{"id":41138,"date":"2015-09-17T11:25:58","date_gmt":"2015-09-17T16:25:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/contracts\/uncategorized\/loan-and-security-agreement-va-research-inc-and-comerica.html"},"modified":"2015-09-17T11:25:58","modified_gmt":"2015-09-17T16:25:58","slug":"loan-and-security-agreement-va-research-inc-and-comerica","status":"publish","type":"corporate_contracts","link":"https:\/\/corporate.findlaw.com\/contracts\/finance\/loan-and-security-agreement-va-research-inc-and-comerica.html","title":{"rendered":"Loan and Security Agreement – VA Research Inc. and Comerica Bank-California"},"content":{"rendered":"\n================================================================================\n\n VA RESEARCH, INC.\n\n LOAN AND SECURITY AGREEMENT\n\n================================================================================\n\n 2\n This LOAN AND SECURITY AGREEMENT (this \"Agreement\") is entered into as of\nFebruary 18, 1999, by and between COMERICA BANK-CALIFORNIA (\"Bank\") and VA\nRESEARCH, INC. (\"Borrower\").\n\n RECITALS\n\n Borrower wishes to obtain credit from time to time from Bank, and Bank\ndesires to extend credit to Borrower. This Agreement sets forth the terms on\nwhich Bank will advance credit to Borrower, and Borrower will repay the amounts\nowing to Bank.\n\n AGREEMENT\n\n The parties agree as follows:\n\n 1. DEFINITIONS AND CONSTRUCTION\n\n 1.1 Definitions.\n\n As used in this Agreement, the following terms shall have the\nfollowing definitions:\n\n \"Accounts\" means all presently existing and hereafter arising\naccounts, contract rights, and all other forms of obligations owing to Borrower\narising out of the sale or lease of goods (including, without limitation, the\nlicensing of software and other technology) or the rendering of services by\nBorrower, whether or not earned by performance, and any and all credit\ninsurance, guaranties, and other security therefor, as well as all merchandise\nreturned to or reclaimed by Borrower and Borrower's Books relating to any of\nthe foregoing.\n\n \"Advance\" or \"Advances\" means a loan advance under the Committed\nRevolving Line.\n\n \"Affiliate\" means, with respect to any Person, any Person that\nowns or controls directly or indirectly such Person, any Person that controls\nor is controlled by or is under common control with such Person, and each of\nsuch Person's senior executive officers, directors, partners and, for any\nPerson that is a limited liability company, such Persons, managers and members.\n\n \"Bank Expenses\" means all: reasonable costs or expenses\n(including reasonable attorneys' fees and expenses) incurred in connection with\nthe preparation, negotiation, administration, and enforcement of the Loan\nDocuments; and Bank's reasonable attorneys' fees and expenses incurred in\namending, enforcing or defending the Loan Documents (including fees and\nexpenses of appeal or review, or those incurred in any Insolvency Proceeding),\nwhether or not suit is brought.\n\n \"Base Rate\" means the variable rate of interest, per annum, most\nrecently announced by Bank, as its \"Base Rate,\" whether or not such announced\nrate is the lowest rate available from Bank.\n\n \"Borrower's Books\" means all of Borrower's books and records\nincluding without limitation: ledgers, records concerning Borrower's assets or\nliabilities, the Collateral, business operations or financial condition; and\nall computer programs or tape files, and the equipment containing such\ninformation.\n\n \"Borrowing Base\" means: (i) at any time prior to the Equity\nInfusion, an amount equal to eighty percent (80%) of Eligible Accounts plus\n$250,000, and (ii) at any time from and after the Equity Infusion, an amount\nequal to eighty percent (80%) of Eligible Accounts, in either case as\ndetermined by Bank with reference to the most recent Borrowing Base Certificate\ndelivered by Borrower.\n\n \"Business Day\" means any day that is not a Saturday, Sunday, or\nother day on which banks in the State of California are authorized or required\nto close.\n\n\n 1\n\n 3\n \"Closing Date\" means the date of this Agreement.\n\n \"Code\" means the California Uniform Commercial Code.\n\n \"Collateral\" means the property described on Exhibit A attached\nhereto.\n\n \"Committed Revolving Line\" means a credit extension of up to\nFour Million Dollars ($4,000,000).\n\n \"Committed Equipment Line\" means a credit extension of up to\nFive Hundred Thousand Dollars ($500,000).\n\n \"Contingent Obligation\" means, as applied to any Person, any\ndirect or indirect liability, contingent or otherwise, of that Person with\nrespect to (i) any indebtedness, lease, dividend, letter of credit or other\nobligation of another, including, without limitation, any such obligation\ndirectly or indirectly guaranteed, endorsed, co-made or discounted or sold with\nrecourse by that Person, or in respect of which that Person is otherwise\ndirectly or indirectly liable; (ii) any obligations with respect to undrawn\nletters of credit issued for the account of that Person; and (iii) all\nobligations arising under any interest rate, currency or commodity swap\nagreement, interest rate cap agreement, interest rate collar agreement, or other\nagreement or arrangement designated to protect a Person against fluctuation in\ninterest rates, currency exchange rates or commodity prices; provided, however,\nthat the term \"Contingent Obligation\" shall not include endorsements for\ncollection or deposit in the ordinary course of business. The amount of any\nContingent Obligation shall be deemed to be an amount equal to the stated or\ndetermined amount of the primary obligation in respect of which such Contingent\nObligation is made or, if not stated or determinable, the maximum reasonably\nanticipated liability in respect thereof as determined by such Person in good\nfaith; provided, however, that such amount shall not in any event exceed the\nmaximum amount of the obligations under the guarantee or other support\narrangement.\n\n \"Copyrights\" means any and all copyright rights, copyright\napplications, copyright registrations and like protections in each work or\nauthorship and derivative work thereof, whether published or unpublished and\nwhether or not the same also constitutes a trade secret, now or hereafter\nexisting, created, acquired or held.\n\n \"Credit Extension\" means each Advance, Equipment Advance, Letter\nof Credit, Exchange Contract or any other extension of credit by Bank for the\nbenefit of Borrower hereunder.\n\n \"Current Liabilities\" means, as of any applicable date,\nall amounts that should, in accordance with GAAP, be included as current\nliabilities on the consolidated balance sheet of Borrower and its Subsidiaries,\nas at such date, plus, to the extent not already included therein, all\noutstanding Credit Extensions made under this Agreement, including all\nindebtedness that is payable upon demand or within one year from the date of\ndetermination thereof unless such indebtedness is renewable or extendable at\nthe option of Borrower or any Subsidiary to a date more than one year from the\ndate of determination, but excluding Subordinated Debt.\n\n \"Debt Service Coverage\" means, as measured quarterly as of the\nlast day of each fiscal quarter of Borrower, on a consolidated basis determined\nin accordance with GAAP, the ratio of (a) an amount equal to the sum of (i) net\nincome, plus (ii) depreciation and amortization of intangible assets and other\nnon-cash charges to income to (b) an amount equal to the sum of all scheduled\nrepayments and mandatory prepayments of principal on account of long-term\nindebtedness for such quarter.\n\n \"Eligible Accounts\" means those Accounts that arise in the\nordinary course of Borrower's business that comply with all of Borrower's\nrepresentations and warranties to Bank set forth in Section 5.4; provided, that\nstandards of eligibility may be fixed and revised from time to time by Bank in\nBank's reasonable judgment and upon thirty (30) days prior written notification\nthereof to Borrower in accordance with the provisions hereof. Unless otherwise\nagreed to by Bank in writing, Eligible Accounts shall not include the following:\n\n\n 2\n\n 4\n (a) Accounts that the account debtor has failed to pay within\nninety (90) days of invoice date;\n\n (b) Accounts with respect to an account debtor, twenty-five\npercent (25%) of whose Accounts the account debtor has failed to pay within\nninety (90) days of invoice date;\n\n (c) Accounts with respect to an account debtor, including\nAffiliates, whose total obligations to Borrower exceed twenty percent (20%) of\nall Accounts, to the extent such obligations exceed the aforementioned\npercentage, except as approved in writing by Bank;\n\n (d) Accounts with respect to which the account debtor does not\nhave its principal place of business in the United States except for Eligible\nForeign Accounts;\n\n (e) Accounts with respect to which the account debtor is a\nfederal, state or local governmental entity or any department, agency, or\ninstrumentality thereof;\n\n (f) Accounts with respect to which Borrower is liable to the\naccount debtor, but only to the extent of any amounts owing to the account\ndebtor (sometimes referred to as \"contra\" accounts, e.g. accounts payable,\ncustomer deposits, credit accounts, etc.);\n\n (g) Accounts generated by demonstration or promotional\nequipment, or with respect to which goods are placed on consignment, guaranteed\nsale, sale or return, sale on approval, bill and hold, or other terms by reason\nof which the payment by the account debtor may be conditional;\n\n (h) Accounts with respect to which the account debtor is an\nAffiliate, officer, employee, or agent of Borrower;\n\n (i) Accounts with respect to which the account debtor disputes\nliability or makes any claim with respect thereto as to which Bank believes, in\nits sole discretion, that there may be a basis for dispute (but only to the\nextent of the amount subject to such dispute or claim), or is subject to any\nInsolvency Proceeding, or becomes insolvent, or goes out of business;\n\n (j) Accounts with respect to which the account debtor disputes\nliability or makes any claim with respect thereto as to which Bank believes, in\nits sole discretion, that there may be a basis for dispute (but only to the\nextent of the amount subject to such dispute or claim), or is subject to any\nInsolvency Proceeding, or becomes insolvent, or goes out of business; and\n\n (k) Accounts the collection of which Bank reasonably determines\nafter reasonable inquiry and reasonable consultation with Borrower to be\ndoubtful.\n\n \"Eligible Foreign Accounts\" means Accounts with respect to which\nthe account debtor does not have its principal place of business in the United\nStates and that are: (1) covered by credit insurance in form and amount, and by\nan insurer satisfactory to Bank less the amount of any deductible(s) which may\nbe or become owing thereon; or (2) supported by one or more letters of credit\neither advised or negotiated through Bank or in favor of Bank as beneficiary,\nin an amount and of a tenor, and issued by a financial institution, acceptable\nto Bank; or (3) that Bank approves on a case-by-case basis.\n\n \"Equipment\" means all present and future machinery, equipment,\ntenant improvements, furniture, fixtures, vehicles, tools, parts and\nattachments in which Borrower has any interest.\n\n \"Equipment Advance\" has the meaning set forth in Section 2.1.3.\n\n \"Equipment Availability End Date\" has the meaning set forth in\nSection 2.1.3.\n\n\n 3\n\n 5\n \"Equity Infusion\" means the first date after the date hereof on\nwhich Borrower receives net proceeds from the issuance of its equity securities\nor Subordinated Debt.\n\n \"ERISA\" means the Employment Retirement Income Security Act of\n1974, as amended, and the regulations thereunder.\n\n \"GAAP\" means generally accepted accounting principles as in\neffect in the United Sates from time to time.\n\n \"Indebtedness\" means (a) all indebtedness for borrowed money or\nthe deferred purchase price of property or services, including without\nlimitation reimbursement and other obligations with respect to surety bonds and\nletters of credit, (b) all obligations evidenced by notes, bonds, debentures or\nsimilar instruments, (c) all capital lease obligations and (d) all Contingent\nObligations.