Exhibit 10.1





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 HEALTH GRADES, INC., a Delaware
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, Bank shall
make Advances not exceeding the Availability Amount. Amounts borrowed hereunder may be repaid and,
prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and
conditions precedent herein.



(b) Termination; Repayment. The Revolving Line terminates on the Revolving Line
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 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 and any Letter of Credit Reserve) may
not exceed the lesser of (i) the Availability Amount or (ii) One Million Dollars ($1,000,000). If,
on the Revolving Line 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. As of the Effective Date, Borrower has an existing Letter of Credit in the
amount of $45,000 which shall be considered subject to this Section 2.1.2 but which shall be also
subject to the terms and conditions as presently existing under its respective Letter of Credit
Application.


 


 









 





(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.



2.1.3 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 equal to the lesser of (i) the
Availability Amount or (ii) One Million Dollars ($1,000,000) (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.



2.1.4 Cash Management Services Sublimit. Borrower may use up to the lesser of (i) the
Availability Amount or (ii) One Million Dollars ($1,000,000) of the Revolving Line 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. All existing Cash Management Services as of
the Effective Date shall be subject to this Section 2.1.4.



2.2 Overadvances. If, at any time, the sum of (a) the outstanding principal amount of any
Advances (including any amounts used for Cash Management Services), plus (b) the face amount of any
outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve), plus (c) the FX Reduction Amount exceeds the lesser of either the Revolving Line
or the Borrowing Base, Borrower shall immediately pay to Bank in cash such excess.




2.3 Payment of Interest on the Credit Extensions.



(a) Interest Rate — Advances. Subject to Section 2.3(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to
the greater of (i) 0.50 percentage points above the Prime Rate or (ii) 5.0% which interest shall be
payable monthly in accordance with Section 2.3(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 five percentage
points above the rate that is otherwise applicable thereto (the “Default Rate”). Payment or
acceptance of the increased interest rate provided in this Section 2.3(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.


 


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(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 [_____]
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. 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.




2.4 Fees. Borrower shall pay to Bank:



(a) Commitment Fee. A fully earned, non-refundable commitment fee equal to one half
of one percent (0.50%) of the Revolving Line, on the Effective Date; and



(b) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line Facility
Fee”), payable quarterly, in arrears, on a calendar year basis, in an amount equal to one quarter
of one percent (0.25%) per annum of the average unused portion of the Revolving Line, as determined
by Bank. The unused portion of the Revolving Line, for the purposes of this calculation, shall
include amounts reserved under the Cash Management Services Sublimit for products provided and
under the Foreign Exchange Sublimit for FX Forward Contracts to the extent such amounts are not
treated as Advances pursuant to Section 2.1.3 or 2.1.4 hereof. 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 the Agreement or the suspension or
termination of Bank’s obligation to make loans and advances hereunder; and



(c) 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.




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) duly executed original signatures to the Control Agreement[s];



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




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



(e) 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;


 


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



(g) a Securities Account Control Agreement for any accounts in Borrower’s name with SVB
Securities;




(h) Letter Acknowledgment from Subsidiary’s Landlord regarding Borrower’s guaranty;



(i) evidence satisfactory to Bank that the insurance policies required by Section 6.5 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; and




(j) payment of the fees and Bank Expenses then due as specified in Section 2.4 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(a), timely receipt of an executed
Payment/Advance Form;



(b) the representations and warranties in Section 5 shall be true in all material respects on
the date of the Payment/Advance Form 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 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 any material impairment in the general
affairs, management, results of operation, financial condition or the prospect of repayment of the
Obligations, or there has not been any material adverse deviation by Borrower from the most recent
business plan of Borrower presented to and accepted by Bank. If any event, condition, circumstance
or other factor (collectively, “Circumstances”) exists or does not exist whose existence or
non-existence serves as justification under Section 3.2(c) for Bank’s refusal to make a requested
Credit Extension, the existence or non-existence of such Circumstance shall not constitute an Event
of Default under Section 8 unless it independently constitutes an Event of Default pursuant to
another provision of this Agreement, including, without limitation, Section 8.3 hereof.




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.


 


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3.4 Procedures for Borrowing.



