UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 	 	 	
Date of report (Date of earliest event reported)	 	February 28, 2008	
Safeguard Scientifics, Inc.
(Exact Name of Registrant as Specified in Charter)
 	 	 	 	 	
Pennsylvania
(State or Other Jurisdiction
of Incorporation)	 	1-5620
(Commission
File Number)	 	23-1609753
(IRS Employer
Identification No.)	
 	 	 	 	 	
435 Devon Park Drive, Building 800, Wayne, PA	 	 	 	19087  	
(Address of Principal Executive Offices)	 	 	 	(Zip Code)	
 	 	 	 	 	
Registrant’s telephone number, including area code	 	 	 	610-293-0600	
Not applicable
(Former Name or Former Address, if Changed Since Last Report)
     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 	 	o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 		
 	 	o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 		
 	 	o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 		
 	 	o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

   

 
ITEM 1.01 .     Entry into a Material Definitive Agreement.
This Current Report on Form 8-K is being filed by the Registrant to report amendments to credit agreements between Comerica Bank (“Bank”) and, respectively, Clarient, Inc. (“Clarient”), Laureate Pharma, Inc. (“Laureate Pharma”), and Alliance Consulting Group Associates, Inc. and Alliance Holdings, Inc. (collectively, “Alliance”) to extend the maturity dates of revolving lines of credit from February 28, 2008 to February 26, 2009 (excluding the Laureate Pharma term loan for which the maturity date is noted below).  Clarient, Laureate Pharma, and Alliance are majority or wholly owned subsidiaries of the Registrant.  Safeguard Scientifics (Delaware), Inc. (“SSDI”) and Safeguard Delaware, Inc. (“SDI”), wholly owned subsidiaries of the Registrant, are guarantors of certain of the obligations of Clarient, Laureate Pharma and Alliance under their respective credit facilities. Under the terms of the credit facilities, as amended:

•	 	Clarient’s credit facility for $12.0 million and the guaranty provided by SSDI and SDI in the amount of $12.3 million (which includes any interest, costs or fees that may be incurred by Bank) will remain in place. The interest rate will remain the same (Bank’s prime rate less 0.50% or LIBOR plus 2.45%), provided, however, that upon the achievement of certain financial performance metrics, the rate will decrease by 0.25% for new borrowings under the facility.	
 		
 	 	Borrowings under Clarient’s amended and restated credit agreement with Bank (the “Amended Clarient Loan Agreement”) are subordinated in right of payment to borrowings under Clarient’s senior secured credit facility with General Electric Capital Corporation (“GE Capital”). Although the Amended Clarient Loan Agreement did not result in a change in aggregate borrowings under its original revolving credit facility with Bank and the terms of the Amended Clarient Loan Agreement are substantially the same as the terms of Clarient’s original loan agreement with Bank (the “Original Clarient Loan Agreement”), Clarient was required to obtain the consent of GE Capital to the amendment and restatement of the Original Clarient Loan Agreement, which consent has not been obtained. In addition, Clarient believes that as of December 31, 2007, it was not in compliance with one of the financial covenants under its credit facility with GE Capital. Such non-compliance creates an event of default under the GE facility and constitutes a cross-default under the Amended Clarient Loan Agreement and under Clarient’s subordinated revolving credit facility with Registrant. Clarient is in discussions with GE Capital regarding obtaining a consent and/or waiver with respect to these matters, but there is no assurance that such a consent and/or waiver will be obtained. Clarient is exploring various alternatives to replace and/or refinance its borrowings under its credit facility with GE Capital in the event such a consent and/or waiver is not obtained.	
 		
•	 	Laureate Pharma’s credit facility was amended to increase the total facility from $21.0 million to $24.0 million. As amended:	

 	o	 	the working capital line for $12.0 million will remain in place and will bear interest at the Bank’s prime rate less 0.25%;	
 		
 	o	 	the existing equipment loan of $3.0 million (under which $1,833,333 million was outstanding at February 28, 2008) will remain in place;	
 		
 	o	 	the $6.0 million equipment line (under which $4,125,968 was outstanding at February 28, 2008) was increased to $9.0 million (with a new draw period of February 28 through November 30, 2008 for the incremental $3.0 million only); has a maturity date of February 26, 2011; and will bear interest at the Bank’s prime rate or LIBOR plus 3.0%; and	
 		
 	o	 	a new non-guarantied $4 million working capital facility was added which bears interest at the Bank’s prime rate plus 1.0%.	
 		
 	SSDI and SDI are guarantors of the $15 million facility and have provided a deficiency guaranty of the $9.0 million equipment line.  Under the deficiency guaranty, if Laureate Pharma defaults on its obligations, Bank must use commercially reasonable efforts to collect the amount due during the 90-day period following notice of default (including realization of collateral amounts), following which SSDI and SDI would be liable for the amount in default.	

•	 	Alliance’s credit facility was amended to reduce the aggregate facility from $20.0 million to $17.0 million. SSDI’s and SDI’s $7.5 million guarantee of the facility will remain in place. The Bank’s unused facility fee was increased from 0.125% to 0.25%, and the facility will bear interest through June 30, 2008 at the Bank’s prime rate plus 1.25%, provided, however, that upon the achievement of certain financial performance metrics, the rate will decrease by 0.50%.	
Other than as described above, other terms of the respective credit facilities, including rates of interest, payment terms and available credit, remain the same. 
The information set forth above is qualified in its entirety by reference to the following agreements which are attached hereto as exhibits and are incorporated herein by reference:

 	1.	 	Amended and Restated Loan Agreement dated as of February 28, 2008, by and between Comerica Bank and Clarient, Inc.	
 		
 	2.	 	Amended and Restated Loan Agreement dated as of February 28, 2008, by and between Comerica Bank and Laureate Pharma, Inc.;	
 		
 	3.	 	Amendment and Affirmation of Deficiency Guaranty dated as of February 28, 2008, by and among Safeguard Delaware, Inc., Safeguard Scientifics (Delaware), Inc. and Comerica Bank (on behalf of Laureate Pharma, Inc.);	

 

 	4.	 	Loan Agreement dated as of February 28, 2008, by and between Comerica Bank and Laureate Pharma, Inc. ($4 million non-guarantied facility);	
 		
 	5.	 	Second Amendment and Waiver to Amended and Restated Loan and Security Agreement dated as of February 28, 2008, by and among Comerica Bank, Alliance Consulting Group Associates, Inc. and Alliance Holdings, Inc. ($9.5 million non-guarantied facility);	
 		
 	6.	 	Second Amendment and Waiver to Amended and Restated Loan and Security Agreement dated as of February 28, 2008, by and among Comerica Bank, Alliance Consulting Group Associates, Inc. and Alliance Holdings, Inc. ($7.5 million facility);	
ITEM 9.01. Financial Statements and Exhibits
(d) Exhibits

 	10.1	 	Amended and Restated Loan Agreement dated as of February 28, 2008, by and between Comerica Bank and Clarient, Inc.	
 		
 	10.2	 	Amended and Restated Loan Agreement dated as of February 28, 2008, by and between Comerica Bank and Laureate Pharma, Inc.	
 		
 	10.3	 	Amendment and Affirmation of Deficiency Guaranty dated as of February 28, 2008, by and among Safeguard Delaware, Inc., Safeguard Scientifics (Delaware), Inc. and Comerica Bank (on behalf of Laureate Pharma, Inc.)	
 		
 	10.4	 	Loan Agreement dated as of February 28, 2008, by and between Comerica Bank and Laureate Pharma, Inc. ($4 million non-guarantied facility)	
 		
 	10.5	 	Second Amendment and Waiver to Amended and Restated Loan and Security Agreement dated as of February 28, 2008, by and among Comerica Bank, Alliance Consulting Group Associates, Inc. and Alliance Holdings, Inc. ($9.5 million non-guarantied facility)	
 		
 	10.6	 	Second Amendment and Waiver to Amended and Restated Loan and Security Agreement dated as of February 28, 2008, by and among Comerica Bank, Alliance Consulting Group Associates, Inc. and Alliance Holdings, Inc. ($7.5 million facility)	
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 	 	 	 	 	 	 	
 	 	Safeguard Scientifics, Inc.	 	 	
 	 	 	 	 	 	 	
Dated: March 5, 2008	 	By:	 	      BRIAN J. SISKO	 	 	
 	 	 	 	 	 	 	
 	 	Brian J. Sisko	 	 	
 	 	Senior Vice President and General Counsel	 	 	

 

EXHIBIT 10.1
CLARIENT, INC.
AMENDED AND RESTATED
LOAN AGREEMENT

 

THIS INSTRUMENT OR CERTIFICATE AND THE RIGHTS EVIDENCED HEREBY ARE SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED SEPTEMBER 29, 2006, AMONG CLARIENT, INC., CLARIENT DIAGNOSTIC SERVICES, INC. CLRT ACQUISITION, LLC, GENERAL ELECTRIC CAPITAL CORPORATION AND COMERICA BANK, AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, AND ANY TRANSFEREE BY ACCEPTANCE OF SUCH TRANSFER AGREES TO BE BOUND BY THE TERMS THEREBY.
     This AMENDED AND RESTATED LOAN AGREEMENT ( this “Agreement”) is entered into as of February 28, 2008, by and between COMERICA BANK (“Bank”) and CLARIENT, INC. (“Borrower”).
Recitals
     Borrower and Bank are parties to that certain Loan Agreement dated as of February 13, 2003, as amended, including, without limitation, by that certain First Amendment to Loan Agreement dated as of October 21, 2003, that certain Second Amendment to Loan Agreement dated as of January 22, 2004, that certain Third Amendment to Loan Agreement dated as of January 31, 2005, that certain Fourth Amendment to Loan Agreement dated as of March 11, 2005, that certain Consent and Waiver dated as of July 13, 2005, that certain Waiver and Fifth Amendment to Loan Agreement dated as of August 1, 2005, that certain letter agreement dated as of January 26, 2006, that certain Sixth Amendment to Loan Agreement dated as of February 28, 2006, that certain Seventh Amendment to Loan Agreement dated as of January 17, 2007, that certain Waiver and Eighth Amendment to Loan Agreement dated as of February 28, 2007, that certain Ninth Amendment to Loan Agreement dated as of March 15, 2007, and that certain Tenth Amendment and Waiver to Loan Agreement dated as of November 1. 2007 (collectively, the “Original Agreement”). The parties desire to amend and restate the terms of the Original Agreement and to evidence the obligations of Borrower to Bank. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.
AGREEMENT
     The parties agree as follows:

1.	 	DEFINITIONS AND CONSTRUCTION .	
      1.1 Definitions . As used in this Agreement, the following terms shall have the following definitions:
     “Advance” or “Advances” means a cash advance or cash advances under the Revolving Facility.
     “Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners.
     “Bank Expenses” means all: reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; and Bank’s reasonable attorneys’ fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
     “Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
     “Change in Control” shall mean a transaction in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.
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     “Closing Date” means the date of this Agreement.
     “Code” means the California Uniform Commercial Code.
     “Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, provided that Borrower’s obligation to indemnify or otherwise compensate Guarantor with respect to losses and expenses as a result of guaranteeing the Obligations of Borrower shall not constitute a Contingent Obligation unless and until any such losses and expenses have been incurred by Guarantor; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued or provided for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designed to protect such Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
     “Credit Extension” means each Advance, or any other extension of credit by Bank for the benefit of Borrower hereunder.
     “Current Liabilities” means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, all outstanding Credit Extensions made under this Agreement, including all Indebtedness that is payable upon demand or within one year from the date of determination thereof unless such Indebtedness is renewable or extendible at the option of Borrower or any Subsidiary to a date more than one year from the date of determination.
     “Daily Balance” means the amount of the Obligations owed at the end of a given day.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
     “Event of Default” has the meaning assigned in Article 8.
     “GAAP” means generally accepted accounting principles as in effect from time to time.
     “Guarantor” means each of Safeguard Delaware, Inc. and Safeguard Scientifics (Delaware), Inc.
     “Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.
     “Insolvency Proceeding” means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
     “Investment” means any beneficial ownership of debt or equity securities (including stock, partnership interest or other securities) issued by any Person, or any loan, advance or capital contribution to any Person.
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     “IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
     “Letter of Credit” means a standby letter of credit issued by Bank at Borrower’s request in accordance with Section 2.2.
     “Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
     “Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into in connection with this Agreement, all as amended or extended from time to time.
     “Material Adverse Effect” means a material adverse effect on (i) the business operations, condition (financial or otherwise) or prospects of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents.
     “Net Worth” means with respect to Borrower as of any date of determination, the sum of capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficit) of Borrower and its Subsidiaries, minus intangible assets, on a consolidated basis determined in accordance with GAAP.
     “Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.
     “Periodic Payments” means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.
     “Permitted Indebtedness” means:
           (a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;
           (b) Indebtedness existing on the Closing Date and disclosed in the Schedule;
           (c) Indebtedness in the form of equipment leases or purchase money financing for equipment, provided the aggregate amount of such Indebtedness does not exceed $5,000,000;
           (d) Subordinated Debt; and
           (e) Extensions, renewals or refinancing of the Indebtedness described in clauses (a) through (d) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower.
          “Permitted Investment” means:
           (a) Investments existing on the Closing Date disclosed in the Schedule;
           (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank and (iv) Bank’s money market accounts; and
 3 . 

