Equipment Loan Agreement Dated March 4, 1997

SECURITY AGREEMENT


THIS SECURITY AGREEMENT dated as of March 31, 1997. is made by Abaxis, Inc. (the "Borrower"), a California corporation having its own principal place of business and chief executive office at 1320 Chesapeake Terrace, Sunnyvale, CA 94089, in favor of Transamerica Business Credit Corporation, a Delaware corporation (the "Lender"), having its principal office at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018.


WHEREAS, the Borrower has requested that the Lender make Loans to it from time to time; and Security Agreement.


WHEREAS, the Lender has agreed to make such Loans on the terms and conditions of this Security Agreement.


NOW, THEREFORE, in consideration of the premises and to induce the Lender to extend credit, the Borrower hereby agrees with the Lender as follows:


1. DEFINITIONS.


As used herein, the following terms shall have the following meanings, and shall be equally applicable to both the singular and plural forms of the terms defined:


Applicable Law shall mean the laws of the State of Illinois (or any other jurisdiction whose laws are mandatorily applicable notwithstanding the parties' choice of Illinois law) or the laws of the United States of America, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.


Business Day shall mean any day other than Saturday, Sunday or public holiday or the equivalent for banks in New York City.


Code shall have the meaning specified in Section 8(d).


Collateral shall have the meaning specified in Section 2.


Collateral Access Agreement shall mean any landlord waiver, mortgage waiver, bailee letter or similar acknowledgment of any warehouseman or processor in possession of any Equipment, in each case substantially in the form of Exhibit A.


Effective Date shall mean the date on which all of the conditions specified in Section 3.3 shall have been satisfied.


Equipment shall have the meaning specified in Section 2.


Event of Default shall mean any event specified in Section 7.


Financial Statements shall have the meaning specified in Section 6.1.


54 2 GAAP shall mean generally accepted accounting principles in the United States of America, as in effect from time to time.


Loans shall mean the loans and financial accommodations made by the Lender to the Borrower in accordance with the terms of this Security Agreement and the Notes.


Loan Documents shall mean, collectively, this Security Agreement, the Notes and all other documents, agreements, certificates, instruments and opinions executed and delivered in connection herewith and therewith, as the same may be modified, extended, restated or supplemented from time to time.


Material Adverse Change shall mean, with respect to any Person, a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of such Person taken as a whole.


Material Adverse Effect shall mean, with respect to any Person, a material adverse effect on the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of such Person taken as a whole.


Note shall mean each Promissory Note made by the Borrower in favor of the Lender, as amended, supplemented or otherwise modified from time to time, in each case substantially in the form of Exhibit B.


Obligations shall mean all indebtedness, obligations and liabilities of the Borrower under the Notes and under this Security Agreement, whether on account of principal, interest, indemnities, fees (including without limitation, attorney's fees, remarketing fees, origination fees, collection fees and all other professionals' fees), costs, expenses, taxes or otherwise.


Permitted Liens shall mean such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) liens for taxes, assessments and other governmental charges or levies or the claims or demands of landlords, carriers, warehousemen, mechanics, laborers, materialmen and other like Persons arising by operation of law in the ordinary course of business for sums which are not yet due and payable, or liens which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are maintained to the extent required by GAAP; (b) deposits or pledges to secure the payment of workmen's compensation, unemployment insurance or other social security benefits or obligations, public or statutory obligations, surety or appeal bonds, bid or performance bonds, or other obligations of a like nature incurred in the ordinary course of business; (c) licenses, restrictions or covenants for or on the use of the Equipment which do not materially impair either the use of the Equipment in the operation of the business of the Borrower or the value of the Equipment; and (d) attachment or judgment liens that do not constitute an Event of Default.


Person shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (including any division, agency or department thereof), and the successors, heirs and assigns of each.


Schedule shall mean each Schedule in the form of Schedule A hereto delivered by the Borrower to the Lender from time to time.


Security Agreement shall mean this Security Agreement together with all schedules and exhibits hereto, as amended, supplemented or otherwise modified from time to time.


Solvent means, with respect to any Person, that as of the date as to which such Person's solvency is measured:


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(a) the fair saleable value of its assets is in excess of the total amount of its liabilities (including contingent liabilities as valued in accordance with GAAP) as they become absolute and matured:


(b) it has sufficient capital to conduct its business; and


(c) it is able generally to meet its debts as they mature.


Taxes shall have the meaning specified in Section 5.5.


