Document:

ex10_1.htm

    
      

    

    Exhibit
10.1

     

    

    
       

       

      LOAN
AND SECURITY AGREEMENT

       

      THIS LOAN AND SECURITY
AGREEMENT (this “Agreement”) dated as of the
Effective Date is between SILICON VALLEY BANK, a
California corporation (“Bank”), with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 (FAX (408)
654-5517) and PROCERA NETWORKS,
INC., a Nevada corporation (“Borrower”), with its principal
place of business at 100 Cooper Court, Los Gatos, California 95032 (FAX (408)
354-7279), and provides the terms on which Bank shall lend to Borrower, and
Borrower shall repay Bank.  The parties agree as follows:

       

      
        	
                 
      

              	
                1

              	
                ACCOUNTING AND OTHER
      TERMS

              

      

       

      Accounting
terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following
GAAP.  The term “financial statements” includes the notes and
schedules.  The terms “including” and “includes” always mean
“including (or includes) without limitation,” in this or any Loan
Document.  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 meanings
provided by the Code, to the extent such terms are defined therein.

       

      
        	
                 
      

              	
                2

              	
                LOAN AND TERMS OF
      PAYMENT

              

      

       

      2.1          Promise
to Pay.  Borrower hereby
unconditionally promises to pay Bank the unpaid principal amount of all Advances
hereunder with all interest, fees and finance charges due thereon as and when
due in accordance with this Agreement.

       

      2.1.1       Financing of
Accounts.

       

      (a)           Availability.  Subject
to the terms of this Agreement, Borrower may request that Bank finance specific
Eligible Accounts.  Bank may, in its good faith business discretion,
finance such Eligible Accounts by extending credit to Borrower in an amount
equal to the result of the Advance Rate multiplied by the face amount of the
Eligible Account (the “Advance”).  Bank may, in its sole discretion,
change the percentage of the Advance Rate for a particular Eligible Account on a
case by case basis.  When Bank makes an Advance, the Eligible Account
becomes a “Financed Receivable.”

       

      (b)           Maximum
Advances.  The aggregate face amount of all Financed
Receivables outstanding at any time may not exceed the Facility
Amount.

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       

      (c)           Borrowing
Procedure.  Borrower will deliver an Invoice Transmittal for
each Eligible Account it offers.  Bank may rely on information set
forth in or provided with the Invoice Transmittal.

       

      (d)           Credit Quality;
Confirmations.  Bank may, at its option, conduct a credit check
of the Account Debtor for each Account requested by Borrower for financing
hereunder in order to approve any such Account Debtor’s credit before agreeing
to finance such Account.  Bank may also verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Accounts (including confirmations of Borrower’s representations in Section
5.3) by means of mail, telephone or otherwise, either in the name of Borrower or
Bank from time to time in its sole discretion.

       

      (e)      
     Accounts
Notification/Collection.  Bank may notify any Person owing
Borrower money of Bank’s security interest in the funds and verify and/or
collect the amount of the Account.

       

      (f)     
      Early
Termination.  This Agreement may be terminated prior to the
Maturity Date as follows:  (i) by Borrower, effective three (3)
Business Days after written notice of termination is given to Bank; or (ii) by
Bank at any time after the occurrence of an Event of Default, without notice,
effective immediately.  If this Agreement is terminated (A) by Bank in
accordance with clause (ii) in the foregoing sentence, or (B) by Borrower for
any reason, Borrower shall pay to Bank a termination fee in an amount equal to
Twenty Thousand Dollars ($20,000) (the “Early Termination
Fee”).  The Early Termination Fee shall be due and payable on
the effective date of such termination and thereafter shall bear interest at a
rate equal to the highest rate applicable to any of the
Obligations.  Notwithstanding the foregoing, Bank agrees to waive the
Early Termination Fee if Bank agrees to refinance and redocument this Agreement
under another division of Bank (in its sole and exclusive discretion) prior to
the Maturity Date.

       

      (g)           Maturity.  This
Agreement shall terminate and all Obligations outstanding hereunder shall be
immediately due and payable on the Maturity Date.

       

      (h)           Suspension of
Advances.  Borrower’s ability to request that Bank finance
Eligible Accounts hereunder will terminate if, in Bank’s sole discretion, there
has been a material adverse change in the general affairs, management, results
of operation, condition (financial or otherwise) or the prospect of repayment of
the Obligations, or there has been any material adverse deviation by Borrower
from the most recent business plan of Borrower presented to and accepted by Bank
prior to the execution of this Agreement.

       

      2.2           Collections,
Finance Charges, Remittances and Fees.  The Obligations
shall be subject to the following fees and Finance Charges.  Unpaid
fees and Finance Charges may, in Bank’s discretion, accrue interest and fees as
described in Section 9.2 hereof.

       

      2.2.1       Collections.  Collections will
be credited to the Financed Receivable Balance for such Financed Receivable, but
if there is an Event of Default, Bank may apply Collections to the Obligations
in any order it chooses.  If Bank receives a payment for both a
Financed Receivable and a non-Financed Receivable, the funds will first be
applied to the Financed Receivable and, if there is no Event of Default then
existing, the excess will be remitted to Borrower, subject to Section
2.2.7.

       

      
        
           

        

        
          - 2
-

          
            

          

        

        
           

        

      

       

      2.2.2       Facility
Fee.  A
fully earned, non refundable facility fee of Thirty-Four Thousand Dollars
($34,000) is due upon execution of this Agreement (the “Facility Fee”) which is earned
in all respects as of the Effective Date and is payable in full to Lender in two
(2) payments of Seventeen Thousand Dollars ($17,000) on the Effective Date and
Seventeen Thousand Dollars ($17,000) on the earlier of (a) the occurrence of an
Event of Default or (b) December 10, 2010.

       

      2.2.3       Finance
Charges.  In computing
Finance Charges on the Obligations under this Agreement, all Collections
received by Bank shall be deemed applied by Bank on account of the Obligations
one (1) Business Days after receipt of the Collections.  Borrower will
pay a finance charge (the “Finance Charge”) on the
Financed Receivable Balance which is equal to the Applicable Rate divided by three
hundred sixty (360) multiplied by the
number of days each such Financed Receivable is outstanding multiplied by the
gross amount of each Eligible Account for each outstanding Financed Receivable
Balance.  The Finance Charge is payable when the Advance made based on
such Financed Receivable is payable in accordance with Section 2.3
hereof.  After an Event of Default, the Applicable Rate will increase
an additional five percent (5.0%) per annum effective immediately upon the
occurrence of such Event of Default.  In the event that the aggregate
amount of Finance Charges earned by Bank in any Reconciliation Period is less
than the Minimum Finance Charge, Borrower shall pay to Bank an additional
Finance Charge equal to (i) the Minimum Finance Charge minus (ii) the aggregate
amount of all Finance Charges and any Collateral Handling Fee earned by Bank in
such Reconciliation Period.  Such additional Finance Charge shall be
payable on the first day of the next Reconciliation Period.

       

      2.2.4       Collateral
Handling Fee.  At all times that
Net Cash is less than Two Million Dollars ($2,000,000), Borrower will pay to
Bank a collateral handling fee equal to fifty-five hundredths of one percent
(0.55%) per month of the Financed Receivable Balance for each Financed
Receivable outstanding based upon a 360 day year (the “Collateral Handling
Fee”).  This fee is charged on a daily basis which is equal to
the Collateral Handling Fee divided by 30, multiplied by the number of days each
such Financed Receivable is outstanding, multiplied by the outstanding Financed
Receivable Balance.  The Collateral Handling Fee is payable when the
Advance made based on such Financed Receivable is payable in accordance with
Section 2.3 hereof.  In computing Collateral Handling Fees under this
Agreement, all Collections received by Bank shall be deemed applied by Bank on
account of Obligations one (1) Business Days after receipt of the
Collections.  After an Event of Default, the Collateral Handling Fee
will increase an additional 0.50% effective immediately upon such Event of
Default.

       

      2.2.5       Accounting.  After each
Reconciliation Period, Bank will provide an accounting of the transactions for
that Reconciliation Period, including the amount of all Financed Receivables,
all Collections, Adjustments, Finance Charges, Collateral Handling Fee and the
Facility Fee.  If Borrower does not object to the accounting in
writing within thirty (30) days it shall be considered accurate.  All
Finance Charges and other interest and fees are calculated on the basis of a 360
day year and actual days elapsed.

       

      
        
           

        

        
          - 3
-

          
            

          

        

        
           

        

      

       

      2.2.6       Deductions.  Bank may deduct
fees, Finance Charges, Advances which become due pursuant to Section 2.3, and
other amounts due pursuant to this Agreement from any Advances made or
Collections received by Bank.

       

      2.2.7       Lockbox; Account Collection
Services.

       

      (a)           As
and when directed by Bank from time to time, at Bank’s option and at the sole
and exclusive discretion of Bank (regardless of whether an Event of Default has
occurred), 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 within thirty (30) days of the Effective Date.

       

      (b)           Until
such Lockbox is established, the proceeds of the Accounts shall be paid by the
Account Debtors to an address consented to by Bank.  Upon receipt by
Borrower of such proceeds, Borrower shall immediately transfer and deliver same
to Bank, along with a detailed cash receipts journal.  Provided no
Event of Default exists or an event that with notice or lapse of time will be an
Event of Default, within three (3) days of receipt of such amounts by Bank, Bank
will turn over to Borrower the proceeds of the Accounts other than Collections
with respect to Financed Receivables and the amount of Collections in excess of
the amounts for which Bank has made an Advance to Borrower, less any amounts due
to Bank, such as the Finance Charge, the Facility Fee, payments due to Bank,
other fees and expenses, or otherwise; provided, however, Bank may hold such
excess amount with respect to Financed Receivables as a reserve until the end of
the applicable Reconciliation Period if Bank, in its discretion, determines that
other Financed Receivable(s) may no longer qualify as an Eligible Account at any
time prior to the end of the subject Reconciliation Period.  This
Section does not impose any affirmative duty on Bank 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, Bank may apply the
proceeds of such Accounts to the Obligations.

