EXHIBIT 10.14

 

 

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VERSATA, INC.

 

LOAN AND SECURITY AGREEMENT

 

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This LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of
December 20, 2004, by and between VENTURE BANKING GROUP, a division of Greater
Bay Bank N.A. (“Bank”) and VERSATA, INC. (“Borrower”).

 

RECITALS

 

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

 

AGREEMENT

 

The parties agree as follows:

 

  1. DEFINITIONS AND CONSTRUCTION

 

1.1 Definitions.

 

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

 

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

 

“Advance” or “Advances” means a loan advance under the Committed Revolving Line.

 

“Affiliate” means, with respect to any Person, any Person that 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, partners and, for any Person that is a limited
liability company, such Persons, managers and members. For purposes of this
definition, “control” (including with correlative meanings, the terms
“controlling”, “controlled by” and “under common control with”), as applied to
any Person, means the possession, directly or indirectly, of the power (i) to
vote 10% or more of the securities having ordinary voting power for the election
of directors of such Person or (ii) to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.

 

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

 

“Borrower’s Books” means all of Borrower’s books and records including without
limitation: ledgers; records concerning Borrower’s assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.

 

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

 

“Closing Date” means the date of this Agreement.

 

“Code” means the California Uniform Commercial Code as in effect from time to
time.

 

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

 

“Committed Revolving Line” means credit extensions of up to One Million Dollars
($1,000,000) in principal amount at any time outstanding.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit,
corporate credit cards, or merchant services issued or provided for the account
of that Person; and (iii) all obligations arising under any interest rate,
currency or commodity swap agreement, interest rate cap agreement, interest rate
collar agreement, or other agreement or arrangement designated to protect a
Person against fluctuation in interest rates, currency exchange rates or
commodity prices; provided, however, that the term “Contingent Obligation” shall
not include endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.

 

“Copyrights” means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.

 

“Credit Extension” means each Advance or any other extension of credit by Bank
for the benefit of Borrower hereunder.

 

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

 

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

 

“GAAP” means generally accepted accounting principles as in effect in the United
States 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 with respect to the obligations described in foregoing clauses
(a)-(c).

 

“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” means all of the following:

 

(a) Copyrights, Trademarks, and Patents;

 

(b) Any and all trade secrets, and any and all intellectual property rights in
computer software and computer software products now or hereafter existing,
created, acquired or held;

 

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(c) Any and all design rights now or hereafter existing, created, acquired or
held by Borrower;

 

(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;

 

(e) All licenses or other rights to use any of the Copyrights, Patents, or
Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;

 

(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks, or Patents; and

 

(g) All proceeds and products of the foregoing, including without limitation all
payments under insurance or any indemnity or warranty payable in respect of any
of the foregoing.

 

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

 

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

 

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.

 

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

 

“Loan Documents” means, collectively, this Agreement, any note or notes executed
by Borrower pursuant to this agreement, and any other present or future
agreement entered into between Borrower and/or for the benefit of Bank in
connection with this Agreement, all as amended, extended or restated from time
to time.

 

“Mask Works” means all mask works or similar rights available for the protection
of semiconductor chips, now owned or hereafter acquired.

 

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

 

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

 

“Obligations” means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other loan
document, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an

 

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Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.

 

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

 

“Payment Date” means the first (1st) calendar day of each month, commencing on
the first such date after the Closing Date.

 

“Permitted Distributions” means:

 

(a) purchases of capital stock in satisfaction of the put options granted
pursuant to the settlement agreement entered into by Borrower in February 2004
in connection with the securities calls action suit against Borrower filed in
the U.S. District Court for the Northern District of California;

 

(b) purchases of capital stock from former employees, consultants and directors
pursuant to stock repurchase agreements or other similar agreements;

 

(c) distributions or dividends consisting solely of Borrower’s capital stock;

 

(d) purchases for value of any rights distributed in connection with any
stockholder rights plan; and

 

(e) other distributions, dividends, redemptions, retirements or purchases of
Borrower’s capital stock in an aggregate amount not exceeding $250,000.

 

“Permitted Indebtedness” means:

 

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

 

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

 

(c) Indebtedness secured by a lien described in clause (c) of the defined term
“Permitted Liens,” provided (i) such Indebtedness does not exceed the lesser of
the cost or fair market value of the equipment financed with such Indebtedness
and (ii) such Indebtedness does not exceed $250,000 in the aggregate at any
given time;

 

(d) Subordinated Debt;

 

(e) Indebtedness of any Subsidiary of Borrower payable to Borrower or another
Subsidiary or Indebtedness of Borrower payable to any Subsidiary of Borrower;

 

(f) Indebtedness which may be deemed to exist pursuant to any guaranties,
performance, surety, statutory, appeal or similar obligations incurred in the
ordinary course of business;

 

(g) Indebtedness in an aggregate amount of up to $500,000 at any time
outstanding;

 

(h) guaranties by Borrower or any Subsidiary of Borrower of Indebtedness
constituting Permitted Indebtedness; and

 

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(i) any refinancing, renewal and extension (including successive refinancings,
renewals and extensions) of any of the Indebtedness in the foregoing clause (b)
so long as the principal amount of the Indebtedness incurred does not exceed the
principal amount of the Indebtedness being refinanced, renewed or extended, plus
an amount necessary to pay any fees and expenses, including premiums and
defeasance costs, related thereto.

 

“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 and as to which adequate reserves are maintained on Borrower’s Books
in accordance with GAAP, provided the same have no priority over any of Bank’s
security interests;

 

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

 

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

 

(e) licenses or sublicenses granted in the ordinary course of Borrower’s or any
of its Subsidiary’s business and any interest or title of a licensor or under
any license or sublicense;

 

(f) leases or subleases granted in the ordinary course of Borrower or any of its
Subsidiary’s business;

 

(g) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other
like liens arising in the ordinary course of business which are not overdue for
a period of more than 30 days or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of Borrower and its Subsidiaries, as applicable;

 

(h) pledges or deposits in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other social security
legislation;

 

(i) deposits to secure the performance of bids, trade contracts (other than for
borrowed money), contracts for the purchase of property, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations
incurred in the ordinary course of business;

 

(j) easements, rights-of-way, restrictions and other similar encumbrances
affecting real property which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary course of
business of Borrower or any of its Subsidiaries, as applicable;

 

(k) Liens of depository institutions or institutions holding securities accounts
(including rights of set-off) on accounts with such institutions;

 

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(1) Liens in favor of customs or revenue authorities arising as a matter of law
to secure payment of customs duties in connection with the importation of goods;

 

(m) Liens on insurance proceeds in favor of insurance companies granted solely
to secure financed insurance premiums;

 

(n) Liens securing judgments not constituting an Event of Default under Section
8.7;

 

(o) Liens securing Subordinated Debt;

 

(p) Liens existing on property at the time acquired by Borrower or any
Subsidiary in a transaction permitted by Section 7.3; provided that, such Liens
do not extend to other property of Borrower or any Subsidiary and that such
Liens were not created in anticipation of or in connection with the transactions
pursuant to which the property was acquired by Borrower or any Subsidiary; and

 

(q) Liens not otherwise permitted so long as the amount secured by all such
Liens does not exceed $500,000 at any time and other Liens that would not have a
Material Adverse Effect.