 

           (c) Investments in joint ventures, strategic alliances or similar arrangements in the ordinary course of Borrower’s business or approved by Borrower’s Board of Directors, provided that the cash portion of such Investments not exceed $250,000 in the aggregate in any fiscal year.
          “Permitted Liens” means the following:
           (a) Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;
           (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank’s security interests;
           (c) Liens (i) upon or in any equipment which was not financed by Bank acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment;
           (d) Liens upon or in any accounts receivable or inventory of Borrower or any of its Subsidiaries; and
           (e) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (d) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase.
     “Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
     “Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.
     “Quick Assets” means, at any date as of which the amount thereof shall be determined, the unrestricted cash and cash-equivalents, accounts receivable and investments with maturities not to exceed 90 days, of Borrower determined in accordance with GAAP.
     “Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of Borrower.
     “Revolving Facility” means the facility under which Borrower may request Bank to issue Advances, as specified in Section 2.1(a) hereof.
     “Revolving Line” means a credit extension of up to Nine Million Dollars ($9,000,000).
     “Revolving Maturity Date” means February 26, 2009.
     “Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.
     “Subordinated Debt” means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank).
     “Subsidiary” means any corporation, company or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock or other units of ownership which by the terms thereof has the ordinary voting
 4 . 

 

power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.
      1.2 Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms “financial statements” shall include the notes and schedules thereto.

2.	 	LOAN AND TERMS OF PAYMENT .	
      2.1 Credit Extensions .
     Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
           (a) Revolving Advances .
                (i)  Subject to and upon the terms and conditions of this Agreement, Borrower may request and Bank agrees to make Advances in an aggregate outstanding amount not to exceed the Revolving Line. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(a) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium.
                (ii)  Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1(a) to Borrower’s deposit account.
      2.2 Letters of Credit . In reliance on the representations and warranties of Borrower set forth herein, at any time and from time to time from the date hereof through the Business Day immediately prior to the Revolving Maturity Date, Bank shall issue for the account of Borrower a standby letter of credit in an amount not to exceed $3,000,000 (the “Letter of Credit”) upon receipt of a Standby Letter of Credit Application and Agreement, duly executed by Borrower. Any amounts drawn under the Letter of Credit shall be charged as Advances against the Revolving Line unless Borrower does not have sufficient borrowing availability under the Revolving Line, in which case Borrower will immediately repay such amounts in immediately available good funds. The Letter of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s form application and letter of credit agreement. Borrower will pay any standard issuance and other fees that Bank notifies Borrower it will charge for issuing and processing the Letter of Credit.
      2.3 Interest Rates, Payments, and Calculations .
           (a) Interest Rates . Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding Daily Balance thereof, which shall be a Base Rate Option Advance or a LIBOR Option Advance as elected by Borrower in accordance with the terms set forth in the LIBOR Addendum to Amended and Restated Loan Agreement executed in connection herewith (“LIBOR Addendum”), and shall bear interest on the outstanding Daily Balance thereof at the applicable rate set forth in such LIBOR Addendum.
 5 . 

 

           (b) Late Fee: Default Rate . If any payment is not made within ten (10) days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.
           (c) Payments . Interest hereunder shall be due and payable on the thirteenth (13th) calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts or against the Revolving Line and, in the case of charges against the Revolving Line, those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. All payments shall be free and clear of any taxes, withholdings, duties, impositions or other charges, to the end that Bank will receive the entire amount of any Obligations payable hereunder, regardless of source of payment.
           (d) Computation . In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.
      2.4 Crediting Payments . Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
      2.5 Fees . Borrower shall pay to Bank the following:
           (a) Facility Fee . On the Closing Date, a Facility Fee equal to Twenty Thousand Dollars ($20,000), which shall be nonrefundable; and
           (b) Bank Expenses . On the Closing Date, all Bank Expenses incurred through the Closing Date, including reasonable attorneys’ fees (billed at customary rates for Bank’s counsel) and expenses and, after the Closing Date, all Bank Expenses, including reasonable attorneys’ fees (billed at customary rates for Bank’s counsel) and expenses, as and when they become due. All such expenses shall be payable only after Bank has delivered to Borrower statements in customary form showing in reasonable detail the expenses being billed.
      2.6 Additional Costs . In case any law, regulation, treaty or official directive or the interpretation or application thereof first adopted or imposed after the date of this Agreement by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law):
           (a) subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof);
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           (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or
           (c) imposes upon Bank any other condition with respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to the Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank of a statement of the amount and setting forth Bank’s calculation thereof, all in reasonable detail, which statement shall be deemed true and correct absent manifest error.
      2.7 Term . This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement, whichever is longer. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.

3.	 	CONDITIONS OF LOANS .	
      3.1 Conditions Precedent to Initial Credit Extension . The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
           (a) this Agreement;
           (b) a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;
           (c) a LIBOR Addendum to Amended and Restated Loan Agreement;
           (d) an Affirmation of Guaranty from each Guarantor;
           (e) an Affirmation of Subordination (Safeguard Delaware, Inc.);
           (f) payment of the fees and Bank Expenses then due specified in Section 2.5 hereof;
           (g) current financial statements of Borrower; and
           (h) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
      3.2 Conditions Precedent to all Credit Extensions . The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
           (a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and
           (b) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
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4.	 	INTENTIONALLY OMITTED .	
 		
5.	 	REPRESENTATIONS AND WARRANTIES .	
     Borrower represents and warrants as follows:
      5.1 Due Organization and Qualification . Except as disclosed on the Schedule, Borrower and each Subsidiary is a corporation or other organization duly existing under the laws of its state of formation and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified.
      5.2 Due Authorization; No Conflict . The execution, delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s Certificate of Incorporation or Bylaws, nor, except as disclosed on the Schedule, will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Except as disclosed on the Schedule, Borrower is not in default under any material agreement to which it is a party or by which it is bound.
      5.3 Name; Location of Chief Executive Office . Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof.
      5.4 Litigation . Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which a likely adverse decision would reasonably be expected to have a Material Adverse Effect.
      5.5 No Material Adverse Change in Financial Statements . All consolidated and consolidating financial statements related to Borrower and any Subsidiary that Bank has received from Borrower fairly present in all material respects Borrower’s financial condition as of the date thereof and Borrower’s consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.
      5.6 Solvency; Payment of Debts . Borrower is solvent and able to pay its debts (including trade debts) as they mature.
      5.7 Regulatory Compliance . Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA, and no event has occurred resulting from Borrower’s failure to comply with ERISA that could result in Borrower’s incurring any material liability. Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect.
      5.8 Environmental Condition . Except as disclosed in the Schedule, and except to the extent which has not had and is not reasonably expected to have a Material Adverse Effect, none of Borrower’s or any Subsidiary’s properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower’s knowledge, none of Borrower’s properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any
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Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.
      5.9 Taxes . Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein, except to the extent the same could not reasonably be expected to have a Material Adverse Effect.
      5.10 Subsidiaries . Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
      5.11 Government Consents . Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s business as currently conducted, the failure to obtain which could reasonably be expected to have a Material Adverse Effect.
      5.12 Accounts . Except as set forth in the Schedule, and subject to Section 6.6 hereof, none of Borrower’s nor any Subsidiary’s cash or securities is maintained or invested with a Person other than Bank.
      5.13 Full Disclosure . No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank in connection with the Loan Documents contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading.

6.	 	AFFIRMATIVE COVENANTS .	
     Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:
      6.1 Good Standing . Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which it is required under applicable law, where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could reasonably be expected to have a Material Adverse Effect.
      6.2 Government Compliance . Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could reasonably be expected to have a Material Adverse Effect.
      6.3 Financial Statements, Reports, Certificates . Borrower shall deliver the following to Bank: (a) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated balance sheet, income, and cash flow statement covering Borrower’s consolidated operations during such period, prepared in accordance with GAAP (except for the omission of footnotes), consistently applied, in a form acceptable to Bank and certified by a Responsible Officer; (b) as soon as available, but in any event within ninety (90) days after the end of Borrower’s fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K (within ninety (90) days after the end of Borrower’s fiscal year end or, if extended under SEC provisions) and 10-Q (within 45 days after the end of each quarter or, if extended under SEC provisions) filed with the Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any
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Subsidiary that could result in damages or costs to Borrower or any Subsidiary of Fifty Thousand Dollars ($50,000) or more; and (e) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time generally prepared by Borrower in the ordinary course of business.
     Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto.
      6.4 Taxes . Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.
      6.5 Insurance .
           (a) Borrower, at its expense, shall keep its property insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower’s business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower’s business, ownership and use of the Borrower’s assets in amounts and of a type that are customary to businesses similar to Borrower’s.
           (b) Upon Bank’s request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor.
      6.6 Accounts . Borrower shall maintain and shall cause each of its Subsidiaries to maintain its primary depository, operating, and investment accounts with Bank and/or Comerica Securities, Inc.
      6.7 [Intentionally Omitted.]
      6.8 Net Worth . Borrower shall not, at any time during the periods set forth below, allow its Net Worth to fall below the given amount:
 	 	 	 	 	
Period	 	Minimum Net Worth	
1/1/08 — 3/31/08	 	$	(5,300,000	)	
4/1/08 — 6/30/08	 	$	(6,740,000	)	
7/1/08 — 9/30/08	 	$	(7,500,000	)	
Covenant to be reset no later than 9/30/08.
      6.9 Further Assurances . At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.

7.	 	NEGATIVE COVENANTS .	
     Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following:
      7.1 Dispositions . Convey, sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any material part of its business or property, including its
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Intellectual Property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete Equipment which was not financed by Bank.
      7.2 Change in Business; Change in Control or Executive Office . Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the business of offering systems, equipment, services and other items for diagnostic testing, and any business substantially similar or related thereto (or incidental thereto); or cease to conduct business in the manner conducted by Borrower as of the Closing Date; or without thirty (30) days prior written notification to Bank, relocate its chief executive office or state of incorporation or change its legal name; or without Bank’s prior written consent, which shall not be unreasonably withheld, change the date on which its fiscal year ends.
      7.3 Mergers or Acquisitions . Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where no Event of Default has occurred, is continuing or would exist after giving effect to the transactions.
      7.4 Indebtedness . Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.
      7.5 Encumbrances . Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. Agree with any Person other than Bank or any creditor as permitted under this Agreement, not to grant a security interest in, or otherwise encumber, any of its property, or permit any Subsidiary to do so, except for Permitted Liens.
      7.6 Distributions . Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or permit any of its Subsidiaries to do so, except that Borrower may repurchase the stock of employees and former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase.
      7.7 Investments . Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; or maintain or invest any of its property with a Person other than Bank or permit any of its Subsidiaries to do so unless such Person has entered into an account control agreement with Bank in form and substance satisfactory to Bank; or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement (other than this Agreement) that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.
      7.8 Transactions with Affiliates . Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are determined in good faith by a disinterested majority of Borrower’s board of directors or committee thereof to be on fair and reasonable terms and that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person. Notwithstanding the foregoing, Borrower shall be permitted to enter into and carry out its obligations under that certain Reimbursement and Indemnity Agreement with Guarantors, dated as of March 11, 2005, as amended from time to time.
      7.9 Subordinated Debt . Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.
      7.10 Compliance . Become an “investment company” or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or
 11 . 

 

use the proceeds of any Credit Extension for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, except with respect to all of the foregoing to an extent which does not have a Material Adverse Effect, or permit any of its Subsidiaries to do any of the foregoing.
      7.11 Negative Pledge Agreements . Permit the inclusion in any contract to which it or a Subsidiary becomes a party of any provisions that could restrict or invalidate the creation of a security interest in any of Borrower’s or such Subsidiary’s property, except contracts relating to Permitted Indebtedness or assets subject to Permitted Liens.

8.	 	EVENTS OF DEFAULT .	
     Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
      8.1 Payment Default . If Borrower fails to pay, when due, any of the Obligations;
      8.2 Covenant Default . If Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement, or fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within fifteen (15) days after Borrower receives notice thereof from Bank; provided, however, that if the default cannot by its nature be cured within the fifteen (15) day period or cannot after diligent attempts by Borrower be cured within such fifteen (15) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Credit Extensions will be required to be made during such cure period);
      8.3 Material Adverse Effect . If there occurs any circumstance or circumstances that has or have a Material Adverse Effect;
      8.4 Attachment . If any portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be made during such cure period);
      8.5 Insolvency . If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within forty five (45) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
      8.6 Other Agreements . If there is a default or other failure to perform in any agreement to which Borrower is a party or by which it is bound resulting in a right by a third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Five Hundred Thousand Dollars ($500,000) or which could reasonably be expected to have a Material Adverse Effect;
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      8.7 Subordinated Debt . If Borrower makes any payment on account of Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank;
      8.8 Judgments . If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment); or
      8.9 Misrepresentations . If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.
      8.10 Guaranty . If any guaranty of all or a portion of the Obligations (a “Guaranty”) ceases for any reason to be in full force and effect, or any guarantor fails to perform any obligation under any Guaranty or a security agreement securing any Guaranty (collectively, the “Guaranty Documents”), or any event of default occurs under any Guaranty Document or any guarantor revokes or purports to revoke a Guaranty, or any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth in any Guaranty Document or in any certificate delivered to Bank in connection with any Guaranty Document, or if any of the circumstances described in Sections 8.3 through 8.8 occur with respect to any guarantor, or any circumstances arise causing Bank, in good faith, to become insecure as to the satisfaction of any of any guarantor’s obligations under the Guaranty Documents.
      8.11 Letter of Credit Default . Borrower defaults under any reimbursement obligation or other obligation of Borrower under the Standby Letter of Credit Application and Agreement or other standard form letter of credit application and reimbursement agreement as may be in effect from time to time.

