Exhibit
10.13


 


This
LOAN AND SECURITY AGREEMENT dated as of the Effective Date, between SILICON
VALLEY BANK (“Bank”), on the one side, whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and Raining Data Corporation and Raining Data
U.S., Inc. (jointly and severally referred to herein as the “Borrower”; with
Raining Data Corporation also sometimes individually referred to as the
“Company”), on the other side, and the address for both of the foregoing
Borrowers for purposes hereof is 17500 Cartwright Road, Irvine, CA  92614 provides the terms on which Bank will
lend to Borrower and Borrower will repay Bank. 
The hereby parties agree as follows:


 


1.             ACCOUNTING AND OTHER TERMS


 


Accounting terms
used in this Agreement and not specifically defined herein will be construed
following GAAP.  Calculations and
determinations must be made following GAAP. 
The term “financial statements” includes the notes and schedules.  The terms “including” and “includes” always
mean “including (or includes) without limitation,” in this or any Loan
Document.


 


2.             LOAN AND TERMS OF PAYMENT


 


2.1          Promise to Pay. 
Borrower will pay Bank the unpaid principal amount of all
Credit Extensions and interest on the unpaid principal amount of the Credit
Extensions as set forth in accordance with the terms and conditions hereof.


 


2.1.1       Revolving
Advances.


 


(a)           Bank
will make Revolving Advances not exceeding: 
(i) the lesser of the Committed Revolving Line or the Borrowing Base, minus
(ii) all outstanding amounts for Cash Management Services utilizations, minus
(iii) the face amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), and minus (iv) the FX
Reserve.


 


(b)           To obtain a Revolving Advance,
Borrower must notify Bank by facsimile or telephone by 12:00 p.m. Pacific time
on the Business Day the Revolving Advance is to be made.  Borrower must promptly confirm the
notification by delivering to Bank the Loan Payment/Advance Request Form
attached hereto as Exhibit B.  Bank will
credit Revolving Advances to Borrower’s deposit account.  Bank may make Revolving Advances under this
Agreement based on instructions from a Responsible Officer or his or her
designee or without instructions if the Revolving Advances are necessary to
meet Obligations which have become due. 
Bank may rely on any telephone notice given by a person whom Bank
believes is a Responsible Officer or designee. 
Borrower will indemnify Bank for any loss Bank suffers due to that
reliance.


 


(c)           The Committed Revolving Line
terminates on the Revolving Maturity Date, when all Revolving Advances, all
accrued and unpaid interest thereon and all related Obligations are immediately
due and payable.


 


2.1.2       Letters
of Credit.  Bank will
issue letters of credit for Borrower’s account (individually referred as a
“Letter of Credit” and collectively referred to herein as the “Letters of
Credit”) not exceeding (i) the lesser of the Committed Revolving Line or
the Borrowing Base, minus (ii) the outstanding principal
balance of the Revolving Advances, minus (iii) the Cash Management


 

















 


Services utilizations,
and minus
(iv) the FX Reserve; provided, however, the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) may not exceed at any time $500,000, and any proposed new Letter of
Credit will be considered outstanding for purposes of determining compliance
with the such maximum sublimit.  Each
Letter of Credit will have an expiry date of no later than 180 days after the
Revolving Maturity Date, provided that Borrower’s reimbursement obligation
relating to any such any Letters of Credit shall be secured by cash upon the
termination of this Agreement for any reason and Letters of Credit remain
outstanding at such time.  In any of the
circumstances upon which Borrower is to provide cash collateral as aforesaid,
Borrower shall execute Bank’s standard cash pledge documentation in connection
therewith.  Finally, Borrower agrees to
execute any further documentation in connection with the Letters of Credit as
Bank may reasonably request.


 


2.1.3       Foreign
Exchange Sublimit. If there is availability under the
Committed Revolving Line for new Revolving Advances, then Borrower may enter in
foreign exchange forward contracts with the Bank under which Borrower commits
to purchase from or sell to Bank a set amount of foreign currency more than one
business day after the contract date (an “FX Forward Contract”).  Bank will subtract 10% of the amount of
foreign currency, in U.S. dollars, subject to each outstanding FX Forward
Contract from the foreign exchange sublimit, which is a maximum of $500,000 on
a joint basis for all Borrowers (such 10% amount being referred to herein as
the “FX Reserve”).  The total FX
Forward Contracts at any one time may not exceed 10 times the amount of the FX
Reserve and a proposed new FX Forward Contract may be entered into only if the
amount of the increase in the FX Reserve relating thereto would otherwise be
available for the making of a Revolving Advance in such amount.  Bank may terminate the FX Forward Contracts
if an Event of Default occurs and is continuing.


 


2.1.4       Cash
Management Sublimit. 
Bank agrees to extend to Borrower further credit accommodations
consisting of cash management services, which may include merchant services,
direct deposit of payroll, business credit card, and check cashing services
identified in various cash management services agreements related to such
services (collectively referred to herein as the “Cash Management Services”),
provided, however, the amount of Cash Management Services
utilizations may not exceed $250,000 at any time.  The aggregate amounts utilized hereunder for Cash Management
Services will at all times reduce the amount otherwise available to be borrowed
under the Committed Revolving Line, in accordance with the provisions of
Section 2.1.1(a) hereof, and new Cash Management Services utilizations may be
extended only if the amount of such proposed new extension of such services
would otherwise be available for the making of a Revolving Advance in such
amount.  Any amounts Bank pays on behalf
of Borrower and any amounts that are not paid by Borrower for any Cash
Management Services will be treated as Revolving Advances under the Committed
Revolving Line and will accrue interest at the rate applicable to Revolving
Advances hereunder.


 


2.2          Overadvances;
Limitation on Lending.  If
Borrower’s Obligations under the above sections exceed the applicable lending
limitations relating thereto as set forth therein, Borrower must immediately
pay in cash to Bank any such excess. 
Further, without limitation of any other terms or conditions hereof,
Bank’s obligation to lend the undisbursed portion of any credit facility
hereunder will terminate if, in Bank’s sole discretion, there has been a
material adverse change in the general affairs, management, results of
operation, condition (financial or otherwise) of Borrower or the prospects for
repayment of the Obligations, whether or not arising from transactions in the
ordinary course of business, or there has been any material adverse deviation
by Borrower from the most recent business plan of Borrower presented to and
accepted by Bank prior to the execution of this Agreement.


 


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2.3          Interest
Rate, Payments.


 


(a)           Interest Rate.  Revolving Advances accrue interest on the
outstanding principal balance thereof at a per annum rate equal to one percentage
point (1.00%) above the Prime Rate, which applicable interest rate shall
increase or decrease when the Prime Rate changes; provided, however,
such per
annum rate shall never be deemed to be less than five percent
(5.00%) for any purpose relating hereto. 
Interest is computed on a 360-day year for the actual number of days
elapsed.  Further, upon the occurrence
and during the continuance of an Event of Default, all Revolving Advances shall
accrue interest at five (5) percentage points above the rate effective
immediately before the Event of Default.


 


(b)           Payments.  Interest due on the Committed Revolving Line is payable on the
last day of each month.  Bank may debit
any of Borrower’s deposit accounts including Account Number 3300416375 for
principal and interest payments owing or any amounts Borrower owes Bank.  Bank will promptly notify Borrower in
accordance with its standard procedures when it debits Borrower’s
accounts.  These debits are not a
set-off.  Payments received after 12:00
noon Pacific time are considered received at the opening of business on the next
Business Day.  When a payment is due on
a day that is not a Business Day, the payment is due the next Business Day and
additional fees or interest accrue.


 


2.4          Fees.


 


(a)           Facility Fee.  Borrower shall pay to Bank a fee of $11,250,
one-half of which is due and payable concurrently herewith and the other half
of which shall be payable on the one year anniversary of the Effective Date,
which shall, in any event, be in addition to interest and to all other amounts
payable hereunder and which shall not be refundable.


 


(b)           Bank Expenses.  Borrower shall pay to the Bank when due all
Bank Expenses (including reasonable attorneys’ fees and expenses) incurred
through and after the Closing Date.


 


(c)           Unused Line Fee.  Borrower shall pay to Bank the Unused Line
Fee (as defined below) amount, in addition to all interest and other fees
payable hereunder and which shall payable as set forth in the following
sentence.  The “Unused Line Fee”
shall be 0.25% per annum multiplied by an amount equal to Committed Revolving
Line minus the average daily balance of the outstanding Revolving Advances and Letters
of Credit, and shall be computed and paid quarterly, in arrears, on the last
day of each of March, June, September and December of each year, commencing on
March 31, 2004, during the term of this Agreement, provided that to
extent that this Agreement is terminated prior to a particular quarter end date
(and also with respect to the first payment due on March 31, 2004), Borrower
shall pay the Unused Line Fee, as of any such date, on a proportional basis
with respect to the number of days since the prior payment of such fee (or
since the date of this Agreement in the event of the first such payment)
divided by ninety multiplied by the fee that would otherwise be payable for the
entire duration of such quarter assuming the applicable daily average balance
would be apply for the entire quarter period in question.


 


2.5          Prepayment.


 


Borrower shall have the option at any time during the
term of this Agreement to pay and perform all Obligations, without premium or
penalty, and thereupon to terminate this Agreement together with the Bank’s
commitments and other undertakings hereunder,, subject to the survival of the
indemnity provisions as set forth herein and in any other Loan Documents.


 


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3.             CONDITIONS OF LOANS


 


3.1          Conditions
Precedent to Initial Credit Extension.


 


Bank’s obligation to make
the initial Credit Extension is subject to the condition precedent that it
receive the agreements, documents and fees it requires in its good faith
business judgment, including, without limitation, the delivery of a
subordination agreement by Astoria Capital Partners, L.P. with respect to
obligations owing by Borrower to such party and with such subordination
agreement being acceptable to Bank in its discretion.


 


3.2          Conditions
Precedent to all Credit Extensions.


 


Bank’s obligations
to make each Credit Extension, including the initial Credit Extension, is
subject to the following:


 


(a)           timely receipt of any Payment/Advance
Form; and


 


(b)           the representations and warranties in
Section 5 must be materially true on the date of the Loan Payment/Advance
Request Form and on the effective date of each Credit Extension and no Event of
Default may have occurred and be continuing, or result from the Credit
Extension.  Each Credit Extension is
Borrower’s representation and warranty on that date that the representations
and warranties of Section 5 remain materially true.