       

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

       

      2.2.9       Good
Faith Deposit.  Borrower has paid
to Bank a deposit of Twenty Thousand Dollars ($20,000) (the “Good Faith Deposit”) to
initiate Bank’s due diligence review process.  Any portion of the Good
Faith Deposit not utilized to pay Bank Expenses will be applied to the Facility
Fee.

       

      
        
           

        

        
          - 4
-

          
            

          

        

        
           

        

      

       

      
        	
              	
                2.3 

              	
                Repayment of
      Obligations; Adjustments.

              

      

       

      2.3.1       Repayment.  Borrower will
repay each Advance on the earliest of:  i) the date on which payment
is received of the Financed Receivable with respect to which the Advance was
made, ii) the date on which the Financed Receivable is no longer an Eligible
Account, iii) the date on which any Adjustment is asserted to the Financed
Receivable (but only to the extent of the Adjustment if the Financed Receivable
remains otherwise an Eligible Account), iv) the date on which there is a breach
of any warranty or representation set forth in Section 5.3, or a breach of any
covenant in this Agreement or v) the Maturity Date (including any early
termination). Each payment will also include all accrued Finance Charges and
Collateral Handling Fees with respect to such Advance and all other amounts then
due and payable hereunder.

       

      2.3.2       Repayment
on Event of Default.  When there is an
Event of Default, Borrower will, if Bank demands (or, upon the occurrence of an
Event of Default under Section 8.5, immediately without notice or demand from
Bank) repay all of the Advances.  The demand may, at Bank’s option,
include the Advance for each Financed Receivable then outstanding and all
accrued Finance Charges, the Early Termination Fee, Collateral Handling Fee,
attorneys’ and professional fees, court costs and expenses, and any other
Obligations.

       

      2.3.3       Debit of
Accounts.  Bank may debit
any of Borrower’s deposit accounts for payments or any amounts Borrower owes
Bank hereunder.  Bank shall promptly notify Borrower when it debits
Borrower’s accounts.  These debits shall not constitute a
set-off.

       

      2.3.4       Adjustments.  If, at any time
during the term of this Agreement, any Account Debtor asserts an Adjustment,
Borrower issues a credit memorandum, or any of the representations and
warranties in Section 5.3 or covenants in this Agreement are no longer true in
all material respects, Borrower will promptly advise Bank.

       

      2.4          Power of
Attorney.  Borrower
irrevocably appoints Bank and its successors and assigns as attorney-in-fact and
authorizes Bank, to:  following the occurrence of an Event of
Default,  sell, assign, transfer, pledge, compromise, or discharge all
or any part of the Financed Receivables;  demand, collect, sue, and
give releases to any Account Debtor for monies due and compromise, prosecute, or
defend any action, claim, case or proceeding about the Financed Receivables,
including filing a claim or voting a claim in any bankruptcy case in Bank’s or
Borrower’s name, as Bank chooses; and  prepare, file and sign
Borrower’s name on any notice, claim, assignment, demand, draft, or notice of or
satisfaction of lien or mechanics’ lien or similar document;
and  regardless of whether there has been an Event of
Default,  notify all Account Debtors to pay Bank
directly;  receive, open, and dispose of mail addressed to
Borrower;  endorse Borrower’s name on checks or other instruments (to
the extent necessary to pay amounts owed pursuant to this Agreement);
and  execute on Borrower’s behalf any instruments, documents,
financing statements to perfect Bank’s interests in the Financed Receivables and
Collateral and do all acts and things necessary or expedient, as determined
solely and exclusively by Bank, to protect or  preserve, Bank’s rights
and remedies under this Agreement, as directed by Bank.

       

      
        
           

        

        
          - 5
-

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                3

              	
                CONDITIONS OF
      LOANS

              

      

       

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

       

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

       

      (b)           duly
executed original signatures to the Swedish Security Documents;

       

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

       

      (d)           an
IP Agreement;

       

      (e)           subordination
agreements/intercreditor agreements by certain Persons;

       

      (f)           
Perfection Certificate by Borrower;

       

      (g)           Warrant
to Purchase Stock;

       

      (h)           U.S.
Stock Pledge Agreement;

       

      (i)         
  undated and blank Stock Powers and original stock
certificates;

       

      (j)        
   a copy of Borrower’s Registration Rights Agreement, Investors’
Rights Agreement and any amendments thereto;

       

      (k)           Account
Control Agreement/ Investment Account Control Agreement;

       

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

       

      (m)           payment
of the fees and Bank Expenses then due and payable;

       

      (n)           Certificate
of Foreign Qualification (if applicable);

       

      
        
           

        

        
          - 6
-

          
            

          

        

        
           

        

      

       

      (o)           Certificate
of Good Standing/Legal Existence; and

       

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

       

      3.2           Conditions
Precedent to all Advances.  Bank’s agreement
to make each Advance, including the initial Advance, is subject to the
following:

       

      (a)           receipt
of the Invoice Transmittal;

       

      (b)           Bank
shall have (at its option) conducted the confirmations and verifications as
described in Section 2.1.1(d);

       

      (c)           each
of the representations and warranties in Section 5 shall be true on the
date of the Invoice Transmittal and on the effective date of each Advance and no
Event of Default shall have occurred and be continuing, or result from the
Advance.  Each Advance is Borrower’s representation and warranty on
that date that the representations and warranties in Section 5 remain true;
and

       

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

       

      
        	
                 
      

              	
                4

              	
                CREATION OF SECURITY
      INTEREST

              

      

       

      4.1          Grant of
Security Interest.  Borrower hereby
grants Bank, to secure the payment and performance in full of all of the
Obligations, a continuing security interest in, and pledges to Bank, the
Collateral, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof.  Borrower represents,
warrants, and covenants that the security interest granted herein shall be a
first priority security interest in the Collateral.  If Borrower shall
at any time, acquire a commercial tort claim, Borrower shall promptly notify
Bank in a writing signed by Borrower of the general details thereof and grant to
Bank in such writing a security interest therein and in the proceeds thereof,
all upon the terms of this Agreement, with such writing to be in form and
substance satisfactory to Bank.

       

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

       

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

       

      
        
           

        

        
          - 7
-

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                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 as a Registered
Organization in their respective jurisdictions of formation and are qualified
and licensed to do business and are in good standing in any jurisdiction in
which the conduct of their respective business or ownership of property requires
that they be qualified except where the failure to do so could not reasonably be
expected to have a material adverse effect on Borrower’s business.  In
connection with this Agreement, Borrower has delivered to Bank a completed
certificate signed by Borrower, entitled “Perfection
Certificate”.  Borrower represents and warrants to Bank that (2)
Borrower’s exact legal name is that indicated on the Perfection Certificate and
on the signature page hereof; (3) Borrower is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate; (4) the
Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (5) 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); (6) Borrower (and each
of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (7) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after the Effective Date to the extent permitted by one
or more specific provisions in this Agreement).

       

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

       

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

       

      
        
           

        

        
          - 8
-

          
            

          

        

        
           

        

      

      The
Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection
Certificate.  None of the components of the Collateral shall be
maintained at locations other than as provided in the Perfection Certificate or
as permitted pursuant to Section 7.1.2.  In the event that Borrower,
after the date hereof, intends to store or otherwise deliver any portion of the
Collateral to a bailee, then Borrower will first receive the written consent of
Bank and such bailee must execute and deliver a bailee agreement in form and
substance satisfactory to Bank in its sole discretion.

       

      Borrower
is the sole owner of its intellectual property, except for non-exclusive
licenses granted to its customers in the ordinary course of
business.  Each patent is valid and enforceable, and no part of the
intellectual property has been judged invalid or unenforceable, in whole or in
part, and to the best of Borrower’s knowledge, no claim has been made that any
part of the intellectual property violates the rights of any third party except
to the extent such claim could not reasonably be expected to have a material
adverse effect on Borrower’s business.  Except as noted on the
Perfection Certificate, Borrower is not a party to, nor is bound by, any
material license or other agreement with respect to which Borrower is the
licensee (8) that prohibits or otherwise restricts Borrower from granting a
security interest in Borrower’s interest in such license or agreement or any
other property, or (9) for which a default under or termination of could
interfere with the Bank’s right to sell any Collateral.  Without prior
consent from Bank, Borrower shall not enter into, or become bound by, any such
license or agreement which is reasonably likely to have a material adverse
impact on Borrower’s business or financial condition.  Borrower shall
take such steps as Bank requests to obtain the consent of, or waiver by, any
person whose consent or waiver is necessary for all such licenses or contract
rights to be deemed “Collateral” and for Bank to have a security interest in it
that might otherwise be restricted or prohibited by law or by the terms of any
such license or agreement, whether now existing or entered into in the
future.

       

      5.3           Financed
Receivables.  Borrower
represents and warrants for each Financed Receivable:

       

      (a)           Such
Financed Receivable is an Eligible Account;

       

      (b)           Borrower
is the owner of and has the legal right to sell, transfer, assign and encumber
such Financed Receivable;

       

      (c)           The
correct amount is on the Invoice Transmittal and is not disputed;

       

      
        
           

        

        
          - 9
-

          
            

          

        

        
           

        

      

       

      (d)           Payment
is not contingent on any obligation or contract and Borrower has fulfilled all
its obligations as of the Invoice Transmittal date;

       

      (e)           Such
Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted
Liens;

       

      (f)       
    There are no defenses, offsets, counterclaims or
agreements for which the Account Debtor may claim any deduction or
discount;

       

      (g)           Borrower
reasonably believes no Account Debtor is insolvent or subject to any Insolvency
Proceedings;

       

      (h)           Borrower
has not filed or had filed against it Insolvency Proceedings and does not
anticipate any filing;

       

      (i)            Bank
has the right to endorse and/ or require Borrower to endorse all payments
received on Financed Receivables and all proceeds of Collateral;
and

       

      (j)       
    No representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statement contained in the certificates or statement not
misleading.

       

      5.4           Litigation.  There are no
actions or proceedings pending or, to the knowledge of Borrower’s Responsible
Officers, threatened in writing by or against Borrower or any Subsidiary in
which an adverse decision could reasonably be expected to cause a Material
Adverse Change.

