Document:

Exhibit 10.1

August 16, 2007

Mr. Edwin L. Harper

c/o Ditech Networks, Inc.

Re:          Employment Terms

Dear Ed:

This letter sets forth
the terms and conditions of your position with Ditech Networks, Inc. (the “Company”)
as its Interim Chief Executive Officer.

As Interim CEO, you shall
perform such duties as required by the Company’s Board of Directors (the “Board”),
to whom you shall report.  This position
shall be your principal business activity and you shall devote your best
efforts and as much time as is necessary to provide leadership for the
Company.  Your position is interim in
nature, and therefore your employment will be terminated upon the Company’s
hiring of a new CEO (unless your employment is earlier terminated by the
Board).

Your compensation will be
at the rate of $2,000 per day (or $10,000 per week), less applicable payroll
taxes and withholdings, and payable on the Company’s regular payroll
schedule.  You will also be eligible for
all of the Company’s standard benefit programs (subject to the terms and
conditions of those plans).  In addition,
the Company shall pay all of your expenses associated with the performance of
your duties as Interim CEO, including commuting expenses (which for air travel
shall be in coach class).  In the event
that you are required to travel internationally in the performance of your
duties as Interim CEO, the Company will pay for business class travel.

Effective August
17, 2007 (the “Grant Date”), the Company shall grant you a nonqualified option
(the “Option”) to purchase 25,000 shares of the Company’s Common Stock under
the Company’s 2006 Equity Incentive Plan (the “Plan”).  The Option will be subject to the terms and
conditions of the Plan and your grant agreement.  The Option will have an exercise price equal
to the closing price of the Company’s common stock on the Nasdaq Global Market
on the Grant Date.  All of the shares
subject to the Option shall vest on the earlier of: (i) October 15, 2007; or
(ii) such date as the Company hires a new Chief Executive Officer.

As a condition of
your employment, you will be required to abide by the Company’s policies and
procedures, including but not limited to the policies set forth in the Company’s
Employee Handbook, as may be in effect from time to time.  You also agree to read, sign and comply with
the Company’s Employee Proprietary
Information and Inventions Agreement (“Proprietary Information Agreement”),
attached hereto as Exhibit A.

Your employment
relationship is at-will.  Accordingly,
you may terminate your employment with the Company at any time and for any
reason whatsoever simply by notifying the Company.  Likewise, the Company may terminate your
employment at any time, with or without cause or advance notice.

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To ensure the
rapid and economical resolution of disputes that may arise in connection with
your employment, you and the Company agree that any and all disputes, claims,
or causes of action, in law or equity, arising from or relating to the
enforcement, breach, performance, execution, or interpretation of this agreement,
your employment, or the termination of your employment, shall be resolved, to
the fullest extent permitted by law, by final, binding and confidential
arbitration in San Jose, California conducted before a single arbitrator by
Judicial Arbitration and Mediation Services, Inc. (“JAMS”) or its successor,
under the then applicable JAMS rules.  By agreeing to this arbitration procedure, both you and the Company
waive the right to resolve any such dispute through a trial by jury or judge or
by administrative proceeding. 
The arbitrator shall:  (a) have
the authority to compel adequate discovery for the resolution of the dispute
and to award such relief as would otherwise be permitted by law; and (b) issue
a written arbitration decision including the arbitrator’s essential findings
and conclusions and a statement of the award. 
The Company shall pay all of JAMS’ arbitration fees.  Nothing in this letter agreement shall
prevent either you or the Company from obtaining injunctive relief in court if
necessary to prevent irreparable harm pending the conclusion of any
arbitration.

This letter,
together with your Proprietary
Information Agreement, forms the complete and exclusive statement of
your agreement with the Company concerning the subject matter hereof.  The terms in this letter supersede any other
representations or agreements made to you by any party, whether oral or
written.  The terms of this agreement
cannot be changed (except with respect to those changes expressly reserved to
the Company’s discretion in this letter) without a written agreement signed by
you and a duly authorized officer of the Company.  This agreement is to be governed by the laws
of the state of California without reference to conflicts of law principles.  In case any provision contained in this
agreement shall, for any reason, be held invalid or unenforceable in any
respect, such invalidity or unenforceability shall not affect the other
provisions of this agreement, and such provision will be construed and enforced
so as to render it valid and enforceable consistent with the general intent of
the parties insofar as possible under applicable law.  With respect to the enforcement of this
agreement, no waiver of any right hereunder shall be effective unless it is in
writing.  This agreement may be executed
in more than one counterpart, and signatures transmitted via facsimile shall be
deemed equivalent to originals.  As
required by law, this offer is subject to satisfactory proof of your identity
and right to work in the United States.

If you wish to
accept employment at the Company under the terms described above, please sign
and date this letter and the Proprietary Information Agreement, and return them
to me.

Sincerely,

	
  /s/ William J. Tamblyn

  	
   

  
	
  William Tamblyn, Chief Financial Officer

  
	
   

  
	
  Exhibit A –  Employee Proprietary Information and Inventions Agreement

  
	
   

  
	
  Understood and Accepted:

  
	
   

  
	
   

  
	
  /s/ Edwin L.
  Harper

  	
   

  	
  8/31/07

  	
   

  
	
  Edwin L. Harper

  	
  Date

  	
   

  
				

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DITECH
NETWORKS, INC.

EMPLOYEE
PROPRIETARY INFORMATION

AND INVENTIONS AGREEMENT

In consideration of my employment or continued
employment by DITECH NETWORKS, INC.
(the “Company”), and the compensation now and
hereafter paid to me, I hereby agree as follows:

1.             NONDISCLOSURE.

1.1          Recognition of Company’s
Rights; Nondisclosure.  At all times
during my employment and thereafter, I will hold in strictest confidence and
will not disclose, use, lecture upon or publish any of the Company’s
Proprietary Information (defined below), except as such disclosure, use or
publication may be required in connection with my work for the Company, or
unless an officer of the Company expressly authorizes such in writing.  I will obtain Company’s written approval
before publishing or submitting for publication any material (written, verbal,
or otherwise) that relates to my work at Company and/or incorporates any
Proprietary Information.  I hereby assign
to the Company any rights I may have or acquire in such Proprietary Information
and recognize that all Proprietary Information shall be the sole property of
the Company and its assigns.

1.2          Proprietary Information.  The term “Proprietary
Information” shall mean any and all confidential and/or proprietary
knowledge, data or information of the Company. 
By way of illustration but not limitation, “Proprietary
Information” includes (a) trade secrets, inventions, mask works,
ideas, processes, formulas, source and object codes, data, programs, other
works of authorship, know-how, improvements, discoveries, developments, designs
and techniques (hereinafter collectively referred to as “Inventions”);
and (b) information regarding plans for research, development, new products,
marketing and selling, business plans, budgets and unpublished financial
statements, licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.

1.3          Third Party Information.  I
understand, in addition, that the Company has received and in the future will
receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on the Company’s
part to maintain the confidentiality of such information and to use it only for
certain limited purposes.  During the
term of my employment and thereafter, I will hold Third Party Information in
the strictest confidence and will not disclose to anyone (other than Company
personnel who need to know such information in connection with their work for
the Company) or use, except in connection with my work for the Company, Third
Party Information unless expressly authorized by an officer of the Company in
writing.

1.4          No Improper Use of
Information of Prior Employers and Others. 
During my employment by the Company I will not improperly use or
disclose any confidential information or trade secrets, if any, of any former
employer or any other person to whom I have an obligation of confidentiality,
and I will not bring onto the premises of the Company any unpublished documents
or any property belonging to any former employer or any other person to whom I
have an obligation of confidentiality unless consented to in writing by that
former employer or person.  I will use in
the performance of my duties only information which is generally known and used
by persons with training and experience comparable to my own, which is common
knowledge in the industry or otherwise legally in the public domain, or which
is otherwise provided or developed by the Company.

2.             ASSIGNMENT OF INVENTIONS.

2.1          Proprietary Rights.  The term “Proprietary
Rights” shall mean all trade secret, patent, copyright, mask work
and other intellectual property rights throughout the world.

2.2          Prior Inventions.  Inventions, if any, patented or unpatented,
which I made prior to the commencement of my employment with the Company are
excluded from the scope of this Agreement. 
To preclude any possible uncertainty, I have set forth on Exhibit B (Previous Inventions) attached hereto a complete
list of all Inventions that I have, alone or jointly with others, conceived,
developed or reduced to practice or caused to be conceived, developed or
reduced to practice prior to the commencement of my employment with the
Company, that I consider to be my property or the property of third parties and
that I wish to have excluded from the scope of this Agreement (collectively
referred to as “Prior Inventions”).  If disclosure of any such Prior Invention
would cause me to violate any prior confidentiality agreement, I understand
that I am not to list such Prior Inventions in Exhibit B
but am only to disclose a cursory name for each such invention, a listing of
the party(ies) to

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whom it belongs and the fact that full disclosure as to such inventions
has not been made for that reason. A space is provided on Exhibit B
for such purpose.  If no such disclosure
is attached, I represent that there are no Prior Inventions.  If, in the course of my employment with the
Company, I incorporate a Prior Invention into a Company product, process or
machine, the Company is hereby granted and shall have a nonexclusive, royalty-free,
irrevocable, perpetual, worldwide license (with rights to sublicense through
multiple tiers of sublicensees) to make, have made, modify, use and sell such
Prior Invention.  Notwithstanding the
foregoing, I agree that I will not incorporate, or permit to be incorporated,
Prior Inventions in any Company Inventions without the Company’s prior written
consent.

2.3          Assignment of
Inventions. Subject to Sections 2.4, and 2.6, I hereby assign and agree to
assign in the future (when any such Inventions or Proprietary Rights are first
reduced to practice or first fixed in a tangible medium, as applicable) to the
Company all my right, title and interest in and to any and all Inventions (and
all Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes, made or conceived or reduced
to practice or learned by me, either alone or jointly with others, during the
period of my employment with the Company. 
Inventions assigned to the Company, or to a third party as directed by
the Company pursuant to this Section 2, are hereinafter referred to as “Company Inventions.”

2.4          Nonassignable
Inventions.  This Agreement does not
apply to an Invention which qualifies fully as a nonassignable Invention under
Section 2870 of the California Labor Code (hereinafter “Section 2870”).  I have reviewed the notification on Exhibit A (Limited Exclusion Notification) and agree
that my signature acknowledges receipt of the notification.

2.5          Obligation to Keep
Company Informed.  During the period
of my employment and for six (6) months after termination of my employment with
the Company, I will promptly disclose to the Company fully and in writing all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others.  In addition, I will
promptly disclose to the Company all patent applications filed by me or on my
behalf within a year after termination of employment.  At the time of each such disclosure, I will
advise the Company in writing of any Inventions that I believe fully qualify
for protection under Section 2870; and I will at that time provide to the
Company in writing all evidence necessary to substantiate that belief.  The Company will keep in confidence and will
not use for any purpose or disclose to third parties without my consent any
confidential information disclosed in writing to the Company pursuant to this
Agreement relating to Inventions that qualify fully for protection under the
provisions of Section 2870.  I will
preserve the confidentiality of any Invention that does not fully qualify for
protection under Section 2870.

2.6          Government or Third
Party.  I also agree to assign all my
right, title and interest in and to any particular Company Invention to a third
party, including without limitation the United States, as directed by the
Company.