 


4.             CREATION OF SECURITY INTEREST


 


4.1          Grant
of Security Interest.


 


Borrower grants
Bank a continuing security interest in all presently existing and later
acquired Collateral to secure all Obligations and performance of each of
Borrower’s duties under the Loan Documents. 
Except for Permitted Liens, any security interest will be a first
priority security interest in the Collateral. 
If this Agreement is terminated, Bank’s lien and security interest in
the Collateral will continue until Borrower fully satisfies its Obligations.


 


4.2          Authorization
to File.


 


Borrower
authorizes Bank to file financing statements without notice to Borrower, with
all appropriate jurisdictions, as Bank deems appropriate, in order to perfect
or protect Bank’s interest in the Collateral.


 


5.             REPRESENTATIONS AND WARRANTIES


 


Borrower
represents and warrants as follows:


 


5.1          Due
Organization and Authorization.


 


Each of Borrower
and each Subsidiary is duly existing and in good standing in its jurisdiction
of formation and qualified and licensed to do business in, and in good standing
in, any state in which the conduct of its business or its ownership of property
requires that it be qualified, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change.


 


The execution,
delivery and performance of the Loan Documents have been duly authorized, and
do not conflict with Borrower’s formation documents, nor constitute an event of
default under any material agreement by which Borrower is bound.  Borrower is not in default


 


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under any agreement to which or by which it is bound in which the
default could reasonably be expected to cause a Material Adverse Change.


 


5.2          Collateral.


 


Borrower has good
title to the Collateral, free of Liens except Permitted Liens or Borrower has
Rights to each asset that is Collateral.  
Borrower has no other deposit account, other than the deposit accounts
described in the Schedule.  The Accounts
are bona fide, existing obligations, and the service or property has been
performed or delivered to the account debtor or its agent for immediate
shipment to and unconditional acceptance by the account debtor.   The
Collateral is not in the possession of any third party bailee (such as at a
warehouse).  In the event that Borrower,
after the date hereof, intends to store or otherwise deliver any Collateral to
such a bailee, then Borrower will receive the prior written consent of Bank and
such bailee must acknowledge in writing that the bailee is holding such
Collateral for the benefit of Bank. 
Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing
Base Certificate.  All Inventory is in
all material respects of good and marketable quality, free from material
defects.  Borrower is the sole owner of
the Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business and subject to the Permitted
Liens.  Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party, except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.


 


5.3          Litigation.


 


Except as shown in
the Schedule, there are no actions or proceedings pending or, to the knowledge
of Borrower’s Responsible Officers, threatened against Borrower or any
Subsidiary in which a likely adverse decision could reasonably be expected to
cause a Material Adverse Change.


 


5.4          No
Material Adverse Change in Financial Statements.


 


All consolidated
financial statements for Company and its Subsidiaries delivered to Bank fairly
present in all material respects Company’s consolidated financial condition and
Company’s consolidated results of operations. 
There has not been any material deterioration in Company’s consolidated
financial condition since the date of the most recent financial statements
submitted to Bank.


 


5.5          Solvency.


 


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


 


5.6          Regulatory
Compliance.


 


Borrower is not an
“investment company” or a company “controlled” by an “investment company” under
the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations T and U of the
Federal Reserve Board of Governors). 
Borrower has complied in all material respects with the Federal Fair
Labor Standards Act.  Borrower has not
violated any laws, ordinances or rules, the violation of which could reasonably
be expected to cause a Material Adverse Change.  None


 


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of Borrower’s or any Subsidiary’s properties or assets has been used by
Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous
Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than in accordance in all material respects with
law.  Borrower and each Subsidiary has
timely filed, or obtained appropriate extensions for filing with respect to,
all required tax returns and paid, or made adequate provision to pay, all
material taxes, except those being contested in good faith with adequate
reserves under GAAP.  Borrower and each
Subsidiary has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted,
except where the failure to do so could not reasonably be expected to cause a
Material Adverse Change.


 


5.7          Subsidiaries.


 


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


 


5.8          Full
Disclosure.


 


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


 


6.             AFFIRMATIVE COVENANTS


 


Borrower will do
all of the following for so long as Bank has an obligation to lend, or there
are outstanding Obligations:


 


6.1          Government
Compliance.


 


Borrower will
maintain its legal existence and good standing and the legal existence and good
standing of all Subsidiaries in the applicable jurisdiction of formation and
maintain qualification in each applicable jurisdiction in which the failure to
so qualify would reasonably be expected to cause a material adverse effect on
Borrower’s business or operations. 
Borrower will comply, and have each Subsidiary comply, with all laws,
ordinances and regulations to which such Person is subject to the extent that
noncompliance therewith could reasonably be expected to cause a Material
Adverse Change.


 


6.2          Financial
Statements, Reports, Certificates.


 


(a)           Borrower will deliver to Bank:  (i) as soon as available, but no later than
30 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Company’s consolidated operations
during the period certified by a Responsible Officer and in a form acceptable
to Bank; (ii) as soon as available, but no later than 120 days after the last
day of the Company’s fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting
firm reasonably acceptable to Bank; (iii) Borrowers’ 10–QSB reports and 10–KSB
reports within five Business Days of when filed with the Securities Exchange
Commission (“SEC”) and copies of all SEC


 


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reports and filings within five Business Days of when made;
(iv) a prompt report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of $100,000 or more; (v) budgets, sales projections, forecasts,
operating plans or other financial information Bank reasonably requests; and
(vi) prompt notice of any material change in the composition of the
Intellectual Property, including any subsequent ownership right of Borrower in
or to any Copyright, Patent or Trademark not shown in any intellectual property
security agreement between Borrower and Bank or knowledge of an event that
materially adversely affects the value of the Intellectual Property.


 


(b)           Within 20 days after the last day of
each month when any Credit Extensions are then outstanding or in conjunction
with Borrower’s request for a Credit Extension when no Credit Extensions are
then outstanding, Borrower will deliver to Bank a Borrowing Base Certificate
signed by a Responsible Officer in the form of Exhibit C, with aged listings of
accounts receivable and accounts payable (by invoice date) together with a
schedule of deferred revenue.


 


(c)           Within 30 days after the last day of
each month, Borrower will deliver to Bank with the monthly financial statements
a Compliance Certificate signed by a Responsible Officer in the form of
Exhibit D.


 


(d)           Bank has the right to audit the
Collateral at Borrower’s expense, with the first of such audits to be completed
prior to the Closing Date and thereafter to be conducted no more often than
once every 6 months during such times that any Credit Extensions have been
outstanding, provided that, upon the occurrence and during the continuance of
an Event of Default there shall be no limitation as to the frequency of any
such audits all of which shall be at Borrower’s expense


 


6.3          Inventory;
Returns.


 


Borrower will keep
all Inventory in good and marketable condition, free from material
defects.  Returns and allowances between
Borrower and its account debtors will follow Borrower’s customary practices as
they exist at execution of this Agreement. 
Borrower must promptly notify Bank of all returns, recoveries, disputes
and claims, that involve more than $50,000.


 


6.4          Taxes.


 


Borrower will
make, and cause each Subsidiary to make, timely payment, or obtain appropriate
extensions of payment, of all material federal, state, and local taxes or
assessments (other than taxes and assessments which Borrower is contesting in
good faith, with adequate reserves maintained in accordance with GAAP) and will
deliver to Bank, on demand, appropriate certificates attesting to the payment.


 


6.5          Insurance.


 


Borrower will keep
its business and the Collateral insured for risks and in amounts standard for
Borrower’s industry, and as Bank may reasonably request.  Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank in Bank’s reasonable
discretion.  All property policies will
have a lender’s loss payable endorsement showing Bank as an additional loss
payee with respect to the Collateral and all liability policies will show the
Bank as an additional insured and provide that the insurer must give Bank at
least 20 days notice before canceling its policy.  At Bank’s request, Borrower will deliver certified copies of
policies and evidence of all premium payments. 
During any time that any Credit Extensions are


 


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outstanding, proceeds payable under any policy, to the extent of Bank’s
insurable interest therein, will, at Bank’s option, be payable to Bank on
account of the Obligations.


 


6.6          Primary
Accounts.


 


Borrower will
maintain its primary operating and investment account relationships with Bank,
which relationships shall include Borrower maintaining deposit and investment
account balances in accounts at or through Bank representing at least 85% of
all such account balances of Borrower at any and all financial
institutions.  The parties hereto
understand and agree that account balances of Subsidiaries of Borrower that are
not domestic United States-organized entities are not included within the scope
of the foregoing covenant requirement, provided, however,
transfer of funds and other assets of any Borrower to any such foreign
Subsidiaries shall be subject to the limitations and related provisions set
forth in the definition of Permitted Investments.


 


6.7          Financial
Covenants.


 


The Company, on a
consolidated basis, will as of the last day of each month during a Covenant
Testing Period (as defined below) (and with each such date as it arises being a
date of determination hereunder):


 


(i)            Quick Ratio.  Maintain a ratio of (A) unrestricted cash (and equivalents)
plus net trade accounts receivable, divided by (B) Current Liabilities,
including all Obligations hereunder, of not less than 0.70 to 1.00.


 


(ii)           EBITDA. 
Maintain positive earnings before interest, taxes, depreciation and
amortization with respect to the twelve months ending as of each date of
determination hereunder.


 


As used herein,
the term “Covenant Testing Period” shall mean at any time while any
Credit Extensions are outstanding or at such time of, and with respect the
month end period immediately prior to, a Borrower’s request for a Credit
Extension when no Credit Extensions are then outstanding.


 


6.8          Intellectual
Property.


 


Borrower will
register with the United States Patent and Trademark Office its material
Patents and Trademarks and additional material Patent and Trademark rights
developed or acquired, including revisions or additions to any product before
the sale or licensing of the product to any third party or if such rights are
otherwise material.


 


With respect to
copyrightable property that is not now registered with the United States
Copyright Office, Borrower hereby agrees to (i) provide Bank with at least
15 days prior written notice of the registration of any copyrightable materials
with the United States Copyright Office (Borrower has informed Bank that it has
not, as of the date hereof, registered any copyrightable material in the United
States Copyright Office); (ii) provide Bank with a copy of the application for
any such registration; and (iii) execute such other instruments, and take such
further actions as Bank may reasonably request from time to time to perfect or
continue the perfection of Bank’s security therein and in the proceeds thereof.  Borrower hereby represents and warrants that
all of its registered Copyrights, as of the date of this Agreement, are set
forth on the Schedule.


