SHARPSPRING, INC.

QUATTRO HOSTING LLC

SHARPSPRING TECHNOLOGIES, INC.

 

WESTERN ALLIANCE BANK

 

LOAN AND SECURITY AGREEMENT

 

 1 

 

 

This Loan And Security Agreement is entered into as of March 21, 2016, by and
between Western Alliance Bank (“Bank”) and SharpSpring, Inc. (“Parent”), Quattro
Hosting LLC (“Quattro”), and SharpSpring Technologies, Inc. (“SharpSpring
Technologies”). Parent, Quattro, and SharpSpring Technologies are each referred
to herein as a “Borrower”, and collectively, as the “Borrowers”.

 

Recitals

 

Borrowers wish to obtain credit from time to time from Bank, and Bank desires to
extend credit to Borrowers. This Agreement sets forth the terms on which Bank
will advance credit to Borrowers, and Borrowers will repay the amounts owing to
Bank.

 

Agreement

 

The parties agree as follows:

 

1. Definitions and Construction.

 

1.1 Definitions. As used in this Agreement, the following terms shall have the
following definitions:

 

“Accounts” means all presently existing and hereafter arising accounts, contract
rights, payment intangibles, and all other forms of obligations owing to a
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by a Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by a Borrower and such Borrower’s Books
relating to any of the foregoing.

 

“Adjusted EBITDA” means Parent’s and its Subsidiaries’ consolidated earnings
before interest, taxes, depreciation and amortization expenses, each as
determined by GAAP, with such adjustments for non-cash stock-based compensation
expenses, one-time acquisition-related charges (including earn out payments)
with respect to Parent’s acquisitions of SharpSpring or GraphicMail, foreign
exchange gains or losses, and other adjustments as may be approved by Bank on a
case by case basis.

 

“Advance” or “Advances” means a cash advance or cash advances under the
Revolving Facility.

 

“Affiliate” means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is controlled by
or is under common control with such Person, and each of such Person’s senior
executive officers, directors, and partners.

 

“Bank Expenses” means all reasonable: costs or expenses (including reasonable
attorneys’ fees and expenses) incurred in connection with the preparation,
negotiation, administration, and enforcement of the Loan Documents; Collateral
audit fees; and Bank’s attorneys’ fees and expenses incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of
appeal), incurred before, during and after an Insolvency Proceeding, whether or
not suit is brought.

 

“Borrower’s Books” means all of a Borrower’s books and records including:
ledgers; records concerning a Borrower’s assets or liabilities, the Collateral,
business operations or financial condition; and all computer programs, or tape
files, and the equipment, containing such information.

 

“Borrowing Base” means an amount equal to Borrowers’ trailing three (3) months
of Monthly Recurring Revenue as of the last day of the most recently completed
month, multiplied by the lesser of (i) one hundred percent (100%) or (ii) the
MRR Retention Rate, as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrowers; provided however, that the
Borrowing Base may be revised from time to time by Bank following each
Collateral audit or as Bank deems necessary in Bank’s reasonable judgment and
upon notification thereof to Borrowers.

 

 2 

 

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks in the State of California are authorized or required to close.

 

“Cash Management Sublimit” means a sublimit for cash management transactions
under the Revolving Line not to exceed Four Hundred Thousand Dollars ($400,000).

 

“Change in Control” shall mean a transaction in which (i) any “person” or
“group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of a
sufficient number of shares of all classes of stock then outstanding of Parent
ordinarily entitled to vote in the election of directors, empowering such
“person” or “group” to elect a majority of the Board of Directors of a Borrower,
who did not have such power before such transaction, or (ii) Parent ceases to
directly or indirectly own all of the outstanding capital stock of any other
Borrower.

 

“Closing Date” means the date of this Agreement.

 

“Code” means the California Uniform Commercial Code.

 

“Collateral” means the property described on Exhibit A attached hereto.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another;
(ii) any obligations with respect to undrawn letters of credit, corporate credit
cards, or merchant services issued or provided for the account of that Person;
and (iii) all obligations arising under any agreement or arrangement designed to
protect such Person against fluctuation in interest rates, currency exchange
rates or commodity prices; provided, however, that the term “Contingent
Obligation” shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by Bank in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.

 

“Contracts” means subscription license contracts, maintenance contracts and
support contracts or other contractual arrangements of Borrowers.

 

“Copyrights” means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work thereof.

 

“Credit Extension” means each Advance, use of the Cash Management Sublimit, or
any other extension of credit by Bank for the benefit of Borrowers hereunder.

 

“Daily Balance” means the amount of the Obligations owed at the end of a given
day.

 

“Eligible Recurring Revenue Contracts” means Contracts yielding monthly
recurring revenue recognized in accordance with GAAP, provided, that standards
of eligibility may be fixed and revised from time to time by Bank in Bank’s
reasonable judgment and upon notification thereof to Borrowers in accordance
with the provisions hereof. Unless otherwise agreed to by Bank, Eligible
Recurring Revenue Contracts shall not include the following:

 

(a) Contracts for which the customer thereunder has failed to pay to the
Borrower any amounts due to Borrower under any of such Contracts within ninety
(90) days from the invoice date;

 

(b) Contracts which the customer thereunder has elected to cancel or has failed
to renew within the time period prescribed in such Contracts;

 

 3 

 

 

(c) Contracts with respect to which the customer is subject to any Insolvency
Proceeding, or becomes insolvent or goes out of business; or

 

(d) Contracts with respect to any customer outside of the United States (other
than Canada) that are billed or collected outside of the United States.

 

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

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.

 

“Event of Default” has the meaning assigned in Article 8.

 

“GAAP” means generally accepted accounting principles in the United State as in
effect from time to time.

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.

 

“Insolvency Proceeding” means any proceeding commenced by or against any person
or entity under any provision of the United States Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extension
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

“Intellectual Property Collateral” means all of a Borrower’s right, title, and
interest in and to the following: Copyrights, Trademarks and Patents; all trade
secrets, all design rights, claims for damages by way of past, present and
future infringement of any of the rights included above, all licenses or other
rights to use any of the Copyrights, Patents or Trademarks, and all license fees
and royalties arising from such use to the extent permitted by such license or
rights; all amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and all proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.

 

“Inventory” means all inventory in which a Borrower has or acquires any
interest, including work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of a Borrower, including such inventory as
is temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and a Borrower’s Books relating to any
of the foregoing.

 

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

 

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

 

“Loan Documents” means, collectively, this Agreement, any note or notes, and any
other documents, instruments or agreements entered into by a Borrower or any
guarantor or other third party in connection with this Agreement, all as amended
or extended from time to time.

 

“Material Adverse Effect” means a material adverse effect on (i) the business
operations, condition (financial or otherwise) or prospects of Parent and its
Subsidiaries taken as a whole or (ii) the ability of Borrowers to repay the
Obligations or otherwise perform its obligations under the Loan Documents or
(iii) the value or priority of Bank’s security interests in the Collateral.

 

 4 

 

 

“Monthly Recurring Revenue” means, with respect to any measurement period,
monthly recurring revenue recognized in accordance with GAAP during such period
from Eligible Recurring Revenue Contracts.

 

“MRR Retention Rate” means as of the last day of a month, the ratio, expressed
as a percentage, of (i) the average Monthly Recurring Revenue for the trailing
three (3) months ending on such date divided by (ii) the average Monthly
Recurring Revenue for the trailing twelve (12) months ending on such date.

 

“Negotiable Collateral” means all letters of credit of which a Borrower is a
beneficiary, notes, drafts, instruments, securities, documents of title, and
chattel paper, and such each Borrower’s Books relating to any of the foregoing.

 

“Obligations” means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrowers pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrowers to others that Bank may have obtained by assignment or otherwise.

 

“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

 

“Periodic Payments” means all installments or similar recurring payments that
Borrowers may now or hereafter become obligated to pay to Bank pursuant to the
terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrowers and Bank.

 

“Permitted Indebtedness” means:

 

(a) Indebtedness of Borrowers in favor of Bank arising under this Agreement or
any other Loan Document;

 

(b) unsecured Indebtedness owing to trade creditors in the ordinary course of
business;

 

(c) Indebtedness owing by a Borrower to any other Borrower or any Subsidiary of
a Borrower;

 

(d) Indebtedness owing by a Subsidiary to a Borrower that constitutes Permitted
Investments under clause (c) of such defined term;

 

(e) Indebtedness existing on the Closing Date and disclosed in the Schedule;

 

(f) Indebtedness secured by a lien described in clause (c) of the defined term
“Permitted Liens,” provided (i) such Indebtedness does not exceed the lesser of
the cost or fair market value of the equipment financed with such Indebtedness
and (ii) the aggregate amount of such Indebtedness does not exceed the amount
outstanding as of the Closing Date at any given time; and

 

(g) Subordinated Debt.

 

“Permitted Investment” means:

 

(a) Investments existing on the Closing Date disclosed in the Schedule; and

 

(b) (i) marketable direct obligations issued or unconditionally guaranteed by
the United States of America or any agency or any State thereof maturing within
one (1) year from the date of acquisition thereof, (ii) commercial paper
maturing no more than one (1) year from the date of creation thereof and
currently having rating of at least A-2 or P-2 from either Standard & Poor’s
Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing
no more than one (1) year from the date of investment therein issued by Bank and
(iv) Bank’s money market accounts; and

 

 5 

 

 

(c) Investments of Borrowers to any Subsidiary that is not a Borrower hereunder,
in an aggregate amount not to exceed $600,000.