\n\n \"Insolvency Proceeding\" means any proceeding commenced by or\nagainst any person or entity under any provision of the United States\nBankruptcy Code, as amended, or under any other bankruptcy or insolvency law,\nincluding assignments for the benefit of creditors, formal or informal\nmoratoria, compositions, extension generally with its creditors, or proceedings\nseeking reorganization, arrangement, or other relief.\n\n \"Intellectual Property Collateral\" means all of Borrower's\nright, title and interest in and to the following:\n\n (a) Copyrights, Trademarks, Patents, and Mask Works;\n\n (b) Any and all trade secrets, and any and all intellectual\nrights in computer software and computer software products now or hereafter\nexisting, created, acquired or held;\n\n (c) Any and all design rights which may be available to Borrower\nnow or hereafter existing, created, acquired or held;\n\n (d) Any and all claims for damages by way of past, present and\nfuture infringement of any of the rights included above, with the right, but\nnot the obligation, to sue for and collect such damages for said use or\ninfringement of the intellectual property rights identified above;\n\n (e) All licenses or other rights to use any of the Copyrights,\nPatents, Trademarks, or Mask Works, and all license fees and royalties arising\nfrom such use to the extent permitted by such license or rights;\n\n (f) All amendments, renewals and extensions of any of the\nCopyrights, Trademarks, Patents or Mask Works; and\n\n (g) All proceeds and products of the foregoing, including without\nlimitation all payments under insurance or any indemnity or warranty payable in\nrespect of any of the foregoing.\n\n \"Inventory\" means all present and future inventory in\nwhich Borrower has any interest, including merchandise, raw materials, parts,\nsupplies, packing and shipping materials, work in process and finished products\nintended for sale or lease or to be furnished under a contract of service, of\nevery kind and description now or at any time hereafter owned by or in the\ncustody or possession, actual or constructive, of Borrower, including such\ninventory as is temporarily out of its custody or possession or in transit and\nincluding any returns upon any accounts or other proceeds, including insurance\nproceeds, resulting from the sale or disposition of any of the foregoing and\nany documents of title representing any of the above.\n\n \"Investment\" means any beneficial ownership of (including stock,\npartnership interest or other securities) any Person, or any loan, advance or\ncapital contribution to any Person.\n\n\n 4\n\n 6\n \"IRC\" means the Internal Revenue Code of 1986, as amended, and\nthe regulations thereunder.\n\n \"Letter of Credit\" means a letter of credit or similar\nundertaking issued by Bank pursuant to Section 2.1.2.\n\n \"Letter of Credit Reserve\" has the meaning set forth in Section\n2.1.2.\n\n \"Lien\" means any mortgage, lien, deed of trust, charge, pledge,\nsecurity interest or other encumbrance.\n\n \"Loan Documents\" means, collectively, this Agreement, any note\nor notes executed by Borrower, and any other present or future agreement\nentered into between Borrower and\/or for the benefit of Bank in connection with\nthis Agreement, all as amended, extended or restated from time to time.\n\n \"Mask Works\" means all mask works or similar rights available\nfor the protection of semiconductor chips, now owned or hereafter acquired.\n\n \"Material Adverse Effect\" means a material adverse effect on (i)\nthe business operations or condition (financial or otherwise) of Borrower and\nits Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the\nObligations or otherwise perform its obligations under the Loan Documents.\n\n \"Maturity Date\" means December 31, 2002.\n\n \"Negotiable Collateral\" means all of Borrower's present and\nfuture letters of credit of which it is a beneficiary, notes, drafts,\ninstruments, securities, documents of title, and chattel paper.\n\n \"Obligations\" means all debt, principal, interest, Bank\nExpenses and other amounts owed to Bank by Borrower pursuant to this Agreement\nor any other agreement, whether absolute or contingent due or to become due,\nnow existing or hereafter arising, including any interest that accrues after the\ncommencement of an Insolvency Proceeding and including any debt, liability, or\nobligation owing from Borrower to others that Bank may have obtained by\nassignment or otherwise.\n\n \"Patents\" means all patents, patent applications and like\nprotections, including without limitation improvements, divisions,\ncontinuations, renewals, reissues, extentions and continuations-in-part of the\nsame.\n\n \"Payment Date\" means the first calendar day of each month,\ncommencing on the first such date after the Closing Date.\n\n \"Permitted Indebtedness\" means:\n\n (a) Indebtedness of Borrower in favor of Bank arising under this\nAgreement or any other Loan Document;\n\n (b) Indebtedness existing on the Closing Date and disclosed in\nthe Schedule;\n\n (c) Indebtedness to trade creditors and with respect to surety\nbonds and similar obligations incurred in the ordinary course of business;\n\n (d) Subordinated Debt;\n\n (e) Indebtedness of Borrower to any Subsidiary and Contingent\nObligations of any Subsidiary with respect to obligations of Borrower (provided\nthat the primary obligations are not prohibited\n\n\n 5\n\n 7\nhereby), and indebtedness of any Subsidiary to any other Subsidiary and\nContingent Obligations of any Subsidiary with respect to obligations of any\nother Subsidiary (provided that the primary obligations are not prohibited\nhereby);\n\n (f) Indebtedness secured by Permitted Liens;\n\n (g) Capital leases and indebtedness incurred solely to purchase\nequipment which is secured in accordance with clause (c) of \"Permitted Liens\"\nbelow and is not in excess of the lesser of the purchase price of such equipment\nor the fair market value of such equipment on the date of acquisition; provided\nthat the total aggregate amount of such capital leases and indebtedness\n(including any Equipment Advances drawn under the Committed Equipment Line)\nshall not exceed $1,000,000 in any fiscal year; and\n\n (h) Extensions, refinancings, modifications, amendments and\nrestatements of any of items of Permitted Indebtedness (a) through (g) above,\nprovided that the principal amount thereof is not increased or the terms\nthereof are not modified to impose more burdensome terms upon Borrower or its\nSubsidiary, as the case may be.\n\n \"Permitted Investment\" means:\n\n (a) Investments existing on the Closing Date disclosed in the\nSchedule;\n\n (b) (i) marketable direct obligations issued or unconditionally\nguaranteed by the United States of America or any agency or any State thereof\nmaturing within one (1) year from the date of acquisition thereof, (ii)\ncommercial paper maturing no more than one (1) year from the date of\ncreation thereof and currently having the highest rating obtainable from either\nStandard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)\ncertificates of deposit maturing no more than one (1) year from the date of\ninvestment therein issued by Bank, and (iv) any Investments permitted by\nBorrower's investment policy, as amended from time to time, provided that such\ninvestment policy (and such amendments thereto) has been approved by Bank;\n\n (c) Investments consisting of the endorsement of negotiable\ninstruments for deposit or collection or similar transaction in the ordinary\ncourse of business;\n\n (d) Investments accepted in connection with Transfers permitted\nby Section 7.1;\n\n (e) Investments consisting of (i) compensation of employees,\nofficers and directors of Borrower or its Subsidiaries so long as the Board of\nDirectors of Borrower determines that such compensation is in the best\ninterests of Borrower, (ii) travel advances, employee relocation loans and\nother employee loans and advances in the ordinary course of business, and (iii)\nloans to employees, officers or directors relating to the purchase of equity\nsecurities of Borrower or its Subsidiaries pursuant to employee stock purchase\nplans or agreements approved by Borrower's Board of Directors;\n\n (f) Investments (including debt obligations) received in\nconnection with the bankruptcy or reorganization of customers or suppliers and\nin settlement of delinquent obligations of, and other disputes with, customers\nor suppliers arising in the ordinary course of business;\n\n (g) Investments pursuant to or arising under currency agreements\nor interest rate agreements entered into in the ordinary course of business;\n\n (h) Investments consisting of notes receivable of, or prepaid,\nroyalties and other credit extensions to, customers and suppliers who are not\nAffiliates, in the ordinary course of business; provided that this paragraph\n(i) shall not apply to investments by Borrower in any Subsidiary;\n\n (i) Investments constituting acquisitions permitted under\nSection 7.3;\n\n (j) Deposit accounts of Borrower in which Bank has a Lien prior\nto any other Lien;\n\n\n 6\n\n 8\n (k) Deposit accounts of any Subsidiaries maintained in the\nordinary course of business; and\n\n (l) other investments approved by Borrower's board of directors\nnot exceeding Five Hundred Thousand Dollars ($500,000) in the aggregate in any\nfiscal year.\n\n \"Permitted Liens\" means the following:\n\n (a) Any Liens existing on the Closing Date and disclosed in the\nSchedule or arising under this Agreement or the other Loan Documents:\n\n (b) Liens for taxes, fees, assessments or other governmental\ncharges or levies, either not delinquent or being contested in good faith by\nappropriate proceedings and as to which adequate reserves are maintained on\nBorrower's Books in accordance with GAAP, provided the same have no priority\nover any of Bank's security interests;\n\n (c) Liens (i) upon or in any Equipment acquired or held by\nBorrower or any of its Subsidiaries to secure the purchase price of\nsuch Equipment or indebtedness incurred solely for the purpose of financing the\nacquisition of such Equipment, or (ii) existing on such equipment at the time\nof its acquisition, provided that the Lien is confined solely to the property\nso acquired and improvements thereon, and the proceeds of such Equipment;\n\n (d) Liens on Equipment leased by Borrower or any Subsidiary\npursuant to an operating or capital lease in the ordinary course of business\n(including proceeds thereof and accessions thereto) incurred solely for the\npurpose of financing the lease of such Equipment (including Liens pursuant to\nleases permitted pursuant to Section 7.1 and Liens arising from UCC financing\nstatements regarding leases permitted by this Agreement);\n\n (e) Leases or subleases and licenses or sublicenses granted to\nothers in the ordinary course of Borrower's business not interfering in any\nmaterial respect with the business of Borrower and its Subsidiaries taken as a\nwhole, and any interest or title of a lessor, licensor or under any lease or\nlicense, provided that such leases, subleases, licenses and sublicenses do not\nprohibit the grant of the security interest granted hereunder;\n\n (f) Liens on assets (including the proceeds thereof and\naccessions thereto) that existed at the time such assets were acquired by\nBorrower or any Subsidiary (including Liens on assets of any corporation that\nexisted at the time it became or becomes a Subsidiary); provided such Liens are\nnot granted in contemplation of or in connection with the acquisition of such\nasset by Borrower or a Subsidiary;\n\n (g) Liens arising from judgments, decrees or attachments in\ncircumstances not constituting an Event of Default under Section 8.8;\n\n (h) Easements, reservations, rights-of-way, restrictions, minor\ndefects or irregularities in title and other similar charges or encumbrances\naffecting real property not constituting a Material Adverse Effect;\n\n (i) Liens in favor of customs and revenue authorities arising as\na matter of law to secure payments of customs duties in connection with the\nimportation of goods;\n\n (j) Liens that are not prior to the Lien of Bank which\nconstitute rights of set-off of a customary nature or banker's Liens with\nrespect to amounts on deposit, whether arising by operation of law or by\ncontract, in connection with arrangement entered in to with banks in the\nordinary course of business;\n\n\n 7\n\n 9\n (k) Earn-out and royalty obligations existing on the date hereof\nor entered into in connection with an acquisition permitted by Section 7.3;\n\n (l) Liens on insurance proceeds in favor of insurance companies\ngranted solely as security for financed premiums; and\n\n (m) Liens incurred in connection with the extension, renewal or\nrefinancing of the indebtedness secured by Liens of the type described in\nclauses (a), (c), (e), (f), (g) and (i) above, provided that any extension,\nrenewal or replacement Lien shall be limited to the property encumbered by the\nexisting Lien and the principal amount of the indebtedness being extended,\nrenewed or refinanced does not increase.