2.7          Works for Hire.  I acknowledge that all original works of
authorship which are made by me (solely or jointly with others) within the
scope of my employment and which are protectable by copyright are “works made
for hire,” pursuant to United States Copyright Act (17 U.S.C., Section 101).

2.8          Enforcement of
Proprietary Rights.  I will assist
the Company in every proper way to obtain, and from time to time enforce,
United States and foreign Proprietary Rights relating to Company Inventions in
any and all countries.  To that end I
will execute, verify and deliver such documents and perform such other acts
(including appearances as a witness) as the Company may reasonably request for
use in applying for, obtaining, perfecting, evidencing, sustaining and
enforcing such Proprietary Rights and the assignment thereof.  In addition, I will execute, verify and
deliver assignments of such Proprietary Rights to the Company or its
designee.  My obligation to assist the
Company with respect to Proprietary Rights relating to such Company Inventions
in any and all countries shall continue beyond the termination of my
employment, but the Company shall compensate me at a reasonable rate after my
termination for the time actually spent by me at the Company’s request on such
assistance.

In the event the Company is unable for any reason,
after reasonable effort, to secure my signature on any document needed in
connection with the actions specified in the preceding paragraph, I hereby
irrevocably designate and appoint the Company and its duly authorized officers
and agents as my agent and attorney in fact, which appointment is coupled with
an interest, to act for and in my behalf to execute, verify and file any such
documents and to do all other lawfully permitted acts to further the purposes
of the preceding paragraph with the same legal force and effect as if executed
by me.  I hereby waive and quitclaim to
the Company

 4
 

any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.

3.             RECORDS.  I agree to keep and maintain adequate and
current records (in the form of notes, sketches, drawings and in any other form
that may be required by the Company) of all Proprietary Information developed
by me and all Inventions made by me during the period of my employment at the
Company, which records shall be available to and remain the sole property of
the Company at all times.

4.             ADDITIONAL ACTIVITIES.  I agree that during the period of my
employment by the Company I will not, without the Company’s express written
consent, engage in any employment or business activity which is competitive
with, or would otherwise conflict with, my employment by the Company.  I agree further that for the period of my
employment by the Company and for one (l) year after the date of termination of
my employment by the Company I will not, either directly or through others, solicit
or attempt to solicit any employee, independent contractor or consultant of the
Company to terminate his or her relationship with the Company in order to
become an employee, consultant or independent contractor to or for any other
person or entity.

5.             NO CONFLICTING OBLIGATION.  I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence information acquired by me in
confidence or in trust prior to my employment by the Company.  I have not entered into, and I agree I will
not enter into, any agreement either written or oral in conflict herewith.

6.             RETURN OF COMPANY DOCUMENTS.  When I leave the employ of the Company, I will
deliver to the Company any and all drawings, notes, memoranda, specifications,
devices, formulas, and documents, together with all copies thereof, and any
other material containing or disclosing any Company Inventions, Third Party
Information or Proprietary Information of the Company.  I further agree that any property situated on
the Company’s premises and owned by the Company, including disks and other
storage media, filing cabinets or other work areas, is subject to inspection by
Company personnel at any time with or without notice.  Prior to leaving, I will cooperate with the
Company in completing and signing the Company’s termination statement.

7.             LEGAL AND EQUITABLE REMEDIES.  Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or
other equitable relief, without bond and without prejudice to any other rights
and remedies that the Company may have for a breach of this Agreement.

8.             NOTICES.  Any notices
required or permitted hereunder shall be given to the appropriate party at the
address specified below or at such other address as the party shall specify in
writing.  Such notice shall be deemed
given upon personal delivery to the appropriate address or if sent by certified
or registered mail, three (3) days after the date of mailing.

9.             NOTIFICATION OF NEW EMPLOYER.  In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.

10.          GENERAL PROVISIONS.

10.1        Compliance with Laws.  I
shall under every circumstance comply with current legislation, in the United
States as well as in any other country that I visit as an effect of my employ­ment,
and I shall in every respect comply with the Company rules and policies.   Without limiting the foregoing, I
specifically agree to comply with the export controls of the United States, the
anti-bribery regulations of the United States, the regulations of the United
States’ Office of Foreign Asset Control (“OFAC”)
and the anti-boycott laws of the United States, all as in effect from time to
time.  In the event that I seek to or
have any dealing with countries on the OFAC list of restricted countries, which
as of the date hereof include the Balkans, Burma, Cuba, Iran, Iraq, Liberia,
Libya, North Korea, Sudan and Zimbabwe, or on the OFAC list of restricted
individuals, I will seek the prior written permission of an officer or director
of the Company.

10.2        Governing Law; Consent to
Personal Jurisdiction.  This
Agreement will be governed by and construed according to the laws of the State
of California, as such laws are applied to agreements entered into and to be
performed entirely within California between California residents.  I hereby expressly consent to the personal
jurisdiction of the state and federal courts located in Santa Clara County,
California for any lawsuit filed there against me by Company arising from or
related to this Agreement.

10.3        Severability.  In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and

 5
 

this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.  If moreover, any one or more of the
provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be enforceable to the
extent compatible with the applicable law as it shall then appear.

10.4        Successors and Assigns.  This Agreement will be binding upon my heirs,
executors, administrators and other legal representatives and will be for the
benefit of the Company, its successors, and its assigns.

10.5        Survival.  The provisions of this Agreement shall
survive the termination of my employment and the assignment of this Agreement
by the Company to any successor in interest or other assignee.

10.6        Employment. I agree
and understand that nothing in this Agreement shall confer any right with
respect to continuation of employment by the Company, nor shall it interfere in
any way with my right or the Company’s right to terminate my employment at any
time, with or without cause.

10.7        Waiver. No waiver by
the Company of any breach of this Agreement shall be a waiver of any preceding
or succeeding breach.  No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right.  The Company shall not be
required to give notice to enforce strict adherence to all terms of this Agreement.

10.8        Entire Agreement.  The obligations pursuant to Sections 1 and 2
of this Agreement shall apply to any time during which I was previously
employed, or am in the future employed, by the Company as a consultant if no
other agreement governs nondisclosure and assignment of inventions during such
period.  This Agreement is the final,
complete and exclusive agreement of the parties with respect to the subject
matter hereof and supersedes and merges all prior discussions between us.  No modification of or amendment to this
Agreement, nor any waiver of any rights under this Agreement, will be effective
unless in writing and signed by the party to be charged.  Any subsequent change or changes in my
duties, salary or compensation will not affect the validity or scope of this
Agreement.

This Agreement shall be effective as of the first day
of my employment with the Company, namely:                     ,
20  .

I HAVE READ THIS AGREEMENT
CAREFULLY AND UNDERSTAND ITS TERMS.  I
HAVE COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT.

	
  

  	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Printed
  Name)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Accepted And Agreed To:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Ditech Networks, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  	
   

  	
   

  
							

 

 6

EXHIBIT A

LIMITED
EXCLUSION NOTIFICATION

THIS IS TO NOTIFY you
in accordance with Section 2872 of the California Labor Code that the foregoing
Agreement between you and the Company does not require you to assign or offer
to assign to the Company any invention that you developed entirely on your own
time without using the Company’s equipment, supplies, facilities or trade
secret information except for those inventions that either:

1.             Relate at the time of
conception or reduction to practice of the invention to the Company’s business,
or actual or demonstrably anticipated research or development of the Company;
or

2.             Result from any work performed
by you for the Company.

To the extent a provision in the foregoing Agreement
purports to require you to assign an invention otherwise excluded from the
preceding paragraph, the provision is against the public policy of this state
and is unenforceable.

This limited exclusion does not apply to any patent or
invention covered by a contract between the Company and the United States or
any of its agencies requiring full title to such patent or invention to be in
the United States.

I ACKNOWLEDGE RECEIPT of
a copy of this notification.

	
  

  	
  By:

  	
   

  
	
   

  	
  (Printed Name Of Employee)

  
	
   

  
	
   

  	
  Date:

  	
   

  
	
   

  
	
  Witnessed By:

  
	
   

  
	
   

  	
   

  
	
  (Printed Name Of Representative)

  
					

 

 A-1

EXHIBIT B

	
  

  	
  TO:     Ditech Networks, INC .

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  FROM:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  DATE:

  	
   

  	
   

  

 

SUBJECT:            Previous Inventions

1.             Except as listed in
Section 2 below, the following is a complete list of all inventions or
improvements relevant to the subject matter of my employment by Ditech
Networks, INC. (the “Company”) that
have been made or conceived or first reduced to practice by me alone or jointly
with others prior to my engagement by the Company:

o            No inventions or
improvements.

o            See below:

	
  

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

o            Additional sheets
attached.

2.             Due to a prior
confidentiality agreement, I cannot complete the disclosure under Section 1
above with respect to inventions or improvements generally listed below, the
proprietary rights and duty of confidentiality with respect to which I owe to
the following party(ies):

	
  

  	
  Invention or Improvement   Party(ies)

  	
   

  	
  Relationship

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.

  	
   

  	
   

  	
   

  	
   

  	
   

  
								

 

o            Additional sheets
attached.EXHIBIT
10.1

Partners
for Growth

	
  2007 Term Loan and Security Agreement

  
	
   

  	
   

  	
   

  
	
  Borrower:

  	
   

  	
  Bioject Medical Technologies, Inc.

  
	
  Address:

  	
   

  	
  20245 S.W. 95th Ave., Tualatin, OR   97062

  
	
   

  	
   

  	
   

  
	
  Borrower:

  	
   

  	
  Bioject, Inc.

  
	
  Address:

  	
   

  	
  20245 S.W. 95th Ave., Tualatin, OR   97062

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  August 31, 2007

  

 

THIS 2007 TERM LOAN AND SECURITY AGREEMENT (“Agreement”)
is entered into on the above date between PARTNERS FOR GROWTH, L.P. (“PFG”),
whose address is 180 Pacific Avenue, San Francisco, CA 94111 and the borrowers
named above (jointly and severally, the “Borrower”), whose chief executive
office is located at the above address, respectively. The Schedule to this
Agreement (the “Schedule”) being signed by the parties concurrently, is an
integral part of this Agreement. 
(Definitions of certain terms used in this Agreement are set forth in
Section 7 below.)

1.  LOANS.

1.1  Loans.  PFG will make a loan to Borrower (the “Loan”)
in the amount shown on the Schedule, provided no Default or Event of Default
has occurred and is continuing, within one Business Day after the date hereof.

1.2   Interest.  The Loan and all other monetary Obligations
shall bear interest at the rate shown on the Schedule, except where expressly
set forth to the contrary in this Agreement. 
Interest shall be payable monthly, on the first day of each month for
interest accrued during the prior month.

1.3  Fees.  Borrower has paid to PFG the fees shown on
the Schedule, which are in addition to all interest and other sums payable to
PFG and are not refundable.

1.4  [INTENTIONALLY LEFT BLANK]

1.5  Late Fee.  If any payment of accrued interest for any
month is not made within three Business Days after the date a bill therefor is
sent by PFG to Borrower, or if any payment of principal or any other payment is
not made within three Business Days after the date due, Borrower shall pay PFG
a late payment fee equal to 5% of the amount of such late payment.  The provisions of this paragraph shall not be
construed as PFG’s consent to Borrower’s failure to pay any amounts when due,
and PFG’s acceptance of any such late payments shall not restrict PFG’s
exercise of any remedies arising out of any such failure.