 

“Permitted Liens” means the following:

 

(a) Any Liens existing on the Closing Date and disclosed in the Schedule or
arising under this Agreement or the other Loan Documents;

 

(b) Liens for taxes, fees, assessments or other governmental charges or levies,
either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of Bank’s security
interests;

 

(c) Liens (i) upon or in any equipment which was not financed by Bank acquired
or held by Borrowers or any of its Subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition or leasing of such equipment, or (ii) existing on such equipment at
the time of its acquisition or lease, provided that the Lien is confined solely
to the property so acquired or leased and improvements thereon, and the proceeds
of such equipment;

 

(d) Liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by Liens of the type described in clauses (a) through
(c) above, provided that any extension, renewal or replacement Lien shall be
limited to the property encumbered by the existing Lien and the principal amount
of the indebtedness being extended, renewed or refinanced does not increase; and

 

(e) Lien against the capital stock of SharpSpring Technologies owned by Parent
in favor of RCTW, LLC (fka SharpSpring, LLC) (the “Stock Lien”), securing an
earn-out liability owing by Parent arising from the asset purchase by Parent in
2014, which, as of the Closing Date, the remaining payment due is $5,000,000, of
which $1,000,000 will be paid in cash and $4,000,000 will be paid in stock
during the second calendar quarter of 2016; and upon such payment such Lien will
be terminated.

 

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

 

“Prime Rate” means the greater of three and one half percent (3.50%) or the
Prime Rate published in the Money Rates section of the Western Edition of The
Wall Street Journal, or such other rate of interest publicly announced from time
to time by Bank as its Prime Rate.

 

“Responsible Officer” means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer and the Controller of each
Borrower.

 

“Revolving Facility” means the facility under which Borrowers may request Bank
to issue Advances, as specified in Section 2.1(a) hereof.

 

“Revolving Line” means a credit extension of up to Two Million Five Hundred
Thousand U.S. Dollars ($2,500,000).

 

“Revolving Maturity Date” means the second anniversary of the Closing Date.

 

“Schedule” means the schedule of exceptions attached hereto and approved by
Bank, if any.

 

 6 

 

 

“Shares” is (i) one hundred percent (100%) of the issued and outstanding capital
stock, membership units or other securities owned or held of record by a
Borrower or any Subsidiary of Borrower, in any domestic Subsidiary, or (ii)
sixty five percent (65%) of the issued and outstanding capital stock, membership
units or other securities owned or held of record by a Borrower or any
Subsidiary of Borrower, in any foreign Subsidiary; provided however that the
Shares shall not include the capital stock, membership units or other securities
that are subject to the Stock Lien (the “Pledged Shares”) until such Lien is
released, and upon the satisfaction of the obligations secured by the Stock
Lien, the Shares shall automatically include the Pledged Shares.

 

“Subordinated Debt” means any debt incurred by Borrowers that is subordinated to
the debt owing by Borrowers to Bank on terms acceptable to Bank (and identified
as being such by Borrowers and Bank), pursuant to a subordination agreement in
form and substance satisfactory to Bank.

 

“Subsidiary” means, as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries (including any Affiliate), or both, by such Person.
Unless the context otherwise requires, each reference to a Subsidiary herein
shall be a reference to a Subsidiary of Borrower.

 

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrowers connected with
and symbolized by such trademarks.

 

1.2 Accounting Terms. All accounting terms not specifically defined herein shall
be construed in accordance with GAAP and all calculations made hereunder shall
be made in accordance with GAAP. When used herein, the terms “financial
statements” shall include the notes and schedules thereto.

 

2. Loan and Terms Of Payment.

 

2.1 Credit Extensions.

 

Each Borrower promises to pay to the order of Bank, in lawful money of the
United States of America, the aggregate unpaid principal amount of all Credit
Extensions made by Bank to Borrowers hereunder. Borrowers shall also pay
interest on the unpaid principal amount of such Credit Extensions at rates in
accordance with the terms hereof.

 

(a) Revolving Advances.

 

(i) Subject to and upon the terms and conditions of this Agreement, Borrowers
may request Advances in an aggregate outstanding amount not to exceed the lesser
of (i) the Revolving Line or (ii) the Borrowing Base, minus, in each case, the
amount of services being provided under the Cash Management Sublimit. Subject to
the terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving
Maturity Date, at which time all Advances under this Section 2.1(a) shall be
immediately due and payable. Borrowers may prepay any Advances without penalty
or premium.

 

(ii) Whenever Borrowers desire an Advance, Borrowers will notify Bank no later
than 3:00 p.m. Pacific Time, on the Business Day that the Advance is to be made.
Each such notification shall be made (i) by telephone or in-person followed by
written confirmation from Borrowers within 24 hours, (ii) by electronic mail or
facsimile transmission, or (iii) by delivering to Bank a Revolving Advance
Request Form in substantially the form of Exhibit B hereto. Bank is authorized
to make Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Bank’s discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any notice given by a person who Bank reasonably believes to be a
Responsible Officer or a designee thereof, and Borrowers shall indemnify and
hold Bank harmless for any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of Advances made under this Section 2.1(a)
to a Borrower’s deposit account with Bank.

 

 7 

 

 

(b) Cash Management Sublimit. Subject to the terms and conditions of this
Agreement and availability under the Revolving Line and the Borrowing Base,
Borrowers may request cash management services which may include merchant
services, business credit card, automated clearing house transactions,
controlled disbursement accounts and check cashing services identified in
various cash management services agreements related to such services (the “Cash
Management Services”) by delivering to Bank such applications on Bank’s standard
forms as requested by Bank; provided, however, that the total amount of the Cash
Management Services shall not exceed the Cash Management Sublimit, and that
availability under the Revolving Line shall be reduced by the entire amount of
services provided under the Cash Management Sublimit. In addition, Bank may, in
its sole discretion, charge as Advances any amounts that become due or owing to
Bank in connection with the Cash Management Services. If at any time the
Revolving Facility is terminated or otherwise ceases to exist, Borrowers shall
immediately secure to Bank’s satisfaction its obligations with respect to any
Cash Management Services, and, effective as of such date, the balance in any
deposit accounts held by Bank and the certificates of deposit issued by Bank in
a Borrower’s name (and any interest paid thereon or proceeds thereof, including
any amounts payable upon the maturity or liquidation of such certificates),
shall automatically secure such obligations to the extent of the then
outstanding Cash Management Services. Each Borrower authorizes Bank to hold such
balances in pledge and to decline to honor any drafts thereon or any requests by
a Borrower or any other Person to pay or otherwise transfer any part of such
balances for so long as the Cash Management Services continue.

 

2.2 Over advances. If the aggregate amount of the outstanding Advances plus the
amount of services provided under the Cash Management Sub limit exceeds the
lesser of the Revolving Line or the Borrowing Base at any time, Borrowers shall
immediately pay to Bank, in cash, the amount of such excess.

 

2.3 Interest Rates, Payments, and Calculations.

 

(a) Interest Rates.

 

(i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear
interest, on the outstanding Daily Balance thereof, at a per annum rate equal to
one and three quarters of one percent (1.75%) above the Prime Rate.

 

(b) Late Fee; Default Rate. If any payment is not made within ten (10) days
after the date such payment is due, Borrowers shall pay Bank a late fee equal to
the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii)
the maximum amount permitted to be charged under applicable law, not in any case
to be less than $25.00. All Obligations shall bear interest, from and after the
occurrence and during the continuance of an Event of Default, at a rate equal to
five (5) percentage points above the interest rate applicable immediately prior
to the occurrence of the Event of Default.

 

(c) Payments. Interest hereunder shall be due and payable on the tenth calendar
day of each month during the term hereof. Bank shall, at its option, charge such
interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s
deposit accounts or against the Revolving Line, in which case those amounts
shall thereafter accrue interest at the rate then applicable hereunder. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder. All payments shall be free and clear of any taxes,
withholdings, duties, impositions or other charges, to the end that Bank will
receive the entire amount of any Obligations payable hereunder, regardless of
source of payment.

 

(d) Computation. In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased, effective as of the day the Prime Rate is changed, by an amount equal
to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.

 

2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank
shall credit a wire transfer of funds, check or other item of payment to such
deposit account or Obligation as Borrowers specify. After the occurrence of an
Event of Default, the receipt by Bank of any wire transfer of funds, check, or
other item of payment shall be immediately applied to conditionally reduce
Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when presented for payment. Notwithstanding
anything to the contrary contained herein, any wire transfer or payment received
by Bank after 12:00 noon Pacific time shall be deemed to have been received by
Bank as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such
extension.

 

 8 

 

 

2.5 Fees. Borrowers shall pay to Bank the following:

 

(a) Facility Fees. On the Closing Date and on each anniversary of the Closing
Date for so long as the Revolving Facility is in effect, a fee with respect to
the Revolving Facility equal to $15,000, each of which are fully earned and
nonrefundable; and

 

(b) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the
Closing Date, including attorneys’ fees and expenses and, after the Closing
Date, all Bank Expenses, including attorneys’ fees and expenses, as and when
they are incurred by Bank.