\n\n \"Person\" means any individual, sole proprietorship, partnership,\nlimited liability company, joint venture, trust, unincorporated organization,\nassociation, corporation, institution, public benefit corporation, firm, joint\nstock company, estate, entity or governmental agency.\n\n \"Quick Assets\" means, as of any applicable date, the\nunrestricted cash; unrestricted cash-equivalents; net, billed accounts\nreceivable and investments with maturities of fewer than one year of Borrower\ndetermined in accordance with GAAP.\n\n \"Responsible Officer\" means each of the Chief Executive Officer,\nthe President, the Chief Financial Officer and the Controller of Borrower.\n\n \"Revolving Maturity Date\" means the date immediately preceding\nthe first anniversary of the date of this Agreement.\n\n \"Schedule\" means the schedule of exceptions attached hereto, if\nany.\n\n \"Subordinated Debt\" means any debt incurred by Borrower that is\nsubordinated to the debt owing by Borrower to Bank on terms acceptable to Bank\n(and identified as being such by Borrower and Bank).\n\n \"Subsidiary\" means with respect to any Person, corporation,\npartnership, company association, joint venture, or any other business entity\nof which more than fifty percent (50%) of the voting stock or other equity\ninterests is owned or controlled, directly or indirectly, by such Person or one\nor more Affiliates of such Person.\n\n \"Tangible Net Worth\" means, as of any applicable date, the\nconsolidated total assets of Borrower and its Subsidiary minus, without\nduplication, (i) the sum of any amounts attributable to (a) goodwill, (b)\nintangible items such as unamortized debt discount and expense, patents, trade\nand service marks and names, copyrights and research and development expenses\nexcept prepaid expenses, and (c) all reserves not already deducted from assets,\nand (ii) Total Liabilities.\n\n \"Total Liabilities\" means, as of any applicable date, all\nobligations that should, in accordance with GAAP, be classified as liabilities\non the consolidated balance sheet of Borrower, including in any event all\nindebtedness, but specifically excluding Subordinated Debt.\n\n \"Trademarks\" means any trademark and servicemark rights, whether\nregistered or not, applications to register and registrations of the same and\nlike protections and the entire goodwill of the business of Assignor connected\nwith and symbolized by such trademarks.\n\n 1.2 Accounting and other terms.\n\n All accounting terms not specifically defined herein shall be\nconstrued in accordance with GAAP and all calculations and determinations made\nhereunder shall be made in accordance with GAAP.\n\n\n 8\n \n\n 10\nWhen used herein, the term \"financial statements\" shall include the notes and\nschedules thereto. The terms \"including\", \"includes\" shall always be read as\nmeaning \"including (or includes) without limitation,\" when used herein or in any\nother Loan Document.\n\n 2. LOAN AND TERMS OF PAYMENT\n\n 2.1 Credit Extensions\n\n Borrower promises to pay to the order of Bank, in lawful money of\nthe United States of America, the aggregate unpaid principal amount of all\nCredit Extensions made by Bank to Borrower hereunder. Borrower shall also pay\ninterest on the unpaid principal amount of such Credit Extensions at rates in\naccordance with the terms hereof.\n\n 2.1.1 Revolving Advances\n\n (a) Subject to and upon the terms and conditions of this\nAgreement, Bank agrees to make Advances to Borrower in an aggregate outstanding\namount not to exceed (i) the Committed Revolving Line or the Borrowing Base as\ndefined in Section 1.1, whichever is less, minus (ii) the face amount of all\noutstanding Letters of Credit (including drawn but unreimbursed Letters of\nCredit; provided, however, that Borrower may request and Bank agrees to make\nAdvances to Borrower of up to $500,000 regardless of the Borrowing Base. Subject\nto the terms and conditions of this Agreement, amounts borrowed pursuant to\nthis Section 2.1.1 may be repaid and reborrowed at any time prior to the\nRevolving Maturity Date.\n\n (b) Whenever Borrower desires an Advance, Borrower will\nnotify Bank by facsimile transmission or telephone no later than 3:00 p.m.\nPacific time, on the Business Day that the Advance is to be made. Each such\nnotification shall be promptly confirmed by a Payment\/Advance Form in\nsubstantially the form of Exhibit B hereto. Bank is authorized to make Advances\nunder this Agreement, based upon instructions received from a Responsible\nOfficer or a designee of a Responsible Officer, or without instructions if in\nBank's discretion such Advances are necessary to meet Obligations which have\nbecome due and remain unpaid. Bank shall be entitled to rely on any telephonic\nnotice given by a person who Bank reasonably believes to be a Responsible\nOfficer or a designee thereof, and Borrower shall indemnify and hold Bank\nharmless for any damages or loss suffered by Bank as a result of such reliance.\nBank will credit the amount of Advances made under this Section 2.1 to\nBorrower's deposit account.\n\n (c) The Committed Revolving Line shall terminate on the\nRevolving Maturity Date, at which time all Advances under this Section 2.1 and\nother amounts due under this Agreement (except as otherwise expressly specified\nherein) shall be immediately due and payable.\n\n 2.1.2 Letters of Credit\n\n (a) Subject to the terms and conditions of this Agreement,\nBank agrees to issue or cause to be issued Letters of Credit for the account of\nBorrower in an aggregate outstanding face amount not to exceed (i) the lesser of\nthe Committed Revolving Line or the Borrowing Base, whichever is less, minus\n(ii) the then outstanding principal balance of the Advances, provided that the\nface amount of outstanding Letters of Credit (including drawn but unreimbursed\nLetters of Credit and any Letter of Credit Reserve) shall not in any case exceed\nOne Million Dollars ($1,000,000). Each Letter of Credit shall have an expiry\ndate no later than the Revolving Maturity Date. All Letters of Credit shall be,\nin form and substance, acceptable to Bank in its sole discretion and shall be\nsubject to the terms and conditions of Bank's form of standard Application and\nLetter of Credit Agreement.\n\n (b) The obligation of Borrower to immediately reimburse\nBank for drawings made under Letters of Credit shall be absolute, unconditional\nand irrevocable, and shall be performed strictly in accordance with the terms\nof this Agreement and such Letters of Credit, under all circumstances\n\n\n 9\n\n 11\nwhatsoever. Borrower shall indemnify, defend, protect and hold Bank harmless\nfrom any loss, cost, expense or liability, including, without limitation,\nreasonable attorneys' fees, arising out of or in connection with any Letters of\nCredit.\n\n (c) Borrower may request that Bank issue a Letter of\nCredit payable in a currency other than United States Dollars. If a demand for\npayment is made under any such Letter of Credit, Bank shall treat such demand as\nan Advance to Borrower of the equivalent of the amount thereof (plus cable\ncharges) in United States currency at the then prevailing rate of exchange in\nSan Francisco, California, for sales of that other currency for cable transfer\nto the country of which it is the currency.\n\n (d) Upon the issuance of any Letter of Credit payable\nin a currency other than United States Dollars. Bank shall create a reserve\nunder the Committed Revolving Line for Letters of Credit against fluctuations\nin currency exchange rates, in an amount equal to ten percent (10%) of the face\namount of such Letter of Credit. The amount of such reserve may be amended by\nBank from time to time to account for fluctuations in the exchange rate. The\navailability of funds under the Committed Revolving Line shall be reduced by the\namount of such reserve for so long as such Letter of Credit remains outstanding.\n\n 2.1.3 Equipment Advances.\n\n (a) Subject to and upon the terms and conditions of\nthis Agreement, at any time from the date hereof through December 31, 1999 (the\n\"Equipment Availability End Date\"), Bank agrees to make advances (each an\n\"Equipment Advance\" and, collectively, the \"Equipment Advances\") to Borrower in\nan aggregate outstanding amount not to exceed the Committed Equipment Line. To\nevidence the Equipment Advance or Equipment Advances. Borrower shall deliver to\nBank, at the time of each Equipment Advance request, an invoice and canceled\ncheck for the equipment to be purchased. The Equipment Advances shall be used\nonly to finance Equipment acceptable to and approved by Bank, and shall not\nexceed one hundred percent (100%) of the invoice amount of such Equipment,\nexcluding taxes, shipping, warranty charges, freight discounts and installation\nexpense.\n\n (b) Interest shall accrue from the date of each\nEquipment Advance at the rate specified in Section 2.3(a), and shall be payable\nmonthly on each Payment Date. The first $250,000 of Equipment Advances that are\ndrawn by Borrower and outstanding on the Equipment Availability End Date or such\nearlier date on which the first $250,000 in Equipment Advances is drawn by\nBorrower (such date being the \"First Term Date\") will be payable in thirty-six\n(36) equal monthly installments of principal, plus all accrued interest,\nbeginning on the Payment Date of the month following the First Term Date (but\nin no event later than January 1, 2000). Any Equipment Advances drawn by\nBorrower in excess of the initial $250,000 and outstanding on the Equipment\nAvailability End Date or such earlier date on which the entire remaining\n$250,000 of the Committed Equipment Line is drawn (such date being the \"Second\nTerm Date\") will be payable in thirty-six (36) equal monthly installments of\nprincipal, plus all accrued interest beginning on the Payment Date of the month\nfollowing the Second Term Date (but in no event later than January 1, 2000).\nAll unpaid Equipment Advances, together with accrued interest thereon and any\nother amounts owing under this Agreement shall be due and payable on the\nMaturity Date. Equipment Advances, once repaid, may not be reborrowed.\n\n (c) When Borrower desires to obtain an Equipment\nAdvance, Borrower shall notify Bank (which notice shall be irrevocable) by\nfacsimile transmission to be received no later than 3:00 p.m. Pacific time one\n(1) Business Day before the day on which the Equipment Advance is to be made.\nSuch notice shall be substantially in the form of Exhibit B. The notice shall\nbe signed by a Responsible Officer or its designee and include a copy of the\ninvoice and canceled check for the Equipment to be financed.\n\n\n\n\n 10\n\n 12\n 2.2 Overadvances.\n\n If, at any time or for any reason, the amount of Obligations\nowed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this Agreement\nis greater than the aggregate amount available to be drawn under Section 2.1.1,\nBorrower shall immediately pay to Bank, in cash, the amount of such excess.\n\n 2.3 Interest Rates, Payments, and Calculations.\n\n (a) Interest Rate. Except as set forth in Section 2.3(b),\nany Advances and\/or Equipment Advances shall bear interest on the average daily\nbalance thereof, at a per annum rate equal to three quarters of a percentage\npoint (0.75%) above the Base Rate.\n\n (b) Default Rate. All Obligations shall bear interest, from\nand after the occurrence of an Event of Default, at a rate equal to five (5)\npercentage points above the interest rate applicable immediately prior to the\noccurrence of the Event of Default.