(a) Advances. 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 2.1.2 or 2.1.4), 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 any such
electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or
facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her
designee. Bank may rely on any telephone notice given by a person whom Bank believes is a
Responsible Officer or 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.




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 a commercial tort claim,
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 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.


 


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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 force and
effect (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 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. 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. 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 on Borrower’s business. Except as
noted on the Perfection Certificate, Borrower is not a party to, nor is bound by, any material
license or other agreement with respect to which Borrower is the licensee (a) that prohibits or
otherwise restricts Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property, or (b) for which a default under or termination of
could interfere with the Bank’s right to sell any Collateral. Borrower shall provide written
notice to Bank within ten (10) days of entering or becoming bound by any such license or agreement
(other than over-the-counter software that is commercially available to the public). Borrower
shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for (x) all such licenses or agreements to be deemed “Collateral”
and for Bank to have a security interest in it that might otherwise be restricted or prohibited by
law or by the terms of any such license or agreement, whether now existing or entered into in the
future, and (y) Bank to have the ability in the event of a liquidation of any Collateral to dispose
of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other
Loan Documents.



5.3 Accounts Receivable; Inventory. For any Eligible Account in any Borrowing Base
Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and
other documents evidencing such Eligible Accounts are and shall be true and correct and all such
invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all
respects what they purport to be. Whether or not an Event of Default has occurred and is
continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s security interest in
such funds and verify the amount of such Eligible Account. All sales and other transactions
underlying or giving rise to each Eligible Account shall comply in all material respects with all
applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or
imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any
Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures and endorsements
on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and
all such documents, instruments and agreements are legally enforceable in accordance with their
terms.


 


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5.4 Litigation. Other than as set forth 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 One Hundred Fifty Thousand
Dollars ($150,000).



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.
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 foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. 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 Borrower’s acquisitions and to fund its general business requirements and
not for personal, family, household or agricultural purposes.



5.12 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. 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.




6.2 Financial Statements, Reports, Certificates.



(a) Deliver to Bank: (i) as soon as available, but no later than thirty (30) days after the
last day of each month, a company prepared consolidated balance sheet and income statement covering
Borrower’s and each of its Subsidiary’s operations for such month certified by a Responsible
Officer and in a form consistent with past practices; (ii) as soon as available, but no later than
five (5) days after filing with the Securities Exchange Commission, Borrower’s 10K, 10Q, and 8K
reports; (iii) a Compliance Certificate together with delivery of the 10K and 10Q reports; (iii) as
reasonably requested by Bank after the end of each fiscal year, annual financial projections for
the following fiscal year (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; (iv) a prompt report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $150,000 or
more; and (v) budgets, sales projections, operating plans or other financial information Bank
reasonably requests.



Borrower’s 10K, 10Q, and 8K reports required to be delivered pursuant to Section 6.2(a)(ii)
shall be deemed to have been delivered on the date on which Borrower posts such report or provides
a link thereto on Borrower’s or another website on the Internet; provided, that Borrower
shall provide paper copies to Bank of the Compliance Certificates required by Section 6.2(a)(iii).



(b) Within thirty (30) days after the last day of each month when borrowing or using the
sublimits set forth in Sections 2.1.2, 2.1.3, or 2.1.4, deliver to Bank a duly completed Borrowing
Base Certificate signed by a Responsible Officer, with aged listings of accounts receivable and
accounts payable (by invoice date).



(c) Within thirty (30) days after the last day of each month, deliver to Bank its monthly
financial statements together with a duly completed Compliance Certificate signed by a Responsible
Officer setting forth calculations showing compliance with the financial covenants set forth in
this Agreement.



(d) Allow Bank to audit Borrower’s Collateral at Borrower’s expense. Such audits shall be
conducted no more often than once every twelve (12) months unless an Event of Default has occurred
and is continuing. Notwithstanding the above, Bank shall not require an audit of Borrower’s
Collateral as long as the total of all outstanding Advances does not exceed $2,500,000 and no Event
of Default has occurred and is continuing.