 

2.6 Term. This Agreement shall become effective on the Closing Date and, subject
to Section 13.7, shall continue in full force and effect for so long as any
Obligations remain outstanding or Bank has any obligation to make Credit
Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have
the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank’s Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.

 

2.7 Extension of Maturity. Notwithstanding anything contained herein to the
contrary, Bank shall have the right, in its sole and absolute discretion, to
extend the Revolving Maturity Date to the tenth day of the month next following
the actual Revolving Maturity Date as stated in this Agreement.

 

3. Conditions of Loans.

 

3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to
make the initial Credit Extension is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, the
following:

 

(a) this Agreement;

 

(b) a certificate of the Secretary of each Borrower with respect to incumbency
and resolutions authorizing the execution and delivery of this Agreement;

 

(c) UCC National Form Financing Statements;

 

(d) an intellectual property security agreement;

 

(e) good standing certificate(s) or other evidence of foreign qualification from
each state in which a Borrower is foreign qualified;

 

(f) agreement to provide insurance;

 

(g) payment of the fees and Bank Expenses then due specified in Section 2.5
hereof;

 

(h) current financial statements of Borrowers;

 

(i) delivery of the share certificates representing the Shares held by a
Borrower, if certificated, and duly executed stock powers;

 

 9 

 

 

(j) Borrowers’ Financial Plan for 2016;

 

(k) an audit of the Collateral, the results of which shall be satisfactory to
Bank;

 

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

 

3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to
make each Credit Extension, including the initial Credit Extension, is further
subject to the following conditions:

 

(a) timely receipt by Bank of the Advance Request Form as provided in Section
2.1; and

 

(b) the representations and warranties contained in Section 5 shall be true and
correct in all material respects on and as of the date of such Advance Request
Form and on the effective date of each Credit Extension as though made at and as
of each such date, and no Event of Default shall have occurred and be
continuing, or would exist after giving effect to such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2.

 

4. Creation of Security Interest.

 

4.1 Grant of Security Interest. Each Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by such Borrower of each
of its covenants and duties under the Loan Documents. Such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof.

 

4.2 Delivery of Additional Documentation Required. Borrowers shall from time to
time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue the
perfection of Bank’s security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
Borrowers from time to time may deposit with Bank specific time deposit accounts
to secure specific Obligations. Each Borrower authorizes Bank to hold such
balances in pledge and to decline to honor any drafts thereon or any request by
a Borrower or any other Person to pay or otherwise transfer any part of such
balances for so long as the Obligations are outstanding.

 

4.3 Right to Inspect. Bank (through any of its officers, employees, or agents)
shall have the right, upon reasonable prior notice, from time to time during
Borrowers’ usual business hours but no more than once a year (unless an Event of
Default has occurred and is continuing), to inspect a Borrower’s Books and to
make copies thereof and to check, test, and appraise the Collateral in order to
verify each Borrower’s financial condition or the amount, condition of, or any
other matter relating to, the Collateral.

 

4.4 Pledge of Shares. Each Borrower hereby pledges, assigns and grants to Bank,
a security interest in all the Shares, together with all proceeds and
substitutions thereof, all cash, stock and other moneys and property paid
thereon, all rights to subscribe for securities declared or granted in
connection therewith, and all other cash and noncash proceeds of the foregoing,
as security for the performance of the Obligations. On the Closing Date, or, to
the extent not certificated as of the Closing Date, within ten (10) days of the
certification of any Shares, the certificate or certificates for the Shares will
be delivered to Bank, accompanied by an instrument of assignment duly executed
in blank by Borrowers. To the extent required by the terms and conditions
governing the Shares, Borrowers shall cause the books of each entity whose
Shares are part of the Collateral and any transfer agent to reflect the pledge
of the Shares. Upon the occurrence of an Event of Default hereunder, Bank may
effect the transfer of any securities included in the Collateral (including but
not limited to the Shares) into the name of Bank and cause new (as applicable)
certificates representing such securities to be issued in the name of Bank or
its transferee. Borrowers will execute and deliver such documents, and take or
cause to be taken such actions, as Bank may reasonably request to perfect or
continue the perfection of Bank’s security interest in the Shares. Unless an
Event of Default shall have occurred and be continuing, Borrowers shall be
entitled to exercise any voting rights with respect to the Shares and to give
consents, waivers and ratifications in respect thereof, provided that no vote
shall be cast or consent, waiver or ratification given or action taken which
would be inconsistent with any of the terms of this Agreement or which would
constitute or create any violation of any of such terms. All such rights to vote
and give consents, waivers and ratifications shall terminate upon the occurrence
and continuance of an Event of Default.

 

 10 

 

 

5. Representations and Warranties.

 

Each Borrower represents and warrants as follows:

 

5.1 Due Organization and Qualification. Each Borrower and each Subsidiary is a
corporation duly existing under the laws of its state of incorporation and
qualified and licensed to do business in any state in which the conduct of its
business or its ownership of property requires that it be so qualified.

 

5.2 Due Authorization; No Conflict. The execution, delivery, and performance of
the Loan Documents are within each Borrower’s powers, have been duly authorized,
and are not in conflict with nor constitute a breach of any provision contained
in a Borrower’s Certificate/Articles of Incorporation or Bylaws, nor will they
constitute an event of default under any material agreement to which a Borrower
is a party or by which a Borrower is bound. No Borrower is in default under any
material agreement to which it is a party or by which it is bound.

 

5.3 No Prior Encumbrances. Each Borrower has good and marketable title to its
property, free and clear of Liens, except for Permitted Liens.

 

5.4 Bona Fide Eligible Recurring Revenue Contracts. The Eligible Recurring
Revenue Contracts are bona fide existing contractual obligations. Borrowers have
not received notice of an actual or imminent Insolvency Proceeding commenced by
or against any customer of any Borrower whose Contracts are included in any
Borrowing Base Certificate as an Eligible Recurring Revenue Contract.

 

5.5 Merchantable Inventory. All Inventory is in all material respects of good
and marketable quality, free from all material defects, except for Inventory for
which adequate reserves have been made.

 

5.6 Intellectual Property Collateral. Each Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted by a
Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party. Except as set forth in the Schedule,
each Borrower’s rights as a licensee of intellectual property do not give rise
to more than five percent (5%) of its gross revenue in any given month,
including without limitation revenue derived from the sale, licensing, rendering
or disposition of any product or service. Except as set forth in the Schedule,
no Borrower is a party to, or bound by, any agreement that restricts the grant
by such Borrower of a security interest in such Borrower’s rights under such
agreement.

 

5.7 Names; Locations. Except as disclosed in the Schedule, no Borrower has done
business under any name other than that specified on the signature page hereof
within the five (5) year period prior to the Closing Date. The chief executive
office of each Borrower is located at the address indicated in Section 10
hereof. All of Borrowers’ Inventory and Equipment is located only at the
locations set forth in Section 10 hereof.

 

5.8 Litigation. Except as set forth in the Schedule, there are no actions or
proceedings pending by or against a Borrower or any Subsidiary before any court
or administrative agency.

 

5.9 No Material Adverse Change in Financial Statements. All consolidated and
consolidating financial statements related to Borrowers and any Subsidiary that
Bank has received from Borrowers fairly present in all material respects
Borrowers’ financial condition as of the date thereof and Borrowers’
consolidated and consolidating results of operations for the period then ended
in accordance with GAAP. There has not been a material adverse change in the
consolidated or the consolidating financial condition of Borrowers since the
date of the most recent of such financial statements submitted to Bank.

 

 11 

 

 

5.10 Solvency, Payment of Debts. Each Borrower is solvent and able to pay its
debts (including trade debts) as they mature.

 

5.11 Regulatory Compliance. Each Borrower and each Subsidiary have met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA, and no event has occurred resulting from a Borrower’s failure
to comply with ERISA that could result in Borrower’s incurring any material
liability thereunder. No Borrower is an “investment company” or a company
“controlled” by an “investment company” within the meaning of the Investment
Company Act of 1940. No Borrower is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations T and U
of the Board of Governors of the Federal Reserve System). Each Borrower has
complied with all the provisions of the Federal Fair Labor Standards Act. No
Borrower has violated any statutes, laws, ordinances or rules applicable to it,
the violation of which could have a Material Adverse Effect.

 

5.12 Environmental Condition. None of Borrowers’ or any Subsidiary’s properties
or assets has ever been used by a Borrower or any Subsidiary or, to the best of
Borrowers’ knowledge, by previous owners or operators, in the disposal of, or to
produce, store, handle, treat, release, or transport, any hazardous waste or
hazardous substance other than in accordance with applicable law; to the best of
Borrowers’ knowledge, none of Borrowers’ properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned by a Borrower or any Subsidiary; and
neither Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal, state
or other governmental agency concerning any action or omission by a Borrower or
any Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.

 

5.13 Taxes. Each Borrower and each Subsidiary have filed or caused to be filed
all tax returns required to be filed, and have paid, or have made adequate
provision for the payment of, all taxes reflected therein.

 

5.14 Subsidiaries. Except as set forth on the Schedule, no Borrower owns any
stock, partnership interest or other equity securities of any Person, except for
Permitted Investments.