\n\n (c) Payments. Interest hereunder shall be due and payable on\neach Payment Date. Borrower hereby authorizes Bank to debit any accounts with\nBank, including, without limitation. Account Number __________ for payments of\nprincipal and interest due on the Obligations and any other amounts owing by\nBorrower to Bank. Bank will notify Borrower of all debits which Bank has made\nagainst Borrower's accounts. Any such debits against Borrower's accounts in no\nway shall be deemed a set-off. Any interest not paid when due shall be\ncompounded by becoming a part of the Obligations, and such interest shall\nthereafter accrue interest at the rate then applicable hereunder.\n\n (d) Computation. In the event the Base Rate is changed from\ntime to time hereafter, the applicable rate of interest hereunder shall be\nincreased or decreased effective as of 12:01 a.m. on the day the Base Rate is\nchanged, by an amount equal to such change in the Base Rate. All interest\nchargeable under the Loan Documents shall be computed on the basis of a three\nhundred sixty (360) day year for the actual number of days elapsed.\n\n 2.4 Crediting Payments.\n\n Prior to the occurrence of an Event of Default, Bank shall\ncredit a wire transfer of funds, check, or other item of payment to such deposit\naccount or Obligation as Borrower specifies. After the occurrence of an Event of\nDefault, the receipt by Bank of any wire transfer of funds, check, or other item\nof payment, whether directed to Borrower's deposit account with Bank or to the\nObligations or otherwise, may be immediately applied to conditionally reduce\nObligations, but shall not be considered a payment in respect of the Obligations\nunless such payment is of immediately available federal funds or unless and\nuntil such check or other item of payment is honored when presented for payment.\nNotwithstanding anything to the contrary contained herein, any wire transfer or\npayment received by Bank after 12:00 noon Pacific time shall be deemed to have\nbeen received by Bank as of the opening of business on the immediately following\nBusiness Day. Whenever any payment to Bank under the Loan Documents would\notherwise be due (except by reason of acceleration) on a date that is not a\nBusiness Day, such payment shall instead be due on the next Business Day, and\nadditional fees or interest, as the case may be, shall accrue and be payable for\nthe period of such extension.\n\n 2.5 Fees.\n\n Borrower shall pay to Bank the following:\n\n (a) Facility Fee. A Facility Fee equal to Seventeen Thousand\nFive Hundred Dollars ($17,500), which fee shall be due on the Closing Date and\nshall be fully earned and non-refundable;\n\n\n 11\n\n 13\n (b) Financial Examination and Appraisal Fees. Bank's\ncustomary fees and out-of-pocket expenses for Bank's audits of Borrower's\nAccounts (not to exceed $750 per audit), and for each appraisal of Collateral\nand financial analysis and examination of Borrower performed from time to time\nby Bank or its agents;\n\n (c) Bank Expenses. Upon demand from Bank, including, without\nlimitation, upon the date hereof, all Bank Expenses incurred through the date\nhereof, including reasonable attorneys' fees and expenses and, after the date\nhereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as\nand when they become due.\n\n 2.6 Additional Costs.\n\n In case any change in any law, regulation, treaty or\nofficial directive or the interpretation or application thereof by any court or\nany governmental authority charged with the administration thereof or the\ncompliance with any guideline or request of any central bank or other\ngovernmental authority (whether or not having the force of law), in each case\nafter the date of this Agreement:\n\n (a) subjects Bank to any tax with respect to payments of\nprincipal or interest or any other amounts payable hereunder by Borrower or\notherwise with respect to the transactions contemplated hereby (except for taxes\non the overall net income of Bank imposed by the United States of America or any\npolitical subdivision thereof);\n\n (b) imposes, modifies or deems applicable any deposit\ninsurance, reserve, special deposit or similar requirement against assets held\nby, or deposits in or for the account of, or loans by, Bank; or\n\n (c) imposes upon Bank any other condition with respect to\nits performance under this Agreement;\n\nand the result of any of the foregoing is to increase the cost to Bank, reduce\nthe income receivable by Bank or impose any expense upon Bank with respect to\nany loans. Bank shall notify Borrower thereof. Borrower agrees to pay to Bank\nthe amount of such increase in cost, reduction in income or additional expense\nas and when such cost, reduction or expense is incurred or determined, upon\npresentation by Bank of a statement of the amount and setting forth Bank's\ncalculation thereof, all in reasonable detail, which statement shall be deemed\ntrue and correct absent manifest error: provided, however, that Borrower shall\nnot be liable for any such amount attributable to any period prior to the date\nof hundred eight (180) days prior to the date of such certificate.\n\n 2.7 Term.\n\n Except as otherwise set forth herein, this Agreement shall\nbecome effective on the Closing Date and, subject to Section 12.7, shall\ncontinue in full force and effect for a term ending on the Maturity Date.\nNotwithstanding the foregoing, Bank shall have the right to terminate its\nobligation to make Credit Extensions under this Agreement immediately and\nwithout notice upon the occurrence and during the continuance of an Event of\nDefault. Notwithstanding termination of this Agreement, Bank's lien on the\nCollateral shall remain in effect for so long as any Obligations (excluding\nObligations under Section 2.6 and 12.2 to the extent they remain inchoate at\nthe time outstanding payment obligations are paid in full) are outstanding.\n\n 3. CONDITIONS OF LOANS \n\n 3.1 Conditions Precedent to Initial Credit Extension.\n\n The obligation of Bank to make the initial Credit Extension\nis subject to the condition precedent that Bank shall have received, in form and\nsubstance satisfactory to Bank, the following:\n\n\n 12\n\n 14\n (a) this Agreement;\n\n (b) a certificate of the Secretary of Borrower with respect to\narticles, bylaws, incumbency and resolutions authorizing the execution and\ndelivery of this Agreement;\n\n (c) financing statements (Forms UCC-I);\n\n (d) insurance certificate;\n\n (e) payment of the fees and Bank Expenses then due specified in\nSection 2.5 hereof;\n\n (f) a satisfactory audit of the Collateral;\n\n (g) such other documents, and completion of such other matters,\nas Bank may reasonably deem necessary or appropriate.\n\n 3.2 Conditions Precedent to all Credit Extensions.\n\n The obligation of Bank to make each Credit Extension, including\nthe initial Credit Extension, is further subject to the following conditions:\n\n (a) timely receipt by Bank of the Payment\/Advance Form as\nprovided in Section 2.1; and\n\n (b) the representations and warranties contained in Section 5\nshall be true and correct in all material respects on and as of the date of\nsuch Payment\/Advance Form and on the effective date of each Credit Extension as\nthough made at and as of each such date, and no Event of Default shall have\noccurred and be continuing, or would result from such Credit Extension. The\nmaking of each Credit Extension shall be deemed to be a representation and\nwarranty by Borrower on the date of such Advance as to the accuracy of the\nfacts referred to in this Section 3.2(b).\n\n 4. CREATION OF SECURITY INTEREST\n\n 4.1 Grant of Security Interest.\n\n Borrower grants and pledges to Bank a continuing security\ninterest in all presently existing and hereafter acquired or arising Collateral\nin order to secure prompt payment of any and all Obligations and in order to\nsecure prompt performance by Borrower of each of its covenants and duties under\nthe Loan Documents. Except as set forth in the Schedule, such security interest\nconstitutes a valid, first priority security interest in the presently existing\nCollateral, and will constitute a valid, first priority security interest in\nCollateral acquired after the date hereof, in each case, to the extent that a\nsecurity interest in such Collateral can be perfected by the filing of a\nfinancing statement or, in the case of Collateral consisting of instruments,\ndocuments, chattel paper or certificated securities, to the extent that Bank\ntakes possession of such Collateral. Borrower acknowledges that Bank may place a\n\"hold\" on any Deposit Account pledged as Collateral to secure the Obligations.\nBank agrees to execute and deliver to Borrower from time to time such\nsubordination agreements as Borrower may request and as are necessary to give\nto other lenders which finance equipment for Borrower a first priority security\ninterest in the equipment financed so long as the Liens and the indebtedness\nincurred with respect to such equipment financing are permitted under this\nAgreement. Notwithstanding termination of this Agreement, Bank's Lien on the\nCollateral shall remain in effect for so long as any Obligations are\noutstanding.\n\n\n 13\n\n 15\n 4.2 Delivery of Additional Documentation Required\n\n Borrower shall from time to time execute and deliver to Bank, at\nthe request of Bank, all Negotiable Collateral, all financing statements and\nother documents that Bank may reasonably request, in form satisfactory to Bank,\nto perfect and continue perfected Bank's security interests in the Collateral\nand in order to fully consummate all of the transactions contemplated under the\nLoan Documents.\n\n 4.3 Right to Inspect.\n\n Bank (through any of it officers, employees, or agents) shall \nhave the right, upon reasonable prior notice, from time to time during\nBorrower's usual business hours, to inspect Borrower's Books and to make copies\nthereof and to check, test, and appraise the Collateral in order to verify\nBorrower's financial condition or the amount, condition of, or any other matter\nrelating to, the Collateral.\n\n 5. REPRESENTATIONS AND WARRANTIES\n\n Borrower represents and warrants as follows:\n\n 5.1 Due Organization and Qualification.\n \n Borrower and each Subsidiary is a corporation duly existing and\nin good standing under the laws of its state of incorporation and qualified and\nlicensed to do business in, and is in good standing in, any state in which the\nconduct of its business or its ownership of property requires that it be so\nqualified, except for states as to which any failure to so qualify would not\nhave a Material Adverse Effect.\n\n 5.2 Due Authorization: No Conflict.\n\n The execution, delivery, and performance of the Loan Documents\nare within Borrower's powers, have been duly authorized, and are not in\nconflict with nor constitute a breach of any provision contained in Borrower's\nArticles\/Certificate of Incorporation or Bylaws, nor will they constitute an\nevent of default under any material agreement to which Borrower is a party or\nby which Borrower is bound. Borrower is not in default under any agreement to\nwhich it is a party or by which it is bound, which default could reasonably be\nexpected to have a Material Adverse Effect.\n\n 5.3 No Prior Encumbrances.\n\n Borrower has good and indefeasible title to the Collateral, free\nand clear of Liens, except for Permitted Liens.\n\n 5.4 Bona Fide Eligible Accounts.\n\n The Eligible Accounts are bona fide existing obligations. The\nservice or property giving rise to such Eligible Accounts has been performed or\ndelivered to the account debtor or to the account debtor's agent for immediate\nshipment to and unconditional acceptance by the account debtor. Borrower has not\nreceived notice of actual or imminent Insolvency Proceeding of any account\ndebtor whose accounts are included in any Borrowing Base Certificate as an\nEligible Account.\n\n 5.5 Merchantable Inventory.\n\n All inventory is in all material respects of good and marketable\nquality, free from all material defects\n\n\n\n\n 14\n\n 16\n 5.6 Intellectual Property.\n\n Borrower is the sole owner of the Intellectual Property Collateral,\nexcept for nonexclusive licenses granted by Borrower to its customers in the\nordinary course of business. Each of the Patents is valid and enforceable, and\nno part of the Intellectual Property Collateral has been judged invalid or\nunenforceable, in whole or in part, and no claim has been made that any part of\nthe Intellectual Property Collateral violates the rights of any third party.