Exhibit 10.1

   

Partners for Growth

Loan and Security Agreement

 

Borrower:

   Sonic Foundry, Inc.

Address:

   222 W. Washington Avenue, Madison, WI 53703

Borrower:

   Sonic Foundry Media Systems, Inc.

Address:

   222 W. Washington Avenue, Madison, WI 53703

Date:

   March 5, 2010

THIS LOAN AND SECURITY AGREEMENT (“Agreement”) is entered into on the above date
between PARTNERS FOR GROWTH II, L.P. (“PFG”), whose address is 180 Pacific
Avenue, San Francisco, CA 94111 and the borrower(s) named above (jointly and
severally, the “Borrower”), whose chief executive office is located at the above
address (“Borrower’s Address”). The Schedule to this Agreement (the “Schedule”)
being signed by the parties concurrently, is an integral part of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 7
below.)

 

1. LOANS.

1.1 Loan. PFG will make a term loan to Borrower (the “Loan”) in the amount shown
on the Schedule, provided no Default or Event of Default has occurred and is
continuing.

1.2 Interest. All Loans and all other monetary Obligations shall bear interest
at the rate shown on the Schedule, except where expressly set forth to the
contrary in this Agreement. Interest shall be payable monthly, on the first day
of each month for interest accrued during the prior month.

1.3 Fees. Borrower shall pay PFG the fees shown on the Schedule, which are in
addition to all interest and other sums payable to PFG and are not refundable.

1.4 [Intentionally Left Blank]

1.5 Late Fee. If any payment of accrued interest for any month is not made
within three business days after the date a bill therefor is sent by PFG to
Borrower, or if any payment of principal or any other payment is not made within
three Business Days after the date due, Borrower shall pay PFG a late payment
fee equal to 5% of the amount of such late payment with respect to the first
such late payment under the Loan and a late payment fee equal to 10% of the
amount of such late payment with respect to each subsequent late payment under
the Loan. The provisions of this paragraph shall not be construed as PFG’s
consent to Borrower’s failure to pay any amounts when due, and PFG’s acceptance
of any such late payments shall not restrict PFG’s exercise of any remedies
arising out of any such failure.

 

2. SECURITY INTEREST.

2.1 Grant of Security Interest. To secure the payment and performance of all of
the Obligations when due, Borrower hereby grants to PFG a security interest in
all of the following (collectively, the “Collateral”): all right, title and
interest of Borrower in and to all of the following, whether now owned or
hereafter arising or acquired and wherever located: all Accounts; all Inventory;
all Equipment; all Deposit Accounts; all General Intangibles (including without
limitation all Intellectual Property); all Investment Property; all Other
Property; and any and all claims, rights and interests in any of the above, and
all guaranties and security for any of the above, and all substitutions and
replacements for, additions, accessions, attachments, accessories, and
improvements to, and proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties) of, any and all of the
above, and all Borrower’s books relating to any and all of the above.

 

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3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.

In order to induce PFG to enter into this Agreement and to make Loans, each
Borrower represents and warrants to PFG as follows, and each Borrower covenants
that the following representations will continue to be true, and that each
Borrower will at all times comply with all of the following covenants,
throughout the term of this Agreement and until all Obligations have been paid
and performed in full:

3.1 Corporate Existence and Authority. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would result in a Material Adverse Change. The execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby (i) have been duly and validly authorized, (ii) are enforceable against
Borrower in accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors’ rights generally), and (iii) do not
violate Borrower’s articles or certificate of incorporation, or Borrower’s
by-laws, or any law or any material agreement or instrument which is binding
upon Borrower or its property, and (iv) do not constitute grounds for
acceleration of any material indebtedness or obligation under any agreement or
instrument which is binding upon Borrower or its property.

3.2 Name; Trade Names and Styles. As of the date hereof, the name of Borrower
set forth in the heading to this Agreement is its correct name, as set forth in
its Articles or Certificate of Incorporation. Listed in the Representations are
all prior names of Borrower and all of Borrower’s present and prior trade names
as of the date hereof during the last five years. Borrower shall give PFG 30
days’ prior written notice before changing its name or doing business under any
other name. Borrower has complied, and will in the future comply, in all
material respects, with all laws relating to the conduct of business under a
fictitious business name, if applicable to Borrower.

3.3 Place of Business; Location of Collateral. As of the date hereof, the
address set forth in the heading to this Agreement is Borrower’s chief executive
office. In addition, as of the date hereof, Borrower has places of business and
Collateral that is located only at the locations set forth in the
Representations. Borrower will give PFG at least 30 days prior written notice
before opening any additional place of business, changing its chief executive
office, or moving any of the Collateral to a location other than Borrower’s
Address or one of the locations set forth in the Representations, except that
Borrower may maintain sales offices in the ordinary course of business at which
not more than a total of $10,000 fair market value of Equipment is located.

3.4 Title to Collateral; Perfection; Permitted Liens.

(a) Borrower is now, and will at all times in the future be, the sole owner of
all the Collateral, except for items of Equipment which are leased to Borrower.
The Collateral now is and will remain free and clear of any and all liens,
charges, security interests, encumbrances and adverse claims, except for
Permitted Liens. PFG now has, and will continue to have, a first-priority
perfected and enforceable security interest in all of the Collateral, subject
only to the Permitted Liens, and Borrower will at all times defend PFG and the
Collateral against all claims of others.

(b) Borrower has set forth in the Representations all of Borrower’s Deposit
Accounts, and Borrower will give PFG five Business Days advance written notice
before establishing any new Deposit Accounts and will cause the institution
where any such new Deposit Account is maintained to execute and deliver to PFG a
control agreement in form sufficient to perfect PFG’s security interest in the
Deposit Account and otherwise satisfactory to PFG in its good faith business
judgment.

(c) In the event that Borrower shall at any time after the date hereof have any
commercial tort claims against others, which it is asserting, and in which the
potential recovery exceeds $100,000, Borrower shall promptly notify PFG thereof
in writing and provide PFG with such information regarding the same as PFG shall
request (unless providing such information would waive the Borrower’s
attorney-client privilege). Such notification to PFG shall constitute a grant of
a security interest in the commercial tort claim and all proceeds thereof to
PFG, and Borrower shall execute and deliver all such documents and take all such
actions as PFG shall request in connection therewith.

(d) None of the Collateral now is or will be affixed to any real property in
such a manner, or with such intent, as to become a fixture. Borrower is not and
will not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower’s
right to remove any Collateral from the leased premises. Whenever any Collateral
is located upon premises in which any third party has an interest, Borrower
shall, whenever requested by PFG, use commercially reasonable efforts to cause
such third party to execute and deliver to PFG, in form acceptable to PFG, such
waivers and subordinations as PFG shall specify in its good faith business
judgment. Borrower will keep in full force and effect, and will comply with all
material terms of, any lease of real property where any of the Collateral now or
in the future may be located.

 

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3.5 Maintenance of Collateral. Borrower will maintain the Collateral in good
working condition (ordinary wear and tear excepted), and Borrower will not use
the Collateral for any unlawful purpose. Borrower will immediately advise PFG in
writing of any material loss or damage to the Collateral.

3.6 Books and Records. Borrower has maintained and will maintain at Borrower’s
Address complete and accurate books and records, comprising an accounting system
in accordance with GAAP.

3.7 Financial Condition, Statements and Reports. All financial statements now or
in the future delivered to PFG have been, and will be, prepared in conformity
with GAAP and now and in the future will fairly present the results of
operations and financial condition of Borrower in all material respects, in
accordance with GAAP, at the times and for the periods therein stated. Between
the last date covered by any such statement provided to PFG and the date hereof,
there has been no Material Adverse Change.

3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely filed,
and will timely file, all required tax returns and reports, and Borrower has
timely paid, and will timely pay, all foreign, federal, state and local taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any of the foregoing which are contested
by Borrower in good faith, provided that Borrower (i) contests the same by
appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies PFG in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the same from becoming a lien upon any of the Collateral.
Borrower is unaware of any claims or adjustments proposed for any of Borrower’s
prior tax years which could result in additional taxes becoming due and payable
by Borrower. Borrower has paid, and shall continue to pay all amounts necessary
to fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could
reasonably be expected to result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.

