AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

Exhibit 10.1

EXECUTION VERSION

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

T HIS A MENDED AND R ESTATED L OAN AND S ECURITY A GREEMENT (as amended, amended and restated, modified or otherwise supplemented from time to time, this “ Agreement ”) dated as of the Effective Date between S ILICON V ALLEY B ANK , a California corporation (“ Bank ”), and S ABA S OFTWARE , I NC . , a Delaware corporation (“ Borrower ”), amends, restates, replaces and supersedes in its entirety that certain Loan and Security Agreement dated as of January 31, 2006 (as amended, modified or otherwise supplemented from time to time, the “ Existing Agreement ”) and provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank.

W HEREAS , Borrower and Bank have entered into the Existing Agreement, pursuant to which the Bank has extended and made available to Borrower certain advances of money; and

W HEREAS , Borrower and Bank desire to amend and restate the Existing Agreement upon the terms and conditions more fully set forth herein;

N OW , T HEREFORE , in consideration of the foregoing and intending to be legally bound, the parties agree as follows:

1 ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13 . All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

2 LOAN AND TERMS OF PAYMENT

2 . 1 Promise to Pay . Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

2.1.1 Revolving Advances.

(a) Availability . Subject to the terms and conditions of this Agreement and to deduction of reserves (including but not limited to the Letter of Credit Reserve and the FX Reserve), Bank will make Advances to Borrower up to an amount (“ Net Borrowing Availability ”) not to exceed the lesser of (a) the Revolving Line Commitment; or (b) amounts available under the Borrowing Base. Amounts borrowed under this Section may be repaid and reborrowed during the term of this Agreement.

(b) Termination; Repayment . The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable, or on the date this Agreement is otherwise terminated.

(c) General Provisions . The Advances shall, at Borrower’s option in accordance with the terms of this Agreement, be either in the form of a Prime Advance or a LIBOR Advance. Borrower shall pay interest accrued on the Advances at the rates and in the manner set forth in Section  2.3(b)(i).

2.1.2 Letters of Credit Sublimit.

(a) As part of the Revolving Line, Bank shall issue or have issued Letters of Credit for Borrower’s account. The face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed: (a) the Net Borrowing Availability minus the sum of (i) all amounts for services utilized under the Cash Management Services Sublimit, (ii) the FX Reserve, and (iii) the sum of the outstanding principal balance of the Advances; and (b) $4,000,000.00 minus the sum of (i) all amounts for services utilized under the Cash Management Services Sublimit and (ii) the FX Reserve. Such aggregate amounts utilized hereunder shall at all times reduce the amount otherwise available for Advances under the Revolving Line. If, on the Revolving Line Maturity Date, there are any outstanding Letters of Credit, then on such date Borrower shall provide to Bank cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit

plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit. All Letters 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 standard Application and Letter of Credit Agreement (the “ Letter of Credit Application ”). Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. If there is any conflict between the terms of the Loan Documents and terms of the Letter of Credit Application and such other documentation, the terms of the Loan Documentation shall control. Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Bank and opened for Borrower’s account or by Bank’s interpretations of any Letter of Credit issued by Bank for Borrower’s account, and Borrower understands and agrees that Bank shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto.

(b) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit Application.

(c) Borrower may request that Bank issue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as an Advance to Borrower of the equivalent of the amount thereof (plus fees and charges in connection therewith such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

(d) To guard against fluctuations in currency exchange rates, upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the “ Letter of Credit Reserve ”) under the Revolving Line in an amount equal to ten percent (10%) of the face amount of such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate. The availability of funds under the Revolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such Letter of Credit remains outstanding.

2.1.3 Foreign Exchange Sublimit . As part of the Revolving Line, Borrower may enter into foreign exchange contracts with Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency (each, a “ FX Forward Contract ”) on a specified date (the “ Settlement Date ”). FX Forward Contracts shall have a Settlement Date of at least one (1) FX Business Day after the contract date and shall be subject to a reserve of ten percent (10%) of each outstanding FX Forward Contract, the maximum aggregate amount of which reserve may not exceed $4,000,000.00 minus the sum of (a) all amounts for services utilized under the Cash Management Services Sublimit, and (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) (the “ FX Reserve ”). The aggregate amount of FX Forward Contracts at any one time may not exceed ten (10) times the amount of the FX Reserve. The FX Reserve may not exceed the Availability Amount (but without including the FX Reserve in the calculation thereof).

2.1.4 Cash Management Services Sublimit . Borrower may use up to $4,000,000.00 minus the sum of (a) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), and (b) the FX Reserve (the “ Cash Management Services Sublimit ”) of the Revolving Line for Bank’s cash management services which may include merchant services, direct deposit of payroll, business credit card, automated clearing house transactions, controlled disbursement accounts, and check cashing services identified in Bank’s various cash management services agreements (collectively, the “ Cash Management Services ”); provided that in no event shall the Cash Management Services Sublimit exceed the Availability Amount (but without including amounts for services utilized under the Cash Management Services Sublimit in the calculation thereof). Any amounts Bank pays on behalf of Borrower or any amounts that are not paid by Borrower for any Cash Management Services will be treated as Advances under the Revolving Line and will accrue interest at the interest rate applicable to Advances.

2.1.5 Equipment Facility . The Bank has extended to Borrower equipment advances (each an “ Equipment Facility Advance ” and collectively the “ Equipment Facility Advances ”). Any Payment/Advance Form and/or Loan Agreement Supplement - Equipment Facility Advances delivered to Bank by Borrower are hereby incorporated by reference herein and are Loan Documents under this Agreement. As of the Effective Date, the outstanding principal amount of Equipment Facility Advances is 165,706.03. When repaid, the Equipment Facility Advances may not be re-borrowed. Bank’s obligation to lend hereunder terminated on the Equipment Facility Commitment Termination Date.

