Exhibit
10.1

     

    LOAN
AND SECURITY AGREEMENT

     

    THIS LOAN AND SECURITY
AGREEMENT (this “Agreement”) dated as of the
Effective Date between SILICON
VALLEY BANK, a California corporation (“Bank”), and BETAWAVE CORPORATION, a Nevada
corporation (“Borrower”), provides the terms
on which Bank shall lend to Borrower and Borrower shall repay
Bank.  The parties agree as follows:

     

    1           ACCOUNTING AND OTHER
TERMS

     

    Accounting
terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following
GAAP.  Capitalized terms not otherwise defined in this Agreement shall
have the meanings set forth in Section 13.  All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning
provided by the Code to the extent such terms are defined therein.

     

    2           LOAN AND TERMS OF
PAYMENT

     

    2.1           Promise to
Pay.  Borrower hereby unconditionally promises to pay Bank the
outstanding principal amount of all Credit Extensions and accrued and unpaid
interest thereon as and when due in accordance with this Agreement.

     

    2.1.1           Revolving
Advances.

     

    (a)           Availability.  Subject
to the terms and conditions of this Agreement and to deduction of Reserves, Bank
shall make Advances not exceeding the Availability Amount.  Amounts
borrowed hereunder may be repaid and, prior to the Maturity Date, reborrowed,
subject to the applicable terms and conditions precedent herein.

     

    (b)           Termination;
Repayment.  The Revolving Line terminates on the Maturity Date,
when the principal amount of all Advances, the unpaid interest thereon, and all
other Obligations relating to the Revolving Line shall be immediately due and
payable.

     

    2.1.2           Overadvances.  If,
at any time, the outstanding principal amount of any Advances exceeds the lesser
of either the Revolving Line or the Borrowing Base, Borrower shall immediately
pay to Bank in cash such excess.

     

    2.1.3           Letters of Credit
Sublimit.

     

    (a)           As
part of the Revolving Line, Bank shall issue or have issued Letters of Credit
for Borrower’s account.  Such aggregate amounts utilized hereunder
shall at all times reduce the amount otherwise available for Advances under the
Revolving Line.  The face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) may not exceed (i) Five
Hundred Thousand Dollars ($500,000), minus (ii) any Letter
of Credit Reserve, minus (iii) any
amounts used for Cash Management Services and minus (iv) the FX
Reserve.   If, on the Maturity Date, there are any outstanding
Letters of Credit, then on such date Borrower shall provide to Bank cash
collateral in an amount equal to 105% of the face amount of all such Letters of
Credit plus all interest, fees, and costs due or to become due in connection
therewith (as estimated by Bank in its good faith business judgment), to secure
all of the Obligations relating to said Letters of Credit.  All
Letters of Credit shall be in form and substance acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank’s standard
Application and Letter of Credit Agreement (the “Letter of Credit
Application”).  Borrower agrees to execute any further
documentation in connection with the Letters of Credit as Bank may reasonably
request.  Borrower further agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Bank and
opened for Borrower’s account or by Bank’s interpretations of any Letter of
Credit issued by Bank for Borrower’s account, and Borrower understands and
agrees that Bank shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower’s instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto.

     

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     


    (b)           The
obligation of Borrower to immediately reimburse Bank for drawings made under
Letters of Credit shall be absolute, unconditional, and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.

     

    (c)           Borrower
may request that Bank issue a Letter of Credit payable in a Foreign
Currency.  If a demand for payment is made under any such Letter of
Credit, Bank shall treat such demand as an Advance to Borrower of the equivalent
of the amount thereof (plus fees and charges in connection therewith such as
wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of
exchange in San Francisco, California, for sales of the Foreign Currency for
transfer to the country issuing such Foreign Currency.

     

    (d)           To
guard against fluctuations in currency exchange rates, upon the issuance of any
Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the
“Letter of Credit
Reserve”) under the Revolving Line in an amount equal to ten percent
(10%) of the face amount of such Letter of Credit.  The amount of the
Letter of Credit Reserve may be adjusted by Bank from time to time to account
for fluctuations in the exchange rate.  The availability of funds
under the Revolving Line shall be reduced by the amount of such Letter of Credit
Reserve for as long as such Letter of Credit remains outstanding.

     

    2.1.4           Foreign Exchange
Sublimit.  As part of the Revolving Line, Borrower may enter
into foreign exchange contracts with Bank under which Borrower commits to
purchase from or sell to Bank a specific amount of Foreign Currency (each, a
“FX Forward Contract”)
on a specified date (the “Settlement
Date”).  FX Forward Contracts shall have a Settlement Date of
at least one (1) FX Business Day after the contract date and shall be subject to
a reserve of ten percent (10%) of each outstanding FX Forward Contract in a
maximum aggregate amount not to exceed (i) Five Hundred Thousand Dollars
($500,000), minus (ii) the face
amount of any issued Letters of Credit (including drawn but unreimbursed Letters
of Credit), minus (iii) any
Letter of Credit Reserve, minus (iv) any
amounts used for Cash Management Services (the “FX Reserve”).  The
aggregate amount of FX Forward Contracts at any one time may not exceed ten (10)
times the amount of the FX Reserve.  The amount otherwise available
for Credit Extensions under the Revolving Line shall be reduced by an amount
equal to ten percent (10%) of each outstanding FX Forward Contract (the “FX Reduction Amount”). 
Any amounts needed to fully reimburse Bank will be treated as Advances under the
Revolving Line and will accrue interest at the interest rate applicable to
Advances.

     

    2.1.5           Cash Management Services
Sublimit.  Borrower may use a portion of the Revolving Line not
to exceed (i) Five Hundred Thousand Dollars ($500,000), minus (ii) the face
amount of any issued Letters of Credit (including drawn but unreimbursed Letters
of Credit), minus (iii) any
Letter of Credit Reserve, minus (iv) the FX
Reserve, for Bank’s cash management services, which may include merchant
services, direct deposit of payroll, business credit card, and check cashing
services identified in Bank’s various cash management services agreements
(collectively, the “Cash
Management Services”).  Any amounts Bank pays on behalf of
Borrower for any Cash Management Services will be treated as Advances under the
Revolving Line and will accrue interest at the interest rate applicable to
Advances.

     

    2.2           Payment of Interest on the Credit
Extensions.

     

    (a)           Interest
Rate.  Subject to Section 2.2(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a floating per
annum rate equal to the greater of (i) three percentage points above the Prime
Rate (the “Prime Rate
Formula”); provided, however, that if the
Liquidity Ratio is less than 2.25 to 1.00, the Prime Rate Formula shall be
increased to four percentage points above the Prime Rate and shall remain at
this increased rate until the Liquidity Ratio is at least 2.25 to 1.00 for two
(2) consecutive months, or (ii) seven percent (7.0%); provided, however, that if the
Liquidity Ratio is less than 2.25 to 1.00, this interest rate shall increase to
eight percent (8.0%) and shall remain at this increased rate until the Liquidity
Ratio is at least 2.25 to 1.00 for two (2) consecutive months, which interest
shall be payable monthly in accordance with Section 2.2(f) below.

     

    (b)           Default
Rate.  Immediately upon the occurrence and during the
continuance of an Event of Default, Obligations shall bear interest at a rate
per annum which is four percentage points above the rate that is otherwise
applicable thereto (the “Default
Rate”).  Payment or acceptance of the increased interest rate
provided in

     

     

    
      
         

      

      
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    this
Section 2.2(b) is not a permitted alternative to timely payment and shall
not constitute a waiver of any Event of Default or otherwise prejudice or limit
any rights or remedies of Bank.

     

    (c)           Adjustment to Interest
Rate.  Changes to the interest rate of any Credit Extension
based on changes to the Prime Rate shall be effective on the effective date of
any change to the Prime Rate and to the extent of any such change.

     

    (d)           360-Day
Year.  Interest shall be computed on the basis of a 360-day
year for the actual number of days elapsed.

     

    (e)           Debit of
Accounts.  Bank may debit any of Borrower’s deposit accounts,
including the Designated Deposit Account, for principal and interest payments or
any other amounts Borrower owes Bank when due.  These debits shall not
constitute a set-off.

     

    (f)           Payments.  Unless
otherwise provided, interest is payable monthly on the last calendar day of each
month.  Payments of principal and/or interest received after 12:00
p.m. Pacific time are considered received at the opening of business on the next
Business Day.   If the Liquidity Ratio is less than 2.25 to 1.00,
payments of principal and/or interest shall be considered received at the
opening of business on the second Business Day after the date that they would
otherwise be considered received, and shall continue to be considered received
after such two (2) Business Days until the Liquidity Ratio is at least 2.25 to
1.00 for two (2) consecutive months.  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, as applicable, shall continue to
accrue.

     

    2.3           Fees.  Borrower
shall pay to Bank:

     

    (a)           Commitment
Fee.  A fully earned, non-refundable commitment fee (the “Commitment Fee”) equal to one
percent (1.0%) of the Revolving Line, on the Effective Date and each yearly
anniversary thereof;

     

    (b)           Collateral Handling
Fee.   A fully-earned, non-refundable collateral handling
fee of $750 a month, on the first day of each month, if the Liquidity Ratio is
less than 2.25 to 1.00, which fee shall continue to accrue until the Liquidity
Ratio is at least 2.25 to 1.00 for two (2) consecutive months;

     

    (c)           Letter of Credit
Fee.  Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, including, without limitation, a Letter of Credit
Fee of two percent (2.00%) per annum of the face amount of each Letter of Credit
issued, upon the issuance, each anniversary of the issuance, and the renewal of
such Letter of Credit by Bank;

     

    (d)           Unused Revolving Line
Facility Fee.  A fee (the “Unused Revolving Line Facility
Fee”), payable monthly, in arrears, on a calendar year basis, in an
amount equal to the interest that would have accrued during such month, based
the average per annum interest rate in effect pursuant to Section 2.2(a) during
such month, with respect to the Revolving Line Usage Shortfall, as determined by
Bank; provided, however, that the Unused Revolving Line Facility Fee shall be
reduced to the extent that the Revolving Line Usage Shortfall is due to (i) Bank
excluding Accounts from Eligible Accounts under clause (t) of the Eligible
Accounts definition, or (ii) Bank expanding the Accounts excluded as Eligible
Accounts by amending any of the exclusions and limitations set forth in clauses
(a) through (s) of the Eligible Accounts definition.  The “Revolving Line Usage
Shortfall” is the amount by which the average Revolving Line Advances
during such month was less than One Million Dollars
($1,000,000).  Borrower shall not be entitled to any credit, rebate or
repayment of any Unused Revolving Line Facility Fee previously earned by Bank
pursuant to this Section notwithstanding any termination of this Agreement, or
suspension or termination of Bank’s obligation to make Advances
hereunder;

     

    (e)           Termination
Fee.   If this Agreement is terminated prior to the
Maturity Date for any reason, other than based on an Event of Default in
accordance with Section 8.3, Borrower shall pay to Bank as a fee (the “Termination Fee”) an amount
equal to the interest that would have accrued on an Advance of One Million
Dollars ($1,000,000) during the period commencing on the termination date and
terminating on the Maturity Date, based the per annum interest rate in effect
pursuant to Section 2.2(a) on the termination date, as determined by
Bank.

     

     

    
      
         

      

      
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    The
foregoing notwithstanding, Borrower shall not owe the Termination Fee if (A)
Bank terminates this Agreement pursuant to Section 8.3, or (B) if Borrower
terminates this Agreement as a result of Bank reducing the Borrowing Base by the
greater of (x) Three Hundred Thousand Dollars ($300,000) or (y) Twenty-Five
Percent (25%) by (i) excluding Accounts from Eligible Accounts under clause (t)
of the Eligible Accounts definition, or (ii) expanding the Accounts excluded as
Eligible Accounts by amending any of the exclusions and limitations set forth in
clauses (a) through (s) of the Eligible Accounts definition.