 

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

 

“Prime Rate” means the variable rate of interest, per annum, most recently
published in the Western edition of The Wall Street Journal as the “prime rate,”
whether or not such rate is the lowest rate available from Bank.

 

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

 

“Revolving Maturity Date” means the date immediately preceding the first
anniversary of the Closing Date.

 

“Schedule” means the schedule of exceptions attached hereto, if any.

 

“Subordinated Debt” means any debt incurred by Borrower that is subordinated to
the debt owing by Borrower to Bank on terms acceptable to Bank (and identified
as being such by Borrower and Bank).

 

“Subsidiary” means with respect to any Person, any corporation, partnership,
company association, joint venture, or any other business entity of which more
than fifty percent (50%) of the voting stock or other equity interests is owned
or controlled, directly or indirectly, by such Person or one or more Affiliates
of such Person.

 

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

 

1.2 Accounting and Other Terms.

 

All accounting terms not specifically defined herein shall be construed in
accordance with GAAP and all calculations and determinations made hereunder
shall be made in accordance with GAAP. When used herein, the term “financial
statements” shall include the notes and schedules thereto. The terms “including”
/ “includes” shall always be read as meaning “including (or includes) without
limitation,” when used herein or in any other Loan Document.

 

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  2. LOAN AND TERMS OF PAYMENT

 

2.1 Credit Extensions.

 

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

 

2.1.1 Revolving Advances

 

(a) Subject to and upon the terms and conditions of this Agreement, Bank agrees
to make Advances to Borrower in an aggregate outstanding amount at any time
outstanding not to exceed the Committed Revolving Line. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this Section 2.1.1
may be repaid and reborrowed at any time prior to the Revolving Maturity Date.

 

(b) Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile
transmission or telephone no later than 3:00 p.m. Pacific time, on the Business
Day that the Advance is to be made. Each such notification shall be promptly
confirmed by a Payment/Advance Form in substantially the form of Exhibit B
hereto. Bank is authorized to make Advances under this Agreement, based upon
instructions received from a Responsible Officer, or without instructions if in
Bank’s discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1.1 to Borrower’s deposit account.
Borrower shall deliver to Bank a promissory note in substantially the form of
Exhibit C-1.

 

(c) The Committed Revolving Line shall terminate on the Revolving Maturity Date,
at which time all Advances under this Section 2.1.1 and any other amounts due
under this Agreement (except as otherwise expressly specified herein) shall be
immediately due and payable.

 

2.2 Reserved.

 

2.3 Interest Rates, Payments, and Calculations.

 

(a) Interest Rates. Except as set forth in Section 2.3(b), any Advances shall
bear interest on the unpaid principal amount thereof at a per annum rate equal
to the Prime Rate plus one-half of one percent (0.50%).

 

(b) Default Rate. All Obligations shall bear interest, while an Event of Default
exists, 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 each Payment Date.
Borrower hereby authorizes Bank to debit any accounts with Bank, provided that
Bank shall first debit Borrower’s account entitled “Versata Inc., General”, and
to the extent sufficient funds are not available in such account, debit and
other account of Borrower for payments of principal and interest due on the
Obligations and any other amounts owing by Borrower to Bank under the Loan
Documents. Bank will notify Borrower of all debits which Bank has made against
Borrower’s accounts. Any such debits against Borrower’s accounts in no way shall
be deemed a set-off. 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 (other
than taxes imposed on the income of Bank), to the end that Bank will receive the
entire amount of any Obligations payable hereunder, regardless of source of
payment.

 

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(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 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.

 

2.4 Crediting Payments.

 

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

 

2.5 Fees.

 

Borrower shall pay to Bank the following:

 

(a) Facility Fees. A Facility Fee equal to $ 10,000, which fee shall be due on
the Closing Date and shall be fully earned and non-refundable;

 

(b) Financial Examination and Appraisal Fees. Upon default, Bank’s customary
fees and out-of-pocket expenses for Bank’s audits of Borrower’s Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents; and

 

(c) Bank Expenses. Upon demand from Bank, including, without limitation, upon
the date hereof, all Bank Expenses incurred through the date hereof, including
reasonable attorneys’ fees (not to exceed $5,000 without Borrower’s approval)
and expenses and, after the date hereof, all Bank Expenses, including reasonable
attorneys’ fees and expenses, as and when they become due.

 

2.6 Additional Costs.

 

In case any law, regulation, treaty or official directive or the interpretation
or application thereof by any court or any governmental authority charged with
the administration thereof or the compliance with any guideline or request of
any central bank or other governmental authority (whether or not having the
force of law) in each case that is issued, made, or becomes effective after the
date of this Agreement:

 

(a) subjects Bank to any tax with respect to payments of principal or interest
or any other amounts payable hereunder by Borrower or otherwise with respect to
the transactions contemplated hereby (except for taxes on the overall net income
of Bank;

 

(b) imposes, modifies or deems applicable any deposit insurance, reserve,
special deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, Bank; or

 

(c) imposes upon Bank any other condition with respect to its performance under
this Agreement,

 

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and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
the Advances, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank’s
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.

 

2.7 Term.

 

Except as otherwise set forth herein, this Agreement shall become effective on
the Closing Date and, subject to Section 12.7, shall continue in full force and
effect for so long as any Obligations remain outstanding or Bank has any
obligation to make Credit Extensions under this Agreement. Notwithstanding the
foregoing, Bank shall have the right to terminate its obligation to make Credit
Extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination of this Agreement, Bank’s Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.

 

  3. CONDITIONS OF LOANS

 

3.1 Conditions Precedent to Initial Credit Extension.

 

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

 

(a) this Agreement;

 

(b) a promissory note evidencing the amounts owing under Sections 2.1.1 hereof;

 

(c) a certificate of the Secretary of Borrower with respect to articles, bylaws,
incumbency and resolutions authorizing the execution and delivery of this
Agreement;

 

(d) financing statements (Forms UCC-1);

 

(e) insurance certificate;

 

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

 

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

 

3.2 Conditions Precedent to all Credit Extensions.

 

The obligation of Bank to make each Credit Extension, including the initial
Credit Extension, is further subject to the following conditions:

 

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

 

(b) the representations and warranties contained in Section 5 shall be true and
correct in all material respects on and as of the date of such Payment/Advance
Form and on the effective date of each Credit Extension as though made at and as
of each such date (except to the extent any such representation or warranty
specifically relates to an earlier date, in which case such representation or
warranty shall be true and correct in all material respects on and of such
earlier date), and no Event of Default shall have occurred and be continuing, or
would result from such Credit Extension. The making of each Credit Extension
shall be deemed to be

 

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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(b).

 

  4. CREATION OF SECURITY INTEREST

 

4.1 Grant of Security Interest.

 

Borrower grants and pledges to Bank a continuing security interest in all
presently existing and hereafter acquired or arising Collateral in order to
secure prompt payment of any and all Obligations and in order to secure prompt
performance by Borrower of each of its covenants and duties under the Loan
Documents. Except as set forth in the Schedule, such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof, in each case subject to Permitted
Liens. Borrower acknowledges that Bank may place a “hold” on any Deposit Account
pledged as Collateral to secure the Obligations. Notwithstanding termination of
this Agreement, Bank’s Lien on the Collateral shall remain in effect for so long
as any Obligations are outstanding.