3.9 Compliance with Law. Borrower has, to the best of its knowledge, complied,
and will comply, in all material respects, with all provisions of all foreign,
federal, state and local laws and regulations applicable to Borrower, including,
but not limited to, those relating to Borrower’s ownership of real or personal
property, the conduct and licensing of Borrower’s business, and all
environmental matters.

3.10 Litigation. There is no claim, suit, litigation, proceeding or
investigation pending or (to best of Borrower’s knowledge) threatened against or
affecting Borrower in any court or before any governmental agency (or any basis
therefor known to Borrower) which could reasonably be expected to result, either
separately or in the aggregate, in any Material Adverse Change. Borrower will
promptly inform PFG in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted against Borrower involving
any single claim of $50,000 or more, or involving $100,000 or more in the
aggregate.

3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for lawful
business purposes. Borrower is not purchasing or carrying any “margin stock” (as
defined in Regulation U of the Board of Governors of the Federal Reserve System)
and no part of the proceeds of any Loan will be used to purchase or carry any
“margin stock” or to extend credit to others for the purpose of purchasing or
carrying any “margin stock.”

3.12 No Default. At the date hereof, no Default or Event of Default has
occurred, and no Default or Event of Default will have occurred after giving
effect to any Loans being made concurrently herewith.

3.13 Protection and Registration of Intellectual Property Rights. Borrower
shall: (a) protect, defend and maintain the validity and enforceability of its
intellectual property, other than intellectual property that Borrower has made a
determination not to maintain; (b) promptly advise PFG in writing of material
infringements of its intellectual property; and (c) not allow any intellectual
property material to Borrower’s business to be abandoned, forfeited or dedicated
to the public without PFG’s written consent. If, before the Obligations have
been indefeasibly paid and/or performed in full, Borrower shall (i) adopt, use,
acquire or apply for registration of any trademark, service mark or trade name,
(ii) apply for registration of any patent or obtain any patent or patent
application; (iii) create or acquire any published or material unpublished works
of authorship material to the business that is or is to be registered with the
U.S. Copyright Office or any non-U.S. equivalent; or (iv) register or acquire
any domain name or domain name rights, then the provisions of Section 2.1 shall
automatically apply thereto, and Borrower shall use commercially reasonable
efforts to give PFG advance notice thereof in writing and in any event shall
thereafter give PFG prompt notice thereof in writing. Borrower shall further
provide PFG with a copy of the foregoing and shall take such further actions as
PFG may reasonably request from time to time to perfect or continue the
perfection of PFG’s interest in such Collateral.

 

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3.14 Domain Rights and Related Matters. Borrower (a) is the sole record, legal
and beneficial owner of all domain names and domain name rights used in
connection with its business and that of its Subsidiaries, free and clear of any
rights or claims of any third party; (b) represents and warrants that the
information provided in the Representations with respect to domain names and
ownership thereof, domain registry, domain servers, location and administrative
contact information, web hosting and related services and facilities
(collectively, “Domain Rights”) is true, accurate and complete and Borrower
shall promptly notify PFG of any changes to such information; (c) shall maintain
all Domain Rights in full force and effect so long as any Obligations remain
outstanding; (d) shall, upon request of PFG, notify such third parties
(including domain registrars, hosting companies and internet service providers)
of PFG’s security interest in Borrower’s Domain Rights; and (e) promptly advise
PFG in writing of any disputes or infringements of its Domain Rights.

 

4. ADDITIONAL DUTIES OF BORROWER.

4.1 Financial and Other Covenants. Borrower shall at all times comply with the
financial and other covenants set forth in the Schedule.

4.2. Remittance of Proceeds. Subject to the rights of the Senior Lender, all
proceeds arising from the disposition of any Collateral shall be delivered, in
kind, by Borrower to PFG in the original form in which received by Borrower not
later than the following Business Day after receipt by Borrower, to be applied
to the Obligations in such order as PFG shall determine; provided that, if no
Default or Event of Default has occurred and is continuing, Borrower shall not
be obligated to remit to PFG (i) the proceeds of Accounts arising in the
ordinary course of business, or (ii) the proceeds of the sale of worn out or
obsolete Equipment disposed of by Borrower in good faith in an arm’s length
transaction for an aggregate purchase price of $25,000 or less (for all such
transactions in any fiscal year). Borrower agrees that it will not commingle
proceeds of Collateral (other than those described in subclauses (i) and
(ii) above) with any of Borrower’s other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for PFG, except as set forth above, and subject to the rights of the
Senior Lender. PFG may, in its good faith business judgment, require that all
proceeds of Collateral be deposited by Borrower into a lockbox account, or such
other “blocked account” as PFG may specify, pursuant to a blocked account
agreement in such form as PFG may specify in its good faith business judgment.
Nothing in this Section limits the restrictions on disposition of Collateral set
forth elsewhere in this Agreement.

4.3 Insurance. Borrower shall at all times insure all of the tangible personal
property Collateral and carry such other business insurance, with insurers
reasonably acceptable to PFG, in such form and amounts as PFG may reasonably
require and as are customary and in accordance with standard practices for
Borrower’s industry and locations, and Borrower shall provide evidence of such
insurance to PFG. All such insurance policies shall name PFG as an additional
loss payee, and shall contain a lenders loss payee endorsement in form
reasonably acceptable to PFG. Upon receipt of the proceeds of any such
insurance, subject to the rights of the Senior Lender, PFG shall apply such
proceeds in reduction of the Obligations as PFG shall determine in its good
faith business judgment, except that, provided no Default or Event of Default
has occurred and is continuing, PFG shall release to Borrower insurance proceeds
with respect to Equipment totaling less than $100,000, which shall be utilized
by Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. PFG may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance, PFG may, but is not obligated to, obtain the same at
Borrower’s expense. Borrower shall promptly deliver to PFG copies of all
material reports made to insurance companies.

4.4 Reports. Borrower, at its expense, shall provide PFG with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, projections, operating plans and other financial
documentation), as PFG shall from time to time specify in its good faith
business judgment.

4.5 Access to Collateral, Books and Records. At reasonable times, and on one
Business Day’s notice, PFG, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Borrower’s books and records. The
foregoing inspections and audits shall be at Borrower’s expense and the charge
therefor shall be $750 per person per day (or such higher amount as shall
represent PFG’s then current standard charge for the same), plus reasonable
out-of-pocket expenses. Notwithstanding the foregoing, if no Default or Event of
Default has occurred and is continuing, Borrower shall not be required to
disclose to PFG any document or information (i) where disclosure is prohibited
by applicable law or any agreement binding on Borrower, or (ii) is subject to
attorney-client or similar privilege or constitutes attorney work product. If
Borrower is withholding any information under the preceding sentence, it shall
so advise PFG in writing, giving PFG a general description of the nature of the
information withheld.

4.6 Negative Covenants. Except as may be permitted in the Schedule, Borrower
shall not, without PFG’s prior written consent (which shall be a matter of its
good faith business judgment and shall be conditioned on Borrower then being in
compliance with the terms of this Agreement), do any of the following:

(i) permit or suffer any Change in Control;

 

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(ii) acquire any assets, except in the ordinary course of business, or make any
Investments other than Permitted Investments;

(iii) enter into any other Non-Trivial transaction outside the ordinary course
of business;

(iv) sell or transfer any Collateral (including without limitation the sale or
transfer of Collateral which is then leased back by Borrower), except for
(A) the sale of finished Inventory in the ordinary course of Borrower’s
business, and except for the sale of obsolete or unneeded Equipment in the
ordinary course of business, (B) the making of Permitted Investments, (C) the
granting of Permitted Liens, and (D) the non-exclusive licensing of Intellectual
Property in the ordinary course of business;

(v) store any Inventory or other Collateral with any warehouseman or other third
party, unless there is in place a bailee agreement in such form as PFG shall
specify in its good faith business judgment;

(vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or
other contingent basis, other than rights of stock rotation offered certain
distributors;

(vii) make any loans of any money or other assets, other than Permitted
Investments;

(viii) incur any Indebtedness, other than Permitted Indebtedness;