     

    (f)           Bank
Expenses.  All Bank Expenses (including reasonable attorneys’
fees and expenses, plus expenses, for documentation and negotiation of this
Agreement) incurred through and after the Effective Date, when
due.   On the Effective Date, Bank shall apply the remaining
amount of the Thirty Thousand Dollars ($30,000) to the Commitment
Fee.

     

    2.4           Lockbox; Account Collection
Services.  Within thirty (30) days of the Effective Date,
Borrower shall direct each Account Debtor (and each depository institution where
proceeds of Accounts are on deposit) to remit payments with respect to the
Accounts to a lockbox account with Bank or to wire transfer payments to a cash
collateral account with Bank (collectively, the “Lockbox”).  Subject
to the repayment provisions of Section 2.1.1(b), Bank shall sweep all amounts
from the Lockbox to the Designated Deposit Account on a daily (or as soon
thereafter as is practical) basis; provided, however, that if the Liquidity
Ratio is less than 2.25 to 1.00, Bank shall apply the amount from the Lockbox to
the Obligations, which application shall continue until the Liquidity Ratio is
at least 2.25 to 1.00 for two (2) consecutive months.  Until the
Lockbox is established, the Account Debtors shall pay the amounts owed on the
Accounts to an address designated by Borrower and consented to by Bank (for
purposes hereof, Bank consents to payment to Borrower’s current bank accounts
described in the Perfection Certificate).   Upon receipt of such
payments, Borrower shall immediately deposit them in Borrower’s primary
operating account with Bank, and Bank may apply the amount of such deposit
necessary to satisfy the Obligations then due and owing.  This Section
2.4 does not impose any affirmative duty on Bank to perform any act other than
as specifically set forth herein.  All Accounts and the proceeds
thereof are Collateral and upon the occurrence and during the continuance of an
Event of Default, Bank may apply the proceeds of such Accounts to the
Obligations then due and owing.    So long as an Event of
Default does not exist, Borrower shall have immediate and full access to funds
held in the Lockbox account and access to such funds shall not be subject to any
conditions or restrictions other than those of the Bank and as provided in this
Agreement.

     

    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 Borrower shall consent to
or have delivered, in form and substance satisfactory to Bank, such documents,
and completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation:

     

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

     

    (b)           a
duly executed original signature to the Warrant;

     

    (c)           duly
executed original signatures to the Control Agreements, if applicable (Control
Agreements shall not be required as of the Effective Date with respect to the
accounts that Borrower maintains at Wells Fargo Bank, but if such accounts
remain open thirty (30) days after the Effective Date, Control Agreements shall
be required with respect to such accounts);

     

    (d)           duly
executed original signatures to the Intellectual Property Security
Agreement;

     

    (e)           its
Operating Documents and a good standing certificate of Borrower certified by the
Secretary of State of the State of Nevada as of a date no earlier than thirty
(30) days prior to the Effective Date;

     

    (f)           duly
executed original signatures to the completed Borrowing Resolutions for
Borrower;

     

     

    
      
         

      

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

     

    (h)           the
Perfection Certificate(s) executed by Borrower;

     

    (i)           evidence
satisfactory to Bank that the insurance policies required by Section 6.8 hereof
are in full force and effect, together with appropriate evidence showing lender
loss payable and/or additional insured clauses or endorsements in favor of
Bank;

     

    (j)           the
completion of the Initial Audit with results satisfactory to Bank in its sole
and absolute discretion;

     

    (k)           annual
financial projections for the fiscal year ending December 31, 2009 (on a
quarterly basis) as approved by Borrower’s board of directors, together with any
related business forecasts used in the preparation of such annual financial
projections; and

     

    (l)           payment
of the fees and Bank Expenses then due as specified in Section 2.3
hereof.

     

    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)           except
as otherwise provided in Section 3.4, timely receipt of an executed Transaction
Report;

     

    (b)           the
representations and warranties in Section 5 shall be true in all material
respects on the date of the Transaction Report and on the Funding Date of each
Credit Extension; provided, however, that such materiality qualifier shall not
be applicable to any representations and warranties that already are qualified
or modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, and no
Default or Event of Default shall 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
in Section 5 remain true in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and

     

    (c)           in
Bank’s sole discretion, there has not been a Material Adverse
Change.

     

    3.3           Covenant to Deliver. Borrower agrees to
deliver to Bank each item required to be delivered to Bank under this Agreement
as a condition to any Credit Extension.  Borrower expressly agrees
that a Credit Extension made prior to the receipt by Bank of any such item shall
not constitute a waiver by Bank of Borrower’s obligation to deliver such item,
and any such Credit Extension in the absence of a required item shall be made in
Bank’s sole discretion.

     

    3.4           Procedures for
Borrowing.  Subject to the prior satisfaction of all other
applicable conditions to the making of an Advance set forth in this Agreement,
to obtain an Advance (other than Advances under Sections 2.1.3 or 2.1.5),
Borrower shall notify Bank (which notice shall be irrevocable) by electronic
mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of
the Advance.  Together with such notification, Borrower must promptly
deliver to Bank by electronic mail or facsimile a completed Transaction Report
executed by a Responsible Officer or his or her designee.  Bank shall
credit Advances to the Designated Deposit Account.  Bank may make
Advances under this Agreement based on instructions from a Responsible Officer
or his or her designee or without instructions if the 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.

     

     

    
      
         

      

      
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    4           CREATION OF SECURITY
INTEREST

     

    4.1           Grant of Security
Interest.  Borrower hereby grants Bank, to secure the payment
and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products
thereof.  Borrower represents, warrants, and covenants that the
security interest granted herein is and shall at all times continue to be a
first priority perfected security interest in the Collateral (subject only to
Permitted Liens that may have superior priority to Bank’s Lien under this
Agreement).  If Borrower shall acquire commercial tort claims in the
aggregate amount of Fifty Thousand Dollars ($50,000) or more in any twelve (12)
month period, Borrower shall promptly notify Bank in a writing signed by
Borrower of the general details thereof and grant to Bank in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance reasonably
satisfactory to Bank.

     

    If this
Agreement is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in
cash.  Upon payment in full in cash of the Obligations and at such
time as Bank’s obligation to make Credit Extensions has terminated, Bank shall,
at Borrower’s sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower.

     

    4.2           Authorization to File Financing
Statements.  Borrower hereby authorizes Bank to file financing
statements, without notice to Borrower, with all appropriate jurisdictions to
perfect or protect Bank’s interest or rights hereunder, including a notice that
any disposition of the Collateral, by either Borrower or any other Person, shall
be deemed to violate the rights of Bank under the Code. Such financing
statements may indicate the Collateral as “all assets of the Debtor” or words of
similar effect, or as being of an equal or lesser scope, or with greater detail,
all in Bank’s discretion.

     

    5           REPRESENTATIONS AND
WARRANTIES

     

    Borrower
represents and warrants as follows:

     

    5.1           Due Organization, Authorization;
Power and Authority.  Borrower is duly existing and in good
standing as a Registered Organization in its jurisdiction of formation and is
qualified and licensed to do business and is in good standing in any
jurisdiction 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 have a material adverse effect on Borrower’s
business.  In connection with this Agreement, Borrower has delivered
to Bank a completed certificate signed by Borrower entitled “Perfection
Certificate”.  Borrower represents and warrants to Bank that
(a) Borrower’s exact legal name is that indicated on the Perfection Certificate
and on the signature page hereof; (b) Borrower is an organization of the
type and is organized in the jurisdiction set forth in the Perfection
Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s
organizational identification number or accurately states that Borrower has
none; (d) the Perfection Certificate accurately sets forth Borrower’s place of
business, or, if more than one, its chief executive office as well as Borrower’s
mailing address (if different than its chief executive office);
(e) Borrower (and each of its predecessors) has not, in the past five (5)
years, changed its jurisdiction of formation, organizational structure or type,
or any organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after the Effective Date to the extent permitted by one
or more specific provisions in this Agreement).  If Borrower is not
now a Registered Organization but later becomes one, Borrower shall promptly
notify Bank of such occurrence and provide Bank with Borrower’s organizational
identification number.

     

    The
execution, delivery and performance by Borrower of the Loan Documents to which
it is a party have been duly authorized, and do not (i) conflict with any of
Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any its Subsidiaries or any of their property or assets may be
bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full

     

     

    
      
         

      

      
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    force and
effect and except for filings with the Securities and Exchange Commission or
NASDAQ, which shall be made following the Effective Date) or (v) constitute an
event of default under any material agreement by which Borrower is
bound.  Borrower is not in default under any agreement to which it is
a party or by which it is bound in which the default could reasonably be
expected to have a material adverse effect on Borrower’s business.

     

    5.2           Collateral.  Borrower
has good title to, has rights in, and the power to transfer each item of the
Collateral upon which it purports to grant a Lien hereunder, free and clear of
any and all Liens except Permitted Liens.  Borrower has no deposit
accounts other than the deposit accounts with Bank, the deposit accounts, if
any, described in the Perfection Certificate delivered to Bank in connection
herewith, or of which Borrower has given Bank notice and taken such actions as
are necessary to give Bank a perfected security interest therein; provided,
however, that Borrower may maintain accounts that are not subject to control
agreements in favor of Bank so long as each such account has a balance of less
than Twenty-Five Thousand Dollars ($25,000) and all such accounts have an
aggregate balance of less than One Hundred Thousand Dollars
($100,000).  The Accounts are bona fide, existing obligations of the
Account Debtors.

     

    The
Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection
Certificate.  None of the components of the Collateral shall be
maintained at locations other than as provided in the Perfection Certificate or
as permitted pursuant to Section 7.2, except to the extent that less than
Twenty-Five Thousand Dollars ($25,000) in Collateral is maintained at a location
and to the extent that less than One Hundred Thousand Dollars ($100,000) in
Collateral is maintained at locations not described in the Perfection
Certificate or in Section 7.2.  In the event that Borrower, after the
date hereof, intends to store or otherwise deliver any portion of the Collateral
to a bailee, then Borrower will first receive the written consent of Bank and
such bailee must execute and deliver a bailee agreement in form and substance
satisfactory to Bank in its sole discretion.

     

    All
Inventory is in all material respects of good and marketable quality, free from
material defects.

     

    Borrower
is the sole owner of its intellectual property, except for non-exclusive
licenses granted to its customers in the ordinary course of
business.  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 to the best of Borrower’s knowledge, 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 have a Material
Adverse Effect.

     

    5.3           Accounts
Receivable.

     

    (a)           For
each Account with respect to which Advances are requested, on the date each
Advance is requested and made, such Account shall be an Eligible
Account.

     

    (b)           All
statements made and all unpaid balances appearing in all invoices, instruments
and other documents evidencing the Accounts are and shall be true and correct
and all such invoices, instruments and other documents, and all of Borrower's
Books are genuine and in all respects what they purport to be.  All
sales and other transactions underlying or giving rise to each Account shall
comply in all material respects with all applicable laws and governmental rules
and regulations.  Borrower has no knowledge of any actual or imminent
Insolvency Proceeding of any Account Debtor whose accounts are an Eligible
Account in any Transaction Report.  To the best of Borrower’s
knowledge, all signatures and endorsements on all documents, instruments, and
agreements relating to all Accounts are genuine, and all such documents,
instruments and agreements are legally enforceable in accordance with their
terms.

     

    5.4           Litigation.  Except
as provided in the Perfection Certificate, there are no actions or proceedings
pending or, to the knowledge of the Responsible Officers, threatened in writing
by or against Borrower or any of its Subsidiaries involving more than Fifty
Thousand Dollars ($50,000).

     

    5.5           No Material Deviation in Financial
Statements.  All consolidated financial statements for Borrower
and any of its Subsidiaries delivered to Bank fairly present in all material
respects Borrower’s consolidated financial condition and Borrower’s consolidated
results of operations (subject to normal year-end

     

     

    
      
         

      

      
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    adjustments
and the absence of footnotes).  There has not been any material
deterioration in Borrower’s consolidated financial condition since the date of
the most recent financial statements submitted to Bank.