6.3 Inventory; Returns. Keep all Inventory in good and marketable condition, free from
material defects. Returns and allowances between Borrower and its Account Debtors shall follow
Borrower’s customary practices as they exist at the Effective Date. Borrower must promptly notify
Bank of all returns, recoveries, disputes and claims that involve more than One Hundred Fifty
Thousand Dollars ($150,000).



6.4 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 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.


 


8









 





6.5 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 an additional 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. Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account
of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred
and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy
up to Twenty-Five Thousand Dollars ($25,000) with respect to any loss, but not exceeding Fifty
Thousand Dollars ($50,000) in the aggregate for all losses under all casualty policies in any one
year, toward the replacement or repair of destroyed or damaged property; provided that any such
replaced or repaired property (i) shall be of equal or like value as the replaced or repaired
Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority
security interest, and (b) after the occurrence and during the continuance of an Event of Default,
all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on
account of the Obligations. If Borrower fails to obtain insurance as required under this
Section 6.4 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 6.4, and take any action under the policies Bank deems prudent. Such other insurance
against risks of loss and with terms as shall be reasonably required by Bank.




6.6 Operating Accounts.



(a) Maintain its and its Subsidiaries’ primary operating and other deposit accounts and
securities accounts with Bank and Bank’s Affiliates which accounts shall represent at least 85% of
the dollar value of Borrower’s and such Subsidiaries accounts at all financial institutions;
provided, Borrower’s Subsidiary, Healthcare Credit Solutions, LLC shall be permitted to maintain
its accounts nos. 457000466158 and 004680701534 with Bank of America.



(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.




6.7 Financial Covenants.



Borrower shall maintain at all times, to be tested as of the last day of month, unless
otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries:



(a) Adjusted Quick Ratio. A ratio of Quick Assets to Current Liabilities minus
Deferred Revenue of at least 1.5 to 1.0.



(b) Minimum Operating Income. As of the last day of each quarter, Borrower’s
Operating Income (as defined under GAAP) for such quarter shall be no less than $500,000 for the
first quarter of fiscal year 2009, and $1,200,000 for each subsequent quarter thereafter.


 


9









 





6.8 Protection and Registration of Intellectual Property Rights. Borrower shall: (a)
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 immediately
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.



6.9 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.



6.10 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.




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; and (c) in connection with Permitted Liens and Permitted Investments.



7.2 Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or
permit any of its Subsidiaries to engage in any business other than the businesses currently
engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b)
liquidate or dissolve; or (c)  permit or suffer any Change in Control. Borrower shall not, without
at least thirty (30) days prior written notice to Bank: (1) add any new offices or business
locations, including warehouses (unless such new offices or business locations contain less than
Ten Thousand Dollars ($10,000) in Borrower’s assets or property), (2) change its jurisdiction of
organization, (3) change its organizational structure or type, (4) change its legal name, or
(5) change any organizational number (if any) assigned by its jurisdiction of organization.



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 Borrower or any Subsidiary, except where no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement, and (a) Borrower is
the surviving entity or (b) such merger or consolidation is a Transfer otherwise permitted pursuant
to Section 7.1 hereof.



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


 


10









 





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 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 6.6.(b) hereof.



7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock provided that Borrower may repurchase the stock
pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time
of such repurchase and would not exist after giving effect to such repurchase; or (b) directly or
indirectly make any Investment 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 cure period shall not apply to
payments due on the Revolving Line 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);


 


11









 






8.2 Covenant Default.



(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7,
6.8 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 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 material 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 thirty (30) 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 in an amount in excess of
Two Hundred Fifty Thousand Dollars ($250,000) or that could have a material adverse effect on
Borrower’s or any Guarantor’s business.



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 One Hundred Fifty Thousand Dollars ($150,000)
(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; or



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.


 


12









 






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) demand that Borrower (i) deposits cash with Bank in an amount equal to the aggregate
amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any
future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the
remaining term of any Letters of Credit;




(d) terminate any FX Forward Contracts;



(e) 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;



(f) 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;



(g) 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;



(h) 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 and exercisable upon the occurrence and during the continuance
of an Event of Default. 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;



(i) 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;




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



(k) 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
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.