2. CREATION OF SECURITY INTEREST; COLLATERAL. The Borrower hereby assigns and grants to the Lender a continuing general, first priority lien on any security interest in, all the Borrower's right, title and interest in and to the collateral described in the next sentence (the "Collateral") to secure the payment and performance of all the Obligations. The Collateral consists of all equipment set forth on all the Schedules delivered from time to time under the terms of this Security Agreement (the "Equipment"), together with all present and future additions, parts, accessories, attachments, substitutions, repairs, improvements and replacements thereof or thereto, and any and all proceeds thereof, including without limitation, proceeds of insurance and all manuals, blueprints, know-how, warranties and records in connection therewith, all rights against suppliers, warrantors, manufacturers, sellers or others in connection therewith, and together with all substitutes for any of the foregoing.


3. THE CREDIT FACILITY.


3.1 BORROWINGS. Each Loan shall be in an amount not less than $50,000.00, and in no event shall the sum of the aggregate Loans made exceed the amount of the Lender's written commitment to the Borrower in effect from time to time. Notwithstanding anything herein to the contrary, the Lender shall be obligated to make the initial Loan and each other Loan only after the Lender, in its sole discretion, determines that the applicable conditions for borrowing contained in Section 3.3 and 3.4 are satisfied.


3.2 APPLICATION OF PROCEEDS. The Borrower shall not directly or indirectly use any proceeds of the Loans, or cause, assist, suffer or permit the use of any proceeds of the Loans, for any purpose other than for the purchase, acquisition, installation or upgrading of Equipment or the reimbursement of the Borrower for its purchase, acquisition, installation or upgrading of Equipment.


3.3 CONDITIONS OF INITIAL LOAN.


(a) The obligation of the Lender to make the initial Loan is subject to the Lender's receipt of the following, each dated the date of the initial Loan or as of an earlier date acceptable to the Lender, in form and substance satisfactory to the Lender and its counsel:


(i) completed requests for information (Form UCC-11) listing all effective Uniform Commercial Code financing statements naming the Borrower as debtor and all tax lien, judgment and litigation searches for the Borrower as the Lender shall deem necessary or desirable;


(ii) Uniform Commercial Code financing statements (Form UCC-1) duly executed by the Borrower (naming the Lender as secured party and the Borrower as debtor and in form acceptable for filing in all jurisdictions that the Lender deems necessary or desirable to perfect the security interests granted to it hereunder) and, if applicable, termination statements or other releases duly filed in all jurisdictions that the Lender deems necessary or desirable to perfect and protect the priority of the security interests granted to it hereunder in the Equipment related to such initial Loan;


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(iii) a Note duly executed by the Borrower evidencing the amount of such Loan;


(iv) a Collateral Access Agreement duly executed by the lessor or mortgage, as the case may be, of each premises where the Equipment is located;


(v) certificates of insurance required under Section 5.4 of this Security Agreement together with loss payee endorsements for all such policies naming the Lender as lender loss payee and as an additional insured;


(vi) a copy of the resolutions of the Board of Directors of the Borrower (or a unanimous consent of directors in lieu thereof) authorizing the execution, delivery and performance of this Security Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, attached to which is a certificate of the Secretary or an Assistant Secretary of the Borrower certifying (A) that the copy of the resolutions is true, complete and accurate, that such resolutions have not been amended or modified since the date of such certification and are in full force and effect and (B) the incumbency, names and true signatures of the officers of the Borrower authorized to sign the Loan Documents to which it is a party;


(vii) a duly executed warrant made by the Borrower in favor of the Lender issued as of April 30, 1997; and


(viii) such other agreements and instruments as the Lender deems necessary in its sole and absolute discretion in connection with the transaction contemplated hereby.


(b) There shall be no pending or, to the knowledge of the Borrower after due inquiry, threatened litigation, proceeding, inquiry or other action (i) seeking an injunction or other restraining order, damages or other relief with respect to the transactions contemplated by this Security Agreement or the other Loan Documents or thereby or (ii) which affects or could affect the business, prospects, operations, assets, liabilities or condition (financial or otherwise) of the Borrower, except, in the case of clause (ii), where such litigation, proceeding, inquiry or other action could not be expected to have a Material Adverse Effect in the judgment of the Lender.


(c) The Borrower shall have paid all fees and expenses required to be paid by it to the Lender as of such date.