 


Borrower will
(i) protect, defend and maintain the validity and enforceability of the
Intellectual Property and promptly advise Bank in writing of material
infringements of Intellectual Property material to the Borrower’s business and
(ii) not allow any Intellectual


 


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Property material to Borrower’s business to be abandoned, forfeited or
dedicated to the public without Bank’s written consent.


 


6.9          Louisiana Subsidiary.  Company now owns PickAx, Inc, a Louisiana
corporation, which now owns assets having a fair market value of less than
$25,000; further, Borrower hereby covenants and agrees that such subsidiary
will continue to own assets having a value of less than $25,000 at all times
during the term hereof.  If PickAx, Inc,
a Louisiana corporation, at any time is proposed to or does acquire assets in
excess of such amount, Company shall provide written notification to Bank
thereof and Company shall thereupon cause such subsidiary forthwith to execute
the Guaranty and the Security Agreement and all other documents relating
thereto and thus become a secured Guarantor of the Obligations.


 


6.10        Further
Assurances.


 


Borrower will
execute any further instruments and take further action as Bank reasonably
requests to perfect or continue Bank’s security interest in the Collateral or
to effect the purposes of this Agreement.


 


7.             NEGATIVE COVENANTS


 


Borrower will not
do any of the following without Bank’s prior written consent, which will not be
unreasonably withheld, for so long as Bank has an obligation to lend or there
are any outstanding Obligations:


 


7.1          Dispositions.


 


Convey, sell, lease,
transfer or otherwise dispose of (collectively, a “Transfer”), or permit any of
its Subsidiaries to Transfer, all or any part of its business or property, except
for Transfers (i) of Inventory in the ordinary course of business;
(ii) of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries in the ordinary course of business;
(iii) of worn-out or obsolete Equipment; (iv) Transfers consisting of
Permitted Investments; (v) Transfers otherwise permitted under and pursuant to
the terms of Section 7.3 hereof; (vi) Transfers consisting of payment of
Borrower’s trade payable obligations, rent obligations relating to Borrower’s
premises, utility payments, lease obligations relating to equipment leases,
payment of licenses and royalties and other like obligations, with each of the
foregoing entered into in the ordinary course of Borrower’s business consistent
with past business practices, provided that the foregoing permitted payment
shall not include a payment with respect to any material such obligation at any
such time that an Event of Default has occurred and is continuing; or (vii)
Transfers of other assets (other than any right to receive income including
accounts) in an aggregate amount not to exceed $50,000 in any fiscal year,
provided, however, no such Transfers shall be permitted to be effected while a
Default or an Event of Default has occurred and is continuing.


 


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


 


Engage in or
permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto or if
a Change of Control occurs.  Borrower
shall give Bank no later than concurrent notice of any changes in the persons
occupying the offices of the chief executive officer or the chief financial
office of the Borrower.  Further,
Borrower will not, without at least 30 days prior written notice, relocate its
chief executive office or add any new offices or business locations in which
Borrower maintains or stores over $50,000 in Borrower’s assets or property.


 


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7.3          Mergers
or Acquisitions.


 


Merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with
any other Person, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of another Person, except
where:  (i) no Default or Event of
Default has occurred and is continuing or would result from such action during
the term of this Agreement; (ii) only during such times when the provisions of
the financial covenants hereof, as now such forth in Section 6.7, are deleted
form this Agreement and are therefore no longer applicable at any time nor under
any circumstance during the term of this Agreement, such transaction would not
result in a decrease of more than 25% of Net Worth of Borrower; and (iii) upon
the acquisition of any other Person as otherwise permitted pursuant to the
terms of this Section, such Person become an appropriate obligor relating to
the Obligations hereunder, as the Bank may determine, and shall execute such
agreements, documents and instruments as are reasonably necessary or
appropriate, as the Bank may determine, in order to evidence such debt
obligations and to establish a first priority security interest in the personal
property assets of such Person in favor of Bank, subject to Permitted
Liens.  Notwithstanding the foregoing, a
Subsidiary may merge or consolidate into another Subsidiary or into Borrower as
long as no Default or Event of Default is occurring prior thereto or arises as
a result thereof as long as Borrower provides prior written notice thereof to
Bank of any such transaction.


 


7.4          Indebtedness.


 


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


 


7.5          Encumbrance.


 


Create, incur, or
allow any Lien on any of its property, or assign or convey any right to receive
income, including the sale of any Accounts, or permit any of its Subsidiaries
to do so, except for Permitted Liens and other than as otherwise specifically
permitted under the provisions of Section 7.1 hereof, or permit the first
priority lien status of Bank regarding the Collateral to change, subject only
to Permitted Liens as may be applicable. 
Further, in connection with any property that is subject to a Lien that
is otherwise permitted pursuant to paragraph (c) of the definition of “Permitted
Liens”, Bank agrees to enter into estoppel letters with respect to any such
items of property in favor of the financier thereof.


 


7.6          Distributions;
Investments.


 


Directly or
indirectly, or permit any of its Subsidiaries to directly or indirectly,
acquire or own any Person, or make any Investment in any Person, other than
Permitted Investments and Permitted Distributions.  Pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock, other than for Permitted Investments,
with the understanding that the determination of compliance with any amounts
set forth in the definition of Permitted Investments shall be determined on a
joint and not several basis for Borrowers and Subsidiaries.


 


7.7          Transactions
with Affiliates.


 


Directly or
indirectly enter into or permit to exist any material transaction with any
Affiliate of Borrower except for (A) transactions that are in the ordinary
course of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction
with a nonaffiliated Person; (B) transactions constituting Permitted
Investments, (C) the documents and agreements entered into in connection the
Astoria Notes and (D) transactions with Subsidiaries permitted by Section 7.1
or Section 7.3.


 


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7.8          Subordinated
Debt.


 


Make or permit any
payment on any Subordinated Debt, except under the terms of the Subordinated
Debt, or amend any provision in any document relating to the Subordinated Debt
without Bank’s prior written consent.


 


7.9          Compliance.


 


Become an
“investment company” or a company controlled by an “investment company,” under
the Investment Company Act of 1940 or undertake as one of its important
activities extending credit to purchase or carry margin stock, or use the
proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with, or permit any
of its Subsidiaries to fail to comply with, the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could reasonably
be expected to have a material adverse effect on Borrower’s business or
operations or would reasonably be expected to cause a Material Adverse Change
determined on a consolidated basis for the Company and its domestic
Subsidiaries only, or permit any of its Subsidiaries to do so.


 


8.             EVENTS OF DEFAULT


 


Any one of the
following is an Event of Default:


 


8.1          Payment
Default.


 


If Borrower fails
to pay any of the Obligations within three Business Days after their due
date.  During such additional three day
period the failure to cure such payment default is not an Event of Default
hereunder (but no Credit Extension will be made during the cure period);


 


8.2          Covenant
Default.


 


(A)          If Borrower does not perform any
obligation in Section 6.2, 6.7 or 6.8 hereof or violates any covenant in
Section 7 of this Agreement; or


 


(B)           If Borrower does not perform or
observe any other material term, condition or covenant in this Agreement, any
Loan Documents, or in any agreement between Borrower and Bank and as to any
default under a term, condition or covenant that can be cured, has not cured
the default within 10 days after it occurs, or if the default cannot be cured
within 10 Business Days or cannot be cured after Borrower’s attempts within 10
Business Day period, and the default may be cured within a reasonable time,
then Borrower has an additional period (of not more than 30 days) to attempt to
cure the default.  During the additional
time, the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);


 


8.3          Material
Adverse Change.


 


If there (i) occurs a material adverse change in the business,
operations, or condition (financial or otherwise) of the Borrower, or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority  (subject to Permitted Liens if any such
Permitted Liens are specifically allowed to affect the priority of the Bank’s
Lien in the Collateral) of Bank’s security interests in the Collateral, taken
as a whole(any of the foregoing is referred to herein as a “Material Adverse
Change”).


 


11

















 


8.4          Attachment.


 


If any material
portion of Borrower’s assets is attached, seized, levied on, or comes into
possession of a trustee or receiver and the attachment, seizure or levy is not
removed in 10 days, or if Borrower is enjoined, restrained, or prevented by
court order from conducting a material part of its business or if a judgment or
other claim becomes a Lien on a material portion of Borrower’s assets, or if a
notice of lien, levy, or assessment is filed against any of Borrower’s assets
by any government agency and not paid within 10 days after Borrower receives
notice.  These are not Events of Default
if stayed or if a bond is posted pending contest by Borrower (but no Credit
Extensions will be made during the cure period);


 


8.5          Insolvency.


 


If Borrower
becomes insolvent or if Borrower begins an Insolvency Proceeding or an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed
within 30 days (but no Credit Extensions will be made before any Insolvency
Proceeding is dismissed);


 


8.6          Other
Agreements.


 


If there is a
default in any agreement between Borrower and a third party that gives the
third party the right to accelerate any Indebtedness exceeding $250,000 or that
could cause a Material Adverse Change;


 


8.7          Judgments.


 


If a money
judgment(s) in the aggregate of at least $100,000 is rendered against Borrower
and is unsatisfied and unstayed for 10 days (but no Credit Extensions will be
made before the judgment is stayed or satisfied);


 


8.8          Misrepresentations.


 


If Borrower or any
Person acting for Borrower makes any material misrepresentation or material
misstatement now or later in any warranty or representation in this Agreement
or in any writing delivered to Bank or to induce Bank to enter this Agreement
or any Loan Document; or


 


8.9          Guaranty.


 


Any guaranty of
any Obligations, if any arises from time to time, ceases for any reason to be
in full force or any Guarantor does not perform any obligation under any
guaranty of the Obligations, or any material misrepresentation or material
misstatement exists now or later in any warranty or representation in any
guaranty of the Obligations or in any certificate delivered to Bank in
connection with the guaranty, or any circumstance described in Sections 8.4,
8.5 or 8.7 occurs to any Guarantor.