 


13









 





9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5
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 applicable rate provided herein, 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 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 by any party to
this Agreement or any other Loan Document must be in writing and 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, first class, registered or certified mail return receipt
requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (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, facsimile number, or email
address indicated below. Bank or Borrower may change its mailing or electronic mail address or
facsimile number by giving the other party written notice thereof in accordance with the terms of
this Section 10.


 


14









 





	 	 	 	 	 
	 

	 	If to Borrower:
	 	HEALTH GRADES, INC.
	 

	 	 	 	500 Golden Ridge Road, Suite 100
	 

	 	 	 	Golden, CO 80401
	 

	 	 	 	Fax: 303-716-0041
	 

	 	 	 	Email: adodge@healthgrades.com
	 
	 	 	 	 
	 

	 	If to Bank:
	 	Silicon Valley Bank
	 

	 	 	 	380 Interlocken Crescent. Suite 600
	 

	 	 	 	Broomfield, Colorado 80021
	 

	 	 	 	Attn: Bret Turner
	 

	 	 	 	Fax: (303) 469-9088
	 

	 	 	 	Email: bturner@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.



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.


 


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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.



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
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.


 


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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.




“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.




“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, provided, however, Borrower shall be permitted to
request Advances up to $2,500,000 prior to Bank’s receipt of its initial Collateral Audit and
provided Borrower’s unrestricted cash balances at Bank or Bank’s Affiliates are equal to or in
excess of $5,000,000.




“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 80% of Eligible Accounts, as determined by Bank from Borrower’s most
recent Borrowing Base Certificate; provided, however, that Bank may decrease the foregoing
percentage in its good faith business judgment based on events, conditions, contingencies, or risks
which, as determined by Bank, may adversely affect Collateral.


 


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“Borrowing Base Certificate” is that certain certificate in the form attached hereto as
Exhibit D.



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




“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.; and (c) Bank’s certificates of deposit issued maturing no more
than one (1) year after issue.




“Cash Management Services” is defined in Section 2.1.4.



“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 twenty-five percent (25%) or more of the combined voting power of Borrower’s
then outstanding securities; or (b) during any period of twelve consecutive calendar months,
individuals who at the beginning of such period constituted the Board of Directors of Borrower
(together with any new directors whose election by the Board of Directors of Borrower was approved
by a vote of at least two-thirds of the directors then still in office who either were directions
at the beginning of such period or whose election or nomination for election was previously so
approved) cease for any reason other than death or disability to constitute a majority of the
directors then in office.



“Code” 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 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.




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



“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.


 


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“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.



“Current Liabilities” are all obligations and liabilities of Borrower to Bank, plus, without
duplication, the aggregate amount of Borrower’s Total Liabilities that mature within one (1) year.




“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 3300364046,
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.



“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. Eligible Accounts shall not include:



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



(b) 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;



(c) Accounts billed in the United States and 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;



(d) Accounts billed and payable outside of the United States unless the Bank has a first
priority, perfected security interest or other enforceable Lien in such Accounts;



(e) 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;



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



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


 


19









 





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



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



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



(k) 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);



(l) Accounts subject to contractual arrangements between Borrower and an Account Debtor where
payments shall be scheduled or due according to completion or fulfillment requirements where the
Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to
perform in accordance with the contract (sometimes called contracts accounts receivable, progress
billings, milestone billings, or fulfillment contracts);



(m) 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);



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



(o) 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);




(p) Accounts for which the Account Debtor has not been invoiced;



(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 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);



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



(u) 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.


 


20









 






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




“Event of Default” is defined in Section 8.




“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.



“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.



“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.



“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.


 


21









 





“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 April
 _____, 2009.



“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.




“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.



“Loan Documents” are, collectively, this Agreement, the Perfection Certificate, the IP
Agreement, the Subordination Agreement, any note, or notes or guaranties executed by Borrower and
any other present or future agreement between Borrower 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; (b) a material adverse change in the
business, operations, or condition (financial or otherwise) of Borrower; or (c) a material
impairment of the prospect of repayment of any portion of the Obligations.



“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.