     

    5.6           Solvency.  The fair
salable value of Borrower’s assets (including goodwill minus disposition costs)
exceeds the fair value of its liabilities; 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.

     

    5.7           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 X, T and U of
the Federal Reserve Board of Governors).  Borrower has complied in all
material respects with the Federal Fair Labor Standards Act.  Neither
Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of
a “holding company” or a “subsidiary company” of a “holding company” as each
term is defined and used in the Public Utility Holding Company Act of
2005.  Borrower has not violated any laws, ordinances or rules, the
violation of which could reasonably be expected to have a material adverse
effect on its business.  None of Borrower’s or any of its
Subsidiaries’ 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
legally.  Borrower and each of its Subsidiaries have 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 their respective businesses as currently conducted.

     

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

     

    5.9           Tax Returns and Payments; Pension
Contributions.  Borrower has timely filed all required tax
returns and reports, and Borrower has timely paid all material foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower,
except those that are being contested in good faith pursuant to proceedings
being diligently pursued and for which reserves in accordance with GAAP has been
created.  Borrower may defer payment of any contested taxes, provided
that Borrower (a) in good faith contests its obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (b)
notifies Bank in writing of the commencement of, and any material development
in, the proceedings, (c) posts bonds or takes any other steps required to
prevent the governmental authority levying such contested taxes from obtaining a
Lien upon any of the Collateral that is other than a “Permitted
Lien”.  Borrower is unaware of any claims or adjustments proposed for
any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower.  Borrower has paid all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, and has not permitted partial or complete termination of, or
permitted the occurrence of any other event with respect to, any such plan which
could reasonably be expected to result in any liability of Borrower, including
any liability to the Pension Benefit Guaranty Corporation or its successors or
any other governmental agency.

     

    5.10           Use of
Proceeds.  Borrower shall use the proceeds of the Credit
Extensions solely as working capital to fund its general business requirements
and not for personal, family, household or agricultural purposes.

     

    5.11           Full Disclosure.  No
written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank, as of the date such
representation, warranty, or other statement was made, taken together with all
such written certificates and written statements given to Bank, 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 (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 or forecasted
results).

     

     

    
      
         

      

      
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    6           AFFIRMATIVE COVENANTS

     

    Borrower
shall do all of the following:

     

    6.1           Government
Compliance.

     

    (a)           Maintain
its and all its Subsidiaries’ legal existence and good standing in their
respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
have a material adverse effect on Borrower’s business or
operations.  Borrower shall comply, and have each Subsidiary comply,
with all laws, ordinances and regulations to which it is subject, noncompliance
with which could have a material adverse effect on Borrower’s
business.

     

    (b)           Obtain
all of the Governmental Approvals necessary for the performance by Borrower of
its obligations under the Loan Documents to which it is a party and the grant of
a security interest to Bank in all of its property.  Borrower shall
promptly provide copies of any such obtained Governmental Approvals to
Bank.

     

    6.2           Financial Statements, Reports,
Certificates.

     

    (a)           Provide
Bank with the following (all of which are subject to Section 12.9):

     

    (i)           within
twenty (20) days after the last day of each month, a Transaction Report (and any
schedules related thereto);

     

    (ii)           within
twenty (20) days after the last day of each month, (A) monthly accounts
receivable agings, aged by invoice date, (B) monthly accounts payable agings,
aged by invoice date, and outstanding or held check registers, if any,
(C) a Deferred Revenue report, and (D) a schedule of Publisher Guarantees
and Publisher Advances, together with a schedule of the amounts currently
payable and the minimum amounts guaranteed by Borrower under such Publisher
Guarantees;

     

    (iii)           as
soon as available, and in any event within thirty (30) days after the end of
each month, monthly unaudited financial statements;

     

    (iv)           within
thirty (30) days after the end of each month a monthly Compliance Certificate
signed by a Responsible Officer, certifying that as of the end of such month,
Borrower was in full compliance with all of the terms and conditions of this
Agreement, and setting forth calculations showing compliance with the financial
covenants set forth in this Agreement and such other information as Bank shall
reasonably request, including, without limitation, a statement that at the end
of such month there were no held checks;

     

    (v)           within
thirty (30) days after the end of each fiscal year of Borrower, (A) annual
operating budgets (including income statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of Borrower, and (B) annual
financial projections for the following fiscal year commensurate with those
provided to Borrower’s board of directors, together with any related business
forecasts used in the preparation of such annual financial
projections;

     

    (vi)           as
soon as available, and in any event within one hundred eighty (180) days
following the end of Borrower's fiscal year, commencing with the fiscal year
ended December 31, 2008, annual financial statements certified by, and with an
unqualified opinion of, independent certified public accountants acceptable to
Bank; and

     

    (vii)           weekly
and on the date of any Advance, deliver to Bank a Transaction Report with
respect to (i) sales and (ii) collections for the preceding week, commencing if
and when the Liquidity Ratio is less than 2.25 to 1.00, and continuing until the
Liquidity Ratio is at least 2.25 to 1.00 for two (2) consecutive
months.

     

     

    
      
         

      

      
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    (b)           Deliver
to Bank, within five (5) days after filing, all reports on Form 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission or a link thereto on
Borrower’s or another website on the Internet.

     

    (c)           Give
Bank prompt written notice of (i) any material change in the composition of the
intellectual property, (ii) the registration of any copyright, including any
subsequent ownership right of Borrower in or to any copyright, patent or
trademark not shown in the IP Security Agreement, or (iii) Borrower’s
knowledge of an event that materially adversely affects the value of the
intellectual property.

     

    6.3           Accounts
Receivable.

     

    (a)           Schedules and Documents
Relating to Accounts.
Borrower shall deliver to Bank Transaction Reports and schedules of
collections, as provided in Section 6.2, on Bank’s standard forms; provided, however, that
Borrower’s failure to execute and deliver the same shall not affect or limit
Bank’s Lien and other rights in all of Borrower’s Accounts, nor shall Bank’s
failure to advance or lend against a specific Account affect or limit Bank’s
Lien and other rights therein.  If requested by Bank, Borrower shall
furnish Bank with copies (or, at Bank’s request, originals) of all contracts,
orders, invoices, and other similar documents, and all shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Accounts.  In
addition, Borrower shall deliver to Bank, on its request, the originals of all
instruments, chattel paper, security agreements, guarantees and other documents
and property evidencing or securing any Accounts, in the same form as received,
with all necessary indorsements, and copies of all credit memos.

     

    (b)           Disputes.  Borrower
shall promptly notify Bank of all disputes or claims relating to Accounts in
excess of Fifty Thousand Dollars ($50,000).  Borrower may forgive
(completely or partially), compromise, or settle any Account for less than
payment in full, or agree to do any of the foregoing so long as
(i) Borrower does so in good faith, in a commercially reasonable manner, in
the ordinary course of business, in arm’s-length transactions, and reports the
same to Bank in the regular reports provided to Bank; (ii) no Default or
Event of Default has occurred and is continuing; and (iii) after taking
into account all such discounts, settlements and forgiveness, the total
outstanding Advances will not exceed the lesser of the Revolving Line or the
Borrowing Base.

     

    (c)           Collection of
Accounts.  Borrower shall have the right to collect all
Accounts, unless and until a Default or an Event of Default has occurred and is
continuing.  Whether or not an Event of Default has occurred and is
continuing, Borrower shall hold all payments on, and proceeds of, Accounts in
trust for Bank, and Borrower shall immediately deliver all such payments and
proceeds to Bank in their original form, duly endorsed, to be applied to the
Obligations pursuant to the terms of Section 9.4 hereof.

     

    (d)           Returns.  Provided no
Event of Default has occurred and is continuing, if any Account Debtor returns
any Inventory to Borrower, Borrower shall promptly (i) determine the reason
for such return, (ii) issue a credit memorandum to the Account Debtor in
the appropriate amount, and (iii) provide a copy of such credit memorandum
to Bank, upon request from Bank.  In the event any attempted return
occurs after the occurrence and during the continuance of any Event of Default,
Borrower shall hold the returned Inventory in trust for Bank,
and immediately notify Bank of the return of the Inventory.

     

    (e)           Verification.  Bank may, from
time to time, verify directly with the respective Account Debtors the validity,
amount and other matters relating to the Accounts, either in the name of
Borrower or Bank or such other name as Bank may choose.

     

    (f)           No Liability.  Bank shall not
be responsible or liable for any shortage or discrepancy in, damage to, or loss
or destruction of, any goods, the sale or other disposition of which gives rise
to an Account, or for any error, act, omission, or delay of any kind occurring
in the settlement, failure to settle, collection or failure to collect any
Account, or for settling any Account in good faith for less than the full amount
thereof, nor shall Bank be deemed to be responsible for any of Borrower's
obligations under any contract or agreement giving rise to an
Account.  Nothing herein shall, however, relieve Bank from liability
for its own gross negligence or willful misconduct.

     

     

    
      
         

      

      
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    6.4           Remittance of
Proceeds.  Except as otherwise provided in Section 6.3(c),
deliver, in kind, all proceeds arising from the disposition of any Collateral to
Bank in the original form in which received by Borrower not later than the
following Business Day after receipt by Borrower, to be applied to the
Obligations pursuant to the terms of Section 9.4 hereof; provided that, if no
Default or Event of Default has occurred and is continuing, Borrower shall not
be obligated to remit to Bank the proceeds of the sale of worn out or obsolete
Equipment disposed of by Borrower in good faith in an arm’s length
transaction.  Borrower agrees that it will not commingle proceeds of
Collateral with any of Borrower’s other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for Bank.  Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.

     

    6.5           Inventory;
Returns.  Keep all Inventory in good and marketable condition,
free from material defects, except for wear and tear in the ordinary course of
Borrower’s business.  Returns and allowances between Borrower and its
Account Debtors shall follow Borrower’s customary practices as they exist at the
Effective Date.

     

    6.6           Access to Collateral; Books and
Records.   At reasonable times, on three (3) Business
Day’s notice (provided no notice is required if an Event of Default has occurred
and is continuing), Bank, or its agents, shall have the right to inspect the
Collateral and the right to audit and copy Borrower’s Books.  Such
audits shall be conducted no more often than once every six (6) months, except
that if an Event of Default has occurred and is continuing, such audits shall be
conducted as frequently as Bank, in its sole discretion, deems
appropriate.   The foregoing inspections and audits shall be at
Borrower’s expense, and the charge therefor shall be $750 per person per day (or
such higher amount as shall represent Bank’s then-current standard charge for
the same), plus reasonable out-of-pocket expenses, but except for the Initial
Audit, Borrower shall not be obligated to pay audit fees in excess of Six
Thousand Dollars ($6,000) each year with respect to audits conducted when no
Event of Default exists.  In the event Borrower and Bank schedule an
audit more than ten (10) days in advance, and Borrower cancels or seeks to
reschedules the audit with less than ten (10) days written notice to Bank, then
(without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a
fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate
Bank for the anticipated costs and expenses of the cancellation or
rescheduling.

     

    6.7           Taxes;
Pensions.  Timely file, and require each of its Subsidiaries to
timely file, all required tax returns and reports and timely pay, and require
each of its Subsidiaries to timely file, all material foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower and
each of its Subsidiaries, except for deferred payment of any taxes contested
pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on
demand, appropriate certificates attesting to such payments, and pay all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms.

