a5thamendsvbcreditagmt







Execution Version   JOINDER AND FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT   This Joinder and Fifth Amendment to Loan and Security Agreement (this “Amendment”)   dated as of March 14, 2016, is by between SILICON VALLEY BANK, a California   corporation with a loan production office located at 275 Grove Street, Suite 2-200, Newton,   Massachusetts 02466 (“Bank”), ROSETTA STONE LTD., a Virginia corporation   (“Borrower”), and LEXIA LEARNING SYSTEMS LLC, a Delaware limited liability   company (“New Borrower”).   W I T N E S S E T H:   WHEREAS, Borrower and Bank are party to that certain Loan and Security Agreement   dated as of October 28, 2014, as amended by a certain First Amendment to Loan and Security   Agreement dated March 31, 2015, as further amended by a certain Second Amendment to Loan   and Security Agreement dated May 1, 2015, as further amended by a certain Third Amendment   to Loan and Security Agreement dated June 26, 2015, and as further amended by a certain Fourth   Amendment to Loan and Security Agreement dated December 29, 2015  (as amended, modified,   supplemented or restated and in effect from time to time, the “Loan Agreement”); and   WHEREAS, Borrower has requested that Bank agree to modify and amend certain terms   and conditions of the Loan Agreement.   NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency   of which is hereby acknowledged, the parties hereto agree as follows:   1. Capitalized Terms.  All capitalized terms used herein and not otherwise defined shall   have the same meaning herein as in the Loan Agreement.   2. Joinder and Assumption.  New Borrower is a wholly-owned Subsidiary of Borrower.    New Borrower hereby joins the Loan Agreement and each of the other appropriate Loan   Documents, and agrees to comply with and be bound by all of the terms, conditions and   covenants of the Loan Agreement and each of the other appropriate Loan Documents, as if New   Borrower were originally named a “Borrower” and/or a “Debtor” therein.  Without limiting the   generality of the preceding sentence, New Borrower hereby assumes and agrees to pay and   perform when due all present and future indebtedness, liabilities and obligations of Borrower   under the Loan Agreement, including, without limitation, the Obligations.  From and after the   date hereof, all references in the Loan Documents to “Borrower” and/or “Debtor” shall be   deemed to refer to and include New Borrower.  Further, all present and future Obligations of   Borrower shall be deemed to refer to all present and future Obligations of New Borrower.  New   Borrower acknowledges that the Obligations are due and owing to Bank from Borrower   including, without limitation, New Borrower, without any defense, offset or counterclaim of any   kind or nature whatsoever as of the date hereof.   3. Grant of Security Interest.  To secure the payment and performance of all of the   Obligations, New Borrower hereby grants to Bank a continuing lien upon and security interest in   all of New Borrower’s now existing or hereafter arising rights and interest in the Collateral,   whether now owned or existing or hereafter created, acquired, or arising, and wherever located,   including, without limitation, all of New Borrower’s assets listed on Exhibit A attached hereto     





 







2      and all of New Borrower’s books and records relating to the foregoing and any and all claims,   rights and interests in any of the above and all substitutions for, additions, attachments,   accessories, accessions and improvements to and replacements, products, proceeds and insurance   proceeds of any or all of the foregoing.  New Borrower represents, warrants, and covenants that   the security interest granted herein is and shall at all times continue to be a first priority perfected   security interest in the Collateral (subject only to Permitted Liens).  New Borrower hereby   authorizes Bank to file financing statements, without notice to New Borrower, with all   appropriate jurisdictions in order to perfect or protect Bank’s Lien hereunder and under the other   Loan Documents.  Such financing statements may indicate the Collateral as “all assets of the   Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail,   all in Bank’s discretion.   4. Subrogation and Similar Rights.  Borrower (in each case including, without   limitation, New Borrower) waives any suretyship defenses available to it under the Code or any   other applicable law.  Borrower waives any right to require Bank to: (i) proceed against any   other Borrower or any other Person; (ii) proceed against or exhaust any security; or (iii) pursue   any other remedy.  Bank may exercise or not exercise any right or remedy it has against any   Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale)   without affecting any Borrower’s liability.  Notwithstanding any other provision of this   Agreement, the Loan Agreement, or any other Loan Documents, Borrower irrevocably   subordinates to the prior payment in full of the Obligations and the termination of the Bank’s   commitment to make Advances to Borrower and agrees not to assert or enforce prior to the   payment in full of the Obligations and the termination of the Bank’s commitment to make   Advances to Borrower, all rights that it may have at law or in equity (including, without   limitation, any law subrogating such Borrower to the rights of Bank under the Loan Agreement),   to seek contribution, indemnification or any other form of reimbursement from any other   Borrower or any other Person now or hereafter primarily or secondarily liable for any of the   Obligations, for any payment made by a Borrower with respect to the Obligations in connection   with the Loan Agreement or otherwise and all rights that it might have to benefit from, or to   participate in, any security for the Obligations as a result of any payment made by any Borrower   with respect to the Obligations in connection with the Loan Agreement or otherwise.  If any   payment is made to any Borrower in contravention of this section, such Borrower shall hold such   payment in trust for Bank and such payment shall be promptly delivered to Bank for application   to the Obligations, whether matured or unmatured.  Either Borrower may, acting singly, request   Advances under the Loan Agreement.  Each Borrower hereby appoints the other as agent for the   other for all purposes under the Loan Agreement, including with respect to requesting Advances   thereunder.  Each Borrower shall be jointly and severally obligated to repay all Advances made   under the Loan Agreement or any other Loan Documents, regardless of which Borrower actually   received said Advances, as if each Borrower directly received all Advances.   5. Borrowing Base Restrictions.  Until Bank has conducted an inspection of New   Borrower’s Accounts, assets, and books and records, with results satisfactory to Bank in its   reasonable discretion, the Accounts of New Borrower will not be included in the calculation of   Borrowing Base, and none will be included in any Transaction Report submitted by Borrower.   6. Amendments to Loan Agreement.       





 







3      (a) Section 2.1.1(a) (Revolving Advances; Availability).  Section 2.1.1(a) is   amended in its entirety and replaced with the following:   “(a) Availability.  Subject to the terms and conditions of this   Agreement, Bank shall make Advances not exceeding the Availability Amount.    Amounts borrowed under the Revolving Line may be repaid and, prior to the   Revolving Line Maturity Date, reborrowed, subject to the applicable terms and   conditions precedent herein.”   (b) Section 2.1.2 (Letters of Credit).  The following new Section 2.1.2 is hereby   inserted immediately following Section 2.1.1:   “2.1.2 Letters of Credit.   a) As part of the Revolving Line, Bank shall issue or have issued   Letters of Credit denominated in Dollars or a Foreign Currency for Borrower’s   account.  The aggregate Dollar Equivalent of the face amount of outstanding   Letters of Credit (including drawn but unreimbursed Letters of Credit and any   Letter of Credit Reserve) shall at all times reduce the amount otherwise available   for Advances under the Revolving Line and may not exceed Four Million Dollars   ($4,000,000).    b) If, on the Revolving Line Maturity Date (or the effective date of   any termination of this Agreement), there are any outstanding Letters of Credit,   then on such date Borrower shall provide to Bank cash collateral in an amount   equal to (x) if such Letters of Credit are denominated in Dollars, then at least one   hundred five percent (105%) and (y) if such Letters of Credit are denominated in   a Foreign Currency, then at least one hundred ten percent (110%), of the   aggregate Dollar Equivalent of the face amount of all such Letters of Credit plus   all interest, fees, and costs due or estimated by Bank to become due in connection   therewith, to secure all of the Obligations relating to such Letters of Credit.  All   Letters of Credit shall be in form and substance acceptable to Bank in its sole   discretion and shall be subject to the terms and conditions of Bank’s standard   Application and Letter of Credit Agreement (the “Letter of Credit   Application”).  Borrower agrees to execute any further documentation in   connection with the Letters of Credit as Bank may reasonably request.  Borrower   further agrees to be bound by the regulations and interpretations of the issuer of   any Letters of Credit guarantied by Bank and opened for Borrower’s account or   by Bank’s interpretations of any Letter of Credit issued by Bank for Borrower’s   account, and Borrower understands and agrees that Bank shall not be liable for   any error, negligence, or mistake, whether of omission or commission, in   following Borrower’s instructions or those contained in the Letters of Credit or   any modifications, amendments, or supplements thereto.   c) The obligation of Borrower to immediately reimburse Bank for   drawings made under Letters of Credit shall be absolute, unconditional, and     