\n\n 5.7 Name; Location of Chief Executive Office.\n\n Except as disclosed in the Schedule, Borrower has not done business\nand will not without at least thirty (30) days prior written notice to Bank, do\nbusiness under any name other than that specified on the signature page hereof.\nThe chief executive office of Borrower is located at the address indicated in\nSection 10 hereof.\n\n 5.8 Litigation.\n\n Except as set forth in the Schedule, there are no actions or\nproceedings pending or, to Borrower's knowledge, threatened by or against\nBorrower or any Subsidiary before any court or administrative agency in which\nan adverse decision could reasonably be expected to have a Material Adverse\nEffect or a material adverse effect on Borrower's interest or Bank's security\nInterest in the Collateral.\n\n 5.9 No Material Adverse Change in Financial Statements.\n\n All consolidated financial statements related to Borrower and any\nSubsidiary that have been delivered by Borrower to Bank fairly present in all\nmaterial respects Borrower's consolidated financial condition as of the date\nthereof and Borrower's consolidated results of operations for the period then\nended. There has not been a material adverse change in the consolidated\nfinancial condition of Borrower since the date of the most recent of such\nfinancial statements submitted to Bank on or about the Closing Date.\n\n 5.10 Solvency.\n\n The fair saleable value of Borrower's assets (including goodwill\nminus disposition costs) exceeds the fair value of its liabilities; the\nBorrower is not left with unreasonably small capital after the transactions\ncontemplated by this Agreement; and Borrower is able to pay its debts\n(including trade debts) as they mature.\n\n 5.11 Regulatory Compliance.\n\n Borrower and each Subsidiary has met the minimum funding requirements\nof ERISA with respect to any employee benefit plans subject to ERISA. No event\nhas occurred resulting from Borrower's failure to comply with ERISA that is\nreasonably likely to result in Borrower's incurring any liability that could\nreasonably be expected to have a Material Adverse Effect. Borrower is not an\n\"investment company\" or a company \"controlled\" by an \"investment company\"\nwithin the meaning of the Investment Company Act of 1940. Borrower is not\nengaged principally, or as one of its important activities, in the business of\nextending credit for the purpose of purchasing or carrying margin stock\n(within the meaning of Regulation G, T and U of the Board of Governors of the\nFederal Reserve System). Borrower has complied with all the provisions of the\nFederal Fair Labor Standards Act. Borrower has not violated any statutes, laws,\nordinances or rules applicable to it, violation of which could have a Material\nAdverse Effect.\n\n 5.12 Environmental Condition.\n\n None of Borrower's or any Subsidiary's properties or assets has ever\nbeen used by Borrower or any Subsidiary or, to the best of Borrower's\nknowledge, by previous owners or operators, in the\n\n\n\n 15\n\n 17\ndisposal of, or to produce, store, handle, treat, release, or transport, any\nhazardous waste or hazardous substance other than in accordance with applicable\nlaw; to the best of Borrower's knowledge none of Borrower's properties or assets\nhas ever been designated or identified in any manner pursuant to any\nenvironmental protection statute as a hazardous waste or hazardous substance\ndisposal site, or a candidate for closure pursuant to any environmental\nprotection statute; no lien arising under any environmental protection statute\nhas attached to any revenues or to any real or personal property owned by\nBorrower or any Subsidiary; and neither Borrower nor any Subsidiary has received\na summons, citation, notice, or directive from the Environmental Protection\nAgency, or any other federal, state or other governmental agency concerning any\naction or omission by Borrower or any Subsidiary resulting in the release or\nother disposition of hazardous waste or hazardous substances into the\nenvironment.\n\n 5.13 Taxes.\n\n Borrower and each Subsidiary has filed or caused to be\nfiled all tax returns required to be filed on timely basis, and has paid, or has\nmade adequate provision for the payment of, all taxes reflected therein, except\nthose being contested in good faith by proper proceedings with adequate reserves\nunder GAAP.\n\n 5.14 Subsidiaries.\n\n Borrower does not own any stock, partnership interest or\nother equity securities of any Person, except for Permitted Investments.\n\n 5.15 Government Consents.\n\n Borrower and each Subsidiary has obtained all consents,\napprovals and authorizations of, made all declarations or filings with and given\nall notices to all governmental authorities that are necessary for the continued\noperation of Borrower's business as currently conducted except where the failure\ngot obtain any such consent, approval or authorization, to make any such\ndeclaration or filing, or to be given any such notice could not reasonably be\nexpected to have a Material Adverse Effect.\n\n 5.16 Full Disclosure\n\n No representation, warranty or other statement made by\nBorrower in any certificate or written statement furnished to Bank contains any\nuntrue statement of a material fact or omits to state a material fact necessary\nin order to make the statements contained in such certificates or statements not\nmisleading (it being recognized by Bank that the projections and forecasts\nprovided by Borrower are not to be viewed as facts and that actual results\nduring the period or period covered by any such projections and forecasts may\ndiffer from the projected or forecasted results).\n\n 6. AFFIRMATIVE COVENANTS\n\n Borrower covenants and agrees that, until payment in full of\nall outstanding Obligations, and for so long as Bank may have any commitment to\nmake a Credit Extension hereunder, Borrower shall do all of the following:\n\n 6.1 Good Standing.\n\n Borrower shall maintain its and each of its Subsidiaries'\ncorporate existence and good standing in its jurisdiction of incorporation and\nmaintain qualification in each jurisdiction in which the failure to so qualify\ncould reasonably be expected to have a Material Adverse Effect. Borrower shall\nmaintain, and shall cause each of its Subsidiaries to maintain, to the extent\nconsistent with prudent management of Borrower's business, in force all\nlicenses, approvals and agreements, the loss of which could reasonably be except\nto have a Material Adverse Effect.\n\n\n\n\n 16\n\n 18\n 6.2 Government Compliance.\n\n Borrower shall meet, and shall cause each Subsidiary to\nmeet, the minimum funding requirements of ERISA with respect to any employee\nbenefit plans subject to ERISA. Borrower shall comply, and shall cause each\nSubsidiary to comply, with all statutes, laws, ordinances and government rules\nand regulations to which it is subject, noncompliance with which could\nreasonably be expected to have a Material Adverse Effect or a material adverse\neffect on the Collateral or the priority of Bank's Lien on the Collateral.\n\n 6.3 Financial Statements, Reports, Certificates.\n\n Borrower shall deliver to Bank: (a) as soon as available,\nbut in any event within twenty-five (25) days after the end of each month, a\ncompany prepared consolidated balance sheet and income statement covering\nBorrower's consolidated operations during such period, in a form and certified\nby an Officer of Borrower reasonably acceptable to Bank; (b) as soon as\navailable, but in any event within ninety (90) days after the end of Borrower's\nfiscal year, audited consolidated financial statements of Borrower prepared in\naccordance with GAAP, consistently applied, together with an unqualified opinion\non such financial statements of an independent certified public accounting firm\nreasonably acceptable to Bank; (e) within five (5) days of filing, copies of all\nstatements, reports and notices sent or made available generally by Borrower to\nits security holders or to any holders of Subordinated Debt and all reports on\nForm 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d)\npromptly upon receipt of notice thereof, a report of any legal actions pending\nor threatened against Borrower or any Subsidiary that could result in damages or\ncosts to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)\nor more; and (e) such budgets, sales projections, operating plans or other\nfinancial information as Bank may reasonably request from time to time.\n\n Within fifteen (15) days after the last day of each month,\nBorrower shall deliver to Bank a Borrowing Base Certificate signed by a\nResponsible Officer in substantially the form of Exhibit C hereto, together with\naged listings of accounts receivable and accounts payable.\n\n Within twenty-five (25) days after the last day of each\nmonth, Borrower shall deliver to Bank with the monthly financial statements a\nCompliance Certificate signed by a Responsible Officer in substantially the form\nof Exhibit D hereto.\n\n Bank shall have a right from time to time hereafter to audit\nBorrower's Accounts at Borrower's expense, provided that such audits will be\nconducted no more often than every six (6) months unless an Event of Default has\noccurred and is continuing.\n\n 6.4 Inventory; Returns.\n\n Borrower shall keep all inventory in good and marketable\ncondition, free from all material defects. Returns and allowances, if any, as\nbetween Borrower and its account debtors shall be on the same basis and in\naccordance with the usual customary practices of Borrower, as they exist at the\ntime of the execution and delivery of this Agreement. Borrower shall promptly\nnotify Bank of all returns and recoveries and of all disputes and claims, where\nthe return, recovery, dispute or claim involves more than Fifty Thousand Dollars\n($50,000).\n\n 6.5 Taxes.\n\n Borrower shall make, and shall cause each Subsidiary to\nmake, due and timely payment or deposit of all material federal, state, and\nlocal taxes, assessments, or contributions required of it by law, and will\nexecute and deliver to Bank, on demand, appropriate certificates attesting to\nthe payment or deposit thereof; and Borrower will make, and will cause each\nSubsidiary to make, timely payment or deposit of all material tax payments and\nwithholding taxes required of it by applicable laws, including, but not limited\nto, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,\nstate, and federal income taxes, and will, upon request, \n\n\n 17\n\n 19\nfurnish Bank with proof satisfactory to Bank indicating that Borrower or a\nSubsidiary has made such payments or deposits; provided that Borrower or a\nSubsidiary need not make any payment if the amount or validity of such payment\nis (i) contested in good faith by appropriate proceedings, (ii) is reserved\nagainst (to the extent required by GAAP) by Borrower and (iii) no lien other\nthan a Permitted Lien results.\n\n 6.6 Insurance.\n\n (a) Borrower, at its expense, shall keep the Collateral insured\nagainst loss or damage by fire, theft, explosion, sprinklers, and all other\nhazards and risks, and in such amounts, as ordinarily insured against by other\nowners in similar businesses conducted in the locations where Borrower's\nbusiness is conducted on the date hereof. Borrower shall also maintain\ninsurance relating to Borrower's ownership and use of the Collateral in amounts\nand of a type that are customary to businesses similar to Borrower's.\n\n (b) All such policies of insurance shall be in such form, with\nsuch companies, and in such amounts as are reasonably satisfactory to Bank. All\nsuch policies of property insurance shall contain a lender's loss payable\nendorsement, in a form satisfactory to Bank, showing Bank as an additional loss\npayee thereof and all liability insurance policies shall show the Bank as an\nadditional insured, and shall specify that the insurer must give at least twenty\n(20) days notice to Bank before canceling its policy for any reason. At Bank's\nrequest, Borrower shall deliver to Bank certified copies of such policies of\ninsurance and evidence of the payments of all premiums therefor. So long as no\nEvent of Default has occurred and is continuing, Borrower shall have the option\nof applying the proceeds of any casualty policy to the replacement or repair of\ndestroyed or damaged property; provided, that after the occurrence and during\nthe continuance of an Event of Default, all proceeds payable under any such\npolicy shall, at the option of Bank, be payable to Bank to be applied on account\nof the Obligations.