       

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

       

      5.6           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).  Neither Borrower nor any of its Subsidiaries is a
“holding company” or an “affiliate” of a “holding company” or a “subsidiary
company” of a “holding company” as each term is defined and used in the Public
Utility Holding Company Act of 2005.  Borrower has complied in all
material respects with the Federal Fair Labor Standards Act.  Borrower
has not violated any laws, ordinances or rules, the violation of which could
reasonably be expected to cause a Material Adverse Change.  None of
Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally.  Borrower and each of its Subsidiaries have
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all Governmental Authorities that are
necessary to continue their respective businesses as currently
conducted.

       

      
        
           

        

        
          - 10
-

          
            

          

        

        
           

        

      

       

      5.8           Subsidiaries.  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 and each
Subsidiary have timely filed all required tax returns and reports, and Borrower
and each Subsidiary have timely paid all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower and each
Subsidiary.  Borrower may defer payment of any contested taxes,
provided that Borrower (10) in good faith contests its obligation to pay the
taxes by appropriate proceedings promptly and diligently instituted and
conducted, (11) notifies Bank in writing of the commencement of, and any
material development in, the proceedings, (12) posts bonds or takes any other
steps required to prevent the governmental authority levying such contested
taxes from obtaining a Lien upon any of the Collateral that is other than a
“Permitted Lien”.  Borrower is unaware of any claims or adjustments
proposed for any of Borrower’s prior tax years which could result in additional
taxes becoming due and payable by Borrower.  Borrower has paid all
amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms, and Borrower has not
withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.

       

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

       

      
        
           

        

        
          - 11
-

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                6

              	
                AFFIRMATIVE
      COVENANTS

              

      

       

      Borrower
shall do all of the following:

       

      
        	
              	
                6.1 

              	
                Government
      Compliance.

              

      

       

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

       

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

       

      
        	
              	
                6.2 

              	
                Financial Statements,
      Reports, Certificates.

              

      

       

      (a)           Deliver
to Bank:  (13) as soon as available, but no later than thirty (30)
days after the last day of each month, a company prepared consolidated balance
sheet and income statement covering Borrower and each of its Subsidiary’s
operations during the period certified by a Responsible Officer and in a form
reasonably acceptable to Bank; (14) within five (5) days of filing, copies of
all statements, reports and notices made available to Borrower’s security
holders or to any holders of Subordinated Debt and all reports on Form 10-K,
10-Q and 8-K filed with the Securities and Exchange Commission; (15) a prompt
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of One Hundred Thousand Dollars ($100,000) or more; (16) prompt notice of any
material change in the composition of the Intellectual Property Collateral, or
the registration of any copyright, including any subsequent ownership right of
Borrower in or to any copyright, patent or trademark not shown in the IP
Agreement or knowledge of an event that materially adversely affects the value
of the Intellectual Property Collateral; (17) as soon as available, but no later
than thirty (30) days after Board approval, annual financial projections for the
following fiscal year commensurate in form and substance with those provided to
Borrower’s venture capital investors; and (18) budgets, sales projections,
operating plans or other financial information reasonably requested by
Bank.

       

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

       

      (c)           Allow
Bank to audit Borrower’s Collateral, including, but not limited to, Borrower’s
Accounts at Borrower’s expense, upon reasonable notice to Borrower; provided,
however, prior to the occurrence of an Event of Default, Borrower shall be
obligated to pay for not more than one (1) audit per year.  The
foregoing inspections and audits shall be at Borrower’s expense, and the charge
therefor shall be Eight Hundred Fifty Dollars ($850) per person per day (or such
higher amount as shall represent Bank’s then-current standard charge for the
same), plus reasonable out-of-pocket expenses.  Borrower hereby
acknowledges that the first such audit will be conducted within sixty (60) days
after the execution of this Agreement.  After the occurrence of an
Event of Default, Bank may audit Borrower’s Collateral, including, but not
limited to, Borrower’s Accounts at Borrower’s expense and at Bank’s sole and
exclusive discretion and without notification and authorization from
Borrower.

       

      
        
           

        

        
          - 12
-

          
            

          

        

        
           

        

      

       

      (d)      
    Upon Bank’s request, provide a written report respecting
any Financed Receivable, if payment of any Financed Receivable does not occur by
its due date and include the reasons for the delay.

       

      (e)        
   Provide Bank with, as soon as available, but no later than
thirty (30) days following each Reconciliation Period, an aged listing of
accounts receivable and accounts payable by invoice date, in form reasonably
acceptable to Bank.

       

      (f)       
     Provide Bank with, as soon as available, but no
later than November 30, 2010, Borrower’s 2011 fiscal year operating plan which
has been approved by Borrower’s Board of Directors;

       

      (g)     
      Provide Bank with, as soon as available, but
no later than thirty (30) days following each Reconciliation Period, a Deferred
Revenue report, in form reasonably acceptable to Bank.

       

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

       

      6.4           Insurance.  Keep its business
and the Collateral insured for risks and in amounts standard for companies in
Borrower’s industry and location, and as Bank may reasonably
request.  Insurance policies shall be in a form, with companies, and
in amounts that are satisfactory to Bank.  All property policies shall
have a lender’s loss payable endorsement showing Bank as the sole lender loss
payee and waive subrogation against Bank, and all liability policies shall show,
or have endorsements showing, Bank as an additional insured .All policies (or
the loss payable and additional insured endorsements) shall provide that the
insurer must give Bank at least thirty (30) days notice before canceling,
amending, or declining to renew its policy.  At Bank’s request,
Borrower shall deliver certified copies of policies and evidence of all premium
payments. Proceeds payable under any policy shall, at Bank’s option, be payable
to Bank on account of the Obligations.  If Borrower fails to obtain
insurance as required under this Section 6.4 or to pay any amount or furnish any
required proof of payment to third persons and Bank, Bank may make all or part
of such payment or obtain such insurance policies required in this Section 6.4,
and take any action under the policies Bank deems prudent.

       

      
        
           

        

        
          - 13
-

          
            

          

        

        
           

        

      

       

      
        	
              	
                6.5 

              	
                Accounts.

              

      

       

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

       

      (b)           Borrower
shall identify to Bank, in writing, any deposit or securities account opened by
Borrower with any institution other than Bank.  In addition, for each
such account that Borrower or Guarantor at any time opens or maintains, Borrower
shall, at Bank’s request and option, pursuant to an agreement in form and
substance acceptable to Bank, cause the depository bank or securities
intermediary to agree that such account is the collateral of Bank pursuant to
the terms hereunder.  The provisions of the previous sentence shall
not apply to deposit accounts exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of Borrower’s
employees.

       

      6.6           Inventory;
Returns.  Keep all
Inventory in good and marketable condition, free from material
defects.  Returns and allowances between Borrower and its Account
Debtors shall follow Borrower’s customary practices as they exist at the
Effective Date.  Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims that involve more than One Hundred Thousand
Dollars ($100,000).

       

      6.7           Financial
Covenants.  Borrower shall
maintain at all times, to be tested as of the last day of each quarter, unless
otherwise noted.

       

      (a)           Performance to
Plan.  Commencing with the calendar quarter ending December 31,
2009 and as of the last day of each calendar quarter thereafter, Borrower’s
gross revenue for such quarter shall not vary by more than fifteen percent (15%)
from Borrower’s projected performance for such quarter as outlined in Borrower’s
business plan delivered to Bank on September 30, 2009 and shall not be less than
the following amounts for the corresponding quarter as outlined
below:

       

      
        	
                Calendar
      Quarter Ending

              	
                Gross
      Revenues

              
	
                December
      31, 2009

              	
                $8,250,000

              
	
                March
      31, 2010

              	
                $3,400,000

              
	
                June
      30, 2010

              	
                $4,335,000

              
	
                September
      30, 2010

              	
                $6,885,000

              
	
                December
      31, 2010

              	
                $9,180,000

              
	
                March
      31, 2011,

                June
      30, 2011,

                September
      30, 2011 and

                December
      31, 2011

              	
                Required
      amount to be determined by Bank based on Borrower’s Board approved 2011
      fiscal year operating plan, but in no event shall such amount be less than
      $5,000,000 in any given quarter

              

      

      
        
           

        

        
          - 14
-

          
            

          

        

        
           

        

      

       

      6.8           Protection
and Registration of Intellectual Property Rights.  Borrower
shall:  (19) protect, defend and maintain the validity and
enforceability of its intellectual property; (20) promptly advise Bank in
writing of material infringements of its intellectual property of which Borrower
has actual knowledge; and (21) not allow any intellectual property material to
Borrower’s business to be abandoned, forfeited or dedicated to the public
without Bank’s written consent.  If Borrower (a) obtains any patent,
registered trademark or servicemark, registered copyright, registered mask work,
or any pending application for any of the foregoing, whether as owner, licensee
or otherwise, or (b) applies for any patent or the registration of any trademark
or servicemark, then Borrower shall immediately provide written notice thereof
to Bank and shall execute such intellectual property security agreements and
other documents and take such other actions as Bank shall request in its good
faith business judgment to perfect and maintain a first priority perfected
security interest in favor of Bank in such property.  If Borrower
decides to register any copyrights or mask works in the United States Copyright
Office, Borrower shall: (x) provide Bank with at least fifteen (15) days prior
written notice of Borrower’s intent to register such copyrights or mask works
together with a copy of the application it intends to file with the United
States Copyright Office (excluding exhibits thereto); (y) execute an
intellectual property security agreement and such other documents and take such
other actions as Bank may request in its good faith business judgment to perfect
and maintain a first priority perfected security interest in favor of Bank in
the copyrights or mask works intended to be registered with the United States
Copyright Office; and (z) record such intellectual property security agreement
with the United States Copyright Office contemporaneously with filing the
copyright or mask work application(s) with the United States Copyright
Office.  Borrower shall promptly provide to Bank copies of all
applications that it files for patents or for the registration of trademarks,
servicemarks, copyrights or mask works, together with evidence of the recording
of the intellectual property security agreement necessary for Bank to perfect
and maintain a first priority perfected security interest in such
property.