“Other Equipment” is leasehold improvements, intangible property such as computer software and
software licenses, equipment specifically designed or manufactured for Borrower, other intangible
property, limited use property and other similar property and soft costs approved by Bank,
including taxes, shipping, warranty charges, freight discounts and installation expenses.




“Payment/Advance Form” is that certain form attached hereto as Exhibit B.




“Perfection Certificate” is defined in Section 5.1.




“Permitted Indebtedness” is:




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



(b) Subordinated Debt;




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


 


22









 





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



(e) Indebtedness in an aggregate principal amount not to exceed $150,000 secured by Permitted
Liens;



(f) Indebtedness of Borrower to any Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of Borrower (provided that the primary obligations are not prohibited
hereby), and Indebtedness of any Subsidiary to Borrower in an aggregate principal amount not to
exceed $150,000 or any other Subsidiary and Contingent Obligations of any Subsidiary with respect
to obligations of any other Subsidiary (provided that the primary obligations are not prohibited
hereby); and



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




“Permitted Investments” are:




Investments shown on the Perfection Certificate and existing on the Effective Date;




(a) Cash Equivalents;



(b) Investments consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;



(c) Investments consisting of deposit accounts in which Bank has a perfected security
interest;




(d) Investments accepted in connection with Transfers permitted by Section 7.1;



(e) All Investments of Borrower or any Subsidiary in or to any Subsidiary as of the date
hereof, and all Investments by Borrower or any Subsidiary in or to any future Subsidiaries not to
exceed $600,000 in the aggregate in any fiscal year;



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



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



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


 


23









 






“Permitted Liens” are:



(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising
under this Agreement and the 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;



(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing
the acquisition of the Equipment securing no more than $50,000 in the aggregate amount outstanding,
or (ii) existing on Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment;



(d) 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 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;



(e) 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);



(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited
to the property encumbered by the existing Lien and the principal amount of the indebtedness may
not increase;



(g) 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;



(h) 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;



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



(j) Liens in favor of other financial institutions arising in connection with Borrower’s
deposit and/or securities accounts held at such institutions, provided that Bank has a perfected
security interest in the amounts held in such deposit and/or securities accounts.



“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.



“Quick Assets” is, on any date, Borrower’s consolidated, unrestricted cash and Cash
Equivalents, net billed accounts receivable and investments with maturities of fewer than 12 months
determined according to GAAP.



“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.


 


24









 





“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 Five Million Dollars
($5,000,000).




“Revolving Line Maturity Date” is April
 _____, 2011.



“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.



“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.




“Transfer” is defined in Section 7.1.




“Unused Revolving Line Facility Fee” is defined in Section 2.4(b).



(Signature page follows)




 


25









 







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



	 	 	 	 	 
	BORROWER:	 	 
	 
	 	 	 	 
	HEALTH GRADES, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Allen Dodge
 

Name: Allen Dodge
	 	 
	 

	 	Title: Executive Vice President and Chief Financial Officer	 	 
	 
	 	 	 	 
	BANK:	 	 
	 
	 	 	 	 
	SILICON VALLEY BANK	 	 
	 
	 	 	 	 
	By:

	 	/s/ Bret J. Turner
 

Name: Bret J. Turner
	 	 
	 

	 	Title: Relationship Manager	 	 
	 
	 	 	 	 
	Effective Date: April 13, 2009	 	 





 


26









 





EXHIBIT
A — COLLATERAL DESCRIPTION




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



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



All 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.


 


1









 





EXHIBIT B – LOAN PAYMENT/ADVANCE REQUEST FORM

Deadline for same day processing is Noon P.S.T.




	 	 	 
	Fax To:                                                                  
                                          

	 	Date:                                                             






Loan Payment:




HEALTH GRADES, INC.