(d) The security interests granted in favor of the Lender under this Security Agreement in the Equipment related to the initial Loan shall have been duly perfected and shall constitute first priority liens;


3.4 CONDITIONS PRECEDENT TO EACH LOAN. The obligation of the Lender to make each Loan is subject to the satisfaction of the following conditions precedent:


(a) the Lender shall have received the documents, agreements and instruments set forth in Section 3.3(a)(i) through (v) applicable to such Loan, each in form and substance satisfactory to the Lender and its counsel and each dated the date of such Loan or as of any earlier date acceptable to the Lender;


(b) the security interests granted in favor of the Lender under this Security Agreement in the Equipment related to such Loan shall have been duly perfected and shall constitute first priority liens;


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(c) all representations and warranties contained in this Security Agreement and the other Loan Documents shall be true and correct on and as of the date of such Loan as if then made, other than representations and warranties that expressly relate solely to an earlier date, in which case they shall have been true and correct as of such earlier date;


(d) no Event of Default or event which with the giving of notice or the passage of time, or both, would constitute an Event of Default shall have occurred and be continuing or would result from the making of the requested Loan as of the date of such request; and


(e) the Borrower shall be deemed to have hereby reaffirmed and ratified all security interests, liens and other encumbrances heretofore granted by the Borrower to the Lender.


4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.


4.1 GOOD STANDING; QUALIFIED TO DO BUSINESS. The Borrower (a) is duly organized, validly existing and in good standing under the laws of the State of its organization, (b) has the power and authority to own its properties and assets and to transact the businesses in which it is presently, or proposes to be, engaged and (c) is duly qualified and authorized to do business and is in good standing in every jurisdiction in which the failure to be so qualified could have a Material Adverse Effect on (i) the Borrower, (ii) the Borrower's ability to perform its obligations under the Loan Documents or (iii) the rights of the Lender hereunder.


4.2 DUE EXECUTION, ETC. The execution , delivery and performance by the Borrower of each of the Loan Documents to which it is a party are within the powers of the Borrower, do not contravene the organizational documents, if any, of the Borrower, and do not (a) violate any law or regulation, or any order or decree of any court or governmental authority, (b) conflict with or result in a breach of, or constitute a default under, any material indenture, mortgage or deed of trust or any material lease, agreement or other instrument binding on the Borrower or any of its properties, or (c) require the consent, authorization by or approval of or notice to or filing or registration with any governmental authority or other Person. This Security Agreement is, and each of the other Loan Documents to which the Borrower is or will be a party, when delivered hereunder or thereunder, will be, the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity.


4.3 SOLVENCY; NO LIENS. The Borrower is Solvent and will be Solvent upon the completion of all transactions contemplated to occur hereunder (including. without limitation, the Loan to be made on the Effective Date); the security interests granted herein constitute and shall at all times constitute the first and only liens on the Collateral other than Permitted Liens and the security interests of Silicon Valley Bank ("SVB") which are junior to the security interests of the Lender as more particularly described in the Subordination Letter between SVB and the Lender; and the Borrower is, or will be at the time additional Collateral is acquired by it, the absolute owner of the Collateral with full right to pledge, sell, consign, transfer and create a security interest therein, free and clear of any and all claims or liens in favor of any other Person other than Permitted Liens and the security interests of SVB which are junior to the security interests of the Lender.


4.4 NO JUDGMENTS, LITIGATION. No judgments are outstanding against the Borrower nor is there now pending or, to the best of the Borrower's knowledge after diligent inquiry, threatened any litigation, contested claim, or governmental proceedings by or against the Borrower except judgments and pending or threatened litigation, contested claims and governmental proceedings which would not, in the aggregate, have a Material Adverse Effect on the Borrower.


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4.5 NO DEFAULTS. The Borrower is not in default or has not received a notice of default under any contract, least, or commitment to which it is a party or by which it is bound and which could have a Material Adverse Effect on the Borrower. The Borrower knows of no dispute regarding any contract, lease, or commitment which could have a Material Adverse Effect on the Borrower.


4.6 COLLATERAL LOCATIONS. On the date hereof, each item of the Collateral is located at the place of business specified in the applicable Schedule.


4.7 NO EVENT OF DEFAULT. No Event of Default has occurred and is continuing nor has any event occurred which, with the giving of notice or the passage of time, or both, would constitute an Event of Default.


4.8 NO LIMITATION ON LENDER'S RIGHTS. Except as permitted herein and as set forth on Schedule B hereto as supplemented from time to time, none of the Collateral is subject to contractual obligations that may restrict or inhibit the Lender's rights or abilities to sell or dispose of the Collateral or any part thereof after the occurrence of an Event of Default.


4.9 PERFECTION AND PRIORITY OF SECURITY INTEREST. This Security Agreement creates a valid and, upon completion of all required filings of financing statements, perfected first priority and exclusive security interest in the Collateral (other than the security interest of SVB which are junior to the security interests of the Lender), securing the payment of all the Obligations.


4.10. MODEL AND SERIAL NUMBERS. The Schedules set forth the true and correct model number and serial number of each item of Equipment that constitutes Collateral. ...