       

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

       

      6.10      
  Further
Assurances.  Borrower shall execute any further instruments and
take further action as Bank reasonably requests to perfect or continue Bank’s
security interest in the Collateral or to effect the purposes of this
Agreement.

       

      
        
           

        

        
          - 15
-

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                7

              	
                NEGATIVE
      COVENANTS

              

      

       

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

       

      7.1           Dispositions.  Convey, sell,
lease, transfer, assign, or otherwise dispose of (collectively a “Transfer”), or
permit any of its Subsidiaries to Transfer, all or any part of its business or
property, except for Transfers (22) of Inventory in the ordinary course of
business; (23) of worn-out or obsolete Equipment; and (24) in connection with
Permitted Liens and Permitted Investments.

       

      7.1.2        Changes
in Business, Ownership, Management or Business Locations.  Engage in or
permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto, or
have a material change in its ownership (other than by the sale of Borrower’s
equity securities in a public offering or to venture capital investors so long
as Borrower identifies to Bank the venture capital investors prior to the
closing of the investment), or management.  Borrower shall not,
without at least thirty (30) days prior written notice to Bank:  (25)
relocate its chief executive office, or add any new offices or business
locations, including warehouses (unless such new offices or business locations
contain less than Five Thousand Dollars ($5,000.00) in Borrower’s assets or
property), or (26) change its jurisdiction of organization, or (27) change its
organizational structure or type, or (28) change its legal name, or (29) change
any organizational number (if any) assigned by its jurisdiction of
organization.

       

      7.2           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.

       

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

       

      7.4           Encumbrance.  Create, incur, or
allow any Lien on any of its property, or assign or convey any right to receive
income, including the sale of any Accounts, or permit any of its Subsidiaries to
do so, except for Permitted Liens, or permit any Collateral not to be subject to
the first priority security interest granted herein.

       

      7.5           Distributions;
Investments.  (30) Directly or
indirectly acquire or own any Person, or make any Investment in any Person,
other than Permitted Investments, or permit any of its Subsidiaries to do so; or
(31) pay any dividends or make any distribution or payment or redeem, retire or
purchase any capital stock.

       

      7.6           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.

       

      
        
           

        

        
          - 16
-

          
            

          

        

        
           

        

      

       

      7.7           Subordinated
Debt.  (32) 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 (33) amend any provision in any document
relating to the Subordinated Debt which would increase the amount thereof or
adversely affect the subordination thereof to Obligations owed to
Bank.

       

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

       

      
        	
                 
      

              	
                8

              	
                EVENTS OF
      DEFAULT

              

      

       

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

       

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

       

      8.2           Covenant
Default.  Borrower fails or
neglects to perform any obligation in Section 6 or violates any covenant in
Section 7 or fails or neglects to perform, keep, or observe any other material
term, provision, condition, covenant or agreement contained in this Agreement,
any Loan Documents and as to any default 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,
grace and cure periods provided under this section shall not apply to financial
covenants or any other covenants that are required to be satisfied, completed or
tested by a date certain;

       

      8.3           Material
Adverse Change.  A Material
Adverse Change occurs;

       

      8.4           Attachment;
Levy; Restraint on Business.  (34) (a) 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 (b) 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 Advances shall be made during any
ten (10) day cure period; or (35) (a) any material portion of Borrower’s assets
is attached, seized, levied on, or comes into possession of a trustee or
receiver, or (b) any court order enjoins, restrains, or prevents Borrower from
conducting any part of its business;

       

      
        
           

        

        
          - 17
-

          
            

          

        

        
           

        

      

       

      8.5           Insolvency.  (36) Borrower is
unable to pay its debts (including trade debts) as they become due or otherwise
becomes insolvent; (37) Borrower begins an Insolvency Proceeding; or (38) an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed
within thirty (30) days (but no Advances shall be made while of any of the
conditions described in clause (a) exist and/or until any Insolvency Proceeding
is dismissed);

       

      8.6           Other
Agreements.  If there is a
default in any agreement to which Borrower is a party with a third party or
parties resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount in excess
of One Hundred Thousand Dollars ($100,000) or that could result in a Material
Adverse Change;

       

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

       

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

       

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

       

      8.10         Guaranty.  (39) Any guaranty
of any Obligations terminates or ceases for any reason to be in full force and
effect, including, without limitation, the Swedish Guaranty Agreement; (40) any
Guarantor does not perform any obligation or covenant under any guaranty of the
Obligations, including, without limitation, the Swedish Guaranty Agreement; (41)
any circumstance described in Sections 8.3, 8.4, 8.5, 8.7 or 8.8. occurs with
respect to any Guarantor, or (42) the liquidation,
winding up, or termination of existence of any Guarantor; or (43) (a) a material
impairment in the perfection or priority of Bank’s Lien in the collateral
provided by Guarantor or in the value of such collateral or (b) a material
adverse change in the general affairs, management, results of operation,
condition (financial or otherwise) or the prospect of repayment of the
Obligations occurs with respect to any Guarantor.

       

      
        
           

        

        
          - 18
-

          
            

          

        

        
           

        

      

       

      8.11        Cross-Default
with Swedish Security Documents.  An Event of Default shall
occur under the Swedish Security Documents and such default is not cured within
any applicable grace period provided therein.

       

      
        	
                 
      

              	
                9

              	
                BANK’S RIGHTS AND
      REMEDIES

              

      

       

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

       

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

       

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

       

      (c)           Settle
or adjust disputes and claims directly with Account Debtors for amounts, on
terms and in any order that Bank considers advisable and notify any Person owing
Borrower money of Bank’s security interest in such funds and verify the amount
of such account.  Borrower shall collect all payments in trust for
Bank and, if requested by Bank, immediately deliver the payments to Bank in the
form received from the Account Debtor, with proper endorsements for
deposit;

       

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

       

      (e)           Apply
to the Obligations any (44) balances and deposits of Borrower it holds, or (45)
any amount held by Bank owing to or for the credit or the account of
Borrower;

       

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

       

      
        
           

        

        
          - 19
-

          
            

          

        

        
           

        

      

       

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

       

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

       

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

       

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

       

      9.3           Bank’s
Liability for Collateral.  So long as Bank
complies with reasonable banking practices regarding the safekeeping of
Collateral in possession or under the control of Bank, Bank shall not be liable
or responsible for:  (46) the safekeeping of the Collateral; (47) any
loss or damage to the Collateral; (48) any diminution in the value of the
Collateral; or (49) any act or default of any carrier, warehouseman, bailee, or
other Person.  Borrower bears all risk of loss, damage or destruction
of the Collateral.

       

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

       

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

       

      
        
           

        

        
          - 20
-

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                10

              	
                NOTICES.

              

      

       

      All
notices, consents, requests, approvals, demands, or other communication by any
party to this Agreement or any other Loan Document must be in writing and shall
be deemed to have been validly served, given, or delivered:  (50) 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; (51) upon transmission, when sent by facsimile
transmission with confirmation of receipt; (52) one (1) Business Day after
deposit with a reputable overnight courier with all charges prepaid; or (53)
when delivered, if hand-delivered by messenger, all of which shall be addressed
to the party to be notified and sent to the address or facsimile number provided
at the beginning of this Agreement.  Bank or Borrower may change its
address or facsimile number by giving the other party written notice thereof in
accordance with the terms of this Section 10.

       

      
        	
                 
      

              	
                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 Bank 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
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank.  Borrower
expressly submits and consents in advance to such jurisdiction in any action or
suit commenced in any such court, and Borrower hereby waives any objection that
it may have based upon lack of personal jurisdiction, improper venue, or forum
non conveniens and hereby consents to the granting of such legal or equitable
relief as is deemed appropriate by such court.  Borrower hereby waives
personal service of the summons, complaints, and other process issued in such
action or suit and agrees that service of such summons, complaints, and other
process may be made by registered or certified mail addressed to Borrower at the
address set forth in Section 10 of this Agreement and that service so made shall
be deemed completed upon the earlier to occur of Borrower’s actual receipt
thereof or three (3) days after deposit in the U.S. mails, proper postage
prepaid.

       

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

       

      
        
           

        

        
          - 21
-

          
            

          

        

        
           

        

      

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

       

      12.2        Indemnification.  Borrower agrees
to indemnify, defend, and hold Bank and its officers, directors, employees,
agents, attorneys or any other Person affiliated with or representing Bank
(each, an “Indemnified Person”) harmless against:  (54) all
obligations, demands, claims, and liabilities (collectively, “Claims”) asserted
by any other party in connection with the transactions contemplated by the Loan
Documents; and (55) all losses or Bank Expenses incurred, or paid by such
Indemnified Person from, following, or arising from transactions between Bank
and Borrower (including reasonable attorneys’ fees and expenses), except for
Claims and/or losses directly caused by such Indemnified Person’s gross
negligence or willful misconduct.

       

      
        
           

        

        
          - 22
-

          
            

          

        

        
           

        

      

       

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

       

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

       

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

       

      12.8        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
Bank shall survive until the statute of limitations with respect to such claim
or cause of action shall have run.

       

      
        
           

        

        
          - 23
-

          
            

          

        

        
           

        

      

       

      12.10      Confidentiality.  In handling any
confidential information, Bank shall exercise the same degree of care that it
exercises for its own proprietary information, but disclosure of information may
be made: (56) to Bank’s Subsidiaries or Affiliates; (57) to prospective
transferees or purchasers of any interest in the Advances (provided, however,
Bank shall use commercially reasonable efforts to obtain such prospective
transferee’s or purchaser’s agreement to the terms of this provision); (58) as
required by law, regulation, subpoena, or other order; (59) to Bank’s regulators
or as otherwise required in connection with Bank’s examination or audit; (60) as
Bank considers appropriate in exercising remedies under the Loan Documents; and
(61) to third-party service providers of Bank so long as such service providers
have executed a confidentiality agreement with Bank with terms no less
restrictive than those contained herein.  Confidential information
does not include information that either: (a) is in the public domain or in
Bank’s possession when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank
does not know that the third party is prohibited from disclosing the
information.

