Document:

Exhibit 10.15

 

LOAN AND SECURITY AGREEMENT

 

This LOAN AND
SECURITY AGREEMENT (this “Agreement”) dated as of April 20, 2005,
between SILICON VALLEY BANK, a
California chartered bank, with its principal place of business at 3003 Tasman
Drive, Santa Clara, California 95054 and with a loan production office located
at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton,
Massachusetts 02462, (“Bank”) and PHYSIOMETRIX,
INC. a Delaware corporation (“Borrower”), provides the terms on
which Bank shall extend credit to Borrower and Borrower shall repay Bank. The
parties agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall
be construed following GAAP. 
Calculations and determinations must be made following GAAP.  The term “financial statements” includes the
notes, exhibits, and schedules; provided, however, Bank acknowledges that
unaudited interim financial statements are subject to normal year-end
adjustments, lack of footnotes or other presentation items.  The terms “including” and “includes” always
mean “including (or includes) without limitation,” in this or any Loan
Document.  Capitalized terms in this
Agreement shall have the meanings set forth in Article 13.  All other terms contained in this Agreement,
unless otherwise indicated, shall have the meaning provided by the Code, to the
extent such terms are defined therein.

 

2                                         LOAN
AND TERMS OF PAYMENT

 

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

 

2.1.1                     Revolving Advances.

 

(a)                                  Revolving
Line Availability.  Bank shall make
Advances not exceeding the following (“Revolving Line Availability”): (i) the
Revolving Line, minus (ii) the aggregate outstanding Advances hereunder.  Amounts borrowed under this Section may be
repaid and reborrowed during the term of this Agreement.

 

(b)                                 Borrowing
Procedure.  To obtain an Advance,
Borrower must notify Bank (which notice shall be irrevocable) by facsimile or
telephone by 3:00 p.m. Eastern time on the Business Day the Advance is to be
made.  If such notification is by
telephone, Borrower must promptly confirm the notification by delivering to
Bank a completed Payment/Advance Form. 
Bank shall credit Advances to Borrower’s deposit account.  Bank may make Advances under this Agreement
based on instructions from a Responsible Officer or his or her designee or
without instructions if the Advances are necessary to meet Obligations which
have become due.  Bank may rely on any
telephone notice given by a person whom Bank reasonably believes is a
Responsible Officer or designee. Borrower shall indemnify Bank for any loss
Bank suffers due to such reliance.

 

(c)                                  Interest
Rate.   The principal amounts
outstanding under the Revolving Line shall accrue interest at a per annum rate
equal to the aggregate of the Prime Rate and three percent (3.0%), which
interest shall be payable monthly.

 

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

 

2.1.2                     Undisbursed Credit Extensions.  Bank’s obligation to lend the undisbursed
portion of the Obligations shall terminate if, in Bank’s sole discretion, there
has been a material adverse change in the general affairs, management, results
of operation, condition (financial or otherwise) or the prospect of repayment
of the Obligations, or there has been any material adverse deviation by
Borrower from the most recent business plan of Borrower presented to and
accepted by Bank prior to the execution of this Agreement.

 

 

2.2                               Interest
Rate.

 

(a)                                  Default
Rate. After an Event of Default, Obligations shall bear interest at five
percent (5.0%) above the rate effective immediately before the Event of
Default.

 

(b)                                 Adjustment
to Interest Rate.  The applicable
interest rate hereunder shall increase or decrease when the Prime Rate changes.

 

(c)                                  360-Day
Year.  Interest is computed on the
basis of a three hundred sixty (360) day year for the actual number of days
elapsed.

 

(d)                                 Debit
of Accounts.  Bank may debit any of
Borrower’s deposit or operating accounts, including Account Number                    ,
for principal and interest payments when due, or any amounts Borrower owes
Bank, when due. Bank shall promptly notify Borrower after it debits Borrower’s
accounts.  These debits shall not
constitute a set off.

 

(e)                                  Payments.  Interest is payable monthly on the first
calendar day of each month.  Payments
received after 12:00 noon Eastern time are considered
received at the opening of business on the next Business Day.  When a payment is due on a day that is not a
Business Day, the payment is due the next Business Day and additional fees or
interest, as applicable, shall continue to accrue.

 

2.3                               Fees.  Borrower shall pay to Bank:

 

(a)                                  Commitment
Fee.  A fully earned, non-refundable
commitment fee of Ten Thousand Dollars ($10,000.00) due and payable on the
Closing Date; and

 

(b)                                 Success
Fee.  A fully earned, non-refundable
fee of Fifteen Thousand Dollars ($15,000.00) due and payable at the earlier of
(i) the occurrence of the Sale Agreement Event, (ii) the Revolving Line
Maturity Date, and (iii) the early termination of this Agreement; and

 

(c)                                  Bank
Expenses.  All Bank Expenses
(including reasonable attorneys’ fees and expenses) incurred through and after
the Closing Date, when due.

 

3                                         CONDITIONS
OF LOANS

 

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

 

(a)                                  this Agreement;

 

(b)                                 a
certificate of the Secretary of Borrower with respect to articles, bylaws,
incumbency and resolutions authorizing the execution and delivery of this
Agreement, the Loan Documents, and all transactions related thereto, including
the Warrant;

 

(c)                                  an Intellectual Property Security Agreement;

 

(d)                                 Perfection
Certificate(s) by Borrower;

 

(e)                                  landlord’s waiver;

 

(f)                                    a legal opinion of Borrower’s counsel (authority and
enforceability);

 

(g)                                 Warrant
to Purchase Stock;

 

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

 

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(i)                                     insurance certificate;

 

(j)                                     payment of the fees and Bank Expenses;

 

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

 

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

 

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

 

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

 

(a)                                  timely
receipt of any Payment/Advance Form; and

 

(b)                                 the
representations and warranties in Article 5 shall be true in all material
respects on the date of the Payment/Advance Form and on the effective date of
each Credit Extension except that any representation or warranty made as of a
specified earlier date shall be true in all material respects as of such
earlier date and no Event of Default shall have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower’s
representation and warranty on that date that the representations and
warranties in Article 5 remain true in all material respects unless such
representation or warranty relates solely to an earlier date.

 

4                                         CREATION
OF SECURITY INTEREST

 

4.1                               Grant
of Security Interest.  Borrower hereby
grants Bank, to secure the payment and performance in full of all of the
Obligations and the performance of each of Borrower’s duties under the Loan
Documents, a continuing security interest in, and pledges and assigns to Bank,
the Collateral, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof. 
Subject to Section 5.2, Borrower warrants and represents that the
security interest granted herein shall be a first priority security interest in
the Collateral.

 

Except as noted on the
Perfection Certificate, Borrower is not a party to, nor is bound by, any
material license (other than over the counter software that is commercially
available to the public) or other material agreement with respect to which
Borrower is the licensee that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower’s interest in such license or
agreement or any other property. 
Borrower shall provide written notice to Bank within ten (10) days of entering
or becoming bound by, any such license or agreement which is reasonably likely
to have a material impact on Borrower’s business or financial condition.  Borrower shall take such steps as Bank
reasonably requests to obtain the consent of, authorization by or waiver by,
any person whose consent or waiver is necessary for all such licenses or
contract rights to be deemed “Collateral” and for Bank to have a security
interest in it that might otherwise be restricted or prohibited by law or by
the terms of any such license or agreement, whether now existing or entered
into in the future.