2.  SECURITY INTEREST.

2.1  Grant of Security
Interest.  To secure
the payment and performance of all of the Obligations when due, Borrower hereby
grants to PFG a security interest in all of the following (collectively, the “Collateral”):  all right, title and interest of Borrower in
and to all of the following, whether now owned or hereafter arising or acquired
and wherever located: all Accounts; all Inventory; all Equipment; all Deposit
Accounts; all General Intangibles (including without limitation all
Intellectual Property); all Investment Property; all Other Property; all Real
Property; and any and all claims, rights and interests in any of the above, and
all guaranties and security for any of the above, and all substitutions and
replacements for, additions, accessions, attachments, accessories, and
improvements to, and proceeds  (including
proceeds of any insurance policies, proceeds of proceeds and claims against
third parties) of, any and all of the above, and all Borrower’s books relating
to any and all of the above.

2.2  Specified Contracts
Excluded.  Notwithstanding
anything herein to the contrary, the security interest granted under this
Section 2 shall not attach to any of the following (“Specified Contracts”):  any lease, license, contract, property rights
or agreement to which Borrower is a party or any of its rights or interests
thereunder if and for so long as the grant of such security interest shall
constitute or result in any of the following 
(other than to the extent that any such term would be ineffective under
the Code or any other applicable law or principles of equity):  (i) the abandonment, invalidation or
unenforceability of any right, title or interest of Borrower therein, or (ii)
in a breach or termination pursuant to the terms of, or a default under, any
such lease, license, contract property rights or agreement; provided however
that such security interest shall attach immediately at such time as the
condition causing such abandonment, invalidation or unenforceability shall be
remedied and to the extent severable, shall attach immediately to any portion
of such lease, license, contract, property rights or agreement that does not
result in any of the consequences specified in (i) or (ii) above. Except as
disclosed on Exhibit A hereto, Borrower represents and warrants to PFG that
there are no Specified Contracts which are material to Borrower’s business or
grant Borrower rights in Intellectual Property which is licensed by the
Borrower to its customers or incorporated in products licensed or sold by the
Borrower to its customers.  Borrower
shall not, hereafter, without PFG’s prior written consent, enter into any
Specified Contract which is material to Borrower’s business or grants Borrower
rights in Intellectual Property which is licensed by the Borrower to its
customers or incorporated in products licensed or sold by the Borrower to its
customers.

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BORROWER.

In order to induce PFG
to enter into this Agreement and to make Loans, Borrower represents and
warrants to PFG as follows, and Borrower covenants that the following
representations will continue to be true, and that Borrower will at all times
comply with all of the following covenants, throughout the term of this
Agreement and until all Obligations have been paid and performed in full:

3.1  Corporate Existence and
Authority. 
Borrower is and will continue to be, duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation.  Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would result in a Material Adverse Change.  The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (i)
have been duly and validly authorized, (ii) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors’ rights generally), (iii) do not violate Borrower’s
articles or certificate of incorporation, or Borrower’s by-laws, or any law or
any  material agreement or instrument
which is binding upon Borrower or its property, and (iv) do not constitute
grounds for acceleration of any material indebtedness or obligation under any
agreement or instrument which is binding upon Borrower or its property.

3.2  Name; Trade Names and
Styles. 
As of the date hereof, the name of Borrower set forth in the heading to
this Agreement is its correct name, as set forth in its Articles or Certificate
of Incorporation.  Listed in the
Representations are all prior names of Borrower and all of Borrower’s present
and prior trade names as of the date hereof. 
Borrower shall give PFG 30 days’ prior written notice before changing its
name or doing business under any other name. 
Borrower has complied, and will in the future comply, in all material
respects, with all laws relating to the conduct of business under a fictitious
business name, if applicable to Borrower.

3.3  Place of Business; Location
of Collateral.  As of the
date hereof, the address set forth in the heading to this Agreement is Borrower’s
chief executive office.  In addition, as
of the date hereof, Borrower has places of business and Collateral is located
only at the locations set forth in the Representations.  Borrower will give PFG at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other
than Borrower’s Address or one of the locations set forth in the
Representations, except that Borrower may maintain sales offices in the
ordinary course of business at which not more than a total of $10,000 fair
market value of Equipment is located.

3.4  Title to Collateral;
Perfection; Permitted Liens.

(a)   Borrower is now, and will at all times in the
future be, the sole owner of all the Collateral, except for items of Equipment
which are leased to Borrower.  The
Collateral now is and will remain free and clear of any and all liens, charges,
security interests, encumbrances and adverse claims, except for Permitted
Liens.  PFG now has, and will continue to
have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend PFG and the Collateral against all claims of others.

(b)   Borrower has set forth in the Representations
all of Borrower’s Deposit Accounts, and Borrower will give PFG five Business
Days advance written notice before establishing any new Deposit Accounts and
will cause the institution where any such new Deposit Account is maintained to
execute and deliver to PFG a control agreement in form sufficient to perfect
PFG’s security interest in the Deposit Account and otherwise satisfactory to
PFG in its good faith business judgment.

 2
 

(c)   In the event that Borrower shall at any time
after the date hereof have any commercial tort claims against others, which it
is asserting, and in which the potential recovery exceeds $100,000, Borrower
shall promptly notify PFG thereof in writing and provide PFG with such
information regarding the same as PFG shall request (unless providing such
information would waive the Borrower’s attorney-client privilege).  Such notification to PFG shall constitute a
grant of a security interest in the commercial tort claim and all proceeds
thereof to PFG, and Borrower shall execute and deliver all such documents and
take all such actions as PFG shall request in connection therewith.

(d)
  Whenever any Collateral is located upon
premises in which any third party has an interest, including real property
leased by Borrower, Borrower shall, whenever requested by PFG, use commercially
reasonable efforts to cause such third party to execute and deliver to PFG, in
form acceptable to PFG, such waivers and subordinations as PFG shall specify in
its good faith business judgment. 
Borrower will keep in full force and effect, and will comply with all
material terms of, any lease of real property where any of the Collateral now
or in the future may be located.

3.5  Maintenance of Collateral.  Borrower will maintain the Collateral in good
working condition (ordinary wear and tear excepted), and Borrower will not use
the Collateral for any unlawful purpose. 
Borrower will immediately advise PFG in writing of any material loss or
damage to the Collateral.

3.6  Books and Records.  Borrower has maintained and will maintain at
Borrower’s Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.

3.7  Financial Condition,
Statements and Reports. 
All financial statements now or in the future delivered to PFG have
been, and will be, prepared in conformity with GAAP (subject, in the case of
unaudited interim statements, to year-end adjustments and the absence of
footnotes) and now and in the future will fairly present the results of
operations and financial condition of Borrower in all material respects, in
accordance with GAAP (subject, in the case of unaudited interim statements, to
year-end adjustments and the absence of footnotes), at the times and for the
periods therein stated.  Between the last
date covered by any such statement provided to PFG and the date hereof, there
has been no Material Adverse Change.

3.8  Tax Returns and Payments;
Pension Contributions. 
Borrower has timely filed, and will timely file, all required tax
returns and reports, and Borrower has timely paid, and will timely pay, all
foreign, federal, state and local taxes, assessments, deposits and contributions
now or in the future owed by Borrower. 
Borrower may, however, defer payment of any of the foregoing which are
contested by Borrower in good faith, provided that Borrower (i) contests the
same by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies PFG in writing of the commencement of, and any
material development in any such proceedings, and (iii) posts bonds or takes
any other steps required to stay the enforcement of any such lien upon any of
the Collateral against which any foreign, federal, state or local authority
could then proceed.  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, and shall
continue to pay all amounts necessary to fund all present and future pension,
profit sharing and deferred compensation plans in accordance with their terms,
and Borrower has not and will not withdraw from participation in, permit
partial or complete termination of, or permit 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.

3.9  Compliance with Law.  Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations applicable to Borrower,
including, but not limited to, those relating to Borrower’s ownership of real
or personal property, the conduct and licensing of Borrower’s business, and all
environmental matters.

3.10  Litigation.  There is no claim, suit, litigation,
proceeding or investigation pending or (to best of Borrower’s knowledge) 

threatened against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which could
reasonably be expected to result, either separately or in the aggregate, in any
Material Adverse Change.  Borrower will
promptly inform PFG in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted against Borrower involving
$250,000 or more in the aggregate for all such claims, proceedings, litigation
or investigation.

3.11  Use of Proceeds.  All proceeds of all Loans shall be used
solely for lawful business purposes.

3.12  No Default.  At the date
hereof, no Default or Event of Default has occurred, and no Default or Event of
Default will have occurred after giving effect to the Loan being made
concurrently herewith.

4.  ADDITIONAL DUTIES OF BORROWER.

4.1  Financial and Other
Covenants. 
Borrower shall at all times comply with the financial and other
covenants set forth in the Schedule.

 3
 

4.2.  Remittance of Proceeds. All proceeds
arising from the disposition of any Collateral shall be delivered, in kind, by
Borrower to PFG in the original form in which received by Borrower not later
than the following Business Day after receipt by Borrower, to be applied to the
Obligations in such order as PFG shall determine; provided that, if no Default
or Event of Default has occurred and is continuing, Borrower shall not be
obligated to remit to PFG (i) the proceeds of Accounts arising in the ordinary
course of business, (ii) the proceeds of the sale of Inventory in the ordinary
course of business, (iii) the proceeds of the sale of Permitted Investments
which are promptly reinvested in other Permitted Investments, the proceeds of
the sale of Equipment to the extent such proceeds are reinvested in Equipment
of comparable utility within six (6) months of such sale, or the proceeds of
the sale of worn out or obsolete Equipment disposed of by Borrower in good faith
in an arm’s length transaction for an aggregate purchase price of $50,000 or
less (for all such transactions in any fiscal year).  Borrower agrees that it will not commingle
proceeds of Collateral with any of Borrower’s other funds or property, but will
hold such proceeds separate and apart from such other funds and property and in
an express trust for PFG, except as set forth above.  Nothing in this Section limits the
restrictions on disposition of Collateral set forth elsewhere in this
Agreement.

4.3  Insurance.  Borrower shall, at all times insure all of
the tangible personal property Collateral and carry such other business
insurance, with insurers reasonably acceptable to PFG, in such form and amounts
as PFG may reasonably require and as are customary and in accordance with
standard practices for Borrower’s industry and locations, and Borrower shall
provide evidence of such insurance to PFG. 
All such insurance policies shall name PFG as an additional loss payee,
and shall contain a lenders loss payee endorsement in form reasonably
acceptable to PFG.  Upon receipt of the
proceeds of any such insurance, PFG shall apply such proceeds in reduction of
the Obligations as PFG shall determine in its good faith business judgment,
except that, provided no Default or Event of Default has occurred and is
continuing, at the direction of Borrower, PFG shall release to Borrower
insurance proceeds of any such Collateral with respect to which the insurance
proceeds were paid.  PFG may require
reasonable assurance that the insurance proceeds so released will be so
used.  If Borrower fails to provide or
pay for any insurance, PFG may, but is not obligated to, obtain the same at
Borrower’s expense.  Borrower shall
promptly deliver to PFG copies of all material reports made to insurance
companies.

4.4  Reports.  Borrower, at its expense, shall provide PFG
with the written reports set forth in the Schedule, and such other written
reports with respect to Borrower (including budgets, projections, operating
plans and other financial documentation), as PFG shall from time to time
reasonably request in its good faith business judgment.