9.	 	BANK’S RIGHTS AND REMEDIES .	
      9.1 Rights and Remedies . Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
           (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Bank);
           (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;
           (c) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank; and
           (d) If an Event of Default has occurred pursuant to Section 8.10, demand that Borrower (i) deposit cash with Bank in an amount equal to the amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit, and Borrower shall promptly deposit and pay such amounts.
      9.2 Bank Expenses . If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under a loan facility in Section 2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement,
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and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
      9.3 Remedies Cumulative . Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.
      9.4 Demand; Protest . Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable.

10.	 	NOTICES .	
     Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:
 	 	 	 	 	
 	 	If to Borrower:	 	CLARIENT, INC.	
 	 	 	 	31 Columbia	
 	 	 	 	Aliso Viejo, CA 92656	
 	 	 	 	Attn: Chief Financial Officer	
 	 	 	 	FAX: (949) 485-5865	
 	 	 	 	 	
 	 	If to Bank:	 	Comerica Bank	
 	 	 	 	75 E Trimble Road	
 	 	 	 	San Jose, CA 95131	
 	 	 	 	FAX: (408) 556-5091	
 	 	 	 	 	
 	 	with a copy to:	 	Comerica Bank	
 	 	 	 	11921 Freedom Drive, Suite 920	
 	 	 	 	Reston, VA 20190	
 	 	 	 	Attn: Peter Bendoris	
 	 	 	 	FAX: (703) 467-9308	
     The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

11.	 	CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER .	
     This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE
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MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.

12.	 	REFERENCE PROVISION .	
      12.1 In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.
      12.2 With the exception of the items specified in Section 12.3, below, any controversy, dispute or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between the undersigned parties (collectively in this Section, the “Loan Documents”), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Loan Documents, venue for the reference proceeding will be in the Superior Court in the County where the real property involved in the action, if any, is located or in a County where venue is otherwise appropriate under applicable law (the “Court”).
      12.3 The matters that shall not be subject to a reference are the following: (i) nonjudicial foreclosure of any security interests in real or personal property, (ii) exercise of self help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This Agreement does not limited the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference pursuant to this Agreement.
      12.4 The referee shall be a retired Judge or Justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted.
      12.5 The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (12)) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.
      12.6 The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
      12.7 Except as expressly set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to
 15 . 

 

arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.
      12.8 The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP Section 644, such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court and any such decision will be final, binding and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of act, conclusions of law, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
      12.9 If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or Justice, in accordance with the California Arbitration Act Section 1280 through Section 1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.
      12.10 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

13.	 	GENERAL PROVISIONS.	
      13.1 Successors and Assigns . This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.
      13.2 Indemnification . Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.
      13.3 Time of Essence . Time is of the essence for the performance of all obligations set forth in this Agreement.
      13.4 Severability of Provisions . Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
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      13.5 Amendments in Writing, Integration. All amendments to or terminations of this Agreement or the other Loan Documents must be in writing. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents.
      13.6 Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.
      13.7 Survival . All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make any Credit Extension to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
      13.8 Confidentiality . In handling any confidential information, Bank and all employees and agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or Affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank (which information was not previously disclosed to Bank by Borrower pursuant to confidentiality protections) when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.
      13.9 Effect of Amendment and Restatement . This Agreement is intended to and does completely amend and restate, without novation, the Original Agreement. All Advances and Obligations outstanding (and as defined under) the Original Agreement are deemed, respectively, Advances and Obligations under (and as defined in) this Agreement.
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      In Witness Whereof , the parties hereto have caused this Agreement to be executed as of the date first above written.
 	 	 	 	 	
 	 	CLARIENT, INC.	
 	 	 	 	 	
 	 	By:	 	/s/ James V. Agnello	

 	 	Title:	 	Senior Vice President and Chief Financial Officer	

 	 	COMERICA BANK	
 	 	 	 	 	
 	 	By:	 	/s/ Peter Bendoris	

 	 	Title:	 	Vice President	
 	 	 	 	 	
 18 . 

EXHIBIT 10.2
LAUREATE PHARMA, INC.
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT

 

     This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of February 28, 2008, by and between COMERICA BANK (“Bank”) and LAUREATE PHARMA, INC., a Delaware corporation (“Borrower”).
RECITALS
     A. Borrower and Bank are parties to that certain Loan and Security Agreement dated as of December 1, 2004, as amended, including, without limitation, by that certain First Amendment to Loan and Security Agreement dated as of January 31, 2005, that certain Second Amendment to Loan and Security Agreement dated as of May 6, 2005, that certain Third Amendment to Loan and Security Agreement dated as of June 20, 2005, that certain letter agreement dated as of January 28, 2006, that certain Fourth Amendment to Loan and Security Agreement dated as of February 28, 2006, and that certain Fifth Amendment to Loan and Security Agreement dated as of August 2, 2006, and that certain Sixth Amendment to Loan and Security Agreement dated February 28, 2007 (collectively, the “Original Agreement”).
     B. Borrowers and Bank wish to amend and restate the terms of the Original Agreement and to evidence the obligations of Borrowers to Bank in two separate agreements, one subject to a guaranty and the other not. This Agreement sets forth the terms on which Bank will advance credit to Borrowers in respect of the guarantied loans, and Borrower will repay the amounts owing to Bank.
AGREEMENT
     The parties agree as follows:
      1. DEFINITIONS AND CONSTRUCTION .
           1.1 Definitions . As used in this Agreement, the following terms shall have the following definitions:
               “Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.
               “Advance” or “Advances” means a cash advance or cash advances under the Revolving Facility.
               “Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners.
               “Bank Expenses” means all: reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
               “Borrower’s Books” means all of Borrower’s books and records including: ledgers; records concerning Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
               “Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
               “Change in Control” shall mean a transaction in which any “person” or “group” (within the meaning of Section 13(d) and l4(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.
               “Closing Date” means the date of this Agreement.
 1. 

 

               “Code” means the California Uniform Commercial Code as in effect from time to time.
               “Collateral” means the property described on Exhibit A attached hereto.
               “Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring items of income.
               “Consolidated Total Interest Expense” means with respect to any Person for any period, the aggregate amount of interest required to be paid or accrued by a Person and its Subsidiaries during such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease or any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.
               “Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued or provided for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designed to protect such Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
               “Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.
               “Credit Extension” means each Advance, Equipment Advance, or any other extension of credit by Bank for the benefit of Borrower hereunder.
               “Current Assets” means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current assets on the consolidated balance sheet of Borrower and its Subsidiaries as at such date.
               “Current Liabilities” means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, undrawn Letters of Credit and Borrower’s maximum potential obligations under the Credit Card Services Sublimit, if any, but specifically excluding any cash-secured Obligations.
               “Daily Balance” means the amount of the Obligations owed at the end of a given day.
               “EBITDA” means with respect to any fiscal period an amount equal to the sum of (a) Consolidated Net Income of the Borrower and its Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of the Borrower’s Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) non-cash expense associated with granting stock options, and minus, to the extent added in computing Consolidated Net Income, and without duplication, all extraordinary and non-recurring revenue and gains (including income tax benefits) for such period, all as determined in accordance with GAAP.
               “Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.
               “Equipment Advance(s)” has the meaning set forth in Section 2.1(c).
 2. 

 

               “Equipment Line” means a Credit Extension of up to Three Million Dollars ($3,000,000).
               “Equipment Maturity Date” means February 28, 2011.
               “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
               “Event of Default” has the meaning assigned in Article 8.
               “GAAP” means generally accepted accounting principles as in effect from time to time,
               “Guarantors” means Safeguard Delaware, Inc. and Safeguard Scientifics (Delaware), Inc.
               “Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.
               “Insolvency Proceeding” means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief
               “Intellectual Property Collateral” means all of Borrower’s right, title, and interest in:
                (a)  Copyrights, Trademarks and Patents;
                (b)  Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;
                (c)  Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;
                (d)  Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;
                (e)  All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; or Patents; and
                (f)  All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and
                (g)  All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.
     Notwithstanding any of the foregoing, “Intellectual Property Collateral” shall not include (i) intellectual property owned by a client of Borrower or (ii) any rights of Borrower’s clients in and to intellectual property under Borrower’s agreements with such clients.
               “Inventory” means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower’s Books relating to any of the foregoing.
 3. 

 

               “Investment” means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
               “IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
               “Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
               “Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into in connection with this Agreement, all as amended or extended from time to time.
               “Material Adverse Effect” means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents or (iii) the value or priority of Bank’s security interests in the Collateral.
               “Negotiable Collateral” means all of Borrower’s present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrower’s Books relating to any of the foregoing.
               “Non-Guaranteed Loan Agreement” means that certain Loan and Security Agreement of even date between Borrower and Bank.
               “Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.
               “Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
               “Periodic Payments” means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.
               “Permitted Indebtedness” means:
                (a)  Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;
                (b)  Indebtedness in favor of a Safeguard entity in an amount not to exceed $2,500,000; provided that no Event of Default shall occur and be continuing at the time of, or after giving effect to such Indebtedness; provided further, that such Indebtedness shall be repaid upon receipt of an audit satisfactory to Bank and may be repaid by Advances requested hereunder;
                (c)  Indebtedness of Borrower or any Subsidiary existing on the Closing Date and disclosed in the Schedule;
                (d)  Indebtedness of Borrower or any Subsidiary secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided (i) such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness and (ii) such Indebtedness does not exceed $250,000 in the aggregate at any given time;
                (e)  Subordinated Debt;
                (f)  Indebtedness of Borrower to any Subsidiary and of any Subsidiary to any other Subsidiary;
                (g)  Indebtedness of Borrower to an Affiliate (provided that such indebtedness to an Affiliate is subject to a separate subordination agreement between Affiliate and Bank) or any Subsidiary to trade creditors and with respect to surety bonds and similar obligations incurred in the ordinary course of business; and
 4. 

 

                (h)  Extensions, refinancings, modifications, amendments and restatements of any item of Permitted Indebtedness described in clauses (a) through (f) above; provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower.
               “Permitted Investment” means:
                (a)  Investments of Borrower or any Subsidiary existing on the Closing Date and disclosed in the Schedule;
                (b)  (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank and (iv) Bank’s money market accounts;
                (c)  Investments of Borrower or any Subsidiary consisting of travel advances and employee relocation loans and advances made in the ordinary course of business;
                (d)  loans or advances made by any Subsidiary to Borrower or any other Subsidiary; and
                (e)  Investments of Borrower or any Subsidiary (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business.
               “Permitted Liens” means the following:
                (a)  Any Liens of Borrower or any Subsidiary existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;
                (b)  Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank’s security interests;
                (c)  Liens (i) upon or in any equipment which was not financed by Bank acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment;
                (d)  Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;
                (e)  carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens impose by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in good faith by appropriate proceedings;
                (f)  pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; and
                (g)  Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.4 or 8.8.
               “Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
               “Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.
 5. 