     

    6.8           Insurance.  Keep its
business and the Collateral insured for risks and in amounts standard for
companies in Borrower’s industry and location and as Bank may reasonably
request.  Insurance policies shall be in a form, with companies, and
in amounts that are satisfactory to Bank.  All property policies shall
have a lender’s loss payable endorsement showing Bank as lender loss payee and
waive subrogation against Bank, and all liability policies shall show, or have
endorsements showing, Bank as an additional insured.  All policies (or
the loss payable and additional insured endorsements) shall provide that the
insurer shall endeavor to give Bank at least twenty (20) days notice before
canceling, amending, or declining to renew its policy.  At Bank’s
request, Borrower shall deliver certified copies of policies and evidence of all
premium payments.  After the occurrence and during the continuance of
an Event of Default, proceeds payable under any policy shall, at Bank’s option,
be payable to Bank on account of the Obligations.  If Borrower fails
to obtain insurance as required under this Section 6.8 or to pay any amount
or furnish any required proof of payment to third persons and Bank, Bank may
make all or part of such payment or obtain such insurance policies required in
this Section 6.8, and take any action under the policies Bank deems
prudent.

     

    6.9           Operating
Accounts.

     

    (a)           Maintain
its primary and its Subsidiaries’ primary operating and other deposit accounts
and securities accounts with Bank and Bank’s Affiliates which accounts shall
represent at least 75% of the dollar value of Borrower’s and such Subsidiaries
accounts at all financial institutions.    Borrower
shall maintain at least Two Million Dollars ($2,000,000) at all times in a sweep
account with Bank (the “Sweep
Account”).

     

     

    
      
         

      

      
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    (b)           Provide
Bank five (5) days prior written notice before establishing any Collateral
Account at or with any bank or financial institution other than Bank or Bank’s
Affiliates  For each Collateral Account that Borrower at any time
maintains, Borrower shall cause the applicable bank or financial institution
(other than Bank) at or with which any Collateral Account is maintained to
execute and deliver a Control Agreement or other appropriate instrument with
respect to such Collateral Account to perfect Bank’s Lien in such Collateral
Account in accordance with the terms hereunder.  The provisions of the
previous sentence shall not apply to deposit accounts exclusively used for
payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of Borrower’s employees and identified to Bank by Borrower as such
or accounts with a balance of less than Twenty-Five Thousand Dollars ($25,000)
individually and less than One Hundred Thousand Dollars ($100,000) in the
aggregate.

     

    6.10           Financial
Covenants.

     

    Borrower
shall maintain, on a consolidated basis with respect to Borrower and its
Subsidiaries:

     

    (a)           Liquidity
Ratio.  At all times, a Liquidity Ratio of at least 1.50 to
1.00.

     

    (b)           Tangible Net
Worth.  At all times, to be tested as of the last day of each
month, a Tangible Net Worth of at least the following.

     

    
      	
              Period

            	
              Minimum
      Tangible Net Worth

            
	
              Effective
      Date through March 31, 2009

            	
              $6,500,000

            
	
              April
      1, 2009 through June 30, 2009

            	
              $5,000,000
      plus the Adjustment Amount

            
	
              July
      1, 2009 through the Maturity Date

            	
              $3,000,000
      plus the Adjustment Amount

            
	 	 


    

    For
purposes of determining compliance with this Section 6.10(b) as of the last day
of a month, Tangible Net Worth shall be increased by the cash proceeds of equity
issuances by Borrower that close within fifteen (15) days after such day,
provided that such cash proceeds are not less than Three Million Dollars
($3,000,000).

     

    6.11           Protection and Registration of
Intellectual Property Rights.  Borrower shall:  (a)
use commercially reasonable efforts to protect, defend and maintain the validity
and enforceability of its intellectual property; (b) promptly advise Bank in
writing of material infringements of its intellectual property; and (c) not
allow any intellectual property material to Borrower’s business to be abandoned,
forfeited or dedicated to the public without Bank’s written
consent.  If Borrower (i) obtains any patent, registered trademark or
servicemark, registered copyright, registered mask work, or any pending
application for any of the foregoing, whether as owner, licensee or otherwise,
or (ii) applies for any patent or the registration of any trademark or
servicemark, then Borrower shall promptly provide written notice thereof to Bank
and shall execute such intellectual property security agreements and other
documents and take such other actions as Bank shall request in its good faith
business judgment to perfect and maintain a first priority perfected security
interest in favor of Bank in such property.  If Borrower decides to
register any copyrights or mask works in the United States Copyright Office,
Borrower shall: (x) provide Bank with at least fifteen (15) days prior
written notice of Borrower’s intent to register such copyrights or mask works
together with a copy of the application it intends to file with the United
States Copyright Office (excluding exhibits thereto); (y) execute an
intellectual property security agreement and such other documents and take such
other actions as Bank may request in its good faith business judgment to perfect
and maintain a first priority perfected security interest in favor of Bank in
the copyrights or mask works intended to be registered with the United States
Copyright Office; and (z) record such intellectual property security
agreement with the United States Copyright Office contemporaneously with filing
the copyright or mask work application(s) with the United States Copyright
Office.  Borrower shall promptly provide to Bank copies of all
applications that it files for patents or for the registration of trademarks,
servicemarks, copyrights or mask works, together with evidence of the recording
of the intellectual property security agreement necessary for Bank to perfect
and maintain a first priority perfected security interest in such
property.

     

     

    
      
         

      

      
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    6.12           Litigation
Cooperation.  From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.

     

    6.13           Further
Assurances.  Execute any further instruments and take further
action as Bank reasonably requests to perfect or continue Bank’s Lien in the
Collateral or to effect the purposes of this Agreement.  Deliver to
Bank, within five
(5) Business Days after the same are sent or received, copies of all
correspondence, reports, documents and other filings with any Governmental
Authority regarding compliance with or maintenance of Governmental Approvals or
Requirements of Law or that could reasonably be expected to have a material
effect on any of the Governmental Approvals or otherwise on the operations of
Borrower or any of its Subsidiaries.

     

    7           NEGATIVE
COVENANTS

     

    Borrower
shall not do any of the following without Bank’s prior written
consent:

     

    7.1           Dispositions.  Convey,
sell, lease, transfer or otherwise dispose of (collectively, “Transfer”), or permit any of
its Subsidiaries to Transfer, all or any part of its business or property,
except for Transfers (a) of Inventory in the ordinary course of business;
(b) of worn-out or obsolete Equipment; (c) in connection with Permitted Liens
and Permitted Investments; (d) issuance and Transfer of shares of capital stock
of Borrower in capital raising transactions approved by Borrower’s Board of
Directors; and (e) other Transfers of assets (other than Accounts) not otherwise
permitted under this Section 7.1, provided that the aggregate book value of all
such Transfers does not exceed Twenty-Five Thousand Dollars ($25,000) in any
fiscal year.

     

    7.2           Changes in Business; Change in
Control; Jurisdiction of Formation.  Engage in any material
line of business other than those lines of business conducted by Borrower and
its Subsidiaries on the date hereof and any businesses reasonably related,
complementary or incidental thereto or reasonable extensions thereof; permit or suffer any
Change in Control.  Borrower shall not, without at least thirty (30)
days prior written notice to Bank: (1) change its jurisdiction of organization,
(2) change its organizational structure or type, (3) change its legal name,
or (4) change any organizational number (if any) assigned by its
jurisdiction of organization; provided, however, that Borrower may change its
jurisdiction of organization within less than thirty (30) days of the Effective
Date, without giving thirty (30) days’ prior notice, so long as Borrower gives
Bank notice of the change as soon as possible and in any event within five (5)
Business Days of its occurrence.  Borrower shall not add any new
offices or business locations, including warehouses (unless such new offices or
business locations contain less than Twenty-Five Thousand Dollars ($25,000) in
Borrower’s assets or property), unless Borrower provides written notice of such
new location within five (5) Business Days thereafter.

     

    7.3           Mergers or
Acquisitions.  Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any Person other than with Borrower
or any Subsidiary, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of a Person other than (i)
stock or property of Borrower or any Subsidiary, (ii) a Permitted Investment, or
(iii) an acquisition where (a) total consideration including cash and the value
of any non-cash consideration, for all such transactions does not in the
aggregate exceed Five Hundred Thousand Dollars ($500,000) in any fiscal year of
Borrower; (b) no Event of Default has occurred and is continuing or would
exist after giving effect to the transactions; and (c) Borrower is the surviving
legal entity.  A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower..

     

    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, allow, or suffer 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, permit any Collateral not
to be subject to the first priority security interest granted herein, or enter
into any agreement, document, instrument or other arrangement (except with or in
favor of Bank) with any Person which directly or indirectly prohibits or has the
effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging,
pledging, granting a security interest in or upon, or encumbering any of
Borrower’s or any Subsidiary’s

     

     

    
      
         

      

      
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    intellectual
property, except as is otherwise permitted in Section 7.1 hereof and the
definition of “Permitted Lien” herein.

     

    7.6           Maintenance of Collateral
Accounts.  Maintain any Collateral Account except pursuant to
the terms of Section 6.9(b) hereof.

     

    7.7           Distributions;
Investments.  (a) Pay any dividends or make any distribution or
payment or redeem, retire or purchase any capital stock other than Permitted
Distributions; or (b) directly or indirectly acquire or own any Person, or make
any Investment in any Person, other than Permitted Investments, or permit any of
its Subsidiaries to do so.

     

    7.8           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 (when viewed in the context of any series of transactions
of which it may be a part, if applicable) that are no less favorable to Borrower
than would be obtained in an arm’s length transaction with a non-affiliated
Person; or (b) transactions among Borrower and its Subsidiaries and among
Borrower’s Subsidiaries so long as no Event of Default exists or could result
therefrom.

     

    7.9           Subordinated
Debt.  (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any
provision in any document relating to the Subordinated Debt which would increase
the amount thereof or adversely affect the subordination thereof to Obligations
owed to Bank.

     

    7.10           Compliance.  Become
an “investment company” or a company controlled by an “investment company”,
under the Investment Company Act of 1940, as amended, or undertake as one of its
important activities extending credit to purchase or carry margin stock (as
defined in Regulation U of the Board of Governors of the Federal Reserve
System), 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 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 permit any of its Subsidiaries to do so; withdraw or
permit any Subsidiary to withdraw from participation in, permit partial or
complete termination of, or permit the occurrence of any other event with
respect to, any present pension, profit sharing and deferred compensation plan
which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.

     

    8           EVENTS OF
DEFAULT

     

    Any one
of the following shall constitute an event of default (an “Event of Default”) under this
Agreement:

     

    8.1           Payment
Default.  Borrower fails to (a) make any payment of
principal or interest on any Credit Extension on its due date, or (b) pay
any other Obligations within three (3) Business Days after such Obligations are
due and payable (which three (3) day grace period shall not apply to payments
due on the Maturity Date).  During the cure period, the failure to
cure the payment default is not an Event of Default (but no Credit Extension
will be made during the cure period);

     

    8.2           Covenant Default.

     

    (a)           Borrower
fails or neglects to perform any obligation in Sections 6.2, 6.7, 6.8, 6.9 or
6.10 or violates any covenant in Section 7; or

     

    (b)           Borrower
fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement or any Loan
Documents, and as to any default (other than those specified in this Section 8)
under such other term, provision, condition, covenant or agreement that can
be

     

     

    
      
         

      

      
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    cured,
has failed to cure the default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to cure the default shall not
be deemed an Event of Default (but no Credit Extensions shall be made during
such cure period).  Grace periods provided under this section shall
not apply, among other things, to financial covenants or any other covenants set
forth in subsection (a) above;

     

    8.3           Material Adverse
Change.  A Material Adverse Change occurs;

     

    8.4           Attachment; Levy; Restraint on
Business.  (a) (i) The service of process seeking to attach, by
trustee or similar process, any funds of Borrower or of any entity under control
of Borrower (including a Subsidiary) on deposit with Bank or any Bank Affiliate,
or (ii) a notice of lien, levy, or assessment is filed against any of Borrower’s
assets by any government agency, and the same under subclauses (i) and (ii)
hereof are not, within ten (10) days after the occurrence thereof, discharged or
stayed (whether through the posting of a bond or otherwise); provided, however,
no Credit Extensions shall be made during any ten (10) day cure period; and (b)
(i) any material portion of Borrower’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver, or (ii) any court order
enjoins, restrains, or prevents Borrower from conducting any part of its
business;