 

5.15 Government Consents. Each Borrower and each Subsidiary have obtained all
material consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of such Borrower’s business as currently
conducted.

 

5.16 Operating, Depository and Investment Accounts. None of a Borrower’s nor any
Subsidiary’s operating, depository or investment accounts are maintained or
invested with a Person other than Bank.

 

5.17 Shares. Each Borrower has full power and authority to create a first lien
on the Shares and no disability or contractual obligation exists that would
prohibit such Borrower from pledging the Shares pursuant to this Agreement. To
Borrowers’ knowledge, there are no subscriptions, warrants, rights of first
refusal or other restrictions on transfer relative to, or options exercisable
with respect to the Shares. The Shares have been and will be duly authorized and
validly issued, and are fully paid and non-assessable. To Borrowers’ knowledge,
the Shares are not the subject of any present or threatened suit, action,
arbitration, administrative or other proceeding, and Borrower knows of no
reasonable grounds for the institution of any such proceedings

 

5.18 Full Disclosure. At the time made to Bank, no representation, warranty or
other written statement made by a Borrower in any certificate or written
statement furnished to Bank when taken as a whole contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained in such certificates or statements not misleading.

 

 12 

 

 

6. Affirmative Covenants.

 

Each Borrower shall do all of the following:

 

6.1 Good Standing. Each Borrower shall maintain its and each of its
Subsidiaries’ corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which it is
required under applicable law. Borrower shall maintain, and shall cause each of
its Subsidiaries to maintain, in force all licenses, approvals and agreements,
the loss of which could have a Material Adverse Effect.

 

6.2 Government Compliance. Each Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Each Borrower shall comply, and
shall cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect.

 

6.3 Financial Statements, Reports, Certificates. Borrowers shall deliver the
following to Bank: (a) as soon as available, but in any event within thirty (30)
days after the last day of each month, (i) a Borrowing Base Certificate signed
by a Responsible Officer in substantially the form of Exhibit C hereto, (ii)
aged listings of accounts receivable and accounts payable by invoice date, and
(iii) a Monthly Recurring Revenue report for the trailing 12 months; (b) as soon
as available, but in any event within thirty (30) days after the end of each
calendar month, a company prepared consolidated and consolidating balance sheet,
income statement, and cash flow statement covering Parent’s and its
Subsidiaries’ consolidated and consolidating operations during such period,
prepared in accordance with GAAP, consistently applied, in a form acceptable to
Bank and certified by a Responsible Officer, together with a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
D hereto; (c) as soon as available, but in any event within one hundred eighty
(180) days after the end of Parent’s fiscal year, audited consolidated and
consolidating financial statements of Parent prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank (it being acknowledged that McConnell & Jones LLP is
acceptable to Bank); (d) as soon as available, but in any event no later than
the earlier to occur of sixty (60) days following the beginning of each fiscal
year or the date of approval by Parent’s board of directors, an annual operating
budget and financial projections (including income statements, balance sheets
and cash flow statements) for such fiscal year, presented in a quarterly format,
approved by Parent’s board of directors, and in a form and substance acceptable
to Bank (each, a “Financial Plan”); (e) copies of all statements, reports and
notices sent or made available generally by a Borrower to its security holders
or to any holders of Subordinated Debt and, if applicable, all reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission, with Borrower’s
posting of materials on the SEC’s EDGAR database satisfying such reporting
obligation; (f) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against a Borrower or any Subsidiary that could
result in damages or costs to a Borrower or any Subsidiary of Fifty Thousand
Dollars ($50,000) or more; and (g) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time to
time.

 

6.4 Audits. Bank shall have a right from time to time hereafter to audit a
Borrower’s Accounts and appraise Collateral at such Borrower’s expense, provided
that such audits will be conducted no more often than once every twelve (12)
months unless an Event of Default has occurred and is continuing.

 

6.5 Inventory; Returns. Borrowers shall keep all Inventory in good and
marketable condition and free from all material defects, except for Inventory
for which adequate reserves have been made. Returns and allowances, if any, as
between Borrowers and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrowers, as they exist at the
time of the execution and delivery of this Agreement. Borrowers shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Fifty Thousand Dollars
($50,000).

 

6.6 Taxes. Borrowers shall make, and shall cause each Subsidiary to make, due
and timely payment or deposit of all federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrowers will make, and will cause each Subsidiary to
make, timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrowers.

 

 13 

 

 

6.7 Insurance.

 

(a) Borrowers, at their expense, shall keep the Collateral insured against loss
or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where a Borrower’s business is
conducted on the date hereof. Borrowers shall also maintain insurance relating
to Borrowers’ business, ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrowers’.

 

(b) All such policies of insurance shall be in such form, with such companies,
and in such amounts as are reasonably satisfactory to Bank. All such policies of
property insurance shall contain a lender’s loss payable endorsement, in a form
satisfactory to Bank, showing Bank as an additional loss payee thereof, and all
liability insurance policies shall show the Bank as an additional insured and
shall specify that the insurer must give at least twenty (20) days’ notice to
Bank before canceling its policy for any reason. Upon Bank’s request, Borrower
shall deliver to Bank certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All proceeds payable under
any such policy shall, at the option of Bank, be payable to Bank to be applied
on account of the Obligations.

 

6.8 Accounts. Borrowers shall (i) maintain and shall cause each of their
domestic Subsidiaries to maintain its primary depository, operating, and
investment accounts with Bank and (ii) endeavor to utilize and shall cause each
of their Subsidiaries to endeavor to utilize Bank’s International Banking
Division for any international banking services required by Borrowers,
including, but not limited to, foreign currency wires, hedges, swaps, foreign
exchange contracts, and letters of credit. For each deposit, operating, or
investment account that a Borrower maintains outside of Bank, such Borrower
shall cause the applicable bank or financial institution at or with which any
such account is maintained to execute and deliver an account control agreement
or other appropriate instrument in form and substance satisfactory to Bank. The
aggregate amount of cash and cash equivalents maintained in accounts outside of
Bank that are not subject to a control agreement (including any accounts
maintained by a foreign Subsidiary) shall not exceed $450,000 in the aggregate
at any time.

 

6.9 Financial Covenants.

 

(a) Minimum Cash and Availability. The sum of (i) Borrowers’ unrestricted cash
maintained at Bank plus (ii) the amount available for borrowing under the
Revolving Facility shall be at least $1,500,000 at all times and measured
monthly.

 

(b) Minimum MRR Retention Rate. Borrowers shall maintain a minimum MRR Retention
Rate of at least ninety percent (90%), measured on a monthly basis.

 

(c) Minimum Adjusted EBITDA. Parent’s and its Subsidiaries’ quarterly Adjusted
EBITDA shall be at least the projected Adjusted EBITDA for such period minus
$100,000 or 75% of its projected Adjusted EBITDA for such period as set forth in
Borrower’s Financial Plan if Borrower’s projected Adjusted EBITDA is above zero
for such period, or at least 125% of its projected Adjusted EBITDA for such
period as set forth in Borrower’s Financial Plan if Borrower’s projected
Adjusted EBITDA is below zero for such period.

 

6.10 Intellectual Property Rights.

 

(a) Borrowers shall promptly give Bank written notice of any applications or
registrations of intellectual property rights filed with the United States
Patent and Trademark Office, including the date of such filing and the
registration or application numbers, if any. Borrowers shall (i) give Bank not
less than 30 days prior written notice of the filing of any applications or
registrations with the United States Copyright Office, including the title of
such intellectual property rights to be registered, as such title will appear on
such applications or registrations, and the date such applications or
registrations will be filed, and (ii) prior to the filing of any such
applications or registrations, shall execute such documents as Bank may
reasonably request for Bank to maintain its perfection in such intellectual
property rights to be registered by Borrowers, and upon the request of Bank,
shall file such documents simultaneously with the filing of any such
applications or registrations. Upon filing any such applications or
registrations with the United States Copyright Office, Borrowers shall promptly
provide Bank with (i) a copy of such applications or registrations, without the
exhibits, if any, thereto, (ii) evidence of the filing of any documents
requested by Bank to be filed for Bank to maintain the perfection and priority
of its security interest in such intellectual property rights, and (iii) the
date of such filing.

 

 14 

 

 

(b) Bank may audit Borrowers’ Intellectual Property Collateral to confirm
compliance with this Section, provided such audit may not occur more often than
once per year, unless an Event of Default has occurred and is continuing. Bank
shall have the right, but not the obligation, to take, at Borrowers’ sole
expense, any actions that Borrowers are required under this Section to take but
which Borrowers fail to take, after 15 days’ notice to Borrowers. Borrowers
shall reimburse and indemnify Bank for all costs and expenses incurred in the
exercise of its rights under this Section.

