Prepared and filed by St Ives Financials







AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT


THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective Date between SILICON VALLEY BANK, a California corporation (“Bank”), and MEDECISION, INC., a Pennsylvania corporation (“Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. 


Recitals


A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of July 2, 2002 (as amended from time to time by amendments between Bank and Borrower, the “Original Loan Agreement”). Pursuant to the Original Loan Agreement, Bank has agreed to make certain loans to Borrower as described therein, and other financial accommodations to Borrower. 


B. Borrower has requested, and Bank has agreed, to extend additional lines of credit and to amend and restate the Original Loan Agreement in its entirety. The parties hereby agree that the Original Loan Agreement is hereby amended and restated in its entirety as follows:


1.
  ACCOUNTING AND OTHER TERMS


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


2. LOAN AND TERMS OF PAYMENT


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


2.1.1
  Revolving Advances.


(a) Availability. Subject to the terms and conditions of this Agreement and to deduction of Reserves, Bank has made and will make Advances to Borrower up to an amount (“Net Borrowing Availability”) not to exceed the lesser of: (a) the Revolving Line; or (b) amounts available under the Borrowing Base.


(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. The face amount of outstanding Letters of Credit
  (including drawn but unreimbursed Letters of Credit) may not exceed, in the
  aggregate, Two Million Dollars ($2,000,000). Such aggregate amounts utilized
  hereunder shall at all times reduce the amount otherwise available for Advances
  under the Revolving Line. 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 one hundred percent (100%) of
  the face amount of all such Letters of Credit plus all interest, fees, and costs
  due or to become due in connection therewith (as estimated by Bank in its good
  faith business judgment), to secure all of the Obligations relating to said
  Letters of Credit. All Letters of Credit shall be in form and substance acceptable
  to Bank in its sole discretion and shall be subject to the terms and conditions
  of Bank’s standard Application and Letter of Credit Agreement (the “Letter
  of Credit Application”). Borrower agrees to execute
  any further documentation in connection with the Letters of Credit as Bank may
  reasonably request. Borrower further agrees to be bound by the regulations and
  interpretations of the issuer of any Letters of Credit guarantied by Bank and
  opened for Borrower’s account or by Bank’s interpretations of any
  Letter of Credit issued by Bank for Borrower’s account, and Borrower understands
  and agrees that Bank shall not be liable for any error, negligence, or mistake,
  whether of omission or commission, in following Borrower’s instructions
  or those contained in the Letters of Credit or any modifications, amendments,
  or supplements thereto.


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


2.1.3
  Equipment Loan.


Bank has made a loan to Borrower in the principal amount of Two Hundred Fifty Thousand Dollars ($250,000) (the “Equipment Loan”). Borrower has no offsets, defenses or set-offs to the payment of the Equipment Loan. Borrower acknowledges that the Equipment Loan has a principal outstanding balance as of September 1, 2006 of One Hundred Thousand ($100,000). The Equipment Loan continues to be payable in equal consecutive monthly installments of principal, plus monthly payments of accrued interest on the first (1st) day of each month, with a final payment of all unpaid principal and accrued and unpaid interest on October 1, 2007. 


2.1.4 Equipment Advances.


(a) Subject to the terms and conditions of this Agreement, during the Draw Period, Bank shall make advances (each, an “Equipment Advance” and, collectively, “Equipment Advances”) not exceeding the Equipment Line. Equipment Advances may only be used to finance Eligible Equipment purchased within ninety (90) days (determined based upon the applicable invoice date of such Eligible Equipment) before the date of each Equipment Advance; provided, however, that the initial Equipment Advance shall be in an amount of at least Two Hundred Fifty Thousand Dollars ($250,000) and such initial Equipment Advance shall be used to finance equipment purchased after January 31, 2006. No Equipment Advance may exceed the total invoice for Eligible
Equipment, excluding taxes, shipping, warranty charges, freight discounts and installation expenses relating to such Eligible Equipment. After repayment, no Equipment Advance may be reborrowed.



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(b) Repayment. Equipment Advances outstanding on the last day of any calendar quarter are payable in thirty (30) equal payments of principal plus interest beginning on the first (1st) day of the following month and continuing on the first (1st) day of each month thereafter. The final payment due on the applicable Equipment Maturity Date shall include all outstanding principal and all accrued unpaid interest.


(c)
  Prepayment Upon an Event of Loss.
  Borrower shall bear the risk of any loss, theft, destruction, or damage of or
  to the Financed Equipment. If, during the term of this Agreement, any item of
  Financed Equipment becomes obsolete or is lost, stolen, destroyed, damaged beyond
  repair, rendered permanently unfit for use, or seized by a governmental authority
  for any reason for a period equal to at least the remainder of the term of this
  Agreement (an “Event of Loss”),
  then, if no Event of Default has occurred or is continuing, within ten (10)
  days following such Event of Loss, at Borrower’s option, Borrower shall
  (i) pay to Bank on account of the Obligations all accrued interest to the date
  of the prepayment, plus all outstanding principal owing with respect to the
  Financed Equipment subject to the Event of Loss; or (ii) repair or replace any
  Financed Equipment subject to an Event of Loss provided
  the repaired or replaced Financed Equipment is of equal or like value to the
  Financed Equipment subject to an Event of Loss and provided
  further that Bank has a first priority perfected security
  interest in such repaired or replaced Financed Equipment. Bank agrees to release
  any proceeds from applicable insurance received by Bank on account of such Event
  of Loss to Borrower for application in accordance with the foregoing, provided,
  no Event of Default has occurred and is continuing at such time. 