(ix) guarantee or otherwise become liable with respect to the obligations of
another party or entity;

(x) pay or declare any dividends on Borrower’s stock (except for dividends
payable solely in stock of Borrower);

(xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any
of Borrower’s stock, except except (A) as required in the ordinary course of
business and consistent with past practice in connection with redeeming or
purchasing stock of departing employees, up to a maximum aggregate of $100,000
in any fiscal year, and (B) cashless acquisitions of stock in connection with
exercise of employee stock options in the ordinary course of Borrower’s business
consistent with past practice;

(xii) engage, directly or indirectly, in any business other than the businesses
currently engaged in by Borrower or reasonably related thereto;

(xiii) without at least thirty (30) days prior written notice to PFG: (1) add
any new offices or business locations, including warehouses (unless such new
offices or business locations contain less than $10,000 in Borrower’s assets or
property, (2) change its jurisdiction of organization, (3) change its
organizational structure or type, (4) change its legal name, or (5) change any
organizational number (if any) assigned by its jurisdiction of organization;

(xiv) liquidate or dissolve or elect to liquidate or dissolve; or

(xv) the Board of directors shall resolve to or approve, or Borrower shall
otherwise take any steps to effect, any of the foregoing actions in clauses
(i) through (xv), inclusive.

Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.

4.7 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against PFG with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to PFG, make available Borrower and
its officers, employees and agents and Borrower’s books and records, to the
extent that PFG may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.

4.8 Changes. Borrower agrees to promptly notify PFG in writing of any changes in
the information set forth in the Representations.

4.9 Further Assurances. Borrower agrees, at its expense, on request by PFG, to
execute all documents and take all actions, as PFG, may, in its good faith
business judgment, deem necessary or useful in order to perfect and maintain
PFG’s perfected First-Priority security interest in the Collateral (subject to
Permitted Liens), and in order to fully consummate the transactions contemplated
by this Agreement.

 

5. TERM.

5.1 Maturity Date. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the “Maturity Date”), subject to Sections 5.2
and 5.3 below.

 

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5.2 Early Termination. This Agreement may be terminated prior to the Maturity
Date as follows: (i) if specifically permitted in the Schedule, by Borrower,
effective three Business Days after written notice of termination is given to
PFG; or (ii) by PFG at any time after the occurrence and during the continuance
of an Event of Default, without notice, effective immediately.

5.3 Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Notwithstanding
any termination of this Agreement, all of PFG’s security interests in all of the
Collateral and all of the terms and provisions of this Agreement shall continue
in full force and effect until all Obligations have been paid and performed in
full; provided that PFG may, in its sole discretion, refuse to make any further
Loans after termination. No termination shall in any way affect or impair any
right or remedy of PFG, nor shall any such termination relieve Borrower of any
Obligation to PFG, until all of the Obligations have been paid and performed in
full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, PFG shall promptly terminate its financing
statements with respect to the Borrower and deliver to Borrower such other
documents as may be required to fully terminate PFG’s security interests.

 

6. EVENTS OF DEFAULT AND REMEDIES.

6.1 Events of Default. The occurrence of any of the following events shall
constitute an “Event of Default” under this Agreement, and Borrower shall give
PFG immediate written notice thereof:

(a) Any warranty, representation, statement, report or certificate made or
delivered to PFG by Borrower or any of Borrower’s officers, employees or agents,
now or in the future, shall be untrue or misleading in a material respect when
made or deemed to be made; or

(b) Borrower shall fail to pay any Loan or any interest thereon or any other
monetary Obligation within three Business Days after the date due, provided that
in the case of charges other than principal and interest on Obligations and fees
and costs due on the date hereof, at least five Business Days prior notice has
been given to Borrower; or

(c) Borrower (i) shall fail to comply with any of the financial covenants set
forth in the Schedule, or (ii) shall breach any of the provisions of Section 4.6
hereof that by its nature is not reasonably capable of cure or which is not
cured within five Business Days, or (iii) shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured, or

(iv) shall fail to permit PFG to conduct an inspection or audit as provided in
Section 4.5 hereof or (v) shall fail to provide PFG with any report under
Section 6 of the Schedule within five Business Days after the date due; or

(d) Borrower shall fail to perform any other Non-trivial non-monetary
Obligation, which failure is not cured within five Business Days after the date
due; or

(e) any levy, assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made on all or any Non-trivial part of the Collateral which
is not cured within 10 days after the occurrence of the same; or

(f) any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien; or

(g) Borrower breaches any material contract or obligation, which has resulted or
may reasonably be expected to result in a Material Adverse Change; or

(h) Dissolution, termination of existence, insolvency or business failure of
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, or Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or

(i) the commencement of any proceeding against Borrower or any guarantor of any
of the Obligations under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 45 days after the date commenced; or

(j) revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under any
bankruptcy or insolvency law; or

 

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(k) revocation or termination of, or limitation or denial of liability upon, any
pledge of any certificate of deposit, securities or other property or asset of
any kind pledged by any third party to secure any or all of the Obligations, or
any attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or

(l) Borrower makes any payment on account of any indebtedness or obligation
which has been subordinated to the Obligations (other than as permitted in the
applicable subordination agreement), or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or

(m) Borrower fails to make any required amortization payment under Section 1 of
the Schedule because the making thereof would result in a default under the
Senior Loan Documents; or

(n) a Material Adverse Change shall occur.

PFG may cease making any Loans hereunder during any of the cure periods provided
above, and thereafter if an Event of Default has occurred and is continuing.

6.2 Remedies. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, PFG, at its option, and without notice or
demand of any kind (all of which are hereby expressly waived by Borrower), may
do any one or more of the following, subject to the rights of the Senior Lender:
(a) Cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other Loan Document; (b) Accelerate and declare all or any part
of the Obligations to be immediately due, payable, and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any Obligation; (c) Take possession of any or all of
the Collateral wherever it may be found, and for that purpose Borrower hereby
authorizes PFG without judicial process to enter onto any of Borrower’s premises
without interference to search for, take possession of, keep, store, or remove
any of the Collateral, and remain on the premises or cause a custodian to remain
on the premises in exclusive control thereof, without charge for so long as PFG
deems it necessary, in its good faith business judgment, in order to complete
the enforcement of its rights under this Agreement or any other agreement;
provided, however, that should PFG seek to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives: (i) any bond
and any surety or security relating thereto required by any statute, court rule
or otherwise as an incident to such possession; (ii) any demand for possession
prior to the commencement of any suit or action to recover possession thereof;
and (iii) any requirement that PFG retain possession of, and not dispose of, any
such Collateral until after trial or final judgment; (d) Require Borrower to
assemble any or all of the Collateral and make it available to PFG at places
designated by PFG which are reasonably convenient to PFG and Borrower, and to
remove the Collateral to such locations as PFG may deem advisable; (e) Complete
the processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, PFG shall have the
right to use Borrower’s premises, vehicles, hoists, lifts, cranes, and other
Equipment and all other property without charge; (f) Sell, lease or otherwise
dispose of any of the Collateral, in its condition at the time PFG obtains
possession of it or after further manufacturing, processing or repair, at one or
more public and/or private sales, in lots or in bulk, for cash, exchange or
other property, or on credit, and to adjourn any such sale from time to time
without notice other than oral announcement at the time scheduled for sale. PFG
shall have the right to conduct such disposition on Borrower’s premises without
charge, for such time or times as PFG deems reasonable, or on PFG’s premises, or
elsewhere and the Collateral need not be located at the place of disposition.
PFG may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under applicable
law, at any private disposition. Any sale or other disposition of Collateral
shall not relieve Borrower of any liability Borrower may have if any Collateral
is defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Accounts and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes PFG to endorse or sign Borrower’s name on all collections, receipts,
instruments and other documents, to take possession of and open mail addressed
to Borrower and remove therefrom payments made with respect to any item of the
Collateral or proceeds thereof, and, in PFG’s good faith business judgment, to
grant extensions of time to pay, compromise claims and settle Accounts and the
like for less than face value; (h) Exercise any and all rights under any present
or future control agreements relating to Deposit Accounts or Investment
Property; and (i) Demand and receive possession of any of Borrower’s federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto. All reasonable attorneys’ fees, expenses, costs,
liabilities and obligations incurred by PFG with respect to the foregoing shall
be added to and become part of the Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations. Without limiting any of PFG’s rights and remedies, from
and after the occurrence and during the continuance of any Event of Default, the
interest rate applicable to the Obligations shall be the Default Rate.