     

    8.5           Insolvency.  (a)
Borrower is unable to pay its debts (including trade debts) as they become due
or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or
(c) an Insolvency Proceeding is begun against Borrower and not dismissed or
stayed within forty-five (45) days (but no Credit Extensions shall be made while
of any of the conditions described in clause (a) exist and/or until any
Insolvency Proceeding is dismissed);

     

    8.6           Other
Agreements.  There is a default in any agreement to which
Borrower or any Guarantor is a party with a third party or parties resulting in
a right by such third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness (other than a Publisher Guarantee) in an amount
in excess of Fifty Thousand Dollars ($50,000) or that could have a material
adverse effect on Borrower’s or any Guarantor’s business; there is a default in
any Publisher Guarantee resulting in the acceleration the maturity of the
Indebtedness thereunder in an amount in excess of Fifty Thousand Dollars
($50,000);

     

    8.7           Judgments.  One or
more judgments, orders, or decrees for the payment of money in an amount,
individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000)
(not covered by independent third-party insurance as to which liability has been
accepted by such insurance carrier) shall be rendered against Borrower and shall
remain unsatisfied, unvacated, or unstayed for a period of ten (10) days after
the entry thereof (provided that no Credit Extensions will be made prior to the
satisfaction, vacation, or stay of such judgment, order, or
decree);

     

    8.8           Misrepresentations.  Borrower
or any Person acting for Borrower makes any representation, warranty, or other
statement now or later in this Agreement, any Loan Document or in any writing
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document, and such representation, warranty, or other statement is incorrect in
any material respect when made;

     

    8.9           Subordinated
Debt.  A default or breach occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination,
intercreditor, or other similar agreement with Bank, or any creditor that has
signed such an agreement with Bank breaches any terms of such agreement;
or

     

    8.10           Guaranty.  (a) Any
guaranty of any Obligations terminates or ceases for any reason to be in full
force and effect; (b) any Guarantor does not perform any obligation or covenant
under any guaranty of the Obligations; (c) any circumstance described in
Sections 8.4, 8.5, 8.7, or 8.8 occurs with respect to any Guarantor,
(d) the death, liquidation, winding up, or termination of existence of any
Guarantor; or (e) (i) a material impairment in the perfection or
priority of Bank’s Lien in the collateral provided by Guarantor or in the value
of such collateral or (ii)] a material adverse
change in the general affairs, management, results of operation, condition
(financial or otherwise) or the prospect of repayment of the Obligations occurs
with respect to any Guarantor.

     

     

    
      
         

      

      
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    9           BANK’S RIGHTS AND
REMEDIES

     

    9.1           Rights and
Remedies.  While 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);

     

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

     

    (c)           terminate
any FX Forward Contracts;

     

    (d)           settle
or adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, notify any Person owing Borrower
money of Bank’s security interest in such funds, and verify the amount of such
account;

     

    (e)           make
any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral.  Borrower
shall assemble the Collateral if Bank requests 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;

     

    (f)           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;

     

    (g)           ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral.  Bank is hereby 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;

     

    (h)           place
a “hold” on any account maintained with Bank and/or deliver a notice of
exclusive control, any entitlement order, or other directions or instructions
pursuant to any Control Agreement or similar agreements providing control of any
Collateral;

     

    (i)           demand
and receive possession of Borrower’s Books; and

     

    (j)           exercise
all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of
the Collateral pursuant to the terms thereof).

     

    9.2           Power of
Attorney.  Borrower hereby irrevocably appoints Bank as its
lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to:  (a) endorse Borrower’s name
on any checks or other forms of payment or security; (b) sign Borrower’s name on
any invoice or bill of lading for any Account or drafts against Account Debtors;
(c) settle and adjust disputes and claims about the Accounts directly with
Account Debtors, for amounts and on terms Bank determines reasonable; (d) make,
settle, and adjust all claims under Borrower’s insurance policies; (e) pay,
contest or settle any Lien, charge, encumbrance, security interest, and adverse
claim in or to the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; and (f) transfer the Collateral
into the name of Bank or a third party as the Code permits.  Borrower
hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on
any documents necessary to perfect or continue the perfection of Bank’s security
interest in the Collateral regardless of whether an

     

     

    
      
         

      

      
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    Event of
Default has occurred until all Obligations have been satisfied in full and Bank
is under no further obligation to make Credit Extensions
hereunder.  Bank’s foregoing 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           Protective
Payments.  If Borrower fails to obtain the insurance called for
by Section 6.8 or fails to pay any premium thereon or fails to pay any other
amount which Borrower is obligated to pay under this Agreement or any other Loan
Document, Bank may obtain such insurance or make such payment, and all amounts
so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest applicable rate, and secured by the
Collateral.  Bank will make reasonable efforts to provide Borrower
with notice of Bank obtaining such insurance at the time it is obtained or
within a reasonable time thereafter.  No payments by Bank are deemed
an agreement to make similar payments in the future or Bank’s waiver of any
Event of Default.

     

    9.4           Application of Payments and
Proceeds.  Borrower shall have no right to specify the order or
the accounts to which Bank shall allocate or apply any payments required to be
made by Borrower to Bank or otherwise received by Bank under this Agreement when
any such allocation or application is not specified elsewhere in this
Agreement.  If an Event of Default has occurred and is continuing,
Bank may apply any funds in its possession, whether from Borrower account
balances, payments, proceeds realized as the result of any collection of
Accounts or other disposition of the Collateral, or otherwise, to the
Obligations in such order as Bank shall determine in its sole
discretion.  Any surplus shall be paid to Borrower by credit to the
Designated Deposit Account or other Persons legally entitled thereto; Borrower
shall remain liable to Bank for any deficiency.  If Bank, in its good
faith business judgment, directly or indirectly enters into a deferred payment
or other credit transaction with any purchaser at any sale of Collateral, Bank
shall have the option, exercisable at any time, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Bank of cash
therefor.

     

    9.5           Bank’s Liability for
Collateral.  So long as Bank complies with reasonable banking
practices regarding the safekeeping of the Collateral in the possession or under
the control of Bank, Bank shall not be liable or responsible 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.  Borrower bears all
risk of loss, damage or destruction of the Collateral.

     

    9.6           No Waiver; Remedies
Cumulative.  Bank’s failure, at any time or times, to require
strict performance by Borrower of any provision of this Agreement or any other
Loan Document shall not waive, affect, or diminish any right of Bank thereafter
to demand strict performance and compliance herewith or therewith.  No
waiver hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it is
given.  Bank’s rights and remedies under this Agreement and the other
Loan Documents 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 in exercising any remedy is not
a waiver, election, or acquiescence.

     

    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, consents, requests, approvals, demands, or other communication
(collectively, “Communication”), other than
Advance requests made pursuant to Section 3.4, by any party to this Agreement or
any other Loan Document must be in writing and be delivered or sent by facsimile
at the addresses or facsimile numbers listed below.  Bank or Borrower
may change its notice address by giving the other party written notice
thereof.  Each such Communication shall be deemed to have been validly
served, given, or delivered: (a) upon the earlier of actual receipt and three
(3) Business Days after deposit in the U.S. mail, registered or certified mail,
return receipt requested, with proper postage prepaid; (b) upon transmission,
when sent by facsimile transmission (with such facsimile promptly confirmed by
delivery of a copy by personal delivery or United States mail as
otherwise

     

     

    
      
         

      

      
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    provided
in this Section 10); (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address or facsimile number indicated
below.  Advance requests made pursuant to Section 3.4 must be in
writing and may be in the form of electronic mail, delivered to Bank by Borrower
at the e-mail address of Bank provided below and shall be deemed to have been
validly served, given, or delivered when sent (with such electronic mail
promptly confirmed by delivery of a copy by personal delivery or United States
mail as otherwise provided in this Section 10).  Bank or Borrower may
change its address, facsimile number, or electronic mail address by giving the
other party written notice thereof in accordance with the terms of this
Section 10.

     

    If to
Borrower:      Betawave Corporation

    706 Mission Street, 10th
Floor

    San Francisco, CA 94103

    Attn:  Tabreez Verjee,
President

    Fax:  415-692-8206

    Email:  tabreez@betawave.com

    


    With a
copy to:    Betawave Corporation

    706 Mission Street, 10th
Floor

    San Francisco, CA 94103

    Attn:  David
Lorie

    Fax:  415-692-8206

    Email:  dlorie@betawave.com

    


    If to
Bank:             
Silicon Valley Bank

    185 Berry Street

    Lobby 1, Suite 3000

    San Francisco,
CA  94107

    Attn:  Mike Meier,
Relationship Manager

    Fax:  415-856-0810

    Email:  mmeier@svb.com

    


    11           CHOICE OF LAW, VENUE, JURY
TRIAL WAIVER AND JUDICIAL REFERENCE

     

    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 Santa Clara County, California; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank.  Borrower
expressly submits and consents in advance to such jurisdiction in any action or
suit commenced in any such court, and Borrower hereby waives any objection that
it may have based upon lack of personal jurisdiction, improper venue, or forum
non conveniens and hereby consents to the granting of such legal or equitable
relief as is deemed appropriate by such court.  Borrower hereby waives
personal service of the summons, complaints, and other process issued in such
action or suit and agrees that service of such summons, complaints, and other
process may be made by registered or certified mail addressed to Borrower at the
address set forth in Section 10 of this Agreement and that service so made shall
be deemed completed upon the earlier to occur of Borrower’s actual receipt
thereof or three (3) days after deposit in the U.S. mails, proper postage
prepaid.

     

    TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, 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 AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER
WITH ITS COUNSEL.

     

     

    
      
         

      

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

     

    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 or obligations 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 and the other Loan Documents.

     

    12.2           Indemnification.  Borrower
agrees to indemnify, defend and hold Bank and its directors, officers,
employees, agents, attorneys, or any other Person affiliated with or
representing Bank (each, an “Indemnified Person”) harmless
against:  (a) all obligations, demands, claims, and liabilities
(collectively, “Claims”)
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
such Indemnified Person from, following, or arising from transactions between
Bank and Borrower (including reasonable attorneys’ fees and expenses), except
for Claims and/or losses directly caused by such Indemnified Person’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
Provisions.  Each provision of this Agreement is severable from
every other provision in determining the enforceability of any
provision.

     

    12.5           Correction of Loan
Documents.  Bank may correct patent errors and fill in any
blanks in this Agreement and the other Loan Documents consistent with the
agreement of the parties.

     

    12.6           Amendments in Writing;
Integration.  All amendments to this Agreement must be in
writing and signed by both Bank and Borrower.  This Agreement and the
Loan Documents represent the entire agreement about this subject matter and
supersede prior negotiations or agreements.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.

     

     

    
      
         

      

      
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    12.7           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.

     

    12.8           Survival.  All
covenants, representations and warranties made in this Agreement continue in
full force until this Agreement has terminated pursuant to its terms and all
Obligations (other than inchoate indemnity obligations and any other obligations
which, by their terms, are to survive the termination of this Agreement) have
been satisfied.  The obligation of Borrower in Section 12.2 to
indemnify Bank shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.

     

    12.9           Confidentiality.  In
handling any confidential information, Bank shall exercise the same degree of
care that it exercises for its own proprietary information, but disclosure of
information may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to
prospective transferees or purchasers (other than a competitor of Borrower) of
any interest in the Credit Extensions (provided, however, Bank shall use
commercially reasonable efforts to obtain such prospective transferee’s or
purchaser’s agreement to the terms of this provision); (c) as required by
law, regulation, subpoena, or other order; (d) to Bank’s regulators or as
otherwise required in connection with Bank’s examination or audit; (e) as Bank
considers appropriate in exercising remedies under the Loan Documents; and (f)
to third-party service providers of Bank so long as such service providers have
executed a confidentiality agreement with Bank with terms no less restrictive
than those contained herein.  Confidential information does not
include information that either: (i) 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 (ii) is disclosed to Bank by a third party, if Bank does
not know that the third party is prohibited from disclosing the
information.