4.5  Access to Collateral, Books
and Records. 
At reasonable times, and on one Business Day’s notice, PFG, or its
agents, shall have the right to inspect the Collateral, and the right to audit
and copy Borrower’s books and records. The foregoing inspections and audits
shall be at Borrower’s expense for one such inspection and one such audit each
year and the charge therefor shall be $750 per person per day (or such higher
amount as shall represent PFG’s then current standard charge for the same),
plus reasonable out-of-pocket expenses. The PFG costs of any such inspections
and audits in excess of one each year shall be at PFG’s expense; provided,
however, that upon the occurrence and during the continuance of an Event of
Default, Borrower shall be liable for the costs of all such inspections.  In no event shall Borrower be required to
disclose to PFG any document or information (i) where disclosure is prohibited
by applicable law or any agreement binding on Borrower, or (ii) is subject to
attorney-client or similar privilege or constitutes attorney work product. If
Borrower is withholding any information under the preceding sentence, it shall
so advise PFG in writing, giving PFG a general description of the nature of the
information withheld and the basis upon which it is withheld.

4.6  Negative Covenants.  Except as may be permitted in the Schedule,
Borrower shall not, without PFG’s prior written consent (which shall be a
matter of its good faith business judgment), do any of the following:

(i)
merge or consolidate with another corporation or entity;

(ii)
acquire any assets, except in the ordinary course of business, or make any
Investments other than Permitted Investments;

(iii)
enter into any other transaction outside the ordinary course of business;

(iv)
sell or transfer any Collateral (including without limitation and sale or
transfer of Collateral which is then leased back by Borrower), except for (A) the
sale of Inventory in the ordinary course of Borrower’s business, and except for
the sale of obsolete or unneeded Equipment and the sale and replacement of
Equipment, in each case, in the ordinary course of business, (B) the sale of,
and reinvestment of such sale proceeds in, Permitted Investments, (C) the
granting of Permitted Liens, and (D) the licensing of Intellectual Property in
the ordinary course of business, provided that Borrower shall give PFG advance
written notice of any exclusive licensing of Intellectual Property and provided
further that the proceeds of such licensing shall become Collateral subject to
the security interest of PFG;

(v)
store any Inventory or other Collateral with any warehouseman or other third
party, unless Borrower has used commercially reasonable efforts to comply with
the provisions of Section 3.4(d) above and has notified PFG of such action or
proposed action;

 4
 

(vi)
sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other
contingent basis;

(vii)
make any loans of any money or other assets, other than Permitted Investments;

(viii)
incur any Indebtedness, other than Permitted Indebtedness;

(ix)
guarantee or otherwise become liable with respect to the obligations of another
party or entity other than the endorsement of checks and other similar
instruments in the ordinary course of Borrower’s business;

(x)
pay or declare any dividends on Borrower’s stock (except for dividends payable
solely in stock of Borrower);

(xi)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower’s stock;

(xii)
engage, directly or indirectly, in any business other than the businesses
currently engaged in by Borrower or reasonably related thereto; or

(xiii)
dissolve or elect to dissolve.

Transactions
permitted by the foregoing provisions of this Section are only permitted if no
Default or Event of Default would occur as a result of such transaction.

4.7  Litigation Cooperation.  Should any third-party suit or proceeding be
instituted by or against PFG with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to PFG, make available Borrower and
its officers, employees and agents and Borrower’s books and records, to the
extent that PFG may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.

4.8  Changes.  Borrower
agrees to notify PFG in writing of any changes in the information set forth in
the Representations.

4.9  Further Assurances.  Borrower agrees, at its expense, on request
by PFG, to execute all documents and take all actions, as PFG, may, in its good
faith business judgment, deem necessary or useful in order to perfect and
maintain PFG’s perfected first-priority security interest in the Collateral
(subject to Permitted Liens), and in order to fully consummate the transactions
contemplated by this Agreement.

5.  TERM.

5.1  Maturity Date.  This Agreement shall continue in effect until
the maturity date set forth on the Schedule (the “Maturity Date”), subject to
Sections 5.2 and 5.3 below.

5.2  Early Termination.  This Agreement may be terminated prior to the
Maturity Date as follows:  (i) by
Borrower, effective three Business Days after written notice of termination is
given to PFG; or (ii) by PFG at any time after the occurrence and during the
continuance of an Event of Default. 
There is no termination fee or prepayment penalty.

5.3  Payment of Obligations.  On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations under this Agreement, whether evidenced by installment notes or
otherwise, and whether or not all or any part of such Obligations are otherwise
then due and payable. Notwithstanding any termination of this Agreement, all of
PFG’s security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until all
Obligations have been paid and performed in full; provided that PFG may, in its
sole discretion, refuse to make any further Loans after termination.  No termination shall in any way affect or
impair any right or remedy of PFG, nor shall any such termination relieve
Borrower of any Obligation to PFG, until all of the Obligations have been paid
and performed in full.  Upon payment and
performance in full of all the Obligations and termination of this Agreement,
PFG shall promptly terminate its financing statements with respect to the
Borrower and deliver to Borrower such other documents as may be required to
fully terminate PFG’s security interests.

6.  EVENTS OF DEFAULT AND REMEDIES.

6.1  Events of Default.  The occurrence of any of the following events
shall constitute an “Event of Default” under this Agreement, and Borrower shall
give PFG immediate written notice thereof:

(a)
Any warranty, representation, statement, report or certificate made or
delivered to PFG by Borrower or any of Borrower’s officers, employees or
agents, now or in the future, shall be untrue or misleading in a material
respect when made or deemed to be made; or

(b)
Borrower shall fail to pay the Loan or any interest thereon or any other
monetary Obligation within three (3) Business Days after the date due or fail
to pay any other monetary Obligation within five (5) Business Days after the
date due; or

 5
 

(c)
Borrower shall fail to comply with the financial covenants set forth in the
Schedule (if any), or shall breach any of the provisions of Section 4.6 hereof,
or shall fail to perform any other non-monetary Obligation which by its nature
cannot be cured, or shall fail to permit PFG to conduct an inspection or audit
as provided in Section 4.5 hereof or shall fail to timely provide PFG with
reports due under Section 6 of the Schedule within five Business Days after the
date due; or

(d)
Borrower shall fail to perform any other non-monetary Obligation which is
capable of cure, which failure is not cured within ten (10) Business Days after
the date due; provided, such cure period may be extended for such additional
period as PFG may determine in its good faith discretion (i) if Borrower is
diligently pursuing a cure that is likely to result in a cure and (ii) that
repayment of Obligations or PFG’s security is not affected by the granting of
additional time to cure; or

(e)
any levy, assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made on all or any part of the Collateral which is not cured
within ten (10) Business Days after the earlier to occur of (i) the occurrence
of the same, or (ii) Borrower’s knowledge of the same; or

(f)
any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien; or

(g)
Borrower breaches any material contract or obligation, which has resulted or
may reasonably be expected to result in a Material Adverse Change; or

(h)
Dissolution, termination of existence, insolvency or business failure of
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect,
or Borrower shall generally not pay its debts as they become due, or Borrower
shall conceal, remove or transfer any part of its property, with intent to
hinder, delay or defraud its creditors, or make or suffer any transfer of any of
its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or

(i)
the commencement of any proceeding against Borrower or any guarantor of any of
the Obligations under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any jurisdiction,
now or in the future in effect, which is not cured by the dismissal thereof
within 45 days after the date commenced; or

(j)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under
any bankruptcy or insolvency law; or

(k)
revocation or termination of, or limitation or denial of liability upon, any
pledge of any certificate of deposit, securities or other property or asset of
any kind pledged by any third party to secure any or all of the Obligations, or
any attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or

(l)
Borrower makes any payment on account of any indebtedness or obligation which
has been subordinated to the Obligations (other than as permitted in the
applicable subordination agreement), or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or

(m)
there shall occur, without the prior written consent of PFG, a Change in Control,;
or

(n)
a Material Adverse Change shall occur.

PFG
may cease making any Loans hereunder during any of the cure periods provided
above, and thereafter if an Event of Default has occurred and is continuing.

6.2  Remedies.  Upon the occurrence and during the
continuance of any Event of Default, PFG, at its option, and without notice or
demand of any kind except as specified below (all of which are hereby expressly
waived by Borrower), may do any one or more of the following: (a) Cease making
Loans or otherwise extending credit to Borrower under this Agreement or any
other Loan Document; (b) Upon notice to Borrower (which may be the same day)
accelerate and declare all or any part of the Obligations to be immediately
due, payable, and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation;
(c) Take possession of any or all of the Collateral wherever it may be found,
and for that purpose Borrower hereby authorizes PFG without judicial process to
enter onto any of Borrower’s premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain on the
premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge for so long as PFG deems it necessary, in its good
faith business judgment, in order to complete the enforcement of its rights
under this Agreement or any other agreement; provided, however, that should PFG
seek to take possession of any of the Collateral 

 6
 

by
court process, Borrower hereby irrevocably waives: (i) any bond and any surety
or security relating thereto required by any statute, court rule or otherwise
as an incident to such possession; (ii) any demand for possession prior to the commencement
of any suit or action to recover possession thereof; and (iii) any requirement
that PFG retain possession of, and not dispose of, any such Collateral until
after trial or final judgment; (d) Require Borrower to assemble any or all of
the Collateral and make it available to PFG at places designated by PFG which
are reasonably convenient to PFG and Borrower, and to remove the Collateral to
such locations as PFG may deem advisable; (e) Complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, PFG shall have the right to
use Borrower’s premises, vehicles, hoists, lifts, cranes, and other Equipment
and all other property without charge; (f) Sell, lease or otherwise dispose of
any of the Collateral, in its condition at the time PFG obtains possession of
it or after further manufacturing, processing or repair, at one or more public
and/or private sales, in lots or in bulk, for cash, exchange or other property,
or on credit, and to adjourn any such sale from time to time without notice
other than oral announcement at the time scheduled for sale.  PFG shall have the right to conduct such
disposition on Borrower’s premises without charge, for such time or times as PFG
deems reasonable, or on PFG’s premises, or elsewhere and the Collateral need
not be located at the place of disposition. 
PFG may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under applicable
law, at any private disposition.  Any
sale or other disposition of Collateral shall not relieve Borrower of any
liability Borrower may have if any Collateral is defective as to title or
physical condition or otherwise at the time of sale; (g) Demand payment of, and
collect any Accounts and General Intangibles comprising Collateral and, in
connection therewith, Borrower irrevocably authorizes PFG to endorse or sign
Borrower’s name on all collections, receipts, instruments and other documents,
to take possession of and open mail addressed to Borrower and remove therefrom
payments made with respect to any item of the Collateral or proceeds thereof,
and, in PFG’s good faith business judgment, to grant extensions of time to pay,
compromise claims and settle Accounts and the like for less than face value;
(h) Exercise any and all rights under any present or future control agreements
relating to Deposit Accounts or Investment Property; and (i) Demand and receive
possession of any of Borrower’s federal and state income tax returns and the
books and records utilized in the preparation thereof or referring
thereto.  All reasonable attorneys’ fees,
expenses, costs, liabilities and obligations incurred by PFG with respect to
the foregoing shall be added to and become part of the Obligations, shall be
due on demand, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations. 
Without limiting any of PFG’s rights and remedies, from and after the
occurrence and during the continuance of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional four
percent per annum (the “Default Rate”).