 

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2.2 Overadvances . If at any time or for any reason the total of all outstanding Advances and all other monetary Obligations under Sections 2.1.2 , 2.1.3 and 2.1.4 exceeds Net Borrowing Availability (an “ Overadvance ”), Borrower shall immediately pay the amount of the excess to Bank, without notice or demand. Without limiting Borrower’s obligation to repay to Bank the amount of any Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

2.3 Payment of Interest on the Credit Extensions.

(a) Computation of Interest . Interest on the Credit Extensions and all fees payable hereunder shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which such interest accrues. In computing interest on any Credit Extension, the date of the making of such Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.

(b) Interest Rate .

(i) Advances . Subject to Section 2.3(c) , the amounts outstanding under the Revolving Line shall accrue interest from the date when made, continued or converted until paid in full at a floating per annum rate equal to, at Borrower’s option, either (y) the Prime Rate plus the Prime Rate Margin or (z) the LIBOR Rate plus the LIBOR Rate Margin. On and after the expiration of any Interest Period applicable to any LIBOR Advance outstanding on the date of occurrence of an Event of Default or acceleration of the Obligations, the Effective Amount of such LIBOR Advance shall, during the continuance of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Prime Rate plus five percentage points (5.00%). Pursuant to the terms hereof, interest on amounts outstanding under the Revolving Line shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment pursuant to this Agreement for the portion of the Advances so prepaid and upon payment (including prepayment) in full thereof. All accrued but unpaid interest on the Advances shall be due and payable on the Revolving Line Maturity Date.

(ii) Equipment Advances . Subject to Section 2.3(c) , the principal amount outstanding for each Equipment Facility Advances shall accrue interest at a per annum rate equal to one quarter of one percentage point (0.25%) above the Prime Rate, which interest shall be payable monthly.

(c) Default Rate . Except as otherwise provided in Section 2.3(b)(i) , immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.0%) above the rate effective immediately before the Event of Default (the “ Default Rate ”). Payment or acceptance of the increased interest rate provided in this Section 2.3(c) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

(d) Adjustment to Interest Rate . Each change in the interest rate of any Credit Extension based on changes in the Prime Rate shall be effective on the effective date of such change and to the extent of such change. Bank shall use its best efforts to give Borrower prompt notice of any such change in the Prime Rate; provided, however, that any failure by Bank to provide Borrower with notice hereunder shall not affect Bank’s right to make changes in the interest rate of any Credit Extension based on changes in the Prime Rate. The interest rate applicable to any LIBOR Advance shall be determined in accordance with Section 3.6(a) hereunder. Subject to Sections 3.6 and 3.7 , such rate shall apply during the entire Interest Period applicable to such LIBOR Advance, and interest calculated thereon shall be payable on the Interest Payment Date applicable to such LIBOR Advance.

(e) Debit of Accounts . In accordance with Section 9.5 , Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off.

(f) Payment; Interest Computation; Float Charge . Interest is payable on the Interest Payment Date. In computing interest on the Obligations, all payments received after 12:00 p.m. Pacific time on any day shall be deemed received on the next Business Day. In addition, so long as any principal or interest with respect to any Credit Extensions remains outstanding, Bank shall be entitled to charge Borrower a “float” charge in an amount equal to three (3) Business Days interest, at the interest rate applicable to the Advances, on all payments received by Bank with respect to the Advances (except for payments made directly by Borrower to Bank from Borrower’s

 

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unrestricted cash on deposit in any deposit account or securities account of Borrower with Bank). The float charge for each month shall be payable on the first day of the month. Bank shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Bank in its good faith business judgment, and Bank may charge Borrower’s Designated Deposit Account for the amount of any item of payment which is returned to Bank unpaid.

(g) Principal and Interest Payments On Payment Dates . For Equipment Facility Advances, Borrower will make thirty-six (36) equal monthly installments of principal plus accrued interest for each Equipment Facility Advance (payments on the Equipment Facility Advances are collectively referred to herein as “ Scheduled Payments ”). Scheduled Payments for each Equipment Facility Advance are due on the dates set forth in the Loan Agreement Supplement - Equipment Facility Advances with respect to such Equipment Facility Advance (each a “ Payment Date ”). Any outstanding principal amount of all Equipment Facility Advances, the unpaid interest thereon, and all other Obligations relating to the Equipment Facility Advances shall be due and payable on the earlier of (i) the acceleration of the Equipment Facility Advances following the occurrence of an Event of Default or (ii) the Equipment Facility Maturity Date.

(h) Prepayment Upon an Event of Loss . If any Financed Equipment is subject to an Event of Loss and Borrower is required to or elects to prepay the Equipment Facility Advance with respect to such Financed Equipment pursuant to Section 6.7(b) , then such Equipment Facility Advance shall be prepaid to the extent and in the manner provided in such section.

(i) Mandatory Prepayment Upon an Acceleration . If the Equipment Facility Advances are accelerated following the occurrence of an Event of Default (other than following an Event of Loss), then Borrower will immediately pay to Bank (i) all accrued and unpaid Scheduled Payments (including principal and interest) with respect to each Equipment Facility Advance, (ii) all remaining Scheduled Payments (including principal and interest unpaid) in accordance with the terms of Section 2.3(j) below, and (iii) all other sums, if any, that shall have become due and payable with respect to any Equipment Facility Advance.

