses of intellectual property that could not result in a legal transfer
of title of the licensed property that may be exclusive in respects other than territory and that
may be exclusive as to territory only as to discreet geographical areas outside of the United
States;

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

          (i) Liens in favor of other financial institutions arising in connection with Borrower’s
deposit and/or securities accounts held at such institutions, provided that Borrower has complied
with Section 6.6 hereof.

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

27

 

     “Prepayment Fee” shall be, for each Growth Capital Advance, an amount equal to six percent
(6.0%) of the outstanding principal balance as of the prepayment date. The “Prepayment Fee” for
Growth Capital Advances shall be the sum of all of the “Prepayment Fees” for every Growth Capital
Advance.

     “Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s
lowest rate.

     “Qualified Assignee” means (a) any Lender and any affiliate of any Lender and (b) any
commercial bank, savings and loan association or savings bank or any other entity which is an
“accredited investor” (as defined in Regulation D under the Securities Act of 1933, as amended)
which extends credit or buys loans as one of its businesses, including insurance companies, mutual
funds, lease financing companies and commercial finance companies, in each case, which has a rating
of BBB or higher from S&P and a rating of Baa2 or higher from Moody’s at the date that it becomes a
Lender and in each case of clauses (a) and (b), which, through its applicable lending office, is
capable of lending to Borrower without the imposition of any withholding or similar taxes; provided
that, (x) no person proposed to become a Lender after the Effective Date and reasonably determined
by Lenders in their good faith business judgment to be acting in the capacity of a vulture fund or
distressed debt purchaser shall be a Qualified Assignee; (y) no person or Affiliate of such person
proposed to become a Lender after the Effective Date and that holds any subordinated debt or stock
issued by Borrower shall be a Qualified Assignee; and (z) no person or Affiliate of such person
proposed to become a Lender after the Effective Date and that directly competes with Borrower, as
reasonably determined by Borrower in its good faith business judgment, shall be a Qualified
Assignee.

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

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

     “Reserves” means, as of any date of determination, such amounts as Lenders may from time to
time establish and revise in their good faith business judgment, reducing the amount of Revolving
Advances and other financial accommodations which would otherwise be available to Borrower (a) to
reflect events, conditions, contingencies or risks which, as determined by Lenders in their good
faith business judgment, do or may adversely affect (i) the Collateral or any other property which
is security for the Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets, business or prospects of Borrower or any Guarantor, or
(iii) the security interests and other rights of any Lender in the Collateral (including the enforceability, perfection and priority
thereof); or (b) to reflect Lenders’ good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any Guarantor to Lenders is or may have been
incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of
facts which any Lender determines in good faith constitutes an Event of Default or may, with notice
or passage of time or both, constitute an Event of Default.

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

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

     “Revolving Commitment Percentage” means 50% with respect to SVB and 50% with respect to
Oxford.

     “Revolving Line” is a Revolving Advance or Revolving Advances in an amount equal to Five
Million Dollars ($5,000,000).

     “Revolving Line Maturity Date” is August 28, 2010.

28

 

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

     “Streamline Period” is defined in Section 2.1.2(b).

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

     “Subsidiary” means, with respect to any Person, any Person of which more than Fifty Percent
(50%) of the voting stock or other equity interests is owned or controlled, directly or indirectly,
by such Person or one or more Affiliates of such Person.

     “Tranche B Advance” is defined in Section 2.1.1(a).

     “Tranche B Availability End Date” means March 31, 2009, provided Borrower has theretofore
demonstrated to Lenders’ reasonable satisfaction achievement of Eighty Percent (80%) of projected
2008 year to date revenue, according to the projections attached hereto as Annex I.

     “Transaction Report” is that certain report of transactions and schedule of collections in the
form attached hereto as Exhibit C.

     “Transfer” is defined in Section 7.1.

     “Treasury Rate” is the average weekly yield (of the week-ending figures) in the most recent
Federal Reserve Statistical Release on actively traded U.S. Treasury obligations for a three (3)
year maturity or if a Statistical Release is not published, the arithmetic average (to the nearest
        .01%) of the per annum yields to maturity for each Business Day during the week (ending at least
two Business Days before the determination is made) of all actively traded marketable United States
Treasury fixed interest rate securities with a constant maturity of, or not more than 30 days
longer or shorter than, the average life of the principal and interest payments that are being paid
(excluding securities that can be surrendered at face value to pay federal estate tax, or which provide for tax benefits to the holder).

     “Warrants” are that certain Warrant to Purchase Stock dated on or about the Effective Date
executed by Borrower in favor of Bank and that certain Warrant to Purchase Stock dated on or about
the Effective Date executed by Borrower in favor of Oxford.