       

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

       

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

       

      
        	
                 
      

              	
                13

              	
                DEFINITIONS

              

      

       

      13.1        Definitions.  In this
Agreement:

       

      “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 as defined
in the Code and shall include, without limitation, any person liable on any
Financed Receivable, such as, a guarantor of the Financed Receivable and any
issuer of a letter of credit or banker’s acceptance.

       

      “Adjustments” are all
discounts, allowances, returns, disputes, counterclaims, offsets, defenses,
rights of recoupment, rights of return, warranty claims, or short payments,
asserted by or on behalf of any Account Debtor for any Financed
Receivable.

       

      “Advance” is defined in Section
2.1.1.

       

      
        
           

        

        
          - 24
-

          
            

          

        

        
           

        

      

      “Advance Rate” eighty percent
(80%), net of any offsets and Deferred Revenue related to each specific Account
Debtor or such other percentage as Bank establishes under Section
2.1.1.

       

      “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.

       

      “Applicable Rate” is a per
annum rate equal to the greater of the (i) Prime Rate plus one percent (1.00%)
or (ii) five percent (5.00%).

       

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

       

      “Borrower’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.

       

      “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, Bank’s
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 Handling Fee” is
defined in Section 2.2.4.

       

      “Collections” are all funds
received by Bank from or on behalf of an Account Debtor for Financed
Receivables.

       

      “Compliance Certificate” is
attached as Exhibit
B.

       

      
        
           

        

        
          - 25
-

          
            

          

        

        
           

        

      

      “Contingent Obligation” is, for
any Person, any direct or indirect liability, contingent or not, of that Person
for (62) 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; (63) any obligations for undrawn
letters of credit for the account of that Person; and (64) 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.

       

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

       

      “Early Termination Fee” is
defined in Section 2.1.1(f).

       

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

       

      “Eligible Accounts” are billed
Accounts in the ordinary course of Borrower’s business that meet all Borrower’s
representations and warranties in Section 5.3, have been, at the option of Bank,
confirmed in accordance with Section 2.1.1(d), and are due and owing from
Account Debtors deemed creditworthy by Bank in its sole
discretion.  Without limiting the fact that the determination of which
Accounts are eligible hereunder is a matter of Bank discretion in each instance,
Eligible Accounts shall not include the following Accounts (which listing may be
amended or changed in Bank’s discretion with notice to Borrower):

       

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

       

      (b)           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 Bank, less any deductible, (ii) supported by letter(s)
of credit acceptable to Bank, (iii) supported by a guaranty from the
Export-Import Bank of the United States, or (iv) that Bank otherwise approves of
in writing;

       

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

       

      (d)           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;

       

      
        
           

        

        
          - 26
-

          
            

          

        

        
           

        

      

       

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

       

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

       

      (g)           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;

       

      (h)           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);

       

      (i)       
    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);

       

      (j)        
   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);

       

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

       

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

       

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

       

      
        
           

        

        
          - 27
-

          
            

          

        

        
           

        

      

       

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

       

      (o)           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);

       

      (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
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

       

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

       

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

       

      “Events of Default” are set
forth in Article 8.

       

      “Facility Amount” is Two
Million Five Hundred Thousand Dollars ($2,500,000).

       

      “Facility Fee” is defined in
Section 2.2.2.

       

      “Finance Charges” is defined in
Section 2.2.3.

       

      “Financed Receivables” are all
those Eligible Accounts, including their proceeds which Bank finances and makes
an Advance, as set forth in Section 2.1.1.  A Financed Receivable
stops being a Financed Receivable (but remains Collateral) when the Advance made
for the Financed Receivable has been fully paid.

       

      “Financed Receivable Balance”
is the total outstanding gross face amount, at any time, of any Financed
Receivable.

       

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

       

      “Good Faith Deposit” is defined
in Section 2.2.9.

       

      “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.

       

      
        
           

        

        
          - 28
-

          
            

          

        

        
           

        

      

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

       

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

       

      “Indebtedness” is (1)
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, (2) obligations evidenced by notes, bonds, debentures or similar
instruments, (3) capital lease obligations and (4) Contingent
Obligations.

       

      “Indemnified Person” is defined
in Section 12.2.

       

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

       

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

       

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

       

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

       

      “Invoice Transmittal” shows
Eligible Accounts which Bank may finance and, for each such Account, includes
the Account Debtor’s, name, address, invoice amount, invoice date and invoice
number.

       

      “IP Agreement” is that certain
Intellectual Property Security Agreement executed and delivered by Borrower to
Bank.

       

      “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 Warrant, the Perfection Certificate, the IP
Agreement, the U.S. Stock Pledge Agreement, the Swedish Security Documents, any
note, or notes or guaranties executed by Borrower or any Guarantor, and any
other present or future agreement between Borrower any Guarantor and/or for the
benefit of Bank in connection with this Agreement, all as amended, restated, or
otherwise modified.

       

      
        
           

        

        
          - 29
-

          
            

          

        

        
           

        

      

      “Lockbox” is defined in Section
2.2.7.

       

      “Material Adverse Change” is:
(1) a material impairment in the perfection or priority of Bank’s security
interest in the Collateral or in the value of such Collateral; (2) a material
adverse change in the business, operations, or condition (financial or
otherwise) of Borrower; or (3) a material impairment of the prospect of
repayment of any portion of the Obligations.

       

      “Maturity Date” is December 10,
2011.

       

      “Minimum Finance Charge” is
Three Thousand Dollars ($3,000).

       

      “Net Cash” is all deposits,
unrestricted cash, cash equivalents and plus short-term investments held at Bank
or its Affiliates, less all outstanding Obligations under this
Agreement.

       

      “Netintact” means Netintact AB,
a company organized under the laws of the Kingdom of Sweden and wholly owned
Subsidiary of Borrower.

       

      “Obligations” are Borrower’s
obligation to pay when due any debts, principal, interest, Bank Expenses, and
other amounts Borrower owes Bank now or later, whether under this Agreement, the
Loan Documents, or otherwise, including, without limitation, any interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank, and the performance of Borrower’s
duties under the Loan Documents.

       

      “Perfection Certificate” is a
certain Perfection Certificate completed and delivered by Borrower to Bank in
connection with this Agreement.

       

      “Permitted Indebtedness”
is:

       

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

       

      (b)     
     Subordinated Debt;

       

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

       

      (d)           Indebtedness
secured by Permitted Liens.

       

      “Permitted Investments” are:
(i) marketable direct obligations issued or unconditionally guaranteed by the
United States or its agency or any state maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor’s
Corporation or Moody’s Investors Service, Inc., (iii) Bank’s certificates of
deposit issued maturing no more than 1 year after issue, and (iv) any other
investments administered through Bank.

       

      
        
           

        

        
          - 30
-

          
            

          

        

        
           

        

      

      “Permitted Liens”
are:

       

      (a)           Liens
arising under this Agreement or 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 Bank’s
security interests;

       

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

       

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

       

      (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.

       

      “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.

       

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

       

      “Reconciliation Period” is each
calendar month.

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          - 31
-

          
            

          

        

        
           

        

      

      “Subsidiary” is, with respect
to any Person, any Person of which more than 50.0% of the voting stock or other
equity interests (in the case of Persons other than corporations) is owned or
controlled directly or indirectly by such Person or one or more of Affiliates of
such Person.

       

      “Swedish Guaranty Agreement” is
that certain Unconditional Guaranty, dated the Effective Date, from Netintact
for the benefit of Bank.

       

      “Swedish IP Security Agreement”
is that certain Intellectual Property Security Agreement, dated the Effective
Date, between Netintact to Bank.

       

      “Swedish Security Documents”
are, collectively, the Swedish Guaranty Agreement, Swedish Stock Pledge
Agreement, Swedish IP Security Agreement, any other agreements executed by any
Guarantor, and any other present or future agreement by Guarantor and/or for the
benefit of Bank in connection with this Agreement, all as amended, restated, or
otherwise modified.

       

      “Swedish Stock Pledge
Agreement” is that certain Stock Pledge Agreement, dated the Effective
Date, from Borrower for the benefit of Bank.

       

      “U.S. Stock Pledge Agreement”
is that certain Stock Pledge Agreement, dated the Effective
Date,  from Borrower for the benefit of Bank.

       

      [Signatures
Appear on the Following Page]

      
        
           

        

        
          - 32
-

          
            

          

        

        
           

        

      

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

       

      BORROWER:

       

      PROCERA
NETWORKS, INC.

       

       

      
        	
                By:
      

              	
                    Charles Constanti

              	 
      
	 
      	
                Name:
      Charles Constanti

              	 
      
	 
      	
                Title:   VP
      & CFO

              	 
      

      

      

       

      BANK:

       

      SILICON
VALLEY BANK

       

       

      
        	
                By:
      

              	
                    /s/ Megan Willard

              	 
      
	 
      	
                Name:
      Megan Willard

              	 
      
	 
      	
                Title:   VP

              	 
      

      

      

      Effective
Date: December 10, 2009

       

       

      [Signature
Page to Loan and Security Agreement]

      
        
           

        

        
          - 33
-

          
            

          

        

        
           

        

      

       

      EXHIBIT
A

       

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

       

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

       

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

       

      
        
           

        

        
          - 34
-

          
            

          

        

        
           

        

      

       

      EXHIBIT
B

       

      

       

      

      SPECIALTY
FINANCE DIVISION

      Compliance
Certificate

       

      I, an
authorized officer of Procera Networks, Inc. (“Borrower”) certify under the
Loan and Security Agreement (the “Agreement”) between Borrower
and Silicon Valley Bank (“Bank”) as follows (all capitalized terms used herein
shall have the meaning set forth in the Agreement):

       

      Borrower
represents and warrants for each Financed Receivable:

       

      Each
Financed Receivable is an Eligible Account.