 







4      irrevocable, and shall be performed strictly in accordance with the terms of this   Agreement, such Letters of Credit, and the Letter of Credit Application.     d) Borrower may request that Bank issue a Letter of Credit payable in   a Foreign Currency.  If a demand for payment is made under any such Letter of   Credit, Bank shall treat such demand as an Advance to Borrower of the Dollar   Equivalent of the amount thereof (plus fees and charges in connection therewith   such as wire, cable, SWIFT or similar charges).   e) To guard against fluctuations in currency exchange rates, upon the   issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create   a reserve (the “Letter of Credit Reserve”) under the Revolving Line in an   amount equal to ten percent (10%) of the face amount of such Letter of Credit.    The amount of the Letter of Credit Reserve may be adjusted by Bank from time to   time to account for fluctuations in the exchange rate.  The availability of funds   under the Revolving Line shall be reduced by the amount of such Letter of Credit   Reserve for as long as such Letter of Credit remains outstanding.”   (c) Section 2.2 (General Provisions Relating to the Advances).  Section 2.2 is   amended in its entirety and replaced with the following:   “2.2 Reserved.”   (d) Section 2.3 (Overadvances).  Section 2.3 is amended in its entirety and replaced   with the following:   “2.3 Overadvances.  If, at any time, the outstanding principal amount of the   Advances exceeds the lesser of either the Revolving Line or the Borrowing Base,   Borrower shall immediately pay to Bank in cash the amount of such excess (such excess,   the “Overadvance”).  Without limiting Borrower’s obligation to repay Bank any   Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any   Overadvance, on demand, at the Default Rate.”   (e) Section 2.4 (Payment of Interest on the Advances).  Section 2.4 is amended in   its entirety and replaced with the following:   “2.4 Payment of Interest on the Advances.    (a) Advances.  Subject to Section 2.4(b), the principal amount   outstanding under the Revolving Line shall accrue interest at a floating per annum   rate equal to the Prime Rate plus one percent (1.00%); provided, however, during   a Streamline Period, the principal amount outstanding under the Revolving Line   shall accrue interest at a floating per annum rate equal to the Prime Rate.  In each   case, interest shall be payable quarterly in accordance with Section 2.4(d) below.    (b) Default Rate.  Upon the occurrence and during the continuance of   an Event of Default, Obligations shall bear interest at a rate per annum which is   two percentage points (2.0%) above the rate that would otherwise be applicable     





 







5      thereto (the “Default Rate”).  Payment or acceptance of the increased interest   provided in this Section 2.4(b) is not a permitted alternative to timely payment   and shall not constitute a waiver of any Event of Default or otherwise prejudice or   limit any rights or remedies of Bank.      (c) Adjustment to Interest Rate.  Changes to the interest rate of any   Advance based on changes to the Prime Rate shall be effective on the effective   date of any change to the Prime Rate and to the extent of any such change.    (d) Payment; Interest Computation.  Interest is payable quarterly on   the last calendar day of each quarter and shall be computed on the basis of a 360-   day year for the actual number of days elapsed.  In computing interest on any   Advance, the date of the making of such Advance shall be included and the date   of payment shall be excluded; provided, however, that if any Advance is repaid   on the same date on which it is made, such day shall be included in computing   interest on such Advance.”   (f) Section 2.5(c) (Fees; Unused Revolving Line Facility Fee).  Section 2.5(c) is   amended in its entirety and replaced with the following:   “(c) Unused Revolving Line Facility Fee.  Payable quarterly in arrears   on the first day of each calendar quarter occurring after the Effective Date and on   the Revolving Line Maturity Date, a fee (the “Unused Revolving Line Facility   Fee”) in an amount equal to forty-five hundredths of one percent (0.45%) per   annum of the average unused portion of the Revolving Line, as determined by   Bank (which determination shall, absent manifest error in calculation, be   presumed correct).   The unused portion of the Revolving Line, for purposes of   this calculation, shall be calculated on a calendar year basis and shall equal the   difference between (i) the Revolving Line, and (ii) the average for the period of   the daily closing balance of the Revolving Line Advances outstanding;”   (g) Section 3.2(a) and (b) (Conditions Precedent to all Advances).  Sections 3.2(a)   and (b) are amended in their entirety and replaced with the following:   “(a) timely receipt of an executed Transaction Report (which Transaction   Report will not be required if such Advance is made to satisfy Obligations which have   become due);     (b) the representations and warranties in this Agreement shall be true,   accurate, and complete in all material respects on the date of the Transaction Report and   on the Funding Date of each Advance; provided, however, that such materiality qualifier   shall not be applicable to any representations and warranties that already are qualified or   modified by materiality in the text thereof; and provided, further that those   representations and warranties expressly referring to a specific date shall be true, accurate   and complete in all material respects as of such date; and”   (h) Section 3.4(a) (Procedures for Borrowing).  Section 3.4(a) is amended in its   entirety and replaced with the following:     





 







6      “(a) Subject to the prior satisfaction of all other applicable conditions to the   making of an Advance set forth in this Agreement, an Advance shall be made upon   Borrower’s irrevocable written notice delivered to Bank by electronic mail in the form of   a Transaction Report executed by an Authorized Signer or without instructions if any   Advance is necessary to meet Obligations which have become due.  Such Transaction   Report must be received by Bank prior to 12:00 p.m. Eastern time on the Funding Date of   the Advance, specifying the amount of the Advance.”   (i) Section 3.5, Section 3.6 and Section 3.7 of the Loan Agreement are deleted in   their entirety.   (j) Section 5.12 (Accounts Receivable).  The following new Section 5.12 is hereby   inserted immediately following Section 5.11:   “5.12 Accounts Receivable.    (a) For each Account with respect to which Advances are requested,   on the date each Advance is requested and made, such Account shall be an   Eligible Account.    (b) All statements made and all unpaid balances appearing in all   invoices, instruments and other documents evidencing the Eligible Accounts are   and shall be true and correct and all such invoices, instruments and other   documents, and all of Borrower's Books are genuine and in all respects what they   purport to be.  All sales and other transactions underlying or giving rise to each   Eligible Account shall comply in all material respects with all applicable laws and   governmental rules and regulations.  Borrower has no knowledge of any actual or   imminent Insolvency Proceeding of any Account Debtor whose accounts are   Eligible Accounts in any Transaction Report.  To the best of Borrower’s   knowledge, all signatures and endorsements on all documents, instruments, and   agreements relating to all Eligible Accounts are genuine, and all such documents,   instruments and agreements are legally enforceable in accordance with their   terms.”   (k) Section 6.2(a) and (b) (Financial Statements, Reports, Certificates).  Section   6.2(a) and (b) are amended in their entirety and replaced with the following:   “(a) Monthly or Quarterly Financial Statements.  (i) If there are Advances   outstanding under the Revolving Line, as soon as available, but no later than thirty (30)   days after the last day of each month or (ii) if there are no Advances outstanding under   the Revolving Line, as soon as available but no later than forty-five (45) days after the   end of each fiscal quarter, a company prepared consolidated balance sheet and income   statement covering Ultimate Parent and each of its consolidated Subsidiary’s operations   for such month or fiscal quarter, as applicable, certified by a Responsible Officer and in a   form reasonably acceptable to Bank (the “Monthly Financial Statements”);   (b) Monthly or Quarterly Compliance Certificate.  Together with the Monthly   Financial Statements (or quarterly, as applicable), a duly completed Compliance     