[Balance of Page Intentionally Left Blank]

29

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.

	 	 	 	 	 
	BORROWER:
	 	 
	 
	 	 	 	 
	ZONARE MEDICAL SYSTEMS, INC.	 	 
	 
	 	 	 	 
	By

	 	/s/ Timothy A. Marcotte
 

	 	 
	 
	 	 	 	 
	Name:
	 	Timothy A. Marcotte	 	 
	 

	 	 
	 
	 	 	 	 
	Title:
	 	Vice President and Chief Financial
Officer	 	 
	 

	 	 
	 
	LENDERS:	 	 
	 
	 	 	 	 
	SILICON VALLEY BANK	 	 
	 
	 	 	 	 
	By

	 	/s/ Rob Freelen 

	 	 
	 
	 	 	 	 
	Name:
	 	Rob Freelen	 	 
	 

	 	 

	 	 
	Title:
	 	 	 	 
	 

	 	 
	 
	 
	 	 	 	 
	OXFORD FINANCE CORPORATION	 	 
	 
	 	 	 	 
	By

	 	/s/ John G. Henderson 

	 	 
	 
	 	 	 	 
	Name:
	 	John G. Henderson	 	 
	 

	 	 

	 	 
	Title:
	 	VP & General Counsel	 	 
	 
	 
	 	 	 	 
	Effective Date: August 28, 2008

[Signature Page to Loan and Security Agreement]

 

 

EXHIBIT A

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

     All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights
or rights to payment of money, leases, license agreements, franchise agreements, General
Intangibles (except as provided below), commercial tort claims, documents, instruments (including
any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts,
fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing),
securities, and all other investment property, supporting obligations, and financial assets,
whether now owned or hereafter acquired, wherever located; and all Borrower’s Books relating to the
foregoing, and any and all claims, rights and interests in any of the above and all substitutions
for, additions, attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

     Notwithstanding the foregoing, the Collateral does not include any of the following, whether
now owned or hereafter acquired: (a) more than 65% of the presently existing and hereafter arising
issued and outstanding shares of capital stock owned by Borrower of any Foreign Subsidiary which
shares entitle the holder thereof to vote for directors or any other matter, or (b) any copyright
rights, copyright applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents, patent applications
and like protections, including improvements, divisions, continuations, renewals, reissues,
extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized
thereby, know-how, operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of the foregoing;
provided, however, the Collateral shall include all Accounts, license and royalty fees and other
revenues, proceeds, or income arising out of or relating to any of the foregoing.

     Pursuant to the terms of a certain negative pledge arrangement with Lenders, Borrower has
agreed not to encumber any of its copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work, whether published or
unpublished, any patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same,
trademarks, service marks and, to the extent permitted under applicable law, any applications
therefor, whether registered or not, and the goodwill of the business of Borrower connected with
and symbolized thereby, know-how, operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past, present, or future infringement of any of
the foregoing, without Lenders’ prior written consent.exv10w3

Exhibit 10.3

FLUIDIGM CORPORATION

2008 EQUITY INCENTIVE PLAN

     1. Purposes of the Plan. The purposes of this Plan are:

	 	•	 	to attract and retain the best available personnel for positions of
substantial responsibility,
	 
	 	•	 	to provide additional incentive to Employees, Directors and Consultants, and
	 
	 	•	 	to promote the success of the Company’s business.

          The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted
Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares.

     2. Definitions. As used herein, the following definitions will apply:

          (a) “Administrator” means the Board or any of its Committees as will be administering
the Plan, in accordance with Section 4 of the Plan.

          (b) “Applicable Laws” means the requirements relating to the administration of
equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the
Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under
the Plan.

          (c) “Award” means, individually or collectively, a grant under the Plan of Options,
Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units or
Performance Shares.

          (d) “Award Agreement” means the written or electronic agreement setting forth the
terms and provisions applicable to each Award granted under the Plan. The Award Agreement is
subject to the terms and conditions of the Plan.

          (e) “Board” means the Board of Directors of the Company.