 

If Borrower shall, at any
time, acquire a commercial tort claim, Borrower shall promptly notify Bank in a
writing signed by Borrower of the brief details thereof and grant to Bank in
such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
satisfactory to Bank.

 

4.2                               Termination
by Borrower.

 

Borrower may terminate this Agreement by sending
written notice to Bank and paying in full all Obligations.  If this Agreement is terminated, Bank’s lien
and security interest in the Collateral shall continue until Borrower fully
satisfies the Obligations. Upon the satisfaction in full of all Obligations and
the termination of the Bank’s obligation to make any Credit Extensions
hereunder, this Agreement and the security interest granted herein shall
terminate and all rights to the Collateral shall revert to Borrower.  Upon such termination Bank will execute 

 

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and
deliver to Borrower any documents or instruments as Borrower shall reasonably
request to evidence such termination.

 

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

 

5                                         REPRESENTATIONS
AND WARRANTIES

 

Borrower represents and warrants to Bank as follows:

 

5.1                               Due
Organization and Authorization. 
Borrower, and each Subsidiary, is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in
good standing in, any state in which the conduct of its business or its
ownership of property requires that it be qualified except where the failure to
do so could not reasonably be expected to cause a Material Adverse Change.  In connection with this Agreement, Borrower
delivered to Bank a perfection certificate signed by Borrower (the “Perfection
Certificate”).  Borrower represents and
warrants to Bank that: (a) Borrower’s exact legal name is that indicated on the
Perfection Certificate and on the signature page hereof; and (b) Borrower is an
organization of the type, and is organized in the jurisdiction, set forth in
the Perfection Certificate; and (c) the Perfection Certificate accurately sets
forth Borrower’s organizational identification number or accurately states that
Borrower has none; and (d) the Perfection Certificate accurately sets forth
Borrower’s place of business, or, if more than one, its chief executive office
as well as Borrower’s mailing address if different, and (e) as of the date
hereof, all other information set forth on the Perfection Certificate
pertaining to Borrower is accurate and complete in all material respects.  If Borrower does not now have an
organizational identification number, but later obtains one, Borrower shall
forthwith notify Bank of such organizational identification number.

 

The execution, delivery and performance of the Loan
Documents have been duly authorized, and do not conflict with Borrower’s
organizational documents, nor shall they constitute an event of default under
any material agreement (as such may be amended from time to time) by which
Borrower is bound.  Borrower is not in
default under any agreement to which or by which it is bound in which the
default could reasonably be expected to cause a Material Adverse Change.

 

5.2                               Collateral.  Borrower has good title to the Collateral,
free of Liens except Permitted Liens. 
Borrower has no deposit account, other than the deposit accounts with
Bank and deposit accounts described in the Perfection Certificate delivered to
Bank in connection herewith.  The
Collateral is not in the possession of any third party bailee (such as a
warehouse), unless Borrower has complied with the provisions of this Section
5.2 with respect thereto.  Except as
hereafter disclosed to Bank in writing by Borrower, none of the components of
the Collateral shall be maintained at locations other than as provided in the
Perfection Certificate.  In the event
that Borrower, after the date hereof, intends to store or otherwise deliver any
portion of the Collateral to a bailee, then Borrower will first receive the
written consent of Bank and such bailee must acknowledge in writing that the
bailee is holding such Collateral for the benefit of Bank. All Inventory is in all material respects of good and marketable
quality, free from material defects. 
Borrower is the sole owner of the Intellectual Property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business.  Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party {except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.

 

5.3                               Litigation.  Except as shown in the Perfection
Certificate, as of the date hereof, there are no actions or proceedings pending
or, to the knowledge of Borrower’s Responsible Officers or legal counsel,
threatened by or against Borrower or any Subsidiary in which an adverse
decision could reasonably be expected to cause a Material Adverse Change.

 

5.4                               No
Material Deterioration in Financial Statements.  All consolidated financial statements for
Borrower and any Subsidiary delivered to Bank fairly present in all material
respects Borrower’s consolidated financial condition and Borrower’s
consolidated results of operations as of the dates and for the periods
specified.

 

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There has not been
any material deterioration in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.

 

5.5                               Solvency.  The fair salable value of Borrower’s assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; and Borrower is able
to pay its debts (including trade debts) as they mature.

 

5.6                               Regulatory
Compliance.  Borrower is not an “investment
company” or a company “controlled” by an “investment company” under the
Investment Company Act of 1940.  Borrower
is not engaged as one of its important activities in extending credit for
margin stock (under Regulations X, T and U of the Federal Reserve Board of
Governors).  Borrower has complied in all
material respects with the Federal Fair Labor Standards Act.  Borrower has not violated any laws,
ordinances or rules, the violation of which could reasonably be expected to
cause a Material Adverse Change.  None of
Borrower’s or any Subsidiary’s properties or assets has been used by Borrower
or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons,
in disposing, producing, storing, treating, or transporting any hazardous
substance other than in compliance with applicable law.  Borrower and each Subsidiary has timely filed
all required material tax returns and paid, or made adequate provision to pay, all
material taxes, except those being contested in good faith with adequate
reserves under GAAP or for which extensions have been properly requested.  Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with or obtained extensions for filing, and given all notices to, all
government authorities that are necessary to continue its business as currently
conducted except where the failure to obtain or make such consents,
declarations, notices or filings would not reasonably be expected to cause a
Material Adverse Change.

 

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

 

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

 

6                                         AFFIRMATIVE
COVENANTS

 

Borrower shall do all of the following:

 

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

 

6.2                               Financial
Statements, Reports, Certificates.

 

(a)                                  Borrower
shall deliver to Bank:  (i) as soon as
available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance
sheet and income statement covering Borrower’s consolidated operations during
the period certified by a Responsible Officer and in a form acceptable to Bank;
(ii) within five (5) days of filing, Borrower shall provide Bank copies of or
electronic notice of links to all statements, reports and notices made
available to Borrower’s security holders or to any holders of Subordinated Debt
and all reports on Form 10-K, and 10-Q filed with the Securities and Exchange
Commission; (iv) a prompt report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000.00) or
more; (v) prompt notice of any material change in the composition of the
Intellectual Property, or the registration of any Copyright (in accordance with
Section 6.7), including any subsequent ownership right of Borrower in or to any
Copyright, Patent 

 

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or
Trademark not shown in any intellectual property security agreement between
Borrower and Bank or knowledge of an event that materially adversely affects
the value of the Intellectual Property; and (vi) other financial information reasonably requested by Bank.

 

6.3                               Intentionally
Deleted.

 

6.4                               Taxes.  Borrower shall make, and cause each
Subsidiary to make, timely payment or timely request for extension of payment
of all material federal, state, and local taxes or assessments (other than
taxes and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP or for which an extension of
deadline has been properly requested) and will deliver to Bank, on demand,
appropriate certificates attesting to such payments.