 

               “Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Technical Officer and the Chief Financial Officer of Borrower.
               “Revolving Facility” means the facility under which Borrower may request Bank to issue Advances, as specified in Section 2.1(a) hereof.
               “Revolving Line” means a credit extension of up to Twelve Million Dollars ($12,000,000).
               “Revolving Maturity Date” means February 26, 2009.
               “Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.
               “Subordinated Debt” means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and Bank).
               “Subsidiary” means any corporation, company or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock or other units of ownership which by the terms thereof has the ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.
               “Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
           1.2 Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms “financial statements” shall include the notes and schedules thereto.
      2. LOAN AND TERMS OF PAYMENT .
           2.1 Credit Extensions .
               Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
                (a) Revolving Advances .
                     (i)  Subject to and upon the terms and conditions of this Agreement, Borrower may request Advances in an aggregate outstanding amount not to exceed the Revolving Line. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(a) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium. The Advances shall be used for general working capital purposes.
                     (ii)  Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Eastern time, on the Business Day prior to the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1(a) to Borrower’s deposit account.
                (b) Existing Amortizing Loans . As of February 28, 2008, there is an outstanding term loan under the Original Agreement (the “Existing Term Loan”) in the principal amount equal to $1,833,333.08. Borrower shall not request or receive any further advances under the Existing Term Loan. Interest shall continue to accrue on the Existing Term Loan at the rate specified in Section 2.3(a). Borrower shall continue to make payments on the Existing Term Loan in equal payments of principal plus
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all accrued interest each month in accordance with the Agreement until December 1, 2009, at which time all amounts due under this Section 2.1(b) shall be immediately due and payable. Advances under the Existing Term Loan, once repaid, may not be reborrowed. Borrower may prepay all advances under the Existing Term Loan without penalty or premium.
               As of February 28, 2008, there is an outstanding equipment loan under the Original Agreement (the “Existing Equipment Loan”) in the principal amount equal to $4,125,968.42. Borrower shall not request or receive any further advances under the Existing Equipment Loan. Interest shall continue to accrue on the Existing Equipment Loan at the rate set forth in that certain LIBOR Addendum to Loan Agreement dated February 28, 2007. Borrower shall continue to make payments on the Existing Equipment Loan in equal payments of principal plus all accrued interest each month in accordance with the Agreement until February 28, 2011, at which time all amounts due under the Existing Equipment Loan shall be immediately due and payable. The Existing Equipment Loan and Existing Term Loan are collectively referred to as the Amortizing Loans. Advances under the Amortzing Loans, once repaid, may not be reborrowed. Borrower may prepay all advances under the Amortizing Loans without penalty or premium.
                (c) Equipment Advances .
                     (i)  Subject to and upon the terms and conditions of this Agreement, at any time from the date hereof through November 30, 2008, Bank agrees to make advances (each an “Equipment Advance” and, collectively, the “Equipment Advances”) to Borrower in an aggregate amount not to exceed the Equipment Line. Each Equipment Advance shall not exceed one hundred percent (100%) of the invoice amount of equipment and software approved by Bank from time to time (which Borrower shall, in any case, have purchased between March 1, 2008 and November 30, 2008), excluding taxes, shipping, warranty charges, freight discounts and installation expense. Notwithstanding the foregoing, no more than $450,000 of the Equipment Line may be used to finance software and other soft costs.
                     (ii)  Interest shall accrue from the date of each Equipment Advance at the rate specified in Section 2.3, and shall be payable monthly on the thirtieth (30 th ) day of each month so long as any Equipment Advances are outstanding. Any Equipment Advances that are outstanding on November 30, 2008 shall be payable in twenty-seven (27) equal monthly installments of principal, plus all accrued interest, beginning on December 30, 2008, and continuing on the same day of each month thereafter through the Equipment Maturity Date, at which time all amounts owing under this Section 2.1(c) shall be immediately due and payable. Equipment Advances, once repaid, may not be reborrowed. Except as set forth in Section 2.3 Borrower may prepay any Equipment Advances without penalty or premium.
                     (iii)  When Borrower desires to obtain an Equipment Advance, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Pacific time three (3) Business Days before the day on which the Equipment Advance is to be made. Such notice shall be substantially in the form of Exhibit B . The notice shall be signed by a Responsible Officer or its designee and include a copy of the invoice and proof of payment of such invoice for any Equipment to be financed.
           2.2 Reserved .
           2.3 Interest Rates, Payments, and Calculations .
                (a) Interest Rates .
                     (i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding Daily Balance thereof, at a rate equal to one quarter of one percent (0.25%) below the Prime Rate.
                     (ii) Term Advance. Except as set forth in Section 2.3(b), the Existing Term Loan shall bear interest, on the outstanding Daily Balance thereof, at a rate equal to one half of one percent (0.50%) below the Prime Rate.
                     (iii) Equipment Advances. Except as set forth in Section 2.3(b), the Equipment Advances shall bear interest, on the outstanding Daily Balance thereof, which shall be a Base Rate Option Advance or a LIBOR Option Advance as elected by Borrower in accordance with the terms set forth in the LIBOR Addendum to Amended and Restated Loan and Security Agreement executed in connection herewith (“LIBOR Addendum”), shall bear interest on the outstanding Daily Balance thereof at the applicable rate set forth in such LIBOR Addendum.
                (b) Late Fee; Default Rate . If any payment is not made within ten (10) days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or
 7. 

 

(ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.
                (c) Payments . Interest hereunder shall be due and payable on the thirtieth (30th) calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Bank shall notify Borrower when it charges any amounts against Borrower’s deposit accounts or against the Revolving Line. Any interest not paid within three (3) days after the date such interest is due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. All payments shall be free and clear of any taxes, withholdings, duties, impositions or other charges, to the end that Bank will receive the entire amount of any Obligations payable hereunder, regardless of source of payment.
                (d) Computation . In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.
           2.4 Crediting Payments . Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence and during the continuance of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 3:00 noon Eastern time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
           2.5 Fees . Borrower shall pay to Bank the following:
                (a) Facility Fee . On or prior to the Closing Date, a Facility Fee equal to $37,500, which shall be nonrefundable; and
                (b) Bank Expenses . On the Closing Date, all Bank Expenses incurred through the Closing Date, including reasonable attorneys’ fees and expenses and, after the Closing Date, all Bank Expenses, including reasonable attorneys’ fees and expenses, as and when they become due.
           2.6 Additional Costs . In case any law, regulation, treaty or official directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law):
                (a)  subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof);
                (b)  imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or
                (c)  imposes upon Bank any other condition with respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to the Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank of a statement of the amount and setting forth Bank’s calculation thereof, all in reasonable detail, which statement shall be deemed true and correct absent manifest error.
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           2.7 Term . This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.
      3. CONDITIONS OF LOANS .
                3.1 Conditions Precedent to Initial Credit Extension . The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance reasonably satisfactory to Bank, the following:
                (a)  this Agreement executed by Borrower;
                (b)  a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;
                (c)  a LIBOR Addendum to Amended and Restated Loan and Security Agreement;
                (d)  an Affirmation of Guaranty from each Guarantor;
                (e)  an Amendment and Affirmation of Guaranty (Deficiency Guaranty) from each Guarantor;
                (f)  an agreement to provide insurance;
                (g)  payment of the fees and Bank Expenses then due as specified in Section 2.5 hereof;
                (h)  current SOS reports indicating that except for Permitted Liens, there are no other security interests or Liens of record on the Collateral;
                (i)  current financial statements of Borrower; and
                (j)  such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
           3.2 Conditions Precedent to all Credit Extensions . The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
                (a)  timely receipt by Bank of a Payment/Advance Form as provided in Section 2.1; and
                (b)  the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
      4. CREATION OF SECURITY INTEREST .
           4.1 Grant of Security Interest . Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral. Notwithstanding any termination, Bank’s Lien on the Collateral shall remain in effect so long as any Obligations are outstanding.
 9. 

 

           4.2 Perfection of Security Interest . Borrower authorizes Bank to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable. Any such financing statements may be signed by Bank on behalf of Borrower, as provided in the Code, and may be filed at any time in any jurisdiction whether or not Revised Article 9 of the Code is then in effect in that jurisdiction. Borrower shall from time to time endorse and deliver to Bank, at the request of Bank, all Negotiable Collateral and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and substance reasonably satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, (ii) obtain “control” of any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance reasonably satisfactory to Bank. Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper. Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.
           4.3 Right to Inspect . Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral.
      5. REPRESENTATIONS AND WARRANTIES .
          Borrower represents and warrants as follows:
           5.1 Due Organization and Qualification . Borrower and each Subsidiary is a corporation duly existing under the laws of its state of incorporation and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to be so qualified or licensed could not reasonably be expected to have a Material Adverse Effect.
           5.2 Due Authorization; No Conflict . The execution, delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s Amended and Restated Certificate of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any material agreement to which it is a party or by which it is bound.
           5.3 No Prior Encumbrances . Borrower has good and marketable title to its property, free and clear of Liens, except for Permitted Liens.
           5.4 Bona Fide Accounts . The Accounts are bona fide existing obligations. The property and services giving rise to such Accounts has been delivered or rendered to the account debtor or to the account debtor’s agent for immediate and unconditional acceptance by the account debtor.
           5.5 Reserved.
           5.6 Intellectual Property Collateral . Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business. Each of the Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. Except as set forth in the Schedule, Borrower is not a party to any license of intellectual property that constitutes a material part of any product or is necessary for the provision of any service, the sale, licensing or provision of which generates revenue to Borrower. Except as set forth in the Schedule, Borrower is not a party to, or bound by, any agreement that restricts the grant by Borrower of a security interest in Borrower’s rights under such agreement.
 10. 

 

           5.7 Name; Location of Chief Executive Office . Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof and Borrower has paid for and owns all Equipment financed by Bank. All Borrower’s Inventory and Equipment is located only at the location set forth in Section 10 hereof.
           5.8 Litigation . Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect, or a material adverse effect on Borrower’s interest or Bank’s security interest in the Collateral.
           5.9 No Material Adverse Change in Financial Statements . All consolidated financial statements related to Borrower and any Subsidiary that Bank has received fairly present in all material respects Borrower’s consolidated financial condition as of the date thereof and Borrower’s consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.
           5.10 Solvency, Payment of Debts . Borrower is able to pay its debts (including trade debts) as they mature.
           5.11 Regulatory Compliance . Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans of Borrower or any Subsidiary subject to ERISA, and no event has occurred resulting from Borrower’s failure to comply with ERISA that could result in Borrower’s incurring any material liability. Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect.
           5.12 Environmental Condition . Except as disclosed in the Schedule, none of Borrower’s or any Subsidiary’s properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower’s knowledge, none of Borrower’s properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.
           5.13 Taxes . Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein.
           5.14 Subsidiaries . Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
           5.15 Government Consents . Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s business as currently conducted, the failure to obtain which could have a Material Adverse Effect.
           5.16 Investment Accounts . None of Borrower’s property is maintained or invested with a Person other than Bank.
           5.17 Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements, in light of the circumstances in which they were made, not misleading.
      6. AFFIRMATIVE COVENANTS .
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          Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:
           6.1 Good Standing . Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect.
           6.2 Government Compliance . Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans of Borrower or any Subsidiary subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect.
           6.3 Financial Statements, Reports, Certificates . Borrower shall deliver the following to Bank (a) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a Borrower prepared consolidated balance sheet, income, and cash flow statement covering Borrower’s consolidated operations during such period, prepared in accordance with GAAP, consistently applied, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (b) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrower’s fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (e) such budgets, sales projections, backlogs, operating plans or other financial exhibits and information as Bank may reasonably request from time to time generally prepared by Borrower in the ordinary course of business.
     Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit C attached hereto.
     Bank shall have a right from time to time hereafter to audit Borrower’s Accounts and appraise Collateral at Borrower’s expense, provided that such audits will be conducted no more often than once every six (6) months unless an Event of Default has occurred and is continuing.
           6.4 Inventory; Returns . Borrower shall keep all Inventory in good and marketable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000).
           6.5 Taxes . Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is resented against (to the extent required by GAAP) by Borrower.
           6.6 Insurance .
                (a)  Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower’s business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower’s business, ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower’s.
                (b)  All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender’s loss payable endorsement, in a
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form satisfactory to Bank, showing Bank as an additional loss payee thereof, and all liability insurance policies shall show the Bank as an additional insured and shall specify that the insurer must give at least thirty (30) days notice to Bank before canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations.
           6.7 Accounts . Borrower shall maintain all depository, operating, and investment accounts with Bank and/or Comerica Securities, Inc. (collectively, “Comerica”).
           6.8 Financial Covenants . Borrower shall at all times maintain the following financial ratios and covenants:
                (a) Current Ratio . Tested on a monthly basis, a ratio of Current Assets to Current Liabilities, less all Indebtedness owing from Borrower to Bank under this Agreement, of 0.90 to 1.00.
                (b)  EBITDA . An EBITDA, tested monthly, on a trailing three (3) month basis, as indicated for the months set forth below:
 	 	 	 	 	
Month Ending	 	EBITDA	
03/31/08	 	$	(1,000,000	)	
04/30/08	 	$	(1,000,000	)	
05/31/08	 	$	(700,000	)	
06/30/08	 	$	(330,000	)	
07/31/08	 	$	( 75,000	)	
08/31/08	 	$	1.00	 	
09/30/08	 	$	200,000	 	
10/31/08	 	$	430,000	 	
11/30/08	 	$	665,000	 	
12/31/08	 	$	950,000	 	
Thereafter	 	$	1,000,000	 	
           6.9 Intellectual Property Rights . Borrower shall (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use commercially reasonable efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which consent shall not be unreasonably withheld.
           6.10 Further Assurances . At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.
      7. NEGATIVE COVENANTS .
          Borrower covenants and agrees that, until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following without the prior written consent of Bank:
           7.1 Dispositions . Convey, sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete Equipment which was not financed by Bank.
           7.2 Change in Business; Change in Control or Executive Office. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially
 13. 