          (f) “Change in Control” means the occurrence of any of the following events:

               (i) A change in the ownership of the Company which occurs on the date that any one person, or
more than one person acting as a group (“Person”), acquires ownership of the stock of the
Company that, together with the stock held by such Person, constitutes more than 50% of the total
voting power of the stock of the Company; provided, however, that for purposes of this subsection
(i), the acquisition of additional stock by any one Person, who is considered to own more

 

 

than 50% of the total voting power of the stock of the Company will not be considered a Change
in Control; or

               (ii) A change in the effective control of the Company which occurs on the date that a majority
of members of the Board is replaced during any twelve (12) month period by Directors whose
appointment or election is not endorsed by a majority of the members of the Board prior to the date
of the appointment or election. For purposes of this clause (ii), if any Person is considered to
be in effective control of the Company, the acquisition of additional control of the Company by the
same Person will not be considered a Change in Control; or

               (iii) A change in the ownership of a substantial portion of the Company’s assets which occurs
on the date that any Person acquires (or has acquired during the twelve (12) month period ending on
the date of the most recent acquisition by such person or persons) assets from the Company that
have a total gross fair market value equal to or more than 50% of the total gross fair market value
of all of the assets of the Company immediately prior to such acquisition or acquisitions;
provided, however, that for purposes of this subsection (iii), the following will not constitute a
change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an
entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a
transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the
asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, 50% or more
of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a
Person, that owns, directly or indirectly, 50% or more of the total value or voting power of all
the outstanding stock of the Company, or (4) an entity, at least 50% of the total value or voting
power of which is owned, directly or indirectly, by a Person described in this subsection
(iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the
assets of the Company, or the value of the assets being disposed of, determined without regard to
any liabilities associated with such assets.

               For purposes of this Section 2(f), persons will be considered to be acting as a group if they
are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of
stock, or similar business transaction with the Company.

          (g) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a
section of the Code herein will be a reference to any successor or amended section of the Code.

          (h) “Committee” means a committee of Directors or of other individuals satisfying
Applicable Laws appointed by the Board in accordance with Section 4 hereof.

          (i) “Common Stock” means the common stock of the Company.

          (j) “Company” means Fluidigm Corporation, a Delaware corporation, or any successor
thereto.

          (k) “Consultant” means any person, including an advisor, engaged by the Company or a
Parent or Subsidiary to render services to such entity.

          (l) “Director” means a member of the Board.

-2-

 

          (m) “Disability” means total and permanent disability as defined in Section 22(e)(3)
of the Code, provided that in the case of Awards other than Incentive Stock Options, the
Administrator in its discretion may determine whether a permanent and total disability exists in
accordance with uniform and non-discriminatory standards adopted by the Administrator from time to
time.

          (n) “Employee” means any person, including Officers and Directors, employed by the
Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a
director’s fee by the Company will be sufficient to constitute “employment” by the Company.

          (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          (p) “Exchange Program” means a program under which (i) outstanding Awards are
surrendered or cancelled in exchange for Awards of the same type (which may have higher or lower
exercise prices and different terms), Awards of a different type, and/or cash, (ii) Participants
would have the opportunity to transfer any outstanding Awards to a financial institution or other
person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding
Award is reduced. The Administrator will determine the terms and conditions of any Exchange
Program in its sole discretion.

          (q) “Fair Market Value” means, as of any date, the value of Common Stock determined as
follows:

               (i) If the Common Stock is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq Global Select Market, the Nasdaq Global Market or
the Nasdaq Capital Market of The Nasdaq Stock Market, its Fair Market Value will be the closing
sales price for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system on the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;

               (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a Share will be the mean between the high bid and
low asked prices for the Common Stock on the day of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;

               (iii) For purposes of any Awards granted on the Registration Date, the Fair Market Value will
be the initial price to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company’s Common Stock; or

               (iv) In the absence of an established market for the Common Stock, the Fair Market Value will
be determined in good faith by the Administrator.

          (r) “Fiscal Year” means the fiscal year of the Company.

-3-

 

          (s) “Incentive Stock Option” means an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

          (t) “Inside Director” means a Director who is an Employee.

          (u) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or
is not intended to qualify as an Incentive Stock Option.

          (v) “Officer” means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

          (w) “Option” means a stock option granted pursuant to the Plan.

          (x) “Outside Director” means a Director who is not an Employee.

          (y) “Parent” means a “parent corporation,” whether now or hereafter existing, as
defined in Section 424(e) of the Code.

          (z) “Participant” means the holder of an outstanding Award.

          (aa) “Performance Share” means an Award denominated in Shares which may be earned in
whole or in part upon attainment of performance goals or other vesting criteria as the
Administrator may determine pursuant to Section 10.

          (bb) “Performance Unit” means an Award which may be earned in whole or in part upon
attainment of performance goals or other vesting criteria as the Administrator may determine and
which may be settled for cash, Shares or other securities or a combination of the foregoing
pursuant to Section 10.

          (cc) “Period of Restriction” means the period during which the transfer of Shares of
Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial
risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of
target levels of performance, or the occurrence of other events as determined by the Administrator.

          (dd) “Plan” means this 2008 Equity Incentive Plan.