 

6.5                               Insurance.  Borrower shall keep its business and the
Collateral insured for risks and in amounts,  
and as are reasonable and customary for similarly situated companies.  Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to Bank in its reasonable
discretion.  All property policies shall
have a lender’s loss payable endorsement showing Bank as an additional loss
payee and all liability policies shall show Bank as an additional insured and
all policies shall provide that the insurer must give Bank at least twenty (20)
days notice before canceling its policy. 
At Bank’s request, Borrower shall deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy shall,
at Bank’s option, be payable to Bank on account of the Obligations.
Notwithstanding the foregoing, so long as no Event of Default has occurred and
is continuing, Borrower shall have the option of applying the proceeds of any
casualty policy up to One Hundred Thousand Dollars ($100,000.00), in the
aggregate, toward the replacement or repair of destroyed or damaged property;
provided that (i) any such replaced or repaired property (a) shall be of equal or
like value as the replaced or repaired Collateral and (b) shall be deemed
Collateral in which Bank has been granted a first priority security interest
and (ii) after the occurrence and during the continuation of an Event of
Default all proceeds payable under such casualty policy shall, at the option of
Bank, be payable to Bank on account of the Obligations.  If Borrower fails to obtain insurance as
required under Section 6.5 or to pay any amount or furnish any required proof
of payment to third persons and Bank, Bank may make all or part of such payment
or obtain such insurance policies required in Section 6.5, and take any action
under the policies Bank deems prudent.

 

6.6                               Accounts.

 

(a)                                  In
order to permit Bank to monitor Borrower’s financial performance and condition,
Borrower shall maintain an operating account with Bank as of the Closing Date,
and shall maintain its primary operating accounts with Bank on or prior to
sixty (60) days of the Closing Date.

 

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

 

6.7                               Registration
of Intellectual Property Rights.  Borrower
shall not register any Copyrights or Mask Works in the United States Copyright
Office unless it: (i) has given at least fifteen (15) days’ prior written
notice to Bank of its intent to register such Copyrights or Mask Works and has
provided Bank with a copy of the application it intends to file with the United
States Copyright Office (excluding exhibits thereto); (ii) executes a security
agreement/IP Agreement or such other documents as Bank may reasonably request
in order to maintain the perfection and priority of Bank’s security interest in
the Copyrights proposed to be registered with the United States Copyright
Office; and (iii) records such security agreement/ IP Agreement with the United
States Copyright Office contemporaneously with filing the Copyright
application(s) with the United States Copyright Office.  Borrower shall promptly provide to Bank a
copy of the Copyright application(s) filed with the United States Copyright
Office, together with evidence of the recording of the security documents [IP
Agreement] necessary for Bank to maintain the perfection and priority of its
security interest in such Copyrights or Mask Works.  Borrower shall provide written notice to Bank
of any application filed by Borrower in the United States Patent Trademark
Office for a patent or to register a trademark or service mark within 30 days
of any such filing.

 

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Borrower shall: 
(i) protect, defend and maintain the validity and enforceability of the
Intellectual Property; (ii) promptly advise Bank in writing of material
infringements of the Intellectual Property; and (iii) not allow any
Intellectual Property material to Borrower’s business to be abandoned,
forfeited or dedicated to the public without Bank’s written consent.

 

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

 

7                                         NEGATIVE
COVENANTS

 

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

 

7.1                               Dispositions.  Convey, sell, lease, transfer, assign or
otherwise dispose of (collectively a “Transfer”), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, including
the Intellectual Property, except for Transfers of (a) Inventory in the
ordinary course of business; (b) non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (c) worn-out or obsolete Equipment.  Borrower shall not enter into an agreement
with any Person other than Bank which restricts the subsequent granting of a
security interest in the Intellectual Property.

 

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

 

7.3                               Mergers
or Acquisitions.  Merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with
any other Person, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of another Person.   A Subsidiary may merge or consolidate into
another Subsidiary or into Borrower. 
Notwithstanding the foregoing, Borrower may merge with or be acquired by
a New York Stock Exchange (“NYSE”) or Nasdaq National Market (“Nasdaq”) listed
company (or wholly-owned direct or indirect subsidiary of same) in a
transaction in which the consideration consists of cash or securities listed on
the NYSE or Nasdaq and in which the acquiring company causes all Obligations to
be paid contemporaneously with the closing of such transaction.

 

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

 

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

 

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

 

7.7                               Transactions
with Affiliates.  Directly or
indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower, except for Permitted Affiliate
Transactions.

 

7.8                               Subordinated
Debt.  Make or permit any payment
on any Subordinated Debt, except under the terms of the Subordinated Debt, or
amend any provision in any document relating to the Subordinated Debt

 

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7.9                               Compliance.  (a) Become an “investment company” or a
company controlled by an “investment company”, under the Investment Company Act
of 1940 or undertake as one of its important activities extending credit to
purchase or carry margin stock, or use the proceeds of any Credit Extension for
that purpose; (b) fail to meet the minimum funding requirements of ERISA, or
permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to
occur; or (c) fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, if the violation could reasonably be
expected to have a material adverse effect on Borrower’s business or operations
or would reasonably be expected to cause a Material Adverse Change, or permit
any of its Subsidiaries to do so.

 

8                                         EVENTS
OF DEFAULT

 

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

 

8.1                               Payment
Default.  Borrower fails to pay
any of the Obligations within three (3) days after their due date. During such
three (3) day period the failure to cure the default shall not constitute an
Event of Default (but no Credit Extension shall be made during such cure
period).

 

8.2                               Covenant
Default.  (a)  Borrower fails or neglects to perform any
obligation in Section 6.2, 6.6 or violates any covenant in Article 7;  or (b) 
Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant or agreement contained in this
Agreement, any of the Loan Documents, and as to any default under such other
material term, provision, condition, covenant or agreement that can be cured,
has failed to cure the default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Credit Extensions
shall be made during such cure period). 
Grace periods provided under this Section shall not apply, among other
things, to financial covenants or any other covenants that are required to be
satisfied, completed or tested by a date certain.

 

8.3                               Material
Adverse Change.  A Material
Adverse Change occurs.

 

8.4                               Attachment.  (a) Any material portion of Borrower’s assets
is attached, seized, levied on, or comes into possession of a trustee or
receiver and the attachment, seizure or levy is not removed in ten (10) days;
(b) the service of process upon Borrower seeking to attach, by trustee or
similar process, any funds of Borrower on deposit with Bank, or any entity
under control of Bank (including a subsidiary); (c) Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business; (d) a judgment or other claim becomes a Lien on a material portion of
Borrower’s assets; or (e) a notice of lien, levy, or assessment is filed
against any of Borrower’s assets by any government agency and not paid or
released within ten (10) days after Borrower receives notice.  These are not Events of Default if stayed or
if a bond is posted pending contest by Borrower (but no Credit Extensions shall
be made during the cure period).

 

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

 

8.6                               Other
Agreements.  If there is a
default in any agreement for borrowed money to which Borrower is a party with a
third party or parties resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any Indebtedness in an
amount in excess of One Hundred Thousand Dollars ($100,000.00) or that could
result in a Material Adverse Change.