	 	 	 	 	 	 	 
	From Account #

	 	 	 	To Account #	 	 
	 

	 	 
	 	 	 	 
	 

	 	(Deposit Account #)
	 	 	 	(Loan Account #)
	Principal $

	 	 	 	and/or Interest $	 	 
	 

	 	 
	 	 	 	 






	 	 	 	 	 	 	 
	Authorized Signature:

	 	 	 	Phone Number:	 	 
	 

	 	 
	 	 	 	 
	Print Name/Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 






Loan Advance:




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



	 	 	 	 	 	 	 
	From Account #

	 	 	 	To Account #	 	 
	 

	 	 
	 	 	 	 
	 

	 	(Loan Account #)
	 	 	 	(Deposit Account #)
	Amount of Advance $
	 	 	 	 	 	 
	 

	 	 	 	 	 	 






All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct
and complete in all material respects on the date of the request for an advance; provided, however,
that such materiality qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and provided, further that
those representations and warranties expressly referring to a specific date shall be true, accurate
and complete in all material respects as of such date:



	 	 	 	 	 	 	 
	Authorized Signature:

	 	 	 	Phone Number:	 	 
	 

	 	 
	 	 	 	 
	Print Name/Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 






Outgoing Wire Request:


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

Deadline for same day processing is noon, P.S.T.




	 	 	 	 	 	 	 
	Beneficiary Name:

	 	 	 	Amount of Wire: $	 	 
	 

	 	 
	 	 	 	 
	Beneficiary Bank:

	 	 	 	Account Number:	 	 
	 

	 	 
	 	 	 	 
	City and State:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 






	 	 	 	 	 	 	 
	Beneficiary Bank Transit (ABA) #:

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

	 	 
	 	 	 	 
	 

	 	 	 	(For
International Wire Only)
	 	 






	 	 	 	 	 	 	 
	Intermediary Bank:

	 	 	 	Transit (ABA) #:	 	 
	 

	 	 
	 	 	 	 
	For Further Credit to:
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	Special Instruction:
	 	 	 	 	 	 
	 	 	 






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



	 	 	 	 	 	 	 
	Authorized Signature:

	 	 	 	2nd Signature (if required):	 	 
	 

	 	 
	 	 	 	 
	Print Name/Title:

	 	 	 	Print Name/Title:	 	 
	 

	 	 
	 	 	 	 
	Telephone #:

	 	 	 	Telephone #:	 	 
	 

	 	 
	 	 	 	 






 


1









 







EXHIBIT C




BORROWING RESOLUTIONS









CORPORATE BORROWING CERTIFICATE




	 	 	 	 	 	 	 
	Borrower:

	 	Health Grades, Inc.
	 	Date: April
 _____, 2009
	 	 
	Bank:

	 	Silicon Valley Bank	 	 	 	 






I hereby certify as follows, as of the date set forth above:



1. I am the Secretary, Assistant Secretary or other officer of the Borrower. My title is as set
forth below.



2. Borrower’s exact legal name is set forth above. Borrower is a corporation existing under the
laws of the State of Delaware.



3. Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of
Incorporation (including amendments), as filed with the Secretary of State of the state in which
Borrower is incorporated as set forth in paragraph 1 above. Such Articles/Certificate of
Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in
full force and effect as of the date hereof.



4. The following resolutions were duly and validly adopted by Borrower’ s Board of Directors at a
duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized
corporate action). Such resolutions are in full force and effect as of the date hereof and have
not been in any way modified, repealed, rescinded, amended or revoked, and Bank may rely on them
until Bank receives written notice of revocation from Borrower.



Resolved, that any one of the following officers or employees of Borrower, whose names,
titles and signatures are below, may act on behalf of Borrower:



	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Authorized to Add	 
	 	 	 	 	 	 	 	 	 	 	or Remove	 
	Name	 	Title	 	 	Signature	 	 	Signatories	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	                                                        
	 	 	                                                        	 	 	 	                                                        	 	 	Yes  No
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	                                                        
	 	 	                                                        	 	 	 	                                                        	 	 	Yes  No
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	                                                        
	 	 	                                                        	 	 	 	                                                        	 	 	Yes  No
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	                                                        
	 	 	                                                        	 	 	 	                                                        	 	 	Yes  No






Resolved Further, that any one of the persons designated above with a checked box beside
his or her name may, from time to time, add or remove any individuals to and from the above list of
persons authorized to act on behalf of Borrower.



Resolved Further, that such individuals may, on behalf of Borrower:



Borrow Money. Borrow money from Silicon Valley Bank (“Bank”).



Execute Loan Documents. Execute any loan documents Bank requires.