 

4.2 Delivery of Additional Documentation Required.

 

Borrower 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 reasonably satisfactory to Bank, to
perfect and continue perfected Bank’s security interests in the Collateral and
in order to fully consummate all of the transactions contemplated under the Loan
Documents. Notwithstanding the foregoing, Borrower shall not be required to
disclose or permit the inspection or making copies of any information or other
matter (i) in respect of which disclosure to Bank (or its representative) is
then prohibited by law or an agreement binding on Borrower or any of its
Subsidiaries or (ii) that is subject to attorney-client or similar privilege or
constitutes attorney work product that Borrower reasonably determines pursuant
to applicable law.

 

4.3 Right to Inspect.

 

Bank (through any of its officers, employees, or agents) shall have the right,
upon reasonable prior notice, from time to time during Borrower’s usual business
hours, to inspect Borrower’s Books and to make copies thereof and to check,
test, and appraise the Collateral in order to verify Borrower’s financial
condition or the amount, condition of, or any other matter relating to, the
Collateral.

 

  5. REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1 Due Organization and Qualification.

 

Borrower and each Subsidiary is a corporation duly existing and in good standing
under the laws of its state of incorporation and qualified and licensed to do
business in, and is in good standing in, any state in which the conduct of its
business or its ownership of property requires that it be so qualified except
where the failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect.

 

5.2 Due Authorization: No Conflict.

 

The execution, delivery, and performance of the Loan Documents are within
Borrower’s powers, have been duly authorized by Borrower, and are not in
conflict with nor constitute a breach of any provision contained in Borrower’s
Articles of Incorporation or Bylaws, nor will they constitute an event of
default under any material agreement to which Borrower is a party or by which
Borrower is bound. Borrower is not in default under any agreement to which it is
a party or by which it is bound, which default could reasonably be expected to
have a Material Adverse Effect.

 

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5.3 No Prior Encumbrances.

 

Borrower has good and indefeasible title to the Collateral, free and clear of
Liens, except for Permitted Liens.

 

5.4 Bona Fide Accounts.

 

The Accounts are bona fide existing obligations. The service or property giving
rise to such Accounts has been performed or delivered to the account debtor or
to the account debtor’s agent for immediate shipment to and unconditional
acceptance by the account debtor.

 

5.5 Intellectual Property.

 

Borrower owns or has the right to use the Intellectual Property. Each of the
Patents is valid and enforceable, and no material part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in part, and to
Borrower’s knowledge, no claim has been made that any part of the Intellectual
Property violates the rights of any third party. Except as set forth in the
Schedule, Borrower is not a party to, or bound by, any agreement that restricts
the grant by Borrower of a security interest in Borrower’s rights under such
agreement.

 

5.6 Name; Location of Chief Executive Office.

 

Except as disclosed in the Schedule, Borrower has not done business under any
name other than that specified on the signature page hereof. As of the date
hereof, the chief executive office of Borrower is located at the address
indicated in Section 10 hereof. As of the date hereof, all Borrower’s Equipment
is located only at the location set forth in Section 10 hereof and the locations
set forth on the schedule.

 

5.7 Litigation.

 

Except as set forth in the Schedule, there are no actions or proceedings pending
or, to Borrower’s knowledge, threatened by or against Borrower or any Subsidiary
before any court or administrative agency in which an adverse decision could
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on Borrower’s interest or Bank’s security interest in the Collateral.

 

5.8 No Material Adverse Change in Financial Statements.

 

All consolidated financial statements of Borrower and its Subsidiaries that have
been delivered by Borrower to Bank fairly present in all material respects
Borrower’s consolidated financial position as of the date thereof and Borrower’s
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.

 

5.9 Solvency.

 

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

 

5.10 Regulatory Compliance.

 

Borrower and each Subsidiary has met the minimum funding requirements of ERISA
with respect to any employee benefit plans subject to ERISA. No event has
occurred resulting from Borrower’s failure to comply with ERISA that is
reasonably likely to result in Borrower’s incurring any liability that could
reasonably be expected to have a Material Adverse Effect. Borrower is not an
“investment company” or a company “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of

 

11

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purchasing or carrying margin stock (within the meaning of Regulations T and U
of the Board of Governors of the Federal Reserve System). Borrower has complied
with all the provisions of the Federal Fair Labor Standards Act. Borrower has
not violated any statutes, laws, ordinances or rules applicable to it, violation
of which could reasonably be expected to have a Material Adverse Effect.

 

5.11 Environmental Condition.

 

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

 

5.12 Taxes.

 

Borrower and each Subsidiary has filed or caused to be filed all material tax
returns required to be filed on a timely basis, and has paid, or has made
adequate provision for the payment of, all material taxes reflected therein
except to the extent such taxes are being contested in good faith by appropriate
proceedings and adequate reserves therefore are maintained on the books of
Borrower and its subsidiaries in accordance with GAAP.

 

5.13 Subsidiaries.

 

Borrower does not own any stock, partnership interest or other equity securities
of any Person, except for Permitted Investments.

 

5.14 Government Consents.

 

Borrower and each Subsidiary has 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 Borrower’s business as currently conducted.

 

5.15 Investment Accounts. Except as disclosed in the Schedule, none of
Borrower’s nor any Subsidiary’s property is maintained or invested with a Person
other than Bank.

 

5.16 Full Disclosure.

 

No representation, warranty or other statement made by Borrower through any of
its Responsible Officers in any certificate or written statement furnished to
Bank, when taken together with Borrower’s filings with the Securities and
Exchange Commission, 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. Any projections and pro forma
financial information contained in such materials are based on good faith
estimates and assumptions believed by Borrower to be reasonable at the time
made, it being recognized by Bank that such projections as to future events are
not to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ from the projected results (it being
understood that forecasts and projections by their nature involve approximations
and uncertainties).

 

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  6. AFFIRMATIVE COVENANTS

 

Borrower covenants and agrees that, until payment in full of all outstanding
Obligations, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, Borrower shall do all of the following:

 

6.1 Good Standing.

 

Borrower shall maintain its and each of its Subsidiaries’ corporate existence
and good standing in its jurisdiction of incorporation and maintain
qualification in each jurisdiction in which the failure to so qualify could have
a Material Adverse Effect. Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, to the extent consistent with prudent management of
Borrower’s business, in force all licenses, approvals and agreements, the loss
of which could reasonably be expected to have a Material Adverse Effect.

 

6.2 Government Compliance.

 

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

 

6.3 Financial Statements, Reports, Certificates.

 

Borrower shall deliver to Bank: (a) as soon as available, but in any event
within thirty (30) days after the end of each fiscal quarter, a company prepared
consolidated balance sheet and income statement covering Borrower’s consolidated
operations during such period, in a form and certified by an Officer of Borrower
reasonably acceptable to Bank; and (b) within five (5) days of filing, copies of
all statements, reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt and all reports
on Form 10-K, 10-Q filed with the Securities and Exchange Commission.

 

Within thirty (30) days after the last day of each fiscal quarter, Borrower
shall deliver to Bank with the quarterly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
D hereto.