(j) Permitted Prepayment of Equipment Facility Advances . Borrower shall have the option to prepay all or any portion of the Equipment Facility Advances advanced by Bank under this Agreement, without penalty or premium, provided no Event of Default has occurred and is continuing and Borrower (i) provides written notice to Bank of its election to prepay the Equipment Facility Advances at least thirty (30) days prior to such prepayment, and (ii) pays, on the date of the prepayment (A) all due but unpaid Scheduled Payments as of the date of prepayment (including principal and interest) with respect to each Equipment Facility Advance, as applicable, being prepaid and (B) all other sums, if any, that shall have become due and payable hereunder relating to such Equipment Facility Advances, as applicable, with respect to this Agreement.

2.4 Fees . Borrower shall pay to Bank:

(a) Commitment Fee . For the Revolving Line facility, a non-refundable commitment fee equal to $22,500.00, fully earned and payable to Bank on the Effective Date;

(b) Letter of Credit Fee . Bank’s customary fees and expenses for the issuance or renewal of Letters of Credit, upon the issuance or renewal of such Letter of Credit by Bank; and

(c) Bank Expenses . All Bank Expenses (including without limitation, reasonable attorneys’ fees and expenses, plus costs, expenses and other fees, for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.

3 CONDITIONS OF LOANS

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

(a) Borrower shall have delivered duly executed original signatures to the Loan Documents to which it is a party;

 

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(b) Borrower shall have delivered duly executed original signatures to the Control Agreements for each of the Domestic Collateral Accounts as required under Section 6.8;

(c) Borrower shall have delivered (i) Operating Documents of Borrower and any Guarantor, and (ii) good standing certificates for Borrower and any Guarantor, certified by the Secretary of State of the state of organization for such entity (and from any other jurisdictions as Bank may reasonably request), in each instance as of a date no earlier than thirty (30) days prior to the Effective Date;

(d) Borrower shall have delivered duly executed original signatures to the completed Borrowing Resolutions for Borrower;

(e) Bank shall have received certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

(f) Borrower shall have delivered an executed Perfection Certificate for Borrower and each Guarantor, which may be provided in one Perfection Certificate;

(g) Borrower shall have delivered the duly executed original signatures to the Guaranties required by Bank, together with the completed Borrowing Resolutions for each Guarantor;

(h) Borrower shall have delivered evidence satisfactory to Bank that the insurance policies required by both Section 6.7 hereof and the Guaranties are in full force and effect, together with appropriate evidence showing loss payable and/or additional insured clauses or endorsements in favor of Bank;

(i) Borrower shall have paid the fees and Bank Expenses then due as specified in Section 2.4 hereof; and

(j) Borrower shall have delivered certificates representing 100% of the shares of capital stock or membership interests (as applicable) and to the extent certificated, of each of Storm, Centra, Thinq, and Saba International, together with stock powers executed in blank.

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

(a) for Advances under the Revolving Line, (i) timely receipt of an executed Payment/Advance Form or Notice of Borrowing, as applicable, and (ii) if the aggregate amount outstanding under the Revolving Line would exceed $4,000,000.00 upon the making of the requested Advance and such information has not been provided previously pursuant to Section 6.2(a)(i) for the most recent month ended, Bank shall receive no later than five (5) Business Days prior to the requested Advance (A) an executed Borrowing Base Certificate, (B) monthly accounts receivable agings, aged by invoice date, (C) monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, and (D) a Deferred Revenue report;

(b) the representations and warranties in Section 5 shall be true in all material respects on the date of the or Payment/Advance Form or Notice of Borrowing, as applicable, and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in Section 5 remain true in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

(c) in Bank’s sole discretion, there has not been a Material Adverse Change.

 

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3.3 Covenant to Deliver. Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition to any Credit Extension. Borrower expressly agrees that the extension of a Credit Extension prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and any such extension in the absence of a required item shall be in Bank’s sole discretion.

3.4 Procedures for Borrowing . Subject to the prior satisfaction of all other applicable conditions to the making of a Credit Extension set forth in this Agreement, each Advance (other than Advances under Sections 2.1.2 or 2.1.4 ) shall be made upon Borrower’s irrevocable written notice delivered to Bank in the form of a Payment/Advance Form or a Notice of Borrowing, as applicable, each executed by a Responsible Officer of Borrower or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Borrower will indemnify Bank for any loss Bank suffers due to such reliance. Such Payment/Advance Form or Notice of Borrowing must be received by Bank prior to 12:00 p.m. Pacific time, (i) at least three (3) Business Days prior to the requested Funding Date, in the case of a LIBOR Advance, and (ii) on the requested Funding Date, in the case of a Prime Advance, specifying:

(a) The amount of the Advance, which, if a LIBOR Advance is requested, shall be in an aggregate minimum principal amount of $1,000,000.00 or in any integral multiple of $1,000,000.00 in excess thereof;

(b) The requested Funding Date; and

(c) The duration of the Interest Period applicable to any such LIBOR Advance included in such Notice of Borrowing; provided that if the Notice of Borrowing shall fail to specify the duration of the Interest Period for any LIBOR Advance, such Interest Period shall be thirty (30) days.

The proceeds of such Advances will then be made available to Borrower on the Funding Date by Bank by transfer to the Designated Deposit Account and, subsequently, by wire transfer to such other account as Borrower may instruct in the Payment/Advance Form or Notice of Borrowing, as applicable. No Advance shall be deemed made to Borrower, and no interest shall accrue on any such Advance, until the related funds have been deposited in the Designated Deposit Account.