 

8.7                               Judgments.  If a judgment or judgments not covered by
insurance for the payment of money in an amount, individually or in the
aggregate, of at least One Hundred Thousand Dollars ($100,000.00) shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a
period of ten (10) days (provided that no Credit Extensions will be made prior
to the satisfaction or stay of such judgment).

 

8

 

8.8                               Misrepresentations.  If Borrower or any Person acting for Borrower
makes any material misrepresentation or material misstatement now or later in
any warranty or representation in this Agreement or in any writing delivered to
Bank or to induce Bank to enter this Agreement or any Loan Document.

 

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

 

9                                         BANK’S
RIGHTS AND REMEDIES

 

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

 

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

 

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

 

(c)                                  Settle
or adjust disputes and claims directly with account debtors for amounts, on
terms and in any order that Bank considers advisable and notify any Person
owing Borrower money of Bank’s security interest in such funds and verify
and/or collect the amounts owed by such account debtors.  After the occurrence of an Event of Default,
any amounts received by Borrower shall be held in trust by Borrower for Bank,
and, if requested by Bank, Borrower shall immediately deliver such receipts to
Bank in the form received from the account debtor, with proper endorsements for
deposit;

 

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

 

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

 

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

 

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

 

(h)                                 Exercise
all rights and remedies and dispose of the Collateral according to the Code.

 

9.2                               Power
of Attorney.  Borrower hereby
irrevocably appoints Bank as its lawful attorney-in-fact, to be effective upon
the occurrence and during the continuance of an Event of Default, to:  (a) endorse Borrower’s name on any checks or
other forms of payment or security; (b) sign Borrower’s name on any invoice or
bill of lading for any Account or drafts against account debtors; (c) settle
and adjust disputes and claims about the Accounts directly with account
debtors, for amounts and on terms Bank determines reasonable; (d) make, settle,
and adjust all claims under Borrower’s insurance policies; and (e) transfer the
Collateral into the name of Bank or a third party as 

 

9

 

the
Code permits.  Borrower hereby appoints
Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents
necessary to perfect or continue the perfection of any security interest
regardless of whether an Event of Default has occurred until all Obligations
have been satisfied in full and Bank is under no further obligation to make
Credit Extensions hereunder.  Bank’s
foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights
and powers, coupled with an interest, are irrevocable until all Obligations
have been fully repaid and performed and Bank’s obligation to provide Credit
Extensions terminates.

 

9.3                               Bank
Expenses.  Any amounts paid by
Bank as provided herein shall constitute Bank Expenses and are immediately due
and payable, and shall bear interest at the then applicable rate hereunder and
be secured by the Collateral.  No
payments by Bank shall be deemed an agreement to make similar payments in the
future or Bank’s waiver of any Event of Default.

 

9.4                               Bank’s
Liability for Collateral.  So
long as Bank complies with reasonable banking practices regarding the
safekeeping of Collateral and Section 9-207 of the Code, Bank shall not be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss
or damage to the Collateral; (c) any diminution in the value of the Collateral;
or (d) any act or default of any carrier, warehouseman, bailee, or other
Person.  Borrower bears all risk of loss,
damage or destruction of the Collateral.

 

9.5                               Remedies
Cumulative.  Bank’s rights and
remedies under this Agreement, the Loan Documents, and all other agreements are
cumulative.  Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s exercise of one
right or remedy is not an election, and Bank’s waiver of any Event of Default
is not a continuing waiver. Bank’s delay is not a waiver, election, or
acquiescence. No waiver hereunder shall be effective unless signed by Bank and
then is only effective for the specific instance and purpose for which it was given.

 

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

 

10                                  NOTICES

 

All notices or demands by any party to this Agreement
or any related agreement must be in writing and be personally delivered or sent
by an overnight delivery service, by certified mail, postage prepaid, return
receipt requested, or by facsimile at the addresses listed below.  Either Bank or Borrower may change its notice
address by giving the other party written notice.

 

	
  If to Borrower:

  	
   

  	
  Physiometrix, Inc.

  
	
   

  	
   

  	
  5 Billerica Park, 101
  Billerica Avenue

  
	
   

  	
   

  	
  North Billerica,
  Massachusetts 01862

  
	
   

  	
   

  	
  Attn: Mr. Daniel Muehl,
  Chief Financial Officer

  
	
   

  	
   

  	
  FAX: (978)                         

  
	
   

  	
   

  	
   

  
	
  If to Bank:

  	
   

  	
  Silicon Valley Bank

  
	
   

  	
   

  	
  One Newton Executive
  Park, Suite 200

  
	
   

  	
   

  	
  2221 Washington Street

  
	
   

  	
   

  	
  Newton, Massachusetts
  02462

  
	
   

  	
   

  	
  Attn: Mr. Michael
  Hanewich

  
	
   

  	
   

  	
  Fax: (617) 969-4395

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Riemer & Braunstein
  LLP

  
	
   

  	
   

  	
  Three Center Plaza

  
	
   

  	
   

  	
  Boston, Massachusetts
  02108

  
	
   

  	
   

  	
  Attn: David A. Ephraim,
  Esquire

  
	
   

  	
   

  	
  FAX: (617) 880-3456

  

 

10

 

11                                  CHOICE
OF LAW, VENUE AND JURY TRIAL WAIVER

 

Massachusetts law governs the Loan Documents without
regard to principles of conflicts of law. 
Borrower and Bank each submit to the exclusive jurisdiction of the State
and Federal courts in Massachusetts; provided, however, that if for any reason
Bank cannot avail itself of such courts in the Commonwealth of Massachusetts,
Borrower accepts jurisdiction of the courts and venue in Santa Clara County,
California.  NOTWITHSTANDING THE
FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK
REASONABLY DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL
OR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS PROPERTY.

 

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

 

12                                  GENERAL
PROVISIONS

 

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

 

12.2                        Indemnification.  Borrower hereby indemnifies, defends and
holds Bank and its directors, officers, employees and agents harmless
against:  (a) all obligations, demands,
claims, and liabilities asserted by any other party or Person in connection
with the transactions contemplated by the Loan Documents; and (b) all losses or
Bank Expenses incurred, or paid by Bank from, following, or consequential to
transactions between Bank and Borrower (including reasonable attorneys’ fees
and expenses), except for losses caused by Bank’s gross negligence or willful
misconduct.

 

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

 

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

 

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

 

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

 

11

 

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

 

12.8                        Survival.  All covenants, representations and warranties
made in this Agreement continue in full force until this Agreement has
terminated pursuant to its terms, and all Obligations have been satisfied..  The obligation of
Borrower in Section 12.2 to indemnify Bank shall survive until the statute of
limitations with respect to such claim or cause of action shall have run.

 

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

 

13                                  DEFINITIONS

 

13.1                        Definitions.  In this Agreement:

 

“Accounts”
are all existing and later arising accounts, contract rights, and other
obligations owed Borrower in connection with its sale or lease of goods
(including licensing software and other technology) or provision of services,
all credit insurance, guaranties, other security and all merchandise returned
or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing,
as such definition may be amended from time to time according to the Code.

 

“Advance”
or “Advances” is a loan advance
(or advances) under the Revolving Line.