 

6.4 Taxes.

 

Borrower shall make, and shall cause each Subsidiary to make, due and timely
payment or deposit of all material federal, state, and local taxes, assessments,
or contributions required of it by law, and will execute and deliver to Bank, on
demand, appropriate certificates attesting to the payment or deposit thereof;
and Borrower will make, and will cause each Subsidiary to make, timely payment
or deposit of all material tax payments and withholding taxes required of it by
applicable laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof satisfactory to Bank indicating that
Borrower or a Subsidiary has made such payments or deposits; provided that, in
each case, Borrower or a Subsidiary need not make any payment if the amount or
validity of such payment is (i) contested in good faith by appropriate
proceedings, (ii) is reserved against (to the extent required by GAAP) by
Borrower and (iii) no lien other than a Permitted Lien results.

 

6.5 Insurance.

 

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

 

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(b) All such policies of insurance shall be in such form, with such companies,
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. At Bank’s request, Borrower shall
deliver to Bank certified copies of such policies of insurance and evidence of
the payments of all premiums therefor. Upon the occurrence and during the
continuance of an Event of Default, 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.

 

6.6 Principal Depository.

 

Borrower shall maintain its principal depository, operating and investment
accounts with Bank.

 

6.7 Minimum Cash Balances.

 

Borrower shall maintain at all times in one or more accounts with Bank a balance
of unrestricted cash in an amount of at least Four Million Dollars ($4,000,000).

 

6.8 Further Assurances.

 

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

 

  7. NEGATIVE COVENANTS

 

Borrower covenants and agrees that, so long as any Credit Extension hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Credit Extensions,
Borrower will not do any of the following:

 

7.1 Dispositions.

 

Convey, sell, lease, transfer or otherwise dispose of (collectively, a
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business, (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business, (iii) of worn-out or obsolete Equipment which was not financed by
Bank (iv) Transfers associated with the making or disposition of a Permitted
Investment; (v) dispositions of cash in a manner not prohibited by this
Agreement, (vi) any Transfer by any Subsidiary of Borrower or any other
Subsidiary of Borrower, and (vii) Transfers not otherwise permitted by this
Section 7.1 so long as the aggregate book value of the assets so transferred
shall not exceed $250,000 in the aggregate.

 

7.2 Changes in Business, Ownership, Management or Business Locations.

 

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
without thirty (30) days prior written notification to Bank, relocate its chief
executive office or state of incorporation.

 

7.3 Mergers or Acquisitions.

 

Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with or into any other business organization, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person (other than a Subsidiary of Borrower); provided that
(i) any Subsidiary may merge or

 

14

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consolidate with or into another Subsidiary of Borrower, (ii) Borrower and its
Subsidiaries may make Permitted Investments and (iii) Borrower or its
Subsidiaries may acquire all or a portion of the capital stock or property of
another Person, whether by merger, purchase or otherwise, so long as the
aggregate consideration paid in cash by Borrower or any Subsidiary in connection
with such transaction(s) does not exceed $500,000 in the aggregate.

 

7.4 Indebtedness.

 

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

 

7.5 Encumbrances.

 

Create, incur, assume or suffer to exist any Lien with respect to any of its
property, or assign or otherwise convey any right to receive income, including
the sale of any Accounts, or permit any of its Subsidiaries so to do, except for
Permitted Liens.

 

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 other than Permitted
Distributions.

 

7.7 Transactions with Affiliates.

 

Directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower except for (i) transactions that are in the
ordinary course of Borrower’s business, upon fair and reasonable terms that are
no less favorable to Borrower than would be obtained in an arm’s length
transaction with a non-affiliated Person and (ii) transactions between or among
Borrower and any of its subsidiaries.

 

7.8 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 if the
effect of such amendment is to materially increase the obligations of the
obligor thereunder.

 

7.9 Equipment.

 

Store 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 Equipment for Bank’s benefit or (b) is in pledge possession of the warehouse
receipt, where negotiable, covering such Equipment. Without 30 days prior
written notice to Bank, store or maintain any Equipment at a location other than
the location set forth in Section 10 of this Agreement.

 

7.10 Compliance.

 

Become an “investment company” or a company 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 other 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.

 

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  8. EVENTS OF DEFAULT

 

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

 

8.1 Payment Default.

 

If Borrower fails to pay, when due, any of the Obligations;

 

8.2 Covenant Default.

 

(a) If 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 Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Credit Extensions will be required
to be made during such cure period);

 

8.3 Material Adverse Change.

 

If there (i) occurs a material impairment of the prospect of repayment of any
portion of the Obligations or (ii) is a material impairment of the value or
priority of Bank’s security interests in the Collateral.

 

8.4 Attachment.

 

If any material portion of Borrower’s assets is attached, seized, subjected to a
writ or distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such attachment,
seizure, writ or distress warrant or levy has not been removed, discharged or
rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in
any way prevented by court order from continuing to conduct all or any material
part of its business affairs, or if a judgment or other claim becomes a lien
(other than Permitted Liens) or encumbrance upon any material portion of
Borrower’s assets, or if a notice of lien, levy, or assessment in excess of
$500,000 is filed of record with respect to any of Borrower’s assets by the
United States Government, or any department, agency, or instrumentality thereof,
or by any state, county, municipal, or governmental agency, and the same is not
paid within ten (10) days after Borrower receives notice thereof, provided that
none of the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good faith contest
by Borrower (provided that no Credit Extensions will be required to be made
during such cure period);

 

8.5 Insolvency.

 

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

 

16

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8.6 Other Agreements.

 

If there is a default in any agreement to which Borrower is a party with a third
party or parties resulting in a right by such third party or parties, whether or
not exercised, to accelerate the maturity of any Indebtedness in an amount in
excess of Five Hundred Thousand Dollars ($500,000).

 

8.7 Subordinated Debt.

 

If Borrower makes any payment on account of Subordinated Debt, except to the
extent such payment is allowed under any subordination agreement entered into
with Bank;

 

8.8 Judgments.

 

If a judgment or judgments (to the extent not covered by insurance as to which a
solvent and unaffiliated insurance company has acknowledged coverage) for the
payment of money in an amount, individually or in the aggregate, of at least
Five Hundred Thousand Dollars ($500,000) shall be rendered against Borrower and
shall remain unsatisfied and unstayed for a period of ten (10) days (provided
that no Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or

 

8.9 Misrepresentations.

 

If any warranty or representation set forth herein or in any certificate or
writing delivered to Bank by Borrower or any Person acting on Borrower’s behalf
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document shall be false or misleading in any material respect when
made or deemed made.