 


9.             BANK’S RIGHTS AND REMEDIES


 


9.1          Rights
and Remedies.


 


When an Event of
Default occurs and continues Bank may, without notice or demand, do any or all
of the following:


 


(a)           Declare all Obligations immediately
due and payable (but if an Event of Default described in Section 8.5
occurs all Obligations are immediately due and payable without any action by
Bank);


 


12

















 


(b)           Stop advancing money or extending
credit for Borrower’s benefit under this Agreement or under any other agreement
between Borrower and Bank;


 


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


 


(d)           Make any payments and do any acts it
considers necessary or reasonable to protect its security interest in the
Collateral.  Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates.  Bank may enter premises where the Collateral
is located, take and maintain possession of any part of the Collateral, and
pay, purchase, contest, or compromise any Lien which appears to be prior or
superior to its security interest and pay all expenses incurred. Borrower
grants Bank a license to enter and occupy any of its premises, without charge,
to exercise any of Bank’s rights or remedies;


 


(e)           Apply to the Obligations any
(i) balances and deposits of Borrower it holds, or (ii) any amount
held by Bank owing to or for the credit or the account of Borrower;


 


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


 


(g)           Dispose of the Collateral according
to the Code.


 


9.2          Power
of Attorney.


 


Effective only
when an Event of Default occurs and continues, Borrower irrevocably appoints
Bank as its lawful attorney to: 
(i) endorse Borrower’s name on any checks or other forms of payment
or security; (ii) sign Borrower’s name on any invoice or bill of lading
for any Account or drafts against account debtors, (iii) make, settle, and
adjust all claims under Borrower’s insurance policies; (iv) settle and
adjust disputes and claims about the Accounts directly with account debtors,
for amounts and on terms Bank determines reasonable; and (v) transfer the
Collateral into the name of Bank or a third party as the Code permits.  Bank may exercise the power of attorney to
sign Borrower’s name on any documents necessary to perfect or continue the
perfection of any security interest regardless of whether an Event of Default
has occurred.  Bank’s appointment as
Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with
an interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank’s obligation to provide Credit Extensions terminates.


 


9.3          Accounts
Collection.


 


When an Event of
Default occurs and continues, Bank may notify any Person owing Borrower money
of Bank’s security interest in the funds and verify the amount of the
Account.  Borrower must collect all
payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank in the form received from the account debtor, with proper
endorsements for deposit.


 


13

















 


9.4          Bank
Expenses.


 


If Borrower fails
to pay any amount or furnish any required proof of payment to third persons as
required hereunder or under any Loan Document, Bank may make all or part of the
payment or obtain insurance policies required in Section 6.5, and take any
action under the policies Bank deems prudent. 
Any amounts paid by Bank are Bank Expenses and immediately due and
payable, bearing interest at the then applicable rate and secured by the
Collateral.  No payments by Bank are
deemed an agreement to make similar payments in the future or Bank’s waiver of
any Event of Default.


 


9.5          Bank’s
Liability for Collateral.


 


If Bank complies
with reasonable banking practices and the Code, it is not liable for: (a) the
safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person.  Except to the extent set forth in this Section 9.5, Borrower
bears all risk of loss, damage or destruction of the Collateral.


 


9.6          Remedies
Cumulative.


 


Bank’s rights and
remedies under this Agreement, the Loan Documents, and all other agreements are
cumulative.  Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s exercise of one
right or remedy is not an election, and Bank’s waiver of any Event of Default
is not a continuing waiver. Bank’s delay is not a waiver, election, or
acquiescence.  No waiver is effective
unless signed by Bank and then is only effective for the specific instance and
purpose for which it was given.


 


9.7          Demand
Waiver.


 


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


 


10.          NOTICES


 


All notices or
demands by any party about this Agreement or any other related agreement must
be in writing and be personally delivered or sent by an overnight delivery
service, by certified mail, postage prepaid, return receipt requested, or by
telefacsimile to the addresses set forth at the beginning of this
Agreement.  A party may change its
notice address by giving the other party written notice.


 


11.          CHOICE OF LAW, VENUE AND JURY TRIAL
WAIVER


 


California law
governs the Loan Documents without regard to principles of conflicts of
law.  Borrower and Bank each submit to
the exclusive jurisdiction of the State and Federal courts in Orange County,
California.


 


BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.
THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS


 


14

















 


AGREEMENT.  EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.


 


12.          GENERAL PROVISIONS


 


12.1        Successors
and Assigns.


 


This Agreement
binds and is for the benefit of the successors and permitted assigns of each
party.  Borrower may not assign this
Agreement or any rights under it without Bank’s prior written consent which may
be granted or withheld in Bank’s discretion. 
Bank has the right, without the consent of or notice to Borrower, to
sell, transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank’s obligations, rights and benefits under this Agreement.


 


12.2        Indemnification.


 


Borrower will
indemnify, defend and hold harmless Bank and its officers, employees, and
agents against:  (a) all obligations,
demands, claims, and liabilities asserted by any other party in connection with
the transactions contemplated by the Loan Documents; and (b) all losses or Bank
Expenses incurred, or paid by Bank from, following, or consequential to
transactions between Bank and Borrower (including reasonable attorneys fees and
expenses), except for losses or Bank Expenses caused by Bank’s gross negligence
or willful misconduct.


 


12.3        Time
of Essence.


 


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


 


12.4        Severability
of Provision.


 


Each provision of this
Agreement is severable from every other provision in determining the
enforceability of any provision.


 


12.5        Amendments
in Writing, Integration.


 


All amendments to
this Agreement must be in writing and signed by Borrower and Bank.  This Agreement represents the entire
agreement about this subject matter, and supersedes prior negotiations or
agreements.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement
and the Loan Documents.


 


12.6        Counterparts.


 


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


 


12.7        Survival.


 


All covenants,
representations and warranties made in this Agreement continue in full force
while any Obligations remain outstanding. 
The obligations of Borrower in Section 12.2 to indemnify Bank will
survive until all statutes of limitations for actions that may be brought
against Bank have run.


 


15

















 


12.8        Confidentiality.


 


All financial
information (other than any such information contained periodic reports filed
by Borrower with the Securities and Exchange Commission) disclosed by Borrower
to Bank in writing and together with all other written information disclosed by
Borrower to Bank that is marked “Confidential” shall be considered confidential
for purposes hereof.  In handling any
confidential information, Bank will exercise the same degree of care that it
exercises for its own proprietary information, but disclosure of information
may be made (i) to Bank’s subsidiaries or affiliates in connection with
their business with Borrower, (ii) to prospective transferees or purchasers of
any interest in the loans (provided, however, Bank shall use best efforts in
obtaining such prospective transferee’s or purchasers’ agreement of the terms
of this provision and any purchaser, shall be agreeing to assume the
obligations hereunder shall therefore agree to abide by the provisions hereof,
including, without limitation, the provisions of this Section, and if Bank is
unable to secure such potential transferee’s or purchasers’ agreement to this
provision or another provision having substantially similar import and,
further, if any such disclosure would violate any material provision of any
securities laws or regulations applicable to Borrower, Bank will not make such
a disclosure without the prior consent of the Company (not to be unreasonably
withheld) or other measures are taken to preclude any such disclosure from
causing or otherwise resulting in any such violation), (iii) as required
by law, regulation, subpoena, or other order, (iv) as required in
connection with Bank’s examination or audit and (v) as Bank considers
appropriate exercising remedies under this Agreement.  Confidential information does not include information that
either: (a) is in the public domain or in Bank’s possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.


 


12.9        Attorneys’
Fees, Costs and Expenses.


 


In any action or
proceeding between Borrower and Bank arising out of the Loan Documents, the
prevailing party will be entitled to recover its reasonable attorneys’ fees and
other reasonable costs and expenses incurred, in addition to any other relief
to which it may be entitled.


 


13.          SURETYSHIP AND RELATED WAIVERS AND
PROVISIONS.


 


13.1        The
Borrowers each are, and at all times shall be, jointly and severally liable for
each and every one of the Obligations, regardless of which Borrower or
Borrowers requested, received, used, or directly enjoyed the benefit of, the
extensions of credit hereunder.  Each
Borrower’s Obligations are independent Obligations and are absolute and
unconditional.  Each Borrower hereby
waives any defense to such Obligations that may arise by reason of the
disability or other defense or cessation of liability of any other Borrower for
any reason other than payment in full. 
Each Borrower also waives any defense to such Obligations that it may
have as a result of Bank’s election of or failure to exercise any right, power,
or remedy, including the failure to proceed first against another Borrower or
any security it holds from such other Borrower.  Without limiting the generality of the foregoing, each Borrower
expressly waives all demands and notices whatsoever (except for any demands or
notices, if any, that such Borrower expressly is entitled to receive pursuant
to the terms of any Loan Document), and agrees that Bank may, without notice
(except for such notice, if any, as such Borrower expressly is entitled to
receive pursuant to the terms of any Loan Document) and without releasing the
liability of such Borrower, extend for the benefit of any other Borrower the
time for making any payment, waive or extend the performance of any agreement
or make any settlement of any agreement for the benefit of any other Borrower,
and may proceed against each Borrower, directly and independently of any other
Borrower, as Bank may elect in accordance with the Loan Documents.


 


16

















 


13.2        Each
Borrower acknowledges that the Obligations undertaken herein or in the other
Loan Documents, and the grants of security interests and liens by such Borrower
to secure Obligations of the other Borrower could be construed to consist, at
least in part, of the guaranty of Obligations of the other Borrower and, in
full recognition of that fact, each Borrower consents and agrees as hereinafter
set forth in the balance of this Section 13. 
The consents, waivers, and agreements of the Borrowers that are
contained in the balance of this Section 13 are intended to deal with the
suretyship aspects of the transactions evidenced by the Loan Documents (to the
extent that a Borrower may be deemed a guarantor or surety for the Obligations
of another Borrower) and thus are intended to be effective and applicable only
to the extent that any Borrower has agreed to answer for the Obligation of
another Borrower or has granted a lien or security interest in any property to
secure the Obligation of another Borrower; conversely, the consents, waivers,
and agreements of the Borrowers that are contained in the balance of this
Section 13 shall not be applicable to the direct Obligation of a Borrower with
respect to a credit accommodation extended directly to such Borrower, and shall
not be applicable to security interests or liens on property of a Borrower
given to directly secure direct Obligations of such Borrower where no aspect of
guaranty or suretyship is involved, if and when any such security interest may
arise.