          (ee) “Registration Date” means the effective date of the first registration statement
that is filed by the Company and declared effective pursuant to Section 12(g) of the Exchange Act,
with respect to any class of the Company’s securities.

          (ff) “Restricted Stock” means Shares issued pursuant to a Restricted Stock award under
Section 7 of the Plan, or issued pursuant to the early exercise of an Option.

          (gg) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to
the Fair Market Value of one Share, granted pursuant to Section 8. Each Restricted Stock Unit
represents an unfunded and unsecured obligation of the Company.

-4-

 

          (hh) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3,
as in effect when discretion is being exercised with respect to the Plan.

          (ii) “Section 16(b)” means Section 16(b) of the Exchange Act.

          (jj) “Service Provider” means an Employee, Director or Consultant.

          (kk) “Share” means a share of the Common Stock, as adjusted in accordance with Section
13 of the Plan.

          (ll) “Stock Appreciation Right” means an Award, granted alone or in connection with an
Option, that pursuant to Section 9 is designated as a Stock Appreciation Right.

          (mm) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing,
as defined in Section 424(f) of the Code.

     3. Stock Subject to the Plan.

          (a) Stock Subject to the Plan. Subject to the provisions of Section 13 of the Plan,
the maximum aggregate number of Shares that may be issued under the
Plan is Two Million
(2,000,000) Shares, plus (i) any Shares that, as of the Registration Date, have been reserved but
not issued pursuant to any awards granted under the Fluidigm Corporation 1999 Stock Option Plan
(the “Existing Plan”) and are not subject to any awards granted thereunder, and (ii) any
Shares subject to stock options or similar awards granted under the Existing Plan that expire or
otherwise terminate without having been exercised in full and Shares issued pursuant to awards
granted under the Existing Plan that are forfeited to or repurchased by the Company, with the
maximum number of Shares to be added to the Plan pursuant to clauses (i) and (ii) equal to
Three Million (3,000,000) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.

          (b) Automatic Share Reserve Increase. The number of Shares available for issuance
under the Plan will be increased on the first day of each Fiscal Year beginning with the 2009
Fiscal Year, in an amount equal to the least of (i) One Million Two Hundred Thousand (1,200,000)
Shares, (ii) 4% of the outstanding Shares on the last day of the immediately preceding Fiscal Year
or (iii) such number of Shares determined by the Board.

          (c) Lapsed Awards. If an Award expires or becomes unexercisable without having been
exercised in full, is surrendered pursuant to an Exchange Program, or, with respect to Restricted
Stock, Restricted Stock Units, Performance Units or Performance Shares, is forfeited to or
repurchased by the Company due to failure to vest, the unpurchased Shares (or for Awards other than
Options or Stock Appreciation Rights the forfeited or repurchased Shares) which were subject
thereto will become available for future grant or sale under the Plan (unless the Plan has
terminated). With respect to Stock Appreciation Rights, only Shares actually issued (i.e., the net
Shares issued) pursuant to a Stock Appreciation Right will cease to be available under the Plan;
all remaining Shares under Stock Appreciation Rights will remain available for future grant or sale
under the Plan (unless the Plan has terminated). Shares that have actually been issued under the
Plan under any Award will not be returned to the Plan and will not become available for future
distribution under the Plan; provided, however, that if Shares issued pursuant to Awards of
Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased
by the Company or are

-5-

 

forfeited to the Company, such Shares will become available for future grant under the Plan.
Shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations
related to an Award will become available for future grant or sale under the Plan. To the extent
an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result
in reducing the number of Shares available for issuance under the Plan. Notwithstanding the
foregoing and, subject to adjustment as provided in Section 13, the maximum number of Shares that
may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number
stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code and the
Treasury Regulations promulgated thereunder, any Shares that become available for issuance under
the Plan pursuant to Sections 3(b) and 3(c).

          (d) Share Reserve. The Company, during the term of this Plan, will at all times
reserve and keep available such number of Shares as will be sufficient to satisfy the requirements
of the Plan.

     4. Administration of the Plan.

          (a) Procedure.

               (i) Multiple Administrative Bodies. Different Committees with respect to different
groups of Service Providers may administer the Plan.

               (ii) Section 162(m). To the extent that the Administrator determines it to be
desirable to qualify Awards granted hereunder as “performance-based compensation” within the
meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of two (2) or
more “outside directors” within the meaning of Section 162(m) of the Code.

               (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt
under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the
requirements for exemption under Rule 16b-3.

               (iv) Other Administration. Other than as provided above, the Plan will be
administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy
Applicable Laws.