 

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

 

“Bank Expenses”
are all audit fees and expenses and reasonable costs or expenses (including
reasonable attorneys’ fees and expenses) for preparing, negotiating,
administering, defending and enforcing the Loan Documents (including appeals or
Insolvency Proceedings).

 

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

 

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

 

 “Closing Date” is the date of this
Agreement.

 

“Code” is
the Uniform Commercial Code as adopted in Massachusetts, as amended and as may
be amended and in effect from time to time.

 

 “Collateral” is any and all properties,
rights and assets of Borrower granted by Borrower to Bank or arising under the
Code, now, or in the future, in which Borrower obtains an interest, or the
power to transfer rights, in the property described on Exhibit A.

 

12

 

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

 

“Copyrights”
are all copyright rights, applications or registrations and like protections in
each work or authorship or derivative work, whether published or not (whether
or not it is a trade secret) now or later existing, created, acquired or held.

 

“Credit Extension”
is each Advance or any other extension of credit by Bank for Borrower’s
benefit.

 

 “Equipment” is all present and future
machinery, equipment, tenant improvements, furniture, fixtures, vehicles,
tools, parts and attachments in which Borrower has any interest.

 

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

 

“Event of Default”
is defined in Article 8.

 

“GAAP” is
generally accepted accounting principles in the United States.

 

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

 

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

 

“Intellectual
Property” is:

 

(a)                                  Copyrights,
Trademarks, Patents, and Mask Works including amendments, renewals, extensions
and all licenses or other rights to use and all license fees and royalties from
the use;

 

(b)                                 Any
trade secrets and any Intellectual Property rights in computer software and
computer software products now or later existing, created, acquired or held;

 

(c)                                  All
design rights which may be available to Borrower now or later created, acquired
or held;

 

(d)                                 Any
claims for damages (past, present or future) for infringement of any of the
rights above, with the right, but not the obligation, to sue and collect
damages for use or infringement of the intellectual property rights above.

 

All proceeds and products
of the foregoing, including all insurance, indemnity or warranty payments.

 

“Inventory”
is present and future inventory in which Borrower has any interest, including
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products intended for sale or lease or to be
furnished under a contract of service, of every kind and description now or
later owned by or in

 

13

 

the custody or possession,
actual or constructive, of Borrower, including inventory temporarily out of its
custody or possession or in transit and including returns on any accounts or
other proceeds (including insurance proceeds) from the sale or disposition of
any of the foregoing and any documents of title.

 

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

 

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

 

 “Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.

 

“Loan Documents”
are, collectively, this Agreement, any guaranties executed by any Guarantor,
and any other present or future agreement between Borrower
and/or for the benefit of Bank in connection with this Agreement, all as
amended, extended or restated.

 

“Mask Works”
are all mask works or similar rights available for the protection of
semiconductor chips, now owned or later acquired.

 

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

 

“Obligations”
are all liabilities, obligations, covenants, agreements, debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later,
including letters of credit, cash management services, and foreign exchange
contracts, if any, and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.

 

“Patents” are
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions and continuations-in-part
of the same

 

“Payment/Advance
Form” is in the form of
Exhibit B.

 

“Perfection
Certificate” is defined
in Section 5.1.

 

“Permitted Affiliate Transactions”
are:

 

(a)                                  transactions that are in the ordinary course of Borrower’s
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm’s length transaction with a non-affiliated
Person;

 

(b)                                 compensation
and benefit arrangements (including the granting of options or other equity
compensation arrangements) approved by or pursuant to any plan approved by the
board of directors of Borrower, and any indemnification arrangements with
employees, officers, directors or consultants; and

 

(c)                                  any Permitted Investment.

 

“Permitted Distributions”
are:

 

(a)                                  repurchases of stock from employees, consultants or
directors of Borrower in an aggregate amount not to exceed One Hundred Thousand
Dollars ($100,000.00) in any fiscal year, provided that no Event of Default has
occurred and is continuing or would exist after giving effect to the
repurchases;

 

(b)                                 distributions payable solely in capital stock of the
Borrower;

 

14

 

(c)                                  the distribution of non-cash rights in connection with any
stockholders’ rights plan; and

 

(d)                                 the conversion by Borrower of any of its convertible
securities into other securities pursuant to the terms of such convertible
securities or otherwise in exchange therefor, and payments in cash for any
fractional shares of such convertible securities.

 

“Permitted
Indebtedness” is:

 

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

 

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

 

(c)                                  Subordinated
Debt;

 

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

 

(e)                                  Indebtedness
secured by Permitted Liens;

 

(f)                                    Other
Indebtedness in an aggregate principal amount not to exceed One Hundred
Thousand Dollars ($100,000.00); and

 

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

 

“Permitted
Investments” are:

 

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

 

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

 

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

 

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

 

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

 

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

 

(g)                                 Joint
ventures or strategic alliances in the ordinary course of Borrower’s business
consisting of the non-exclusive licensing of technology, the development of
technology

 

15

 

or
the providing of technical support, provided that any cash investments by
Borrower do not exceed One Hundred Thousand Dollars ($100,000.00) in the
aggregate in any fiscal year; and

 

(h)                                 Other
Investments not otherwise permitted by Section 7.6 not exceeding Fifty Thousand
Dollars ($50,000.00) in the aggregate outstanding at any time.

 

 “Permitted Liens” are:

 

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

 

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

 

(c)                                  Purchase
money Liens (i) on Equipment acquired or held by Borrower incurred for
financing the acquisition of the Equipment securing no more than One Hundred
Thousand Dollars ($100,000.00) in the aggregate amount outstanding, or (ii)
existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;

 

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

 

(e)                                  Liens
arising from judgments, decrees or attachments in circumstances not constituting
an Event of Default;

 

(f)                                    Liens
in favor of other financial institutions arising in connection with Borrower’s
deposit accounts or securities accounts held at such institutions, provided
that Bank has a perfected security interest in the amounts held in such deposit
accounts or securities accounts;

 

(g)                                 Bankers’
liens, rights of setoff and similar Liens incurred on deposits made in the
ordinary course of business;

 

(h)                                 Carriers’,
warehousemen’s, materialmen’s, mechanics’, repairmen’s, employees’ or other
like Liens arising in the ordinary course of business and which are not delinquent
for more than 30 days or are being contested in good faith by appropriate
proceedings;

 

(i)                                     Liens
in favor of customs and revenue authorities arising as a matter of law to secure
payments of customs duties in connection with the importation of goods;

 

(j)                                     Liens
on insurance proceeds in favor of insurance companies granted solely as security
for financed premiums;

 

(k)                                  Easements,
reservations, restrictions, rights-of-way, minor defects or irregularities in
title and other similar charges or encumbrances affecting real property;

 

(l)                                     Deposits
or pledges to secure the performance of bids, tenders, contracts, public or
statutory obligations, surety, stay, appeal, indemnity, performance or other
similar bonds or similar obligations arising in the ordinary course of
business;

 

(m)                               Liens
to secure payment of workers’ compensation, employment insurance, old age
pensions, social security or other like obligations incurred in the ordinary
course of business;

 

16

 

(n)                                 Purported
Liens evidenced by the filing of precautionary UCC financing statements
relating solely to operating leases of personal property; and

 

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

 

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

 

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

 

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

 

“Revolving Line”
is an Advance or Advances of up to One Million Dollars ($1,000,000.00).