 


13.3        To the
extent permitted under law, each Borrower hereby waives:  (a) presentment for payment, notice of
dishonor, demand, protest, and notice thereof as to any instrument, and all
other notices and demands to which any other Borrower might be entitled (except
for any notices that Borrower, in its capacity as a borrower, is expressly
entitled to receive pursuant to the terms of the Loan Documents, including
without limitation notice of all of the following:  the acceptance hereof; the creation, existence, or acquisition of
any Obligations; the amount of the Obligations from time to time outstanding;
any foreclosure sale or other disposition of any property which secures any or
all of the Obligations or which secures the obligations of any other Borrower
of any or all of the Obligations; any adverse change in any other Borrower’s
financial position; any other fact which might increase such Borrower’s risk;
any default, partial payment or non-payment of all or any part of the
Obligations; the occurrence of any other Event of Default; any and all
agreements and arrangements between Bank and any other Borrower and any
changes, modifications, or extensions thereof, and any revocation, modification
or release of any guaranty or joint and several liability of any or all of the
Obligations by or of any person; (b) any right to require Bank to institute
suit against, or to exhaust its rights and remedies against, any other Borrower
or any other person, or to proceed against any property of any kind which
secures all or any part of the Obligations, or to exercise any right of offset
or other right with respect to any reserves, credits or deposit accounts held
by or maintained with Bank or any Obligations of Bank to any other Borrower, or
to exercise any other right or power, or pursue any other remedy Bank may have;
(c) any defense arising by reason of any disability or other defense of any
other Borrower or any guarantor, endorser, co-maker or other person, or by
reason of the cessation from any cause whatsoever of any liability of any other
Borrower or any guarantor, endorser, co-maker or other person, with respect to
all or any part of the Obligations, or by reason of any act or omission of Bank
or others which directly or indirectly results in the discharge or release of
any other Borrower or any other person or any Obligations or any security
therefor, whether by operation of law or otherwise; (d) any defense arising by
reason of any failure of Bank to obtain, perfect, maintain or keep in force any
security interest in, or lien or encumbrance upon, any property of any other
Borrower or any other person; (e) any defense based upon any failure of Bank to
give such Borrower notice of any sale or other disposition of any property
securing any or all of the Obligations, or any defects in any such notice that
may be given, or any failure of Bank to comply with any provision of applicable
law in enforcing any security interest in or lien upon any property securing
any or all of the Obligations including, but not limited to, any failure by
Bank to dispose of any property securing any or all of the Obligations in a
commercially reasonable manner; (f) any defense based upon or arising out of
any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against any other
Borrower or any guarantor, endorser,


 


17

















 


co-maker
or other person, including without limitation any discharge of, or bar against
collecting, any of the Obligations (including without limitation any interest
thereon), in or as a result of any such proceeding; and (g) the benefit of any
and all statutes of limitation with respect to any action based upon, arising
out of or related to this Agreement and the other Loan Documents.  Until all Obligations have been paid,
performed, and discharged in full, nothing shall discharge or satisfy the
liability of any Borrower under the Loan Documents except the full performance
and payment of all of the Obligations. 
If any claim is ever made upon Bank for repayment or recovery of any
amount or amounts received by Bank in payment of or on account of any of the
Obligations, because of any claim that any such payment constituted a
preferential transfer or fraudulent conveyance, or for any other reason
whatsoever, and Bank repays all or part of said amount by reason of any
judgment, decree or order of any court or administrative body having
jurisdiction over Bank or any of its property, or by reason of any settlement
or compromise of any such claim effected by Bank with any such claimant
(including without limitation any other Borrower), then and in any such event,
such Borrower agrees that any such judgment, decree, order, settlement and
compromise shall be binding upon such Borrower, notwithstanding any revocation
or release of the joint and several liability of such Borrower and the other
Borrowers with respect to the Obligations or the cancellation of any note or
other instrument evidencing any of the Obligations, or any release of any of
the Obligations, and such Borrower shall be and remain liable to Bank for the
amount so repaid or recovered, to the same extent as if such amount had never
originally been received by Bank, and the provisions of this sentence shall
survive, and continue in effect, notwithstanding any revocation or release of
the joint and several liability of such Borrower and the other Borrowers with
respect to the Obligations or the cancellation of any note or other instrument
evidencing any of the Obligations, or any release of any of the
Obligations.  Until all Obligations have
been irrevocably paid and performed in full, each Borrower hereby expressly and
unconditionally waives all rights of subrogation, reimbursement and indemnity
of every kind against any other Borrower, and all rights of recourse to any
assets or property of any other Borrower, and all rights to any collateral or
security held for the payment and performance of any Obligations, including
(but not limited to) any of the foregoing rights which Borrower may have under
any present or future document or agreement with any other Borrower or other
person, and including (but not limited to) any of the foregoing rights which
Borrower may have under any equitable doctrine of subrogation, implied
contract, or unjust enrichment, or any other equitable or legal doctrine.


 


13.4        Each
Borrower hereby consents and agrees that, without notice to or by such Borrower
and without affecting or impairing in any way the obligations or liability of
such Borrower hereunder, Bank may, from time to time and at any time in
accordance with the provisions of this Agreement, do any one or more of the
following with respect to any other Borrower: 
(a) accelerate, accept partial payments of, compromise or settle, renew,
extend the time for the payment, discharge, or performance of, refuse to
enforce, and release all or any parties to, any or all of the Obligations; (b)
grant any other indulgence to any other Borrower or any other person in respect
of any or all of the Obligations or any other matter; (c) accept, release,
waive, surrender, enforce, exchange, modify, impair, or extend the time for the
performance, discharge, or payment of, any and all property of any kind securing
any or all of the Obligations or any guaranty of any or all of the Obligations,
or on which Bank at any time may have a lien, or refuse to enforce its rights
or make any compromise or settlement or agreement therefor in respect of any or
all of such property; (d) substitute or add, or take any action or omit to take
any action which results in the release of, any one or more endorsers or any
other Borrowers of all or any part of the Obligations, regardless of any
destruction or impairment of any right of contribution or other right of such
Borrower; (e) amend, alter or change in any respect whatsoever any term or
provision relating to any or all of the Obligations, including the rate of
interest thereon; (f) apply any sums received from any other Borrower,
guarantor, endorser, or co-signer, or from the disposition of any collateral or
security, to any Obligations whatsoever owing from such person or secured by
such collateral or security, in such manner and order as Bank determines in its
sole


 


18

















 


discretion, and regardless of whether such Obligations is part of the
Obligations, is secured, or is due and payable; (g) apply any sums received
from any Borrower or from the disposition of any collateral to any of the
Obligations in such manner and order as Bank determines in its good faith
business judgment, regardless of whether or not such Obligations is secured or
is due and payable.  Each Borrower
consents and agrees that Bank shall be under no obligation to marshal any
assets in favor of any Borrower, or against or in payment of any or all of the
Obligations.  Each Borrower further
consents and agrees that Bank shall have no duties or responsibilities
whatsoever with respect to any property securing any or all of the
Obligations.  Without limiting the
generality of the foregoing, Bank shall have no obligation to monitor, verify,
audit, examine, or obtain or maintain any insurance with respect to, any
property securing any or all of the Obligations.


 


13.5        Each
Borrower hereby waives all rights of subrogation, reimbursement,
indemnification, and contribution and any other rights and defenses that are or
may become available to such Borrower or any other surety by reason of
California Civil Code Sections 2787 to 2855, inclusive.  Each Borrower waives all rights and defenses
that such Borrower may have because the Obligations may be or are secured by
real property, if and when any such eventuality arises.  This means, among other things:  (a) Bank may collect from any Borrower
without first foreclosing on any real or personal property collateral pledged
by any other Borrower; and (b) if Bank forecloses on any real property
collateral pledged by any Borrower:  (i)
The amount of the Obligations may be reduced only by the price for which that
collateral is sold at the foreclosure sale, even if the collateral is worth
more than the sale price; and (ii) Bank may collect from any Borrower even if
Bank, by foreclosing on the real property collateral, has destroyed any right
such Borrower may have to collect from any other Borrower or any endorser,
co-maker or other person.  This is an
unconditional and irrevocable waiver of any rights and defenses any Borrower
may have because the Obligations may be or are secured by real property.  These rights and defenses include, but are
not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or
726 of the Code of Civil Procedure.  Each
Borrower waives all rights and defenses arising out of an election of remedies
by Bank, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
or may destroy such Borrower’s rights of subrogation and reimbursement against
the principal by the operation of Section 580d of the Code of Civil Procedure
or otherwise.


 


13.6        Each
Borrower hereby agrees that one or more successive or concurrent actions may be
brought hereon against such Borrower, in the same action in which any other
Borrower may be sued or in separate actions, as often as deemed advisable by
Bank.  The liability of each Borrower
relative to the Obligations is exclusive and independent of any other guaranty
or joint and several liability of any other Borrower of any or all of the
Obligations whether executed by Borrower or by any other Borrower or any
guarantor, endorser, co-maker or other person, or otherwise.  The liability of any Borrower hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following:  (a) the fact that the
Obligations exceeds the maximum amount of any Borrower’s liability, if any,
specified herein or elsewhere (and no agreement specifying a maximum amount of
any Borrower’s liability shall be enforceable unless set forth in a writing signed
by Bank); or (b) any direction as to the application of payment by any other
Borrower or by any other party; or (c) any continuing or restrictive guaranty
or undertaking or any limitation on the liability of any other Borrower; or (d)
any payment on or reduction of any such guaranty or undertaking; or (e) any
revocation, amendment, modification or release of any such guaranty or
undertaking; or (f) any dissolution or termination of, or increase, decrease,
or change in membership of any Borrower which is a partnership.  Each Borrower hereby expressly represents
that it was not induced to agree to be liable for the Obligations by the fact
that there are or may be other Borrowers that are jointly and severally liable with
such Borrower relative to the Obligations, and each Borrower agrees that any
release of any one or more of such other Borrowers shall not release such
Borrower from its Obligations either in full or to any lesser extent.