 

similar or related thereto (or incidental thereto); or cease to conduct business in the manner conducted by Borrower as of the Closing Date; or suffer or permit a Change in Control; or without thirty (30) days prior written notification to Bank, relocate its chief executive office or state of incorporation; or change the date on which its fiscal year ends.
           7.3 Mergers or Acquisitions . Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, provided that any Subsidiary of Borrower may merge into Borrower.
           7.4 Indebtedness . Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.
           7.5 Encumbrances . Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or agree with any Person other than Bank not to grant a security interest in, or otherwise encumber, any of its property, or permit any Subsidiary to do so.
           7.6 Distributions . Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or permit any of its Subsidiaries to do so, except that Borrower may repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase.
           7.7 Investments . Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; or maintain or invest any of its property with a Person other than Bank or permit any of its Subsidiaries to do so; or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.
           7.8 Transactions with Affiliates . Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.
           7.9 Subordinated Debt . Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.
           7.10 Inventory and Equipment . Store the Inventory or the Equipment with a bailee, warehouseman, or other third party unless the third party has been notified of Bank’s security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in pledge possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Store or maintain any Equipment or Inventory at a location other than the location set forth in Section 10 of this Agreement.
           7.11 Compliance . Become an “investment company” or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, or violate any law or regulation, which violation could have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Bank’s Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
      8. EVENTS OF DEFAULT .
          Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
           8.1 Payment Default . If Borrower fails to pay any of the Obligations within three (3) days after their due date;
           8.2 Covenant Default . If Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement, or fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term., provision, condition, covenant or
 14. 

 

agreement that can be cured, has failed to cure such default within ten (10) days after Borrower and the Guarantors receive notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower and the Guarantors be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Credit Extensions will be required to be made during such cure period);
           8.3 Material Adverse Effect . If there occurs any circumstance or circumstances that could have a Material Adverse Effect;
           8.4 Attachment . If any substantial portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be made during such cure period);
           8.5 Insolvency . If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
           8.6 Other Agreements . If there is a default or other failure to perform under or in any agreement to which Borrower is a party or by which it is bound resulting in a right by a third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000); or which could have a Material Adverse Effect;
           8.7 Subordinated Debt . If Borrower makes any payment on account of Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank;
           8.8 Judgments . If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);
           8.9 Misrepresentations . If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document; or
           8.10 Guaranty . If any guaranty of all or a portion of the Obligations (a “Guaranty”) ceases for any reason to be in full force and effect, or any guarantor fails to perform any obligation under any Guaranty or a security agreement securing any Guaranty (collectively, the “Guaranty Documents”), or any event of default occurs under any Guaranty Document or any guarantor revokes or purports to revoke a Guaranty, or any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth in any Guaranty Document or in any certificate delivered to Bank in connection with any Guaranty Document, or if any of the circumstances described in Sections 8.3, 8.4, 8.5 or 8.8 occur with respect to any guarantor or any guarantor dies or becomes subject to any criminal prosecution, or any circumstances arise causing Bank, in good faith, to become insecure as to the satisfaction of any of any guarantor’s obligations under the Guaranty Documents.
      9. BANK’S RIGHTS AND REMEDIES .
           9.1 Rights and Remedies . Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
 15. 

 

                (a)  Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Bank);
                (b)  Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;
                (c)  Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
                (d)  Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;
                (e)  Make Advances which Advances shall be deemed an Advance under the Revolving Line, without instruction from Borrower, in the following order of priority (i) to pay any outstanding Obligations under the Non-Guaranteed Loan Agreement; and (ii) to pay any outstanding amounts under the Existing Term Loan and outstanding Equipment Advances; whether pursuant to an Event of Default under this Agreement or an Event of Default under the Non-Guaranteed Loan Agreement;
                (f)  Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;
                (g)  Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit;
                (h)  Dispose of the Collateral by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate;
                (i)  Bank may credit bid and purchase at any public sale; and
                (j)  Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.
           9.2 Power of Attorney . Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; and (h) to transfer the Intellectual Property Collateral into the name of Bank or a third party to the extent permitted under the Code; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in Section 4.2 regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions hereunder is terminated.
 16. 

 

           9.3 Accounts Collection . Upon the occurrence and during the continuance of an Event of Default, Bank may notify any Person owing funds to Borrower of Bank’s security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
           9.4 Bank Expenses . If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under a loan facility in Section 2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems reasonably prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
           9.5 Bank’s Liability for Collateral . So long as Bank complies with reasonable banking practices and the applicable provisions of the applicable enactment of the Uniform Commercial Code, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.
           9.6 Remedies Cumulative . Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.
           9.7 Demand; Protest . Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable.
      10. NOTICES .
          Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:
 	 	 	 	 	
 	 	If to Borrower:	 	LAUREATE PHARMA, INC.	
 	 	 	 	201 College Road East	
 	 	 	 	Princeton, NJ 08540	
 	 	 	 	Attn: Vice President — Finance	
 	 	 	 	FAX: (609) 919-3300	
 	 	 	 	 	
 	 	with a copy to:	 	Safeguard Delaware, Inc.	
 	 	 	 	c/o Safeguard Scientifics, Inc.	
 	 	 	 	435 Devon Park Drive	
 	 	 	 	Wayne, PA 19087	
 	 	 	 	Attn: Chief Financial Officer	
 	 	 	 	FAX: (610) 293-0601	
 	 	 	 	 	
 	 	If to Bank:	 	Comerica Bank	
 	 	 	 	MC 4770	
 	 	 	 	75 E Trimble Road	
 	 	 	 	San Jose, CA 95131	
 17. 

 

 	 	 	 	 	
 	 	 	 	Attn: Manager	
 	 	 	 	FAX: (408) 556-5091	
 	 	 	 	 	
 	 	with a copy to:	 	Comerica Bank	
 	 	 	 	11921 Freedom Drive, Suite 920	
 	 	 	 	Reston, VA 20190	
 	 	 	 	Attn: Peter Bendoris	
 	 	 	 	FAX: (703) 467-9308	
     The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
      11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER .
          This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.
      12. GENERAL PROVISIONS .
           12.1 Successors and Assigns . This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.
           12.2 Indemnification . Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.
           12.3 Time of Essence . Time is of the essence for the performance of all obligations set forth in this Agreement.
           12.4 Severability of Provisions . Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
           12.5 Amendments in Writing, Integration. Neither this Agreement nor the Loan Documents can be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the Loan Documents, if any, are merged into this Agreement and the Loan Documents.
           12.6 Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.
           12.7 Survival . All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
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           12.8 Effect of Amendment and Restatement . This Agreement is intended to and does completely amend and restate, without novation, the Original Agreement. All security interests granted under the Original Agreement are hereby confirmed and ratified and shall continue to secure all Obligations under this Agreement.
      13. REFERENCE PROVISION .
           13.1 In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.
           13.2 With the exception of the items specified in clause 13.3, below, any controversy, dispute or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between the undersigned parties (collectively in this Section, the “Comerica Documents”), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Comerica Documents, venue for the reference proceeding will be in the state or federal court in the county or district where the real property involved in the action, if any, is located or in the state or federal court in the county or district where venue is otherwise appropriate under applicable law (the “Court”).
           13.3 The matters that shall not be subject to a reference are the following: (i) nonjudicial foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This reference provision does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference pursuant to this reference provision as provided herein.
           13.4 The referee shall be a retired judge or justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to the referee selected by the Presiding Judge of the Court (or his or her representative).
           13.5 The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.
           13.6 The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
           13.7 Except as expressly set forth herein, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.
           13.8 The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which
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disposes of all claims of the parties that are the subject of the reference. Such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
           13.9 If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.
           13.10 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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      IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the date first above written.
 	 	 	 	 	 	 	
 	 	LAUREATE PHARMA, INC.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Steven J. Grenfell	 	 	

 	 	Title:	 	Vice President	 	 	

 	 	COMERICA BANK	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Peter Bendoris	 	 	

 	 	Title:	 	Vice President	 	 	
 	 	 	 	 	 	 	
 21. 

EXHIBIT 10.3
AMENDMENT AND AFFIRMATION OF DEFICIENCY GUARANTY
(Safeguard Delaware / Safeguard Scientifics (Delaware))
     This AMENDMENT AND AFFIRMATION OF DEFICIENCY GUARANTY is made as of February 28, 2008 by and among SAFEGUARD DELAWARE, INC. (“SDI”), SAFEGUARD SCIENTIFICS (DELAWARE), INC. (“SSI”; collectively with SDI, “Guarantors”, each, a “Guarantor”) and COMERICA BANK (“Bank”).
RECITALS
     Bank and LAUREATE PHARMA, INC. (“Borrower”) are parties to that certain Loan and Security Agreement dated as of December 1, 2004, as amended, including without limitation by that certain First Amendment to Loan and Security Agreement dated as of January 31, 2005, that certain Second Amendment to Loan and Security Agreement dated as of May 6, 2005, that certain Third Amendment to Loan and Security Agreement dated as of June 20, 2005, that certain letter agreement dated as of January 28, 2006, that certain Fourth Amendment to Loan and Security Agreement dated as of February 28, 2006, that certain Fifth Amendment to Loan and Security Agreement dated as of August 2, 2006, and that certain Sixth Amendment to Loan and Security Agreement dated as of February 28, 2007 (collectively, the “Original Agreement”).
     Guarantors executed for the benefit of Bank a Deficiency Guaranty dated as of February 28, 2007 (the “Guaranty”), guarantying certain amounts owing by Borrowers to Bank. Bank and Borrower propose to enter into an Amended and Restated Loan and Security Agreement of even date herewith (the “Guaranteed Loan Agreement”) which amends the Original Agreement by, among other things, extending the maturity date. Bank has agreed to enter into the Guaranteed Loan Agreement provided, among other things, that each Guarantor consents to the entry by Borrowers into the Guaranteed Loan Agreement and related documents and agree that the Guaranty will remain effective. In addition, the parties desire to amend the Guaranty in accordance with the terms of this Amendment and Affirmation.
AGREEMENT
     NOW, THEREFORE, Guarantors agree as follows:
     1. The reference to $6,000,000 in the first paragraph of the Guaranty is amended to read $9,000,000.
     2. Each Guarantor consents to the execution, delivery and performance by Borrower of the Guaranteed Loan Agreement and the documents and instruments executed in connection therewith.
     3. The Guaranty, as amended, is and shall remain in full force and effect with respect to all of Borrowers’ Obligations as defined in the Guaranteed Loan Agreement. Each Guarantor confirms that, as of the date hereof, it has no defenses against its obligations under the Guaranty.
     4. Each Guarantor represents and warrants that the representations and warranties contained in the Guaranty are true and correct as of the date of this Amendment and Affirmation except (i) to the extent such representations and warranties expressly relate to an earlier date, which representations and warranties are true and correct as of such date; and (ii) for those changes to the representations and warranties resulting from events, occurrences or circumstances permitted under the applicable Loan Documents. Unless otherwise defined, all capitalized terms in this Amendment and Affirmation shall be as defined in the Guaranty.
     5. The Guaranty, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment and Affirmation shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Guaranty, as in effect prior to the date hereof. Each Guarantor ratifies and reaffirms the continuing effectiveness of all instruments, documents and agreements entered into in connection with the Guaranty

 

     IN WITNESS WHEREOF, the undersigned Guarantors have executed this Amendment and Affirmation of Guaranty as of the first date above written.
 	 	 	 	 	 	 	
 	 	SAFEGUARD DELAWARE, INC.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Steven J. Grenfell	 	 	

 	 	Title:	 	Vice President	 	 	

 	 	SAFEGUARD SCIENTIFICS (DELAWARE), INC.	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Steven J. Grenfell	 	 	

 	 	Title:	 	Vice President	 	 	

 	 	COMERICA BANK	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	/s/ Peter Bendoris	 	 	

 	 	Title:	 	Vice President	 	 	

 

EXHIBIT 10.4
LAUREATE PHARMA, INC.
LOAN AND SECURITY AGREEMENT

 

     This LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of February 28, 2008, by and between COMERICA BANK (“Bank”) and LAUREATE PHARMA, INC., a Delaware corporation (“Borrower”).
RECITALS
     Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.
AGREEMENT
     The parties agree as follows:
      1. DEFINITIONS AND CONSTRUCTION .
           1.1 Definitions . As used in this Agreement, the following terms shall have the following definitions:
               “Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.
               “Advance” or “Advances” means a cash advance or cash advances under the Revolving Facility.
               “Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners.
               “Bank Expenses” means all: reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
               “Borrower’s Books” means all of Borrower’s books and records including: ledgers; records concerning Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
               “Borrowing Base” means an amount equal to the sum of (i) eighty percent (80%) of Eligible Accounts, plus (ii) the lesser of (A) twenty-five percent (25%) of Eligible Inventory or (B) $750,000, as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrower.
               “Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
               “Change in Control” shall mean a transaction in which any “person” or “group” (within the meaning of Section 13(d) and l4(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the

 

election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.
               “Closing Date” means the date of this Agreement.
               “Code” means the California Uniform Commercial Code as in effect from time to time.
               “Collateral” means the property described on Exhibit A attached hereto.
               “Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring items of income.
               “Consolidated Total Interest Expense” means with respect to any Person for any period, the aggregate amount of interest required to be paid or accrued by a Person and its Subsidiaries during such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease or any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.
               “Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued or provided for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designed to protect such Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
               “Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.
               “Credit Card Services Sublimit” means a sublimit for corporate credit cards and e-commerce or merchant account services under the Revolving Line not to exceed $25,000.
               “Credit Extension” means each Advance, or any other extension of credit by Bank for the benefit of Borrower hereunder.
               “Current Assets” means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current assets on the consolidated balance sheet of Borrower and its Subsidiaries as at such date.
               “Current Liabilities” means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, and Borrower’s maximum potential obligations under the Credit Card Services Sublimit, if any, but specifically excluding any cash-secured Obligations.