 

6.11 Formation or Acquisition of Subsidiaries. Notwithstanding and without
limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the
time that a Borrower forms any direct or indirect Subsidiary or acquires any
direct or indirect Subsidiary, such Borrower shall (a) cause such new Subsidiary
to provide to Bank a joinder to this Agreement to cause such Subsidiary to
become a co-borrower hereunder, together with such appropriate financing
statements and/or control agreements, all in form and substance satisfactory to
Bank (including being sufficient to grant Bank a first priority Lien (subject to
Permitted Liens) in and to the assets of such newly formed or acquired
Subsidiary), (b) provide to Bank appropriate certificates and powers and
financing statements, pledging all of the direct or beneficial ownership
interest in such new Subsidiary, in form and substance satisfactory to Bank, and
(c) provide to Bank all other documentation in form and substance satisfactory
to Bank that in its opinion is appropriate with respect to the execution and
delivery of the applicable documentation referred to above.

 

6.12 Notices of Commercial Tort Claims; Event of Default. Without limiting or
contradicting any other more specific provision of this Agreement, promptly (and
in any event within five (5) Business Days) upon a Borrower becoming aware of
the existence of any Event of Default or event described in Section 8 which,
with the giving of notice or passage of time, or both, would constitute an Event
of Default, such Borrower shall give written notice to Bank of such occurrence,
which such notice shall include a reasonably detailed description of such Event
of Default or event which, with the giving of notice or passage of time, or
both, would constitute an Event of Default. If a Borrower shall acquire a
commercial tort claim (as defined in the Code), such Borrower shall promptly
notify Bank in writing of the general details thereof and grant to the 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 the Bank.

 

6.13 Collections Account. On and after the 60th day following the Closing Date,
all proceeds of Accounts shall be deposited into a restricted account maintained
with Bank (the “Collections Account”). Borrowers shall cause all account debtors
to make payments (including via wire transfer, ACH or EFT) to the Collections
Accounts. If a Borrower receives any amount despite such instructions, Borrowers
shall immediately deliver such payment to Bank in the form received, except for
an endorsement to the order of Bank and, pending such delivery, shall hold such
payment in trust for Bank. Bank shall credit all amounts paid into the
Collections Account within two Business Days after clearance of any such
deposits, to a Borrower’s operating account maintained at Bank; provided however
that upon an Event of Default that is continuing, Bank may, at its option credit
any and all amounts paid into the Collections Account first against any amounts
outstanding pertaining to any Advances, and then any remaining balance of such
amount shall be credited to a Borrower’s operating account maintained at Bank.

 

6.14 Further Assurances. At any time and from time to time Borrowers shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.

 

6.15 Post-Closing Covenant. Within sixty (60) days following the Closing Date,
Borrowers shall deliver to Bank, in form and substance satisfactory to Bank,
landlord waiver(s) with respect to all of Borrowers’ leased locations in
Florida.

 

 15 

 

 

7. Negative Covenants.

 

Borrowers will not do any of the following:

 

7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of a Borrower or its
Subsidiaries in the ordinary course of business; (iii) Transfers of worn-out or
obsolete Equipment which was not financed by Bank; or (iv) Transfers of any cash
or any other property to its Subsidiaries that are not coborrowers hereunder
(inclusive of all Permitted Investments under clause (c) of such defined term)
not to exceed $600,000 per calendar year.

 

7.2 Change in Business or Executive Office. Engage in any business, or permit
any of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto); or cease to conduct business in the
manner conducted by Borrowers as of the Closing Date; or without thirty (30)
days prior written notification to Bank, relocate its chief executive office or
state of incorporation or change its legal name; or without Bank’s prior written
consent, change the date on which its fiscal year ends.

 

7.3 Change in Control/Mergers or Acquisitions. (i) Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or any material portion of
property of another Person; or (ii) suffer or permit a Change in Control;
provided however, (x) only advance written notice to the Bank will be required
for any action restricted by this Section 7.3 if all Obligations are paid in
full in cash out of the proceeds of the initial closing of such action and such
payment is listed as a condition to the consummation of such action, (y) any
Subsidiary that is not a borrower hereunder may merge or consolidate into any
other Subsidiary that is not a borrower hereunder, and (z) a Borrower may merge
or consolidate into another Borrower as long as Parent remains the surviving
entity following such merger or consolidation.

 

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

 

7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with respect
to any of its property (including without limitation, its Intellectual Property
Collateral), or assign or otherwise convey any right to receive income,
including the sale of any Accounts, or permit any of its Subsidiaries to do so,
except for Permitted Liens, or agree with any Person other than Bank not to
grant a security interest in, or otherwise encumber, any of its property
(including without limitation, its Intellectual Property Collateral), or permit
any Subsidiary to do so.

 

7.6 Distributions. Pay any dividends or make any other distribution or payment
on account of or in redemption, retirement or purchase of any capital stock, or
permit any of its Subsidiaries to do so, except (i) that Parent may repurchase
the stock of former employees pursuant to stock repurchase agreements as long as
an Event of Default does not exist prior to such repurchase or would not exist
after giving effect to such repurchase and the aggregate amount of such
repurchases does not exceed $100,000 in any fiscal year and (ii) any Subsidiary
of Parent may pay dividends or make distributions on account of any capital
stock without restriction.

 

7.7 Investments. Directly or indirectly acquire or own, or make any Investment
in or to any Person, or permit any of its Subsidiaries so to do, other than
Permitted Investments; or maintain or invest any of its property with a Person
other than Bank or permit any of its Subsidiaries to do so unless such Person
has entered into an account control agreement with Bank in form and substance
satisfactory to Bank; or suffer or permit any Subsidiary to be a party to, or be
bound by, an agreement that restricts such Subsidiary from paying dividends or
otherwise distributing property to Borrowers.

 

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrowers except for
transactions that are in the ordinary course of Borrowers’ business, upon fair
and reasonable terms that are no less favorable to Borrowers than would be
obtained in an arm’s length transaction with a non-affiliated Person.

 

 16 

 

 

7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Bank’s prior written
consent.

 

7.10 Inventory and Equipment. Store the Inventory or the Equipment with a
bailee, warehouseman, or other third party unless the third party has been
notified of Bank’s security interest and Bank (a) has received an acknowledgment
from the third party that it is holding or will hold the Inventory or Equipment
for Bank’s benefit or (b) is in pledge possession of the warehouse receipt,
where negotiable, covering such Inventory or Equipment. Store or maintain any
Equipment or Inventory at a location other than the location set forth in
Section 10 of this Agreement.

 

7.11 Compliance. Become an “investment company” or be controlled by an
“investment company,” within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose. Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect, or a material
adverse effect on the Collateral or the priority of Bank’s Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.

 

7.12 Capital Expenditures. Make or contract to make, without Bank’s prior
written consent, capital expenditures, including leasehold improvements, in any
fiscal year in excess of $800,000 or incur liability for rentals of property
(including both real and personal property) in an amount which, together with
capital expenditures, shall in any fiscal year exceed such sum.

 

8. Events of Default.

 

Any one or more of the following events shall constitute an Event of Default by
Borrower under this Agreement:

 

8.1 Payment Default. If Borrowers fail to pay, when due, any of the Obligations.

 

8.2 Covenant Default.

 

(a) If a Borrower fails to perform any obligation under Article 6 or violates
any of the covenants contained in Article 7 of this Agreement; or

 

(b) If a Borrower fails or neglects to perform or observe any other material
term, provision, condition, or covenant contained in this Agreement, in any of
the Loan Documents, or in any other present or future agreement between a
Borrower and Bank and as to any default under such other term, provision,
condition or covenant that can be cured, has failed to cure such default within
ten days after a Borrower receives notice thereof or any officer of a Borrower
becomes aware thereof; provided, however, that if the default cannot by its
nature be cured within the ten day period or cannot after diligent attempts by
Borrowers be cured within such ten day period, and such default is likely to be
cured within a reasonable time, then Borrowers shall have an additional
reasonable period (which shall not in any case exceed 30 days) to attempt to
cure such default, and within such reasonable time period the failure to have
cured such default shall not be deemed an Event of Default but no Credit
Extensions will be made.

 

8.3 Material Adverse Effect. If there occurs any circumstance or circumstances
that could have a Material Adverse Effect.

 

 17 

 

 

8.4 Attachment. If any portion of a Borrower’s assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the
possession of any trustee, receiver or person acting in a similar capacity and
such attachment, seizure, writ or distress warrant or levy has not been removed,
discharged or rescinded within ten (10) days, or if a Borrower is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment or other
claim becomes a lien or encumbrance upon any portion of a Borrower’s assets, or
if a notice of lien, levy, or assessment is filed of record with respect to any
of a Borrower’s assets by the United States Government, or any department,
agency, or instrumentality thereof, or by any state, county, municipal, or
governmental agency, and the same is not paid within ten (10) days after a
Borrower receives notice thereof, provided that none of the foregoing shall
constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrowers
(provided that no Credit Extensions will be required to be made during such cure
period).

 

8.5 Insolvency. If a Borrower becomes insolvent, or if an Insolvency Proceeding
is commenced by a Borrower, or if an Insolvency Proceeding is commenced against
a Borrower and is not dismissed or stayed within thirty (30) days (provided that
no Credit Extensions will be made prior to the dismissal of such Insolvency
Proceeding).

 

8.6 Other Agreements. If there is a default or other failure to perform in any
agreement to which a Borrower is a party or by which it is bound resulting in a
right by a third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of Fifty Thousand Dollars
($50,000) or which could have a Material Adverse Effect.