6.3  Standards for Determining
Commercial Reasonableness. 
Borrower and PFG agree that a sale or other disposition (collectively, “sale”)
of any Collateral which complies with the following standards will conclusively
be deemed to be commercially reasonable: 
(i) Notice of the sale is given to Borrower at least ten days prior to the
sale, and, in the case of a public sale, notice of the sale is published at
least five days before the sale in a newspaper of general circulation in the
county where the sale is to be conducted; (ii) Notice of the sale describes the
collateral in general, non-specific terms; (iii) The sale is conducted at a
place designated by PFG, with or without the Collateral being present; (iv) The
sale commences at any time between 8:00 a.m. and 6:00 p.m.;  (v) Payment of the purchase price in cash or
by cashier’s check or wire transfer is required; (vi) With respect to any sale
of any of the Collateral, PFG may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same.  PFG
shall be free to employ other methods of noticing and selling the Collateral,
in its discretion, if they are commercially reasonable.

6.4  Power of Attorney.  Upon the occurrence and during the
continuance of any Event of Default, without limiting PFG’s other rights and
remedies, Borrower grants to PFG an irrevocable power of attorney coupled with
an interest, authorizing and permitting PFG (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower’s expense, to
do any or all of the following, in Borrower’s name or otherwise, but PFG agrees
that if it exercises any right hereunder, it will do so in good faith and in a
commercially reasonable manner:  (a)
Execute on behalf of Borrower any documents that PFG may, in its good faith
business judgment, deem advisable in order to perfect and maintain PFG’s
security interest in the Collateral, or in order to exercise a right of
Borrower or PFG, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other Loan Documents; (b) Execute on
behalf of Borrower, any invoices relating to any Account, any draft against any
Account Debtor and any notice to any Account Debtor, any proof of claim in
bankruptcy, any Notice of Lien, claim of mechanic’s, materialman’s or other
lien, or assignment or satisfaction of mechanic’s, materialman’s or other lien;
(c) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into PFG’s
possession; (d) Endorse all checks and other forms of remittances received by
PFG; (e) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment
based thereon, or otherwise take any action to terminate or discharge the same;
(f) Grant extensions of time to pay, compromise claims and settle Accounts and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (g) Pay any sums required on account of
Borrower’s taxes or to secure the release of any liens therefor, or both; (h)
Settle and adjust, and give releases of, any insurance claim that 

 7
 

relates
to any of the Collateral and obtain payment therefor; (i) Instruct any third
party having custody or control of any books or records belonging to, or
relating to, Borrower to give PFG the same rights of access and other rights
with respect thereto as PFG has under this Agreement; and (j) Take any action
or pay any sum required of Borrower pursuant to this Agreement and any other
Loan Documents.  Any and all reasonable sums
paid and any and all reasonable costs, expenses, liabilities, obligations and
attorneys’ fees incurred by PFG with respect to the foregoing shall be added to
and become part of the Obligations, shall be payable on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations.  In no event shall PFG’s
rights under the foregoing power of attorney or any of PFG’s other rights under
this Agreement be deemed to indicate that PFG is in control of the business,
management or properties of Borrower.

6.5  Application of Proceeds.  All proceeds realized as the result of any
sale of the Collateral shall be applied by PFG first to the reasonable costs,
expenses, liabilities, obligations and attorneys’ fees incurred by PFG in the
exercise of its rights under this Agreement, second to the interest due upon
any of the Obligations, and third to the principal of the Obligations, in such
order as PFG shall determine in its sole discretion.  Any surplus shall be paid to Borrower or
other persons legally entitled thereto; Borrower shall remain liable to PFG for
any deficiency.  If, PFG, in its good
faith business judgment, directly or indirectly enters into a deferred payment
or other credit transaction with any purchaser at any sale of Collateral, PFG
shall have the option, exercisable at any time, in its good faith business
judgment, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by PFG of the cash therefor.

6.6  Remedies Cumulative.  In addition to the rights and remedies set
forth in this Agreement, PFG shall have all the other rights and remedies
accorded a secured party under the Code and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between PFG and Borrower, and all of such rights and remedies are cumulative
and none is exclusive.  Exercise or
partial exercise by PFG of one or more of its rights or remedies shall not be
deemed an election, nor bar PFG from subsequent exercise or partial exercise of
any other rights or remedies.  The
failure or delay of PFG to exercise any rights or remedies shall not operate as
a waiver thereof, but all rights and remedies shall continue in full force and
effect until all of the Obligations have been fully paid and performed.

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

“Account Debtor”
means the obligor on an Account.

“Accounts” means
all present and future “accounts” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all accounts
receivable and other sums owing to Borrower.

 “Affiliate” means, with respect to any
Person, a relative, partner, shareholder, director, officer, or employee of
such Person, or any parent or subsidiary of such Person, or any Person
controlling, controlled by or under common control with such Person.

“Borrower Address”
shall mean the address(es) listed on the first page of this Loan and Security
Agreement for each Borrower.

“Business
Day” means a day on which PFG is open for business.

“Change in
Control” means: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of Borrower; (2) a merger or consolidation in
which Borrower is not the surviving corporation; (3) a reverse merger in which
Borrower is the surviving corporation but the shares of the Borrower’s common
stock outstanding immediately preceding the merger are converted by virtue
of  the merger into other property,
whether in the form of securities, cash or otherwise; (4) an expression of
intent to acquire control notified to Borrower under Section 13(d)(1)(C) of the
U.S. Securities Exchange Act of 1934, as amended, which acquisition is
subsequently effected; or (5) a change in control of Borrower effected by a
successful tender offer for more than 50% of the outstanding voting securities
of Borrower.

“Code” means the
Uniform Commercial Code as adopted and in effect in the State of California
from time to time.

“Collateral” has
the meaning set forth in Section 2 above.

“continuing” and “during
the continuance of” when used with reference to a Default or Event of
Default means that the Default or Event of Default has occurred and has not
been either waived in writing by PFG or cured within any applicable cure
period.

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

“Default Rate”
has the meaning set forth in Section 6.2 above.

 8
 

“Deferred
Revenue” means Revenues that are required under applicable accounting
principles to be recognized over a period of time.

“Deposit Accounts”
means all present and future “deposit accounts” as defined in the California
Uniform Commercial Code in effect on the date hereof with such additions to
such term as may hereafter be made, and includes without limitation all general
and special bank accounts, demand accounts, checking accounts, savings accounts
and certificates of deposit.

 “Equipment” means all present and
future “equipment” as defined in the California Uniform Commercial Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the
foregoing.

“Event of Default”
means any of the events set forth in Section 6.1 of this Agreement.

“GAAP” means
generally accepted accounting principles consistently applied.

“General Intangibles”
means all present and future “general intangibles” as defined in the California
Uniform Commercial Code in effect on the date hereof with such additions to
such term as may hereafter be made, and includes without limitation all
Intellectual Property, payment intangibles, royalties, contract rights,
goodwill, franchise agreements, purchase orders, customer lists, route lists,
telephone numbers, domain names, claims, income tax refunds, security and other
deposits, options to purchase or sell real or personal property, rights in all
litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.

“good faith business
judgment” means honesty in fact and good faith (as defined in Section 1201
of the Code) in the exercise of PFG’s business judgment.

“including” means
including (but not limited to).

“Indebtedness”
means (a) indebtedness for borrowed money or the deferred purchase price of
property or services (other than trade payables arising in the ordinary course
of business), (b) obligations evidenced by bonds, notes, debentures or other
similar instruments, (c) reimbursement obligations in connection with letters
of credit, and (d) capital lease obligations.

 “Intellectual Property” means all
present and future: (a) copyrights, copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished, (b) trade secret
rights, including all rights to unpatented inventions and know-how, and
confidential information; (c) mask work or similar rights available for the
protection of semiconductor chips; (d) patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the same;
(e) trademarks, servicemarks, trade styles, and trade names, whether or not any
of the foregoing are registered, and all applications to register and
registrations of the same and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by any such trademarks; (f)
computer software and computer software products; (g) designs and design
rights; (h) technology; (i) all claims for damages by way of past, present and
future infringement of any of the rights included above; and (j) all licenses
or other rights to use any property or rights of a type described above.

“Inventory” means
all present and future “inventory” as defined in the California Uniform
Commercial 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”
means any beneficial ownership interest in any Person (including any stock,
partnership interest or other equity or debt securities issued by any Person),
and any loan, advance or capital contribution to any Person.

“Investment Property”
means all present and future investment property, securities, stocks, bonds,
debentures, debt securities, partnership interests, limited liability company
interests, options, security entitlements, securities accounts, commodity
contracts, commodity accounts, and all financial assets held in any securities
account or otherwise, and all options and warrants to purchase any of the
foregoing, wherever located, and all other securities of every kind, whether
certificated or uncertificated.

“Loan Documents”
means, collectively, this Agreement, the Representations, and all other present
and future documents, instruments and agreements between PFG and Borrower,
including, but not limited to those relating to this Agreement, and all
amendments and modifications thereto and replacements therefor.

“Material
Adverse Change” means any of the following: (i) a material adverse change in
the business, operations, or financial or other condition of the Borrower (in
the case of two Borrowers, such entities taken as a whole), or (ii) a material 

 9
 

impairment
of the prospect of repayment of any portion of the Obligations; or (iii) a
material impairment of the value or priority of PFG’s security interests in the
Collateral.

“Obligations”
means all present and future Loans, advances, debts, liabilities, obligations,
guaranties, covenants, duties and indebtedness at any time owing by Borrower to
PFG, whether evidenced by this Agreement or any note or other instrument or
document, or otherwise, whether arising from an extension of credit, opening of
a letter of credit, banker’s acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by PFG in Borrower’s debts owing
to others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney’s fees, expert
witness fees, audit fees, collateral monitoring fees, closing fees, facility
fees, termination fees, minimum interest charges and any other sums chargeable
to Borrower under this Agreement or under any other Loan Documents.

“Other Property”
means the following as defined in the California Uniform Commercial Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and all rights relating thereto: all present and future “commercial tort
claims” (including without limitation any commercial tort claims identified in
the Representations), “documents”, “instruments”, “promissory notes”, “chattel
paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm
products” and “money”; and all other goods and personal property of every kind,
tangible and intangible, whether or not governed by the California Uniform
Commercial Code.

“Payment” means
all checks, wire transfers and other items of payment received by for credit to
Borrower’s outstanding Obligations.

“Permitted
Indebtedness” means

(i)
the Loans and other Obligations (including for the avoidance of doubt, the
Existing PFG Loans, as described in the Schedule); and

(ii)
Indebtedness existing on the date hereof and shown on Exhibit A hereto;

(iii)
Subordinated Debt;

(iv)  other Indebtedness secured by Permitted
Liens; and

(v)
reimbursement obligations in respect of letters of credit in an aggregate face
amount outstanding not to exceed $300,000 at any time outstanding, which have
been reported to PFG in writing.

“Permitted
Investments” are:

(i)
Investments (if any) shown on the Exhibit A and existing on the date hereof;

(ii)
marketable direct obligations issued or unconditionally guaranteed by the
United States or its agency or any State maturing within 1 year from its
acquisition;

(iii) 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; and

(iv) bank
certificates of deposit issued maturing no more than 1 year after issue; and

(v)
other investments (except for common stock of Borrower) consistent with
Borrower’s Investment Policy attached hereto as Exhibit A.