       

      Borrower
is the owner with legal right to sell, transfer, assign and encumber such
Financed Receivable;

       

      The
correct amount is on the Invoice Transmittal and is not disputed;

       

      Payment
is not contingent on any obligation or contract and Borrower has fulfilled all
its obligations as of the Invoice Transmittal date;

       

      Each
Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower,  is not past due or in default,
has not been previously sold, assigned, transferred, or pledged and is free of
any liens, security interests and encumbrances other than Permitted
Liens;

       

      There are
no defenses, offsets, counterclaims or agreements for which the Account Debtor
may claim any deduction or discount;

       

      It
reasonably believes no Account Debtor is insolvent or subject to any Insolvency
Proceedings;

       

      It has
not filed or had filed against it Insolvency Proceedings and does not anticipate
any filing;

       

      Bank has
the right to endorse and/ or require Borrower to endorse all payments received
on Financed Receivables and all proceeds of Collateral.

       

      No
representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained in
the certificates or statement not misleading.

       

      Additionally,
Borrower represents and warrants as follows:

       

      
        
           

        

        
          - 35
-

          
            

          

        

        
           

        

      

      Borrower
and each Subsidiary is duly existing and in good standing in its state of
formation and qualified and licensed to do business in, and in good standing in,
any state in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change.  The
execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s organizational documents, nor
constitute an event of default under any material agreement by which Borrower is
bound.  Borrower is not in default under any agreement to which or by
which it is bound in which the default could reasonably be expected to cause a
Material Adverse Change.

       

      Borrower
has good title to the Collateral, free of Liens except Permitted
Liens.  All inventory is in all material respects of good and
marketable quality, free from material defects.

       

      Borrower
is not an “investment company” or a company “controlled” by an “investment
company” under the Investment Company Act of 1940, as
amended.  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 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.  Borrower
has not violated any laws, ordinances or rules, the violation of which could
reasonably be expected to cause a Material Adverse Change.  None of
Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally.  Borrower and each Subsidiary has timely filed all
required tax returns and paid, or made adequate provision to pay, all material
taxes, except those being contested in good faith with adequate reserves under
GAAP.  Borrower and each Subsidiary has 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
its business as currently conducted except where the failure to obtain or make
such consents, declarations, notices or filings would not reasonably be expected
to cause a Material Adverse Change.

       

      Borrower
is in compliance with the Financial Covenant(s) set forth in Section 6.7 of the
Agreement.

       

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

              
	 
      	 
      	 
      
	
                Reporting Covenant

              	
                Required

              	
                Complies

              
	 
      	 
      	 
      
	
                Monthly
      financial statements with Compliance Certificate

              	
                Monthly
      within 30 days

              	
                Yes  No

              
	
                10
      Q, 10 K and 8-K

              	
                Within
      5 days after filing with SEC

              	
                Yes  No

              
	
                Borrowing
      Base Certificate A/R & A/P Agings

              	
                Monthly
      within 30 days

              	
                Yes  No

              
	
                Operating
      Plan

              	
                For
      the 2011 fiscal year due not later November 30, 2010

              	
                Yes  No

              
	
                Deferred
      Revenue

              	
                Monthly
      within 30 days

              	
                Yes  No

              
	 
      	 
      	 
      
	
                INSERT
      ANY PERFORMANCE PRICING TESTS HERE

              
	
                Net
      Cash > $2,000,000

              	
                No
      Collateral Handling Fee

              	
                Yes  No

              
	
                Net
      Cash < $2,000,000

              	
                Collateral
      Handling Fee of 0.55%

              	
                Yes  No

              
	
                The
      following Intellectual Property was registered after the Closing Date (if
      no registrations, state “None”):

                 

              

      

      
        
           

        

        
          - 36
-

          
            

          

        

        
           

        

      

      

      
        	
                Financial Covenant

              	
                Required

              	
                Actual

              	
                Complies

              
	 
      	 
      	 
      	 
      
	
                Maintain
      on a Quarterly Basis:

              	 
      	 
      	 
      
	
                Performance
      to Plan of not less than 15% from Borrower’s projected performance
      and

              	
                Vary
      less than 15% from Borrower’s projected performance

              	
                ____%
      of variance

              	
                Yes  No

              
	
                Gross
      revenues of not less than:

              	
                $8,250,000
      for quarter ending December 31, 2009

              	
                $______

              	
                Yes  No

              
	 
      	
                $3,400,000
      for the quarter ending March 31, 2010

              	
                $______

              	
                Yes  No

              
	 
      	
                $4,335,000
      for the quarter ending June 30, 2010

              	
                $______

              	
                Yes  No

              
	 
      	
                $6,885,000
      for the quarter ending September 30, 2010

              	
                $______

              	
                Yes  No

              
	 
      	
                $9,180,000
      for the quarter ending December 31, 2010

              	
                $______

              	
                Yes  No

              
	 
      	
                Required
      amount for each of March 31, 2011, June 30, 2011, September 30, 2011, and
      December 31, 2011 to be determined by Bank based on Borrower’s Board
      approved 2011 fiscal year operating plan, but in no event shall such
      amount be less than $5,000,000 in any given quarter

              	 
      	
                Yes  No

              

      

       

      All
representations and warranties in the Agreement are true and correct in all
material respects on this date, and Borrower represents that there is no
existing Event of Default.

       

      Sincerely,

       

      PROCERA
NETWORKS, INC.

      

      
        	 
      	 
      
	
                Signature

              	 
      
	 
      	 
      
	
                Title

              	 
      
	 
      	 
      
	
                Date

              	 
      

      

       

       

      - 37 -ex10_1.htm

    
      
Exhibit 10.1

     

    
      CH
ENERGY GROUP, INC.

      LONG-TERM
EQUITY INCENTIVE PLAN

      

      PERFORMANCE
SHARES AGREEMENT

      

      Summary of Performance
Shares Grant

      

      CH Energy
Group, Inc., a New York corporation (the "Company"), grants to the Grantee named
below, in accordance with the terms of the CH Energy Group, Inc. Long-Term
Equity Incentive Plan (the "LTI Plan") and this Performance Shares Agreement
(the "Agreement"), the following number of Performance Shares, on the Date of
Grant set forth below:

      

      
        	
                 
      

              	
                Name
      of Grantee:

              	
                _______________________________

              

      

      

      
        	
                 
      

              	
                Number
      of Performance Shares:

              	
                _______________________________

              

      

      

      
        	
                 
      

              	
                Date
      of Grant:

              	
                ____________,
      2010

              

      

      

      
        	
                 
      

              	
                Performance
      Period:

              	
                January
      1, 2010 through December 31, 2012

              

      

      

      1.     
       Grant of Performance
Shares.  Subject to the terms and conditions of this Agreement
and the LTI Plan, the Company hereby grants to the Grantee, as of the Date of
Grant, the total number of Performance Shares (the "Performance Shares") set
forth above. Each Performance Share shall represent one hypothetical Common
Share and shall at all times be equal in value to one Common Share.

      

      2.       
     Management Objectives.  The
Grantee’s right to receive payment of all or any portion of the Performance
Shares shall be contingent upon the achievement of certain management objectives
established by the Board or the Compensation Committee of the Board (the
"Committee"), as the case may be, as set forth below (the "Management
Objectives").  The achievement of the Management Objectives will be
measured during the Performance Period set forth above.  The
Management Objectives for the Performance Period shall relate to basic earnings
per share and annual dividend yield on book value and shall apply as
follows:

      

      (a)    
       Fifty percent (50%) of the total
number of Performance Shares shall be dependent on the Company's percentage
growth (whether positive or negative) in basic earnings per share during the
Performance Period relative to the percentage growth in basic earnings per share
of the companies listed on Exhibit A (the
"Performance Peer Group") during the same period (the "Relative EPS Performance
Shares").

      

      (b)     
      Fifty percent (50%) of the total number of
Performance Shares shall be dependent on the average of the Company's annual
dividend yield on book value during the Performance Period relative to the
average of the annual dividend yield on book value of the companies in the
Performance Peer Group during the same period (the "Relative Dividend Yield
Performance Shares").

      

      3.        
    Earning of Performance Shares.  Except
as provided in Section 4, the Performance Shares shall be earned as follows,
provided that the Grantee has remained continuously employed by the Company or
any Subsidiary through the end of the Performance Period:

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (a)       
    The Relative EPS Performance
Shares.

      

      (i)         
   If, upon the conclusion of the Performance Period, the
percentage growth (whether positive or negative) in the Company's basic earnings
per share during the Performance Period falls below the threshold percentile
rank relative to the Performance Peer Group, as set forth in the Performance
Matrix attached as Exhibit B (the
"Performance Matrix"), none of the Relative EPS Performance Shares shall become
earned.

      

      (ii)      
     If, upon the conclusion of the Performance Period,
the percentage growth (whether positive or negative) in the Company's basic
earnings per share during the Performance Period equals or exceeds the threshold
percentile rank but is less than maximum percentile rank relative to the
Performance Peer Group, as set forth in the Performance Matrix, the percentage
of the Relative EPS Performance Shares shall become earned as set forth on the
Performance Matrix opposite such percentile rank.

      

      (iii)           If,
upon the conclusion of the Performance Period, the percentage growth (whether
positive or negative) in the Company's basic earnings per share during the
Performance Period equals or exceeds the maximum percentile rank relative to the
Performance Peer Group, as set forth in the Performance Matrix, 150% of the
Relative EPS Performance Shares shall become earned.

      

      (b)    
       The Relative Dividend Yield
Performance Shares.

      

      (i)      
      If, upon the conclusion of the Performance
Period, the average of the Company's annual dividend yield on book value during
the Performance Period falls below the threshold percentile rank relative to the
Performance Peer Group, as set forth in the Performance Matrix, none of the
Relative Dividend Yield Performance Shares shall become earned.

      

      (ii)      
     If, upon the conclusion of the Performance Period,
the average of the Company's annual dividend yield on book value during the
Performance Period equals or exceeds the threshold percentile rank but is less
than maximum percentile rank relative to the Performance Peer Group, as set
forth in the Performance Matrix, the percentage of the Relative Dividend Yield
Performance Shares shall become earned as set forth on the Performance Matrix
opposite such percentile rank.

      

      (iii)           If,
upon the conclusion of the Performance Period, the average of the Company's
annual dividend yield on book value during the Performance Period equals or
exceeds the maximum percentile rank relative to the Performance Peer Group, as
set forth in the Performance Matrix, 150% of the Relative Dividend Yield
Performance Shares shall become earned.