 

  9. BANK’S RIGHTS AND REMEDIES

 

9.1 Rights and Remedies.

 

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

 

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

 

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

 

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

 

(d) Without notice to or demand upon Borrower, make such payments and do such
acts as Bank considers necessary or reasonable to protect its security interest
in the Collateral. Borrower agrees to assemble the Collateral if Bank so
requires, and to make the Collateral available to Bank as Bank may designate.
Borrower authorizes Bank to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank’s determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower’s premises, Borrower hereby grants Bank a license to enter 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;

 

17

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(e) Without notice to Borrower set off and apply to the Obligations any and all
(i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any
time owing to or for the credit or the account of Borrower held by Bank;

 

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

 

(g) Sell the Collateral at either a public or private sale, or both, by way of
one or more contracts or transactions, for cash or on terms, in such manner and
at such places (including Borrower’s premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order Bank deems appropriate;

 

(h) Bank may credit bid and purchase at any public sale, or at any private sale
as permitted by law; and

 

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

 

9.2 Power of Attorney.

 

Effective only upon the occurrence and during the continuance of an Event of
Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated
officers, or employees) as Borrower’s true and lawful attorney to: (a) send
requests for verification of Accounts or notify account debtors of Bank’s
security interest in the Accounts; (b) endorse Borrower’s name on any checks or
other forms of payment or security that may come into Bank’s possession; (c)
sign Borrower’s name on any invoice or bill of lading relating to any Account,
drafts against account debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to account debtors; (d) make, settle, and
adjust all claims under and decisions with respect to Borrower’s policies of
insurance; (e) 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 (f) to file, in its sole discretion, one or more financing
or continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Borrower where permitted by law, provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in Section 4.2 regardless of whether an Event of Default
has occurred. The appointment of Bank as Borrower’s attorney in fact, and each
and every one of Bank’s rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank’s obligation to provide advances hereunder is terminated.

 

9.3 Accounts Collection.

 

Upon the occurrence and during the continuance of an Event of Default, Bank may
notify any Person owing funds to Borrower of Bank’s security interest in such
funds and verify the amount of such Account. Borrower shall collect all amounts
owing to Borrower for Bank, receive in trust all payments as Bank’s trustee,
and, if requested or required by Bank, immediately deliver such payments to Bank
in their original form as received from the account debtor, with proper
endorsements for deposit.

 

9.4 Bank Expenses.

 

If Borrower fails to pay any amounts or furnish any required proof of payment
due to third persons or entities, as required under the terms of this Agreement,
then Bank may do any or all of the following: (a) make payment of the same or
any part thereof; (b) set up such reserves under a loan facility in

 

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Section 2.1 as Bank deems necessary to protect Bank from the exposure created by
such failure; or (c) obtain and maintain insurance policies of the type
discussed in Section 6.6 of this Agreement, and take any action with respect to
such policies as Bank deems prudent. Any amounts so paid or deposited by Bank
shall constitute Bank Expenses, shall be immediately due and payable, and shall
bear interest at the then applicable rate hereinabove provided, and shall be
secured by the Collateral. Any payments made by Bank shall not constitute an
agreement by Bank to make similar payments in the future or a waiver by Bank of
any Event of Default under this Agreement.

 

9.5 Bank’s Liability for Collateral.

 

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

 

9.6 Remedies Cumulative.

 

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

 

9.7 Demand; Protest.

 

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

 

  10. NOTICES

 

Unless otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by a recognized overnight delivery
service, by certified mail, postage prepaid, return receipt requested, or by
telefacsimile to Borrower or to Bank, as the case may be, at its addresses set
forth below:

 

If to Borrower:

  

VERSATA, INC.

300 Lakeside Drive Suite 1300

Oakland, CA 94612

Attn: General Counsel

FAX: (510) 238-4111

If to Bank:

  

Venture Banking Group, a division of Greater Bay Bank N.A.

Three Palo Alto Square, Suite 150

Palo Alto, CA 94306

Attn: Tod Racine

FAX: (650) 843-6969

 

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.

 

19

--------------------------------------------------------------------------------

  11. CHOICE OF LAW AND VENUE

 

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. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER 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. GENERAL PROVISIONS

 

12.1 Successors and Assigns.

 

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

 

12.2 Indemnification.

 

Borrower shall indemnify, defend, protect 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 the Loan Documents except for obligations, demands,
claims and liabilities caused by Bank’s gross negligence or willful misconduct;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses and related Bank expenses caused by Bank’s gross negligence or
willful misconduct.

 

12.3 Time of Essence.

 

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

 

12.4 Severability of Provisions.

 

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

 

12.5 Amendments in Writing, Integration.

 

This Agreement cannot be amended or terminated except by a writing signed by
Borrower and Bank. All prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are merged into this Agreement and the
Loan Documents.

 

20

--------------------------------------------------------------------------------

12.6 Counterparts.

 

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

 

12.7 Survival.

 

All covenants, representations and warranties made in this Agreement shall
continue in full force and effect so long as any Obligations remain outstanding.
The obligations of Borrower to indemnify Bank with respect to the expenses,
damages, losses, costs and liabilities described in Section 12.2 shall survive
until all applicable statute of limitations periods with respect to actions that
may be brought against Bank have run.

 

12.8 Confidentiality. Bank shall hold all non-public information regarding
Borrower and its business obtained by Bank pursuant to the requirements of the
Loan Documents in accordance with Bank’s customary procedures for handling
confidential information of a like nature, it being understood and agreed by
Borrower that Bank may make (a) disclosures of such information on a need to
know basis to its agents and advisors, (b) disclosure of such information
reasonably required by any bona fide or potential assignee, transferee or
participant in connection with the contemplated transfer, assignment, transfer
or participation by Bank of any Advances; provided that prior to such
disclosure, such assignee, transferee or participant agrees to be bound by the
provisions of this Section 12.8; and (c) disclosures required by any
governmental agency or representative thereof or pursuant to legal or judicial
process; provided that, unless specifically prohibited by applicable law or
court order, Bank shall make reasonable efforts to notify Borrower of any
request by any governmental agency or representative thereof (other than any
such request in connection with the examination of the financial condition of
Bank or other routine examination of Bank by such governmental agency) for
disclosure of any such non-public information prior to the disclosure of such
information.

 

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

 

VERSATA, INC.

By:

  /s/    WILLIAM FREDERICK        

Title:

  CFO

VENTURE BANKING GROUP, A DIVISION OF

GREATER BAY BANK N.A.

By:

  /s/    Illegible        

Title:

  SVP

 

21

--------------------------------------------------------------------------------

DEBTOR:

   VERSATA, INC.

SECURED PARTY:

   VENTURE BANKING GROUP, A DIVISION OF GREATER BAY BANK N.A.

 

EXHIBIT A

 

COLLATERAL DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT

 

All personal property of 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), 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 non-cash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefore 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, including revised Division 9 of
the Uniform Commercial Code- Secured Transactions, added by Stats. 1999, c.991
(S.B. 45), Section 35, operative July 1, 2001.

 

Notwithstanding the foregoing, the Collateral shall not include (i) any
Copyrights, Patents, Trademarks, maskworks, trade secrets, intellectual property
rights in computer software or computer software products, and design rights,
now owned or hereafter acquired, or any claims for damages by way of any past,
present and future infringement of any of the foregoing (collectively, the
“Intellectual Property”); provided, however, that the Collateral shall include
all accounts and general intangibles that consist of rights to payment and
proceeds from the sale, licensing or disposition of all or any part, or rights
in, the foregoing (the “Rights to Payment”); (ii) any equipment acquired or
accessions, additions or improvements thereto, any replacement thereof or
proceeds thereof pursuant to Permitted Lien and (iii) any of the outstanding
capital stock of a controlled foreign corporation (as defined in the Internal
Revenue Code of 1986, as amended) in excess of 65% of the voting power of all
classes of capital stock of such controlled foreign corporation entitled to
vote. Notwithstanding the foregoing, if a judicial authority (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying Intellectual
Property is necessary to have a security interest in the Rights to Payment, then
the Collateral shall automatically, and effective as of the Closing Date,
include the Intellectual Property to the extent necessary to permit perfection
of Bank’s security interest in the Rights to Payment.