          (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the
case of a Committee, subject to the specific duties delegated by the Board to such Committee, the
Administrator will have the authority, in its discretion:

               (i) to determine the Fair Market Value;

               (ii) to select the Service Providers to whom Awards may be granted hereunder;

               (iii) to determine the number of Shares to be covered by each Award granted hereunder;

               (iv) to approve forms of Award Agreements for use under the Plan;

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               (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any
Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise
price, the time or times when Awards may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Award or the Shares relating thereto, based in each case on such factors as the
Administrator will determine;

               (vi) to determine the terms and conditions of any, and to institute any Exchange Program;

               (vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

               (viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including
rules and regulations relating to sub-plans established for the purpose of satisfying applicable
foreign laws;

               (ix) to modify or amend each Award (subject to Section 18 of the Plan), including but not
limited to the discretionary authority to extend the post-termination exercisability period of
Awards and to extend the maximum term of an Option (subject to Section 6(b) of the Plan regarding
Incentive Stock Options);

               (x) to allow Participants to satisfy withholding tax obligations in such manner as prescribed
in Section 14 of the Plan;

               (xi) to authorize any person to execute on behalf of the Company any instrument required to
effect the grant of an Award previously granted by the Administrator;

               (xii) to allow a Participant to defer the receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant under an Award; and

               (xiii) to make all other determinations deemed necessary or advisable for administering the
Plan.

          (c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations
and interpretations will be final and binding on all Participants and any other holders of Awards.

     5. Eligibility. Nonstatutory Stock Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units, Performance Shares and Performance Units may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.

     6. Stock Options.

          (a) Limitations. Each Option will be designated in the Award Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation,
to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by the Participant during any calendar year

-7-

 

(under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand
dollars ($100,000), such Options will be treated as Nonstatutory Stock Options. For purposes of
this Section 6(a), Incentive Stock Options will be taken into account in the order in which they
were granted. The Fair Market Value of the Shares will be determined as of the time the Option
with respect to such Shares is granted.

          (b) Term of Option. The term of each Option will be stated in the Award Agreement.
In the case of an Incentive Stock Option, the term will be ten (10) years from the date of grant or
such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive
Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be
five (5) years from the date of grant or such shorter term as may be provided in the Award
Agreement.

          (c) Option Exercise Price and Consideration.

               (i) Exercise Price. The per share exercise price for the Shares to be issued pursuant
to exercise of an Option will be determined by the Administrator, subject to the following:

                    (1) In the case of an Incentive Stock Option

                         a) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of stock of the Company
or any Parent or Subsidiary, the per Share exercise price will be no less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.

                         b) granted to any Employee other than an Employee described in paragraph (A) immediately
above, the per Share exercise price will be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.

                    (2) In the case of a Nonstatutory Stock Option, the per Share exercise price will be no less
than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

                    (3) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of
less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant
pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the
Code.

               (ii) Waiting Period and Exercise Dates. At the time an Option is granted, the
Administrator will fix the period within which the Option may be exercised and will determine any
conditions that must be satisfied before the Option may be exercised.

               (iii) Form of Consideration. The Administrator will determine the acceptable form of
consideration for exercising an Option, including the method of payment. In the case of an
Incentive Stock Option, the Administrator will determine the acceptable form of

-8-

 

consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2)
check; (3) promissory note, (4) other Shares, provided that such Shares have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to which such Option
will be exercised and provided that accepting such Shares, in the sole discretion of the
Administrator, will not result in any adverse accounting consequences to the Company; (5)
consideration received by the Company under a broker-assisted (or other) cashless exercise program
implemented by the Company in connection with the Plan; (6) any combination of the foregoing
methods of payment; or (7) such other consideration and method of payment for the issuance of
Shares to the extent permitted by Applicable Laws.

          (d) Exercise of Option.

               (i) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder
will be exercisable according to the terms of the Plan and at such times and under such conditions
as determined by the Administrator and set forth in the Award Agreement. An Option may not be
exercised for a fraction of a Share.

                    An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such
form as the Administrator may specify from time to time) from the person entitled to exercise the
Option, and (ii) full payment for the Shares with respect to which the Option is exercised
(together with applicable withholding taxes). Full payment may consist of any consideration and
method of payment authorized by the Administrator and permitted by the Award Agreement and the
Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or,
if requested by the Participant, in the name of the Participant and his or her spouse. Until the
Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends or any other
rights as a stockholder will exist with respect to the Shares subject to an Option, notwithstanding
the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly
after the Option is exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided in Section 13 of the
Plan.

               Exercising an Option in any manner will decrease the number of Shares thereafter available,
both for purposes of the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.