Grant Security. Grant Bank a security interest in any of Borrower’s assets.



Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other
indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds.



Letters of Credit. Apply for letters of credit from Bank.



Foreign Exchange Contracts. Execute spot or forward foreign exchange contracts.



Further Acts. Designate other individuals to request advances, pay fees and costs and execute
other documents or agreements (including documents or agreement that waive Borrower right to a jury
trial) they believe to be necessary to effectuate such resolutions.


 


1









 





Resolved Further, that all acts authorized by the above resolutions and any prior acts
relating thereto are ratified.



5. The persons listed above are Borrower’s officers or employees with their titles and signatures
shown next to their names.



	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 






	 	 	 
	*** 	 	If the Secretary, Assistant Secretary or other certifying officer executing above is
designated by the resolutions set forth in paragraph 4 as one of the authorized signing officers,
this Certificate must also be signed by a second authorized officer or director of Borrower.






I, the                                          of Borrower, hereby certify as to paragraphs 1 through 5
above, as of the date set forth
above.                [print title]







	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 







 


2









 







EXHIBIT D — BORROWING BASE CERTIFICATE




Borrower: HEALTH GRADES, INC.

Lender: Silicon Valley Bank

Commitment Amount: $5,000,000*




	 	 	 	 	 
	ACCOUNTS RECEIVABLE
	 	 	 	 
	1. Accounts Receivable (invoiced) Book Value as of
                    
	 	$	                    	 
	2. Additions (please explain on reverse)
	 	$	                    	 
	3. TOTAL ACCOUNTS RECEIVABLE
	 	$	                    	 
	 
	 	 	 	 
	ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
	 	 	 	 
	4. Amounts over 90 days due
	 	$	                    	 
	5. Balance of 50% over 90 day accounts
	 	$	                    	 
	6. Foreign Accounts
	 	$	                    	 
	7. Foreign Invoiced Accounts
	 	$	                    	 
	8. Contra/Customer Deposit Accounts
	 	$	                    	 
	9. Intercompany/Employee Accounts
	 	$	                    	 
	10. Credit balances over 90 days
	 	$	                    	 
	11. Concentration Limits
	 	$	                    	 
	12. U.S. Governmental Accounts
	 	$	                    	 
	13. Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale
Accounts
	 	$	                    	 
	14. Accounts with Progress/Milestone/Pre-billings; Contract Accounts
	 	$	                    	 
	15. Accounts for Retainage Billings
	 	$	                    	 
	16. Trust Accounts
	 	$	                    	 
	17. Bill and Hold Accounts
	 	$	                    	 
	18. Unbilled Accounts
	 	$	                    	 
	19. Non-Trade Accounts
	 	$	                    	 
	20. Accounts with Extended Term Invoices
	 	$	                    	 
	21. Accounts subject to Chargebacks
	 	$	                    	 
	22. Disputed Accounts
	 	$	                    	 
	23. Other (please explain on reverse)
	 	$	                    	 
	24. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
	 	$	                    	 
	25. Eligible Accounts (#3 minus #24)
	 	$	                    	 
	26. ELIGIBLE AMOUNT OF ACCOUNTS ( 80% of #25)
	 	$	                    	 
	 
	 	 	 	 
	BALANCES
	 	 	 	 
	27. Maximum Loan Amount
	 	$	5,000,000	 
	28. Total Funds Available [Lesser of #27 or #26]
	 	$	                    	 
	29. Present balance owing on Line of Credit
	 	$	                    	 
	30. Outstanding under Sublimits
	 	$	                    	 
	31. RESERVE POSITION (#28 minus #29 and #30)
	 	$	                    	 








	 	 	 
	*	 	provided, however, Borrower shall be permitted to request Advances up to $2,500,000 prior to
Bank’s receipt of its initial Collateral Audit and provided Borrower’s unrestricted cash balances at Bank or Bank’s
Affiliates are equal to or in excess of $5,000,000.





[Continued on following page.]