 


19

















 


13.7        EACH BORROWER IS FULLY AWARE OF THE
FINANCIAL CONDITION OF EACH OTHER BORROWER AND IS AGREEING TO BE JOINTLY AND
SEVERALLY LIABLE WITH EACH OTHER BORROWER AT THE REQUEST OF EACH SUCH OTHER
BORROWER AND BASED SOLELY UPON ITS OWN INDEPENDENT INVESTIGATION OF ALL MATTERS
PERTINENT HERETO, AND SUCH BORROWER IS NOT RELYING IN ANY MANNER UPON ANY
REPRESENTATION OR STATEMENT OF BANK WITH RESPECT THERETO.  EACH BORROWER REPRESENTS AND WARRANTS THAT
IT IS IN A POSITION TO OBTAIN, AND SUCH BORROWER HEREBY ASSUMES FULL RESPONSIBILITY
FOR OBTAINING, ANY ADDITIONAL INFORMATION CONCERNING EACH OTHER BORROWER’S
FINANCIAL CONDITION AND ANY OTHER MATTER PERTINENT HERETO AS SUCH BORROWER MAY
DESIRE, AND SUCH BORROWER IS NOT RELYING UPON OR EXPECTING BANK TO FURNISH TO
SUCH BORROWER ANY INFORMATION NOW OR HEREAFTER IN BANK’S POSSESSION CONCERNING
THE SAME OR ANY OTHER MATTER.


 


14.          DEFINITIONS


 


14.1        Definitions.


 


In this Agreement:


 


“Accounts”
are all existing and later arising accounts, contract rights, and other
obligations owed Borrower in connection with its sale or lease of goods
(including licensing software and other technology) or provision of services,  all
credit insurance, guaranties, other security and all merchandise returned or
reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.


 


“Affiliate”
of a Person is a Person that owns or controls directly or indirectly the
Person, any Person that controls or is controlled by or is under common control
with the Person, and each of that Person’s senior executive officers,
directors, partners and, for any Person that is a limited liability company,
that Person’s managers and members.


 


“Astoria Notes” are
the 5% Convertible Subordinated Note due 2008 issued by the Company to Astoria
Capital Partners, L.P. and all PIK Notes issued pursuant thereto.


 


“Astoria Subordination Agreement”
is the Subordination Agreement dated February     ,
2004 entered into between Astoria Capital Partners, L.P. and Bank, as amended
or otherwise modified from time to time.


 


“Bank
Expenses” are all audit fees and expenses and reasonable costs and
expenses (including reasonable attorneys’ fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).


 


“Borrowing Base” is an amount of up to 80%
of Eligible Accounts, as determined by Bank from Borrower’s most recent
Borrowing Base Certificate.


 


“Borrower’s
Books” are all Borrower’s books and records including ledgers,
records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.


 


“Business Day”
is any day that is not a Saturday, Sunday or a day on which the Bank is closed.


 


20

















 


“Cash Management Services”
shall have the meaning set forth in Section 2.1.4 hereof.


 


“Change of Control”
is an event or series of events by which either any person or group of persons
(within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934,
as amended) shall have acquired after the date hereof beneficial ownership
(within the meaning of Rule 13d-3promulgated by the Securities and Exchange
Commission under said Act), directly or indirectly, of forty percent (40%) or
more of the outstanding shares of capital stock of the Borrower, other than for
the acquisition of any such beneficial ownership of the Borrower by Astoria
Capital Partners, L.P. or any affiliate thereof.”


 


“Closing Date”
is the date of this Agreement.


 


“Code”
is the Uniform Commercial Code, as applicable.


 


“Collateral”
is the property described on Exhibit A.


 


“Committed
Revolving Line” shall mean a revolving credit facility in an
aggregate principal amount of Revolving Advances hereunder of up to One Million
Five Hundred Thousand Dollars ($1,500,000).


 


“Contingent
Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account
of that Person; and (iii) all obligations from any interest rate, currency
or commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices;  but “Contingent Obligation” does not include
endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined
amount of the primary obligation for which the Contingent Obligation is made
or, if not determinable, the maximum reasonably anticipated liability for it
determined by the Person in good faith; but the amount may not exceed the
maximum of the obligations under the guarantee or other support arrangement.


 


“Copyrights”
are all copyright rights, applications or registrations and like protections in
each work or authorship or derivative work, whether published or not (whether
or not it is a trade secret) now or later existing, created, acquired or held.


 


“Credit Extension” is each
Revolving Advance, Letter of Credit, FX Forward Contract and each other
extension of a credit accommodation by Bank pursuant to this Agreement (as
amended, supplemented, restated or otherwise modified from time to time) for
Borrower’s benefit.


 


“Current
Liabilities” are the aggregate amount of Borrower’s Total
Liabilities which mature within one (1) year.


 


“Default” shall
mean any event or occurrence which with the passing of time or the giving of
notice or both would become an Event of Default hereunder.


 


“Effective Date” is
the date Bank executes this Agreement.


 


21

















 


“Eligible Accounts” are
Accounts arising in the ordinary course of Borrower’s business that meet all
Borrower’s representations and warranties in Section 5.2; but Bank may
change eligibility standards by giving Borrower notice.  Unless Bank agrees otherwise in writing,
Eligible Accounts will not include:


 


(a)           Accounts
that the account debtor has not paid within 90 days of invoice date;


 


(b)           Accounts
for an account debtor, 50% or more of whose Accounts have not been paid within
90 days of invoice date;


 


(c)           Credit balances over 90 days from
invoice date;


 


(d)           Accounts
for an account debtor, including Affiliates, whose total obligations to
Borrower exceed 25% of all Accounts, for the amounts that exceed that
percentage, unless Bank approves in writing;


 


(e)           Accounts
for which the account debtor does not have its principal place of business in
the United States, except for those Accounts arising from account debtors
located in Canada or Australia, up to an aggregate amount of no greater than
$250,000 for all such account debtors viewed jointly for both such countries at
any time or from time to time ;


 


(f)            Accounts
for which the account debtor is a federal, state or local government entity or
any department, agency, or instrumentality;


 


(g)           Accounts for which Borrower owes the
account debtor, but only up to the amount owed (sometimes called “contra”
accounts, accounts payable, customer deposits or credit accounts), provided
that deferred revenue amounts shall not be offset or otherwise deducted in
connection with the determination of the applicable Eligible Accounts amount;


 


(h)           Accounts
for demonstration or promotional equipment, or in which goods are consigned,
sales guaranteed, sale or return, sale on approval, bill and hold, or other
terms if account debtor’s payment may be conditional;


 


(i)            Accounts
for which the account debtor is Borrower’s Affiliate, officer, employee, or
agent;


 


(j)            Accounts
in which the account debtor disputes liability or makes any claim and Bank
believes there may be a basis for dispute (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; or


 


(k)           Accounts
for which Bank reasonably determines collection  to be doubtful.


 


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


 


“ERISA”
is the Employment Retirement Income Security Act of 1974, and its regulations,
as amended.


 


“FX Forward Contract”
shall have the meaning ascribed to such term as is set forth in Section 2.1.3
hereof.


 


“GAAP”
is generally accepted accounting principles, consistently applied.


 


22

















 


“Guarantor”
is any present or future guarantor of, or surety with respect to, any of the
Obligations, and shall include without limitation, Omnis Software, Inc. and
PickAx, Inc., a Delaware corporation.


 


“Guaranty” shall
mean that certain Continuing Guaranty dated February   , 2004 by
Guarantors in favor of Bank, as amended or otherwise modified from time to time.


 


 “Indebtedness” is (a) indebtedness for
borrowed money or the deferred price of property or services, or reimbursement
and other obligations for surety bonds and letters of credit, (b) obligations
evidenced by notes, bonds, debentures or similar instruments, (c) capital lease
obligations and (d) Contingent Obligations.


 


“Insolvency
Proceeding” are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.


 


“Intellectual
Property”
is:


 


(a)           Copyrights, Trademarks, Patents, and
Mask Works including amendments, renewals, extensions, and all licenses or
other rights to use and all license fees and royalties from the use;


 


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


 


(c)           All design rights which may be
available to Borrower now or later created, acquired or held;


 


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


 


All proceeds and
products of the foregoing, including all insurance, indemnity or warranty
payments.


 


“Inventory”
is present and future inventory in which Borrower has any interest, including
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products intended for sale or lease or to be
furnished under a contract of service, of every kind and description now or
later owned by or in the custody or possession, actual or constructive, of
Borrower, including inventory temporarily out of its custody or possession or
in transit and including returns on any accounts or other proceeds (including
insurance proceeds) from the sale or disposition of any of the foregoing and
any documents of title.


 


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


 


“Letters of Credit”
shall have the meaning ascribed to such term as is set forth in Section 2.1.2
hereof.


 


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


 


23

















 


“Loan
Documents” are, collectively, this Agreement, any note, or notes or
guaranties or third party suretyship obligations in favor of Bank executed by
Borrower or other Persons with respect hereto, as applicable, including,
without limitation, the Security Agreement and Guaranty and all related
documents and instruments, together with any other present or future agreement
between Borrower and/or for the benefit of Bank in connection with this
Agreement or any of the foregoing related documents, agreements or instruments,
all as amended, extended, restated or otherwise modified in any manner, at any
time and from time to time.


 


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


 


“Material
Adverse Change” is defined in Section 8.3.


 


“Net Worth”
is, on any date, the consolidated total assets minus Total Liabilities.


 


 “Obligations” are debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later under
or with respect to, directly or indirectly, the Loan Documents, including cash
management services and any and all other credit accommodations that may arise
from time to time, if any and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned
to Bank if related to, directly or indirectly, any of the Loan Documents.


 


“Patents”
are patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.