3.5 Conversion and Continuation Elections.

(a) So long as (i) no Event of Default or Default exists; (ii) Borrower shall not have sent any notice of termination of this Agreement; and (iii) Borrower shall have complied with such customary procedures as Bank has established for Borrower’s request for a LIBOR Advance, Borrower may, upon irrevocable written notice to Bank:

(i) Elect to convert on any Business Day, a Prime Advance in an amount equal to $1,000,000.00 or any integral multiple of $1,000,000.00 in excess thereof into a LIBOR Advance;

(ii) Elect to continue on any Interest Payment Date a LIBOR Advance maturing on such Interest Payment Date or any part thereof in an amount equal to $1,000,000.00 or any integral multiple of $1,000,000.00 in excess thereof; provided, that if the aggregate amount of a LIBOR Advance shall have been reduced, by payment, prepayment, or conversion of part thereof, to be less than $1,000,000.00, such LIBOR Advance shall automatically convert into a Prime Advance, and on and after such date the right of Borrower to continue such Prime Advance as, and convert such Prime Advance into, a LIBOR Advance shall terminate; or

(iii) Elect to convert on any Interest Payment Date a LIBOR Advance maturing on such Interest Payment Date into a Prime Advance.

 

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(b) Borrower shall deliver a Notice of Conversion/Continuation in accordance with Section 10 to be received by Bank prior to 12:00 p.m. Pacific time (i) at least three (3) Business Days in advance of the Conversion Date or Continuation Date, if a Prime Advance is to be converted into, or a LIBOR Advance is to be continued as, a LIBOR Advance; and (ii) on the Conversion Date, if a LIBOR Advance is to be converted into a Prime Advance, in each case specifying the:

(i) Proposed Conversion Date or Continuation Date;

(ii) Aggregate amount to be converted or continued which, if such amount is to be converted into or continued as a LIBOR Advance, shall be in an aggregate minimum principal amount of $1,000,000.00 or in any integral multiple of $1,000,000.00 in excess thereof;

(iii) Nature of the proposed conversion or continuation; and

(iv) Duration of the requested Interest Period.

(c) If upon the expiration of any Interest Period applicable to a LIBOR Advance, Borrower shall have timely failed to select a new Interest Period to be applicable to such LIBOR Advance, Borrower shall be deemed to have elected to convert such LIBOR Advance into a Prime Advance.

(d) A LIBOR Advance shall, at Bank’s option, convert into a Prime Advance in the event that (i) an Event of Default or Default shall exist, or (ii) the aggregate principal amount of the Prime Advance which has been previously converted to a LIBOR Advance, or the principal amount of an existing LIBOR Advance continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceeds the Net Borrowing Availability. Borrower agrees to pay Bank, upon demand by Bank (or Bank may, at its option, charge the Designated Deposit Account or any other account Borrower maintains with Bank) any amounts required to compensate Bank for any loss (including loss of anticipated profits), cost, or expense incurred by Bank, as a result of the conversion of a LIBOR Advance to a Prime Advance pursuant to any of the foregoing.

(e) Notwithstanding anything to the contrary contained herein, Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable LIBOR market to fund a LIBOR Advance, but the provisions hereof shall be deemed to apply as if Bank had purchased such deposits to fund the LIBOR Advance.

3.6 Special Provisions Governing a LIBOR Advance . Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to a LIBOR Advance as to the matters covered:

(a) Determination of Applicable Interest Rate . As soon as practicable on each Interest Rate Determination Date, Bank shall determine (which determination shall, absent manifest error in calculation, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Advance for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Borrower.

(b) Inability to Determine Applicable Interest Rate . In the event that Bank shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to a LIBOR Advance, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable on the basis provided for in the definition of LIBOR, Bank shall on such date give notice (by facsimile or by telephone confirmed in writing) to Borrower of such determination, whereupon (i) no Advance may be made as, or any amount converted to, a LIBOR Advance until such time as Bank notifies Borrower that the circumstances giving rise to such notice no longer exist, and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Borrower with respect to any amounts in respect of which such determination was made shall be deemed to be rescinded by Borrower.

(c) Compensation for Breakage or Non-Commencement of Interest Periods . Borrower shall compensate Bank, upon written request by Bank (which request shall set forth the manner and method of computing such compensation), for all reasonable losses, expenses and liabilities, if any (including any interest paid by Bank to lenders of funds borrowed by it to make or carry its LIBOR Advances and any loss, expense or liability incurred by Bank in connection with the liquidation or re-employment of such funds) such that Bank may incur: (i) if for any reason (other than a default by Bank or due to any failure of Bank to fund a LIBOR Advance due to impracticability or illegality under Sections 3.7(d) and 3.7(e) ) a borrowing or a conversion to or continuation of a LIBOR Advance does not occur on a date specified in a Notice of Borrowing or a Notice of Conversion/Continuation, as the case may be, or (ii) if any principal payment or any conversion of its LIBOR Advances occurs on a date prior to the last day of an Interest Period applicable to such LIBOR Advance.

 

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(d) Assumptions Concerning Funding of LIBOR Advances . Calculation of all amounts payable to Bank under this Section 3.6 and under Section 3.4 shall be made as though Bank had actually funded any relevant LIBOR Advance through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to the definition of LIBOR Rate in an amount equal to the amount of such LIBOR Advance and having a maturity comparable to the relevant Interest Period; provided, however, that Bank may fund any such LIBOR Advance in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 3.6 and under Section 3.4 .

(e) LIBOR Advances After Default . After the occurrence and during the continuance of an Event of Default, (i) Borrower may not elect to have amounts made or continued as, or converted to, a LIBOR Advance after the expiration of any Interest Period then in effect for such amounts and (ii) subject to the provisions of Section 3.5(c) , any Notice of Conversion/Continuation given by Borrower with respect to a requested conversion/continuation that has not yet occurred shall be deemed to be rescinded by Borrower and be deemed a request to convert or continue such amount referred to therein as a Prime Advance.