“Permitted Liens”
means the following:

(i)
purchase money security interests in specific items of Equipment;

(ii)
leases of specific items of Equipment;

(iii)
liens for taxes not yet payable, or being contested in the manner contemplated
in Section 3.8 above;

(iv)  subject to the written consent of PFG on a
case by case basis that such event(s) shall not give rise to an Event of
Default, which consent may be given or withheld in PFG’s business judgment or
subject to such conditions as PFG may determine in good faith, liens for fees,
assessments, or other charges of a governmental authority, provided that the
payment of such fees, assessments, or other charges of a governmental authority
referenced in this clause (iv) that are due and payable are being contested in
good faith and by appropriate proceedings diligently pursued and as to which
adequate financial reserves have been established in accordance with GAAP on
Borrower’s books and records and a stay of enforcement of any such lien is in
effect;

 10
 

(v) liens on
deposits made by Borrower in the ordinary course of business in connection
with, or to secure payment of, obligations under worker’s compensation,
unemployment insurance, social security, and other similar laws, or to secure
the performance of bids, tenders, or contracts (other than for the repayment of
Indebtedness) or to secure indemnity, performance, or other similar bonds for
the performance of bids, tenders, or contracts (other than for the repayment of
Indebtedness) or to secure statutory obligations (other than Liens arising
under ERISA or Environmental Liens) or surety or appeal bonds, or to secure
indemnity, performance, or other similar bonds;

(vi) liens
constituting encumbrances in the nature of reservations, exceptions,
encroachments, easements, rights of way, covenants running with the land, and
other similar title exceptions or encumbrances affecting any Real Property,
provided that any such liens do not in the aggregate materially interfere with
the use of such Real Property in the ordinary conduct of Borrower’s business;

(vii) liens
arising from judgments and attachments in connection with court proceedings,
provided that (a) the attachment or enforcement of such liens would not
otherwise result in an Event of Default hereunder, (b) such liens are being
contested in good faith by appropriate proceedings diligently pursued, (c)
adequate financial reserves have been established on Borrower’s books and
records in accordance with GAAP, (d) no Collateral with an aggregate value in
excess of $250,000 is subject to a material risk of loss or forfeiture, and (e)
a stay of execution pending appeal or proceeding for review is in effect;

(viii)
any additional security interests and liens consented to in writing by PFG,
which consent may be withheld in its good faith business judgment. PFG will
have the right to require, as a condition to its consent under this
subparagraph (iv), that the holder of the additional security interest or lien
sign an intercreditor agreement on PFG’s then standard form, acknowledge that
the security interest is subordinate to the security interest in favor of PFG,
and agree not to take any action to enforce its subordinate security interest
so long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement;

(ix)
security interests being terminated substantially concurrently with this
Agreement;

(x) liens of
materialmen, mechanics, warehousemen, carriers, or other similar liens arising
in the ordinary course of business and securing obligations which are not
delinquent; provided, that Borrower may, however, defer payment of any of the
foregoing which are contested by Borrower in good faith, provided that Borrower
(a) contests the same by appropriate proceedings promptly and diligently
instituted and conducted, (b) notifies PFG in writing of the commencement of,
and any material development in, any such proceedings which involved $250,000
either individually or in the aggregate, and (c) posts bonds or takes any other
steps required to stay the enforcement of any such lien upon any of the
Collateral against which such person could then proceed;

(xi) liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or
(ii) above or clause (xiv) below, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien and
the principal amount of the indebtedness being extended, renewed or refinanced
does not increase;

(xii)
liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods;

(xiii)
statutory, common law or contractual liens of depository institutions or
institutions holding securities account (including rights of set-off) securing
only customary charges and fees in connection with such accounts; and

(xiv)
liens of PFG arising under the Existing PFG Loans (as defined in Section 8(a)
of the Schedule), as such loans may be amended or modified from time to time.

“Person” means
any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.

“Representations”
means the written Representations and Warranties provided by Borrower to PFG
referred to in the Schedule.

“Subordinated
Debt” means debt incurred by Borrower subordinated to Borrower’s debt to
PFG (pursuant to a subordination agreement entered into between PFG, Borrower
and the subordinated creditor), on terms acceptable to PFG in its absolute
discretion.

Other
Terms.  All accounting
terms used in this Agreement, unless otherwise indicated, shall have the meanings
given to such terms in accordance with GAAP, consistently applied.  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.

 11
 

8.  GENERAL PROVISIONS.

8.1  Confidentiality.  PFG agrees
to use the same degree of care that it exercises with respect to its own
proprietary information, to maintain the confidentiality of any and all
proprietary, trade secret or confidential information provided to or received
by PFG from the Borrower, which indicates that it is confidential, including
business plans and forecasts, non-public financial information, confidential or
secret processes, formulae, devices and contractual information, customer
lists, and employee relation matters, provided that PFG may disclose such
information (i) to its officers, directors, employees, attorneys, accountants,
affiliates, participants, prospective participants, assignees and prospective
assignees, and such other Persons to whom PFG shall at any time be required to
make such disclosure in accordance with applicable law or legal process, and
(ii) in its good faith business judgment in connection with the enforcement of
its rights or remedies after an Event of Default, or in connection with any
dispute with Borrower or any other Person relating to Borrower.  The confidentiality agreement in this Section
supersedes any prior confidentiality agreement of PFG relating to Borrower.

8.2  Interest Computation.  In computing
interest on the Obligations, all Payments received after 12:00 Noon, Pacific
Time, on any day shall be deemed received on the next Business Day.

8.3 Payments. All Payments
may be applied, and in PFG’s good faith business judgment reversed and
re-applied, to the Obligations, in such order and manner as PFG shall determine
in its good faith business judgment.

8.4  Monthly Accountings.  PFG shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement.  Such account shall be deemed
correct, accurate and binding on Borrower and an account stated (except for
reverses and reapplications of payments made and corrections of errors
discovered by PFG), unless Borrower notifies PFG in writing to the contrary
within 60 days after such account is rendered, describing the nature of any
alleged errors or omissions.

8.5  Notices.  All notices to be given under this Agreement
shall be in writing and shall be given either personally, or by reputable
private delivery service, or by regular first-class mail, or certified mail
return receipt requested, or by fax to the most recent fax number a party has
for the other party (and if by fax or electronic mail, sent concurrently by one
of the other methods provided herein), addressed to PFG or Borrower at the
addresses shown in the heading to this Agreement, or at any other address
designated in writing by one party to the other party. All notices shall be
deemed to have been given upon delivery in the case of notices personally
delivered, or at the expira of one Business Day following delivery to the
private delivery service, or two Business Days following the de thereof in the
United States mail, with postage pre, or on the first business day of receipt
during business hours in the case of notices sent by fax or electronic mail, as
provided herein.

8.6  Severability.  Should any provision of this Agreement be
held by any court of competent jurisdiction to be void or unenforceable, such
defect shall not affect the remainder of this Agreement, which shall continue
in full force and effect.

8.7  Integration.  This Agreement and such other written
agreements, documents and instruments as may be executed in connection herewith
are the final, entire and complete agreement between Borrower and PFG and
supersede all prior and contemporaneous negotiations and oral representations
and agreements, all of which are merged and integrated in this Agreement.  There are no oral understandings,
representations or agreements between the parties which are not set forth in
this Agreement or in other written agreements signed by the parties in
connection herewith.

8.8  Waivers; Indemnity.  The failure of PFG at any time or times to
require Borrower to strictly comply with any of the provisions of this
Agreement or any other Loan Document shall not waive or diminish any right of
PFG later to demand and receive strict compliance therewith.  Any waiver of any default shall not waive or
affect any other default, whether prior or subsequent, and whether or not
similar.  None of the provisions of this
Agreement or any other Loan Document shall be deemed to have been waived by any
act or knowledge of PFG or its agents or employees, but only by a specific
written waiver signed by an authorized officer of PFG and delivered to
Borrower.  Borrower waives the benefit of
all statutes of limitations relating to any of the Obligations or this
Agreement or any other Loan Document, and Borrower waives demand, protest,
notice of protest and notice of default or dishonor, notice of payment and
nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by PFG on which Borrower is or may in any way be liable, and
notice of any action taken by PFG, unless expressly required by this Agreement.
Borrower hereby agrees to indemnify PFG and its affiliates, subsidiaries,
parent, directors, officers, employees, agents, and attorneys, and to hold them
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, and related costs and
expenses (including reasonable attorneys’ fees), of every kind, which they may
sustain or incur based upon or arising out of any of the Obligations, or any
relationship or agreement between PFG and Borrower, or any other matter,
relating to Borrower or the Obligations; provided that this indemnity
shall  not extend to damages proximately
caused by the indemnitee’s own gross negligence or willful misconduct.  Notwithstanding any provision in this
Agreement to the contrary, the indemnity agreement set forth in this Section
shall survive any termination of this Agreement and shall for all purposes
continue in full force and effect.

 12
 

8.9  No Liability for Ordinary
Negligence. 
Neither PFG, nor any of its directors, officers, employees, agents,
attorneys or any other Person affiliated with or representing PFG shall be
liable for any claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by Borrower or any other party through the
ordinary negligence of PFG, or any of its directors, officers, employees,
agents, attorneys or any other Person affiliated with or representing PFG, but
nothing herein shall relieve PFG from liability for its own gross negligence or
willful misconduct.

8.10  Amendment.  The terms and provisions of this Agreement
may not be waived or amended, except in a writing executed by Borrower and a
duly authorized officer of PFG.

8.11  Time of Essence.  Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.

8.12  Attorneys’ Fees and Costs.  Borrower shall reimburse PFG for all
reasonable attorneys’ fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by PFG: (a) in connection
with the preparation, negotiation and closing of this Agreement, and (b) any
future amendments, consents, waivers or supplements to this Agreement, and (c)
upon the occurrence and during the continuance of a Default or an Event of
Default, to (i) obtain legal advice in connection with this Agreement or
Borrower; (ii) enforce, or seek to enforce, any of its rights hereunder; (iii)
prosecute actions against, or defend actions by, Account Debtors; (iv)
commence, intervene in, or defend any action or proceeding; (v) initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; (vi)
examine, audit, copy, and inspect any of the Collateral or any of Borrower’s
books and records; (vii) protect, obtain possession of, lease, dispose of, or
otherwise enforce PFG’s security interest in, the Collateral; and (viii)
otherwise represent PFG in any litigation relating to Borrower. If either PFG
or Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys’ fees, including (but not limited to) reasonable
attorneys’ fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment.  All attorneys’ fees and costs to which PFG
may be entitled pursuant to this Paragraph shall immediately become part of
Borrower’s Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.

8.13  Benefit of Agreement.  The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and PFG; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of PFG, and any prohibited
assignment shall be void.  No consent by
PFG to any assignment shall release Borrower from its liability for the
Obligations.

8.14  Joint and Several
Liability. 
If Borrower consists of more than one Person, their liability shall be
joint and several, and the compromise of any claim with, or the release of, any
Borrower shall not constitute a compromise with, or a release of, any other
Borrower.

8.15  Limitation of Actions.  Any claim or
cause of action by Borrower against PFG, its directors, officers, employees,
agents, accountants or attorneys, based upon, arising from, or relating to this
Loan Agreement, or any other Loan Document, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, incurred, done, omitted or suffered to be
done by PFG, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of
an action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after the first act, occurrence or omission upon
which such claim or cause of action, or any part thereof, is based, and the
service of a summons and complaint on an officer of PFG, or on any other person
authorized to accept service on behalf of PFG, within thirty (30) days
thereafter.  Borrower agrees that such
one-year period is a reasonable and sufficient time for Borrower to investigate
and act upon any such claim or cause of action. 
The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of PFG in its sole discretion.  This provision shall survive any termination
of this Loan Agreement or any other Loan Document.