 







7      Certificate signed by a Responsible Officer, certifying, as of the end of such calendar   month or fiscal quarter, as applicable, as to whether the Credit Parties were in compliance   with all of the terms and conditions of this Agreement, and, if a Default or Event of   Default exists, specifying the details thereof any action taken or proposed to be taken   with respect thereto, and setting forth calculations of the financial covenants set forth in   Section 6.8;”   (l) Section 6.2 (Financial Statements, Reports, Certificates).  The following new   Section 6.2(h) and (i) are hereby inserted immediately following subsection (g):   “(h) a Transaction Report (and any schedules related thereto) (i) with each   request for an Advance, (ii) on the first Business Day of each month and the fifteenth   (15) day of each month when a Streamline Period is not in effect and there are Advances   outstanding under the Revolving Line, (iii) within thirty (30) days after the end of each   month when a Streamline Period is in effect and there are Advances outstanding under   the Revolving Line, and (iv) within forty-five (45) days after the end of each fiscal   quarter if there are no Advances outstanding under the Revolving Line; and   (i) (x) on the first Business Day of each month and the fifteenth (15) day of   each month when a Streamline Period is not in effect and there are Advances outstanding   under the Revolving Line, (y) within thirty (30) days after the end of each month when a   Streamline Period is in effect and there are Advances outstanding under the Revolving   Line, and (z) within forty-five (45) days after the end of each fiscal quarter if there are no   Advances outstanding under the Revolving Line, (A) accounts receivable agings, aged by   invoice date, (B) accounts payable report, listed by invoice date, and outstanding or held   check registers, if any, and (C) reconciliations of accounts receivable agings (aged by   invoice date), and general ledger, in each case as of the last day of the most recent month   or fiscal quarter, as applicable.”   (m) Section 6.4 (Collection of Accounts).  Section 6.4 is amended in its entirety and   replaced with the following:   “6.4. Accounts Receivable.    (a) Schedules and Documents Relating to Accounts.  Borrower shall   deliver to Bank Transaction Reports and schedules of collections, as provided in   Section 6.2, on Bank’s standard forms; provided, however, that Borrower’s failure   to execute and deliver the same shall not affect or limit Bank’s Lien and other   rights in all of Borrower’s Accounts, nor shall Bank’s failure to advance or lend   against a specific Account affect or limit Bank’s Lien and other rights therein.  If   requested by Bank, Borrower shall furnish Bank with copies of all contracts,   orders, invoices, and other similar documents, and all shipping instructions,   delivery receipts, bills of lading, and other evidence of delivery, for any goods the   sale or disposition of which gave rise to such Accounts included in a Transaction   Report.  In addition, if an Event of Default has occurred and is continuing,   Borrower shall deliver to Bank, on its request, the originals of all instruments,   chattel paper, security agreements, guarantees and other documents and property     





 







8      evidencing or securing any such Accounts, in the same form as received, with all   necessary indorsements, and copies of all credit memos.  Nothing in this Section   6.4(a) shall obligate Borrower to deliver any item that is privileged attorney client   communication.    (b) Disputes.  Borrower shall promptly notify Bank of all disputes or   claims relating to Accounts included in a Transaction Report.  Borrower may   forgive (completely or partially), compromise, or settle any such Account for less   than payment in full, or agree to do any of the foregoing so long as (i) Borrower   does so in good faith, in a commercially reasonable manner, in the ordinary   course of business, in arm’s-length transactions, and reports the same to Bank in   the regular reports provided to Bank; (ii) no Default or Event of Default has   occurred and is continuing; and (iii) after taking into account all such discounts,   settlements and forgiveness, the total outstanding Advances will not exceed the   lesser of the Revolving Line or the Borrowing Base.      (c) Collection of Accounts.  Each Credit Party shall direct Account   Debtors to deliver or transmit all proceeds of Accounts into a lockbox account   (with respect to check receipts) or such other “blocked account” as may be   specified by Bank (either such account, the “Cash Collateral Account”).    Whether or not an Event of Default has occurred and is continuing, Borrower   shall immediately deliver all payments on and proceeds of Accounts to the Cash   Collateral Account.  Such payments and proceeds shall be (X) prior to the   occurrence and continuance of an Event of Default, (i) during a Streamline   Period, transferred to the Designated Deposit Account or (ii) if a Streamline   Period is not in effect, applied to immediately reduce the Obligations, and (Y)   following the occurrence and continuance of an Event of Default, applied   pursuant to Section 9.4.    (d) Returns.  Provided no Event of Default has occurred and is   continuing, if any Account Debtor returns any Inventory to Borrower, excluding   Inventory that Borrower has consigned to Account Debtors in the ordinary course   of business, Borrower shall promptly (i) determine the reason for such return,   (ii) issue a credit memorandum to the Account Debtor in the appropriate amount,   and (iii) provide a copy of such credit memorandum to Bank, upon request from   Bank.  In the event any attempted return occurs after the occurrence and during   the continuance of any Event of Default, Borrower shall hold the returned   Inventory in trust for Bank, and immediately notify Bank of the return of the   Inventory.      (e) Verification.  Bank may, from time to time, verify directly with the   respective Account Debtors the validity, amount and other matters relating to the   Accounts, either in the name of Borrower or Bank or such other name as Bank   may choose, and notify any Account Debtor of Bank’s security interest in such   Account.     





 