3.7 Additional Requirements/Provisions Regarding a LIBOR Advance.

(a) If for any reason (including voluntary or mandatory prepayment or acceleration), Bank receives all or part of the principal amount of a LIBOR Advance prior to the last day of the Interest Period for such LIBOR Advance, Borrower shall immediately notify Borrower’s account officer at Bank and, on demand by Bank, pay Bank the amount (if any) by which (i) the additional interest which would have been payable on the amount so received had it not been received until the last day of such Interest Period exceeds (ii) the interest which would have been recoverable by Bank by placing the amount so received on deposit in the certificate of deposit markets, the offshore currency markets, or United States Treasury investment products, as the case may be, for a period starting on the date on which it was so received and ending on the last day of such Interest Period at the interest rate determined by Bank in its reasonable discretion. Bank’s determination as to such amount shall be conclusive absent manifest error.

(b) Borrower shall pay Bank, upon demand by Bank, from time to time such amounts as Bank may determine to be necessary to compensate it for any costs incurred by Bank that Bank determines are attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of any Advance relating thereto (such increases in costs and reductions in amounts receivable being herein called “ Additional Costs ”), in each case resulting from any Regulatory Change which:

(i) Changes the basis of taxation of any amounts payable to Bank under this Agreement in respect of any Advances (other than changes which affect taxes measured by or imposed on the overall net income of Bank by the jurisdiction in which Bank has its principal office);

(ii) Imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with, or other liabilities of Bank (including any Advances or any deposits referred to in the definition of LIBOR); or

(iii) Imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities).

Bank will notify Borrower of any event occurring after the Closing Date which will entitle Bank to compensation pursuant to this Section 3.7 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Bank will furnish Borrower with a statement setting forth the basis and amount of each request by Bank for compensation under this Section 3.7 . Determinations and allocations by Bank for purposes of this Section 3.7 of the effect of any Regulatory Change on its costs of maintaining its obligations to make Advances, of making or maintaining Advances, or on amounts receivable by it in respect of Advances, and of the additional amounts required to compensate Bank in respect of any Additional Costs, shall be conclusive absent manifest error.

(c) If Bank shall determine that the adoption or implementation of any applicable law, rule, regulation, or treaty regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by Bank (or its applicable lending office) with any respect or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank, or

 

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comparable agency, has or would have the effect of reducing the rate of return on capital of Bank or any person or entity controlling Bank (a “ Parent ”) as a consequence of its obligations hereunder to a level below that which Bank (or its Parent) could have achieved but for such adoption, change, or compliance (taking into consideration policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, within fifteen (15) days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction. A statement of Bank claiming compensation under this Section 3.7(c) and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error.

(d) If, at any time, Bank, in its sole and absolute discretion, determines that (i) the amount of a LIBOR Advance for periods equal to the corresponding Interest Periods are not available to Bank in the offshore currency interbank markets, or (ii) LIBOR does not accurately reflect the cost to Bank of lending the LIBOR Advance, then Bank shall promptly give notice thereof to Borrower. Upon the giving of such notice, Bank’s obligation to make the LIBOR Advance shall terminate; provided, however, such LIBOR Advance shall not terminate if Bank and Borrower agree in writing to a different interest rate applicable to a LIBOR Advance.

(e) If it shall become unlawful for Bank to continue to fund or maintain a LIBOR Advance, or to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay the LIBOR Advance in full with accrued interest thereon and all other amounts payable by Borrower hereunder (including, without limitation, any amount payable in connection with such prepayment pursuant to Section 3.7(a) ). Notwithstanding the foregoing, to the extent a determination by Bank as described above relates to a LIBOR Advance then being requested by Borrower pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Borrower shall have the option, subject to the provisions of Section 3.6(c) , to (i) rescind such Notice of Borrowing or Notice of Conversion/Continuation by giving notice (by facsimile or by telephone confirmed in writing) to Bank of such rescission on the date on which Bank gives notice of its determination as described above, or (ii) modify such Notice of Borrowing to obtain a Prime Advance or modify such Notice of Conversion/Continuation to have an outstanding LIBOR Advance converted into a Prime Advance by giving notice (by facsimile or by telephone confirmed in writing) to Bank of such modification on the date on which Bank gives notice of its determination as described above.

4 CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest . Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

This Agreement may be terminated prior to the Revolving Line Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given to Bank or if Bank’s obligation to fund Credit Extensions terminates pursuant to the terms of Section 2.1.1(b) . Notwithstanding any such termination, Bank’s lien and security interest in the Collateral shall continue until Borrower fully satisfies its Obligations (other than inchoate Obligations). Upon payment in full of the Obligations (other than inchoate indemnity Obligations and cash-collateralized Letters of Credit, in accordance with the terms of Section 2.1.2, following maturity, to Bank’s reasonable satisfaction) and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall execute and deliver to Borrower a payoff letter; upon the execution of such payoff letter Bank shall release its liens and security interests in the Collateral and all rights therein shall revert to Borrower.

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

 

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5 REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1 Due Organization and Authorization . Borrower and each of its Subsidiaries (other than TrainingServer) are duly existing and in good standing in their respective jurisdictions of formation, and are qualified and licensed to do business and are in good standing in any jurisdiction in which the conduct of their business or their ownership of property requires that they be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has delivered to Bank a completed certificate substantially in the form attached hereto as Exhibit H signed by Borrower, providing all requested information for Borrower, Centra, Saba International, Storm, Thinq and each Guarantor, respectively, and entitled “ Perfection Certificate ”. Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on its Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in its Perfection Certificate; (c) the Borrower’s Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Borrower’s Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its state of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Borrower’s Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete. If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower’s organizational documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could have a material adverse effect on Borrower’s business.