6.3 Standards for Determining Commercial Reasonableness. Borrower and PFG agree
that a sale or other disposition (collectively, “sale”) of any Collateral which
complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
ten days prior to the sale, and, in the case of a

 

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public sale, notice of the sale is published at least five days before the sale
in a newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by PFG,
with or without the Collateral being present; (iv) The sale commences at any
time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase price in cash
or by cashier’s check or wire transfer is required; (vi) With respect to any
sale of any of the Collateral, PFG may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. PFG shall be free to employ other methods of
noticing and selling the Collateral, in its discretion, if they are commercially
reasonable.

6.4 Power of Attorney. Upon the occurrence and during the continuance of any
Event of Default, without limiting PFG’s other rights and remedies, Borrower
grants to PFG an irrevocable power of attorney coupled with an interest,
authorizing and permitting PFG (acting through any of its employees, attorneys
or agents) at any time, at its option, but without obligation, with or without
notice to Borrower, and at Borrower’s expense, to do any or all of the
following, in Borrower’s name or otherwise, but PFG agrees that if it exercises
any right hereunder, it will do so in good faith and in a commercially
reasonable manner and subject to the rights of the Senior Lender: (a) Execute on
behalf of Borrower any documents that PFG may, in its good faith business
judgment, deem advisable in order to perfect and maintain PFG’s security
interest in the Collateral, or in order to exercise a right of Borrower or PFG,
or in order to fully consummate all the transactions contemplated under this
Agreement, and all other Loan Documents; (b) Execute on behalf of Borrower, any
invoices relating to any Account, any draft against any Account Debtor and any
notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of
Lien, claim of mechanic’s, materialman’s or other lien, or assignment or
satisfaction of mechanic’s, materialman’s or other lien; (c) Take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral;
endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into PFG’s possession; (d) Endorse all
checks and other forms of remittances received by PFG; (e) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (f) Grant extensions of time to pay,
compromise claims and settle Accounts and General Intangibles for less than face
value and execute all releases and other documents in connection therewith;
(g) Pay any sums required on account of Borrower’s taxes or to secure the
release of any liens therefor, or both; (h) Settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (i) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give PFG the same rights of
access and other rights with respect thereto as PFG has under this Agreement;
(j) Execute on behalf of Borrower and file in Borrower’s name such documents and
instruments as may be necessary or appropriate to effect the transfer of Domain
Rights, domain names, domain registry administrative contacts and domain and
website hosting services into the name of PFG or its designees, and (k) Take any
action or pay any sum required of Borrower pursuant to this Agreement and any
other Loan Documents. Any and all reasonable sums paid and any and all
reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by PFG with respect to the foregoing shall be added to and become part
of the Obligations, shall be payable on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations. In
no event shall PFG’s rights under the foregoing power of attorney or any of
PFG’s other rights under this Agreement be deemed to indicate that PFG is in
control of the business, management or properties of Borrower.

6.5 Application of Proceeds. All proceeds realized as the result of any sale of
the Collateral shall be applied by PFG first to the reasonable costs, expenses,
liabilities, obligations and attorneys’ fees incurred by PFG in the exercise of
its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as PFG
shall determine in its sole discretion. Any surplus shall be paid to Borrower or
other persons legally entitled thereto; Borrower shall remain liable to PFG for
any deficiency. If, PFG, in its good faith business judgment, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, PFG shall have the option, exercisable at
any time, in its good faith business judgment, of either reducing the
Obligations by the principal amount of purchase price or deferring the reduction
of the Obligations until the actual receipt by PFG of the cash therefor.

6.6 Remedies Cumulative. In addition to the rights and remedies set forth in
this Agreement, PFG shall have all the other rights and remedies accorded a
secured party under the Code and under all other applicable laws, and under any
other instrument or agreement now or in the future entered into between PFG and
Borrower, and all of such rights and remedies are cumulative and none is
exclusive. Exercise or partial exercise by PFG of one or more of its rights or
remedies shall not be deemed an election, nor bar PFG from subsequent exercise
or partial exercise of any other rights or remedies. The failure or delay of PFG
to exercise any rights or remedies shall not operate as a waiver thereof, but
all rights and remedies shall continue in full force and effect until all of the
Obligations have been fully paid and performed.

 

7. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:

“Account Debtor” means the obligor on an Account.

 

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“Accounts” means all present and future “accounts” as defined in the California
Uniform Commercial Code in effect on the date hereof with such additions to such
term as may hereafter be made, and includes without limitation all accounts
receivable and other sums owing to Borrower.

“Affiliate” means, with respect to any Person, a relative, partner, shareholder,
director, officer, or employee of such Person, or any parent or Subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.

“Availability” means the amount that is available to be borrowed by Borrower in
compliance with the Senior Loan Documents, as represented by Borrower in then
currently-required Borrowing Base Certificate complying with the terms of this
Agreement and provided to PFG.

“Business Day” means a day on which PFG is open for business.

“Cash” means unrestricted and unencumbered (except for the liens of PFG and the
Senior Lender) cash or cash equivalents in deposit accounts or investment
accounts for which there is in effect a deposit account control agreement among
Borrower, PFG and the depositary institution in respect of such accounts.

“Change in Control” means any event, transaction, or occurrence as a result of
which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as an amended (the “Exchange Act”)),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of Borrower, is or becomes a beneficial owner (within the meaning
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of Borrower, representing thirty-five percent (35%) or more of the
combined voting power of Borrower’s then outstanding securities; or (b) during
any period of twelve consecutive calendar months, individuals who at the
beginning of such period constituted the Board of Directors of Borrower
(together with any new directors whose election by the Board of Directors of
Borrower was approved by a vote of at least two-thirds of the directors then
still in office who either were directions at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason other than death or disability to constitute a majority of the
directors then in office.

“Code” means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.

“Collateral” has the meaning set forth in Section 2 above.

“Compliance Certificate” means Borrower’s certification of its compliance with
the terms and conditions of this Agreement and such other matters as PFG may
require to be addressed in such certificate, in the form as initially set forth
as Exhibit B hereto, as such form may be amended from time to time upon advance
notice from PFG.

“continuing” and “during the continuance of” when used with reference to a
Default or Event of Default means that the Default or Event of Default has
occurred and has not been either waived in writing by PFG or cured within any
applicable cure period.

“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.

“Default Rate” means the lesser of eighteen percent (18%) per annum and the
maximum rate of interest that may lawfully be charged to a commercial borrower
under applicable usury laws.

“Deposit Accounts” means all present and future “deposit accounts” as defined in
the California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation
all general and special bank accounts, demand accounts, checking accounts,
savings accounts and certificates of deposit.

“EBITDA” shall have its customary meaning, calculated consistently with how
Borrower calculates EBITDA in its forecasts and Plans provided to PFG in
connection with this Agreement and shall comprise Borrower’s net income, before
deduction for interest expense, interest income, taxes, depreciation and
amortization.

“Equipment” means all present and future “equipment” as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation
all machinery, fixtures, goods, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing.

“Event of Default” means any of the events set forth in Section 6.1 of this
Agreement.

“First-Priority” means a security interest and lien enjoying priority over all
security interests and liens other than the security interest and lien of the
Senior Lender, to the extent of PFG’s subordination to such Senior Lender
security interest and lien, and statutory liens to the extent the same have
priority over liens of secured parties.

“GAAP” means generally accepted accounting principles consistently applied.

 

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“General Intangibles” means all present and future “general intangibles” as
defined in the California Uniform Commercial Code in effect on the date hereof
with such additions to such term as may hereafter be made, and includes without
limitation all Intellectual Property, payment intangibles, royalties, contract
rights, goodwill, franchise agreements, purchase orders, customer lists, route
lists, telephone numbers, domain names, claims, income tax refunds, security and
other deposits, options to purchase or sell real or personal property, rights in
all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.