 

“Revolving Line
Availability” is defined in Section 2.1.1(a).

 

“Revolving Line Maturity Date” is the
earlier to occur of (i) April ___, 2006, and (ii) the consummation of (x) the
sale of all or substantially all of the assets of Borrower or (y) an
acquisition, whether by merger or otherwise, of all or substantially all of the
capital stock of Borrower, pursuant to the terms and conditions of Section 7.3.

 

“Sale Agreement Event” shall mean receipt by
the Borrower of a signed purchase agreement for the sale of all or
substantially all of the assets of, or controlling interest in, Borrower.

 

 “Subordinated Debt” is debt incurred by
Borrower subordinated to Borrower’s debt to Bank (pursuant to a subordination
agreement entered into between Bank, Borrower and the subordinated creditor),
on terms acceptable to Bank.

 

“Subsidiary”
is any Person, or any other business entity of which more than 50% of the
voting stock or other equity interests is owned or controlled, directly or
indirectly, by the Person or one or more Affiliates of the Person.

 

 “Trademarks” are
trademark and service mark rights, registered or not, applications to register
and registrations and like protections, and the entire goodwill of the business
of Borrower connected with the trademarks.

 

[Remainder
of Page Intentionally Left Blank]

 

17

 

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

 

	
  BORROWER:

  
	
   

  
	
  PHYSIOMETRICS,
  INC.

  
	
   

  
	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
  BANK:

  
	
   

  
	
  SILICON
  VALLEY BANK

  
	
   

  
	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
						

 

S-1

 

EXHIBIT A

 

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

 

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

 

Any Copyright rights, Copyright applications,
Copyright registrations and like protections in each work of authorship and
derivative work, whether published or unpublished, now owned or later acquired;
any Patents, Trademarks, service marks and applications therefor; trade styles,
trade names, any trade secret rights, including any rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; or any claims for
damages by way of any past, present and future infringement of any of the
foregoing; and

 

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

 

B-1

 

EXHIBIT B

 

Loan Payment/Advance Request Form

Deadline for same day processing is 3:00 E.S.T.

	
  Fax
  To: (617) 969-5965

  	
   

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
  LOAN PAYMENT:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Physiometrix,
  Inc.

  	
   

  
	
  From
  Account #

  	
   

  	
   

  	
   

  	
  To
  Account #

  	
   

  	
   

  
	
   

  	
  (Deposit
  Account #)

  	
   

  	
   

  	
  (Loan Account #)

  	
   

  
	
  Principal
  $

  	
   

  	
   

  	
   

  	
  and/or
  Interest $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
   

  	
  Phone
  Number: 

  	
   

  	
   

  
														

 

	
  LOAN ADVANCE:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Complete
  Outgoing Wire Request section
  below if all or a portion of the funds from this loan advance are for an
  outgoing wire.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  From
  Account #

  	
   

  	
   

  	
   

  	
  To
  Account #

  	
   

  	
   

  
	
   

  	
  (Loan
  Account #)

  	
   

  	
   

  	
  (Deposit
  Account #)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Amount
  of Advance $

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  All
  Borrower’s representation and warranties in the Loan and Security Agreement
  are true, correct and complete in all material respects on the date of the
  telephone transfer request for an advance, but those representations and
  warranties expressly referring to another date shall be true, correct and
  complete in all material respects as of such date:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Authorized Signature: 

  	
   

  	
   

  	
  Phone
  Number: 

  	
   

  	
   

  
													

 

	
  OUTGOING WIRE REQUEST

  	
   

  	
   

  	
   

  
	
  Complete only if all or a portion of funds from the loan advance above are to be wired.

  	
   

  
	
  Deadline
  for same day processing is 3:00 pm, E.S.T.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Beneficiary
  Name:

  	
   

  	
   

  	
  Amount
  of Wire: $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beneficiary
  Bank:

  	
   

  	
   

  	
  Account
  Number: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  City
  and State:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beneficiary
  Bank Transit (ABA) #:

  	
   

  	
   

  	
  Beneficiary
  Bank Code (Swift, Sort, Chip, etc.):

  	
   

  	
   

  
	
   

  	
   

  	
  (For International Wire Only)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Intermediary
  Bank:

  	
   

  	
   

  	
  Transit
  (ABA) #:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  For
  Further Credit to:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Special
  Instruction:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By signing below, I (we) acknowledge and agree that my
  (our) funds transfer request shall be processed in accordance with and
  subject to the terms and conditions set forth in the agreements(s) covering
  funds transfer service(s), which agreements(s) were previously received and
  executed by me (us).

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Authorized
  Signature:

  	
   

  	
   

  	
  2nd
  Signature (If Required):

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Print
  Name/Title: 

  	
   

  	
   

  	
  Print
  Name/Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Telephone
  #

  	
   

  	
   

  	
  Telephone
  #

  	
   

  	
   

  
																				

 

B-2Exhibit 10.16

 

EXECUTION
COPY

 

THIS WARRANT
AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT AND LAWS OR, SUBJECT TO SECTION 5.3 HEREOF, AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.

 

WARRANT TO PURCHASE STOCK

 

Issuer: Physiometrix,
Inc., a Delaware corporation

Number of
Shares: 72,464

Class of
Stock: Common Stock, $0.001 par value per share

Exercise
Price: $0.69 per share

Issue Date:
April 20, 2005

Expiration
Date: April 20, 2015

 

FOR THE AGREED UPON VALUE of $1.00, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, this Warrant is issued to SILICON VALLEY BANK (together
with its successors and permitted assigns, “Holder”) by Physiometrix, Inc., a Delaware
corporation (the ”Company”).

 

Subject to the terms and conditions
hereinafter set forth, the Holder is entitled upon surrender of this Warrant
and the duly executed Notice of Exercise form annexed hereto as Appendix 1
(“Notice of Exercise”), at the principal office of the Company, 5 Billerica
Park, 101 Billerica Avenue, N. Billerica, Massachusetts 01862, or such other
office as the Company shall notify the Holder of in writing, to purchase from
the Company up to Seventy Two Thousand Four Hundred Sixty Four (72,464) fully
paid and non-assessable shares (the “Shares”) of the Company’s common stock, $0.001
par value per share (“Common Stock”) at a purchase price per Share of Sixty
Nine Cents ($0.69) (the “Exercise Price”). 
This Warrant may be exercised in whole or in part at any time and from
time to time until 5:00 PM, Eastern time, on the
Expiration Date, and shall be void thereafter. 
Until such time as this Warrant is exercised in full or expires, the
Exercise Price and the Shares are subject to adjustment from time to time as
hereinafter provided.

 

ARTICLE 1.      EXERCISE.

 

1.1                                 Method
of Exercise.  Holder may exercise
this Warrant by delivering a duly executed Notice of Exercise to the principal
office of the Company.  Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall
also deliver to the Company a check for the aggregate Exercise Price for the
Shares being purchased.