               (ii) Termination of Relationship as a Service Provider. If a Participant ceases to be
a Service Provider, other than upon the Participant’s termination as the result of the
Participant’s death or Disability, the Participant may exercise his or her Option within such
period of time as is specified in the Award Agreement to the extent that the Option is vested on
the date of termination (but in no event later than the expiration of the term of such Option as
set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the
Option will remain exercisable for three (3) months following the Participant’s termination.
Unless otherwise provided by the Administrator, if on the date of termination the Participant is
not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option
will revert to the Plan. If after termination the Participant does not exercise his or her Option
within the time specified by the Administrator, the Option will terminate, and the Shares covered
by such Option will revert to the Plan.

-9-

 

               (iii) Disability of Participant. If a Participant ceases to be a Service Provider as
a result of the Participant’s Disability, the Participant may exercise his or her Option within
such period of time as is specified in the Award Agreement to the extent the Option is vested on
the date of termination (but in no event later than the expiration of the term of such Option as
set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the
Option will remain exercisable for twelve (12) months following the Participant’s termination.
Unless otherwise provided by the Administrator, if on the date of termination the Participant is
not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option
will revert to the Plan. If after termination the Participant does not exercise his or her Option
within the time specified herein, the Option will terminate, and the Shares covered by such Option
will revert to the Plan.

               (iv) Death of Participant. If a Participant dies while a Service Provider, the Option
may be exercised following the Participant’s death within such period of time as is specified in
the Award Agreement to the extent that the Option is vested on the date of death (but in no event
may the option be exercised later than the expiration of the term of such Option as set forth in
the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has
been designated prior to Participant’s death in a form acceptable to the Administrator. If no such
beneficiary has been designated by the Participant, then such Option may be exercised by the
personal representative of the Participant’s estate or by the person(s) to whom the Option is
transferred pursuant to the Participant’s will or in accordance with the laws of descent and
distribution. In the absence of a specified time in the Award Agreement, the Option will remain
exercisable for twelve (12) months following Participant’s death. Unless otherwise provided by the
Administrator, if at the time of death Participant is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option will immediately revert to the Plan. If
the Option is not so exercised within the time specified herein, the Option will terminate, and the
Shares covered by such Option will revert to the Plan.

     7. Restricted Stock.

          (a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the
Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service
Providers in such amounts as the Administrator, in its sole discretion, will determine.

          (b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by
an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and
such other terms and conditions as the Administrator, in its sole discretion, will determine.
Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of
Restricted Stock until the restrictions on such Shares have lapsed.

          (c) Transferability. Except as provided in this Section 7, Shares of Restricted Stock
may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction.

          (d) Other Restrictions. The Administrator, in its sole discretion, may impose such
other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.

-10-

 

          (e) Removal of Restrictions. Except as otherwise provided in this Section 7, Shares
of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released
from escrow as soon as practicable after the last day of the Period of Restriction or at such other
time as the Administrator may determine. The Administrator, in its discretion, may accelerate the
time at which any restrictions will lapse or be removed.

          (f) Voting Rights. During the Period of Restriction, Service Providers holding Shares
of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares,
unless the Administrator determines otherwise.

          (g) Dividends and Other Distributions. During the Period of Restriction, Service
Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other
distributions paid with respect to such Shares, unless the Administrator provides otherwise. If
any such dividends or distributions are paid in Shares, the Shares will be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect
to which they were paid.

          (h) Return of Restricted Stock to Company. On the date set forth in the Award
Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company
and again will become available for grant under the Plan.

     8. Restricted Stock Units.

          (a) Grant. Restricted Stock Units may be granted at any time and from time to time as
determined by the Administrator. After the Administrator determines that it will grant Restricted
Stock Units under the Plan, it will advise the Participant in an Award Agreement of the terms,
conditions, and restrictions related to the grant, including the number of Restricted Stock Units.

          (b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria in
its discretion, which, depending on the extent to which the criteria are met, will determine the
number of Restricted Stock Units that will be paid out to the Participant. The Administrator may
set vesting criteria based upon the achievement of Company-wide, business unit, or individual goals
(including, but not limited to, continued employment), or any other basis determined by the
Administrator in its discretion.

          (c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the
Participant will be entitled to receive a payout as determined by the Administrator.
Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the
Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to
receive a payout.

          (d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made
as soon as practicable after the date(s) determined by the Administrator and set forth in the Award
Agreement. The Administrator, in its sole discretion, may only settle earned Restricted Stock
Units in cash, Shares, or a combination of both.

-11-

 

          (e) Cancellation. On the date set forth in the Award Agreement, all unearned
Restricted Stock Units will be forfeited to the Company.