“good faith business judgment” means honesty in fact and good faith (as defined
in Section 1201 of the Code) in the exercise of PFG’s business judgment.

“including” means including (but not limited to).

“Indebtedness” means (a) indebtedness for borrowed money or the deferred
purchase price of property or services (other than trade payables arising in the
ordinary course of business), (b) obligations evidenced by bonds, notes,
debentures or other similar instruments, (c) reimbursement obligations in
connection with letters of credit, and (d) capital lease obligations.

“Intellectual Property” means all present and future: (a) copyrights, copyright
rights, copyright applications, copyright registrations and like protections in
each work of authorship and derivative work thereof, whether published or
unpublished, (b) trade secret rights, including all rights to unpatented
inventions and know-how, and confidential information; (c) mask work or similar
rights available for the protection of semiconductor chips; (d) patents, patent
applications and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade styles,
and trade names, whether or not any of the foregoing are registered, and all
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
any such trademarks; (f) Domain Rights as described in Section 3.14 hereof,
(g) computer software and computer software products; (h) designs and design
rights; (i) technology; (j) all claims for damages by way of past, present and
future infringement of any of the rights included above; and (k) all licenses or
other rights to use any property or rights of a type described above.

“Inventory” means all present and future “inventory” as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation
all merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products, including without limitation such
inventory as is temporarily out of Borrower’s custody or possession or in
transit and including any returned goods and any documents of title representing
any of the above.

“Investment” means any beneficial ownership interest in any Person (including
any stock, partnership interest or other equity or debt securities issued by any
Person), and any loan, advance or capital contribution to any Person.

“Investment Property” means all present and future investment property,
securities, stocks, bonds, debentures, debt securities, partnership interests,
limited liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets held
in any securities account or otherwise, and all options and warrants to purchase
any of the foregoing, wherever located, and all other securities of every kind,
whether certificated or uncertificated.

“Loan Documents” means, collectively, this Agreement, the Representations, and
all other present and future documents, instruments and agreements between PFG
and Borrower, including, but not limited to those relating to this Agreement,
and all amendments and modifications thereto and replacements therefor.

“Material Adverse Change” means any of the following: (i) a material adverse
change in the business, operations, or financial or other condition of the
Borrower, or (ii) a material impairment of the prospect of repayment of any
portion of the Obligations; or (iii) a material impairment of the value or
priority of PFG’s security interests in the Collateral.

“Obligations” means all present and future Loans, advances, debts, liabilities,
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to PFG, whether evidenced by this Agreement or any note or other
instrument or document, or otherwise, including indebtedness under any
obligation to purchase equity derivatives purchased or otherwise issued to PFG
from time to time, whether arising from an extension of credit, opening of a
letter of credit, banker’s acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by PFG in Borrower’s debts owing to
others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney’s fees, expert
witness fees, audit fees, collateral monitoring fees, closing fees, facility
fees, termination fees, minimum interest charges and any other sums chargeable
to Borrower under this Agreement or under any other Loan Documents.

 

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“Other Property” means the following as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such terms
as may hereafter be made, and all rights relating thereto: all present and
future “commercial tort claims” (including without limitation any commercial
tort claims identified in the Representations), “documents”, “instruments”,
“promissory notes”, “chattel paper”, “letters of credit”, “letter-of-credit
rights”, “fixtures”, “farm products” and “money”; and all other goods and
personal property of every kind, tangible and intangible, whether or not
governed by the California Uniform Commercial Code.

“Payment” means all checks, wire transfers and other items of payment received
by PFG for credit to Borrower’s outstanding Obligations.

“Permitted Indebtedness” means:

(i) the Loans and other Obligations; and

(ii) Indebtedness existing on the date hereof and shown on Exhibit A hereto;

(iii) Subordinated Debt;

(iv) Indebtedness owing to Senior Lender not to exceed the Senior Debt Limit
specified in the Schedule;

(v) other Indebtedness secured by Permitted Liens;

(vi) reimbursement obligations in respect of letters of credit in an aggregate
face amount outstanding not to exceed $300,000 at any time outstanding, which
has been reported to PFG in writing, and, in the case of reimbursement
obligations to the Senior Lender in respect of letters of credit which do not
exceed the Senior Debt Limit (taking into account all other Indebtedness to
Senior Lender).

“Permitted Investments” are:

(i) Investments (if any) shown on Exhibit A and existing on the date hereof;

(ii) marketable direct obligations issued or unconditionally guaranteed by the
United States or its agency or any State maturing within 1 year from its
acquisition;

(iii) commercial paper maturing no more than 1 year after its creation and
having the highest rating from either Standard & Poor’s Corporation or Moody’s
Investors Service, Inc;

(iv) deposit accounts in which PFG has a perfected security interest;

(v) Investments received in connection with transactions contemplated within
Section 4.6(iv)(B);

(vi) Investments consisting of (i) travel advances and employee relocation
loans, and other employee loans and advances in the ordinary course of business,
and (ii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower or its Subsidiaries pursuant to employee stock
purchase plans or agreements approved by Borrower’s Board of Directors; and

(vii) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of and other disputes with, customers or suppliers
arising in the ordinary course of business;

(viii) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers that are not Affiliates, in
the ordinary course of business; provided that this clause shall not apply to
Investments of Borrower in any Subsidiary.

(ix) Investments of Subsidiaries in or to other Subsidiaries or Borrower and
Investments by Borrower in Subsidiaries not to exceed $50,000 in the aggregate
in any fiscal year;

(x) cash and Cash Equivalents (as defined in Section 5 of the Schedule); and

(xi) bank certificates of deposit issued maturing no more than 1 year after
issue.

“Permitted Liens” means the following:

(i) purchase money security interests in specific items of Equipment;

(ii) leases of specific items of Equipment and leases or subleases of real
property granted in the ordinary course of business, and leases, subleases,
non-exclusive licenses or sublicenses of property (other than real property, but
including non-exclusive licenses and sublicenses of intellectual property)
granted in the ordinary course of Borrower’s business, if the leases, subleases,
licenses and sublicenses do not prohibit granting PFG a security interest;

 

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(iii) liens for taxes, fees, assessments or other government charges or levies,
either not delinquent or being contested in good faith and for which Borrower
maintains adequate reserves on its Books, provided that no notice of any such
lien has been filed or recorded under the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations adopted thereunder;

(iv) additional security interests and liens consented to in writing by PFG,
which consent may be withheld in its good faith business judgment. PFG will have
the right to require, as a condition to its consent under this subparagraph
(iv), that the holder of the additional security interest or lien sign an
intercreditor agreement on PFG’s then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of PFG, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agrees that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement;

(v) security interests being terminated substantially concurrently with this
Agreement;

(vi) Liens of carriers, warehousemen, suppliers, or other Persons that are
possessory in nature arising in the ordinary course of business so long as such
Liens attach only to Inventory, securing liabilities in the aggregate amount not
to exceed $50,000 and which are not delinquent or remain payable without penalty
or which are being contested in good faith and by appropriate proceedings which
proceedings have the effect of preventing the forfeiture or sale of the property
subject thereto;

(vii) liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by liens of the type described above in clauses (i) or
(ii) above, provided that any extension, renewal or replacement lien is limited
to the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase;

(viii) liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods;

(ix) statutory, common law or contractual liens of depository institutions or
institutions holding securities account (including rights of set-off) securing
only customary charges and fees in connection with such accounts;

(x) other liens included as Permitted Liens in Exhibit A;

(xi) liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
ordinary course of business (other than liens imposed by ERISA), provided, they
have no priority over any of PFG’s liens and the aggregate amount of the
Indebtedness secured by such liens does not at any time exceed $50,000;

(xii) liens arising under Section 6.1(e) cured as provided therein; and

(xiii) liens in favor of Senior Lender securing an amount not in excess of the
Senior Debt Limit.

“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.

“Plan” means Borrower’s financial plan as delivered to PFG on or about
December 14, 2009, and with respect to future periods, such financial plans and
forecasts as are from time to time approved by Borrower’s Board of Directors and
timely provided to PFG.