8.16  Paragraph Headings;
Construction. 
Paragraph headings are only used in this Agreement for convenience.  Borrower and PFG acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed
strictly against PFG or Borrower under any rule of construction or otherwise.

8.17  Governing Law;
Jurisdiction; Venue. 
This Agreement and all acts and transactions hereunder and all rights
and obligations of PFG and Borrower shall be governed by the laws of the State
of New York.  As a material part of the
consideration to PFG to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement
shall, at PFG’s option, be litigated in courts located within California, and
that the exclusive venue therefor shall be San Francisco County; (ii) consents
to the jurisdiction and venue of any such court and consents to 

 13
 

service
of process in any such action or proceeding by personal delivery or any other
method permitted by law; and (iii) waives any and all rights Borrower may have
to object to the jurisdiction of any such court, or to transfer or change the
venue of any such action or proceeding.

8.18  Mutual Waiver of Jury Trial.  BORROWER AND PFG EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN PFG AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF PFG OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH PFG OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. 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 San Francisco 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 San Francisco 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 San Francisco
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.

8.19  Representations and warranties of PFG.  PFG has all requisite power and has taken all
requisite action to execute and deliver each of this Agreement and to carry out
and perform all of its obligations hereunder. 
This Agreement has been duly authorized, executed and delivered on
behalf of Purchaser and constitutes the valid and binding agreement of PFG, enforceable
in accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency,  reorganization or similar
laws relating to or affecting the enforcement of creditors’ rights generally
and (ii) as limited by equitable principles generally.  The consummation of the transactions
contemplated herein and the fulfillment of the terms herein will not result in
a breach of any of the terms or provisions of PFG’s partnership agreement or
other relevant organizational documents.

8.20  Provisions Relating to Oregon Law.  To the extent that all or any portion of this
Agreement is determined by a court of competent jurisdiction to be subject to
Oregon law, the following disclosures are made:

In compliance with
Oregon law, the Borrower and any Guarantor(s) should read carefully and
acknowledge your receipt and understanding of the following statement:

UNDER OREGON LAW,
MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US AFTER NOVEMBER 3, 1989,
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER’S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY AN AUTHORIZED REPRESENTATIVE OF
LENDER TO BE ENFORCEABLE.

Under Oregon law,
we are also required to notify you of certain matters related to our right to
place insurance on the property that is collateral for our loan in certain
circumstances.  In compliance with this
law, please read carefully and acknowledge your receipt and understanding of
the following warning:

WARNING:  UNLESS YOU PROVIDE US WITH EVIDENCE OF THE
INSURANCE COVERAGE AS REQUIRED BY OUR CONTRACT OR LOAN AGREEMENT, WE MAY
PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR INTEREST.  THIS INSURANCE MAY, BUT NEED NOT, ALSO
PROTECT YOUR INTEREST.  IF 

 14
 

THE COLLATERAL BECOMES
DAMAGED, THE COVERAGE WE PURCHASE MAY NOT PAY ANY CLAIM YOU MAKE OR ANY CLAIM
MADE AGAINST YOU.  YOU MAY LATER CANCEL
THIS COVERAGE BY PROVIDING EVIDENCE THAT YOU HAVE OBTAINED PROPERTY COVERAGE
ELSEWHERE.

YOU ARE
RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY US.  THE COST OF THIS INSURANCE MAY BE ADDED TO
YOUR CONTRACT OR LOAN BALANCE.  IF THIS
COST IS ADDED TO YOUR CONTRACT OR LOAN BALANCE, THE INTEREST RATE PAYABLE UNDER
THE UNDERLYING LOAN WILL APPLY TO THIS ADDED AMOUNT.  THE EFFECTIVE DATE OF THE COVERAGE MAY BE THE
DATE YOUR PRIOR COVERAGE LAPSED OR THE DATE YOU FAILED TO PROVIDE PROOF OF
COVERAGE.

THE COVERAGE WE
PURCHASE MAY BE CONSIDERABLY MORE EXPENSIVE THAN INSURANCE YOU CAN OBTAIN ON
YOUR OWN AND MAY NOT SATISFY ANY NEED FOR PROPERTY DAMAGE COVERAGE OR ANY
MANDATORY LIABILITY INSURANCE REQUIREMENTS IMPOSED BY APPLICABLE LAW.  (Each reference to “you” and “your” shall
refer to Borrower and each reference to “us” and “we” shall refer to Lender.)

[SIGNATURE PAGE FOLLOWS]

 15
 

 

	
  Borrower:

  	
   

  	
  PFG:

  
	
   

  	
   

  	
   

  
	
  Bioject
  Medical Technologies Inc.

  	
   

  	
  PARTNERS FOR GROWTH, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   /s/
  Jerald S. Cobbs

  	
   

  	
   

  	
  By

  	
   /s/
  Andrew Kahn

  	
   

  
	
  Chairman and Interim President
  and Chief Executive 

  Officer

  	
   

  	
  Name: 

  	
   Andrew
  Kahn

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   /s/
  Christine M. Farrell

  	
   

  	
   

  	
  Title: 

  	
  Manager, Partners for Growth, LLC

  
	
   

  	
  Vice President of Finance

  	
   

  	
   

  	
   

  	
  Its General Partner

  
	
  Borrower:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Bioject
  Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   /s/
  Jerald S. Cobbs

  	
   

  	
   

  	
   

  
	
  Chairman and Interim President
  and Chief Executive 

  Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   /s/
  Christine M. Farrell

  	
   

  	
   

  	
   

  
	
   

  	
  Vice President of Finance

  	
   

  	
   

  	
   

  
											

 

Signature Pate 2007 Term Loan and Security Agreement

 16

Schedule
to 2007 Term Loan and Security Agreement

Partners
For Growth

Schedule
to

2007 Term
Loan and Security Agreement

	
  Borrower:

  	
   

  	
  Bioject Medical Technologies, Inc.

  
	
  Address:

  	
   

  	
  20245 S.W. 95th Ave., Tualatin, OR 97062

  
	
   

  	
   

  	
   

  
	
  Borrower:

  	
   

  	
  Bioject, Inc.

  
	
  Address:

  	
   

  	
  20245 S.W. 95th Ave., Tualatin, OR 97062

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  August 31, 2007

  

 

This Schedule forms an
integral part of the 2007 Term Loan and Security Agreement between PARTNERS FOR
GROWTH, L.P. and the above-borrower of even date.

	
  1. LOAN (Section 1.1):

  	
   

  	
   

  
	
   

  	
   

  	
  The Loan shall consist of a term loan in the amount
  of $500,000, which shall be funded in its entirety within 1 Business Day of
  the date hereof

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Principal Amount of the Loan shall be repaid in
  twelve (12) equal monthly installments of $41,666.67 commencing October 1,
  2007, and all other monetary Obligations due under this Loan shall be repaid
  on the Maturity Date.

  
	
   

  	
   

  	
   

  
	
  Prepayment:

  	
   

  	
  Borrower may prepay the Loan plus all accrued but
  unpaid interest in whole or in part at any time, without penalty.

  

 

	
  2. INTEREST.

  
	
   

  
	
   

  	
  Interest Rate (Section 1.2):

  
	
   

  
	
   

  	
  A rate equal to the Prime Rate plus two percent (2%)
  per annum, measured monthly and applied to the average daily aggregate amount
  outstanding under this Agreement each month. Interest shall be based on the
  average daily principal balance during each month for the Loan, calculated on
  the basis of the actual number of days in each month (the “Monthly
  Financed Amount”). Accrued interest for each month shall be payable
  monthly, on the first day of each month for interest accrued 

  
			

 

 1
 

 

	
  

  	
  during the prior
  month. PFG shall have the right to adjust the rate applicable to amounts
  outstanding hereunder as and when the Prime Rate changes, but may elect in
  its sole discretion to reflect any such changes on a monthly basis.

  
	
   

  	
   

  
	
   

  	
  “Prime Rate” means the rate quoted from time
  to time by Silicon Valley Bank as its prime lending rate.

  

 

	
  3.  FEES
  (Section 1.3):

  
	
   

  
	
   

  	
  Commitment Fee:

  	
  $5,000 fee payable to PFG,
  non-refundable.

  
	
   

  	
   

  	
   

  
	
   

  	
  Collateral Handling Fee:

  	
  Initially, 0.55% per month of the Monthly Financed
  Amount.  If Borrower’s Common Stock
  closes between $2.00 and $4.00 per share for 30 consecutive trading days, the
  Collateral Handling Fee will reduce to 0.38% per month. If Borrower’s Common
  Stock closes at or above $4.00 per share for 30 consecutive trading days, the
  Collateral Handling Fee will reduce to 0.22% per month.

  

 

	
  4.  MATURITY DATE

  
	
  (Section 5.1): 

  	
  September 1, 2008

  

 

	
  5.  FINANCIAL COVENANTS

  
	
  (Section 4.1):

  	
  Borrower shall comply with
  each of the following covenants:

  
	
   

  	
   

  
	
  Revenue Covenant:

  	
  Borrower shall maintain Revenues at not less than
  eighty percent (80%) of its Board-approved financial plan (as set forth in
  Exhibit B to this Loan and Security Agreement) over rolling three-month
  periods, measured monthly commencing October 2007.

  
	
   

  	
   

  
	
  Working Capital Covenant:

  	
  Borrower shall maintain Working Capital of not less
  than $1.00 at all times.

  
	
   

  	
   

  
	
  Definitions.

  	
  For purposes of the foregoing financial covenants,
  the following term shall have the following meaning:

  
	
   

  	
   

  
	
   

  	
  “Revenues” means,
  as calculated in accordance with GAAP, receipts from customers in the
  ordinary course of business for the sale of goods and services, net of
  discounts and refunds, and revenues recognized on a percentage of completion
  basis, so long as such recognition is in accordance with Borrower’s past
  accounting practice and is in accordance with GAAP.

  
	
   

  	
   

  
	
   

  	
  “Working Capital”
  means total Current Assets less total Current Liabilities.

  

 2
 

 

	
  

  	
  “Current Assets”
  and “Current Liabilities” shall have the meaning ascribed thereto by GAAP,
  provided, however, that there shall be
  deducted from Current Liabilities (i) the amount of “Fair Value Warrants and
  Debt Instruments”, as disclosed and defined in Borrower’s periodic filings
  reports required under the Securities Exchange Act of 1934 with the
  Securities and Exchange Commission, and (ii) Deferred Revenues (as defined in
  Section 7).

  

 

	
  6.  REPORTING.

  
	
  (Section 4.4):

  	
   

  	
  Borrower shall provide PFG with the following, as
  and when requested by PFG:

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  As and when approved by its Board of Directors, a
  copy of Borrower’s financial plan for the current and next fiscal year.

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Monthly unaudited, management-prepared financial
  statements prepared in accordance with GAAP, within ten (10) Business Days
  after the end of each month.

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Monthly Compliance Certificates, within ten (10)
  Business Days after the end of each month, in such form as PFG shall
  reasonably specify, signed by the Chief Financial Officer of Borrower (or, if
  there is no Chief Financial Officer, the Secretary of Borrower or such other
  person who has been vested by the Board of Directors with the duties and
  responsibilities of the Chief Financial Officer), certifying that as of the
  end of such month Borrower was in full compliance with all of the terms and
  conditions of this Agreement and setting forth calculations showing
  Borrower’s compliance with the Financial Covenants set forth in Section 5 of
  this Schedule, and such other information as PFG shall reasonably request.