 

 

1.2                                 Conversion
Right.  In lieu of exercising this
Warrant as specified in Section 1.1, Holder may from time to time convert
this Warrant, in whole or in part, into a number of Shares determined as
follows:

 

X = Y (A-B)/A

 

where:

 

X = the number
of Shares to be issued to the Holder.

 

Y = the number
of Shares with respect to which this Warrant is being exercised.

 

A = the Fair
Market Value (as determined pursuant to Section 1.3 below) of one Share.

 

B = the
Exercise Price.

 

1.3                                 Fair
Market Value.

 

1.3.1                        If shares
of Common Stock are traded on a nationally recognized securities exchange or
over the counter market, the fair market value of one Share shall be the
closing price of a share of Common Stock reported for the business day
immediately preceding the date of Holder’s Notice of Exercise to the Company.

 

1.3.2                        If shares
of Common Stock are not traded on a nationally recognized securities exchange
or over the counter market, the Board of Directors of the Company shall
determine the fair market value of a share of Common Stock in its reasonable
good faith judgment.

 

1.4                                 Delivery
of Certificate and New Warrant. 
Promptly after Holder exercises or converts this Warrant, the Company
shall deliver to Holder certificates for the Shares acquired and, if this
Warrant has not been fully exercised or converted and has not expired, a new
Warrant representing the right to purchase the Shares not so acquired.

 

1.5                                 Replacement
of Warrants.  On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company or, in the case of mutilation, on surrender and cancellation of
this Warrant, the Company at its expense shall execute and deliver, in lieu of
this Warrant, a new warrant of like tenor.

 

1.6                                 Assumption
on Sale, Merger, or Consolidation of the Company.

 

1.6.1                        “Acquisition”.  For the purpose of this Warrant, “Acquisition”
means any sale, transfer, exclusive license, or other disposition of all or
substantially all of the assets 

 

2

 

of the
Company, or any acquisition, reorganization, consolidation or merger of the
Company where the holders of the Company’s outstanding voting equity securities
immediately prior to the transaction beneficially own less than a majority of
the outstanding voting equity securities of the surviving or successor entity
immediately following the transaction.

 

1.6.2                        Upon the
closing of any Acquisition (other than an Acquisition in which the
consideration received by the Company’s stockholders consists solely of cash
and/or cash equivalents), and as a condition precedent thereto, the successor
or surviving entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of
this Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing.  The
Exercise Price shall be adjusted accordingly, and the Exercise Price and number
and class of Shares shall continue to be subject to adjustment from time to
time in accordance with the provisions hereof. 
Upon the closing of any Acquisition in which the consideration received
by the Company’s stockholders consists solely of cash and/or cash equivalents,
then, to the extent not exercised or converted on or before the closing of such
Acquisition, this Warrant shall terminate and be of no further force or effect.

 

ARTICLE 2.      ADJUSTMENTS
TO THE SHARES.

 

2.1                                 Stock
Dividends, Splits, Etc.   If the
Company declares or pays a dividend on the outstanding shares of Common Stock,
payable in Common Stock or other securities, or subdivides the outstanding
Common Stock into a greater amount of Common Stock, then upon exercise of this
Warrant, for each Share acquired, Holder shall receive, without cost to Holder,
the total number and kind of securities to which Holder would have been
entitled had Holder owned the Shares of record as of the date the dividend or
subdivision occurred.

 

2.2                                 Reclassification,
Exchange or Substitution.  Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event.  The Company or its
successor shall promptly issue to Holder a new Warrant for such new securities
or other property.  The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Exercise Price and to the number of
securities or property issuable upon exercise of the new Warrant.  The provisions of this Section 2.2 shall
similarly apply to successive reclassifications, exchanges, substitutions, or
other events.

 

2.3                                 Adjustments
for Combinations, Etc.  If the
outstanding shares of Common Stock are combined or consolidated, by
reclassification or otherwise, into a lesser number of shares, the 

 

3

 

Exercise Price shall be proportionately
increased and the number of Shares shall be proportionately decreased.

 

2.4                                 No
Impairment.  The Company shall not,
by amendment of its Certificate of Incorporation or by-laws, or through a
reorganization, transfer of assets, consolidation, merger, dissolution, issue,
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed under
this Warrant by the Company, but shall at all times in good faith assist in
carrying out of all the provisions of this Article 2 and in taking all such
action as may be necessary or appropriate to protect Holder’s rights under this
Article against impairment.

 

2.5                                 Intentionally
Omitted.

 

2.6                                 Fractional
Shares.  No fractional Shares shall
be issuable upon exercise or conversion of the Warrant and the number of Shares
to be issued shall be rounded down to the nearest whole Share.  If a fractional Share interest arises upon
any exercise or conversion of this Warrant, the Company shall eliminate such
fractional Share interest by paying Holder an amount computed by multiplying
such fractional interest by the Fair Market Value (determined in accordance
with Section 1.3 above) of one Share.

 

2.7                                 Certificate
as to Adjustments.  Upon each
adjustment of the Exercise Price, number of Shares or class of security for
which this Warrant is exercisable, the Company at its expense shall promptly
compute such adjustment, and furnish Holder with a certificate of its chief
financial officer setting forth such adjustment and the facts upon which such
adjustment is based.  The Company shall,
upon written request, furnish Holder a certificate setting forth the Exercise
Price,  number
of Shares and class of security for which this Warrant is exercisable in effect
upon the date thereof and the series of adjustments leading to such Exercise
Price, number of Shares and class of security.

 

ARTICLE 3.      REPRESENTATIONS
AND COVENANTS OF THE COMPANY.

 

3.1                                 Representations
and Warranties.  The Company hereby
represents and warrants to the Holder as follows:

 

3.1.1                        All Shares
which may be issued upon the due exercise of this Warrant shall, upon issuance,
be duly authorized, validly issued, fully paid and non-assessable, and free of
any liens and encumbrances except for restrictions on transfer provided for
herein or under applicable federal and state securities laws.

 

3.1.2                        The
Company covenants that it shall at all times cause to be reserved and kept
available out of its authorized and unissued shares such number of shares of
its Common Stock and other securities as will be sufficient to permit the
exercise in full of this Warrant and the conversion or exchange of such Common Stock
into or for such other securities.

 

4

 

3.1.3                        The
execution and delivery by the Company of this Warrant and the performance of
all obligations of the Company hereunder, including the issuance to Holder of
the Shares upon exercise or conversion hereof, (i) have been duly authorized by
all necessary corporate action on the part of the Company, its Board of
Directors and stockholders, (ii) do not conflict with or violate the
Certificate and/or the Company’s by-laws, (iii) do not contravene any law or
governmental rule, regulation or order applicable to it, and (iv) do not
contravene any provision of, or constitute a default under, any material
indenture, mortgage, contract or other instrument to which it is a party or by
which it is bound.  This Warrant
constitutes the legal, valid and binding agreement of the Company, enforceable
in accordance with its terms.