“Representations” means the written Representations and Warranties provided by
Borrower to PFG referred to in the Schedule.

“Revenue” means, as calculated in accordance with GAAP, receipts from customers
in the ordinary course of business for the sale of goods and services, net of
discounts and refunds, as prepared consistent with past practice and as
represented in Borrower’s Plans.

“Revolving Loan” means that certain Revolving Loan and Security Agreement
between PFG and Borrower of even date herewith.

“Senior Lender” has the meaning set forth in Section 8 of the Schedule.

 

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“Subordinated Debt” means debt incurred by Borrower subordinated to Borrower’s
debt to PFG (pursuant to a subordination agreement entered into between PFG,
Borrower and the subordinated creditor), on terms acceptable to PFG in its
absolute discretion.

“Subsidiary” means, with respect to any Person, any Person of which more than
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.

“Trivial” and “Non-trivial” mean trivial and non-trivial, respectively, from the
perspective of a reasonable lender in PFG’s position, as determined by PFG in
its good faith business discretion, and “Non-trivial” includes a lesser level of
significance that does the term “material.”

Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with GAAP,
consistently applied. All other terms contained in this Agreement, unless
otherwise indicated, shall have the meanings provided by the Code, to the extent
such terms are defined therein.

 

8. GENERAL PROVISIONS.

8.1 Confidentiality. PFG agrees to use the same degree of care that it exercises
with respect to its own proprietary information, to maintain the confidentiality
of any and all proprietary, trade secret or confidential information provided to
or received by PFG from the Borrower, which indicates that it is confidential,
including business plans and forecasts, non-public financial information,
confidential or secret processes, formulae, devices and contractual information,
customer lists, and employee relation matters, provided that PFG may disclose
such information (i) subject to PFG’s obligation to notify such persons of the
confidential nature of such information, to its officers, directors, employees,
attorneys, accountants, affiliates, participants, prospective participants,
assignees and prospective assignees, and such other Persons to whom PFG shall at
any time be required to make such disclosure in accordance with applicable law
or legal process, and (ii) in its good faith business judgment in connection
with the enforcement of its rights or remedies after an Event of Default, or in
connection with any dispute with Borrower or any other Person relating to
Borrower. The confidentiality agreement in this Section supersedes any prior
confidentiality agreement of PFG relating to Borrower.

8.2 Interest Computation. In computing interest on the Obligations, all Payments
received after 12:00 Noon, Pacific Time, on any day shall be deemed received on
the next Business Day.

8.3 Payments. All Payments may be applied, and in PFG’s good faith business
judgment reversed and re-applied, to the Obligations, in such order and manner
as PFG shall determine in its good faith business judgment.

8.4 Monthly Accountings. PFG shall provide Borrower monthly with an account of
advances, charges, expenses and payments made pursuant to this Agreement. Such
account shall be deemed correct, accurate and binding on Borrower and an account
stated (except for reverses and reapplications of payments made and corrections
of errors discovered by PFG), unless Borrower notifies PFG in writing to the
contrary within 60 days after such account is rendered, describing the nature of
any alleged errors or omissions.

8.5 Notices. All notices to be given under this Agreement shall be in writing
and shall be given either personally, or by reputable private delivery service,
or by regular first-class mail, or certified mail return receipt requested, or
by fax to the most recent fax number a party has for the other party (and if by
fax, sent concurrently by one of the other methods provided herein), or by
electronic mail to the most recent electronic mail address for Borrower provided
for the chief financial officer or financial controller executing the
Representations (and if by electronic mail, with an electronic delivery and/or
read receipt), addressed to PFG or Borrower at the addresses shown in the
heading to this Agreement, in the Representations or at any other address
designated in writing by one party to the other party. All notices shall be
deemed to have been given upon delivery in the case of notices personally
delivered, or at the expiration of one Business Day following delivery to the
private delivery service, or two Business Days following the deposit thereof in
the United States mail, with postage prepaid, or on the first business day of
receipt during business hours in the case of notices sent by fax or electronic
mail, as provided herein.

8.6 Severability. Should any provision of this Agreement be held by any court of
competent jurisdiction to be void or unenforceable, such defect shall not affect
the remainder of this Agreement, which shall continue in full force and effect.

8.7 Integration. This Agreement and such other written agreements, documents and
instruments as may be executed in connection herewith are the final, entire and
complete agreement between Borrower and PFG and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.

 

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   Partners for Growth   Loan and Security Agreement                

 

8.8 Waivers; Indemnity. The failure of PFG at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Document shall not waive or diminish any right of PFG later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of PFG or its agents
or employees, but only by a specific written waiver signed by an authorized
officer of PFG and delivered to Borrower. Borrower waives the benefit of all
statutes of limitations relating to any of the Obligations or this Agreement or
any other Loan Document, and Borrower waives demand, protest, notice of protest
and notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by PFG on which Borrower is or may in any way be liable, and notice of any
action taken by PFG, unless expressly required by this Agreement. Borrower
hereby agrees to indemnify PFG and its affiliates, subsidiaries, parent,
directors, officers, employees, agents, and attorneys, and to hold them harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including reasonable
attorneys’ fees), of every kind, which they may sustain or incur based upon or
arising out of any of the Obligations, or any relationship or agreement between
PFG and Borrower, or any other matter, relating to Borrower or the Obligations;
provided that this indemnity shall not extend to damages proximately caused by
the indemnitee’s own gross negligence or willful misconduct. Notwithstanding any
provision in this Agreement to the contrary, the indemnity agreement set forth
in this Section shall survive any termination of this Agreement and shall for
all purposes continue in full force and effect.

8.9 No Liability for Ordinary Negligence. Neither PFG, nor any of its directors,
officers, employees, agents, attorneys or any other Person affiliated with or
representing PFG shall be liable for any claims, demands, losses or damages, of
any kind whatsoever, made, claimed, incurred or suffered by Borrower or any
other party through the ordinary negligence of PFG, or any of its directors,
officers, employees, agents, attorneys or any other Person affiliated with or
representing PFG, but nothing herein shall relieve PFG from liability for its
own gross negligence or willful misconduct.

8.10 Amendment. The terms and provisions of this Agreement may not be waived or
amended, except in a writing executed by Borrower and a duly authorized officer
of PFG.

8.11 Time of Essence. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.

8.12 Attorneys’ Fees and Costs. Borrower shall reimburse PFG for all reasonable
attorneys’ fees and all filing, recording, search, title insurance, appraisal,
audit, and other reasonable costs incurred by PFG, pursuant to, or in connection
with, or relating to this Agreement (whether or not a lawsuit is filed),
including, but not limited to, any reasonable attorneys’ fees and costs PFG
incurs in order to do the following: prepare and negotiate this Agreement and
all present and future documents relating to this Agreement; obtain legal advice
in connection with this Agreement or Borrower; enforce, or seek to enforce, any
of its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower’s books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
PFG’s security interest in, the Collateral; and otherwise represent PFG in any
litigation relating to Borrower. If either PFG or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys’
fees, including (but not limited to) reasonable attorneys’ fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys’ fees and costs to which PFG may be entitled
pursuant to this Paragraph shall immediately become part of Borrower’s
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.

8.13 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and PFG; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of PFG, and any prohibited assignment shall be
void. No consent by PFG to any assignment shall release Borrower from its
liability for the Obligations.

8.14 Joint and Several Liability. If Borrower consists of more than one Person,
their liability shall be joint and several, and the compromise of any claim
with, or the release of, any Borrower shall not constitute a compromise with, or
a release of, any other Borrower.

8.15 Limitation of Actions. Any claim or cause of action by Borrower against
PFG, its directors, officers, employees, agents, accountants or attorneys, based
upon, arising from, or relating to this Loan Agreement, or any other Loan
Document, or any other transaction contemplated hereby or thereby or relating
hereto or thereto, or any other matter, cause or thing

 

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   Partners for Growth   Loan and Security Agreement                

 

whatsoever, incurred, done, omitted or suffered to be done by PFG, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by (a) the filing of a complaint
within one year after the earlier to occur of (i) the first act, occurrence or
omission upon which such claim or cause of action, or any part thereof, is
based, or (ii) the date this Agreement is terminated, and (b) the service of a
summons and complaint on an officer of PFG, or on any other person authorized to
accept service on behalf of PFG, within thirty (30) days thereafter. Borrower
agrees that such one-year period is a reasonable and sufficient time for
Borrower to investigate and act upon any such claim or cause of action. The
one-year period provided herein shall not be waived, tolled, or extended except
by the written consent of PFG in its sole discretion. This provision shall
survive any termination of this Loan Agreement or any other Loan Document.