\n\n 6.7 Principal Depository.\n\n Borrower shall maintain its principal depository and operating\naccounts with Bank.\n\n 6.8 Quick Ratio.\n\n Borrower shall maintain a ratio of Quick Assets to Current\nLiabilities of at least: (i) 1.25 to 1.0 as of the last day of each calendar\nmonth from the date hereof through June 30, 1999; (ii) 1.0 to 1.0 as of the\nlast day of each calendar month from July 1, 1999 through December 31, 1999;\nand (iii) 1.25 to 1.0 as of the last day of each calendar month from and after\nJanuary 1, 2000.\n\n 6.9 Debt-Net Worth Ratio.\n\n Borrower shall maintain a ratio of Total Liabilities less\nSubordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than:\n(i) 2.0 to 1.0 as of the last day of each calendar month, from the date hereof\nthrough November 30, 1999; and (ii) 1.0 to 1.0 as of the last day of each\ncalendar month from and after December 1, 1999.\n\n 6.10 Tangible Net Worth.\n\n Borrower shall maintain, as of the last day of each calendar\nmonth, a Tangible Net Worth of not less than Four Million Two Hundred Fifty\nThousand Dollars ($4,250,000) plus (i) 75% of Borrower's quarterly net income\n(but not loss) for each fiscal quarter of the Borrower after the date hereof,\nplus (ii) 100% of the net proceeds of any issuance by Borrower of its equity\nsecurities or Subordinated Debt after the date hereof.\n\n\n 18\n\n 20\n 6.11 Profitability.\n\n Borrower shall have a minimum net profit of One Dollar\n($1) for the fiscal quarter ending December 31, 1999. Commencing with the fiscal\nquarter ending March 31, 2000 and thereafter. Borrower shall have a minimum net\nprofit of One Dollar ($1) for each fiscal quarter, except that Borrower may\nsuffer a loss not exceeding $250,000 for one fiscal quarter in any fiscal year.\n\n 6.12 Debt Service Coverage.\n\n Commencing with the fiscal quarter ending December 31,\n1999, Borrower shall maintain as of the last day of each of Borrower's fiscal\nquarters, a Debt Service Coverage of at least 1.50 to 1.0.\n\n 6.13 Further Assurances.\n\n At any time and from time to time Borrower shall execute\nand deliver such further instruments and take such further actin as may\nreasonably be requested by Bank to effect the purposes of this Agreement.\n\n 7. NEGATIVE COVENANTS\n\n Borrower covenants and agrees that, so long as any Credit\nExtension hereunder shall be available and until payment in full of the\noutstanding Obligations or for so long as Bank may have any commitment to make\nany Advances, Borrower will not do any of the following:\n\n 7.1 Dispositions.\n\n Convey, sell, lease, transfer or otherwise dispose of\n(collectively a \"Transfer\"), or permit any of its Subsidiaries to Transfer, all\nor any part of its business or property, other than Transfers (i) of inventory\nin the ordinary course of business, (ii) of non-exclusive licenses and similar\narrangements for the use of the property of Borrower or its Subsidiaries in the\nordinary course of business, (iii) Transfers of worn-out or obsolete Equipment\nor Equipment financed by other vendors, (iv) Transfers which constitute\nliquidation of Investments permitted under Section 7.7, and (v) other Transfers\nnot otherwise permitted by this Section 7.1 not exceeding One Hundred Thousand\nDollars ($100,000) in the aggregate in any fiscal year.\n\n 7.2 Changes in Business, Ownership, Management or Business\nLocations.\n\n Engage in any business or permit any of its Subsidiaries\nto engage in any business, other than the businesses currently engaged in by\nBorrower and any business substantially similar or related thereto (or\nincidental thereto), or suffer a material change in Borrower's ownership.\nBorrower will not, without at least thirty (30) days prior written notification\nto Bank, relocate its chief executive office or add any new offices or business\nlocations.\n\n 7.3 Mergers or Acquisitions.\n\n Without prior consent of Bank which will not unreasonably\nwithheld, merge or consolidate, or permit any of its Subsidiaries to merge or\nconsolidate, with or into any other business organization, or acquire, or permit\nany of its Subsidiaries to acquire, all or substantially all of the capital\nstock or property of another Person.\n\n 7.4 Indebtedness.\n\n Create, incur, assume or be or remain liable with respect\nto any indebtedness, or permit any Subsidiary so to do, other than Permitted\nindebtedness.\n\n\n\n 19\n\n 21\n 7.5 Encumbrances.\n\n Create, incur, assume or suffer to exist any Lien with\nrespect to any of its property (including intellectual property), or assign or\notherwise convey any right to receive income, including the sale of any\nAccounts, or permit any of its Subsidiaries so to do, except for Permitted\nLiens.\n\n 7.6 Distributions.\n\n Pay any dividends or make any other distribution or payment\non account of or in redemption, retirement or purchase of any capital stock,\nprovided that (i) Borrower may declare and make any dividend payment or other\ndistribution payable in its equity securities (ii) Borrower may convert any of\nits convertible securities into other securities pursuant to the terms of such\nconvertible securities or otherwise in exchange therefor and (iii) for so long\nas an Event of Default has not occurred, Borrower may repurchase stock from\nformer employees of Borrower in accordance with the terms of repurchase or\nsimilar agreements between Borrower and such employees.\n\n 7.7 Investments.\n\n Directly or indirectly acquire or own, or make any\nInvestment in or to any Person, or permit any of its Subsidiaries so to do,\nother than Permitted Investments.\n\n 7.8 Transactions with Affiliates.\n\n Directly or indirectly enter into or permit to exist any\nmaterial transaction with any Affiliate of Borrower except for transactions that\nare in the ordinary course of Borrower's business, upon fair and reasonable\nterms that are no less favorable to Borrower than would be obtained in an arm's\nlength transaction with a non-affiliated Person and except for transactions\nwith a Subsidiary that are upon fair and reasonable terms and transactions\nconstituting Permitted Investments.\n\n 7.9 Intellectual Property Agreements.\n\n Borrower shall not permit the inclusion in any material\ncontract to which it becomes a party of any provisions that could or might in\nany way prevent the creation of a security interest in Borrower's rights and\ninterests in any property included within the definition of the Intellectual\nProperty Collateral acquired under such contracts.\n\n 7.10 Subordinated Debt.\n\n Make any payment in respect of any Subordinated Debt, or\npermit any of its Subsidiaries to make any such payment, except in compliance\nwith the terms of such Subordinated Debt, or amend any provision contained in\nany documentation relating to the Subordinated Debt without Bank's prior written\nconsent.\n\n 7.11 Inventory.\n\n Store the Inventory with a bailee, warehouseman, or similar\nparty unless Bank has received a pledge of any warehouse receipt covering such\nInventory. Except for Inventory sold in the ordinary course of business and\nexcept for such other locations as Bank may approve in writing, Borrower shall\nkeep the Inventory only at the location set forth in Section 10 hereof and such\nother locations of which Borrower gives Bank prior written notice and as to\nwhich Borrower signs and files a financing statement where needed to perfect\nBank's security interest.\n\n\n 20\n\n 22\n 7.12 Compliance.\n\n Become an \"investment company\" or a company controlled by an\n\"investment company,\" within the meaning of the Investment Company Act of 1940,\nor become principally engaged in, or undertake as one of its important\nactivities, the business of extending credit for the purpose of purchasing or\ncarrying margin stock, or use the proceeds of any Advance for such purpose; fail\nto meet the minimum funding requirements of ERISA, permit a Reportable Event or\nProhibited Transaction, as defined in ERISA, to occur; fail to comply with the\nFederal Fair Labor Standards Act or violate any other law or regulation, which\nviolation could have a Material Adverse Effect or a material adverse effect on\nthe Collateral or the priority of Bank's Lien on the Collateral, or permit any\nof its Subsidiaries to do any of the foregoing.\n\n 8. EVENTS OF DEFAULT\n\n Any one or more of the following events shall constitute an\nEvent of Default by Borrower under this Agreement:\n\n 8.1 Payment Default.\n\n If Borrower fails to pay, when due, any of the Obligations;\n\n 8.2 Covenant Default.\n\n (a) If Borrower fails to perform any obligation under\nSections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, or 6.13 or violates any of\nthe covenants contained in Article 7 of this Agreement, or\n\n (b) If Borrower fails or neglects to perform, keep, or\nobserve any other material term, provision, condition, covenant, or agreement\ncontained in this Agreement, in any of the Loan Documents, or in any other\npresent or future agreement between Borrower and Bank and as to any default\nunder such other term, provision, condition, covenant or agreement that can be\ncured, has failed to cure such default within ten (10) days after the occurrence\nthereof; provided, however, that if the default cannot by its nature be cured\nwithin the ten (10) day period or cannot after diligent attempts by Borrower be\ncured within such ten (10) day period, and such default is likely to be cured\nwithin a reasonable time, then Borrower shall have an additional reasonable\nperiod (which shall not in any case exceed thirty (30) days) to attempt to cure\nsuch default, and within such reasonable time period the failure to have cured\nsuch default shall not be deemed an Event of Default (provided that no Credit\nExtensions will be required to be made during such cure period);\n\n 8.3 Material Adverse Change.\n\n If there (i) occurs a material adverse change in the\nbusiness, operations, or condition (financial or otherwise) of Borrower or (ii)\nis a material impairment of the prospect of repayment of any portion of the\nObligations or (iii) is a material impairment of the value or priority of Bank's\nsecurity interests in the Collateral;\n\n 8.4 Attachment.\n\n If any material portion of Borrower's assets is attached,\nseized, subjected to a writ or distress warrant, or is levied upon, or comes\ninto the possession of any trustee, receiver or person acting in a similar\ncapacity and such attachment, seizure, writ or distress warrant or levy has not\nbeen removed, discharged or rescinded within ten (10) days, or if Borrower is\nenjoined, restrained, or in any way prevented by court order from continuing to\nconduct all or any material part of its business affairs, or if a judgement or\nother claim becomes a lien or encumbrance upon any material portion of\nBorrower's assets, or if a notice of lien, levy, or assessment is filed of\nrecord with respect to any of Borrower's assets by the United States Government,\nor any department, agency, or instrumentality thereof, or by any state, county,\nmunicipal, or governmental agency, and the same is not paid within ten (10) days\nafter Borrower receives notice thereof, provided that none of the foregoing\nshall constitute an Event of \n\n\n 21\n\n 23\nDefault where such action or event is stayed or an adequate bond has been posted\npending a good faith contest by Borrower (provided that no Credit Extensions\nwill be required to be made during such cure period);\n\n 8.5 Insolvency.\n\n If Borrower becomes insolvent, or if an Insolvency\nProceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced\nagainst Borrower and is not dismissed or stayed within thirty (30) days\n(provided that no Credit Extensions will be made prior to the dismissal of such\nInsolvency Proceeding);\n\n 8.6 Other Agreements.\n\n If there is a default in any agreement to which Borrower\nis a party with a third party or parties resulting in a right by such third\nparty or parties, whether or not exercised, to accelerate the maturity of any\nIndebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000)\nor that could reasonably be expect to have a Material Adverse Effect;\n\n 8.7 Subordinated Debt.