9       (f) No Liability.  Bank shall not be responsible or liable for any   shortage or discrepancy in, damage to, or loss or destruction of, any goods, the   sale or other disposition of which gives rise to an Account, or for any error, act,   omission, or delay of any kind occurring in the settlement, failure to settle,   collection or failure to collect any Account, or for settling any Account in good   faith for less than the full amount thereof, nor shall Bank be deemed to be   responsible for any of Borrower's obligations under any contract or agreement   giving rise to an Account.  Nothing herein shall, however, relieve Bank from   liability for its own gross negligence or willful misconduct.”   (n) Section 6.15 (Remittance of Proceeds).  The following new Section 6.15 is   hereby inserted immediately following Section 6.14:   “6.15 Remittance of Proceeds.  Except (i) as otherwise provided in Section   6.4(c), (ii) if a Streamline Period is in effect, (iii) if no Advances are outstanding under   the Revolving Line, or (iv) in respect of a Permitted Transfer, deliver, in kind, all   proceeds arising from the disposition of any Collateral to Bank in the original form in   which received by Borrower not later than the following Business Day after receipt by   Borrower, to be applied to the Obligations (a) prior to an Event of Default, pursuant to   the terms of Section 2.6(b) hereof, and (b) after the occurrence and during the   continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof; provided   that, if no Event of Default has occurred and is continuing, Borrower shall not be   obligated to remit to Bank 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 One Hundred Thousand Dollars ($100,000) or less (for all such   transactions in any fiscal year).  Borrower agrees that it will not commingle proceeds of   Collateral with any of Borrower’s other funds or property, but will hold such proceeds   separate and apart from such other funds and property and in an express trust for Bank.    Nothing in this Section limits the restrictions on disposition of Collateral set forth   elsewhere in this Agreement.”   (o) Section 13.1 (Definitions).  The following terms and their respective definitions   set forth in Section 13.1 are amended in their entirety and replaced with the following:   “Adjusted EBITDA” means (a) GAAP Net Income plus (b) Interest Expense   (less interest income), (c) income tax benefit and expense, (c) depreciation, (d)   amortization and (e) stock-based compensation expense, (f) other non-operating expense   (less other income) (as such amount is shown on the “Other income and (expense)” line   item below the operating income line in the Ultimate Parent's relevant income statement,   determined in accordance with GAAP), (g) goodwill impairment, (h) the change in   Deferred Revenue (excluding acquired Deferred Revenue), less (i) the change in deferred   commissions, (j) any items related to the litigation with Google Inc., (k) restructuring and   related wind down costs, consulting and other related costs associated with development   and implementation of Borrower’s revised business strategy, severance costs and   transaction and other costs associated with mergers and acquisitions, and (l) all   adjustments related to recording the non-cash tax valuation allowance for deferred tax     





 







10      assets (with items (k) and (l) not to exceed an aggregate amount of $8,500,000 for the   twelve (12) month period following the Fifth Amendment Effective Date).   “Availability Amount” is (a) the lesser of (i) the Revolving Line (which, for the   avoidance of doubt, is reduced by the face amount of all outstanding Letters of Credit   (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve))   or (ii) the amount available under the Borrowing Base minus (b) the outstanding principal   balance of any Advances.   “Revolving Line Maturity Date” is January 1, 2018.   (p) Section 13.1 (Definitions).  The following new terms and their respective   definitions are hereby inserted into Section 13.1, each in their respective alphabetical   order:   “Borrowing Base” is (a) eighty percent (80%) of Eligible Accounts, as   determined by Bank from Borrower’s most recent Transaction Report (provided,   however, Eligible Accounts with respect to clauses (b), (c), (d) and (q) shall not include   Accounts in excess of ninety (90) days of invoice date to the extent the aggregate amount   of such Accounts exceeds ten percent (10%) of Eligible Accounts), plus (b) during a   Non-Formula Period, the Non-Formula Amount; provided, however, that Bank has the   right to decrease the foregoing percentage in its good faith business judgment upon prior   consultation with Borrower to mitigate the impact of events, conditions, contingencies, or   risks which may adversely affect the Collateral or its value; provided, further that in the   event Bank exercises such right to decrease the foregoing percentage, such circumstance   shall not in and of itself constitute a Material Adverse Change or create an inference that   a Material Adverse Change has occurred.   “Cash Collateral Account” is defined in Section 6.4(c).   “Eligible Accounts” means Accounts which arise in the ordinary course of   Borrower’s business that meet all Borrower’s representations and warranties in Section   5.12, (minus any discounts, credits, reserves for bad debt, customer adjustments, or other   offsets which relate to such Accounts).  Bank reserves the right at any time upon prior   consultation with Borrower to adjust any of the criteria set forth below and to establish   new criteria in its good faith business judgment.  Unless Bank otherwise agrees in   writing, Eligible Accounts shall not include:   a) Accounts for which the Account Debtor is Borrower’s Affiliate, officer,   employee, or agent;   b) Accounts that the Account Debtor has not paid within one hundred twenty   (120) days of invoice date regardless of invoice payment period terms;   c) Accounts with credit balances over one hundred twenty (120) days from   invoice date;     





 







11      d) Accounts owing from an Account Debtor if fifty percent (50%) or more of   the Accounts owing from such Account Debtor have not been paid within one hundred   twenty (120) days of invoice date;   e) Accounts owing from an Account Debtor which does not have its   principal place of business in the United States or such other jurisdictions approved by   Bank in writing in its sole and absolute discretion on a case-by-case basis;   f) Accounts billed from and/or payable to Borrower outside of the United   States unless Bank has a first priority, perfected security interest or other enforceable   Lien in such Accounts under all applicable laws, including foreign laws (sometimes   called foreign invoiced accounts);   g) Accounts owing from an Account Debtor to the extent that Borrower is   indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier   or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits   or credit accounts);   h) Accounts owing from an Account Debtor which is a United States   government entity or any department, agency, or instrumentality thereof unless Borrower   has assigned its payment rights to Bank and the assignment has been acknowledged   under the Federal Assignment of Claims Act of 1940, as amended;   i) Accounts for demonstration or promotional equipment, or in which goods   are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or   other terms if Account Debtor’s payment may be conditional;   j) Accounts owing from an Account Debtor where goods or services have   not yet been rendered to the Account Debtor (sometimes called memo billings or pre-   billings), other than any such Accounts with respect to which Borrower has recorded   Deferred Revenue;   k) Accounts subject to contractual arrangements between Borrower and an   Account Debtor where payments shall be scheduled or due according to completion or   fulfillment requirements where the Account Debtor has a right of offset for damages   suffered as a result of Borrower’s failure to perform in accordance with the contract   (sometimes called contracts accounts receivable, progress billings, milestone billings, or   fulfillment contracts);   l) Accounts owing from an Account Debtor the amount of which may be   subject to withholding based on the Account Debtor’s satisfaction of Borrower’s   complete performance (but only to the extent of the amount withheld; sometimes called   retainage billings);   m) Accounts subject to trust provisions, subrogation rights of a bonding   company, or a statutory trust;     





 







12      n) Accounts owing from an Account Debtor that has been invoiced for goods   that have not been shipped to the Account Debtor unless Bank, Borrower, and the   Account Debtor have entered into an agreement acceptable to Bank wherein the Account   Debtor acknowledges that (i) it has title to and has ownership of the goods wherever   located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such   goods in accordance with invoices from Borrower (sometimes called “bill and hold”   accounts);   o) Accounts for which the Account Debtor has not been invoiced;   p) Accounts that represent non-trade receivables or that are derived by means   other than in the ordinary course of Borrower’s business;   q) Accounts for which Borrower has permitted Account Debtor’s payment to   extend beyond one hundred twenty (120) days;   r) Accounts arising from chargebacks, debit memos or other payment   deductions taken by an Account Debtor;   s) Accounts arising from product returns and/or exchanges (sometimes called   “warranty” or “RMA” accounts);   t) Accounts in which the Account Debtor disputes liability or makes any   claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject   to an Insolvency Proceeding, or becomes insolvent, or goes out of business;    u) Accounts owing from an Account Debtor, whose total obligations to   Borrower exceed twenty-five percent (25%) of all Accounts, except for Amazon.com,   Inc., for which such percentage is forty percent (40%), for the amounts that exceed that   percentage, unless Bank approves in writing; and   v) Accounts for which Bank in its good faith business judgment determines   collection to be doubtful, including, without limitation, accounts represented by   “refreshed” or “recycled” invoices.   “Fifth Amendment Effective Date” is March 14, 2016.   “Initial Audit” is Bank’s inspection of Borrower’s Accounts, the Collateral, and   Borrower’s books and records, with results satisfactory to Bank in its reasonable   discretion.   “Letter of Credit Application” is defined in Section 2.1.2(b).   “Letter of Credit Reserve” is defined in Section 2.1.2(e).   “Liquidity” is, at any time, the sum of (a) the aggregate amount of unrestricted   cash held at such time by Borrower in Deposit Accounts or Securities Accounts     