 


1









 







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



	 	 	 	 	 	 	 	 	 
	COMMENTS:	 	BANK USE ONLY	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Received by:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	authorized signer	 	 
	 
	 	 	 	Date:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Verified:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	authorized signer	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Authorized Signer	 	 	 	 	 	 
	Date

	 	:
	 	Date:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Compliance Status: Yes No
	 	 





 


2









 





EXHIBIT E — COMPLIANCE CERTIFICATE




			
	 	 	 
	TO: SILICON VALLEY BANK
	 	Date:                                         
	FROM: HEALTH GRADES, INC.	 	 






The undersigned authorized officer of Health Grades, Inc. (“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
	 	Monthly within 30 days	 	Yes No
	10-Q, 10-K w/ Compliance Certificate and 8-K
	 	Within 5 days after filing with SEC	 	Yes No
	Borrowing Base Certificate A/R & A/P Agings
	 	Monthly within 30 days when borrowing or utilizing sublimits	 	Yes No






The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”)



 




 




	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financial Covenant	 	Required	 	 	Actual	 	 	Complies	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Minimum Adjusted Quick Ratio (Monthly)
	 	 	1.50:1.0	 	 	 	_____:1.0	 	 	Yes No
	Minimum Operating Income (Quarterly)
	 	$	500,000	 	 	 	 	 	 	 	 	 
	 
	 	(1stFQ2009	)	 	 	 	 	 	 	 
	 
	 	$	1,200,000	 	 	 	 	 	 	 	 	 
	 
	 	(thereafter	)	 	$	                    	 	 	Yes No






 


1









 





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.”)



 




 




 




	 	 	 	 	 	 	 	 	 
	HEALTH GRADES, INC.	 	BANK USE ONLY	 	 
	 
	 

	 	 	 	Received by:	 	 	 	 
	
	 	 	 	 	 	 
	 	 
	By:
	 	 	 	 	 	authorized signer	 	 
	 

	 

	 	 	 		 	 
	 	Name: 

	 	 	Date:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 	Title: 
	 	 	Verified:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	authorized signer	 	 
	 

	 	 	 	Date:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	Compliance Status: Yes No	 	 






 


2









 





Schedule 1 to Compliance Certificate




Financial Covenants of Borrower




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



Dated:                                         



I. Adjusted Quick Ratio (Section 6.7(a))



Required: 1.50:1.00



Actual:



	 	 	 	 	 
	A. Aggregate value of the unrestricted cash and Cash Equivalents of Borrower and its
Subsidiaries
	 	$	                    	 
	 
	 	 	 	 
	B. Aggregate value of the net billed accounts receivable of Borrower and its Subsidiaries
	 	$	                    	 
	 
	 	 	 	 
	C. Aggregate value of the Investments with maturities of fewer than 12 months
of Borrower and it Subsidiaries
	 	$	                    	 
	 
	 	 	 	 
	D. Quick Assets (the sum of lines A through C)
	 	$	                    	 
	 
	 	 	 	 
	E. Aggregate value of Obligations to Bank
	 	$	                    	 
	 
	 	 	 	 
	F. Aggregate value of liabilities that should, under GAAP, be classified as liabilities
on Borrower’s consolidated balance sheet, including all Indebtedness, and not
otherwise reflected in line E above that matures within one (1) year
	 	$	                    	 
	 
	 	 	 	 
	G. Current Liabilities (the sum of lines E and F)
	 	$	                    	 
	 
	 	 	 	 
	H. Deferred Revenue
	 	$	                    	 
	 
	 	 	 	 
	I. Current Liabilities minus Deferred Revenue
	 	$	                    	 
	 
	 	 	 	 
	J. Adjusted Quick Ratio (line D divided by line I)
	 	 	                    	 






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



	 	 	 
	
 _____ 
No, not in compliance

	 	  
 _____ 
Yes, in compliance






II. Operating Income (Section 6.7(b))



	 	 	 
	Required: $500,000 (FQ1 2009), $1,200,000 (thereafter)






Actual:



	 	 	 	 	 
	A. Operating Income
	 	$	                    	 






Is line A equal to or greater than $500,000 (FQ1 2009), $1,200,000 (thereafter)?



	 	 	 
	
 _____ 
No, not in compliance  

	 	
 _____ 
 Yes, in compliance







 


3