\n\n If Borrower makes any payment on account of Subordinated\nDebt, except to the extent such payment is allowed under any subordination\nagreement entered into with Bank;\n\n 8.8 Judgments.\n\n If a judgment or judgments for the payment of money in an\namount, individually or in the aggregate, of at least Fifty Thousand Dollars\n($50,000) shall be rendered against Borrower and shall remain unsatisfied and\nunstayed for a period of ten (10) days (provided that no Credit Extensions will\nbe made prior to the satisfaction or stay of such judgment); or\n\n 8.9 Misrepresentations.\n\n If any material misrepresentation or material misstatement\nexists now or hereafter in any warranty or representation set forth herein or in\nany certificate or writing delivered to Bank by Borrower or any Person acting on\nBorrower's behalf pursuant to this Agreement or to induce Bank to enter into\nthis Agreement or any other Loan Document.\n\n 9. BANK'S RIGHTS AND REMEDIES\n\n 9.1 Rights and Remedies.\n\n Upon the occurrence and during the continuance of an Event\nof Default, Bank may, at its election, without notice of its election and\nwithout demand, do any one or more of the following, all of which are authorized\nby Borrower.\n\n (a) Declare all Obligations, whether evidenced by this\nAgreement, by any of the other Loan Documents, or otherwise, immediately due and\npayable (provided that upon the occurrence of an Event of Default described in\nSection 8.5 all Obligations shall become immediately due and payable without any\naction by Bank);\n\n (b) Cease advancing money or extending credit to or for\nthe benefit of Borrower under this Agreement or under any other agreement\nbetween Borrower and Bank;\n\n\n 22\n\n 24\n (c) Demand that Borrower (i) deposit cash with Bank in an amount\nequal to the amount of any Letters of Credit remaining undrawn, as collateral\nsecurity for the repayment of any future drawings under such Letters of Credit,\nand Borrower shall forthwith deposit and pay such amounts, and (ii) pay in\nadvance all Letters of Credit fees scheduled to be paid or payable over the\nremaining term of the Letters of Credit;\n\n (d) Settle or adjust disputes and claims directly with account\ndebtors for amounts, upon terms and in whatever order that Bank reasonably\nconsiders advisable;\n\n (e) Without notice to or demand upon Borrower, make such\npayments and do such acts as Bank considers necessary or reasonable to protect\nits security interest in the Collateral. Borrower agrees to assemble the\nCollateral if Bank so requires, and to make the Collateral available to Bank as\nBank may designate. Borrower authorizes Bank to enter the premises where the\nCollateral is located, to take and maintain possession of the Collateral, or\nany part of it, and to pay, purchase, contest, or compromise any encumbrance,\ncharge, or lien which in Bank's determination appears to be prior or superior\nto its security interest and to pay all expenses incurred in connection\ntherewith. With respect to any of Borrower's premises, Borrower hereby grants\nBank a license to enter such premises and to occupy the same, without charge,\nin order to exercise any of Bank's rights or remedies provided herein, at law,\nin equity, or otherwise;\n\n (f) Without notice to Borrower set off and apply to the\nObligations any and all (i) balances and deposits of Borrower held by Bank, or\n(ii) indebtedness at any time owing to or for the credit or the account of\nBorrower held by Bank;\n\n (g) Ship, reclaim, recover, store, finish, maintain, repair,\nprepare for sale, advertise for sale, and sell (in the manner provided for\nherein) the Collateral;\n\n (h) Sell the Collateral at either a public or private sale, or\nboth, by way of one or more contracts or transactions, for cash or on terms, in\nsuch manner and at such places (including Borrower's premises) as Bank\ndetermines is commercially reasonable, and apply the proceeds thereof to the\nObligations in whatever manner or order Bank deems appropriate;\n\n (i) Bank may credit bid and purchase at any public sale, or at\nany private sale as permitted by law; and\n\n (j) Any deficiency that exists after disposition of the\nCollateral as provided above will be paid immediately by Borrower.\n\n (k) Bank shall have a non-exclusive, royalty-free license to use\nthe Intellectual Property Collateral to the extent reasonably necessary to\npermit Bank to exercise its rights and remedies upon the occurrence of an Event\nof Default.\n\n 9.2 Power of Attorney\n\n Effective only upon the occurrence and during the continuance of\nan Event of Default, Borrower hereby irrevocably appoints Bank (and any of\nBank's designated officers, or employees) as Borrower's true and lawful\nattorney to: (a) send requests for verification of Accounts or notify account\ndebtors of Bank's security interest in the Accounts; (b) endorse Borrower's\nname on any checks or other forms of payment or security that may come into\nBank's possession; (c) sign Borrower's name on any invoice or bill of lading\nrelating to any Account, drafts against account debtors, schedules and\nassignments of Accounts, verifications of Accounts, and notices to account\ndebtors; (d) make, settle, and adjust all claims under and decisions with\nrespect to Borrower's policies of insurance; (e) settle and adjust disputes and\nclaims respecting the accounts directly with account debtors, for amounts and\nupon terms which Bank determines to be reasonable; (f) to file, in its sole\ndiscretion, one or more financing or continuation statements and amendments\nthereto, relative to any of the Collateral, without the signature of Borrower\nwhere permitted by law; and (g) to transfer the Intellectual Property\nCollateral into the name of Bank\n\n\n 23\n\n 25\nor a third party to the extent permitted under the California Uniform Commercial\nCode, provided Bank may exercise such power of attorney to sign the name of\nBorrower on any of the documents described in Section 4.2 regardless of whether\nan Event of Default has occurred. The appointment of Bank as Borrower's attorney\nin fact, and each and every one of Bank's rights and powers, being coupled with\nan interest, is irrevocable until all of the Obligations have been fully repaid\nand performed and Bank's obligation to provide advances hereunder is terminated.\n\n 9.3 Accounts Collection.\n\n At any time from the date of this Agreement, Bank may notify\nany Person owing funds to Borrower of Bank's security interest in such funds and\nverify the amount of such Account. Borrower shall collect all amounts owing to\nBorrower for Bank, receive in trust all payments as Bank's trustee, and, if\nrequested or required by Bank, immediately deliver such payments to Bank in\ntheir original form as received from the account debtor, with proper\nendorsements for deposit.\n\n 9.4 Bank Expenses.\n\n If Borrower fails to pay any amounts or furnish any required\nproof of payment due to third persons or entities, as required under the terms\nof this Agreement, then Bank may do any or all of the following: (a) make\npayment of the same or any part thereof; (b) set up such reserves under the\nCommitted Revolving Line as Bank deems necessary to protect Bank from the\nexposure created by such failure; or (c) obtain and maintain insurance policies\nof the type discussed in Section 6.6 of this Agreement, and take any action with\nrespect to such policies as Bank deems prudent. Any amounts so paid or deposited\nby Bank shall constitute Bank Expenses, shall be immediately due and payable,\nand shall bear interest at the then applicable rate hereinabove provided, and\nshall be secured by the Collateral. Any payments made by Bank shall not\nconstitute an agreement by Bank to make similar payments in the future or a\nwaiver by Bank of any Event of Default under this Agreement.\n\n 9.5 Bank's Liability for Collateral.\n\n So long as Bank complies with its obligations under Section\n9207 of the Code, Bank shall not in any way or manner be liable or responsible\nfor: (a) the safekeeping of the Collateral; (b) any loss or damage thereto\noccurring or arising in any manner or fashion from any cause; (c) any diminution\nin the value thereof; or (d) any act or default of any carrier, warehouseman,\nbailee, forwarding agency, or other person whomsoever. All risk of loss, damage\nor destruction of the Collateral shall be borne by Borrower.\n\n 9.6 Remedies Cumulative.\n\n Bank's rights and remedies under this Agreement, the Loan\nDocuments, and all other agreements shall be cumulative. Bank shall have all\nother rights and remedies not expressly set forth herein as provided under the\nCode, by law, or in equity. No exercise by Bank of one right or remedy shall be\ndeemed an election, and no waiver by Bank of any Event of Default on Borrower's\npart shall be deemed a continuing waiver. No delay by Bank shall constitute a\nwaiver, election, or acquiescence by it. No waiver by Bank shall be effective\nunless made in a written document signed on behalf of Bank and then shall be\neffective only in the specific instance and for the specific purpose for which\nit was given.\n\n 9.7 Demand; Protest.\n\n Borrower waives demand, protest, notice of protest, notice\nof default or dishonor, notice of payment and nonpayment, notice of any default,\nnonpayment at maturity, release, compromise, settlement, extension, or renewal\nof accounts, documents, instruments, chattel paper, and guarantees at any time\nheld by Bank on which Borrower may in any way be liable.\n\n\n 24\n\n 26\n 10. NOTICES\n\n Unless otherwise provided in this Agreement, all notices or demands\nby any party relating to this Agreement or any other agreement entered into in\nconnection herewith shall be in writing and (except for financial statements and\nother informational documents which may be sent by first-class mail, postage\nprepaid) shall be personally delivered or sent by a recognized overnight\ndelivery service, by certified mail, postage prepaid, return receipt requested,\nor by telefacsimile to Borrower or to Bank, as the case may be, at its addresses\nset forth below:\n\n If to Borrower: VA Research, Inc.\n 1235 Pear Ave. Suite 109 \n Mountain View, CA 94043 \n Attn: Jack Anderson \n FAX: \n ---------------------------- \n \n If to Bank: Comerica Bank-California \n 55 Almaden Blvd., 2nd Floor \n San Jose, CA 95113 \n Attn: Alan M. Jepsen \n FAX: (408) 271-4021 \n \n The parties hereto may change the address at which they are to receive\nnotices hereunder, by notice in writing in the foregoing manner given to the \nother.\n\n 11. CHOICE OF LAW AND VENUE\n\n The Loan Documents shall be governed by, and construed in\naccordance with, the internal laws of the State of California, without regard to\nprinciples of conflicts of law. Each of Borrower and Bank hereby submits to the\nexclusive jurisdiction of the state and Federal courts located in the County of\nSanta Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR\nRESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR\nARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED\nTHEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL\nOTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE\nFOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS\nAGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER\nWITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY\nTRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.\n\n 12. GENERAL PROVISIONS\n\n 12.1 Successors and Assigns.\n\n (a) This Agreement shall bind and inure to the benefit of the\nrespective successors and permitted assigns of each of the parties; provided,\nhowever, that neither this Agreement nor any rights hereunder may be assigned by\nBorrower without Bank's prior written consent, which consent may be granted or\nwithheld in Bank's sole discretion. Bank shall have the right without the\nconsent of or notice to Borrower to sell, transfer, negotiate, or grant \nparticipations in all or any part of, or any interest in, Bank's obligations, \nrights, and benefits hereunder, subject to the provisions of this Section 12.1.\n\n (b) Bank may sell, negotiate or grant participations to other\nfinancial institutions in all or part of the obligations of the Borrower\noutstanding under the Loan Documents, without notice to or the approval of\nBorrower; provided that any such sale, negotiation or participation shall be in\ncompliance with the applicable federal and state securities laws and the other\nrequirements of this Section 12.1. Notwithstanding the\n\n\n\n\n 25\n\n\n 27\n\nsale, negotiation or grant of participations. Bank shall remain solely\nresponsible for the performance of its obligations under this Agreement, and\nBorrower shall continue to deal solely and directly with Bank in connection with\nthis Agreement and the other Loan Documents.