 

               “Daily Balance” means the amount of the Obligations owed at the end of a given day.
               “EBITDA” means with respect to any fiscal period an amount equal to the sum of (a) Consolidated Net Income of the Borrower and its Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of the Borrower’s Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) non-cash expense associated with granting stock options, and minus, to the extent added in computing Consolidated Net Income, and without duplication, all extraordinary and non-recurring revenue and gains (including income tax benefits) for such period, all as determined in accordance with GAAP.
               “Eligible Accounts” means those net billed Accounts (which Accounts do not include Accounts where deposits exist) that arise in the ordinary course of Borrower’s business that comply with all of Borrower’s representations and warranties to Bank set forth in Section 5.4; provided, that standards of eligibility may be fixed and revised from time to time by Bank in Bank’s reasonable judgment and upon notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:
                (a)  Accounts that the account debtor has failed to pay within ninety (90) days of invoice date;
                (b)  Accounts with respect to an account debtor, twenty-five percent (25%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date;
                (c)  Credit balances over ninety (90) days from invoice date;
                (d)  Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower;
                (e)  Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the account debtor may be conditional;
                (f)  Accounts with respect to which the account debtor is an Affiliate of Borrower;
                (g)  Accounts with respect to which the account debtor does not have its principal place of business in the United States, except for Eligible Foreign Accounts;
                (h)  Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States;
                (i)  Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower or for deposits or other property of the account debtor held by Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower;
                (j)  Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank on a case by case basis;
                (k)  Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and

 

                (l)  Accounts the collection of which Bank reasonably determines to be doubtful.
               “Eligible Foreign Accounts” means Accounts with respect to which the account debtor does not have its principal place of business in the United States and that (i) are supported by one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank, or (ii) that Bank approves on a case-by-case basis.
               “Eligible Inventory” shall mean Borrower’s raw materials and finished goods Inventory, as may be adjusted by Bank, in Bank’s discretion, for age and seasonality or other factors affecting the value of such Inventory, and that have been validly pledged to Bank and strictly comply with all of Borrower’s warranties and representations to Bank; but Eligible Inventory shall not include the following: (a) raw materials or purchased parts not in saleable form; (b) work in process; (c) Inventory consigned to sales representatives or consigned to Borrower by a vendor; (d) obsolete Inventory; (e) Inventory reserve amounts; (f) finished goods with no/low liquidation value; (g) Inventory located or stored with a bailee, warehouseman or other third party without Bank’s prior written consent and unless a bailment agreement in form and substance satisfactory to Bank is in place; (h) defective or Inventory under repair; (i) Inventory not insured naming Bank as loss payee; and (j) all other Inventory deemed ineligible by Bank.
               “Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.
               “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
               “Event of Default” has the meaning assigned in Article 8.
               “GAAP” means generally accepted accounting principles as in effect from time to time.
               “Guaranteed Loan Agreement” means the Amended and Restated Loan and Security Agreement of even date between Borrower and Bank, supported by an unconditional guaranty and a deficiency guaranty of Safeguard Delaware, Inc. and Safeguard Scientifics (Delaware), Inc.
               “Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.
               “Insolvency Proceeding” means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief
               “Intellectual Property Collateral” means all of Borrower’s right, title, and interest in and
                (a)  Copyrights, Trademarks and Patents;
                (b)  Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;
                (c)  Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;
                (d)  Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

 

                (e)  All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; or Patents; and
                (f)  All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and
                (g)  All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.
               Notwithstanding any of the foregoing, “Intellectual Property Collateral” shall not include (i) intellectual property owned by a client of Borrower or (ii) any rights of Borrower’s clients in and to intellectual property under Borrower’s agreements with such clients.
               “Inventory” means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower’s Books relating to any of the foregoing.
               “Investment” means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
               “IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
               “Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
               “Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into in connection with this Agreement, all as amended or extended from time to time.
               “Material Adverse Effect” means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents or (iii) the value or priority of Bank’s security interests in the Collateral.
               “Negotiable Collateral” means all of Borrower’s present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrower’s Books relating to any of the foregoing.
               “Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.
               “Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

               “Periodic Payments” means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.
               “Permitted Indebtedness” means:
                (a)  Indebtedness of Borrower in favor of Bank arising under this Agreement, the Guaranteed Loan Agreement, or any other Loan Document;
                (b)  Indebtedness in favor of a Safeguard entity in an amount not to exceed $2,500,000; provided that no Event of Default shall occur and be continuing at the time of, or after giving effect to such Indebtedness; provided further, that such Indebtedness shall be repaid upon receipt of an audit satisfactory to Bank and may be repaid by Advances requested hereunder;
                (c)  Indebtedness of Borrower or any Subsidiary existing on the Closing Date and disclosed in the Schedule;
                (d)  Indebtedness of Borrower or any Subsidiary secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided (i) such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness and (ii) such Indebtedness does not exceed $250,000 in the aggregate at any given time;
                (e)  Subordinated Debt;
                (f)  Indebtedness of Borrower to any Subsidiary and of any Subsidiary to any other Subsidiary;
                (g)  Indebtedness of Borrower to an Affiliate (provided that such indebtedness to an Affiliate is subject to a separate subordination agreement between Affiliate and Bank) or any Subsidiary to trade creditors and with respect to surety bonds and similar obligations incurred in the ordinary course of business; and
                (h)  Extensions, refinancings, modifications, amendments and restatements of any item of Permitted Indebtedness described in clauses (a) through (f) above; provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower.
               “Permitted Investment” means:
                (a)  Investments of Borrower or any Subsidiary existing on the Closing Date and disclosed in the Schedule;
                (b)  (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank and (iv) Bank’s money market accounts;
                (c)  Investments of Borrower or any Subsidiary consisting of travel advances and employee relocation loans and advances made in the ordinary course of business;
                (d)  loans or advances made by any Subsidiary to Borrower or any other Subsidiary; and

 

                (e)  Investments of Borrower or any Subsidiary (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business.
               “Permitted Liens” means the following:
                (a)  Any Liens of Borrower or any Subsidiary existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;
                (b)  Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank’s security interests;
                (c)  Liens (i) upon or in any equipment which was not financed by Bank acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment;
                (d)  Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;
                (e)  carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens impose by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in good faith by appropriate proceedings;
                (f)  pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; and
                (g)  Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.4 or 8.8.
               “Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
               “Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.
               “Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Technical Officer and the Chief Financial Officer of Borrower.
               “Revolving Facility” means the facility under which Borrower may request Bank to issue Advances, as specified in Section 2.1(a) hereof.
               “Revolving Line” means a credit extension of up to Four Million Dollars ($4,000,000).
               “Revolving Maturity Date” means February 26, 2009.
               “Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.

 

               “Subordinated Debt” means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and Bank).
               “Subsidiary” means any corporation, company or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock or other units of ownership which by the terms thereof has the ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.
               “Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
           1.2 Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms “financial statements” shall include the notes and schedules thereto.
      2. LOAN AND TERMS OF PAYMENT .
           2.1 Credit Extensions .
               Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
                (a) Revolving Advances.
                     (i)  Subject to and upon the terms and conditions of this Agreement, Borrower may request Advances in an aggregate outstanding amount not to exceed the lesser of (A) the Revolving Line or (B) the Borrowing Base, less any amounts outstanding under the Credit Card Services Sublimit. Borrower may not request Advances based on the Borrowing Base until such time as Bank has received (Y) the results of a Collateral audit which shall be satisfactory to Bank; and (Z) a signed (Landlord Waiver/Bailee/Warehouseman’s Agreement and Inventory Appraisal); provided Borrower may request Advances based on the Borrowing Base without satisfying (Z) if the Borrowing Base does not include Eligible Inventory; provided further Borrower may request Credit Card Services without satisfying (Y) or (Z). Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(a) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium. The Advances shall be used for general working capital purposes.
                     (ii)  Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Eastern time, on the Business Day prior to the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1(a) to Borrower’s deposit account.
                     (iii) Credit Card Services Sublimit . Subject to the terms and conditions of this Agreement, Borrower may request corporate credit cards and standard and e-commerce merchant account services from Bank (collectively, the “Credit Card Services”). The aggregate limit of the corporate credit cards and merchant credit card processing reserves shall not exceed the Credit Card Services Sublimit, provided that

 

availability under the Revolving Line shall be reduced by the aggregate limits of the corporate credit cards issued to Borrower and merchant credit card processing reserves. In addition, Bank may, in its sole discretion, charge as Advances any amounts that become due or owing to Bank in connection with the Credit Card Services. The terms and conditions (including repayment and fees) of such Credit Card Services shall be subject to the terms and conditions of the Bank’s standard forms of application and agreement for the Credit Card Services, which Borrower hereby agrees to execute.
                     (iv) Collateralization of Obligations Extending Beyond Maturity . If Borrower has not secured to Bank’s satisfaction its obligations with respect to any Credit Card Services by the Revolving Maturity Date, then, effective as of such date, the balance in any deposit accounts held by Bank and the certificates of deposit or time deposit accounts issued by Bank in Borrower’s name (and any interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or liquidation of such certificates or accounts), shall automatically secure such obligations to the extent of the then continuing or outstanding Credit Card Services. Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Credit Card Services are outstanding or continue.
           2.2 Overadvances . If the aggregate amount of the outstanding Advances (including any Credit Card Services) exceeds the lesser of the Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess.
           2.3 Interest Rates, Payments, and Calculations .
                (a) Interest Rates . Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding Daily Balance thereof, at a rate equal to one percent (1.00%) plus the Prime Rate.
                (b) Late Fee; Default Rate . If any payment is not made within ten (10) days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.
                (c) Payments . Interest hereunder shall be due and payable on the first (1st) calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Bank shall notify Borrower when it charges any amounts against Borrower’s deposit accounts or against the Revolving Line. Any interest not paid within three (3) days after the date such interest is due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. All payments shall be free and clear of any taxes, withholdings, duties, impositions or other charges, to the end that Bank will receive the entire amount of any Obligations payable hereunder, regardless of source of payment.
                (d) Computation . In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.
           2.4 Crediting Payments. Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence and during the continuance of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 3:00 noon Eastern time shall be deemed to have been received by

 

Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
           2.5 Fees . Borrower shall pay to Bank the following:
                (a) Facility Fee . On or prior to the Closing Date, a Facility Fee equal to $15,000, which shall be nonrefundable; and
                (b) Bank Expenses . On the Closing Date, all Bank Expenses incurred through the Closing Date, including reasonable attorneys’ fees and expenses and, after the Closing Date, all Bank Expenses, including reasonable attorneys’ fees and expenses, as and when they become due.
           2.6 Additional Costs . In case any law, regulation, treaty or official directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law):
                (a)  subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof);
                (b)  imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or
                (c)  imposes upon Bank any other condition with respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to the Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank of a statement of the amount and setting forth Bank’s calculation thereof, all in reasonable detail, which statement shall be deemed true and correct absent manifest error.
           2.7 Term . This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.
      3. CONDITIONS OF LOANS .
           3.1 Conditions Precedent to Initial Credit Extension . The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance reasonably satisfactory to Bank, the following:
                (a)  this Agreement executed by Borrower;
                (b)  a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;

 

                (c)  an agreement to provide insurance;
                (d)  a UCC financing statement;
                (e)  payment of the fees and Bank Expenses then due as specified in Section 2.5 hereof;
                (f)  current financial statements of Borrower; and
                (g)  such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
           3.2 Conditions Precedent to all Credit Extensions . The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
                (a)  timely receipt by Bank of a Payment/Advance Form as provided in Section 2.1; and
                (b)  the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
      4. CREATION OF SECURITY INTEREST .
           4.1 Grant of Security Interest . Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral. Notwithstanding any termination, Bank’s Lien on the Collateral shall remain in effect so long as any Obligations are outstanding.
           4.2 Perfection of Security Interest . Borrower authorizes Bank to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable. Any such financing statements may be signed by Bank on behalf of Borrower, as provided in the Code, and may be filed at any time in any jurisdiction whether or not Revised Article 9 of the Code is then in effect in that jurisdiction. Borrower shall from time to time endorse and deliver to Bank, at the request of Bank, all Negotiable Collateral and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and substances satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, (ii) obtain “control” of any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance satisfactory to Bank. Borrower will not create any

 

          chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper. Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.
           4.3 Right to Inspect . Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral.
      5. REPRESENTATIONS AND WARRANTIES .
          Borrower represents and warrants as follows:
           5.1 Due Organization and Qualification . Borrower and each Subsidiary is a corporation duly existing under the laws of its state of incorporation and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to be so qualified or licensed could not reasonably be expected to have a Material Adverse Effect.
           5.2 Due Authorization; No Conflict . The execution, delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s Amended and Restated Certificate of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any material agreement to which it is a party or by which it is bound.
           5.3 No Prior Encumbrances . Borrower has good and marketable title to its property, free and clear of Liens, except for Permitted Liens.
           5.4 Bona Fide Eligible Accounts . The Eligible Accounts are bona fide existing obligations. The property and services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or to the account debtor’s agent for immediate and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account,
           5.5 Merchantable Inventory . All Inventory is in all material respects of good and marketable quality, free from all material defects, except for Inventory for which adequate reserves have been made.
           5.6 Intellectual Property Collateral . Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business. Each of the Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. Except as set forth in the Schedule, Borrower is not a party to any license of intellectual property that constitutes a material part of any product or is necessary for the provision of any service, the sale, licensing or provision of which generates revenue to Borrower. Except as set forth in the Schedule, Borrower is not a party to, or bound by, any agreement that restricts the grant by Borrower of a security interest in Borrower’s rights under such agreement.
           5.7 Name; Location of Chief Executive Office . Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof and Borrower has paid for and owns all Equipment financed by Bank. All Borrower’s Inventory and Equipment is located only at the location set forth in Section 10 hereof.