     9. Stock Appreciation Rights.

          (a) Grant of Stock Appreciation Rights. Subject to the terms and conditions of the
Plan, a Stock Appreciation Right may be granted to Service Providers at any time and from time to
time as will be determined by the Administrator, in its sole discretion.

          (b) Number of Shares. The Administrator will have complete discretion to determine
the number of Stock Appreciation Rights granted to any Service Provider.

          (c) Exercise Price and Other Terms. The per share exercise price for the Shares to be
issued pursuant to exercise of a Stock Appreciation Right will be determined by the Administrator
and will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date
of grant. Otherwise, subject to Section 6(a) of the Plan, the Administrator, subject to the
provisions of the Plan, will have complete discretion to determine the terms and conditions of
Stock Appreciation Rights granted under the Plan.

          (d) Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will be
evidenced by an Award Agreement that will specify the exercise price, the term of the Stock
Appreciation Right, the conditions of exercise, and such other terms and conditions as the
Administrator, in its sole discretion, will determine.

          (e) Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under
the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set
forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 6(d) of the Plan
also will apply to Stock Appreciation Rights.

          (f) Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation
Right, a Participant will be entitled to receive payment from the Company in an amount determined
by multiplying:

               (i) The difference between the Fair Market Value of a Share on the date of exercise over the
exercise price; times

               (ii) The number of Shares with respect to which the Stock Appreciation Right is exercised.

     At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may
be in cash, in Shares of equivalent value, or in some combination thereof.

     10. Performance Units and Performance Shares.

          (a) Grant of Performance Units/Shares. Performance Units and Performance Shares may
be granted to Service Providers at any time and from time to time, as will be determined by the
Administrator, in its sole discretion. The Administrator will have complete discretion in
determining the number of Performance Units and Performance Shares granted to each Participant.

-12-

 

          (b) Value of Performance Units/Shares. Each Performance Unit will have an initial
value that is established by the Administrator on or before the date of grant. Each Performance
Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.

          (c) Performance Objectives and Other Terms. The Administrator will set performance
objectives or other vesting provisions (including, without limitation, continued status as a
Service Provider) in its discretion which, depending on the extent to which they are met, will
determine the number or value of Performance Units/Shares that will be paid out to the Service
Providers. The time period during which the performance objectives or other vesting provisions
must be met will be called the “Performance Period.” Each Award of Performance Units/Shares will
be evidenced by an Award Agreement that will specify the Performance Period, and such other terms
and conditions as the Administrator, in its sole discretion, will determine. The Administrator may
set performance objectives based upon the achievement of Company-wide, divisional, or individual
goals, applicable federal or state securities laws, or any other basis determined by the
Administrator in its discretion.

          (d) Earning of Performance Units/Shares. After the applicable Performance Period has
ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of
Performance Units/Shares earned by the Participant over the Performance Period, to be determined as
a function of the extent to which the corresponding performance objectives or other vesting
provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in
its sole discretion, may reduce or waive any performance objectives or other vesting provisions for
such Performance Unit/Share.

          (e) Form and Timing of Payment of Performance Units/Shares. Payment of earned
Performance Units/Shares will be made as soon as practicable after the expiration of the applicable
Performance Period. The Administrator, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the
value of the earned Performance Units/Shares at the close of the applicable Performance Period) or
in a combination thereof.

          (f) Cancellation of Performance Units/Shares. On the date set forth in the Award
Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and
again will be available for grant under the Plan.

     11. Leaves of Absence/Transfer Between Locations. Unless the Administrator provides
otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of
absence. A Service Provider will not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the Company or between the
Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may
exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute
or contract. If reemployment upon expiration of a leave of absence approved by the Company is not
so guaranteed, then three (3) months following the ninety-first (91st) day of such leave
any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option.

-13-

 

     12. Transferability of Awards. Unless determined otherwise by the Administrator, an
Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Participant, only by the Participant. If the Administrator makes an Award
transferable, such Award will contain such additional terms and conditions as the Administrator
deems appropriate.

     13. Adjustments; Dissolution or Liquidation; Merger or Change in Control.

          (a) Adjustments. In the event that any dividend or other distribution (whether in the
form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or
exchange of Shares or other securities of the Company, or other change in the corporate structure
of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or
enlargement of the benefits or potential benefits intended to be made available under the Plan,
will adjust the number and class of Shares that may be delivered under the Plan and/or the number,
class, and price of Shares covered by each outstanding Award, and the numerical Share limits in
Section 3 of the Plan.

          (b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator will notify each Participant as soon as practicable
prior to the effective date of such proposed transaction. To the extent it has not been previously
exercised, an Award will terminate immediately prior to the consummation of such proposed action.