\n\n (c) The grant of a participation interest shall be on such\nterms as Bank determines are appropriate, provided only that (1) the holder of\nsuch a participation interest shall not have any of the rights of Bank under\nthis Agreement except, if the participation agreement so provides, rights to\ndemand the payment of costs of the type described in Section 2.6, provided that\nthe aggregate amount that the Borrower shall be required to pay under Section\n2.6 with respect to any ratable share of the Committed Revolving Line or any\nAdvance (including amounts paid to participants) shall not exceed the amount\nthat Borrower would have had to pay if no participation agreements had been\nentered into, and (2) the consent of the holder of such a participation interest\nshall not be required for amendments or waivers of provisions of the Loan\nAgreement other than those which (i) increase the amount of the Committed\nRevolving Line, (ii) extend the term of this Agreement, (iii) decrease the rate\nof interest or the amount of any fee or any other amount payable to Bank under\nthis Agreement, (iv) reduce the principal amount payable under this Agreement,\nor (v) extend the date fixed for the payment of principal or interest or any\nother amount payable under this Agreement.\n\n (d) Bank may assign, from time to time, all or any portion of\nthe Committed Revolving Line to an Affiliate of Bank or to The Federal Reserve\nBank or, subject to the prior written approval of Borrower (which approval will\nnot be unreasonably withheld), to any other financial institution; provided\nthat (i) the amount of the Committed Revolving Line being assigned pursuant to\neach such assignment shall in no event be less than Five Hundred Thousand\nDollars ($500,000) and shall be an integral multiple of One Hundred Thousand\nDollars ($100,000) and (ii) the parties to each such assignment shall execute\nand deliver to Borrower an assignment agreement in a form reasonably acceptable\nto each. Upon such execution and delivery, from and after the effective date\nspecified in such assignment agreement (x) the assignee thereunder shall be a\nparty hereto and, to the extent that rights and obligations hereunder have been\nassigned to it pursuant to such assignment agreement have the rights and\nobligations of a Bank hereunder and (y) Bank shall, to the extent that rights\nand obligations hereunder have been assigned by it pursuant to such assignment\nagreement, relinquish its rights and be released from its obligations under this\nAgreement (other than pursuant to this Section 12.1(d)), and, in the case of an\nassignment covering all or the remaining portion of Bank's rights and\nobligations under this Agreement. Bank shall cease to be a party hereto. In the\nevent of an assignment hereunder, the parties agree to amend this Agreement to\nthe extent necessary to reflect the mechanical changes which are necessary to\ndocument such assignment. Each party shall bear its own expenses (including\nwithout limitation attorneys' fees and costs) with respect to such an amendment.\n\n 12.2 Indemnification.\n\n Borrower shall indemnify, defend, protect and hold\nharmless Bank and its officers, employees, and agents against: (a) all\nobligations, demands, claims, and liabilities claimed or asserted by any other\nparty in connection with the transactions contemplated by the Loan Documents;\nand (b) all losses or Bank Expenses in any way suffered, incurred or paid by\nBank as a result of or in any way arising out of, following, or consequential to\ntransactions between Bank and Borrower whether under the Loan Documents, or\notherwise (including without limitation reasonable attorneys fees and expenses),\nexcept for losses caused by Bank's gross negligence or willful misconduct.\n\n 12.3 Time of Essence.\n\n Time is of the essence for the performance of all\nobligations set forth in this Agreement.\n\n 12.4 Severability of Provisions.\n\n Each provision of this Agreement Shall be severable from\nevery other provision of this Agreement for the purpose of determining the legal\nenforceability of any specific provision.\n\n 26\n\n 28\n 12.5 Amendments in Writing, Integration.\n\n This Agreement cannot be amended or terminated except by a\nwriting signed by Borrower and Bank. All prior agreements, understandings,\nrepresentations, warranties, and negotiations between the parties hereto with\nrespect to the subject matter of this Agreement, if any, are merged into this \nAgreement and the Loan Documents.\n\n 12.6 Counterparts.\n\n This Agreement may be executed in any number of counterparts and\nby different parties on separate counterparts, each of which, when executed and\ndelivered, shall be deemed to be an original, and all of which, when taken\ntogether, shall constitute but one and the same Agreement.\n\n 12.7 Survival.\n\n All covenants, representations and warranties made in this\nAgreement shall continue in full force and effect so long as any Obligations\n(excluding Obligations under Section 2.6 and 12.2 to the extent they remain \ninchoate at the time the outstanding payment Obligations are paid in full)\nremain outstanding. The obligations of Borrower to indemnify Bank with respect\nto the expenses, damages, losses, costs and liabilities described in Section\n12.2 shall survive until all applicable statute of limitations periods with\nrespect to actions that may be brought against Bank have run, provided that so\nlong as the obligations referred to in the first sentence of this Section 12.7\nhave been satisfied, and Bank has no commitment to make any Credit Extensions or\nto make any other loans to Borrower, Bank shall release all security interests\ngranted hereunder and redeliver all Collateral held by it in accordance with\napplicable law.\n\n 12.8 Confidentiality.\n\n In handling any confidential information, Bank shall exercise\nthe same degree of care that it exercises with respect to its own proprietary\ninformation of the same types to maintain the confidentiality of any non-public\ninformation thereby received or received pursuant to this Agreement, except that\ndisclosure of such information may be made (i) to the subsidiaries or affiliates\nof Bank in connection with their present or prospective business relations with\nBorrower, (ii) to prospective transferees or purchasers of any interest in the\nLoans, provided that they have entered into a comparable confidentiality\nagreement in favor of Borrower and have delivered a copy to Borrower, (iii) as\nrequired by law, regulations, rule or order, subpoena, judicial order or similar\norder, (iv) as may be required in connection with the examination, audit or\nsimilar investigation of Bank and (v) as Bank may deem appropriate in connection\nwith the exercise of any remedies hereunder. Confidential information hereunder\nshall not include information that either: (a) is in the public domain or in the\nknowledge or possession of Bank when disclosed to Bank, or becomes part of the\npublic domain after disclosure to Bank through no fault of Bank; or (b) is\ndisclosed to Bank by a third party, provided Bank does not have actual knowledge\nthat such third party is prohibited from disclosing such information.\n\n\n \n\n 27\n\n \n\n 29\n IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be\nexecuted as of the date first above written.\n\n\n VA RESEARCH, INC.\n\n By: [ILLEGIBLE]\n -------------------------\n Title: CFO\n ----------------------\n\n\n COMERICA BANK - CALIFORNIA\n\n By: ALAN JASPER\n -------------------------\n Title: VICE PRESIDENT\n ----------------------\n\n\n\n 28\n\n 30\n TABLE OF CONTENTS\n\n\n\n<\/pre>\n
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\n1. DEFINITIONS AND CONSTRUCTION…………………………….. 1
\n 1.1 Definitions……………………………………… 1
\n 1.2 Accounting and Other Terms………………………… 8<\/p>\n2. LOAN AND TERMS OF PAYMENT……………………………….. 9
\n 2.1 Credit Extensions………………………………… 9
\n 2.2 Overadvances…………………………………….. 11
\n 2.3 Interest Rates, Payments, and Calculations………….. 11
\n 2.4 Crediting Payments……………………………….. 11
\n 2.5 Fees……………………………………………. 11
\n 2.6 Additional Costs…………………………………. 12
\n 2.7 Term…………………………………………… 12<\/p>\n
3. CONDITIONS OF LOANS……………………………………. 12
\n 3.1 Conditions Precedent to Initial Credit Extension……. 12
\n 3.2 Conditions Precedent to all Credit Extensions………. 13<\/p>\n
4. CREATION OF SECURITY INTEREST…………………………… 13
\n 4.1 Grant of Security Interest……………………….. 13
\n 4.2 Delivery of Additional Documentation Required………. 14
\n 4.3 Right to Inspect………………………………… 14<\/p>\n
5. REPRESENTATIONS AND WARRANTIES………………………….. 14
\n 5.1 Due Organization and Qualification………………… 14
\n 5.2 Due Authorization; No Conflict……………………. 14
\n 5.3 No Prior Encumbrances……………………………. 14
\n 5.4 Bona Fide Eligible Accounts………………………. 14
\n 5.5 Merchantable Inventory…………………………… 14
\n 5.6 Intellectual Property……………………………. 15
\n 5.7 Name; Location of Chief Executive Office…………… 15
\n 5.8 Litigation……………………………………… 15
\n 5.9 No Material Adverse Change in Financial Statements….. 15
\n 5.10 Solvency……………………………………….. 15
\n 5.11 Regulatory Compliance……………………………. 15
\n 5.12 Environmental Condition………………………….. 15
\n 5.13 Taxes………………………………………….. 16
\n 5.14 Subsidiaries……………………………………. 16
\n 5.15 Government Consents……………………………… 16
\n 5.16 Full Disclosure…………………………………. 16<\/p>\n
6. AFFIRMATION COVENANTS………………………………….. 16
\n 6.1 Good Standing…………………………………… 16
\n 6.2 Government Compliance……………………………. 17
\n 6.3 Financial Statements, Reports, Certificates………… 17
\n 6.4 Inventory; Returns………………………………. 17
\n 6.5 Taxes………………………………………….. 17
\n 6.6 Insurance………………………………………. 18
\n 6.7 Principal Depository…………………………….. 18
\n 6.8 Quick Ratio…………………………………….. 18<\/p>\n
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\n 6.9 Debt-Net Worth Ratio……………………………………….. 18
\n 6.10 Tangible Net Worth…………………………………………. 18
\n 6.11 Profitability……………………………………………… 19
\n 6.12 Debt Service Coverage………………………………………. 19
\n 6.13 Further Assurances…………………………………………. 19<\/p>\n7. NEGATIVE COVENANTS……………………………………………….. 19<\/p>\n
7.1 Dispositions………………………………………………. 19
\n 7.2 Changes in Business, Ownership, Management or Business Locations… 19
\n 7.3 Mergers or Acquisitions…………………………………….. 19
\n 7.4 Indebtedness………………………………………………. 19
\n 7.5 Encumbrances………………………………………………. 20
\n 7.6 Distributions……………………………………………… 20
\n 7.7 Investments……………………………………………….. 20
\n 7.8 Transactions with Affiliates………………………………… 20
\n 7.9 Intellectual Property Agreements…………………………….. 20
\n 7.10 Subordinated Debt………………………………………….. 20
\n 7.11 Inventory…………………………………………………. 20
\n 7.12 Compliance………………………………………………… 20<\/p>\n
8. EVENTS OF DEFAULT………………………………………………… 21<\/p>\n
8.1 Payment Default……………………………………………. 21
\n 8.2 Covenant Default…………………………………………… 21
\n 8.3 Material Adverse Change…………………………………….. 21
\n 8.4 Attachment………………………………………………… 21
\n 8.5 Insolvency………………………………………………… 22
\n 8.6 Other Agreements…………………………………………… 22
\n 8.7 Subordinated Debt………………………………………….. 22
\n 8.8 Judgments…………………………………………………. 22
\n 8.9 Misrepresentations…………………………………………. 22<\/p>\n
9. BANK’S RIGHTS AND REMEDIES………………………………………… 22<\/p>\n
9.1 Rights and Remedies………………………………………… 22
\n 9.2 Power of Attorney………………………………………….. 23
\n 9.3 Accounts Collection………………………………………… 24
\n 9.4 Bank Expenses……………………………………………… 24
\n 9.5 Bank’s Liability for Collateral……………………………… 24
\n 9.6 Remedies Cumulative………………………………………… 24
\n 9.7 Demand; Protest……………………………………………. 24<\/p>\n
10. NOTICES…………………………………………………………. 25<\/p>\n
11. CHOICE OF LAW AND VENUE…………………………………………… 25<\/p>\n
12. GENERAL PROVISIONS……………………………………………….. 25<\/p>\n
12.1 Successors and Assigns……………………………………… 25
\n 12.2 Indemnification……………………………………………. 26
\n 12.3 Time of Essence……………………………………………. 26
\n 12.4 Severability of Provisions………………………………….. 26
\n 12.5 Amendments in Writing, Integration…………………………… 27<\/p>\n
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\n12.6 Counterparts………………………………………………. 27
\n12.7 Survival………………………………………………….. 27
\n12.8 Confidentiality……………………………………………. 27<\/p>\n<\/c><\/s><\/caption>\n<\/table>\n
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