 


“Permitted Distributions” are:


 


(a)  repurchases of stock from former employees
or directors of Borrower under the terms of applicable repurchase agreements in
an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) in
the aggregate in any fiscal year, provided that no Default or Event of Default
has occurred, is continuing or would exist after giving effect to the
repurchases;


 


(b)  the distribution of non-cash rights in
connection with any stockholders’ rights plan;


 


(c)  the conversion by Borrower of any of its
convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange therefor, and payments in cash
for any fractional shares of such convertible securities, provided that any
such resulting securities shall not have any required right of redemption on
the part of the holders thereof;


 


(d)           payments made, or stock issued
pursuant to, the Astoria Note, only as permitted pursuant to the Astoria
Subordination Agreement; and


 


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


 


 “Permitted Indebtedness” is:


 


(a)           Borrower’s and any Subsidiary’s
indebtedness to Bank under this Agreement or any other Loan Document;


 


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


 


24

















 


(c)           Subordinated Debt;


 


(d)           Indebtedness to trade creditors
incurred in the ordinary course of business;


 


(e)                                  Indebtedness
secured by Permitted Liens; and


 


(f)            Indebtedness
of Borrower to any Subsidiary and Contingent Obligations of any Subsidiary with
respect to obligations of Borrower (provided that the primary obligations are
not prohibited hereby), and Indebtedness of any Subsidiary to Borrower or to
any other Subsidiary and Contingent Obligations of any Subsidiary with respect
to obligations of any other Subsidiary (provided that the primary obligations
are not prohibited hereby and that the ability of Borrower to enter into any
such transaction with any such Subsidiary is specifically permitted hereunder);


 


(g)           obligations (contingent or otherwise)
of Borrower or any Subsidiary existing or arising under any Swap Contract;
provided that such obligations are (or were) entered into by such Person in the
ordinary course of business for the purpose of directly mitigating risks
associated with liabilities, commitments, investments, assets, or property held
or reasonably anticipated by such Person, or changes in the value of securities
issued by such Person and not for the purposes of speculation;


 


(h)           Indebtedness consisting of letters of
credit issued for the benefit of any landlord or other Person to secure rental
payments on any real estate lease entered into in the ordinary course of
business and provided that the amount of any cash or other collateral therefore
shall not exceed $250,000 at any time outstanding;


 


(i)            other unsecured Indebtedness of
Borrower or any Subsidiary incurred in the ordinary course of business in an aggregate
amount not to exceed $500,000 at any time;


 


(j)            Indebtedness of any Person
existing at the time such Person is merged with or into Borrower or becomes a
Subsidiary as specifically otherwise permitted hereby, including, without
limitation with respect to the existence of no Default or Event of Default at
the time of or any such transaction or thereafter, provided that such
Indebtedness is not incurred in connection with, or in contemplation of, such
Person merging with and into the Borrower or becoming a Subsidiary of the
Borrower;


 


(k)           Indebtedness with respect to surety,
appeal, indemnity, performance or other similar bonds incurred in the ordinary
course of business, consistent with past practices; and


 


(l)            Extensions, refinancings,
modifications, amendments and restatements of any items of Permitted
Indebtedness (a), (b) and (d) through (i) above, provided that the principal
amount thereof is not increased or the terms thereof are not modified to impose
more burdensome terms upon Borrower or its Subsidiary, as the case may be.


 


“Permitted
Investments” are:


 


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


 


(b)           (i)  marketable direct
obligations issued or unconditionally guaranteed by the United States or its
agency or any State maturing within 1 year from its acquisition,
(ii) 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., and (iii) Bank’s certificates of deposit
issued maturing no more than 1 year after issue;


 


25

















 


(c)           Investments consisting of transfers of
assets (including cash) by Borrower to a foreign Subsidiary of Borrower, as
long as such transfers remain consistent in all material respects on an
aggregate fiscal year basis with past business practices of Borrower and are,
in any event, effected only in the ordinary course of Borrower’s business;


 


(d)           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 relating to the purchase of equity securities of Borrower or its
Subsidiaries pursuant to employee stock purchase plan agreements approved by
Borrower’s Board of Directors as long as no cash proceeds are distributed in
connection therewith;


 


(e)           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
Borrower’s business;


 


(f)            Investments consisting of notes
receivable of, or prepaid royalties and other credit extensions, to customers
and suppliers, in each case who are not Affiliates, in the ordinary course of
business;


 


(g)           joint ventures or strategic alliances
in the ordinary course of Borrower’s business consisting of the non-exclusive
licensing of technology, the development of technology or the providing of
technical support, provided that any cash Investments by Borrower do not exceed
Fifty Thousand Dollars ($50,000) in the aggregate in any fiscal year, provided
that no such Investment shall be made at any time that a Default or an Event of
Default is occurring or would arise upon the making of any such Investment;


 


(h)           Investments
pursuant to investment policy guidelines approved or adopted by the Borrower’s
board of directors, as provided to and concurred in by Bank; and


 


(i)            Investments
permitted by Section 7.3 or Section 7.6.


 


 “Permitted Liens” are:


 


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


 


(b)           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, if
they have no priority over any of Bank’s security interests;


 


(c)           Purchase money Liens or capital lease
obligations (i) on Equipment acquired or held by Borrower or its
Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined
to the property and improvements , additions, accessions, parts, replacements
and attachments thereto, and the proceeds of the equipment;


 


(d)           Non-exclusive licenses or sublicenses
granted in the ordinary course of Borrower’s business and, with respect to any
licenses where Borrower is the licensee, any


 


26

















 


interest or title of a licensor or under any such license or
sublicense, if the licenses and sublicenses permit granting Bank a
security interest;


 


(e)           Leases or subleases entered into in
the ordinary course of Borrower’s business, including in connection with
Borrower’s leased premises or leased property;


 


(f)            carriers’, warehousemen’s,
mechanics’, materialmen’s, repairmen’s or other like Liens arising in the
ordinary course of business the payment relating to which is not overdue or
which are being contested in good faith by appropriate proceedings and adequate
reserves therefor are maintained on the books of the applicable Person as long
as any Lien arising therefrom has no priority over the Lien of the Bank and as
long as the amount involved is not is not in excess of $25,000;


 


(g)           Liens to secure payment of workers’
compensation, employment insurance, old age pensions, social security or other
like obligations incurred in the ordinary course of business;


 


(h)           deposits to secure the performance of
bids, leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case, incurred in the ordinary
course of business and not representing an obligation for borrowed money;


 


(i)          easements, rights-of-way, restrictions
and other similar encumbrances affecting real property which, in the aggregate,
are not substantial in amount, and which do not in any case materially detract
from the value of the property subject thereto or materially interfere with the
ordinary conduct of the business of the applicable Person;


 


(j)          Liens arising by virtue of any
contractual, statutory or common law provision relating to banker’s liens,
rights of set-off or similar rights and remedies as to deposit accounts or
other funds maintained with a creditor depository institution, subject to the
obligation of the Borrower hereunder to enter into account control agreements
with respect to any such bank accounts in favor of Bank and acceptable to Bank
that shall include limitations on any such Lien rights;


 


(k)         Liens consisting of pledges of cash
collateral or government securities to secure Swap Contracts on a
mark-to-market basis only in connection with any such Swap Contracts as
constitute Permitted Indebtedness hereunder;


 


(l)          Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods and that arise in the ordinary course
of Borrower’s business;


 


(m)        Liens on insurance proceeds securing the
payment of financed insurance premiums;


 


(n)         Liens arising from judgments, decrees
or attachments in circumstances not constituting an Event of Default hereunder;


 


(o)         Liens arising from additional security interests
and liens which are subordinate to the security interests in favor of Bank and
are consented to in writing by Bank (which consent shall be subject to Bank’s
sole discretionary determination); and


 


(f)          Liens
incurred in the extension, renewal or refinancing of the indebtedness secured
by Liens described in (a) through (c), but any extension, renewal or
replacement Lien


 


27

















 


must be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness may not increase;


 


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


 


“Prime Rate”
is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate.


 


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


 


“Revolving
Advance”
or “Revolving
Advances”
is a loan advance (or advances) under the Committed Revolving Line.


 


“Revolving
Maturity Date” shall mean the date that is two years from the
Effective Date.


 


“Rights”, as applied to the
Collateral, means the Borrower’s rights and interests in, and powers with
respect to, that Collateral, whatever the nature of those rights, interests and
powers and, in any event, including Borrower’s power to transfer rights in such
Collateral to Bank.


 


“Schedule”
is any attached schedule of exceptions.


 


“Security Agreement”
shall mean that certain Security Agreement dated February _, 2004 by and
between Guarantors, on the one side, and Bank, as amended or otherwise modified
from time to time.


 


“Subordinated
Debt” is debt incurred by Borrower subordinated to Borrower’s
indebtedness owed to Bank and which is reflected in a written agreement in a
manner and form acceptable to Bank and approved by Bank in writing, including
the Indebtedness reflected by the Astoria Notes to the extent such Indebtedness
is subject to the Astoria Subordination Agreement.


 


“Subsidiary”
is for any Person, or any other business entity of which more than 50% of the
voting stock or other equity interests is owned or controlled, directly or
indirectly, by the Person or one or more Affiliates of the Person.  When used herein, unless otherwise
specifically indicated, Subsidiary shall mean a Subsidiary of Borrower.


 


“Total
Liabilities”
is on any day, obligations that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all
Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.


 


“Trademarks”
are trademark and servicemark rights, registered or not, applications to
register and registrations and like protections, and the entire goodwill of the
business of Assignor connected with the trademarks.


 


28

















 


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


 


	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  RAINING DATA
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Brian C. Bezdek

  	
   

  
	
   

  	
   

  
	
   

  	
  Title: 

  	
  Secretary & Chief
  Financial Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  RAINING DATA U.S., INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Brian C. Bezdek

  	
   

  
	
   

  	
   

  
	
   

  	
  Title: 

  	
  Secretary & Chief
  Financial Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BANK:

  
	
   

  	
   

  
	
   

  	
  SILICON VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Ryan Incorvaia

  	
   

  
	
   

  	
   

  
	
   

  	
  Title: 

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
  Effective
  Date:   February 11,
  2004                      

  	
   

  
												



 


29

















 


EXHIBIT A


 


The Collateral consists
of all of Borrower’s right, title and interest in and to all of Borrower’s
personal property, including without limitation the following:


 


All goods and
equipment now owned or hereafter acquired, including, without limitation, all
machinery, fixtures, vehicles (including motor vehicles and trailers), and any
interest in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing, wherever located;


 


All inventory, now
owned or hereafter acquired, including, without limitation, all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process
and finished products including such inventory as is temporarily out of
Borrower’s custody or possession or in transit and including any returns upon
any accounts or other proceeds, including insurance proceeds, resulting from
the sale or disposition of any of the foregoing and any documents of title
representing any of the above;


 


All contract
rights and general intangibles now owned or hereafter acquired, including,
without limitation, goodwill, trademarks, servicemarks, trade styles, trade
names, patents, patent applications, leases, license agreements, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind;


 


All now existing
and hereafter arising accounts, contract rights, royalties, license rights and
all other forms of obligations owing to Borrower arising out of the sale or
lease of goods, the licensing of technology or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower;


 


All documents,
cash, deposit accounts, securities, securities entitlements, securities
accounts, investment property, financial assets, letters of credit,
letter-of-credit rights, commercial tort claims, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired and Borrower’s
Books relating to the foregoing;


 


All copyright
rights, copyright applications, copyright registrations and like protections in
each work of authorship and derivative work thereof, whether published or
unpublished, now owned or hereafter acquired; all trade secret rights,
including all rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the foregoing;
and


 


All Borrower’s
Books relating to the foregoing and any and all claims, rights and interests in
any of the above and all substitutions for, additions and accessions to and
proceeds thereof;


 


Notwithstanding
the foregoing, the Collateral shall not include any of the outstanding capital
stock of a controlled foreign corporation (as such term is defined in the
Internal Revenue Code of 1986, as amended) 
in excess of 65% of the voting power of all classes of capital stock of
such controlled foreign corporation entitled to vote.