          (c) Change in Control. In the event of a merger or Change in Control, each
outstanding Award will be treated as the Administrator determines, including, without limitation,
that each Award be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. The Administrator will not be
required to treat all Awards similarly in the transaction.

          In the event that the successor corporation does not assume or substitute for the Award, the
Participant will fully vest in and have the right to exercise all of his or her outstanding Options
and Stock Appreciation Rights, including Shares as to which such Awards would not otherwise be
vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse,
and, with respect to Awards with performance-based vesting, all performance goals or other vesting
criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms
and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or
substituted in the event of a Change in Control, the Administrator will notify the Participant in
writing or electronically that the Option or Stock Appreciation Right will be exercisable for a
period of time determined by the Administrator in its sole discretion, and the Option or Stock
Appreciation Right will terminate upon the expiration of such period.

          For the purposes of this subsection (c), an Award will be considered assumed if, following the
Change in Control, the Award confers the right to purchase or receive, for each Share subject to
the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or
other securities or property) received in the Change in Control by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of the outstanding

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Shares); provided, however, that if such consideration received in the Change in Control is
not solely common stock of the successor corporation or its Parent, the Administrator may, with the
consent of the successor corporation, provide for the consideration to be received upon the
exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit,
Performance Unit or Performance Share, for each Share subject to such Award, to be solely common
stock of the successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the Change in Control.

          Notwithstanding anything in this Section 13(c) to the contrary, an Award that vests, is earned
or paid-out upon the satisfaction of one or more performance goals will not be considered assumed
if the Company or its successor modifies any of such performance goals without the Participant’s
consent; provided, however, a modification to such performance goals only to reflect the successor
corporation’s post-Change in Control corporate structure will not be deemed to invalidate an
otherwise valid Award assumption.

     14. Tax Withholding.

          (a) Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to
an Award (or exercise thereof), the Company will have the power and the right to deduct or
withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, local, foreign or other taxes (including the Participant’s FICA obligation)
required to be withheld with respect to such Award (or exercise thereof).

          (b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant
to such procedures as it may specify from time to time, may permit a Participant to satisfy such
tax withholding obligation, in whole or in part by (without limitation) (a) paying cash, (b)
electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market
Value equal to the minimum statutory amount required to be withheld, or (c) delivering to the
Company already-owned Shares having a Fair Market Value equal to the minimum statutory amount
required to be withheld. The Fair Market Value of the Shares to be withheld or delivered will be
determined as of the date that the taxes are required to be withheld.

     15. No Effect on Employment or Service. Neither the Plan nor any Award will confer
upon a Participant any right with respect to continuing the Participant’s relationship as a Service
Provider with the Company, nor will they interfere in any way with the Participant’s right or the
Company’s right to terminate such relationship at any time, with or without cause, to the extent
permitted by Applicable Laws.

     16. Date of Grant. The date of grant of an Award will be, for all purposes, the date
on which the Administrator makes the determination granting such Award, or such other later date as
is determined by the Administrator. Notice of the determination will be provided to each
Participant within a reasonable time after the date of such grant.

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     17. Term of Plan. Subject to Section 21 of the Plan, the Plan will become effective
upon its adoption by the Board. It will continue in effect for a term of ten (10) years from the
date adopted by the Board, unless terminated earlier under Section 18 of the Plan.

     18. Amendment and Termination of the Plan.

          (a) Amendment and Termination. The Board may at any time amend, alter, suspend or
terminate the Plan.

          (b) Stockholder Approval. The Company will obtain stockholder approval of any Plan
amendment to the extent necessary and desirable to comply with Applicable Laws.

          (c) Effect of Amendment or Termination. No amendment, alteration, suspension or
termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise
between the Participant and the Administrator, which agreement must be in writing and signed by the
Participant and the Company. Termination of the Plan will not affect the Administrator’s ability
to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior
to the date of such termination.

     19. Conditions Upon Issuance of Shares.

          (a) Legal Compliance. Shares will not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares will comply with
Applicable Laws and will be further subject to the approval of counsel for the Company with respect
to such compliance.

          (b) Investment Representations. As a condition to the exercise of an Award, the
Company may require the person exercising such Award to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

     20. Inability to Obtain Authority. The inability of the Company to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of
any liability in respect of the failure to issue or sell such Shares as to which such requisite
authority will not have been obtained.

     21. Stockholder Approval. The Plan will be subject to approval by the stockholders of
the Company within twelve (12) months after the date the Plan is adopted by the Board. Such
stockholder approval will be obtained in the manner and to the degree required under Applicable
Laws.

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