5.2 Collateral.

(a) Borrower has good title to the Collateral, free of Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts with Bank and deposit accounts described in the Perfection Certificate delivered to Bank in connection herewith or otherwise permitted pursuant to Section 6.8 .

(b) The Collateral is not in the possession of any third party bailee (such as a warehouse) except as set forth in the Perfection Certificate. Except as hereafter disclosed to Bank in writing by Borrower, none of the components of the Collateral shall be maintained at locations other than (i) as provided in the Perfection Certificate, or (ii) such locations where not more than $25,000.00 of Collateral (at any one location) is kept. In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral with a value in excess of $25,000.00 to a bailee, then Borrower will provide written notice to the Bank within thirty (30) days thereafter and will use commercially reasonable efforts to obtain from such bailee an acknowledgement in writing that the bailee is holding such Collateral for the benefit of Bank.

(c) All Inventory is in all material respects of good and marketable quality, free from material defects.

5.3 Accounts Receivable.

(a) For each Account with respect to which Advances are requested, on the date each Advance is requested and made, such Account shall be an Eligible Account as set forth in Section 13 below.

(b) All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Accounts are and shall be true and correct in all material respects and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

 

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5.4 Litigation . Except as set forth in the Perfection Certificate, there are no actions or proceedings pending against Borrower or any of its Subsidiaries involving more than $500,000.00, and there are no actions or proceedings, to the knowledge of any of the Borrower’s Responsible Officers or its general counsel, threatened in writing by or against Borrower or any of its Subsidiaries in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change.

5.5 No Material Deviation in Financial Statements . All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

5.6 Solvency . The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.7 Regulatory Compliance . Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where failure to do so could not reasonably be expected to have a Material Adverse Change.

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

5.9 Tax Returns and Payments; Pension Contributions . Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a Permitted Lien. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

5.10 Use of Proceeds . Borrower shall use the proceeds of the Advances solely as (a) working capital, (b) to fund additional cash reserves, capital expenditures and/or a stock repurchase program to the extent permitted hereunder, and (c) to fund its general business requirements.

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

 

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5.12 TrainingServer. Borrower represents and warrants that TrainingServer does not presently and will not during the term of this Agreement have assets in excess of $5,000.00 at any time.

5.13 Ultris. Borrower represents and warrants that Ultris does not presently and will not during the term of this Agreement have assets (other than goodwill) in excess of $5,000.00 at any time.

6 AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1 Government Compliance . Subject to Section 7.3 , maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrower’s business.

6.2 Financial Statements, Reports, Certificates.

(a) Borrower shall provide Bank with the following:

(i) If the aggregate outstanding balance of the Revolving Line exceeds $4,000,000.00 as of the last day of any month, then within twenty (20) days after the end of any such month, (A) a Borrowing Base Certificate substantially in the form of Exhibit G attached hereto, (B) monthly accounts receivable agings, aged by invoice date, (C) monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, and (D) a Deferred Revenue report;

(ii) As soon as available, and in any event within forty-five (45) days after the end of each month, company-prepared, monthly unaudited financial statements;

(iii) Within forty-five (45) days after the end of each month a monthly Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank shall reasonably request, including, without limitation, a statement that at the end of such month there were no held checks;

(iv) As soon as available, but no later than forty-five (45) days after the end of each fiscal year of Borrower, (A) a one (1) year (prepared on a quarterly basis) financial projections of Borrower on a consolidated basis, including a balance sheet and statements of income and cash flows and showing projected operating revenues, expenses and debt service of Borrower on a consolidated basis prepared under GAAP; and (B) budgets, sales projections, operating plans or other financial information used in the preparation of such financial projections reasonably requested by Bank;

(v) As soon as available, and in any event within one hundred twenty (120) days following the end of Borrower’s fiscal year, annual financial statements of Borrower on a consolidated basis and certified by, and with an unqualified opinion of, independent certified public accountants acceptable to Bank; and

(vi) Within five (5) days after filing, all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission (other than those reports on Form 10-K, 10-Q or 8-K (relating to certification) that are otherwise publicly available through the Securities and Exchange Commission’s EDGAR system).

6.3 Accounts Receivable.

(a) Schedules and Documents Relating to Accounts . Borrower shall deliver to Bank Borrowing Base Certificates, as provided in Section 6.2 ; provided, however, that Borrower’s failure to execute and deliver the same shall not affect or limit Bank’s Lien and other rights in all of the Accounts, nor shall Bank’s failure to advance or lend against a specific Account affect or limit Bank’s Lien and other rights therein. If requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts. In addition, Borrower shall

 

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deliver to Bank, on its request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary indorsements, and copies of all credit memos.

(b) Disputes . Borrower shall promptly notify Bank of all disputes or claims relating to Accounts that involve more than $150,000.00. Borrower may forgive (completely or partially), compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, in arm’s-length transactions, and reports the same to Bank in the regular reports provided to Bank; (ii) no Default or Event of Default has occurred and is continuing; and (iii) after taking into account all such discounts, settlements and forgiveness, the total outstanding Advances will not exceed the Net Borrowing Availability.