 


 In connection with the foregoing, the Bank
hereby acknowledges that enforcement of its rights with respect to certain
items of Collateral in which the Bank is granted a security interest


 

















 


(including the use or assignment thereof) may be restricted by the
provisions of Sections 9407(b), 9408(d) or 9409(b) of the Code.


 


 


Exhibit A


 

















 


EXHIBIT B


 


Loan
Payment/Advance Request Form


Deadline for same day
processing is 12:00 P.S.T.


 


	
  Fax To:

  	
  949.789.1930

  	
   

  	
  Date:

  	
                                   

  



 


o
loan payment:




	
   

  	
  From Account #

  	
  To Account #

  
	
   

  	
   

  	
  (Deposit Account #)

  	
              (Loan
  Account #)

  
	
   

  	
  Principal $

  	
   

  	
  and/or Interest $

  	
   

  
					






 


All Borrower’s
representations and warranties in the Loan and Security Agreement are true and
correct in all material respects on the date of the telephone transfer request
for an advance, but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
such date:


 




	
   

  	
  Authorized Signature: 

  	
   

  	
  Phone Number:

  






o
Loan Advance:


Complete Outgoing Wire Request
section below if all or a portion of the funds from this loan advance are for
an outgoing wire.




	
   

  	
  From Account #

  	
  To Account #

  
	
   

  	
   

  	
  (Loan Account #)

  	
              (Deposit
  Account #)

  
	
   

  	
  Amount of Advance $

  	
   

  	
   

  
					






 


All Borrower’s
representations and warranties in the Loan and Security Agreement are true and
correct in all material respects on the date of the telephone transfer request
for an advance, but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
such date:


 




	
   

  	
  Authorized Signature: 

  	
   

  	
  Phone Number:

  






 


o  Outgoing Wire Request


Complete only if all or a portion of
funds from the loan advance above are to be wired.


	
  Deadline for same day
  processing is 12:00pm, P.S.T.

  
	
  Beneficiary Name:

  	
   

  	
   

  	
   

  	
  Amount of Wire: $

  
	
  Beneficiary Bank:

  	
   

  	
  Account Number:

  
	
  City and Sate:

  	
   

  	
   

  
	
  Beneficiary Bank
  Transit (ABA)
  #:                                                Beneficiary
  Bank Code (Swift, Sort, Chip, etc.):

  



(For
International Wire Only)


	
  Intermediary Bank:

  	
   

  	
  Transit (ABA) #:

  
	
  For Further Credit to:

  	
   

  	
   

  
	
  Special Instruction:

  	
   

  	
   

  



 


By signing below, I (we) acknowledge
and agree that my (our) funds transfer request shall be processed in accordance
with and subject to the terms and conditions set forth in the agreements(s)
covering funds transfer service(s), which agreements(s) were previously
received and executed by me (us).


 


	
  Authorized Signature:

  	
   

  	
   

  	
  2nd
  Signature (If Required):

  	
   

  	
   

  
	
  Print Name/Title:

  	
   

  	
   

  	
  Print Name/Title:

  	
   

  	
   

  
	
  Telephone #

  	
   

  	
   

  	
  Telephone #

  	
   

  	
   

  
										



 

















 


EXHIBIT
C


 


BORROWING BASE CERTIFICATE


 


	
  Borrower:  Raining Data Corporation and Raining
  Data U.S., Inc.

  	
  Bank:

  	
  Silicon Valley Bank

  3003 Tasman Drive

  Santa
  Clara, CA 95054

  
	
  Commitment Amount:  $1,500,000

  	
   

  	
   

  



 


	
  ACCOUNTS RECEIVABLE

  	
   

  	
   

  
	
  1.

  	
  Accounts
  Receivable Book Value as of     

  	
   

  	
  $

  
	
  2.

  	
  Additions
  (please explain on reverse)

  	
   

  	
  $

  
	
  3.

  	
  TOTAL
  ACCOUNTS RECEIVABLE

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
  ACCOUNTS RECEIVABLE
  DEDUCTIONS (without duplication)

  	
   

  	
   

  
	
  4.

  	
  Amounts
  over 90 days past invoice date

  	
  $

  	
   

  
	
  5.

  	
  Balance
  of 50% over 90 day accounts

  	
  $

  	
   

  
	
  6.

  	
  Credit
  balances over 90 days

  	
  $

  	
   

  
	
  7.

  	
  Concentration
  Limits

  	
  $

  	
   

  
	
  8.

  	
  Foreign
  Accounts (other than for up to $250,000 owing from account debtors in

  	
  $

  	
   

  
	
   

  	
  (Australia and Canada)

  	
   

  	
   

  
	
  9.

  	
  Governmental
  Accounts

  	
  $

  	
   

  
	
  10.

  	
  Contra
  Accounts

  	
  $

  	
   

  
	
  11.

  	
  Promotion
  or Demo Accounts

  	
  $

  	
   

  
	
  12.

  	
  Intercompany/Employee
  Accounts

  	
  $

  	
   

  
	
  13.

  	
  Other
  (please explain on reverse)

  	
  $

  	
   

  
	
  14.

  	
  TOTAL
  ACCOUNTS RECEIVABLE DEDUCTIONS

  	
   

  	
  $

  
	
  15.

  	
  Eligible
  Accounts (#3 minus #14)

  	
   

  	
  $

  
	
  16.

  	
  LOAN
  VALUE OF ACCOUNTS (80% of #15)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
  BALANCES

  	
   

  	
   

  
	
  17.

  	
  Maximum
  Loan Amount

  	
  $

  	
   

  
	
  18.

  	
  Total
  Funds Available [Lesser of #17 or #16]

  	
   

  	
  $

  
	
  19.

  	
  Present
  balance owing on Line of Credit

  	
  $

  	
   

  
	
  20.

  	
  Outstanding
  under Sublimits (LC, FX or Cash Management)

  	
  $

  	
   

  
	
  21.

  	
  RESERVE
  POSITION (#18 minus #19 and #20)

  	
   

  	
  $

  



 


The undersigned represents and
warrants that this is true, complete and correct, and that the information in
this Borrowing Base Certificate complies with the representations and
warranties in the Loan and Security Agreement between the undersigned and
Silicon Valley Bank.


 


COMMENTS:


 


Raining
Data Corporation

Raining Data U.S., Inc.


 


 


	
  By:

  	
   

  	
   

  
	
  Title:

  



 


	
   

  	
   

  	
  BANK USE ONLY

  
	
   

  	
   

  	
  Rec’d By:

  	
   

  
	
   

  	
   

  	
   

  	
  auth  Signer

  
	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  
	
   

  	
   

  	
   

  	
  Auth  Signer

  
	
   

  	
   

  	
  Date:

  	
   

  
							



 

















 


EXHIBIT D


 


COMPLIANCE
CERTIFICATE


 




	
  TO:

  	
  SILICON VALLEY BANK

  	
   

  
	
   

  	
  3003 Tasman Drive

  	
   

  
	
   

  	
  Santa
  Clara, CA 95054

  	
   

  
	
   

  	
   

  	
   

  
	
  FROM:

  	
  Raining Data
  Corporation

  	
   

  
	
   

  	
  Raining Data U.S., Inc.

  	
   

  






 


 


The
undersigned authorized officer of Raining Data Corporation and Raining Data
U.S., Inc. (jointly and severally, the “Borrower”) certifies that under the
terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the “Agreement”), (i) Borrower is in complete compliance for the
period ending                           
with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date. 
Attached are the required documents supporting the certification.  The undersigned Officer certifies that such
required documents are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.  The undersigned Officer 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 on an ongoing basis and not just at the date this
certificate is delivered.


 


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


 


	
  Reporting
  Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly financial
  statements + CC

  	
   

  	
   

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Annual (Audited)

  	
   

  	
   

  	
   

  	
  FYE within 120 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  10Q and 10K

  	
   

  	
   

  	
   

  	
  Within 5 days of SEC
  filing

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  A/R & A/P Agings;
  deferred revenue schedule

  	
   

  	
   

  	
   

  	
  Monthly within 20 days
  *

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  A/R Audit

  	
   

  	
   

  	
   

  	
  Initial and Semi-Annual

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Borrowing Base
  Certificate

  	
   

  	
   

  	
   

  	
  Monthly within 20 days *

  	
   

  	
  Yes

  	
   

  	
  No

  



 












* when borrowing
or prior to a Credit Extension when none is outstanding


 


	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maintain on a Monthly
  Basis *:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum
  Quick Ratio (§ 6.7(i))

  	
   

  	
  0.70:1.00

  	
   

  	
         :1.00

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  12 Month Trailing
  Positive EBITDA (§ 6.7(ii))

  	
   

  	
  Positive

  	
   

  	
  $           

  	
   

  	
  Yes

  	
   

  	
  No

  



 


Have
there been updates to Borrower’s intellectual property, if appropriate?                                        Yes /
No


 


Comments Regarding Exceptions:  See Attached.


Sincerely,


 


 


Raining
Data Corporation

Raining Data U.S., Inc.


 


	
  By: 

  	
   

  	
   

  
	
  Title:

  



 


Date:


 


	
   

  	
   

  	
  BANK USE ONLY

  
	
   

  	
   

  	
  Received by:

  	
   

  
	
   

  	
   

  	
   

  	
  authorized
  signer

  
	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  
	
   

  	
   

  	
   

  	
  authorized
  signer

  
	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
  Compliance Status:

  	
  Yes

  	
  No