     

    Bank may
use confidential information for any purpose, including, without limitation, for
the development of client databases, reporting purposes, and market analysis, so
long as Bank does not disclose Borrower’s identity or the identity of any person
associated with Borrower unless otherwise expressly permitted by this
Agreement.  The provisions of the immediately preceding sentence shall
survive the termination of this Agreement.

     

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

     

    13           DEFINITIONS

     

    13.1           Definitions.  As
used in this Agreement, the following terms have the following
meanings:

     

    “Account” is any “account” as
defined in the Code with such additions to such term as may hereafter be made,
and includes, without limitation, all accounts receivable and other sums owing
to Borrower.

     

    “Account Debtor” is any
“account debtor” as defined in the Code with such additions to such term as may
hereafter be made.

     

    “Adjustment Amount” means as of
any date the sum of (i) fifty percent (50%) of the Net Income for the period
commencing on April 1, 2009, and ending with the last day of the most recently
completed fiscal quarter (the “Adjustment Period”), (ii)
fifty percent (50%) of the cash proceeds that Borrower received from the
issuance of its equity securities during the Adjustment Period, and (iii) fifty
percent (50%) of the original principal amount of the Subordinated Debt incurred
and received by Borrower during the Adjustment Period.

     

    “Advance” or “Advances” means an advance (or
advances) under the Revolving Line.

     

    “Affiliate” of any 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.

     

     

    
      
         

      

      
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    “Agreement” is defined in the
preamble hereof.

     

    “Availability Amount” is (a)
the lesser of (i) the Revolving Line or (ii) the amount available under the
Borrowing Base minus (b) the
amount of all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) plus an amount equal to the Letter of Credit Reserve, minus (c) the FX
Reserve, minus
(d) any amounts used for Cash Management Services, and minus (e) the
outstanding principal balance of any Advances.

     

    “Bank” is defined in the
preamble hereof.

     

    “Bank Expenses” are all audit
fees and expenses, costs, and expenses (including reasonable attorneys’ fees and
expenses) for preparing, amending, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred in
connection with appeals or Insolvency Proceedings) or otherwise incurred with
respect to Borrower.

     

    “Borrower” is defined in the
preamble hereof

     

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

     

    “Borrowing Base” is (a) eighty
percent (80%) of Eligible Accounts, as determined by Bank from Borrower’s most
recent Transaction Report, plus (b) if Bank, in its sole discretion agrees to
include Extended Eligible Accounts in the Borrowing Base after completion of the
Initial Audit, sixty percent (60%) of Extended Eligible Accounts, as determined
by Bank from Borrower’s most recent Transaction Report; provided, however, that Bank
may decrease the foregoing percentages in its good faith business judgment based
on events, conditions, contingencies, or risks which, as determined by Bank, may
adversely affect Collateral.

     

     “Borrowing Resolutions” are,
with respect to any Person, those resolutions substantially in the form attached
hereto as Exhibit
D.

     

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

     

    “Cash Equivalents” means
(a) marketable direct obligations issued or unconditionally guaranteed by
the United States or any agency or any State thereof having maturities of not
more than one (1) year from the date of acquisition; (b) commercial paper
maturing no more than one (1) year after its creation and having the highest
rating from either Standard & Poor’s Ratings Group or Moody’s Investors
Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than
one (1) year after issue; and (d) money market funds at least ninety-five
percent (95%) of the assets of which constitute Cash Equivalents of the kinds
described in clauses (a) through (c) of this definition.

     

    “Change in Control” means any
event, transaction, or occurrence as a result of which (a) any “person” (as such
term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934, as an amended (the “Exchange Act”)), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
Borrower, is or becomes a beneficial owner (within the meaning Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
Borrower, representing forty percent (40%) or more of the combined voting power
of Borrower’s then outstanding securities; or (b) during any period of twelve
consecutive calendar months, individuals who at the beginning of such period
constituted the Board of Directors of Borrower (together with any new directors
whose election by the Board of Directors of Borrower was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason other than death or
disability to constitute a majority of the directors then in
office.

     

     “Code” is the Uniform
Commercial Code, as the same may, from time to time, be enacted and in effect in
the State of California; provided, that, to the extent that the Code is used to
define any term herein or in any Loan Document and such term is defined
differently in different Articles or Divisions of the Code, the definition of
such term contained in Article or Division 9 shall govern; provided further,
that in the event that, by reason of mandatory

     

     

    
      
         

      

      
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    provisions
of law, any or all of the attachment, perfection, or priority of, or remedies
with respect to, Bank’s Lien on any Collateral is governed by the Uniform
Commercial Code in effect in a jurisdiction other than the State of California,
the term “Code” shall
mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes on the provisions thereof relating to such
attachment, perfection, priority, or remedies and for purposes of definitions
relating to such provisions.

     

     “Collateral” is any and all
properties, rights and assets of Borrower described on Exhibit
A.

     

    “Collateral Account” is any
Deposit Account, Securities Account, or Commodity Account.

     

    “Commodity Account” is any
“commodity account” as defined in the Code with such additions to such term as
may hereafter be made.

     

    “Communication” is defined in
Section 10.

     

    “Compliance Certificate” is
that certain certificate in the form attached hereto as Exhibit
B.

     

    “Contingent Obligation” is, for
any Person, any direct or indirect liability, contingent or not, of that Person
for (a) 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; (b) any obligations for undrawn letters
of credit for the account of that Person; and (c) 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 any guarantee or
other support arrangement.

     

    “Control Agreement” is any
control agreement entered into among the depository institution at which
Borrower maintains a Deposit Account or the securities intermediary or commodity
intermediary at which Borrower maintains a Securities Account or a Commodity
Account, Borrower, and Bank pursuant to which Bank obtains control (within the
meaning of the Code) over such Deposit Account, Securities Account, or Commodity
Account.

     

    “Credit Extension” is any
Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash
Management Services, or any other extension of credit by Bank for Borrower’s
benefit.

     

    “Credit Party” means Borrower
and each of Borrower’s Subsidiaries.

     

    “Default Rate” is defined in
Section 2.3(b).

     

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

     

    “Deposit Account” is any
“deposit account” as defined in the Code with such additions to such term as may
hereafter be made.

     

    “Designated Deposit Account” is
Borrower’s deposit account, account number _____________, maintained with
Bank.

     

    “Dollars,” “dollars” and “$” each mean lawful money of
the United States.

     

    “Effective Date” is the date
Bank executes this Agreement as indicated on the signature page
hereof.

     

     

    
      
         

      

      
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    “Eligible Accounts” means
Accounts which arise in the ordinary course of Borrower’s business that meet all
Borrower’s representations and warranties in Section 5.3.  Bank
reserves the right at any time after the Effective Date to adjust any of the
criteria set forth below and to establish new criteria in its good faith
business judgment and will use reasonable efforts to notify Borrower of any such
adjustments or new criteria.  Eligible Accounts shall not
include:

     

    (a)           Accounts
owing from an Account Debtor that has not been invoiced or where goods or
services have not yet been rendered to the Account Debtor (sometimes called memo
billings or pre-billings);

     

    (b)           Accounts
that the Account Debtor has not paid within ninety (90) days of invoice date
regardless of invoice payment period terms;

     

    (c)           Accounts
owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have
not been paid within ninety (90) days of invoice date;

     

    (d)           Accounts
with credit balances over ninety (90) days from invoice date;

     

    (e)           Accounts
owing from an Account Debtor, including Affiliates, whose total obligations to
Borrower exceed twenty-five percent (25%) of all Accounts, for the amounts that
exceed that percentage, unless Bank approves in writing;

     

    (f)           Accounts
owing from an Account Debtor which does not have its principal place of business
in the United States or Canada unless such Accounts are otherwise Eligible
Accounts and (i) covered in full by credit insurance satisfactory to Bank, less
any deductible, (ii) supported by letter(s) of credit acceptable to Bank,
(iii) supported by a guaranty from the Export-Import Bank of the United
States, or (iv) that Bank otherwise approves of in writing.;

     

    (g)           Accounts
owing from an Account Debtor which is a federal, state or local government
entity or any department, agency, or instrumentality thereof except for Accounts
of the United States if Borrower has assigned its payment rights to Bank and the
assignment has been acknowledged under the Federal Assignment of Claims Act of
1940, as amended;

     

    (h)           Accounts
owing from an Account Debtor to the extent that Borrower is indebted or
obligated in any manner to the Account Debtor (as creditor, lessor, supplier or
otherwise - sometimes called “contra” accounts, accounts payable, customer
deposits or credit accounts), with the exception of customary credits,
adjustments and/or discounts given to an Account Debtor by Borrower in the
ordinary course of its business;

     

    (i)           Accounts
for demonstration or promotional equipment, or in which goods are consigned, or
sold on a “sale guaranteed”, “sale or return”, “sale on approval”, “bill and
hold” or other terms if Account Debtor’s payment may be
conditional;

     

    (j)           Accounts
for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;

     

    (k)           Accounts
in which the Account Debtor disputes liability or makes any claim (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of
business;

     

    (l)           Accounts
owing from an Account Debtor with respect to which Borrower has received
Deferred Revenue (but only to the extent of such Deferred Revenue);

     

    (m)           Accounts
subject to contractual arrangements between Borrower and an Account Debtor where
payments shall be scheduled or due according to completion or fulfillment
requirements where the Account Debtor has a right of offset for damages suffered
as a result of Borrower’s failure to perform in accordance with the

     

     

    
      
         

      

      
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    contract
(sometimes called contracts accounts receivable, progress billings, milestone
billings, or fulfillment contracts);

     

    (n)           Accounts
owing from an Account Debtor the amount of which may be subject to withholding
based on the Account Debtor’s satisfaction of Borrower’s complete performance
(but only to the extent of the amount withheld; sometimes called retainage
billings);

     

    (o)           Accounts
subject to trust provisions, subrogation rights of a bonding company, or a
statutory trust;

     

    (p)           Accounts
owing from an Account Debtor that has been invoiced for goods that have not been
shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have
entered into an agreement acceptable to Bank in its sole discretion wherein the
Account Debtor acknowledges that (i) it has title to and has ownership of the
goods wherever located, (ii) a bona fide sale of the goods has occurred, and
(iii) it owes payment for such goods in accordance with invoices from Borrower
(sometimes called “bill and hold” accounts);

     

    (q)           Accounts
that represent non-trade receivables or that are derived by means other than in
the ordinary course of Borrower’s business;

     

    (r)           Accounts
for which Borrower has permitted Account Debtor’s payment to extend beyond
ninety (90) days;

     

    (s)           Accounts
subject to chargebacks or others payment deductions taken by an Account Debtor
(but only to the extent the chargeback is determined invalid and subsequently
collected by Borrower); and

     

    (t)           Accounts
for which Bank in its good faith business judgment determines collection to be
doubtful.

     

    “Equipment” is all “equipment”
as defined in the Code with such additions to such term as may hereafter be
made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the
foregoing.

     

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

     

    “Event of Default” is defined
in Section 8.

     

    “Event of Loss” is defined in
Section 2.1.5(c).

     

    “Extended Eligible Accounts” means
Accounts that are Eligible Accounts, except for not they are not paid within one
hundred twenty (120) days of invoice date regardless of invoice payment
terms.

     

    “Foreign Currency” means lawful
money of a country other than the United States

     

    “Funding Date” is any date on
which a Credit Extension is made to or on account of Borrower which shall be a
Business Day.

     

    “FX Business Day” is any day
when (a) Bank’s Foreign Exchange Department is conducting its normal business
and (b) the Foreign Currency being purchased or sold by Borrower is available to
Bank from the entity from which Bank shall buy or sell such Foreign
Currency.

     

    “FX Forward Contract” is defined in Section
2.1.3.