(c) Collection of Accounts . Borrower shall have the right (on its own behalf and on behalf of its Subsidiaries and any other Affiliate) to collect all Accounts, unless and until a Default or an Event of Default has occurred and is continuing. If an Event of Default has occurred, Bank in its sole discretion may require that all proceeds of Accounts be deposited into any Restricted Revenue Account as Bank shall designate.

(d) Returns . Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower, its Subsidiaries, or such other Affiliate of Borrower, Borrower shall follow Borrower’s customary practices as they exist at the execution of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries that involve more than $500,000.00. In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall hold the returned Inventory in trust for Bank, and immediately notify Bank of the return of the Inventory.

(e) Verification . Bank may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower and, so long as no Event of Default has occurred and upon notice to the Borrower, its Subsidiaries.

(f) No Liability . Bank shall not be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be responsible for any of Borrower’s obligations under any contract or agreement giving rise to an Account. Nothing herein shall, however, relieve Bank from liability for its own gross negligence or willful misconduct.

6.4 Remittance of Proceeds . Except as otherwise provided in Sections 6.3(c) , 6.7 and 9.5 , deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations pursuant to the terms of Section 9.5 hereof; provided that, if no Default or Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Bank the proceeds of the sale of Equipment disposed of by Borrower in good faith in an arm’s length transaction for an aggregate purchase price of $50,000.00 or less (for all such transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower’s other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Bank. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.

6.5 Taxes; Pensions . Timely file all required tax returns and reports and timely pay all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

6.6 Access to Collateral; Books and Records.

(a) At reasonable times, on one (1) Business Day’s notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy Borrower’s Books, subject to Bank’s confidentiality obligations in Section 12.9 . The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850.00 per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable

 

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out-of-pocket expenses (collectively, the “ Borrower Audit Fees ”). Provided that no Event of Default has occurred and is continuing, then (i) such audits and inspections by Bank shall be performed only on a semi-annual basis, and (ii) the Borrower Audit Fees, together with any and all Guarantor Audit Fees, shall be limited in the aggregate amount of no more than $15,000.00 per annum.

(b) Notwithstanding the foregoing, in the event Borrower and Bank schedule an audit more than five (5) days in advance, and Borrower cancels or seeks to reschedules the audit with less than five (5) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of $1,000.00 plus any reasonable out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.

6.7 Insurance.

(a) Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request. Insurance policies shall be with financially sound and reputable insurance companies. All property policies shall have a lender’s loss payable endorsement showing Bank as an additional loss payee and waive subrogation against Bank, and all liability policies shall show, or have endorsements showing, Bank as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the insurer must give Bank at least thirty (30) days notice (or ten (10) days notice in the case of cancellation for non-payment of premium) before canceling, materially amending, or declining to renew its policy. At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments. So long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy to the replacement or repair of destroyed or damaged property; provided, that, after the occurrence and during the continuance of an Event of Default, proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations. If Borrower fails to obtain insurance as required under this Section 6.7 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.7 , and take any action under the policies Bank deems prudent.

(b) Bear the risk of the Financed Equipment being lost, stolen, destroyed, or damaged. If during the term of this Agreement any item of Financed Equipment is subject to an Event of Loss, then in each case, Borrower:

(i) Prior to the occurrence of an Event of Default, at Borrower’s option, will (A) pay to Bank on account of the Obligations with respect to each item of Financed Equipment subject to such Event of Loss all accrued interest to the date of the prepayment, plus all outstanding principal; or (B) repair or replace any Financed Equipment subject to an Event of Loss provided the repaired or replaced Financed Equipment is of equal or like value to the Financed Equipment subject to an Event of Loss and provided further that Bank has a first priority perfected security interest in such repaired or replaced Financed Equipment.

(ii) During the continuance of an Event of Default, on or before the Payment Date after such Event of Loss for each such item of Financed Equipment subject to such Event of Loss, Borrower will, at Bank’s option, pay to Bank an amount equal to the sum of: (A) all accrued and unpaid Scheduled Payments (with respect to such Equipment Facility Advance related to the Event of Loss) due prior to the next such Payment Date, (B) all regularly Scheduled Payments (including principal and interest), plus (C) all other sums (other than remaining Scheduled Payments), if any, that shall have become due and payable with respect to such Equipment Facility Advance including interest at the Default Rate with respect to any past due amounts.

(iii) On the date of receipt by Bank of the amount specified above with respect to each such item of Financed Equipment subject to an Event of Loss, this Agreement shall terminate as to such Financed Equipment. If any proceeds of insurance or awards received from governmental authorities are in excess of the amount owed under this Section 6.7(b) , Bank shall promptly remit to Borrower the amount in excess of the amount owed to Bank.

6.8 Operating Accounts.

(a) Maintain an amount of not less than $6,000,000.00 of unrestricted cash and Cash Equivalents in the Designated Deposit Account or a money market account maintained with Bank. If at any time the balance of unrestricted cash and Cash Equivalents in the Designated Deposit Account or such money market account maintained with Bank is less than $6,000,000.00, then Borrower shall pay Bank a one time fee of $75,000.00 which shall be due and payable upon such occurrence.

 

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(b) Provide Bank five (5) days prior written notice before Borrower or any Guarantor establishes any Collateral Account at or with any bank or financial institution other than Bank or its Affiliates within the United States. In addition and upon Bank’s request, for each Collateral Account that Borrower or any Guarantor, at any time maintains within the United States, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any such Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder. The provisions of this Section 6.8(b) shall not apply to (i) deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such, or (ii) accounts which maintain a balance of less than $25,000.00 individually or $100,000.00 in the aggregate.