 







13      maintained with Bank or its Affiliates plus (b) the Availability Amount (excluding the   Non-Formula Amount from the Borrowing Base).   “Monthly Financial Statements” is defined in Section 6.2(a).     “Non-Formula Amount” is Five Million Dollars ($5,000,000)   “Non-Formula Period” is, on and after the Fifth Amendment Effective Date,   provided no Event of Default has occurred and is continuing, the period (a) commencing   on the first day of the month following the day that Borrower provides to Bank a written   report that Borrower has, for each consecutive day in the immediately preceding calendar   month, Liquidity in an amount at all times greater than Twenty Five Million Dollars   ($25,000,000) (the “Non-Formula Balance”); and (b) terminating on the earlier to occur   of (i) the occurrence of an Event of Default, and (ii) the first day thereafter in which   Borrower fails to maintain the Non-Formula Balance, subject, however, to Bank’s   reasonable determination made within a reasonable time after its receipt of the relevant   report that Borrower has maintained the requisite Liquidity in the relevant time periods.   “Streamline Period” is, on and after the Fifth Amendment Effective Date,   provided no Event of Default has occurred and is continuing, the period (a) commencing   on the first day of the month following the day that Borrower provides to Bank a written   report that Borrower has, for each consecutive day in the immediately preceding calendar   month, Liquidity in an amount at all times greater than Seventeen Million Five Hundred   Thousand Dollars ($17,500,000) (the “Streamline Balance”); and (b) terminating on the   earlier to occur of (i) the occurrence of an Event of Default, and (ii) the first day   thereafter in which Borrower fails to maintain the Streamline Balance.  Upon the   termination of a Streamline Period, Borrower must maintain the Streamline Balance each   consecutive day for one (1) calendar month prior to entering into a subsequent Streamline   Period.  Borrower shall give Bank prior written notice of Borrower’s election to enter   into any such Streamline Period, and each such Streamline Period shall commence on the   first day of the monthly period following the date the Bank determines, in its reasonable   discretion, that the Streamline Balance has been achieved, subject, however, in each such   case to Bank’s reasonable determination made within a reasonable time after receipt of   the relevant report that Borrower has maintained the requisite Liquidity in the relevant   time periods.   “Transaction Report” is that certain report of transactions and schedule of   collections in the form attached hereto as Exhibit B, with appropriate insertions.   (q) Section 13.1 (Definitions).  The following terms and their respective definitions   are hereby deleted from Section 13.1 in their entirety:   “Current Liabilities” are all Obligations of Borrower to Bank, plus, without   duplication, the aggregate amount of total liabilities of Ultimate Parent and its   Subsidiaries that mature within one (1) year, minus Deferred Revenue.   “LIBOR” means, with respect to each day during each Interest Period pertaining   to ) a LIBOR Advance the rate per annum determined by Bank by reference to the ICE     





 







14      Benchmark Administration (or any successor thereto if the ICE Benchmark   Administration is no longer making a LIBOR rate available for deposits (for delivery on   the first day of such Interest Period) with a term equivalent to such Interest Period in   Dollars, determined as of approximately 11:00 A.M. (London, England time) two   (2) Business Days prior to the beginning of such Interest Period (as set forth by Reuters   or any successor thereto or any other commercially available service selected by Bank   which provides quotations of LIBOR.  In the event that Bank determines that LIBOR is   not available, “LIBOR” shall be determined by reference to the rate per annum equal to   the offered quotation rate to first class banks in the London interbank market by Bank for   deposits (for delivery on the first day of the relevant Interest Period) in Dollars of   amounts in same day funds comparable to the principal amount of the applicable   Advance for which LIBOR is then being determined with maturities comparable to such   period, as of approximately 11:00 A.M. (London, England time) two (2) Business Days   prior to the beginning of such Interest Period.    “LIBOR Advance” means an Advance that bears interest based at the LIBOR   Rate.   “LIBOR Rate” means, for each Interest Period in respect of LIBOR Advances   comprising part of the same Advances, an interest rate per annum (rounded upward, if   necessary, to the nearest 0.0001%) equal to LIBOR for such Interest Period divided by   one (1) minus the Reserve Requirement for such Interest Period.   “LIBOR Rate Margin” is two and one-quarter percent (2.25%).      “Notice of Borrowing” means a notice given by Borrower to Bank in accordance   with Section 3.4(a), substantially in the form of Exhibit B, with appropriate insertions.    “Notice of Conversion/Continuation” means a notice given by Borrower to   Bank in accordance with Section 3.5, substantially in the form of Exhibit C, with   appropriate insertions.    “Prime Rate Advance” means an Advance that bears interest based at the Prime   Rate.    “Prime Rate Margin” is one and one-quarter percent (1.25%).   “Quarterly Financial Statements” is defined in Section 6.2(a).   “Quick Assets” is, on any date, Ultimate Parent’s consolidated, unrestricted cash   and Cash Equivalents, net billed accounts receivable and investments with maturities of   fewer than 12 months determined according to GAAP.   “Regulatory Change” means, with respect to Bank, any change on or after the   date of this Agreement in United States federal, state, or foreign laws or regulations,   including Regulation D of the Board of Governors of the Federal Reserve System of the   United States (or any successor), or the adoption or making on or after such date of any   interpretations, directives, or requests applying to a class of lenders including Bank, of or     





 







15      under any United States federal or state, or any foreign laws or regulations (whether or   not having the force of law) by any court or governmental or monetary authority charged   with the interpretation or administration thereof.   “Reserve Requirement” for any day as applied to a LIBOR Advance, the   aggregate (without duplication) of the maximum rates (expressed as a decimal fraction)   of reserve requirements in effect on such day (including basic, supplemental, marginal   and emergency reserves) under any regulations of the Board or other Governmental   Authority having jurisdiction with respect thereto dealing with reserve requirements   prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities”   in Regulation D of the Board) maintained by a member bank of the Federal Reserve   System.   (r) Exhibit B, Exhibit D and Exhibit E to the Loan Agreement are hereby amended in   their entireties and replaced by Exhibit B, Exhibit D and Exhibit E attached   hereto.     (s) Exhibit C of the Loan Agreement is hereby deleted in its entirety.   7. Conditions Precedent to Effectiveness.  This Amendment shall not be effective   until each of the following conditions precedent have been fulfilled to the satisfaction of Bank:   (a) This Amendment shall have been duly executed and delivered by the respective   parties hereto.  Bank shall have received a fully executed copy hereof.   (b) All necessary consents and approvals to this Amendment shall have been obtained   by Borrower.   (c) After giving effect to this Amendment, no Default or Event of Default shall have   occurred and be continuing.   (d) Bank shall have received the fees costs and expenses required to be paid pursuant   to Section 10 of this Amendment (including the reasonable and documented fees and   disbursements of legal counsel required to be paid thereunder).     8. Post-Closing Requirements.  Failure by Borrower to comply with any of the   following within the time period indicated, or such longer period as Bank may agree in its   reasonable discretion, shall constitute an immediate Event of Default for which no cure or grace   periods apply:   (a) Within seven (7) days after the Fifth Amendment Effective Date, Borrower shall   deliver to Bank a certificate of good standing for each Credit Party certified by the   Secretary of State of such Credit Party’s respective state of formation, together   with duly executed signatures to a completed Borrowing Resolution for each   Borrower;   (b) Within ten (10) days after the Fifth Amendment Effective Date, Borrower shall   provide Bank with evidence satisfactory to Bank that the insurance policies and     