 

22

--------------------------------------------------------------------------------

 

EXHIBIT B

 

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

 

DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.

 

TO: Venture Banking Group, a division of Greater Bay Bank N.A.   
DATE:                      FAX #: (650) 843-6969    TIME:                     

 

FROM:

 

VERSATA, INC.

          CLIENT NAME (BORROWER)

 

REQUESTED BY:

              AUTHORIZED SIGNER’S NAME

 

AUTHORIZED SIGNATURE:

             

 

PHONE NUMBER:

             

FROM ACCOUNT #

       TO ACCOUNT #      

 

REQUESTED TRANSACTION TYPE

--------------------------------------------------------------------------------

 

REQUEST DOLLAR AMOUNT

--------------------------------------------------------------------------------

   

$                                                                               
              

PRINCIPAL INCREASE (ADVANCE)

 

$                                                                               
              

PRINCIPAL PAYMENT (ONLY)

 

$                                                                               
              

INTEREST PAYMENT (ONLY)

 

$                                                                               
              

PRINCIPAL AND INTEREST (PAYMENT)

 

$                                                                               
              

 

OTHER INSTRUCTIONS:

           

 

All representations and warranties of Borrower stated in the Loan and Security
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for an Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.

 

BANK USE ONLY

 

TELEPHONE REQUEST:

 

The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.

 

            Authorized Requester       Phone #

            Received By (Bank)       Phone #

 

_______________________________________

Authorized Signature (Bank)

 

23

--------------------------------------------------------------------------------

 

EXHIBIT C-1

REVOLVING PROMISSORY NOTE

 

$1,000,000

  

Palo Alto, California

Date: December 20, 2004

 

VERSATA, INC. (“Borrower”), for value received, hereby promises to pay to the
order of Venture Banking Group, a division of Greater Bay Bank N.A. (“Bank”), in
lawful money of the United States of America, pursuant to that certain Loan and
Security Agreement dated as of December 20,2004, by and between Borrower and
Bank (the “Loan Agreement”), (i) the principal amount of $1,000,000 or, if
lesser, (ii) the principal amount of all Advances outstanding as of the
Revolving Maturity Date. All unpaid amounts of principal and interest shall be
due and payable in full on the Revolving Maturity Date.

 

This Note is referred to in the Loan Agreement. All terms defined in the Loan
Agreement shall have the same definitions when used herein, unless otherwise
defined herein.

 

Borrower further promises to pay interest on each Advance hereunder in like
funds on the principal amount hereof from time to time outstanding from the date
hereof until paid in full, at a rate or rates per annum and payable on the dates
determined pursuant to the Loan Agreement.

 

Payment on this Note shall be applied in the manner set forth in the Loan
Agreement. The Loan Agreement contains provisions for acceleration of the
maturity of Advances hereunder upon the occurrence of certain stated events and
also provides for optional and mandatory prepayments of principal hereof prior
to any stated maturity upon the terms and conditions therein specified.

 

All Advances made by Bank to Borrower pursuant to the Loan Agreement shall be
recorded by Bank on the books and records of Bank. The failure of Bank to record
any Advance or any prepayment or payment made on account of the principal
balance hereof shall not limit or otherwise affect the obligation of Borrower
under this Note and under the Loan Agreement to pay the principal, interest and
other amounts due and payable under the Advances.

 

Any principal or interest payments on this Note not paid when due, whether at
stated maturity, by acceleration or otherwise, shall bear interest at the
Default Rate.

 

Upon the occurrence of a default hereunder or an Event of Default under the Loan
Agreement, all unpaid principal, accrued interest and other amounts owing
hereunder shall, at the option of Bank, be immediately collectible by or on
behalf of Bank pursuant to the Loan Agreement and applicable law.

 

Borrower waives presentment and demand for payment, notice of dishonor, protest
and notice of protest of this Note, and shall pay all costs of collection when
incurred, including reasonable attorneys’ fees, costs and expenses. The right to
plead any and all statutes of limitations as a defense to any demand hereunder
is hereby waived to the full extent permitted by law.

 

The amount of this Note is secured by the Collateral identified and described as
security therefor in the Loan Agreement.

 

This Note shall be governed by, and construed and enforced in accordance with,
the laws of the State of California, excluding conflict of laws principles that
would cause the application of the laws of any other jurisdiction.

 

The provisions of this Note shall inure to the benefit of and be binding upon
any successor to Borrower and shall extend to any holder hereof.

 

VERSATA, INC. By:    

Print Name:    

Title:    

 

24

--------------------------------------------------------------------------------

 

EXHIBIT D

COMPLIANCE CERTIFICATE

 

TO: VENTURE BANKING GROUP, A DIVISION OF GREATER BAY BANK N.A.

 

FROM: VERSATA, INC.

 

The undersigned authorized officer of VERSATA, INC. hereby certifies that in
accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending                                  with all
required covenants except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof (except to the extent any such
representation or warranty specifically relates to an earlier date, in which
case such representation or warranty was true and correct in all material
respects on and as of such earlier date). 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), subject to the absence of footnotes and normal year-end adjustments in
the case of interim financial statements, and are consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
The Officer expressly acknowledges that no borrowings may be requested by
Borrower at any time or date of determination that Borrower is not in compliance
with any of the terms of the Agreement, and that such compliance is determined
not just at the date this certificate is delivered.

 

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

 

Reporting Covenant

--------------------------------------------------------------------------------

  

Required

--------------------------------------------------------------------------------

   Complies

--------------------------------------------------------------------------------

Quarterly financial statements

   Quarterly within 30 days    Yes    No

10-Q and l0-K

   Within 5 days after filing with SEC    Yes    No

Financial Covenant

--------------------------------------------------------------------------------

  

Required

--------------------------------------------------------------------------------

  

Actual

--------------------------------------------------------------------------------

   Complies

--------------------------------------------------------------------------------

Maintain at all times (unless otherwise noted):

                   

Minimum Cash Balances at Bank

   $4,000,000    $            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

        

 

25

--------------------------------------------------------------------------------

 

REVOLVING PROMISSORY NOTE

 

$1,000,000

  Palo Alto, California     Date: December 20, 2004

 

VERSATA, INC. (“Borrower”), for value received, hereby promises to pay to the
order of Venture Banking Group, a division of Greater Bay Bank N.A. (“Bank”), in
lawful money of the United States of America, pursuant to that certain Loan and
Security Agreement dated as of December 20, 2004, by and between Borrower and
Bank (the “Loan Agreement”), (i) the principal amount of $1,000,000 or, if
lesser, (ii) the principal amount of all Advances outstanding as of the
Revolving Maturity Date. All unpaid amounts of principal and interest shall be
due and payable in full on the Revolving Maturity Date.

 

This Note is referred to in the Loan Agreement. All terms defined in the Loan
Agreement shall have the same definitions when used herein, unless otherwise
defined herein.

 

Borrower further promises to pay interest on each Advance hereunder in like
funds on the principal amount hereof from time to time outstanding from the date
hereof until paid in full, at a rate or rates per annum and payable on the dates
determined pursuant to the Loan Agreement.