 

8.7 Judgments; Settlements; Fines; Penalties. If a judgment or judgments for the
payment of money in an amount, individually or in the aggregate, of at least
Fifty Thousand Dollars ($50,000) shall be rendered against a Borrower, or if a
Borrower enters into any settlement agreement with respect to any litigation
matters that results in payment obligations or liabilities incurred by such
Borrower in excess of Fifty Thousand Dollars ($50,000); or if one or more fines,
penalties or orders or decrees for the payment of money in excess of Fifty
Thousand Dollars ($50,000) shall be rendered against a Borrower by any
governmental authority; and the foregoing shall remain unsatisfied and unstayed
for a period of ten (10) days (provided that no Credit Extensions will be made
prior to the satisfaction or stay of such judgment, settlement, fine, penalty or
orders or decree).

 

8.8 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.

 

9. Bank’s Rights and Remedies.

 

9.1 Rights and Remedies. Upon the occurrence and during the continuance of an
Event of Default, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrowers:

 

(a) Declare all or any portion of Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5, all Obligations shall become immediately due and payable without
any action by Bank);

 

(b) Cease advancing money or extending credit to or for the benefit of Borrowers
under this Agreement or under any other agreement between Borrowers and Bank;

 

(c) Settle or adjust disputes and claims directly with account debtors for
amounts, upon terms and in whatever order that Bank reasonably considers
advisable;

 

 18 

 

 

(d) Make such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral. Borrowers agree
to assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate. Each Borrower authorizes Bank to enter
the premises where the Collateral is located, to take and maintain possession of
the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank’s determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of a Borrower’s owned premises, each
Borrower hereby grants Bank a license to enter into possession of such premises
and to occupy the same, without charge, in order to exercise any of Bank’s
rights or remedies provided herein, at law, in equity, or otherwise;

 

(e) Set off and apply to the Obligations any and all (i) balances and deposits
of Borrowers held by Bank, or (ii) indebtedness at any time owing to or for the
credit or the account of Borrowers held by Bank;

 

(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell (in the manner provided for herein) the Collateral.
Bank is hereby granted a license or other right, solely pursuant to the
provisions of this Section 9.1, to use, without charge, a Borrower’s labels,
Patents, Copyrights, rights of use of any name, trade secrets, trade names,
Trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section 9.1, Borrowers’ rights under all
licenses and all franchise agreements shall inure to Bank’s benefit;

 

(g) Dispose of the Collateral by way of one or more contracts or transactions,
for cash or on terms, in such manner and at such places (including Borrowers’
premises) as Bank determines is commercially reasonable, and apply any proceeds
to the Obligations in whatever manner or order Bank deems appropriate;

 

(h) Bank may credit bid and purchase at any public sale; and

 

(i) Any deficiency that exists after disposition of the Collateral as provided
above will be paid immediately by Borrowers.

 

9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, each Borrower hereby irrevocably appoints
Bank (and any of Bank’s designated officers, or employees) as such Borrower’s
true and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Bank’s security interest in the Accounts; (b) endorse
such Borrower’s name on any checks or other forms of payment or security that
may come into Bank’s possession; (c) sign such Borrower’s name on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all
claims under and decisions with respect to such Borrower’s policies of
insurance; (f) settle and adjust disputes and claims respecting the accounts
directly with account debtors, for amounts and upon terms which Bank determines
to be reasonable; and (g) whether or not an Event of Default has occurred that
is continuing, file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral. The appointment of Bank as each Borrower’s attorney in fact, and
each and every one of Bank’s rights and powers, being coupled with an interest,
is irrevocable until all of the Obligations have been fully repaid and performed
and Bank’s obligation to provide Credit Extensions hereunder is terminated.

 

9.3 Accounts Collection. At any time after the occurrence of an Event of
Default, Bank may notify any Person owing funds to Borrowers of Bank’s security
interest in such funds and verify the amount of such Account. Borrowers shall
collect for Bank all amounts owing to Borrowers, receive in trust all such
payments as Bank’s trustee, and immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.

 

9.4 Bank Expenses. If Borrowers fail to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the terms
of this Agreement, then Bank may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves under the loan
facility in Section 2.1 as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.7 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.

 

 19 

 

 

9.5 Bank’s Liability for Collateral. So long as Bank complies with reasonable
banking practices, Bank shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever. All risk of loss, damage
or destruction of the Collateral shall be borne by Borrowers.

 

9.6 Shares. Borrowers recognize that Bank may be unable to effect a public sale
of any or all the Shares, by reason of certain prohibitions contained in federal
securities laws and applicable state and provincial securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. Borrowers acknowledge and
agree that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. Bank shall be under no obligation to
delay a sale of any of the Shares for the period of time necessary to permit the
issuer thereof to register such securities for public sale under federal
securities laws or under applicable state and provincial securities laws, even
if such issuer would agree to do so. Upon the occurrence of an Event of Default
which continues, Bank shall have the right to exercise all such rights as a
secured party under the Code as it, in its sole judgment, shall deem necessary
or appropriate, including without limitation the right to liquidate the Shares
and apply the proceeds thereof to reduce the Obligations. Effective only upon
the occurrence and during the continuance of an Event of Default, each Borrower
hereby irrevocably appoints Bank (and any of Bank’s designated officers, or
employees) as such Borrower’s true and lawful attorney to enforce such
Borrower’s rights against any Subsidiary, including the right to compel any
Subsidiary to make to the Bank or a Borrower any payments or distributions
respecting the Shares which are owing to such Borrower.

 

9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the
Loan Documents, and all other agreements shall be cumulative. Bank shall have
all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by Bank of one right or remedy shall be
deemed an election, and no waiver by Bank of any Event of Default on a
Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.

 

9.8 Demand; Protest. Each Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrowers may in any way be liable.

 

10. Notices.

 

All notices, consents, requests, approvals, demands, or other communication by
any party to this Agreement or any other Loan Document must be in writing and
shall be deemed to have been validly served, given, or delivered: (a) upon the
earlier of actual receipt and three (3) Business Days after deposit in the U.S.
mail, first class, registered or certified mail return receipt requested, with
proper postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below. Bank or a Borrower may change its mailing or electronic mail address or
facsimile number by giving the other party written notice thereof in accordance
with the terms of this Section 10.

 

 20 

 

 

  If to Borrowers: SharpSpring, Inc.     304 W. University Avenue    
Gainesville, FL 32601     Attn: Edward Lawton – CFO     EMAIL:
edward.lawton@sharpspring.com         If to Bank: Western Alliance Bank     55
Almaden Blvd.     San Jose, CA 95113     Attn: Note Department     FAX: (408)
282-1681     EMAIL: notedepartment@bridgebank.com           and           Bridge
Bank, a division of Western Alliance Bank     12011 Sunset Hills Road, Suite 425
    Reston, VA 20190     Attn: Katie Wolfe     FAX: (703) 964-1620     EMAIL:
katie.wolfe@bridgebank.com

 

The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

 

11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

This Agreement and all other Loan Documents (except as otherwise expressly
provided in any of the Loan Documents) shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard to
principles of conflicts of law. Borrowers and Bank each hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Clara, State of California. BORROWERS AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

12. JUDICIAL REFERENCE PROVISION.

 

12.1 In the event the jury trial waiver set forth above is not enforceable, the
parties elect to proceed under this judicial reference provision.

 

12.2 With the exception of the items specified in Section 12.3, below, any
controversy, dispute or claim (each, a “Claim”) between the parties arising out
of or relating to this Agreement or any other Loan Document, will be resolved by
a reference proceeding in California in accordance with the provisions of
Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their
successor sections, which shall constitute the exclusive remedy for the
resolution of any Claim, including whether the Claim is subject to the reference
proceeding. Except as otherwise provided in the Loan Documents, venue for the
reference proceeding will be in the state or federal court in the county or
district where the real property involved in the action, if any, is located or
in the state or federal court in the county or district where venue is otherwise
appropriate under applicable law (the “Court”).

 

 21 

 

 

12.3 The matters that shall not be subject to a reference are the following: (i)
nonjudicial foreclosure of any security interests in real or personal property,
(ii) exercise of self-help remedies (including, without limitation, set-off),
(iii) appointment of a receiver and (iv) temporary, provisional or ancillary
remedies (including, without limitation, writs of attachment, writs of
possession, temporary restraining orders or preliminary injunctions). This
reference provision does not limit the right of any party to exercise or oppose
any of the rights and remedies described in clauses (i) and (ii) or to seek or
oppose from a court of competent jurisdiction any of the items described in
clauses (iii) and (iv). The exercise of, or opposition to, any of those items
does not waive the right of any party to a reference pursuant to this reference
provision as provided herein.

 

12.4 The referee shall be a retired judge or justice selected by mutual written
agreement of the parties. If the parties do not agree within ten (10) days of a
written request to do so by any party, then, upon request of any party, the
referee shall be selected by the Presiding Judge of the Court (or his or her
representative). A request for appointment of a referee may be heard on an ex
parte or expedited basis, and the parties agree that irreparable harm would
result if ex parte relief is not granted. Pursuant to CCP § 170.6, each party
shall have one peremptory challenge to the referee selected by the Presiding
Judge of the Court (or his or her representative).