 







16      endorsements thereto required by Section 6.6 of the Loan Agreement are in full   force and effect;   (c) Within thirty (30) days after the Fifth Amendment Effective Date, Borrower shall   deliver to Bank a landlord consent in favor of Bank for 300-310 Baker Avenue,   Concord, MA 01742 by the landlord thereof, together with the duly executed   original signatures thereto;   (d) Within thirty (30) days after the Fifth Amendment Effective Date, Borrower shall   deliver to Bank an updated Perfection Certificate, together with the duly executed   signatures thereto, and take whatever actions Bank may deem reasonably   necessary after Bank’s review of such updated Perfection Certificate in order for   Bank to obtain, perfect and maintain a first priority security interest (subject to   Permitted Liens) in all Collateral referenced therein; and   (e) Within forty-five (45) days after the Fifth Amendment Effective Date, Bank shall   have completed the Initial Audit; provided, however, prior to the completion   thereof and review by Bank to its reasonable satisfaction, no Advances under the   Revolving Line shall be made by Bank.   9. Representations and Warranties.  Borrower hereby represents and warrants to   Bank as follows:   (a) This Amendment is, and each other Loan Document to which it is or will be a   party, when executed and delivered by Borrower, will be the legally valid and binding obligation   of Borrower, enforceable against Borrower in accordance with its respective terms, except as   enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar   laws relating to or limiting creditors’ rights generally and equitable principals (whether   enforcement is sought by proceedings in equity or at law).      (b) Its representations and warranties set forth in this Amendment, the Loan   Agreement, as amended by this Amendment and after giving effect hereto, and the other Loan   Documents to which it is a party are (i) to the extent qualified by materiality, true and correct in   all respects and (ii) to the extent not qualified by materiality, true and correct in all material   respects, in each case, on and as of the date hereof, as though made on such date (except to the   extent that such representations and warranties relate solely to an earlier date, in which case such   representations and warranties shall have been true and correct in all material respects as of such   earlier date).      (c) The execution and delivery by Borrower of this Amendment, the performance by   Borrower of its obligations hereunder and the performance of Borrower under the Loan   Agreement, as amended by this Amendment, (i) have been duly authorized by all necessary   organizational action on the part of Borrower and (ii) will not (A) violate any provisions of the   certificate of incorporation or formation or organization or by-laws or limited liability company   agreement or limited partnership agreement of Borrower or (B) constitute a violation by   Borrower of any applicable material Requirement of Law.         





 







17      Borrower acknowledges that Bank has acted in good faith and have conducted in a   commercially reasonable manner their relationships with Borrower in connection with this   Amendment and in connection with the other Loan Documents.  Borrower understands and   acknowledges that Bank is entering into this Amendment in reliance upon, and in partial   consideration for, the above representations, warranties, and acknowledgements, and agrees that   such reliance is reasonable and appropriate.     10. Payment of Costs and Expenses Borrower shall pay to Bank a fully-earned, non-   refundable amendment fee equal to Sixty Two Thousand Five Hundred Dollars ($62,500), which   fee shall be paid on the Fifth Amendment Effective Date.  In addition, Borrower shall pay to   Bank all reasonable costs and out-of-pocket expenses of every kind in connection with the   preparation, negotiation, execution and delivery of this Amendment and any documents and   instruments relating hereto or thereto (which costs include, without limitation, the reasonable and   documented fees and expenses of any attorneys retained by Bank).   11. Choice of Law.  THIS AMENDMENT AND THE RIGHTS AND   OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND   SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS   OF THE STATE OF NEW YORK.  Each party hereto submits to the exclusive jurisdiction of   the State and Federal courts in the Southern District of the State of New York; provided,   however, that nothing in the Loan Agreement as amended by this Amendment shall be deemed   to operate to preclude Bank from bringing suit or taking other legal action in any other   jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a   judgment or other court order in favor of such Agent. TO THE EXTENT PERMITTED BY   APPLICABLE LAW, EACH PARTY HERETO WAIVES ITS RIGHT TO A JURY   TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED   UPON THIS AMENDMENT, THE OTHER LOAN DOCUMENTS OR ANY   CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF   DUTY AND ALL OTHER CLAIMS. EACH PARTY HERETO ACKNOWLEDGES   THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A   BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS   WAIVER IN ENTERING INTO THIS AMENDMENT, AND THAT EACH WILL   CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS.    EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS   REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT   KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS   FOLLOWING CONSULTATION WITH LEGAL COUNSEL.     12. Counterpart Execution.  This Amendment may be executed in any number of   counterparts and by different parties on separate counterparts, each of which, when executed and   delivered, shall be deemed to be an original, and all of which, when taken together, shall   constitute but one and the same Amendment.  Delivery of an executed counterpart of this   Amendment by telefacsimile or by e-mail transmission of an Adobe file format document (also   known as a PDF file) shall be equally as effective as delivery of an original executed counterpart   of this Amendment. Any party delivering an executed counterpart of this Amendment by   telefacsimile or by e-mail transmission of an Adobe file format document (also known as a PDF   file) also shall deliver an original executed counterpart of this Amendment but the failure to     





 







18      deliver an original executed counterpart shall not affect the validity, enforceability, and binding   effect of this Amendment.   13. Effect on Loan Documents.   (a) The amendments set forth herein shall be limited precisely as written and shall not   be deemed (a) to be a forbearance, waiver, or modification of any other term or condition of the   Loan Agreement or of any Loan Documents or to prejudice any right or remedy which Bank may   now have or may have in the future under or in connection with the Loan Documents; (b) to be a   consent to any future consent or modification, forbearance, or waiver to the Loan Agreement or   any other Loan Document, or to any waiver of any of the provisions thereof; or (c) to limit or   impair Bank’s right to demand strict performance of all terms and covenants as of any date.    Borrower hereby ratifies and reaffirms its obligations under the Loan Agreement and the other   Loan Documents to which it is a party and agrees that none of the amendments or modifications   to the Loan Agreement set forth in this Amendment shall impair Borrower’s obligations under   the Loan Documents or Bank’s rights under the Loan Documents.  Borrower hereby further   ratifies and reaffirms the validity and enforceability of all of the Liens heretofore granted,   pursuant to and in connection with the Loan Agreement or any other Loan Document, to Bank as   collateral security for the obligations under the Loan Documents, in accordance with their   respective terms, and acknowledges that all of such Liens, and all collateral heretofore pledged   as security for such obligations, continues to be and remain collateral for such obligations from   and after the date hereof.  Borrower acknowledges and agrees that the Loan Agreement and each   other Loan Document is still in full force and effect and acknowledges as of the date hereof that   Borrower has no defenses to enforcement of the Loan Documents.  Borrower waives any and all   defenses to enforcement of the Loan Agreement as amended hereby and each other Loan   Documents that might otherwise be available as a result of this Amendment of the Loan   Agreement.  To the extent any terms or provisions of this Amendment conflict with those of the   Loan Agreement or other Loan Documents, the terms and provisions of this Amendment shall   control.   (b) To the extent that any terms and conditions in any of the Loan Documents shall   contradict or be in conflict with any terms or conditions of the Loan Agreement, after giving   effect to this Amendment, such terms and conditions are hereby deemed modified or amended   accordingly to reflect the terms and conditions of the Loan Agreement as modified or amended   hereby.   (c) This Amendment is a Loan Document.     14. Entire Agreement.  This Amendment constitutes the entire agreement between   Borrower and Bank pertaining to the subject matter contained herein and supersedes all prior   agreements, understandings, offers and negotiations, oral or written, with respect hereto and no   extrinsic evidence whatsoever may be introduced in any judicial or arbitration proceeding, if any,   involving this Amendment.  All of the terms and provisions of this Amendment are hereby   incorporated by reference into the Loan Agreement, as applicable, as if such terms and   provisions were set forth in full therein, as applicable.  All references in the Loan Agreement to   “this Agreement”, “hereto”, “hereof”, “hereunder” or words of like import shall mean the Loan   Agreement as amended hereby.       