 

Payment on this Note shall be applied in the manner set forth in the Loan
Agreement. The Loan Agreement contains provisions for acceleration of the
maturity of Advances hereunder upon the occurrence of certain stated events and
also provides for optional and mandatory prepayments of principal hereof prior
to any stated maturity upon the terms and conditions therein specified.

 

All Advances made by Bank to Borrower pursuant to the Loan Agreement shall be
recorded by Bank on the books and records of Bank. The failure of Bank to record
any Advance or any prepayment or payment made on account of the principal
balance hereof shall not limit or otherwise affect the obligation of Borrower
under this Note and under the Loan Agreement to pay the principal, interest and
other amounts due and payable under the Advances.

 

Any principal or interest payments on this Note not paid when due, whether at
stated maturity, by acceleration or otherwise, shall bear interest at the
Default Rate.

 

Upon the occurrence of a default hereunder or an Event of Default under the Loan
Agreement, all unpaid principal, accrued interest and other amounts owing
hereunder shall, at the option of Bank, be immediately collectible by or on
behalf of Bank pursuant to the Loan Agreement and applicable law.

 

Borrower waives presentment and demand for payment, notice of dishonor, protest
and notice of protest of this Note, and shall pay all costs of collection when
incurred, including reasonable attorneys’ fees, costs and expenses. The right to
plead any and ail statutes of limitations as a defense to any demand hereunder
is hereby waived to the full extent permitted by law.

 

The amount of this Note is secured by the Collateral identified and described as
security therefor in the Loan Agreement.

 

This Note shall be governed by, and construed and enforced in accordance with,
the laws of the State of California, excluding conflict of laws principles that
would cause the application of the laws of any other jurisdiction.

 

The provisions of this Note shall inure to the benefit of and be binding upon
any successor to Borrower and shall extend to any holder hereof.

 

VERSATA, INC.

By:

  /s/    WILLIAM FREDERICK        

Print Name:

  William Frederick

Title:

  CFO

 

--------------------------------------------------------------------------------

 

DISBURSEMENT REQUEST AND AUTHORIZATION

 

Borrower: VERSATA, INC.

   Bank:    Venture Banking Group, a division of Greater Bay Bank N.A.

 

LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $1,000,000.

 

PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.

 

SPECIFIC PURPOSE. The specific purpose of this loan is: Working capital and
general corporate purposes.

 

DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank’s conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:

 

     Revolving Line

--------------------------------------------------------------------------------

Amount paid to Borrower directly:

   $ ________

Undisbursed Funds

   $ ________

Principal

   $ ________

 

CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:

 

Prepaid Finance Charges Paid in Cash:

   $________

$10,000

 

Loan Fee

    

$TBD

 

Accounts Receivables Audit

    

Other Charges Paid in Cash:

   $________

$TBD

 

UCC Search Fees

    

$TBD

 

UCC Filing Fees

    

$TBD

 

Patent Filing Fees

    

$TBD

 

Trademark Filing Fees

    

$TBD

 

Copyright Filing Fees

    

$TBD

 

Outside Counsel Fees and Expenses

(Estimate)

    

Total Charges Paid in Cash

   $________

 

AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from
Borrower’s account numbered oper. acct the amount of any loan payment. If the
funds in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment.

 

FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER’S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER’S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF DECEMBER 20, 2004.

 

BORROWER:

VERSATA, INC.

/S/    WILLIAM FREDERICK         Authorized Officer

 

--------------------------------------------------------------------------------

 

AGREEMENT TO PROVIDE INSURANCE

 

Grantor: VERSATA, INC.    Bank:    Venture Banking Group, a division of Greater
Bay Bank N.A.

 

INSURANCE REQUIREMENTS. VERSATA, INC. (“Grantor”) understands that insurance
coverage is required in connection with the extending of a loan or the providing
of other financial accommodations to Grantor by Bank. These requirements are set
forth in the Loan Documents. The following minimum insurance coverages must be
provided on the following described collateral (the “Collateral”):

 

Collateral:

   All Inventory, Equipment and Fixtures.

Type:

   All risks, including fire, theft and liability.

Amount:

   Full insurable value.

Basis:

   Replacement value.

Endorsements:

   Loss payable clause to Bank with stipulation that coverage will not be
canceled or diminished without a minimum of twenty (20) days’ prior written
notice to Bank.

 

INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Bank.

 

FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or before
closing, evidence of the required insurance as provided above, with an effective
date of December 20, 2004, or earlier. Grantor acknowledges and agrees that if
Grantor fails to provide any required insurance or fails to continue such
insurance in force, Bank may do so at Grantor’s expense as provided in the Loan
and Security Agreement. The cost of such insurance, at the option of Bank, shall
be payable on demand or shall be added to the indebtedness as provided in the
security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR’S EQUITY IN
THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE
ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE
REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.

 

AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Bank to provide to any person (including any insurance agent or
company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.

 

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER 20, 2004.

 

GRANTOR:

 

VERSATA, INC.

/s/    WILLIAM FREDERICK         Authorized Officer

 

FOR BANK USE ONLY INSURANCE VERIFICATION

DATE:
________________________________________                                PHONE:
___________________________________

AGENT’S NAME:
________________________________________________________________________________________

INSURANCE COMPANY:
__________________________________________________________________________________

POLICY NUMBER:
________________________________________________________________________________________

EFFECTIVE DATES:
______________________________________________________________________________________

COMMENTS:
____________________________________________________________________________________________

 

--------------------------------------------------------------------------------

 

CORPORATE RESOLUTIONS TO BORROW

 

Borrower:         VERSATA, INC.

 

I, the undersigned Secretary or Assistant Secretary of VERSATA, INC. (the
“Corporation”), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of Delaware.

 

I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.

 

I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or by
other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted:

 

BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:

 

NAMES

--------------------------------------------------------------------------------

      

POSITION

--------------------------------------------------------------------------------

       

ACTUAL SIGNATURES

--------------------------------------------------------------------------------

William Frederick        CFO         /s/    WILLIAM FREDERICK                   
                                                   

 

acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:

 

Borrow Money. To borrow from time to time from Venture Banking Group, a division
of Greater Bay Bank N.A. (“Bank”), on such terms as may be agreed upon between
the officers, employees, or agents and Bank, such sum or sums of money as in
their judgment should be borrowed, without limitation, including such sums as
are specified in that certain Loan and Security Agreement dated as of December
20, 2004 (the “Loan Agreement”).

 

Execute Notes. To execute and deliver to Bank the promissory note or notes of
the Corporation, on Bank’s forms, at such rates of interest and on such terms as
may be agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Bank, and also to execute and deliver to Bank one or more
renewals, extensions, modifications, refinancings, consolidations, or
substitutions for one or more of the notes, or any portion of the notes.

 

Grant Security. To grant a security interest to Bank in the Collateral described
in the Loan Agreement, which security interest shall secure all of the
Corporation’s Obligations, as described in the Loan Agreement.

 

Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to the Corporation or in which the Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be credited
to the account of the Corporation with Bank, or to cause such other disposition
of the proceeds derived therefrom as they may deem advisable.