      

      4.       
     Retirement, Death or Change in
Control.   Notwithstanding any provision of Section 3 to the
contrary:

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      (a)      
     If the Grantee’s employment with the Company or a
Subsidiary terminates following completion of the first full fiscal quarter of
the Performance Period but prior to the end of the Performance Period due to the
Grantee’s Retirement or death, the Company shall pay to the Grantee or his or
her executor or administrator, as the case may be, a number of Performance
Shares equal to (i) the number of Performance Shares to which the Grantee would
have been entitled under Section 3 above based on the performance of the Company
during the full fiscal quarters completed during the Performance Period until
the date of termination (except that if the Grantee's Retirement occurs during
the first calendar year of the Performance Period, then the performance of the
Company shall be based on the entire first year of the Performance Period),
multiplied by (ii) a fraction, the numerator of which is the number of days that
the Grantee was employed during the Performance Period and the denominator of
which is the number of days in the Performance Period.  For purposes
of this Agreement, "Retirement" means termination of employment with the Company
or a Subsidiary either (i) on or after age 65 or (ii) pursuant to the early
retirement provisions of the Retirement Income Plan of Central Hudson Gas &
Electric Corporation.

      

      (b)      
     If a Change in Control occurs following the
completion of the first full fiscal quarter of the Performance Period but prior
to the end of the Performance Period, and the Grantee was employed by the
Company or any Subsidiary immediately prior to the Change in Control, the
Company shall pay to the Grantee a number of Performance Shares equal to the
number to which the Grantee would have been entitled under Section 3 above based
on the performance of the Company during the full fiscal quarters completed
during the Performance Period until the date of the Change in
Control.

      

      5.        
    Determinations; Adjustments.

      

      (a)       
    Prior to the payment of any Performance Shares as
provided herein, the Committee shall determine in writing the extent, if any,
that the Management Objectives have been satisfied and shall determine the
number, if any, of Performance Shares that shall have become earned
hereunder.  The determinations shall occur prior to the applicable
payment date set forth in Section 7 hereof.  In all circumstances, the
Committee shall have the ability and authority to reduce, but not increase, the
amount of Performance Shares that become earned hereunder.

      

      (b)     
      All determinations involving the Management
Objectives shall be based on Generally Accepted Accounting
Principles.

      

      (c)     
      If the Committee determines that a change in
the business, operations, corporate structure or capital structure of the
Company, the manner in which it conducts business or other events or
circumstances render the Management Objectives to be unsuitable, the Committee
may modify such Management Objectives or the related levels of achievement, in
whole or in part, as the Committee deems appropriate; provided, however, that no such
action may result in the loss of the otherwise available exemption of the award
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").

      

      6.        
    Forfeiture of Performance Shares.  The
Performance Shares will be forfeited automatically and without further notice if
(a) they are not earned at the end of the Performance Period (or such shorter
period as provided in Section 4, if applicable) or (b) if the Grantee’s
employment with the Company or a Subsidiary terminates before the end of the
Performance Period for any reason other than as set forth in Section
4.

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      7.         
   Payment of Performance Shares.  Payment of
any Performance Shares that become earned as set forth in Section 3 or 4 will be
made in the form of Common Shares as follows:

      

      (a)       
    The Common Shares underlying the Performance Shares that
are earned pursuant to Section 3 shall be delivered to the Grantee in the
calendar year next following the end of the Performance Period, but in no event
later than August 1 of that year.

      

      (b)       
    The Common Shares underlying the Performance Shares that
are earned pursuant to Section 4 shall be delivered to the Grantee within ninety
(90) days following the  earlier of (i) the Grantee's "separation from
service" within the meaning of Section 409A of the Code (provided that in the
event of the Grantee's "separation from service", for any reason other than
death, during the first calendar year of the Performance Period, then the payout
shall occur within ninety (90) days following the end of the first calendar year
of the Performance Period); (ii) the occurrence of a "change in the ownership,"
a "change in the effective control" or a "change in the ownership of a
substantial portion of the assets" of the Company within the meaning of Section
409A of the Code; or (iii) the commencement of the calendar year next following
the end of the Performance Period.  Notwithstanding the preceding
sentence, if the Performance Shares become payable as a result of a "separation
from service" within the meaning of Section 409A of the Code (other than as a
result of death), and the Grantee is a "specified employee," as determined under
the Company's policy for identifying specified employees on the date of
separation from service, then to the extent required to comply with Section 409A
of the Code the Common Shares shall be delivered to the Grantee within ninety
(90) days after the first business day that is more than six months after the
date of his or her separation from service (or, if the Grantee dies during such
six-month period, within ninety (90) days after the Grantee's
death).

      

      (c)      
     The Company's obligations with respect to the
Performance Shares shall be satisfied in full upon the delivery of the Common
Shares (and the cash in lieu of any fractional Shares) underlying the earned
Performance Shares as provided in this Section 7.

      

      8.          
  Transferability. The Performance Shares subject to this
Agreement are personal to the Grantee and may not be sold, exchanged, assigned,
transferred, pledged, encumbered or otherwise disposed of by the Grantee until
they become earned as provided in this Agreement; provided, however, that the
Grantee’s rights with respect to such Performance Shares may be transferred by
will or pursuant to the laws of descent and distribution. Any purported transfer
or encumbrance in violation of the provisions of this Section 8, shall be void,
and the other party to any such purported transaction shall not obtain any
rights to or interest in such Performance Shares.

      

      9.        
    Continuous Employment.  For purposes of
this Agreement, the continuous employment of the Grantee with the Company and
its Subsidiaries shall not be deemed to have been interrupted, and the Grantee
shall not be deemed to have ceased to be an employee of the Company and its
Subsidiaries by reason of the transfer of his employment among the Company and
its Subsidiaries or a leave of absence approved by the
Committee.

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      10.           Dividend,
Voting and Other Rights.  The Grantee shall have no rights of
ownership in the Performance Shares or in the Common Shares related thereto and
shall have no right to dividends and no right to vote Performance Shares or the
Common Shares related thereto until the date on which the Common Shares
underlying the Performance Shares are delivered to the Grantee pursuant to this
Agreement.  The obligations of the Company under this Agreement will
be merely that of an unfunded and unsecured promise of the Company to deliver
Common Shares in the future, and the rights of the Grantee will be no greater
than that of an unsecured general creditor. No assets of the Company will be
held or set aside as security for the obligations of the Company under this
Agreement.

      

      11.           No
Employment Contract. Nothing contained in this Agreement shall confer
upon the Grantee any right with respect to continuance of employment by the
Company and its Subsidiaries, nor limit or affect in any manner the right of the
Company and its Subsidiaries to terminate the employment or adjust the
compensation of the Grantee.  Any economic or other benefit to the
Grantee under this Agreement will not be taken into account in determining any
benefits to which the Grantee may be entitled under any profit-sharing,
retirement or other benefit or compensation plan maintained by the Company and
its Subsidiaries, unless provided otherwise in any such plan.

      

      12.           Withholding.  To the
extent that the Company or any Subsidiary is required to withhold any federal,
state, local, foreign or other tax in connection with the payment of earned
Performance Shares pursuant to this Agreement, it shall be a condition to the
receipt of such Performance Shares that the Grantee make arrangements
satisfactory to the Company or such Subsidiary for payment of such taxes
required to be withheld.  To the extent that either the Performance
Shares are deferred pursuant to Section 20 hereof or tax withholding is required
at any time other than upon delivery of the Common Shares pursuant to this
Agreement, then Company or Subsidiary shall have the right in its sole
discretion to (i) require the Grantee to pay or provide for payment of the
required tax withholding, or (ii) deduct the required tax withholding from any
amount of salary, bonus, incentive compensation or other payment otherwise
payable in cash to the Grantee.  Otherwise, the Grantee shall satisfy
such required withholding obligation by surrendering to the Company a portion of
the Common Shares that are otherwise deliverable under this Agreement, and the
Common Shares so surrendered by the Grantee shall be credited against any such
required withholding obligation at the Market Value per Share of such Common
Shares on the date of such surrender.

      

      13.           Compliance
with Law. The Corporation shall make reasonable efforts to comply with
all applicable federal and state securities laws and listing requirements of the
New York Stock Exchange or any national securities exchange with respect to the
Performance Shares; provided, however,
notwithstanding any other provision of this Agreement, no Common Shares shall be
delivered if the delivery thereof would result in a violation of any such law or
listing requirement.

      

      14.           Compliance
with Section 409A of the Code.  It is intended that this
Agreement shall or comply with the requirements of Section 409A of the
Code.  This Agreement shall be construed, administered, and governed
in a manner that effects such intent, and the Committee shall not take any
action that would be inconsistent with such intent.  Without limiting
the foregoing, the Performance Shares shall not be deferred, accelerated,
extended, paid out, settled, adjusted, substituted, exchanged or modified in a
manner that would cause the award to fail to satisfy the conditions of an
applicable exception from the requirements of Section 409A of the Code or
otherwise would subject the Grantee to the additional tax imposed under Section
409A of the Code.

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      15.           Amendments. Subject to the
terms of the LTI Plan, the Committee may modify this Agreement upon written
notice to the Grantee.  Any amendment to the LTI Plan shall be deemed
to be an amendment to this Agreement to the extent that the amendment is
applicable hereto.  Notwithstanding the foregoing, no amendment of the
LTI Plan or this Agreement shall adversely affect the rights of the Grantee
under this Agreement without the Grantee's consent, unless that amendment is
required to comply with the payment restrictions of Section 409A of the
Code.

      

      16.           Severability.  In
the event that one or more of the provisions of this Agreement shall be
invalidated for any reason by a court of competent jurisdiction, any provision
so invalidated shall be deemed to be separable from the other provisions hereof,
and the remaining provisions hereof shall continue to be valid and fully
enforceable.

      

      17.           Relation
to LTI Plan.  This Agreement is subject to the terms and
conditions of the LTI Plan.  This Agreement and the LTI Plan contain
the entire agreement and understanding of the parties with respect to the
subject matter contained in this Agreement, and supersede all prior
communications, representations and negotiations in respect
thereto.  In the event of any inconsistency between the provisions of
this Agreement and the LTI Plan, the LTI Plan shall
govern.  Capitalized terms used herein without definition shall have
the meanings assigned to them in the LTI Plan.  The Committee acting
pursuant to the LTI Plan, as constituted from time to time, shall, except as
expressly provided otherwise herein, have the right to determine any questions
which arise in connection with the grant of Performance Shares.