 







19      15. Release.  Borrower may have certain Claims against the Released Parties, as those   terms are defined below, regarding or relating to the Loan Agreement or the other Loan   Documents.  Bank and Borrower desire to resolve each and every one of such Claims in   conjunction with the execution of this Amendment and thus Borrower makes the releases   contained in this Section 10.  In consideration of Bank entering into this Amendment, Borrower    hereby fully and unconditionally releases and forever discharges Bank and its directors, officers,   employees, subsidiaries, branches, affiliates, attorneys, agents, representatives, successors and   assigns and all persons, firms, corporations and organizations acting on any of their behalf   (collectively, the “Released Parties”), of and from any and all claims, allegations, causes of   action, costs or demands and liabilities, of whatever kind or nature, from the beginning of the   world to the date on which this Amendment is executed, whether known or unknown, liquidated   or unliquidated, fixed or contingent, asserted or unasserted, foreseen or unforeseen, matured or   unmatured, suspected or unsuspected, anticipated or unanticipated, which Borrower has, had,   claims to have had or hereafter claims to have against the Released Parties by reason of any act   or omission on the part of the Released Parties, or any of them, occurring prior to the date on   which this Amendment is executed, including all such loss or damage of any kind heretofore   sustained or that may arise as a consequence of the dealings among the parties up to and   including the date on which this Amendment is executed, including the administration or   enforcement of the Loans, the Obligations, the Loan Agreement or any of the Loan Documents   (collectively, all of the foregoing, the “Claims”).  Borrower represents and warrants that it has no   knowledge of any claim by it against the Released Parties or of any facts or acts of omission of   the Released Parties which on the date hereof would be the basis of a claim by Borrower against   the Released Parties which is not released hereby.  Borrower represents and warrants that the   foregoing constitutes a full and complete release of all Claims.   16. Severability.  The provisions of this Amendment are severable, and if any clause   or provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then   such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in   such jurisdiction and shall not in any manner affect such clause or provision in any other   jurisdiction, or any other clause or provision in this Amendment in any jurisdiction.   [SIGNATURE PAGES FOLLOW]        





 







    





 







    





 







    





 







 1   EXHIBIT A – COLLATERAL DESCRIPTION   The Collateral consists of all of New Borrower’s right, title and interest in and to the   following personal property:   All goods, Accounts (including health-care receivables), Equipment, Inventory, contract   rights or rights to payment of money, leases, license agreements, franchise agreements, General   Intangibles, commercial tort claims, documents, instruments (including any promissory notes),   chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit   rights (whether or not the letter of credit is evidenced by a writing), securities, and all other   investment property, supporting obligations, and financial assets, whether now owned or   hereafter acquired, wherever located; and   All Credit Party’s Books relating to the foregoing, and any and all claims, rights and   interests in any of the above and all substitutions for, additions, attachments, accessories,   accessions and improvements to and replacements, products, proceeds and insurance proceeds of   any or all of the foregoing; provided, however, that notwithstanding anything to the contrary   contained in the foregoing, the security interests created by this Agreement shall not extend to,   and the term “Collateral” (including all of the individual items comprising Collateral) shall not   include, any Excluded Collateral.     





 







 1      EXHIBIT B   TRANSACTION REPORT    





 







Transaction Report   Company name Rosetta   Report number   Report date   Gross A/R Balance -$                           Unbilled A/R Balance -$                           Beg Loan Balance -$                           Unrestricted Cash at SVB -$                           Today's Loan Advance Request -$                          SALES JOURNAL   Invoices:   Credit Memos: -$                           Misc. Adj. - Sales related: -$                           Net New Invoices -$                           CASH RECEIPTS JOURNAL   A/R Collections:   Collections applied to Loan:   Net Collections Applied to Loan -$                               RESERVES / LC Sublimit   Misc. if applicable -$                           General Input Sheet Confidential | Rev. 01-26-10   svb.com    1893192.1    1958682.1    





 







Rosetta   Transaction Report   Report No: 0   Date January 0, 1900   ACCOUNTS RECEIVABLE COLLATERAL   Beginning A/R Balance Per Previous Report -$                                    Add: Sales for Period -$                                    Add: Credit Memos -$                                    Miscellaneous Adjustments   Less: Collections for Period (adjustment to number to tie back to AR) -$                                    Ending Accounts Receivable Balance -$                                    Deduct: Ineligible Accounts Receivable -$                                    Total Eligible Accounts Receivable -$                                    COMPUTATION OF BORROWING AVAILABILITY   Gross A/R Advance Rate 80% -$                                    Unbilled A/R Advance Rate 80% -$                                    Lower of Calculated Availability or Line limit 25,000,000$   -$                                    Reserves / LC Sublimit (if applicable): -$                                    Net Borrowing Availability: Before Loans -$                                    COMPUTATION OF LOAN   Beginning Loan Balance -$                          Less: Collections Applied to Loan -$                         Misc. Adjustments -$                         Ending Loan Balance - Before Loan Request -$                                    Unused Borrowing Availability Before Loan Request -$                         Unrestricted Cash at SVB -$                         Liquidity -$                         NF Availability -$                         Total Availability -$                         New Loan Request: The undersigned hereby requests a loan advance in the amount shown adjacent hereto.   Please deposit loan proceeds to my: SVB Checking Account Advance = -$                         New Loan Balance - After Loan Advance -$                                    Remaining Unused Borrowing Availability - After Loan Request -$                         The above described Collateral is subject to a security interest in favor of SILICON VALLEY BANK pursuant to the terms and conditions of a Loan & Security Agreement's,   as executed by and between SILICON VALLEY BANK and the undersigned.   Transaction Report and Loan Request Confidential | Rev. 01-26-10   svb.com    1893192.1    1958682.1    





 







INELIGIBLE CALCULATION Rosetta   As of: 1/0/1900   Report No: 0   Date 1/0/1900   Ineligibles As of   Intercompany / Affiliate / Employee   120 Days Past Invoice Date -$                         Credit Balances over 120 Days   Balance of 50% over 120 Day Accounts (Cross-Age or Current Affected)   Foreign Account Debtor Accounts   Foreign Invoiced and/or Collected Accounts   Contra / Customer Deposit Accounts   Concentration Limits   U.S. Government Accounts   Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts   Accounts with Memo or Pre-Billings;   Contract Accounts; Accounts with Progress / Milestone Billings   Accounts for Retainage Billings   Trust / Bonded Accounts   Bill and Hold Accounts   Unbilled Accounts   Non-Trade Accounts (If not already deducted above)   Accounts with Extended Term Invoices (Net 120+)   Chargebacks Accounts / Debit Memos   Product Returns/Exchanges   Disputed Accounts; Insolvent Account Debtor Accounts   Deferred Revenue   Other   Total Ineligible Accounts:  (to BBC) -$                         Ineligible Calculation Confidential | Rev. 01-26-10   svb.com    1893192.1    1958682.1    