 

           5.8 Litigation . Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect, or a material adverse effect on Borrower’s interest or Bank’s security interest in the Collateral.
           5.9 No Material Adverse Change in Financial Statements . All consolidated financial statements related to Borrower and any Subsidiary that Bank has received fairly present in all material respects Borrower’s consolidated financial condition as of the date thereof and Borrower’s consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.
           5.10 Solvency, Payment of Debts . Borrower is able to pay its debts (including trade debts) as they mature.
           5.11 Regulatory Compliance . Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans of Borrower or any Subsidiary subject to ERISA, and no event has occurred resulting from Borrower’s failure to comply with ERISA that could result in Borrower’s incurring any material liability. Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect.
           5.12 Environmental Condition . Except as disclosed in the Schedule, none of Borrower’s or any Subsidiary’s properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower’s knowledge, none of Borrower’s properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.
           5.13 Taxes . Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein.
           5.14 Subsidiaries . Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
           5.15 Government Consents . Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s business as currently conducted, the failure to obtain which could have a Material Adverse Effect.
           5.16 Investment Accounts . None of Borrower’s property is maintained or invested with a Person other than Bank.
           5.17 Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to

 

          state a material fact necessary in order to make the statements contained in such certificates or statements, in light of the circumstances in which they were made, not misleading.
      6. AFFIRMATIVE COVENANTS .
          Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:
           6.1 Good Standing . Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect.
           6.2 Government Compliance . Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans of Borrower or any Subsidiary subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect.
           6.3 Financial Statements, Reports, Certificates . Borrower shall deliver the following to Bank (a) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a Borrower prepared consolidated balance sheet, income, and cash flow statement covering Borrower’s consolidated operations during such period, prepared in accordance with GAAP, consistently applied, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (b) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrower’s fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (e) such budgets, backlogs, sales projections, operating plans or other financial exhibits and information as Bank may reasonably request from time to time generally prepared by Borrower in the ordinary course of business.
     On Friday of each week, Borrower shall deliver to Bank aged listings of accounts receivable and accounts payable, a perpetual inventory report, and a Borrowing Base Certificate in substantially the form of Exhibit C attached hereto.
     Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D attached hereto.
     Bank shall have a right from time to time hereafter to audit Borrower’s Accounts and appraise Collateral at Borrower’s expense, provided that such audits will be conducted no more often than once every six (6) months unless an Event of Default has occurred and is continuing. Bank shall obtain an appraisal of Borrower’s Inventory and Equipment, with results satisfactory to Bank, within ninety (90) days after the Closing Date.
           6.4 Inventory; Returns . Borrower shall keep all Inventory in good and marketable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000).

 

           6.5 Taxes . Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is resented against (to the extent required by GAAP) by Borrower.
           6.6 Insurance .
                (a)  Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower’s business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower’s business, ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower’s.
                (b)  All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof, and all liability insurance policies shall show the Bank as an additional insured and shall specify that the insurer must give at least thirty (30) days notice to Bank before canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations.
           6.7 Accounts . Borrower shall maintain all depository, operating, and investment accounts with Bank and/or Comerica Securities, Inc. (collectively, “Comerica”).
           6.8 Financial Covenants . Borrower shall at all times maintain the following financial ratios and covenants:
                (a)  Current Ratio . Tested on a monthly basis, a ratio of Current Assets to Current Liabilities, less all Indebtedness owing from Borrower to Bank under the Guaranteed Loan Agreement of 0.90 to 1.00.
                (b)  EBITDA . An EBITDA, tested monthly, on a trailing three (3) month basis, as indicated for the months set forth below:
 	 	 	 	 	
Month Ending	 	EBITDA	
03/31/08	 	$	(1,000,000	)	
04/30/08	 	$	(1,000,000	)	
05/31/08	 	$	(700,000	)	
06/30/08	 	$	(330,000	)	
07/31/08	 	$	(75,000	)	
08/31/08	 	$	1.00	 	
09/30/08	 	$	200,000	 	
10/31/08	 	$	430,000	 	

 

 	 	 	 	 	
Month Ending	 	EBITDA	
11/30/08	 	$	665,000	 	
12/31/08	 	$	950,000	 	
Thereafter	 	$	1,000,000	 	
           6.9 Intellectual Property Rights . Borrower shall (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use commercially reasonable efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which consent shall not be unreasonably withheld.
           6.10 Lockbox .
                (a)  Within sixty (60) days of the Closing Date, Borrower shall establish an account at Bank (the “Lockbox”) and shall maintain thereafter at all times such Lockbox into which all funds received by Borrower from any source shall immediately be deposited. Borrower shall direct all customers to mail or deliver all checks or other forms of payment for amounts owing to Borrower to a post office box designated by Bank, over which Bank shall have exclusive and unrestricted access. All funds received by Borrower from any source shall immediately be directed to the Lockbox. Bank shall collect the mail delivered to such post office box, open such mail, and endorse and credit all items to the Lockbox. Borrower shall direct all customers or other persons owing money to Borrower who make payments by electronic transfer of funds to wire such funds directly to the Lockbox. Borrower shall hold in trust for Bank all amounts that Borrower receives despite the directions to make payments to the post office box or Lockbox, and immediately deliver such payments to Bank in their original form as received from the customer, with proper endorsements for deposit into the Lockbox. Borrower irrevocably authorizes Bank to transfer to the Lockbox any funds that have been deposited into any other accounts or that Bank has received by wire transfer, check, cash, or otherwise. Borrower shall not establish or maintain any accounts with any Person other than Bank except for accounts opened in the ordinary course of business from which all funds are transferred on a daily basis to the Lockbox. Bank shall have all right, title and interest in all of the items from time to time in the Lockbox and their proceeds.
                (b)  All funds flowing through the Lockbox shall automatically be transferred into a cash collateral account at Bank in Borrower’s name (the “Cash Collateral Account”), over which Bank shall have exclusive and unrestricted access. Bank shall have all right, title and interest in all of the items from time to time flowing through the Lockbox and/or held in the Cash Collateral Account and their proceeds. Neither Borrower nor any person claiming through Borrower shall have any right or control over the use of, or any right to withdraw any amount from, the Lockbox, which shall be under the sole control of Bank. Borrower shall direct all customers or other persons owing money to Borrower who make payments by electronic transfer of funds to wire such funds directly to the Cash Collateral Account
                (c)  Bank may apply amounts held in the Cash Collateral Account to the outstanding balance of the Obligations on a daily basis. Borrower shall open an operating account or operating accounts at Bank (collectively, the “Operating Account”). Unless an Event of Default has occurred and is continuing, after Bank applies any amounts in the Cash Collateral Account to the Obligations, Bank shall transfer the balance to the Operating Account. Bank may from time to time in its discretion make Advances to Borrowers to cover checks or other items or charges that a Borrower has drawn or made against the Operating Account or to cause payment of amounts due under the Loan Documents. Each Borrower authorizes Bank to make such Advances from time to time by means of appropriate entries of credits to the Operating Account sufficient to cover any such charges then presented, such Advances to be subject to the terms of this Agreement as through made pursuant to a Payment/Advance Form delivered by Borrowers.
           6.11 Further Assurances . At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.

 

      7. NEGATIVE COVENANTS .
          Borrower covenants and agrees that, until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following without the prior written consent of Bank:
           7.1 Dispositions . Convey, sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete Equipment which was not financed by Bank.
           7.2 Change in Business; Change in Control or Executive Office. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto); or cease to conduct business in the manner conducted by Borrower as of the Closing Date; or suffer or permit a Change in Control; or without thirty (30) days prior written notification to Bank, relocate its chief executive office or state of incorporation; or change the date on which its fiscal year ends.
           7.3 Mergers or Acquisitions . Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, provided that any Subsidiary of Borrower may merge into Borrower.
           7.4 Indebtedness . Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.
           7.5 Encumbrances . Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or agree with any Person other than Bank not to grant a security interest in, or otherwise encumber, any of its property, or permit any Subsidiary to do so.
           7.6 Distributions . Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or permit any of its Subsidiaries to do so, except that Borrower may repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase.
           7.7 Investments . Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; or maintain or invest any of its property with a Person other than Bank or permit any of its Subsidiaries to do so; or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.
           7.8 Transactions with Affiliates . Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.
           7.9 Subordinated Debt . Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.
           7.10 Inventory and Equipment . Store the Inventory or the Equipment with a bailee, warehouseman, or other third party unless the third party has been notified of Bank’s security interest and Bank (a)

 

has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in pledge possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Store or maintain any Equipment or Inventory at a location other than the location set forth in Section 10 of this Agreement.
           7.11 Compliance . Become an “investment company” or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, or violate any law or regulation, which violation could have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Bank’s Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
      8. EVENTS OF DEFAULT .
          Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
           8.1 Payment Default . If Borrower fails to pay any of the Obligations within three (3) days after their due date;
           8.2 Covenant Default . If Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement, or fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within ten (10) days after Borrower and the Guarantors receive notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower and the Guarantors be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Credit Extensions will be required to be made during such cure period);
           8.3 Material Adverse Effect . If there occurs any circumstance or circumstances that could have a Material Adverse Effect;
           8.4 Attachment . If any substantial portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be made during such cure period);
           8.5 Insolvency . If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);

 

           8.6 Other Agreements . If there is a default or other failure to perform under or in any agreement to which Borrower is a party or by which it is bound resulting in a right by a third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000); or which could have a Material Adverse Effect;
           8.7 Subordinated Debt . If Borrower makes any payment on account of Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank;
           8.8 Judgments . If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);
           8.9 Misrepresentations . If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document; or
      9. BANK’S RIGHTS AND REMEDIES .
           9.1 Rights and Remedies . Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
                (a)  Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Bank);
                (b)  Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;
                (c)  Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
                (d)  Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;
                (e)  Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;
                (f)  Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and

 

selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit;
                (g)  Dispose of the Collateral by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate;
                (h)  Bank may credit bid and purchase at any public sale; and
                (i)  Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.
           9.2 Power of Attorney . Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; and (h) to transfer the Intellectual Property Collateral into the name of Bank or a third party to the extent permitted under the Code; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in Section 4.2 regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions hereunder is terminated.
           9.3 Accounts Collection . Upon the occurrence and during the continuance of an Event of Default, Bank may notify any Person owing funds to Borrower of Bank’s security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
           9.4 Bank Expenses . If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under a loan facility in Section 2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems reasonably prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
           9.5 Bank’s Liability for Collateral . So long as Bank complies with reasonable banking practices and the applicable provisions of the applicable enactment of the Uniform Commercial Code, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.

 

           9.6 Remedies Cumulative . Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.
           9.7 Demand; Protest . Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable.
      10. NOTICES .
          Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:
 	 	 	 	 	
 	 	If to Borrower:	 	LAUREATE PHARMA, INC.
201 College Road East
Princeton, NJ 08540
Attn: Vice President-Finance
FAX: (609) 919-3300	
 	 	 	 	 	
 	 	with a copy to:	 	Safeguard Delaware, Inc.
c/o Safeguard Scientifics, Inc.
435 Devon Park Drive
Wayne, PA 19087
Attn: Chief Financial Officer
FAX: (610) 293-0601	
 	 	 	 	 	
 	 	If to Bank:	 	Comerica Bank
MC 4770
75 E Trimble Road
San Jose, CA 95131
Attn: Manager
FAX: (408) 556-5091	
 	 	 	 	 	
 	 	with a copy to:	 	Comerica Bank
11921 Freedom Drive, Suite 920
Reston, VA 20190
Attn: Peter Bendoris
FAX: (703) 467-9308	
     The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
      11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER .
          This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL

 

ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.
      12. GENERAL PROVISIONS .
           12.1 Successors and Assigns . This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.
           12.2 Indemnification . Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.
           12.3 Time of Essence . Time is of the essence for the performance of all obligations set forth in this Agreement.
           12.4 Severability of Provisions . Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
           12.5 Amendments in Writing, Integration. Neither this Agreement nor the Loan Documents can be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the Loan Documents, if any, are merged into this Agreement and the Loan Documents.
           12.6 Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.
           12.7 Survival . All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
      13. REFERENCE PROVISION .
           13.1 In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.
           13.2 With the exception of the items specified in clause 13.3, below, any controversy, dispute or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between the undersigned parties (collectively in this Section, the “Comerica Documents”), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of

 

the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Comerica Documents, venue for the reference proceeding will be in the state or federal court in the county or district where the real property involved in the action, if any, is located or in the state or federal court in the county or district where venue is otherwise appropriate under applicable law (the “Court”).
           13.3 The matters that shall not be subject to a reference are the following: (i) nonjudicial foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This reference provision does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference pursuant to this reference provision as provided herein.
           13.4 The referee shall be a retired judge or justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to the referee selected by the Presiding Judge of the Court (or his or her representative).
           13.5 The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.
           13.6 The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
           13.7 Except as expressly set forth herein, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.
           13.8 The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.