      

      18.           Successors
and Assigns.  Without limiting Section 8 hereof, the provisions
of this Agreement shall inure to the benefit of, and be binding upon, the
successors, administrators, heirs, legal representatives and assigns of the
Grantee, and the successors and assigns of the Company.

      

      19.           Governing
Law. The interpretation, performance, and enforcement of this Agreement
shall be governed by the laws of the State of New York, without giving effect to
the principles of conflict of laws thereof.

      

      20.           Deferral
of Performance Shares. Notwithstanding anything contained herein to the
contrary, the Grantee may elect to defer receipt of the Performance Shares in
accordance with the terms and subject to the conditions of the Directors and
Executives Deferred Compensation Plan (or any successor plan).

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      21.           Electronic
Delivery.  The Grantee hereby consents and agrees to electronic
delivery of any documents that the Company may elect to deliver (including, but
not limited to, prospectuses, prospectus supplements, grant or award
notifications and agreements, account statements, annual and quarterly reports,
and all other forms of communications) in connection with this and any other
award made or offered under the LTI Plan. The Grantee understands that, unless
earlier revoked by the Grantee by giving written notice to the Secretary of the
Company, this consent shall be effective for the duration of the
Agreement.  The Grantee also understands that he or she shall have the
right at any time to request that the Company deliver written copies of any and
all materials referred to above at no charge.

      

      (Signatures
are on the following page)

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed on its
behalf by its duly authorized officer and the Grantee has also executed this
Agreement, as of the Date of Grant.

      

      

      
        	 
      	
                CH
      ENERGY GROUP, INC.

              	 
	 
      	 
      	 
      	 
	 
      	
                By:

              	 
      	 
	 
      	
                Name:

              	 
      	 
	 
      	
                Title:

              	 
      	 

      

      

      The
undersigned hereby acknowledges receipt of a copy of the LTI Plan, Plan Summary
and Prospectus, and the Company's most recent Annual Report and Proxy Statement
(the "Prospectus Information"). The Grantee represents that he or she is
familiar with the terms and provisions of the Prospectus Information and hereby
accepts the award of Performance Shares on the terms and conditions set forth
herein and in the LTI Plan.

      

      

      
        	 
      	 
      	 
      	 
	 
      	
                Grantee

              	 
	 
      	 
      	 
      	 
	 
      	
                Date:

              	 
      	 

      

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      EXHIBIT
A

      

      PERFORMANCE
PEER GROUP

      

      

      
        	
                 
      

              	
                1.

              	
                ALLETE,
      Inc.

              

      

      
        	
                 
      

              	
                2.

              	
                Ameren
      Corporation

              

      

      
        	
                 
      

              	
                3.

              	
                American
      Electric Power Company, Inc.

              

      

      
        	
                 
      

              	
                4.

              	
                Avista
      Corporation

              

      

      
        	
                 
      

              	
                5.

              	
                Central
      Vermont Public Service Corporation

              

      

      
        	
                 
      

              	
                6.

              	
                Cleco
      Corporation

              

      

      
        	
                 
      

              	
                7.

              	
                CMS
      Energy Corporation

              

      

      
        	
                 
      

              	
                8.

              	
                Consolidated
      Edison, Inc.

              

      

      
        	
                 
      

              	
                9.

              	
                DPL,
      Inc.

              

      

      
        	
                 
      

              	
                10.

              	
                DTE
      Energy Company

              

      

      
        	
                 
      

              	
                11.

              	
                El
      Paso Electric Company

              

      

      
        	
                 
      

              	
                12.

              	
                Empire
      District Electric Company

              

      

      
        	
                 
      

              	
                13.

              	
                Entergy
      Corporation

              

      

      
        	
                 
      

              	
                14.

              	
                EQT
      Corporation

              

      

      
        	
                 
      

              	
                15.

              	
                Great
      Plains Energy Incorporated

              

      

      
        	
                 
      

              	
                16.

              	
                IDACORP,
      Inc.

              

      

      
        	
                 
      

              	
                17.

              	
                Laclede
      Group, Inc.

              

      

      
        	
                 
      

              	
                18.

              	
                Maine
      & Maritimes Corporation

              

      

      
        	
                 
      

              	
                19.

              	
                NorthWestern
      Corporation

              

      

      
        	
                 
      

              	
                20.

              	
                NV
      Energy Inc.

              

      

      
        	
                 
      

              	
                21.

              	
                Pinnacle
      West Capital Corporation

              

      

      
        	
                 
      

              	
                22.

              	
                PNM
      Resources, Inc.

              

      

      
        	
                 
      

              	
                23.

              	
                Portland
      General Electric Company

              

      

      
        	
                 
      

              	
                24.

              	
                Puget
      Energy, Inc.

              

      

      
        	
                 
      

              	
                25.

              	
                Southwest
      Gas Corp.

              

      

      
        	
                 
      

              	
                26.

              	
                UniSource
      Energy Corporation

              

      

      
        	
                 
      

              	
                27.

              	
                Unitil
      Corporation

              

      

      
        	
                 
      

              	
                28.

              	
                Westar
      Energy, Inc.

              

      

      
        	
                 
      

              	
                29.

              	
                Xcel
      Energy, Inc.

              

      

      

      Certain
events affecting peer group performance data will result in changes to the
Performance Peer Group, as follows:

      

      
        	
                 
      

              	
                ·

              	
                Peers
      that do not publicly report financial results in conformity with United
      States Generally Accepted Accounting Principles ("GAAP") for the entire
      Performance Period for any reason (including, without limitation, as a
      result of going private, acquisition, publicly announced need to restate
      financial statements or any similar transaction or event) will be removed
      from the Performance Peer Group for all comparisons.  For
      purposes of clarification, peers that publish financial statements for any
      portion of the Performance Period under International Financial Reporting
      Standards without reconciliation to GAAP will be removed from the
      Performance Peer Group for all
comparisons.

              

      

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      
        	
                 
      

              	
                ·

              	
                Peers
      that engage in a merger, consolidation, spin-off, split-off, spin-out,
      split-up, reorganization, or liquidation during the Performance Period
      will be removed from the Performance Peer Group for all comparisons.  

              

      

      

      
        	
                 
      

              	
                ·

              	
                Peers
      that have publicly announced the need to restate financial statements for
      any portion of the Performance Period, but have not yet published such
      restatement at the time that performance results are certified, will be
      removed from the Performance Peer Group for all
    comparisons.

              

      

      

      
        	
                 
      

              	
                ·

              	
                If
      there is any change in the capital structure of a peer company during the
      Performance Period by means of a stock dividend, stock split, or
      combination of shares, then the  performance results for that
      peer shall be calculated as if the change in capital structure applied
      during the entire Performance
Period.

              

      

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      EXHIBIT
B

      

      PERFORMANCE
MATRIX

      

      

      
        	
                Percentile
      Rank for

                Management
      Objective

                Relative
      to Performance Peer Group

              	
                Percentage
      of

                Performance
      Shares Earned

              
	
                Maximum:  80%
      or more

              	
                150.0%

              
	
                79%

              	
                148.3%

              
	
                78%

              	
                146.6%

              
	
                77%

              	
                145.0%

              
	
                76%

              	
                143.3%

              
	
                75%

              	
                141.6%

              
	
                74%

              	
                140.0%

              
	
                73%

              	
                138.3%

              
	
                72%

              	
                136.6%

              
	
                71%

              	
                135.0%

              
	
                70%

              	
                133.3%

              
	
                69%

              	
                131.6%

              
	
                68%

              	
                130.0%

              
	
                67%

              	
                128.3%

              
	
                66%

              	
                126.6%

              
	
                65%

              	
                125.0%

              
	
                64%

              	
                123.3%

              
	
                63%

              	
                121.6%

              
	
                62%

              	
                120.0%

              
	
                61%

              	
                118.3%

              
	
                60%

              	
                116.6%

              
	
                59%

              	
                115.0%

              
	
                58%

              	
                113.3%

              
	
                57%

              	
                111.6%

              
	
                56%

              	
                110.0%

              
	
                55%

              	
                108.3%

              
	
                54%

              	
                106.6%

              
	
                53%

              	
                105.0%

              
	
                52%

              	
                103.3%

              
	
                51%

              	
                101.6%

              
	
                50%

              	
                100.0%

              
	
                49%

              	
                96.7%

              
	
                48%

              	
                93.3%

              
	
                47%

              	
                90.0%

              
	
                46%

              	
                86.7%

              
	
                45%

              	
                83.3%

              
	
                44%

              	
                80.0%

              

      

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

      
        	
                Percentile
      Rank for

                Management
      Objective

                Relative
      to Performance Peer Group

              	
                Percentage
      of

                Performance
      Shares Earned

              
	
                43%

              	
                76.7%

              
	
                42%

              	
                73.3%

              
	
                41%

              	
                70.0%

              
	
                40%

              	
                66.7%

              
	
                39%

              	
                63.3%

              
	
                38%

              	
                60.0%

              
	
                37%

              	
                56.7%

              
	
                36%

              	
                53.3%

              
	
                35%

              	
                50.0%

              
	
                34%

              	
                46.7%

              
	
                33%

              	
                43.3%

              
	
                32%

              	
                40.0%

              
	
                31%

              	
                36.7%

              
	
                30%

              	
                33.3%

              
	
                29%

              	
                30.0%

              
	
                28%

              	
                26.7%

              
	
                27%

              	
                23.3%

              
	
                26%

              	
                20.0%

              
	
                25%

              	
                16.7%

              
	
                24%

              	
                13.3%

              
	
                23%

              	
                10.0%

              
	
                22%

              	
                6.7%

              
	
                Threshold:  21%

              	
                3.3%

              
	
                20%
      or below

              	
                0.0%

              

      

       

       

       12

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00168-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00168-of-00352.parquet"}]]