 

12.5 The parties agree that time is of the essence in conducting the reference
proceedings. Accordingly, the referee shall be requested, subject to change in
the time periods specified herein for good cause shown, to (i) set the matter
for a status and trial-setting conference within fifteen (15) days after the
date of selection of the referee, (ii) if practicable, try all issues of law or
fact within one hundred twenty (120) days after the date of the conference and
(iii) report a statement of decision within twenty (20) days after the matter
has been submitted for decision.

 

12.6 The referee will have power to expand or limit the amount and duration of
discovery. The referee may set or extend discovery deadlines or cutoffs for good
cause, including a party’s failure to provide requested discovery for any reason
whatsoever. Unless otherwise ordered based upon good cause shown, no party shall
be entitled to “priority” in conducting discovery, depositions may be taken by
either party upon seven (7) days written notice, and all other discovery shall
be responded to within fifteen (15) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding.

 

12.7 Except as expressly set forth herein, the referee shall determine the
manner in which the reference proceeding is conducted including the time and
place of hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding. All
proceedings and hearings conducted before the referee, except for trial, shall
be conducted without a court reporter, except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee, and the
referee will be provided a courtesy copy of the transcript. The party making
such a request shall have the obligation to arrange for and pay the court
reporter. Subject to the referee’s power to award costs to the prevailing party,
the parties will equally share the cost of the referee and the court reporter at
trial.

 

12.8 The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, enter equitable orders that will be binding
on the parties and rule on any motion which would be authorized in a court
proceeding, including without limitation motions for summary judgment or summary
adjudication. The referee shall issue a decision at the close of the reference
proceeding which disposes of all claims of the parties that are the subject of
the reference. Pursuant to CCP § 644, such decision shall be entered by the
Court as a judgment or an order in the same manner as if the action had been
tried by the Court and any such decision will be final, binding and conclusive.
The parties reserve the right to appeal from the final judgment or order or from
any appealable decision or order entered by the referee. The parties reserve the
right to findings of fact, conclusions of laws, a written statement of decision,
and the right to move for a new trial or a different judgment, which new trial,
if granted, is also to be a reference proceeding under this provision.

 

12.9 If the enabling legislation which provides for appointment of a referee is
repealed (and no successor statute is enacted), any dispute between the parties
that would otherwise be determined by reference procedure will be resolved and
determined by arbitration. The arbitration will be conducted by a retired judge
or justice, in accordance with the California Arbitration Act §1280 through
§1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery set forth above shall apply to any such arbitration proceeding.

 

 22 

 

 

12.10 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND
CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND
NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND
FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL
APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF
OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

 

13. General Provisions.

 

13.1 Successors and Assigns. This Agreement shall bind and inure to the benefit
of the respective successors and permitted assigns of each of the parties;
provided, however, that neither this Agreement nor any rights hereunder may be
assigned by a Borrower without Bank’s prior written consent, which consent may
be granted or withheld in Bank’s sole discretion. Bank shall have the right
without the consent of or notice to Borrowers to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank’s
obligations, rights and benefits hereunder.

 

13.2 Indemnification. Each Borrower shall defend, indemnify and hold harmless
Bank and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement; and (b) all
losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a
result of or in any way arising out of, following, or consequential to the
transactions between Bank and a Borrower whether under this Agreement, or
otherwise (including without limitation attorneys’ fees and expenses), except
for losses caused by Bank’s gross negligence or willful misconduct.

 

13.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.

 

13.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

 

13.5 Amendments in Writing, Integration. Neither this Agreement nor the Loan
Documents can be amended or terminated orally. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement and the Loan
Documents, if any, are merged into this Agreement and the Loan Documents.

 

13.6 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.

 

13.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding or Bank has any obligation to make Credit Extensions to
Borrowers. The obligations of each Borrower to indemnify Bank with respect to
the expenses, damages, losses, costs and liabilities described in Section 13.2
shall survive until all applicable statute of limitations periods with respect
to actions that may be brought against Bank have run.

 

 23 

 

 

13.8 Confidentiality. In handling any confidential information Bank and all
employees and agents of Bank, including but not limited to accountants, shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with each Borrower, (ii) to prospective transferees or purchasers of
any interest in the Credit Extensions, (iii) as required by law, regulations,
rule or order, subpoena, judicial order or similar order, (iv) as may be
required in connection with the examination, audit or similar investigation of
Bank and (v) as Bank may determine in connection with the enforcement of any
remedies hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank
by a third party, provided Bank does not have actual knowledge that such third
party is prohibited from disclosing such information.

 

13.9 Patriot Act Notice. Bank hereby notifies Borrowers that, pursuant to the
requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into
law on October 26, 2001) (the “Patriot Act”), it is required to obtain, verify
and record information that identifies the Borrowers, which information includes
names and addresses and other information that will allow Bank, as applicable,
to identify the Borrowers in accordance with the Patriot Act.

 

14. Co-Borrowers.

 

14.1 Co-Borrowers. Borrowers are jointly and severally liable for the
Obligations and Bank may proceed against one Borrower to enforce the Obligations
without waiving its right to proceed against any other Borrower. This Agreement
and the Loan Documents are a primary and original obligation of each Borrower
and shall remain in effect notwithstanding future changes in conditions,
including any change of law or any invalidity or irregularity in the creation or
acquisition of any Obligations or in the execution or delivery of any agreement
between Bank and any Borrower. Each Borrower shall be liable for existing and
future Obligations as fully as if all of the Credit Extensions were advanced to
such Borrower. Bank may rely on any certificate or representation made by any
Borrower as made on behalf of, and binding on, all Borrowers, including without
limitation advance request forms and compliance certificates. Each Borrower
appoints each other Borrower as its agent with all necessary power and authority
to give and receive notices, certificates or demands for and on behalf of all
Borrowers, to act as disbursing agent for receipt of any Credit Extensions on
behalf of each Borrower and to apply to Bank on behalf of each Borrower for any
Credit Extension, any waivers and any consents. This authorization cannot be
revoked, and Bank need not inquire as to one Borrower’s authority to act for or
on behalf of another Borrower.

 

14.2 Subrogation and Similar Rights. Notwithstanding any other provision of this
Agreement or any other Loan Document, each Borrower irrevocably waives, until
all Obligations are paid in full and Bank has no further obligation to make
Credit Extensions to Borrowers, all rights that it may have at law or in equity
(including, without limitation, any law subrogating a Borrower to the rights of
Bank under the Loan Documents) to seek contribution, indemnification, or any
other form of reimbursement from any other Borrower, or any other Person now or
hereafter primarily or secondarily liable for any of the Obligations, for any
payment made by a Borrower with respect to the Obligations in connection with
the Loan Documents or otherwise and all rights that it might have to benefit
from, or to participate in, any security for the Obligations as a result of any
payment made by a Borrower with respect to the Obligations in connection with
the Loan Documents or otherwise. Any agreement providing for indemnification,
reimbursement or any other arrangement prohibited under this Section shall be
null and void. If any payment is made to a Borrower in contravention of this
Section, such Borrower shall hold such payment in trust for Bank and such
payment shall be promptly delivered to Bank for application to the Obligations,
whether matured or unmatured.

 

14.3 Waivers of Notice. Each Borrower waives, to the extent permitted by law,
notice of acceptance hereof; notice of the existence, creation or acquisition of
any of the Obligations; notice of an Event of Default except as set forth
herein; notice of the amount of the Obligations outstanding at any time; notice
of any adverse change in the financial condition of any other Borrower or of any
other fact that might increase a Borrower’s risk; presentment for payment;
demand; protest and notice thereof as to any instrument; and all other notices
and demands to which a Borrower would otherwise be entitled by virtue of being a
co-borrower or a surety. Each Borrower waives any defense arising from any
defense of any other Borrower, or by reason of the cessation from any cause
whatsoever of the liability of any other Borrower. Bank’s failure at any time to
require strict performance by any Borrower of any provision of the Loan
Documents shall not waive, alter or diminish any right of Bank thereafter to
demand strict compliance and performance therewith. Each Borrower also waives
any defense arising from any act or omission of Bank that changes the scope of a
Borrower’s risks hereunder. Each Borrower hereby waives any right to assert
against Bank any defense (legal or equitable), setoff, counterclaim, or claims
that such Borrower individually may now or hereafter have against another
Borrower or any other Person liable to Bank with respect to the Obligations in
any manner or whatsoever.

 

 24 

 

 

14.4 Subrogation Defenses. Until all Obligations are paid in full and Bank has
no further obligation to make Credit Extensions to Borrowers, each Borrower
hereby waives any defense based on impairment or destruction of its subrogation
or other rights against any other Borrower and waives all benefits which might
otherwise be available to it under California Civil Code Sections 2809, 2810,
2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433 and California Code of Civil
Procedure Sections 580a, 580b, 580d and 726, as those statutory provisions are
now in effect and hereafter amended, and under any other similar statutes now
and hereafter in effect.

 

14.5 Right to Settle, Release.

 

(a) The liability of Borrowers hereunder shall not be diminished by (i) any
agreement, understanding or representation that any of the Obligations is or was
to be guaranteed by another Person or secured by other property, or (ii) any
release or unenforceability, whether partial or total, of rights, if any, which
Bank may now or hereafter have against any other Person, including another
Borrower, or property with respect to any of the Obligations.