     

    “FX Reduction Amount” is
defined in Section 2.1.3.

     

    “FX Reserve” is defined in Section
2.1.3.

     

     

    
      
         

      

      
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    “GAAP” is generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other Person as may be
approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.

     

    “General Intangibles” is all
“general intangibles” as defined in the Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work, whether published or unpublished, any patents, trademarks, service marks
and, to the extent permitted under applicable law, any applications therefor,
whether registered or not, any trade secret rights, including any rights to
unpatented inventions, payment intangibles, royalties, contract rights,
goodwill, franchise agreements, purchase orders, customer lists, route lists,
telephone numbers, domain names, claims, income and other tax refunds, security
and other deposits, options to purchase or sell real or personal property,
rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man,
property damage, and business interruption insurance), payments of insurance and
rights to payment of any kind.

     

    “Governmental Approval” is any
consent, authorization, approval, order, license, franchise, permit,
certificate, accreditation, registration, filing or notice, of, issued by, from
or to, or other act by or in respect of, any Governmental
Authority.

     

     “Governmental Authority” is any
nation or government, any state or other political subdivision thereof, any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities exchange
and any self-regulatory organization.

     

    “Guarantor” is any present or future
guarantor of the Obligations.

     

    “Indebtedness” is (a)
indebtedness for borrowed money or the deferred price of property or services,
such as 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.

     

    “Indemnified Person” is defined
in Section 12.2.

     

    “Initial Audit” is Bank’s
inspection of the Collateral and Borrower’s Books.

     

    “Insolvency Proceeding” is any
proceeding 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.

     

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

     

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

     

    “IP Agreement” is that certain
Intellectual Property Security Agreement executed and delivered by Borrower to
Bank dated as of the Effective Date.

     

    “Letter of Credit” means a
standby letter of credit issued by Bank or another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Bank as
set forth in Section [2.1.2].

     

     

    
      
         

      

      
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    “Letter of Credit Application”
is defined in Section 2.1.2(a).

     

    “Letter of Credit Reserve” has
the meaning set forth in Section 2.1.2(d).

     

    “Lien” is a claim, mortgage,
deed of trust, levy, charge, pledge, security interest or other encumbrance of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise against any property.

     

    “Liquidity Ratio” means the ratio of
Quick Assets to the Obligations under this Agreement.

     

    “Loan Documents” are,
collectively, this Agreement, the Warrant, the Perfection Certificate, the IP
Agreement, any note, or notes or guaranties executed by Borrower or any
Guarantor, and any other present or future agreement between Borrower any
Guarantor and/or for the benefit of Bank in connection with this Agreement, all
as amended, restated, or otherwise modified.

     

    “Material Adverse Change” is
(a) a material impairment in the perfection or priority of Bank’s Lien in the
Collateral or in the value of such Collateral; or (b) a material adverse change
in the business, operations, or financial condition of Borrower.

     

    “Maturity Date” is March 27,
2011.

     

    “Net Income” means, as
calculated on a consolidated basis for Borrower and its Subsidiaries for any
period as at any date of determination, the net profit (or loss), after
provision for taxes, of Borrower and its Subsidiaries for such period taken as a
single accounting period.

     

    “Obligations” are Borrower’s
obligation to pay when due any debts, principal, interest, Bank Expenses and
other amounts Borrower owes Bank now or later, whether under this Agreement, the
Loan Documents, or otherwise, including, without limitation, all obligations
relating to letters of credit (including reimbursement obligations for drawn and
undrawn letters of credit), cash management services, and foreign exchange
contracts, if any, and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower  assigned to
Bank, and the performance of Borrower’s duties under the Loan
Documents.

     

    “Operating Documents” are, for
any Person, such Person’s formation documents, as certified with the Secretary
of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and, (a) if such Person is a corporation,
its bylaws in current form, (b) if such Person is a limited liability company,
its limited liability company agreement (or similar agreement), and (c) if such
Person is a partnership, its partnership agreement (or similar agreement), each
of the foregoing with all current amendments or modifications
thereto.

     

    “Perfection Certificate” is
defined in Section 5.1.

     

    “Permitted Distributions”
means:

     

    (a)           purchases
of capital stock from former employees, consultants and directors pursuant to
repurchase agreements or other similar agreements in an aggregate amount not to
exceed One Hundred Thousand Dollars ($100,000) in any fiscal year provided that
at the time of such purchase no Default or Event of Default has occurred and is
continuing;

     

    (b)           distributions
or dividends consisting solely of Borrower's capital stock;

     

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

     

    (d)           purchases
of capital stock or options to acquire such capital stock with the proceeds
received from a substantially concurrent issuance of capital stock or
convertible securities;

     

     

    
      
         

      

      
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    (e)           purchases
of capital stock pledged as collateral for loans to employees;

     

    (f)           purchases
of capital stock in connection with the exercise of stock options or stock
appreciation rights by way of cashless exercise or in connection with the
satisfaction of withholding tax obligations;

     

    (g)           purchases
of fractional shares of capital stock arising out of stock dividends, splits or
combinations or business combinations;

     

    (h)           the
settlement or performance of such Person’s obligations under any equity
derivative transaction, option contract or similar transaction or combination of
transactions.

     

    “Permitted Indebtedness”
is:

     

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

     

    (b)           Indebtedness
existing on the Effective Date and shown on the Perfection
Certificate;

     

    (c)           Subordinated
Debt;

     

    (d)           unsecured
Indebtedness to trade creditors and with respect to surety bonds and similar
obligations incurred in the ordinary course of business;

     

    (e)           Indebtedness
incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;

     

    (f)           Indebtedness
consisting of interest rate, currency, or commodity swap agreements, interest
rate cap or collar agreements or arrangements designated to protect Borrower
against fluctuations in interest rates, currency exchange rates, or commodity
prices;

     

    (g)           Indebtedness
between Borrower and any of its Subsidiaries or among any of Borrower’s
Subsidiaries;

     

    (h)           Indebtedness
with respect to documentary letters of credit;

     

    (i)           capitalized
leases and purchase money Indebtedness not to exceed $100,000, in the aggregate
in any fiscal year secured by Permitted Liens;

     

    (j)           Indebtedness
of entities acquired in any permitted merger or acquisition
transaction;

     

    (k)           Indebtedness
under (i) any Publisher Guarantee in effect on the Effective Date, and (ii) any
Publisher Guarantee that becomes effective after the Effective Date, provided
that in the case of a Publisher Guarantee taking effect after the Effective Date
with aggregate potential payments in excess of Five Hundred Thousand Dollars
($500,000), Borrower’s Board of Directors, with the affirmative vote of at least
six (6) of its directors, has approved such Publisher Guarantee;

     

    (l)           Indebtedness
not otherwise permitted above which does not exceed Fifty Thousand Dollars
($50,000) in the aggregate in any fiscal year; and

     

    (m)           Refinanced,
replaced or extended Permitted Indebtedness, provided that the amount of such
Indebtedness is not increased except by an amount equal to a reasonable premium
or other reasonable amount paid in connection with such refinancing and by an
amount equal to any existing, but unutilized, commitment
thereunder.

     

     

    
      
         

      

      
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    “Permitted Investments” are:

     

    (a)           Investments
existing on the Effective Date;

     

    (b)           (i) marketable
direct obligations issued or unconditionally guaranteed by the United States or
its agencies or any State maturing within 1 year from its acquisition, (ii)
commercial paper maturing no more than 2 years 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 maturing no
more than 2 years after issue;

     

    (c)           Investments
approved by the Borrower’s Board of Directors or otherwise pursuant to a
Board-approved investment policy;

     

    (d)           Investments
in or to Borrower or any of its Subsidiaries;

     

    (e)           Investments
consisting of Collateral Accounts in the name of Borrower or any Subsidiary so
long as Bank has a first priority, perfected security interest in such
Collateral Accounts;

     

    (f)           Investments
consisting of extensions of credit to Borrower’s or its Subsidiaries’ customers
in the nature of accounts receivable, prepaid royalties or notes receivable
arising from the sale or lease of goods, provision of services or licensing
activities of Borrower;

     

    (g)           Investments
received in satisfaction or partial satisfaction of obligations owed by
financially troubled obligors;

     

    (h)           Investments
acquired in exchange for any other Investments in connection with or as a result
of a bankruptcy, workout, reorganization or recapitalization;

     

    (i)           Investments
acquired as a result of a foreclosure with respect to any secured
Investment;

     

    (j)           Investments
consisting of interest rate, currency, or commodity swap agreements, interest
rate cap or collar agreements or arrangements designated to protect a Person
against fluctuations in interest rates, currency exchange rates, or commodity
prices;

     

    (k)           Investments
consisting of Publisher Advances;

     

    (l)           Investments
consisting of the non-cash consideration received by Borrower or any Subsidiary
in connection with a Transfer permitted hereunder;

     

    (m)           Investments
consisting of loans and advances to employees in an aggregate amount not to
exceed One Hundred Thousand Dollars ($100,000); and

     

    (n)           Investments
not otherwise permitted by this definition so long as the aggregate amount of
such Investments does not exceed Fifty Thousand Dollars ($50,000) in any fiscal
year.

     

    “Permitted Liens”
are:

     

    (a)           (i)
Liens securing Permitted Indebtedness described under clause (b) of the
definition of “Permitted Indebtedness” or (ii) Liens 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, provided that no
notice of any such Lien has been filed or recorded under the Internal Revenue
Code of 1986, as amended, and the Treasury Regulations adopted
thereunder;

     

     

    
      
         

      

      
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    (c)           Liens
(including with respect to capital leases) (i) on property (including
accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof) acquired or held by Borrower or
its Subsidiaries incurred for financing such property (including accessions,
additions, parts, replacements, fixtures, improvements and attachments thereto,
and the proceeds thereof) other than Accounts and Inventory, or (ii) existing on
property (and accessions, additions, parts, replacements, fixtures, improvements
and attachments thereto, and the proceeds thereof) when acquired other than
Accounts and Inventory, if the Lien is confined to such property (including
accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof);

     

    (d)           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 must be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness it secures may not increase;

     

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

     

    (f)           non-exclusive
license of intellectual property granted to third parties in the ordinary course
of business, and licenses of intellectual property that could not result in a
legal transfer of title of the licensed property that may be exclusive in
respects other than territory and that may be exclusive as to territory only as
to discreet geographical areas outside of the United States;

     

    (g)           leases
or subleases granted in the ordinary course of Borrower’s business, including in
connection with Borrower’s leased premises or leased property;

     

    (h)           Liens
arising from attachments or judgments, orders, or decrees in circumstances not
constituting an Event of Default under Sections 8.4 and 8.7;

     

    (i)           Liens
in favor of other financial institutions arising in connection with Borrower’s
deposit or securities accounts held at such institutions;

     

    (j)           Liens
of carriers, warehousemen, suppliers, or other Persons that are possessory in
nature arising in the ordinary course of business so long as such Liens attach
only to Inventory, securing liabilities in the aggregate amount not to exceed
One Hundred Thousand Dollars ($100,000), and which are not delinquent or remain
payable without penalty or which are being contested in good faith and by
appropriate proceedings which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;

     

    (k)           Liens
to secure payment of workers’ compensation, employment insurance, old-age
pensions, social security and other like obligations incurred in the ordinary
course of business (other than Liens imposed by ERISA); and

     

    (l)           Liens
on the proceeds of an insurance policy securing the payment of financed
insurance premiums with respect to such policy.

     

    “Person” is any individual,
sole proprietorship, partnership, limited liability company, joint venture,
company, 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.

     

    “Prime Rate Formula” is defined
in Section 2.2(a).

     

    “Publisher Advances” means
advances made to certain customers of Borrower for prepaid
expenses.

     

     

    
      
         

      

      
        -29
-

        
          

        

      

      
         

      

    

     


    “Publisher Guarantees” means
revenue guaranties made by Borrower in favor of its customers consisting of
publishers, made in the ordinary course of business.