 







 1   EXHIBIT D   COMPLIANCE CERTIFICATE      TO:   SILICON VALLEY BANK      Date:        FROM: ROSETTA STONE LTD. and LEXIA LEARNING SYSTEMS LLC      The undersigned authorized officer of Rosetta Stone Ltd. and Lexia Learning Systems LLC (each and together,   jointly and severally, “Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between   Borrower and Bank (the “Agreement”): (1) Each Credit party is in complete compliance for the period ending   _______________ with all required covenants except as noted below; (2) there are no Events of Default; (3) all   representations and warranties in the Agreement are true and correct in all material respects on this date except as noted   below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that   already are qualified or modified by materiality in the text thereof; and provided, further that those representations and   warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date;   (4) each Credit Party and each of its Subsidiaries, has timely filed all required tax returns and reports, and each Credit Party   and each of its Subsidiaries has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions   owed by such Credit Party or Subsidiary except as otherwise permitted pursuant to the terms of Section 5.8 of the   Agreement; and (5) no Liens have been levied or claims made against any Credit Party or any of its Subsidiaries relating to   unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.     Attached are the required documents supporting the certification.  The undersigned certifies that these are prepared   in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or   footnotes.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that   Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date   this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in   the Agreement.   Please indicate compliance status by circling Yes/No under “Complies” column.      Reporting Covenants Required Complies   Monthly or Quarterly financial statements with    Compliance Certificate   Monthly within 30 days    when there are Advances outstanding;    quarterly within 45 days when there are   no Advances outstanding   Yes   No   Annual financial statement (CPA Audited) with    Compliance Certificate   FYE within 90 days Yes   No   10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes   No   Projections FYE within 90 days Yes   No   A/R Agings & A/P Report Bi-weekly when a Streamline Period is    not in effect and there are Advances    outstanding; monthly within 30 days    when a Streamline Period is in effect    and there are Advances outstanding;    quarterly within 45 days when there are   no Advances outstanding   Yes   No   Transaction Reports Bi-weekly when a Streamline Period is    not in effect and there are Advances    outstanding; monthly within 30 days    when a Streamline Period is in effect    and there are Advances outstanding;    quarterly within 45 days when there are   no Advances outstanding; and with    Yes   No     





 







 2   each request for an Advance         The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if   registrations, state “None”)   ___________________________________________________________________________________________      Financial Covenants Required Actual Complies        Achieve on a Quarterly Basis:     Minimum Liquidity  $12,500,000 $ Yes   No   Minimum EBITDA * $ Yes   No   *See Section 6.8(b)   Streamline Period Applies       Liquidity > $17,500,000 Yes   No      Non-Formula Period Applies       Liquidity > $25,000,000 Yes   No       The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true   and accurate as of the date of this Certificate.   Other Matters      Have there been any amendments of or other changes to the capitalization table of the   Credit Parties and to the Operating Documents of any Credit Party or any of its   Subsidiaries since the date of the most recently delivered Compliance Certificate?  If yes,   provide copies of any such amendments or changes with this Compliance Certificate to   the extent not previously delivered to Bank.   Yes No    The following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No   exceptions to note.”)   -------------------------------------------------------------------------------------------------------------------------------   ROSETTA STONE LTD.   LEXIA LEARNING SYSTEMS LLC         By:     Name:     Title:        BANK USE ONLY      Received by: _____________________   AUTHORIZED SIGNER   Date:  _________________________      Verified: ________________________   AUTHORIZED SIGNER   Date:  _________________________      Compliance Status: Yes     No     





 







 1   Schedule 1 to Compliance Certificate   Financial Covenants of Borrower    In the event of a conflict between this Schedule and the Loan Agreement, the terms of the   Loan Agreement shall govern.   Dated: ____________________   I. Liquidity (Section 6.8(a))   Required:  $12,500,000   Actual:   A. Aggregate value of the unrestricted cash maintained in Deposit Accounts or   Securities Accounts at Bank or its Affiliates   $       B. Availability Amount (excluding the Non-Formula Amount from the Borrowing   Base)   $       C. Liquidity (line A plus line B)    $          Is line C equal to or greater than $12,500,000?      No, not in compliance        Yes, in compliance     





 







 2   II. ADJUSTED EBITDA (Section 6.8(b))   Required:   Period Adjusted EBITDA   Three (3) month period ending March 31,   2016   ($17,500,000)   Six (6) month period ending June 30, 2016 ($24,500,000)   Nine (9) month period ending September   30, 2016   ($14,000,000)   Twelve (12) month period ending   December 31, 2016   ($9,000,000)   Twelve (12) month period ending March   31, 2017, and quarterly for each twelve   (12) month period thereafter   ($7,500,000)      Actual (for the cumulative period referenced):   A. Net Income  $       B. To the extent included in the determination of Net Income        1. Interest Expense      $        2. Income tax benefit and expense $        3. Depreciation expense $        4. Amortization expense $        5. Stock-based compensation expense $        6.       other non-operating expense (less other income) (as such amount is   shown on the “Other income and (expense)”" line item below the operating   income line in the Ultimate Parent's relevant income statement, determined in   accordance with GAAP)    $    7.  Goodwill impairment      $    8. Change in Deferred Revenue  $        9.  Change in deferred commissions $       10.       items related to the litigation with Google Inc.      





 







 3    11.  restructuring and related wind down costs, consulting and other related   costs associated with development and implementation of Borrower’s revised   business strategy, severance costs and transaction and other costs associated   with mergers and acquisitions (not to exceed an aggregate amount, when added   to the adjustments listed in line 12, of $8,500,000 for the twelve (12) month   period following the Fifth Amendment Effective Date)   $       12.  adjustments related to recording the non-cash tax valuation allowance   for deferred tax assets (not to exceed an aggregate amount, when added to the   costs listed in line 11, of $8,500,000 for the twelve (12) month period following   the Fifth Amendment Effective Date)      $    13. Total Line B: The sum of lines 1 through 8 minus lines 9 through 12 $       C. ADJUSTED EBITDA (line A plus line B) $          Is line C at least (loss not worse than) $______________?      No, not in compliance        Yes, in compliance        





 







 4   EXHIBIT E   FINANCIAL COVENANTS   Achieve on a consolidated basis with respect to Ultimate Parent and its Subsidiaries:   (a) Liquidity.  Maintain at all times, to be certified to Bank as of the last day   of each month, Liquidity equal to or greater than Twelve Million Five Hundred Thousand   Dollars ($12,500,000).   (b) Adjusted EBITDA.  Adjusted EBITDA, measured on a cumulative basis   as of the end of each fiscal quarter during the periods specified below, of at least (loss not worse   than) the following:    Period Adjusted EBITDA   Three (3) month period ending March 31,   2016   ($17,500,000)   Six (6) month period ending June 30, 2016 ($24,500,000)   Nine (9) month period ending September   30, 2016   ($14,000,000)   Twelve (12) month period ending   December 31, 2016   ($9,000,000)   Twelve (12) month period ending March   31, 2017, and quarterly for each trailing   twelve (12) month period thereafter   ($7,500,000)   1954360.5