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Quarterly financial statements, as soon as
  available, and in any event within forty-five days after the end of each
  fiscal quarter of Borrower (other than the last fiscal quarter in any year);
  provided, however, if Borrower files a form 10-Q with the Securities and Exchange
  Commission and the same is available within said period through EDGAR, such
  availability will satisfy this requirement.

  
	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  A quarterly information update certificate, in the
  form of an update of the Representations, unless such information is otherwise
  included as part of a monthly Compliance Certificate, within the earlier to
  occur of ten (10) Business Days after the end of each fiscal quarter of
  Borrower or promptly following the knowledge of any executive officer of
  Borrower that the Representations are no longer true, complete and accurate.

  
				

 3
 

 

	
  

  	
  (f)

  	
  Annual financial statements, as soon as available,
  and in any event within 120 days following the end of Borrower’s fiscal year,
  certified by, and with an unqualified opinion of, independent certified
  public accountants reasonably acceptable to PFG; provided, however, if
  Borrower files a form 10-K with the Securities and Exchange Commission and
  the same is available within said period through EDGAR, such availability
  will satisfy this requirement.

  
	
   

  	
   

  	
   

  
	
  7.  BORROWER INFORMATION:

  
	
   

  
	
   

  	
  Borrower represents and warrants that the
  information set forth in the Representations and Warranties of the Borrower
  dated August 27, 2007, previously submitted to PFG (the “Representations”) is
  true and correct as of the date hereof.

  
	
   

  	
   

  
	
  8.  ADDITIONAL PROVISIONS

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Existing PFG Loans.  On the date hereof, PFG and Borrower are
  party to a Term Loan and Security Agreement dated as of December 15, 2004, a
  Loan and Security Agreement dated as of December 15, 2004 (for a revolving
  line of credit), a Revolving Loan and Security Agreement dated as of December
  11, 2006 and associated cross-corporate guarantees and security agreements
  (the “Existing PFG Loans”). PFG and Borrower agree that the Loan made by PFG
  under this Agreement is and shall be deemed to be included within the
  definition of “Obligations” under the Existing PFG Loans, that PFG’s security
  interest in the Collateral shall continue in the Obligations arising under
  this Agreement and that the security interests and liens of PFG arising under
  this Agreement shall be deemed to have attached and been perfected when made
  in connection with the Existing PFG Loans, regardless of any repayment of the
  Existing PFG Loans made after the date hereof.

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Deposit Accounts.  Concurrently and to the extent not already
  done, Borrower shall cause the banks and other institutions where its Deposit
  Accounts are maintained to enter into control agreements with PFG, in form
  and substance satisfactory to PFG in its good faith business judgment and
  sufficient to perfect PFG’s security interest in said Deposit Accounts,.  Said control agreements shall permit PFG,
  in its discretion, to withdraw from said Deposit Accounts accrued interest on
  the Obligations monthly.

  

 4
 

 

	
  

  	
  (c)

  	
  Lockbox.  If
  requested to do so by PFG, Borrower shall direct each Account Debtor (and
  each depository institution where proceeds of accounts receivable are on
  deposit) to make payments with respect to all receivables to a lockbox
  account established for PFG at such banking institution as PFG may notify
  (the “Lockbox”) or to wire transfer payments to a cash collateral account
  that PFG controls, as and when directed by PFG from time to time, at its
  option and at the sole and exclusive discretion of the PFG. It will be
  considered an immediate Event of Default if the Lockbox is not set-up and
  operational within 30 days from the date of PFG ‘s request.

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Conditional Release of
  Collateral from Security Interest.  At any time prior to the
  Maturity Date, Borrower may request that PFG release its security interest
  and lien on all or part of Borrower’s Intellectual Property, and PFG shall
  release such security interest and lien, provided, however, that
  Borrower’s right to make such request and PFG’s obligation to honor such
  request shall be expressly conditioned on the following:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)  at the
  time of such request, no Event of Default has occurred and is continuing and
  Borrower is otherwise in full compliance with its obligations to PFG
  hereunder and under each other agreement between Borrower and PFG; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii) Borrower has entered or proposes to enter into
  an agreement to license or sell the Intellectual Property requested to be
  released from PFG’s security interest and lien; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)  upon
  each occasion of the Intellectual Property released from PFG’s security
  interest and lien being sold or licensed, Borrower shall pay 50% (or such
  lesser percentage as PFG may determine in its sole discretion) of any such
  sales or licensing proceeds to PFG, which proceeds PFG will maintain as a
  deposit against payment of Obligations (“Deposit”) and PFG’s security interest
  and lien shall continue in said proceeds. PFG may apply the Deposit and all
  interest earned thereon to the payment of outstanding Obligations in such
  manner as PFG may determine in its discretion.  For the avoidance of doubt, (A) the parties
  agree that Borrower’s non-exclusive licensing of Intellectual Property in the
  ordinary course of business does not require the release of PFG’s lien on
  such Intellectual Property and, accordingly, the proceeds of such
  non-exclusive licensing are not subject to this clause (d)(iii), and (B) the
  licensing of Intellectual Property to a customer for its exclusive use with a
  particular drug (or other injectable substance) that is one of such
  customer’s products shall be deemed a non-exclusive license of Borrower’s
  Intellectual Property for purposes hereof.

  

 5
 

 

	
  

  	
   

  	
  (e)  Warrant.  In
  consideration of the payment by PFG to Borrower of $873 on the date hereof,
  Borrower shall contemporaneously issue PFG a warrant to purchase 71,429
  shares of its common stock at an exchange price of $1.40 per share.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (f)  Additional  Representations and Warranties of PFG. 
  PFG represents and warrants to Borrower, with respect to itself and
  its purchase hereunder, as follows:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)  Investment Purpose.  PFG is purchasing the
  Warrant (together with the common stock issued under the Warrants, the
  “Equity Rights”) for its own account for investment and not with a present
  view toward the public sale or distribution thereof and has no intention of
  selling or distributing any of the Equity Rights or any arrangement or
  understanding with any other persons regarding the sale or distribution of
  such Equity Rights except as contemplated by this Agreement or the Loan
  Documents and in compliance with the Securities Act of 1933, as amended (the
  “Securities Act”).  PFG will not, directly or indirectly, offer, sell,
  pledge, transfer or otherwise dispose of (or solicit any offers to buy,
  purchase or otherwise acquire or take a pledge of) any of the Equity Rights
  except in accordance with the provisions of this Agreement or the Loan
  Documents and in compliance with applicable securities laws.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)  Purchaser Status.  At the time PFG was offered
  the Equity Rights, it was, and at the date hereof it is, and on each date on
  which it exercises the Warrant, it will be an “accredited investor” as
  defined in Rule 501(a) under the Securities Act.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)  Reliance on Exemptions.  PFG understands that the
  Equity Rights are being offered and sold to it in reliance upon specific
  exemptions from, or non-application of, the registration requirements of
  United States federal and state securities laws and that Borrower is relying
  upon the truth and accuracy of, and PFG’s compliance with, the
  representations, warranties, agreements, acknowledgments and understandings
  of PFG set forth herein in order to determine the availability of such
  exemptions and the eligibility of PFG to acquire the Equity Rights.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iv)  Information.  PFG acknowledges that is has
  been afforded (A) the opportunity to ask such questions as it has deemed
  necessary of, and to receive answers from, representatives of Borrower
  concerning the terms and conditions of the offering of the Equity Rights and
  the merits and risks of investing in the Equity Rights; (B) access to
  information about Borrower and its financial condition, results of
  operations, businesses, 

  

 

 6
 

 

	
  

  	
   

  	
  properties, management and prospects sufficient to
  enable it to evaluate its investment in the Equity Rights, including, without
  limitation, Borrower’s reports required to be filed with the Securities and
  Exchange Commission (“SEC”), and PFG has had the opportunity to review such
  documents; and (C) the opportunity to obtain such additional information
  that Borrower possesses or can acquire without unreasonable effort or expense
  that is necessary to make an informed investment decision with respect to the
  investment.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (v)  Acknowledgement of Risk.  PFG acknowledges and understands that its
  investment in the Equity Rights involves a significant degree of risk,
  including, without limitation, the risks set forth in Borrower’s reports
  required to be filed with the SEC.  PFG
  is able to bear the economic risk of holding the Equity Rights for an
  indefinite period, and has knowledge and experience in financial and business
  matters such that it is capable of evaluating the risks of the investment in
  the Equity Rights.  PFG has, in
  connection with its decision to purchase the Equity Rights and with respect
  to all matters relating to this Agreement and the Loan Documents and the
  transactions contemplated hereby and thereby, relied solely upon the advice
  of its own counsel and has not relied upon or consulted any counsel to
  Borrower.  PFG is not purchasing the Equity
  Rights as a result of any form of general solicitation or general advertising
  within the meaning of Rule 502(c) under the Securities Act.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (vi) Transfer or Resale. PFG understands that (A) the
  Warrant and the common stock issuable in connection with the Warrant have not
  been, and are not being, registered under the Securities Act or any
  applicable state securities laws and, consequently, PFG may have to bear the
  risk of owning such securities for an indefinite period of time because such
  securities may not be transferred unless (I) the resale of such
  securities is covered by an effective registration statement under the
  Securities Act or exempt from the registration requirements thereof or
  (II) PFG has delivered to Borrower an opinion of counsel to PFG (in
  form, substance and scope customary for opinions of counsel in comparable
  transactions) to the effect that such securities to be sold or transferred
  may be sold or transferred pursuant to an exemption from such registration;
  and (B) neither Borrower nor any other person is under any obligation to
  register the resale of any such securities under the Securities Act or any
  state or foreign securities laws or to comply with the terms and conditions
  of any exemption thereunder.

  

 

 7
 

 

	
  

  	
   

  	
  (vii) Legends.  PFG
  understands that any certificate representing, or other evidence of the
  common stock issuable under the Warrant may bear a restrictive legend in
  substantially the following form (and, until such time as there is a
  registration statement in effect covering such common stock, a stop-transfer
  order may be placed against transfer of such securities):

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
  REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
  COMMISSION OF ANY STATE OF THE UNITED STATES IN RELIANCE UPON AN EXEMPTION
  FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
  “SECURITIES ACT”) AND ACCORDINGLY, MAY NOT BE SOLD, OFFERED FOR SALE,
  PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN
  EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
  OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
  TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
  WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
  COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
  REASONABLY ACCEPTABLE TO THE COMPANY.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (viii) 
  Residency.  PFG is a resident of
  the jurisdiction set forth next to its name in the heading to this Agreement.

  

 8

 

	
  Borrower:

  	
  PFG:

  
	
   

  	
   

  
	
  Bioject Medical
  Technologies Inc.

  	
  PARTNERS FOR GROWTH, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By 

  	
   /s/Jerald S. Cobbs

  	
   

  	
   

  
	
  Chairman and Interim
  President and Chief Executive 

  	
  By 

  	
   /s/ Andrew Kahn

  	
   

  
	
  Officer

  	
   

  
	
   

  	
  Name: Andrew Kahn

  
	
  By 

  	
   /s/ Christine M. Farrell

  	
   

  	
   

  
	
   Vice President of
  Finance

  	
  Title: Manager, Partners for Growth, LLC

  
	
   

  	
  Its General Partner

  
							

 

 9
 Signature Page to Schedule to Term Loan and Security Agreement

Exhibit
A to Term Loan and Security Agreement

Exhibit B to Loan
and Security Agreement

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