8.16 Paragraph Headings; Construction. Paragraph headings are only used in this
Agreement for convenience. Borrower and PFG acknowledge that the headings may
not describe completely the subject matter of the applicable paragraph, and the
headings shall not be used in any manner to construe, limit, define or interpret
any term or provision of this Agreement. This Agreement has been fully reviewed
and negotiated between the parties and no uncertainty or ambiguity in any term
or provision of this Agreement shall be construed strictly against PFG or
Borrower under any rule of construction or otherwise.

8.17 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of PFG and Borrower shall
be governed by the laws of the State of California. As a material part of the
consideration to PFG to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement shall,
at PFG’s option, be litigated in courts located within California, and that the
exclusive venue therefor shall be San Francisco County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding.

8.18 Mutual Waiver of Jury Trial. BORROWER AND PFG EACH HEREBY WAIVE THE RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN PFG AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF PFG OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH PFG OR BORROWER, IN ALL OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. WITHOUT INTENDING IN
ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A
TRIAL BY JURY, if the above waiver of the right to a trial by jury is not
enforceable, the parties hereto agree that any and all disputes or controversies
of any nature between them arising at any time shall be decided by a reference
to a private judge, mutually selected by the parties (or, if they cannot agree,
by the Presiding Judge of the San Francisco County, California Superior Court)
appointed in accordance with California Code of Civil Procedure Section 638 (or
pursuant to comparable provisions of federal law if the dispute falls within the
exclusive jurisdiction of the federal courts), sitting without a jury, in San
Francisco County, California; and the parties hereby submit to the jurisdiction
of such court. The reference proceedings shall be conducted pursuant to and in
accordance with the provisions of California Code of Civil Procedure §§ 638
through 645.1, inclusive. The private judge shall have the power, among others,
to grant provisional relief, including without limitation, entering temporary
restraining orders, issuing preliminary and permanent injunctions and appointing
receivers. All such proceedings shall be closed to the public and confidential
and all records relating thereto shall be permanently sealed. If during the
course of any dispute, a party desires to seek provisional relief, but a judge
has not been appointed at that point pursuant to the judicial reference
procedures, then such party may apply to the San Francisco County, California
Superior Court for such relief. The proceeding before the private judge shall be
conducted in the same manner as it would be before a court under the rules of
evidence applicable to judicial proceedings. The parties shall be entitled to
discovery which shall be conducted in the same manner as it would be before a
court under the rules of discovery applicable to judicial proceedings. The
private judge shall oversee discovery and may enforce all discovery rules and
order applicable to judicial proceedings in the same manner as a trial court
judge. The parties agree that the selected or appointed private judge shall have
the power to decide all issues in the action or proceeding, whether of fact or
of law, and shall report a statement of decision thereon pursuant to the
California Code of Civil Procedure § 644(a). Nothing in this paragraph shall
limit the right of any party at any time to exercise self-help remedies,
foreclose against collateral, or obtain provisional remedies. The private judge
shall also determine all issues relating to the applicability, interpretation,
and enforceability of this paragraph.

[SIGNATURE PAGE FOLLOWS]

 

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Borrower:     PFG:   SONIC FOUNDRY, INC.     PARTNERS FOR GROWTH II, L.P.  
By                                                                             
By                                      
                                                        President or Vice
President                        Name:                                      
                                      By                                      
                                                        Secretary or Ass’t
Secretary             Title: Manager, Partners for Growth II, LLC        
           Its General Partner Borrower:          SONIC FOUNDRY MEDIA SYSTEMS,
INC.        By                                      
                                                        President or Vice
President                  By                                      
                                                        Secretary or Ass’t
Secretary               

Signature Page to (Term) Loan & Security Agreement

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Partners For Growth

Schedule to

Loan and Security Agreement

 

Borrower:    Sonic Foundry, Inc. Address:    222 West Washington Avenue,
Madison, WI 53703 Borrower:    Sonic Foundry Media Systems, Inc. Address:    222
West Washington Avenue, Madison, WI 53703 Date:    March 5, 2010

This Schedule forms an integral part of the Loan and Security Agreement between
PARTNERS FOR GROWTH II, L.P. and the above-borrower of even date.

 

 

 

 

1. LOAN (Section 1.1):

The Loan shall consist of a term loan in the amount of $1,250,000, which shall
be disbursed in full within one Business Day following satisfaction (or in PFG’s
discretion, waiver) of the conditions set forth in Section 9 of this Schedule.

 

Repayment:

Borrower shall pay interest only on the Loan from the date hereof through
February 28, 2011. Thereafter, the principal amount of Loan shall be repaid in
monthly principal payments of $34,722.22 each, plus interest thereon, with the
first such payment due April 1, 2011, and continuing on the same day of each
month thereafter until the Maturity Date on which date the entire unpaid
principal balance of the Loan plus any and all accrued and unpaid interest shall
be paid.

 

Amortization Trigger:

If at any time Borrower’s Cash plus Availability is less than (i) $2,000,000,
measured as at the end of each calendar quarter or (ii) $1,500,000, measured as
at the end of each of the first two months of each quarter, Borrower shall, if
so required by PFG at its sole option, repay the Loan as if the Loan had ab
initio been a term loan amortized over a thirty-six (36) month period. PFG shall
exercise its right to require amortization of the Loan within 30 calendar days
after receipt of any Borrower report showing non-compliance with the
amortization trigger threshold for any period. For example, if Borrower fails to
meet an above-referenced threshold 6 months after the date hereof and PFG then
requires the Loan to be amortized, Borrower would thereafter repay the Loan by
making monthly principal payments $41,666.67,

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            Partners for Growth   Schedule to Loan and Security
Agreement                

 

plus interest, over a period of 30 months. The failure of Borrower to meet any
foregoing threshold whether or not resulting in an amortization, shall not, by
itself, constitute an Event of Default under this Agreement.

 

Prepayment:

The principal of the Loan may be prepaid at any time, in whole or in part,
without penalty or fee. Prepayments shall be applied to the principal payments
on the Loan in the inverse order of their maturity.

 

 

 

2. INTEREST.

Interest Rate (Section 1.2):

The Loan shall bear interest at a rate equal to 11.75% per annum. If Borrower
achieves 100% or greater of its Revenue and EBITDA forecasts (based on the
forecasts provided to PFG on December 14, 2009) for each of the December
2009, March 2010 and June 2010 calendar quarters, then the interest rate shall
thereafter be reduced to 9.75% per annum.

Interest shall be calculated on the basis of a 360-day year and a year of twelve
months of 30 days each for the actual number of days elapsed. Accrued interest
for each month shall be payable monthly, on the first day of each month for
interest accrued during the prior month.

 

 

 

3. FEES (Section 1.3):

 

    Loan Fee:

$15,000, non-refundable, due on the date hereof, less any deposits paid upon
execution of the term sheet in respect of this Agreement and, without
duplication, any deposits paid in connection with the Revolving Loan (it being
the intention that an aggregate of $30,000 Loan Fee, less deposit(s), is payable
in connection with the Revolving Loan and this Agreement).

 

 

 

4. MATURITY DATE

    (Section 5.1):

March 1, 2014.

 

 

 

5. FINANCIAL COVENANTS

    (Section 4.1):

Borrower shall comply with the following covenant, compliance with which shall
be determined as of the end of each month, based upon Borrower’s monthly
financial statements provided in accordance with Section 6(b):

 

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            Partners for Growth   Schedule to Loan and Security
Agreement                

 

Adjusted Quick Ratio:

Borrower shall maintain an Adjusted Quick Ratio greater than or equal to
1.75:1.00.

 

Definitions:

For purposes of the foregoing financial covenant, the following definitions
shall apply:

“Adjusted Quick Ratio” is a ratio of (a) Quick Assets to (b) Current
Liabilities, less Deferred Revenues.