 

           13.9 If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.
           13.10 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

      IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the date first above written.
 	 	 	 	 	
 	 	LAUREATE PHARMA, INC.	
 	 	 	 	 	
 	 	By:	 	/s/ Steven J. Grenfell	
 	 	 	 	 	
 	 	Title:	 	Vice President	

 	 	COMERICA BANK	
 	 	 	 	 	
 	 	By:	 	/s/ Peter Bendoris	
 	 	 	 	 	
 	 	Title:	 	Vice President	

 

EXHIBIT 10.5
SECOND AMENDMENT AND WAIVER
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(Non-Guaranteed Line)
     This Second Amendment and Waiver to Amended and Restated Loan and Security Agreement is entered into as of February 28, 2008 (the “Amendment”), by and between COMERICA BANK (“Bank”), ALLIANCE CONSULTING GROUP ASSOCIATES, INC. (“Consulting”) and ALLIANCE HOLDINGS, INC., (“Holdings”; Consulting and Holdings are referred to herein individually as a “Borrower” and collectively, the “Borrowers”).
RECITALS
     Borrowers and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated as of February 28 , 2007, as amended by that certain First Amendment and Waiver to Amended and Restated Loan and Security Agreement dated as of May 2, 2007, and as amended by those certain Waivers to Amended and Restated Loan and Security Agreement dated as of August 1, 2007 and October 31, 2007 (collectively, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
     NOW, THEREFORE, the parties agree as follows:
     1. The following defined terms are amended to read as follows:
     “Borrowing Base” means an amount equal to the sum of (i) eighty percent (80%) of Eligible Accounts plus (ii) the lesser of eighty percent (80%) of Eligible Unbilled Accounts or Two Million Dollars ($2,000,000), in each case as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrowers.
     “Eligible Unbilled Accounts” means Accounts that would otherwise be Eligible Accounts but have not yet been billed, except for Unbilled Accounts arising from fixed fee contracts with milestone-based payments where the deliverable milestone has not been achieved. An Unbilled Account shall be ineligible if not billed by a Borrower within 30 days.
     “Letter of Credit Sublimit” means a sublimit for Letters of Credit under the Revolving Line of $500,000.
     “Revolving Line” means a credit extension of up to Nine Million Five Hundred Thousand Dollars ($9,500,000).
     “Revolving Maturity Date” means February 25, 2009.
     2.      The following defined terms are added to the Agreement to read as follows:
     “Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring items of income.
     “Consolidated Total Interest Expense” means with respect to any Person for any period, the aggregate amount of interest required to be paid or accrued by a Person and its Subsidiaries during such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease or any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.
 1 

 

     “EBITDA” means with respect to any fiscal period an amount equal to the sum of (a) Consolidated Net Income of the Borrowers and their Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of the Borrowers’ Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) non-cash expense associated with granting stock options, and minus, to the extent added in computing Consolidated Net Income, and without duplication, all extraordinary and non-recurring revenue and gains (including income tax benefits) for such period, all as determined in accordance with GAAP.
     3.      Section 2.3(a) is amended to read as follows:
     (a) Interest Rates . Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding daily balance thereof, at a variable rate equal to one and one-quarter percent (1.25%) above the Prime Rate; provided, however, that if Borrowers are in compliance with this Agreement and maintain at least ninety-five percent (95%) of projected EBITDA as outlined in the Borrowers’ board-approved plan provided to Bank for the first six (6) months of fiscal year 2008, then Advances shall bear interest, on the outstanding daily balance thereof, at a variable rate equal to three-quarters of one percent (0.75%) above the Prime Rate.
     4.      Section 2.5(d) is added to the Agreement to read as follows:
     (d) Unused Line Fee . A per annum fee equal to 0.25% of the difference between (1) the amount of the Revolving Line available on each date of determination, and (2) the average daily balance owing on account of the Revolving Line during the term hereof, paid quarterly in arrears, which shall be nonrefundable.
     5. Section 6.8 of the Agreement is amended and restated in its entirety to read as follows:
6.8 EBITDA . An EBITDA, on a trailing three (3) month basis, as indicated for the months set forth below;
 	 	 	 	 	
Date of Measurement	 	EBITDA	
Three Months ended 03/31/08	 	$	(560,000	)	
Three Months ended 04/30/08	 	$	(60,000	)	
Three Months ended 05/31/08	 	$	145,000	 	
Three Months ended 06/30/08	 	$	265,000	 	
Three Months ended 07/31/08	 	$	350,000	 	
Three Months ended 08/31/08	 	$	465,000	 	
Three Months ended 09/30/08	 	$	715,000	 	
Three Months ended 10/31/08	 	$	825,000	 	
Three Months ended 11/30/08	 	$	900,000	 	
Three Months ended 12/31/08	 	$	735,000	 	
     Thereafter to be determined by Bank based on Borrowers’ Fiscal Year 2009 Plan.
     6. Section 6.9 of the Agreement is amended and restated in its entirety to read as follows:
6.9 Minimum Cash/Excess Billed Eligible Accounts . Borrowers shall maintain at all times, on a consolidated basis, measured on Friday of each week, a balance of Cash at Bank and Cash at
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Bank’s Affiliates covered by a control agreement plus excess billed Eligible Accounts of not less than $1,500,000.
     7. Bank waives Borrower’s failure to comply with Sections 6.8 (Profitability) and 6.9 (Current Ratio) of the Agreement for the months ended October 31, 2007; November 30, 2007; December 31, 2007; and January 31, 2008.
     8. The Borrowing Base Certificate is amended to be in substantially the form of attached Exhibit C.
     9. The Compliance Certificate is revised to be in substantially the form of attached Exhibit D.
     10. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remains in full force and effect in accordance with its terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing effectiveness of all instruments, documents and agreements entered into in connection with the Agreement.
     11. Except as set forth in the Schedule of Exceptions originally provided by Borrowers to Bank in connection with the Agreement and any updated Schedule of Exceptions provided by Borrowers to Bank, each Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
     12. Borrowers are parties to certain documents, instruments and/or agreements (collectively, the “Documents”) with or between the undersigned and Comerica Bank, a Michigan banking corporation (the “Merged Bank”). The Merged Bank has merged with and into Comerica Bank, a Texas banking association (the “Surviving Bank”). Borrowers hereby acknowledge and agree that any reference in the Documents to Comerica Bank shall mean Comerica Bank, a Texas banking association, as successor by merger to the Merged Bank.
     13. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
     14. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
          (a) this Amendment, duly executed by Borrowers;
          (b) a renewal fee equal to $35,000 plus an amount equal to all Bank Expenses incurred through the date of this Amendment;
          (c) Affirmation of Subordination (Safeguard Scientifics, Inc.); and
          (d) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[SIGNATURE PAGE FOLLOWS.]
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     IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
 	 	 	 	 	
 	ALLIANCE HOLDINGS, INC.
 	 	
 	By:  	/s/ James Short  	 	
 	Title: 	Signer 	 	

 	
 	ALLIANCE CONSULTING GROUP ASSOCIATES, INC.
 	 	
 	By:  	/s/ James Short  	 	
 	Title: 	Vice President, Finance 	 	

 	
 	COMERICA BANK
 	 	
 	By:  	/s/ Peter Bendoris  	 	
 	Title: 	Vice President 	 	

 	
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EXHIBIT 10.6
SECOND AMENDMENT AND WAIVER
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
( Guaranteed Line )
     This Second Amendment and Waiver to Amended and Restated Loan and Security Agreement is entered into as of February 28, 2008 (the “Amendment”), by and between COMERICA BANK (“Bank”), ALLIANCE CONSULTING GROUP ASSOCIATES, INC. (“Consulting”) and ALLIANCE HOLDINGS, INC., (“Holdings”; Consulting and Holdings are referred to herein individually as a “Borrower” and collectively, the “Borrowers”).
RECITALS
     Borrowers and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated as of February 28, 2007, as amended by that certain First Amendment and Waiver to Amended and Restated Loan and Security Agreement dated as of May 2, 2007, and as amended by those certain Waivers to Amended and Restated Loan and Security Agreement dated as of August 1, 2007 and October 31, 2007 (collectively, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
     NOW, THEREFORE, the parties agree as follows:
     1. The following defined terms are amended to read as follows:
         “Revolving Maturity Date” means February 25, 2009.
     2. The following defined terms are added to the Agreement to read as follows:
     “Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring items of income.
     “Consolidated Total Interest Expense” means with respect to any Person for any period, the aggregate amount of interest required to be paid or accrued by a Person and its Subsidiaries during such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease or any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.
     “EBITDA” means with respect to any fiscal period an amount equal to the sum of (a) Consolidated Net Income of the Borrowers and their Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of the Borrowers’ Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) non-cash expense associated with granting stock options, and minus, to the extent added in computing Consolidated Net Income, and without duplication, all extraordinary and non-recurring revenue and gains (including income tax benefits) for such period, all as determined in accordance with GAAP.
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     3. Section 6.8 of the Agreement is amended and restated in its entirety to read as follows:
 6.8 EBITDA . An EBITDA, on a trailing three (3) month basis, as indicated for the months set forth below;
 	 	 	 	 	
Date of Measurement	 	EBITDA	
Three Months ended 03/31/08	 	$	(560,000	)	
Three Months ended 04/30/08	 	$	(60,000	)	
Three Months ended 05/31/08	 	$	145,000	 	
Three Months ended 06/30/08	 	$	265,000	 	
Three Months ended 07/31/08	 	$	350,000	 	
Three Months ended 08/31/08	 	$	465,000	 	
Three Months ended 09/30/08	 	$	715,000	 	
Three Months ended 10/31/08	 	$	825,000	 	
Three Months ended 11/30/08	 	$	900,000	 	
Three Months ended 12/31/08	 	$	735,000	 	
     Thereafter to be determined by Bank based on Borrowers’ Fiscal Year 2009 Plan.
     4. Section 6.9 of the Agreement is amended and restated in its entirety to read as follows:
 6.9 Minimum Cash/Excess Billed Eligible Accounts . Borrowers shall maintain at all times, on a consolidated basis, measured on Friday of each week, a balance of Cash at Bank and Cash at Bank’s Affiliates covered by a control agreement plus excess billed Eligible Accounts of not less than $1,500,000.
     5. Bank waives Borrowers’ failure to comply with Sections 6.8 (Profitability) and 6.9 (Current Ratio) of the Agreement for the months ended October 31, 2007; November 30, 2007; December 31, 2007; and January 31, 2008.
     6. The Compliance Certificate is revised to be in substantially the form of attached Exhibit D.
     7. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remains in full force and effect in accordance with its terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing effectiveness of all instruments, documents and agreements entered into in connection with the Agreement.
     8. Except as set forth in the Schedule of Exceptions originally provided by Borrowers to Bank in connection with the Agreement and any updated Schedule of Exceptions provided by Borrowers to Bank, each Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
     9. Borrowers are parties to certain documents, instruments and/or agreements (collectively, the “Documents”) with or between the undersigned and Comerica Bank, a Michigan banking corporation (the “Merged Bank”). The Merged Bank has merged with and into Comerica Bank, a Texas banking association (the “Surviving Bank”). Borrowers hereby acknowledge and agree that any reference in the Documents to Comerica Bank shall mean Comerica Bank, a Texas banking association, as successor by merger to the Merged Bank.
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     10. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
     11. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
          (a) this Amendment, duly executed by Borrowers;
          (b) a renewal fee equal to $15,000 plus an amount equal to all Bank Expenses incurred through the date of this Amendment;
          (c) Affirmation of Subordination (Safeguard Scientifics, Inc.);
          (d) Affirmation of Guaranty (Safeguard Delaware, Inc./Safeguard Scientifics (Delaware), Inc.); and
          (e) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[SIGNATURE PAGE FOLLOWS.]
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     IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
 	 	 	 	 	
 	ALLIANCE HOLDINGS, INC.
 	 	
 	By:  	/s/ James Short  	 	
 	Title: 	Signer	 	

 	
 	ALLIANCE CONSULTING GROUP ASSOCIATES, INC.
 	 	
 	By:  	/s/ James Short  	 	
 	Title: 	Vice President, Finance 	 	

 	
 	COMERICA BANK
 	 	
 	By:  	/s/ Peter Bendoris  	 	
 	Title: 	Vice President 	 	

 	
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