 

3.2                                 Notice
of Certain Events.  If the Company
proposes at any time (a) to declare any dividend or distribution upon any
of its Common Stock, whether in cash, property, stock, or other securities and
whether or not a regular cash dividend; (b) to offer for subscription pro
rata to the holders of Common Stock any additional shares of stock of any class
or series or other rights; (c) to effect any reclassification or
recapitalization of any of its Common Stock; or (d) to merge or
consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all of its assets, or to liquidate, dissolve or
wind up, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which
a record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of securities of the Company
shall be entitled to receive such dividend, distribution or rights) or for
determining rights to vote, if any, in respect of the matters referred to in
(c) and (d) above; and (2) in the case of the matters referred to in (c)
and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of
securities of the Company will be entitled to exchange their securities of the
Company for securities or other property deliverable upon the occurrence of
such event).

 

3.3                                 Intentionally
Omitted.

 

ARTICLE 4.      REPRESENTATIONS
AND WARRANTIES OF THE HOLDER.

 

4.1                                 Purchase
for Own Account.  This Warrant and
the Shares to be acquired upon exercise hereof will be acquired for investment
for Holder’s account, not as nominee or agent, and not with a view to sale or
distribution in violation of applicable federal and state securities laws;
provided that, for regulatory reasons, Silicon Valley Bank will transfer this
Warrant to its parent corporation, Silicon Valley Bancshares, promptly
following issuance hereof.

 

4.2                                 Investment
Experience.  Holder understands that
the purchase of this Warrant and the Shares covered hereby involves substantial
risk.  Holder (a) has experience as an
investor in unregistered securities, (b) has sufficient knowledge and
experience in financial and business affairs that it evaluate
the risks and merits of its investment in this Warrant and the Shares, and (c)
can bear the economic risk of such Holder’s investment in this Warrant and the
Shares.

 

5

 

4.3                                 Accredited
Investor.  Holder is an “accredited
investor” as such term is defined in Regulation D under the Securities Act of
1933, as amended.

 

ARTICLE 5.       MISCELLANEOUS.

 

5.1                                 Automatic
Conversion upon Expiration.  In the
event that, upon the Expiration Date, the Fair Market Value of one Share (or
other security issuable upon the exercise hereof) as determined in accordance
with Section 1.3 above is greater than the Exercise Price in effect on such
date, then this Warrant shall automatically be deemed on and as of such date to
be converted pursuant to Section 1.2 above as to all Shares (or such other
securities) for which it shall not previously have been exercised or converted,
and the Company shall promptly deliver a certificate representing the Shares
(or such other securities) issued upon such conversion to the Holder.

 

5.2                                 Legends.  This Warrant and the Shares shall be
imprinted with a legend in substantially the following form:

 

THIS SECURITY
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT AND LAWS OR, SUBJECT
TO SECTION 5.3 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE
CORPORATION TO SILICON VALLEY BANK DATED AS OF APRIL 20, 2005, AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.

 

5.3                                 Compliance
with Securities Laws on Transfer. 
This Warrant and the Shares may not be transferred or assigned in whole
or in part without compliance with applicable federal and state securities laws
by the transferor and the transferee (including, without limitation, the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, as reasonably requested by the Company).  The Company shall not require Holder to
provide an opinion of counsel if the transfer is to Silicon Valley Bancshares
or other affiliate of Holder.

 

5.4                                 Transfer
Procedure.  Following its receipt of
this executed Warrant, Silicon Valley Bank will transfer same in whole or in
part to its parent corporation Silicon Valley Bancshares, by execution of an Assignment
substantially in the form of Appendix 2, and thereafter Holder and/or
Silicon Valley Bancshares may, subject to Section 5.3 above, transfer all or
part of this Warrant and/or the Shares at any time and from time to time by
giving the Company notice of the portion of the Warrant and/or Shares being
transferred setting forth the name, address and taxpayer identification number
of the transferee and surrendering this Warrant to the Company for reissuance
to the transferee(s) (and Holder if applicable).

 

5.5                                 Notices.  All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally, or mailed by 

 

6

 

first-class registered or certified mail, postage prepaid, or sent via
reputable overnight courier service, fee prepaid, at such address as may have
been furnished to the Company or the Holder, as the case may be, in writing by
the Company or such holder from time to time, but in all cases, unless
instructed in writing otherwise, the Company shall deliver a copy of all
notices to Holder to Silicon Valley Bank, Treasury Department, 3003 Tasman
Drive, HA-200, Santa Clara, California 95054.

 

5.6                                 Waiver.  This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.

 

5.7                                 Attorneys
Fees.  In the event of any dispute
between the parties concerning the terms and provisions of this Warrant, the
party prevailing in such dispute shall be entitled to collect from the other
party all costs incurred in such dispute, including reasonable attorneys’ fees.

 

5.8                                 Governing
Law.  This Warrant shall be governed
by and construed in accordance with the laws of The Commonwealth of
Massachusetts, without giving effect to its principles regarding conflicts of
law.

 

5.9                                 No
Rights as a Shareholder.  Except as specifically provided in this Warrant, Holder shall have
no rights as a shareholder of the Company in respect of the Shares issuable
hereunder unless and until Holder exercises this Warrant as to all or any of
such Shares.

 

[REMAINDER OF
PAGE LEFT BLANK INTENTIONALLY]

 

7

 

IN WITNESS WHEREOF, the Company has caused
this Warrant to Purchase Stock to be executed as an instrument under seal by
its duly authorized representative as of the date first above written.

 

	
   

  	
  “COMPANY”

  
	
   

  	
   

  
	
   

  	
  PHYSIOMETRIX,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

8

 

APPENDIX 1

 

NOTICE OF
EXERCISE

 

1.                                       The
undersigned hereby elects to purchase               shares
of the                         
stock of                                     
pursuant to Section 1.1 of the attached Warrant, and tenders herewith payment
of the Exercise Price of such shares in full.

 

1.                                       The
undersigned hereby elects to convert the attached Warrant into Shares in the
manner specified in Section 1.2 of the attached Warrant.  This conversion is exercised with respect to                         
of shares of the Common Stock of the Company.

 

[Strike
paragraph that does not apply.]

 

2.                                       Please
issue a certificate or certificates representing said shares in the name of the
undersigned or in such other name as is specified below:

 

	
   

  	
   

  
	
   

  	
  (Name)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Address)

  

 

3.                                       The
undersigned represents it is acquiring the shares solely for its own account
and not as a nominee for any other party and not with a view toward the resale
or distribution thereof except in compliance with applicable securities laws.

 

	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Date)

  	
   

  	
   

  

 

9

 

APPENDIX 2

 

ASSIGNMENT

 

For value received, Silicon
Valley Bank hereby sells, assigns and transfers unto

 

	
   

  	
  Name:

  	
   

  	
  Silicon Valley Bancshares

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
  3003 Tasman Drive (HA-200)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Santa Clara, CA 95054

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Tax ID:

  	
   

  	
  91-1962278

  

 

that certain
Warrant to Purchase Stock issued by Physiometrix, Inc. (the ”Company”), on
April 20, 2005 (the “Warrant”) together with all rights, title and interest
therein.

 

	
   

  	
  SILICON VALLEY
  BANK

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date: [insert
  Issue Date]

  	
   

  	
   

  
						

 

By its execution below, and for the benefit
of the Company, Silicon Valley Bancshares makes each of the representations and
warranties set forth in Article 4 of the Warrant as of the date hereof.

 

	
   

  	
  SILICON VALLEY
  BANCSHARES

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

10

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