 

Letters of Credit; Foreign Exchange. To execute letters of credit applications,
foreign exchange agreements and other related documents pertaining to Bank’s
issuance of letters of credit and foreign exchange contracts.

 

Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.

 

BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank

 

--------------------------------------------------------------------------------

may rely on these Resolutions until written notice of their revocation shall
have been delivered to and received by Bank. Any such notice shall not affect
any of the Corporation’s agreements or commitments in effect at the time notice
is given.

 

I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.

 

IN WITNESS WHEREOF, I have hereunto set my hand on December 20, 2004 and attest
that the signatures set opposite the names listed above are their genuine
signatures.

 

CERTIFIED AND ATTESTED BY: X   /s/    WILLIAM FREDERICK              

 

--------------------------------------------------------------------------------

DEBTOR:

   VERSATA, INC.

SECURED PARTY:

   VENTURE BANKING GROUP, A DIVISION OF GREATER BAY BANK N.A.

 

EXHIBIT A

 

COLLATERAL DESCRIPTION ATTACHMENT

TO UCC NATIONAL FORM FINANCING STATEMENT

 

All personal property of 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), 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 non-cash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefore 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, including revised Division 9 of
the Uniform Commercial Code-Secured Transactions, added by Stats. 1999, c.991
(S.B. 45), Section 35, operative July 1, 2001.

 

Notwithstanding the foregoing, the Collateral shall not include (i) any
Copyrights, Patents, Trademarks, Maskworks, trade secrets, intellectual property
rights in computer software or computer software products, and design rights,
now owned or hereafter acquired, or any claims for damages by way of any past,
present and future infringement of any of the foregoing (collectively, the
“Intellectual Property”); provided, however, that the Collateral shall include
all accounts and general intangibles that consist of rights to payment and
proceeds from the sale, licensing or disposition of all or any part, or rights
in, the foregoing (the “Rights to Payment”), (ii) any equipment acquired or
accessions, additions or improvements thereto, any replacement thereof or
proceeds thereof pursuant to Permitted Lien and (iii) any of the outstanding
capital stock of a controlled foreign corporation (as defined in the Internal
Revenue Code of 1986, as amended) in excess of 65% of the voting power of all
classes of capital stock of such controlled foreign corporation entitled to
vote, Notwithstanding the foregoing, if a judicial authority (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying Intellectual
Property is necessary to have a security interest in the Rights to Payment, then
the Collateral shall automatically, and effective as of the Closing Date,
include the Intellectual Property to the extent necessary to permit perfection
of Bank’s security interest in the Rights to Payment.

 

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LOGO [g3856838568_img001.jpg]

 

Versata, Inc. 300 Lakeside Drive, Suite 1300, Oakland, CA 94612-3537 ph
510.628.1000 fx 510.238.4101

 

VERSATA, INC.

DISCLOSURE LETTER

 

To: The Lender under that certain Loan and Security Agreement, entered into as
of December 20, 2004, by and between Versata, Inc., a Delaware corporation (the
“Company”), and Venture Banking Group, division of Greater Bay Bank N.A., as
lender (the “Loan Agreement”).

 

This Disclosure Letter is delivered pursuant to the Loan Agreement. The
disclosures set forth in this Disclosure Letter represent exceptions,
qualifications and other disclosures pursuant to the Loan Agreement. Capitalized
terms used herein and defined in the Loan Agreement shall have the meanings
ascribed in the Loan Agreement, unless the context otherwise requires.

 

IN WITNESS WHEREOF, the undersigned has executed this Disclosure Letter as of
this 20th day of December, 2004.

 

VERSATA, INC.

By:   /s/    WILLIAM FREDERICK        

Name:

  William Frederick

Title:

  CFO

 

--------------------------------------------------------------------------------

VERSATA, INC    Section 1.1

 

Loan and Security Agreement

 

Permitted Indebtedness @ November 30, 2004

 

Lessor

--------------------------------------------------------------------------------

   Amount

--------------------------------------------------------------------------------

Dell Financial

   $ 4,951

Dell Financial

     23,724

VAResources

     82,643

Dell Financial

     8,110     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

TOTALS

   $ 119,428     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

VERSATA, INC    Section 1.1

 

Loan and Security Agreement

 

Permitted Liens @ November 30, 2004

 

Status

--------------------------------------------------------------------------------

  

Lessor

--------------------------------------------------------------------------------

   File #

--------------------------------------------------------------------------------

Active

   Name          

Hewlett Packard

   22269086     

Hewlett Packard

   22472136     

Dell Financial Services

   41018912     

Dell Financial Services

   41089724     

Dell Financial Services

   0103160366

Inactive/Terminated

   Name          

Irwin Union Bank and Trust Company

   11629828     

Irwin Union Bank and Trust Company

   11629471     

Irwin Union Bank and Trust Company

   30445919     

Cupertino National Bank & Trust

   21452105     

Cupertino National Bank & Trust

   41611526     

Inter-Tel Leasing, Inc.

   0028860331     

Ameritech Credit Corporation

   0029160189     

CIT Venture Leasing Fund LLC

   9934260541     

CIT Venture Leasing Fund LLC

   9934460042

Pending

   Name          

VA Resources

    

 

--------------------------------------------------------------------------------

 

Section 4.1

 

VERSATA, INC

 

Loan and Security Agreement

 

Collateral Excluded from Security Interest @ November 30, 2004

 

Lessor

--------------------------------------------------------------------------------

   Amount

--------------------------------------------------------------------------------

Dell Financial

   $ 19,804

Dell Financial

     50,657

VAResources

     80,478

Dell Financial

     10,348     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

TOTALS

   $ 161,288     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

Section 5.5

 

VERSATA, INC

 

Loan and Security Agreement

 

Intellectual Property @ November 30, 2004

 

All third party intellectual property

 

--------------------------------------------------------------------------------

 

Section 5.6

 

VERSATA, INC

 

Loan and Security Agreement

 

Business Names @ November 30, 2004

 

Vision Software Tools, Inc.

 

All subsidiary company names

 

--------------------------------------------------------------------------------

 

Section 5.6

 

VERSATA, INC

 

Loan and Security Agreement

 

Equipment Locations @ November 30, 2004

 

US

555 Twin Dolphin Drive, #570

Redwood City, CA 94065

 

Canada

1597 Bedford Highway

Halifax, NS B4A 3Y4

Canada

 

UK

Parkshot House

5 Kew Road

Richmond

Surrey TW9 2PR

 

Germany

Flughafenstr.52

D-22335 Hamburg

Deutschland

 

Australia

8/28 Eliot Ave

Carnegie, VIC 3161

 

Various minor field offices in North America and Europe

 

--------------------------------------------------------------------------------

 

Section 5.7

 

VERSATA, INC

 

Loan and Security Agreement

 

Litigation @ November 30, 2004

 

Claims made by former French subsidiary employees under French labor law
regarding severance.

 

--------------------------------------------------------------------------------

 

Section 5.15

 

VERSATA, INC

 

Loan and Security Agreement

 

Excluded Investment Accounts @ November 30, 2004

 

Thomas Weisel Partners

   US

Irwin Union Bank & Trust

   US

Barclay’s Bank

   UK

Australia National Bank

   Australia

Commerzbank

   Germany

Societe Generale

   France