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc.; (c) certificates of deposit issued
maturing no more than one (1) year after issue.

“Current Liabilities” are Borrower’s Total Liabilities that mature within one
(1) year, excluding the amount of such monetary Obligations owing to PFG.

“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue.

“Quick Assets” is, on any date, Borrower’s unrestricted cash and Cash
Equivalents, plus Borrower’s net billed Accounts, but excluding the amount of
all Loans advanced to Borrower by PFG.

“Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower’s consolidated balance sheet.

 

 

 

6. REPORTING.

    (Section 4.4):

Borrower shall provide PFG with the following:

 

  (a) Monthly accounts payable, accounts receivable and deferred Revenue
schedules, aged by invoice date, and outstanding or held check registers, if
any, within 20 days after the end of each month.

 

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            Partners for Growth   Schedule to Loan and Security
Agreement                

 

  (b) Monthly unaudited financial statements, as soon as available, and in any
event within 20 days after the end of each month.

 

  (c) Monthly Compliance Certificates, within 20 days after the end of each
month, signed by the Chief Financial Officer of Borrower, certifying that as of
the end of such month Borrower was in full compliance with all of the terms and
conditions of this Agreement, and setting forth calculations showing compliance
with the financial covenants and amortization trigger thresholds set forth in
this Agreement and such other information as PFG shall reasonably request,
including, without limitation, a statement that at the end of such month there
were no held checks.

 

  (d) Updates to the Representations, as and when required to render the
information therein current and accurate in all material respects.

 

  (e) Operating budget (including income statements, balance sheets and cash
flow statements, by month), annually within 5 Business Days of approval by
Borrower’s Board of Directors.

 

  (f) Annual financial statements, as soon as available, and in any event within
120 days following the end of Borrower’s fiscal year, certified by, and with an
unqualified opinion of, Borrower’s independent certified public accountants. If
Borrower files a form 10-K with the Securities and Exchange Commission and the
same is available within said period through EDGAR, this requirement will be
deemed satisfied.

 

  (g) Upon request of PFG, copies of all reports and statements provided by
Borrower to the Senior Lender.

 

 

 

7. BORROWER INFORMATION:

Borrower represents and warrants that the information set forth in the
Representations and Warranties of the Borrower dated March 5, 2010, submitted to
PFG (the “Representations”) is true and correct as of the date hereof.

 

 

 

8. ADDITIONAL PROVISIONS

 

  (a) Senior Lender.

 

  (1) Senior Lender. As used herein, “Senior Lender” means Silicon Valley Bank,
and “Senior Loan Documents”

 

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            Partners for Growth   Schedule to Loan and Security
Agreement                

 

       means all present and future documents instruments and agreements entered
into between Borrower and Senior Lender or by third parties relating to Borrower
and Senior Lender.

 

  (2) Senior Debt Limit. Borrower shall not permit the total Indebtedness of
Borrower to Senior Lender to exceed $3,000,000 at any time outstanding,
including but not limited to, monies borrowed by Borrower, interest on loans due
from Borrower, fees and expenses for which Borrower is obligated, sums due from
Borrower in connection with issuance of commercial letters of credit, issuance
of forward contracts for foreign exchange reserve, and any other direct or
indirect financial accommodation Senior Lender may provide to Borrower (the
“Senior Debt Limit”).

 

  (3) Senior Loan Documents. Borrower represents and warrants that it has
provided PFG with true and complete copies of all existing Senior Loan
Documents, and Borrower covenants that it will, in the future, provide PFG with
true and complete copies of any future Senior Loan Documents, including without
limitation any amendments to any existing Senior Loan Documents.

 

  (b) Deposit Accounts. Concurrently, Borrower shall cause the banks and other
institutions where its Deposit Accounts are maintained to enter into control
agreements with PFG, in form and substance satisfactory to PFG in its good faith
business judgment and sufficient to perfect PFG’s security interest in said
Deposit Accounts, subject to the security interest of the Senior Lender. Said
control agreements shall permit PFG, in its discretion, to withdraw from said
Deposit Accounts accrued interest on the Obligations monthly (subject to the
rights of the Senior Lender).

 

  (c) Subordination of Inside Debt. All present and future indebtedness of
Borrower to its officers, directors and shareholders (“Inside Debt”) shall, at
all times, be subordinated to the Obligations pursuant to a subordination
agreement on PFG’s standard form. Borrower represents and warrants that there is
no Inside Debt presently outstanding. Prior to incurring any Inside Debt in the
future, Borrower shall cause the person to whom such Inside Debt will be owed to
execute and deliver to PFG a subordination agreement on PFG’s standard form.

 

-5-

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            Partners for Growth   Schedule to Loan and Security
Agreement                

 

 

 

 

9. CONDITIONS

In addition to any other conditions to the Loan set out in this Agreement, PFG
will not make the Loan until PFG shall have received, in form and substance
satisfactory to PFG, such documents, and completion of such other matters, as
PFG may reasonably deem necessary or appropriate, including that there shall be
no discovery of any facts or circumstances which would, as determined by PFG in
its sole discretion, negatively affect or be reasonably expected to negatively
affect the collectability of the Obligations, PFG’s security interest in
Borrower’s Collateral or the value thereof, including, without limitation:

 

  (a) duly executed original signatures of Borrower to the Loan Documents to
which Borrower is a party;

 

  (b) Borrower’s respective constitutional documents and a good standing
certificate of Borrower certified by the Secretary of State of the State of
Maryland as of a date no earlier than thirty (30) days prior to the date hereof,
together with foreign qualification certificates from the State of Wisconsin;

 

  (c) duly executed original signatures to borrowing resolutions for Borrower;

 

  (d) account control agreements as required by Section 8(b) of this Schedule,
duly executed by Borrower, US Bank and the Senior Lender in respect of each
account of Borrower with such depositary institutions in favor of PFG;

 

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

 

  (f) the Representations, duly executed by Borrower,

 

  (g) a landlord consent executed in favor of PFG by the Borrower’s principal
office lessor in respect of Borrower’s principal premises;

 

  (h) without duplication for the warrant referenced in Section 9(h) of the
Revolving Loan, a duly executed warrant purchase agreement and warrant in favor
of PFG to purchase 76,923 shares of Borrower’s common stock in agreed form (the
“PFG Warrant”);

 

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            Partners for Growth   Schedule to Loan and Security
Agreement                

 

  (i) the insurance policies and/or endorsements required pursuant to
Section 4.3;

 

  (j) a duly executed Compliance Certificate dated the date hereof;

 

  (k) the closing of the Revolving Loan contemporaneously with this Agreement;

 

  (l) execution and delivery of a subordination agreement between PFG and the
Senior Lender in respect of obligations under this Agreement and the Revolving
Loan;

 

  (m) PFG shall have received true, correct and current copies of the Senior
Loan Documents; and

 

  (n) the closing of the Loan and the Revolving Loan on or before March 5, 2010.

[Signature Page Follows]

 

-7-

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

   

 

Borrower:     PFG:   SONIC FOUNDRY, INC.     PARTNERS FOR GROWTH II, L.P.  
By                                                                             
By                                      
                                                        President or Vice
President                        Name:                                      
                                      By                                      
                                                        Secretary or Ass’t
Secretary             Title: Manager, Partners for Growth II, LLC        
           Its General Partner Borrower:          SONIC FOUNDRY MEDIA SYSTEMS,
INC.        By                                      
                                                        President or Vice
President                  By                                      
                                                        Secretary or Ass’t
Secretary               

- Signature Page Schedule to Loan and Security Agreement -

 

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Exhibit A to Loan and Security Agreement

Section 7—”Permitted Indebtedness”—Other Existing Permitted Indebtedness:

 

Section 8—”Permitted Investments”—Other Existing Permitted Investments:

Cadant Corporation – minority investment in defunct entity carried at nil cost.

Mediasite KK – 23.5% ownership of Japanese reseller resulting from prior
acquisition transaction.

 

Section 8 – “Permitted Liens” – Other Permitted Liens:

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Exhibit B to Loan and Security Agreement – Compliance Certificate