 

(b) Without notice to any given Borrowers and without affecting the liability of
any given Borrowers hereunder, Bank may (i) compromise, settle, renew, extend
the time for payment, change the manner or terms of payment, discharge the
performance of, decline to enforce, or release all or any of the Obligations
with respect to any other Borrower by written agreement with such other
Borrower, (ii) grant other indulgences to another Borrower in respect of the
Obligations, (iii) modify in any manner any documents relating to the
Obligations with respect to any other Borrower by written agreement with such
other Borrower, (iv) release, surrender or exchange any deposits or other
property securing the Obligations, whether pledged by a Borrower or any other
Person, or (v) compromise, settle, renew, or extend the time for payment,
discharge the performance of, decline to enforce, or release all or any
obligations of any guarantor, endorser or other Person who is now or may
hereafter be liable with respect to any of the Obligations.

 

14.6 Subordination. All indebtedness of a Borrower now or hereafter arising held
by another Borrower is subordinated to the Obligations and a Borrower holding
the indebtedness shall take all actions reasonably requested by Bank to effect,
to enforce and to give notice of such subordination.

 

15. Notice of Final Agreement. NOTICE OF FINAL AGREEMENT. BY SIGNING THIS
AGREEMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS WRITTEN AGREEMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THIS WRITTEN AGREEMENT MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.

 

[signature page follows]

 

 25 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  BORROWERS:       SHARPSPRING, INC.       By: /s/ Edward Lawton   Name: Edward
Lawton   Title: CFO         quattro hosting llc       By: /s/ Edward Lawton  
Name: Edward Lawton   Title: CFO         SHARPSPRING TECHNOLOGIES, INC.      
By: /s/ Edward Lawton   Name: Edward Lawton   Title: CFO         BANK:      
WESTERN ALLIANCE BANK       By: /s/ Katherine Wolfe   Name: Katherine Wolfe  
Title: AVP

 

 26 

 

 

EXHIBIT A

 

DEBTOR: SHARPSPRING, INC., QUATTRO HOSTING LLC, and   SHARPSPRING TECHNOLOGIES,
INC.     SECURED PARTY: WESTERN ALLIANCE BANK

 

COLLATERAL DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT

 

All personal property of each Borrower (herein referred to as “Borrower” or
“Debtor”) whether presently existing or hereafter created or acquired, and
wherever located, including, but not limited to:

 

(a) all accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), commercial tort claims,
deposit accounts, documents (including negotiable documents), equipment
(including all accessions and additions thereto), general intangibles (including
payment intangibles and software), goods (including fixtures), instruments
(including promissory notes), inventory (including all goods held for sale or
lease or to be furnished under a contract of service, and including returns and
repossessions), investment property (including securities and securities
entitlements), letter of credit rights, money, and all of Debtor’s books and
records with respect to any of the foregoing, and the computers and equipment
containing said books and records; and

 

(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment. All terms
above have the meanings given to them in the California Uniform Commercial Code,
as amended or supplemented from time to time.

 

Notwithstanding the foregoing, the Collateral shall not include the Pledged
Shares, provided however that upon the satisfaction of the obligations secured
by the Pledged Shares, the Collateral shall automatically include the Pledged
Shares.

 

 27 

 

 

Exhibit B

 

ADVANCE REQUEST FORM

 

(To be submitted no later than 3:00 PM to be considered for same day processing)

 

To: Western Alliance Bank         Fax: (408) 282-1681         Date:          
From: SharpSpring, Inc.,     on behalf of all Borrowers     Borrower’s Name    
            Authorized Signature                 Authorized Signer’s Name
(please print)                 Phone Number  

 

To Account #    

 

Borrowers hereby request funding of an Advance in the amount of $ _______ in
accordance with the Revolving Facility as defined in the Loan and Security
Agreement dated March 21, 2016.

 

Borrowers hereby authorize Lender to rely on facsimile stamp signatures and
treat them as authorized by Borrowers for the purpose of requesting the above
advance.

 

All representations and warranties of Borrowers stated in the Loan and Security
Agreement are true, correct and complete in all material respects as of the date
of this Advance Request; provided that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.

 

Capitalized terms used herein and not otherwise defined have the meanings set
forth in the Loan and Security Agreement.

 

 28 

 

 

Exhibit C

BORROWING BASE CERTIFICATE

WESTERN ALLIANCE BANK

55 Almaden Boulevard, San Jose, CA 95113

 

Company: SHARPSPRING, INC., on Behalf of Itself and All Borrowers

 

Monthly Recurring Revenue Borrowing Base Calculation   As Of Date:              
1.  GAAP Revenue recognized during the prior 3 months from Contracts  $       
2.  Less: GAAP Revenue from Contracts that are not Eligible Recurring Revenue
Contracts (i.e. customer (i) has elected to cancel or not renew its license or
maintenance contract, or (ii) ceases conducting business, goes out of business
or is insolvent, (iii) has failed to pay in full within ninety (90) days of
invoice date or (iv) with foreign customers billed or collected outside of the
US) for such 3 month measurement period  $        3.  Eligible Monthly Recurring
Revenue for 3 months (#1 minus #2)  $        4.  GAAP Revenue recognized during
the prior 12 months from Contracts  $        5.  Less: GAAP Revenue from
Contracts that are not Eligible Recurring Revenue Contracts (i.e. customer (i)
has elected to cancel or not renew its license or maintenance contract, or (ii)
ceases conducting business, goes out of business or is insolvent, (iii) has
failed to pay in full within ninety (90) days of invoice date or (iv) with
foreign customers billed or collected outside of the US) for such 12 month
measurement period  $        6.  Eligible Monthly Recurring Revenue for the 12
month period ending on the measurement month (#4 minus #5)       $   7.  MRR
Retention Rate ((#3 divided by 3) divided by (#6 divided by 12))        %  8. 
Borrowing Base Amount (#3 x the lesser of #7 or 100%)       $   9.  Maximum Loan
Amount       $2,500,000  10.  Total Funds Available (Lesser of #8 or #9)      
$   11.  Less: Outstanding Advances       $   12.  Less: Outstanding Cash
Management Services       $   13.  Available for Drawdown/Need to Pay       $  

 

If line #13 is a negative number, this amount must be remitted to the Bank
immediately to bring loan balance into compliance. By signing this form you
authorize the bank to deduct any advance amounts directly from any Borrower’s
account(s) at Western Alliance Bank in the event there is an overadvance.

 

The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the Borrowers and Western Alliance Bank.

 

      Date:       Prepared By:                           Date:       Bank
Reviewed:        

 

 29 

 

 

Exhibit D

 

Compliance Certificate

 

TO: WESTERN ALLIANCE BANK     FROM: SHARPSPRING, INC., QUATTRO HOSTING LLC, and
SHARPSPRING TECHNOLOGIES, INC.

 

The undersigned authorized officer of SHARPSPRING, INC., on behalf of itself and
all other Borrowers, hereby certifies that in accordance with the terms and
conditions of the Loan and Security Agreement between Borrowers and Bank (the
“Agreement”), (i) each Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below and (ii) all
representations and warranties of Borrowers stated in the Agreement are true and
correct as of the date hereof. Attached herewith are the required documents
supporting the above certification. The Officer further certifies that these are
prepared in accordance with Generally Accepted Accounting Principles (GAAP) and
are consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenant   Required   Complies             A/R & A/P Agings   Monthly
within 30 days   Yes No Borrowing Base Certificate   Monthly within 30 days  
Yes No Monthly Recurring Revenue report for prior 12 months   Monthly within 30
days   Yes No Monthly consolidated financial statements   Monthly within 30 days
  Yes No Monthly consolidating financial statements   Monthly within 30 days  
Yes No Compliance Certificate   Monthly within 30 days   Yes No Annual audited
financial statements   FYE within 180 days   Yes No Annual operating budget,
sales projections and operating plans approved by board of directors   Annually
no later than 60 days following the beginning of each fiscal year or board
approval   Yes No             A/R and Collateral Audit   Initial and Annual  
Yes No             Deposit balances with Bank   $ ___________________      
Deposit balance outside Bank   $ ___________________      

 

Financial Covenant   Required   Actual   Complies                 Minimum Cash
at Bank + Availability on Revolving Facility   $1,500,000   $_________   Yes No
Minimum MRR Retention Rate (monthly)   At least 90%   ________%   Yes No Minimum
Adjusted EBITDA (quarterly)   75% of Financial Plan   ________%   Yes No

 

Comments Regarding Exceptions: See Attached.   BANK USE ONLY           Received
by:   Sincerely,     AUTHORIZED SIGNER             Date:                      
Verified:   SIGNATURE     AUTHORIZED SIGNER             Date:   TITLE          
     

 

    Compliance Status Yes No           DATE        

 

 30 

 

 

SCHEDULE OF EXCEPTIONS

 

Permitted Indebtedness (Section 1.1)

 

Permitted Investments (Section 1.1)

 

Permitted Liens (Section 1.1)

 

Inbound Licenses (Section 5.6)

 

Prior Names (Section 5.7)

 

SMTP.com, Inc.

SMTP, Inc.

 

Litigation (Section 5.8)

 

Subsidiaries (Section 5.14)

 

 31