6.9 Financial Covenants.

Borrower shall maintain, to be tested as of the last day of the period referenced below, on a consolidated basis with respect to Borrower and its Subsidiaries:

(a) Minimum Adjusted Quick Ratio . As of the last day of each month, a ratio of Quick Assets (of which unrestricted cash and Cash Equivalents subject to Bank’s “control” as defined in the Code in no case shall be less than the greater of (i) $9,000,00.00 or (ii) 50% of the aggregate balances of cash and Cash Equivalents of Borrower held in all of its Collateral Accounts) to Current Liabilities plus all long term portions of the Obligations minus Deferred Revenue of not less than 1.75 to 1.00.

(b) Minimum EBITDA . Borrower’s quarterly consolidated EBITDA shall be equal to or greater than the following amounts for such fiscal quarter end:

 

6.10 Protection of Intellectual Property Rights . Borrower shall (and shall cause its Subsidiaries) as Borrower deems reasonably appropriate and consistent with past practices: (a) protect, defend and maintain the validity and enforceability of its and its Subsidiaries’ material intellectual property; (b) promptly advise Bank in writing of material infringements of its and its Subsidiaries’ intellectual property known to its Responsible Officers, its general counsel, or any executive officer; and (c) not allow any intellectual property material to Borrower’s and/or its Subsidiaries’ business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

6.11 Litigation Cooperation . From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

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

 

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7 NEGATIVE COVENANTS

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

7.1 Dispositions . Convey, sell, lease, transfer or otherwise dispose of (collectively, “ Transfer ”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d) liquidations or dissolutions of (i) Subsidiaries of Borrower so long as such Subsidiaries’ assets are transferred only to Borrower or any Guarantor, (ii) any Guarantor so long as such Guarantor’s assets are transferred only to Borrower or another Guarantor, or (iii) Subsidiaries of Borrower which are not a Guarantor so long as such Subsidiaries’ assets are transferred to another Subsidiary which is not a Guarantor; (e) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States; (f) subleases of real property; and (g) other Transfers not to exceed $250,000.00 in the aggregate in any fiscal year.

7.2 Changes in Business, Control, or Business Locations . (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) permit or suffer any Change in Control. Borrower shall not, without at least ten (10) days prior written notice to Bank: (i) add any new offices or business locations, including warehouses, unless such new offices or business locations contain less than Twenty-Five Thousand Dollars ($25,000.00) in Borrower’s assets or property; (ii) change its jurisdiction of organization; (iii) change its organizational structure or type; (iv) change its legal name; or (v) change any organizational number (if any) assigned by its jurisdiction of organization.

7.3 Mergers or Acquisitions . Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where (a) no Event of Default has occurred and is continuing or would exist after giving effect thereto, (b) Borrower or Subsidiary that is also a Guarantor (as the case may be) continues as a surviving legal entity after giving effect thereto, and (c) (i) the cash consideration to be paid in connection with such transaction does not exceed $10,000,000.00 and (ii) the non-cash consideration consisting of shares in Borrower to be paid in connection with such transaction does not exceed 33% of Borrower’s total shares outstanding at the time of the transaction; provided, however, Borrower shall continue to be the surviving legal entity in all cases. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower, except that any Subsidiary which is also a Guarantor shall (i) only merge or consolidate into Borrower or another Subsidiary that is also a Guarantor, and (ii) give Bank at least ten (10) days notice prior to such merger or consolidation.

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

7.5 Encumbrance . Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement), or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s intellectual property, except as is otherwise permitted in Section 7.1 hereof and the definition of Permitted Lien herein.

7.6 Maintenance of Collateral Accounts . Maintain (or allow its Guarantors to maintain) any Collateral Account except pursuant to the terms of Section 6.8(b) hereof.

7.7 Investments; Distributions . (a) Directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so; or (b) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase stock pursuant to stock

 

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repurchase programs so long as (x) an Event of Default does not exist at the time of such repurchases and would not exist after giving effect to such repurchases, (y) Borrower and its Subsidiaries are in compliance with each of the covenants set forth in Articles 6 and 7 and continue to perform of all of their obligations thereunder, and (z) such repurchases do not exceed in the aggregate of $5,000,000.00 in total at any time before the Revolving Line Maturity Date.

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 . (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Bank.

7.10 Compliance . Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that 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 other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

8 EVENTS OF DEFAULT

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

8.1 Payment Default . Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable. During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);

8.2 Covenant Default.

(a) Borrower fails or neglects to perform any obligation in Sections 6.1 , 6.2 , 6.3(a) and (c) , 6.7 , 6.8 , 6.9 or 6.12 , or violates any covenant in Section 7 ; provided that, in no case shall a failure to maintain $6,000,000.00 with Bank be an Event of Default; or

(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement, any Loan Documents, and as to any default (other than those specified in Section 8 below) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above;

8.3 Material Adverse Change . A Material Adverse Change occurs;

8.4 Attachment . (a) Any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in ten (10) days;

 

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(b) the service of process upon Borrower seeking to attach, by trustee or similar process, any funds of Borrower on deposit with Bank, or any entity under control of Bank (including a subsidiary); (c) Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d) a judgment or other claim in excess of $150,000.00 becomes a Lien on any of Borrower’s assets; or (e) a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency and not paid within ten (10) days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions shall be made during the cure period);

8.5 Insolvency . (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

8.6 Other Agreements . There is a default in any agreement for Indebtedness to which Borrower or any Guarantor is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Material Indebtedness;

8.7 Judgments . A judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000.00) (not covered by independent third-party insurance) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);

8.8 Misrepresentations . Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

8.9 Subordinated Debt . A default or breach in any material respect occurs under any agreement between Borrower and any creditor of Borrower that signed a subordinat