     

    “Quick Assets” is, on any date,
the sum of (i) Borrower’s consolidated, Unrestricted Cash (including cash in the
Sweep Account) and, without duplication, Cash Equivalents on deposit with Bank
and Affiliates of Bank, and (ii) the Availability Amount.

     

    “Unrestricted Cash” means all
cash and Cash Equivalents, as defined by GAAP, plus any other certificates of
deposit , treasury notes or investment funds with an initial maturity of less
than one (1) year, but shall exclude marketable equity securities and any cash
balances restricted in their use such that they cannot be used to satisfy the
Obligations if liquidated.

     

    “Registered Organization” is
any “registered organization” as defined in the Code with such additions to such
term as may hereafter be made

     

    “Requirement of Law” is as to
any Person, the organizational or governing documents of such Person, and any
law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

     

    “Reserves” means, as of any
date of determination, such amounts as Bank may from time to time establish and
revise in its good faith business judgment, reducing the amount of Advances and
other financial accommodations which would otherwise be available to Borrower
(a) to reflect events, conditions, contingencies or risks which, as determined
by Bank in its good faith business judgment, do or may adversely affect (i) the
Collateral or any other property which is security for the Obligations or its
value (including without limitation any increase in delinquencies of Accounts),
(ii) the assets, business or prospects of Borrower or any Guarantor, or (iii)
the security interests and other rights of Bank in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Bank's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Guarantor to Bank is or may have been incomplete,
inaccurate or misleading in any material respect; or (c) in respect of any state
of facts which Bank determines in good faith constitutes an Event of Default or
may, with notice or passage of time or both, constitute an Event of
Default.

     

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

     

    “Revolving Line” is an Advance
or Advances in an amount equal to Four Million Dollars
($4,000,000).

     

    “Securities Account” is any
“securities account” as defined in the Code with such additions to such term as
may hereafter be made.

     

    “Settlement Date” is defined in Section
2.1.3.

     

    “Subordinated Debt” is
(a) Indebtedness incurred by Borrower subordinated to Borrower’s
Indebtedness owed to Bank and which is reflected in a written agreement in a
manner and form reasonably acceptable to Bank and approved by Bank in writing,
and (b) to the extent the terms of subordination do not change adversely to
Bank, refinancings, refundings, renewals, amendments or extensions of any of the
foregoing.

     

    “Subsidiary” means, with
respect to any Person, any Person of which more than 50.0% of the voting stock
or other equity interests (in the case of Persons other than corporations) is
owned or controlled directly or indirectly by such Person or one or more of
Affiliates of such Person.

     

    “Sweep Account” is defined in
Section 6.9(a).

     

    “Tangible Net Worth” is, on any
date, the consolidated total assets of Borrower and its Subsidiaries minus (a) any amounts
attributable to (i) goodwill, (ii) intangible items including unamortized debt
discount and expense,

     

     

    
      
         

      

      
        -30
-

        
          

        

      

      
         

      

    

     


    patents,
trade and service marks and names, copyrights and research and development
expenses except prepaid expenses, (iii) notes, accounts receivable and other
obligations owing to Borrower from its officers or other Affiliates, and (iv)
reserves not already deducted from assets, minus (b) Total
Liabilities, plus (c) Subordinated
Debt.

     

    “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 of Subordinated Debt permitted by Bank to be paid by Borrower, but
excluding all other Subordinated Debt.

     

    “Transaction Report” is that
certain certificate in the form attached hereto as Exhibit
C.

     

    “Transfer” is defined in
Section 7.1.

     

    “Warrant” is that certain
Warrant to Purchase Stock, dated as of the Effective Date, executed by Borrower
in favor of Bank.

     

    


     

    [Signature page follows.]

     

     

    
      
         

      

      
        -31
-

        
          

        

      

      
         

      

    

     


    IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed as of the Effective
Date.

     

    BORROWER:

     

    BETAWAVE
CORPORATION

     

     

    By: 
/s/ Tabreez
Verjee

    
      

    

    Name:
Tabreez
Verjee

    Title:
President

     

     

    BANK:

     

    SILICON
VALLEY BANK

     

    By: 
/s/ Mike
Meier

    
      

    


    Name: 
Mike
Meier

    Title: 
Relationship
Manager

     

    Effective
Date:  March 27,
2009

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
A

    


    COLLATERAL

    


    The
Collateral consists of all of Borrower’s right, title and interest in and to the
following personal property:

     

    (a)           All
goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles, commercial tort claims, documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), securities, and all
other investment property, supporting obligations, and financial assets, whether
now owned or hereafter acquired, wherever located; and

     

    (b)           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, attachments,
accessories, accessions and improvements to and replacements, products, proceeds
and insurance proceeds of any or all of the foregoing.

     

    The
foregoing notwithstanding, the Collateral does not include more than sixty five
percent (65%) of the presently existing and hereafter arising issued and
outstanding shares of capital stock owned by Borrower of any Subsidiary
organized or formed in a non-U.S. jurisdiction which shares entitle the holder
thereof to vote for directors or any other matter

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    EXHIBIT
B

    


    COMPLIANCE
CERTIFICATE

    


    TO:          
SILICON VALLEY BANK

    FROM:     BETAWAVE
CORPORATION

    Date:  ________________

    


    The
undersigned authorized officer of Betawave Corporation (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the “Agreement”), (1) Borrower is in complete compliance for
the period ending _______________ with all required covenants except as noted
below, (2) there are no Events of Default, (3) all representations and
warranties in the Agreement are true and correct in all material respects on
this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of
the Agreement, and (5) no Liens have been levied or claims made against Borrower
or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to
Bank.  Attached are the required documents supporting the
certification.  The undersigned certifies that these are prepared in
accordance with GAAP consistently applied from one period to the next except as
explained in an accompanying letter or footnotes.  The undersigned
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.  Capitalized terms used but not otherwise
defined herein shall have the meanings given them in the Agreement.

     

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

            
	 
      
	
              Reporting
      Covenant

            	
              Required

            	
              Complies

            
	 
      	 
      	 
      
	
              Monthly
      financial statements with

              Compliance
      Certificate, Publisher Guarantees and Publisher Advances

            	
              Monthly
      within 20 days

            	
              Yes   No

            
	
              Annual
      financial statement (CPA Audited) + CC

            	
              FYE
      within 180 days

            	
              Yes   No

            
	
              10-Q,
      10-K and 8-K

            	
              Within
      5 days after filing with SEC

            	
              Yes   No

            
	
              Transaction
      Report

            	
              Monthly
      within 30 days

            	
              Yes   No

            
	
              Annual
      financial projections

            	
              Within
      30 days prior to fiscal year commencement

            	
              Yes   No

            
	 
      
	
              The
      following intellectual property was registered after the Effective Date
      (if no registrations, state “None”)

              ____________________________________________________________________________

               

            


    

    


    
      	
              Financial
      Covenant

            	
              Required

            	
              Actual

            	
              Complies

            
	 
      	 
      	 
      	 
      
	
              Maintain:

            	 
      	 
      	 
      
	
              At
      all Times, Minimum Liquidity Ratio

            	
              1.50:1.00

            	
              _____:1.00

            	
              Yes   No

            
	
              At
      all Times, Minimum Deposit in Sweep Account

            	
              $2,000,000

            	
              $________

            	
              Yes   No

            
	
              On
      a Monthly Basis, Minimum Tangible Net Worth

            	
              $_______

            	
              $_______

            	
              Yes   No

            


    

    


    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    The following financial covenant
analyses and information set forth in Schedule 1 attached hereto are true and
accurate as of the date of this Certificate.

    


    The following are the exceptions with
respect to the certification above:  (If no exceptions exist, state
“No exceptions to note.”)

     

    
      

    

    
      

    

    
      

    

    
      
 

    

    
      	
              BETAWAVE
      CORPORATION

               

               

              By: 
      _________________________

              Name:
      _______________________

              Title:
      ________________________

               

            	
              BANK
      USE ONLY

               

              Received
      by: _____________________

              authorized
      signer

              Date: 
      _________________________

               

              Verified: 
      ________________________

              authorized
      signer

              Date: 
      _________________________

               

              Compliance
      Status:    
      Yes     No

            


    

    


    


    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Schedule 1 to Compliance
Certificate

    


    Financial Covenants of
Borrower

    


    NOTE –
some values for the calculations below refer to lines in other financial
covenant calculations.  If the financial covenants with lines that
serve as cross-references are not going to be measured (and are therefore not
included in this schedule), then the drafter will have to insert the appropriate
formulas in the financial covenants that are measured rather than just relying
on cross-references.

    


    Dated:  
____________________

    


    In the
event of a conflict between this Schedule and the Loan Agreement, the terms of
the Loan Agreement shall govern.

    


    Dated: 
____________________

    


    I.           Liquidity Ratio (Section
6.10(a))

     

    Required:                      1.50:1.00

    


    Actual:

    


    
      	
              A.

            	
              Aggregate
      value of the unrestricted cash and Cash Equivalents of Borrower and its
      Subsidiaries at Bank and Affiliates of Bank

            	
              $
      _____

            
	
              B.

            	
              Availability
      Amount

            	
              $
      _____

            
	
              C.

            	
              Quick
      Assets (the sum of lines A and B)

            	
              $
      _____

            
	
              D.

            	
              Aggregate
      value of Obligations to Bank

            	
              $
      _____

            
	
              E.

            	
              Liquidity
      Ratio (line C divided by line D)

            	 _____


    

    


    Is line E
equal to or greater than 1.50:1:00?

    


        ______ 
No, not in compliance                    ______ Yes, in
compliance

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    


    II.           Tangible Net Worth (Section
6.10(b))

    


    Required:    $_________

    


    Actual:

    


    
      	
              A.

            	
              Aggregate
      value of liabilities that should, under GAAP, be classified as liabilities
      on Borrower’s consolidated balance sheet, including all
      Indebtedness

            	
              $
      _____

            
	
              B.

            	
              Aggregate
      value of Indebtedness of Borrower subordinated to Borrower’s Indebtedness
      to Bank

            	
              $
      _____

            
	
              C.

            	
              Debt
      (line A minus line B)

            	
              $
      _____

            
	
              D.

            	
              Aggregate
      value of total assets of Borrower and its Subsidiaries

            	
              $
      _____

            
	
              E.

            	
              Aggregate
      value of goodwill of Borrower and its Subsidiaries

            	
              $
      _____

            
	
              F.

            	
              Aggregate
      value of intangible assets of Borrower and its Subsidiaries and of
      obligations owed by Affiliates of Borrower and its Subsidiaries to
      Borrower and its Subsidiaries

            	
              $
      _____

            
	
              G.

            	
              Aggregate
      value of any reserves not already deducted from assets

            	
              $
      _____

            
	
              H.

            	
              Value
      of line II.C

            	
              $
      _____

            
	
              I.

            	
              Tangible
      Net Worth (line D minus line E minus line F minus line G minus line
      H)

            	
              $
      _____

            
	
              J.

            	
              50%
      of Net Income for Fiscal Quarters completed since March 31,
      2009

            	
              $
      _____

            
	
              K.

            	
              50%
      of proceeds of Equity Issuances during Fiscal Quarters completed since
      March 31, 2009

            	
              $
      _____

            
	
              L.

            	
              50%
      of principal amount of Subordinated Debt incurred during
      the  Fiscal Quarters completed since March 31,
    2009

            	
              $
      _____

            
	
              M.

            	
              Sum
      of line J, line K and line L

            	
              $
      _____

            


    

    Is line I
equal to or greater than the sum of (i) $_____ and (ii) Line M?

    


            ______ No, not in
compliance                    ______ Yes, in
compliance

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    


    EXHIBIT
C

     

    TRANSACTION
REPORT

     

    [EXCEL
spreadsheet to be provided separately from lending officer]

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
D

    


    BORROWING
RESOLUTIONS