2.2 Overadvances. If at any time or for any reason the total of all outstanding Advances and all other monetary Obligations exceeds Net Borrowing Availability (an “Overadvance”), Borrower shall immediately pay the amount of the excess to Bank, without notice or demand. Without limiting Borrower’s obligation to repay to Bank the amount of any Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.


2.3
  Payment of Interest on the Credit Extensions.


(a) Interest Rate.


(i)
  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 three-quarters of one percent
  (0.75%) above the Prime Rate, which interest shall be payable monthly; provided,
  however, that in the event Borrower closes an initial
  public offering resulting in net proceeds to Borrower of at least Fifteen Million
  Dollars ($15,000,000) (the “IPO”), the interest rate applicable to
  each Advance shall, from and after the closing date of the IPO, be reduced to
  a per annum rate equal to the Prime Rate.



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(ii) Equipment Loans. Subject to Section 2.3(b), the principal amount outstanding for each Equipment Loan shall accrue interest at a per annum rate equal to one and three quarters of one percentage point (1.75%) above the Prime Rate.


(iii) Equipment Advances. Subject to Section 2.3(b), the principal amount outstanding for each Equipment Advance shall accrue interest at a per annum rate equal to one and one-half percentage points (1.50%) above the Prime Rate, which interest shall be payable monthly; provided, however, that in the event Borrower closes an IPO, the applicable interest rate shall, from and after the closing date of the IPO, be reduced to a per annum rate equal to three-quarters of one percent (0.75%) above the Prime Rate.


(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 (5.00%)
  above the rate effective immediately before the Event of Default (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.


(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 first (1st) calendar day of each
  month. Payments of principal and/or interest received after 12:00 p.m. Eastern
  time are considered received at the opening of business on the next Business
  Day. In addition, so long as any principal or interest with respect to any Credit
  Extension remains outstanding, Bank shall be entitled to charge Borrower a “float”
  charge in an amount equal to two (2) Business Days interest, at the highest
  interest rate applicable to the Credit Extensions, on all payments received
  by Bank. The float charge for each month shall be payable on the first day of
  the subsequent month. Bank shall not, however, be required to credit Borrower’s
  account for the amount of any item of payment which is unsatisfactory to Bank
  in its good faith business judgment, and Bank may charge Borrower’s Designated
  Deposit Account for the amount of any item of payment which is returned to Bank
  unpaid. 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) Revolving Loan Fee. A fully earned, non-refundable fee of Forty-Five Thousand Dollars ($45,000) on the Effective Date; 



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(b) Equipment Line Loan Fee. A fully earned, non-refundable fee of Ten Thousand Dollars ($10,000) on the Effective Date; 


(c) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or renewal of Letters of Credit, upon the issuance, each anniversary of the issuance, and the renewal of such Letter of Credit;


(d)
  Unused Revolving Line Facility Fee.
  A fee (the “Unused Revolving Line Facility Fee”),
  payable monthly on the first (1st) day of each month, in an amount
  equal to one-half of one percent (0.50%) per annum of the average unused portion
  of the Revolving Line (including drawn but unreimbursed Letters of Credit),
  as determined by Bank. 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;


(e) Collateral Monitoring Fee. A monthly collateral monitoring fee of Seven Hundred Fifty Dollars ($750), payable in arrears on the first (1st) day of each month (prorated for any partial month), at the beginning and upon termination of this Agreement; provided, however, that for any month during which Borrower has no outstanding Advances under the Revolving Line, the collateral monitoring fee will be zero; 


(f) Prepayment Fee. If the Equipment Line is voluntarily or involuntarily prepaid or terminated prior to maturity or if any part or all of the Revolving Line is terminated prior to maturity, a termination or prepayment fee, as the case may be, in the amount of one percent (1.00%) of the Revolving Line and/or the amount of the Equipment Advances being prepaid, as the case may be; provided that no termination fee shall be charged if such credit facility is replaced with a new facility from another division of Bank. In the event the Equipment Loan is prepaid or terminated prior to maturity, Borrower shall pay to Bank a termination or prepayment fee in the amount of $10,000, provided that no termination fee shall be charged if the Equipment Loan is replaced
with a new facility from another division of Bank; and


(g) 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 Bank shall have received, 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) Borrower shall have delivered duly executed original signatures to the Loan Documents to which it is a party;



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(b) Borrower shall have delivered its Operating Documents and a good standing certificate of Borrower certified by the Secretary of State of the Commonwealth of Pennsylvania as of a date no earlier than thirty (30) days prior to the Effective Date;


(c) Borrower shall have delivered duly executed original signatures to the completed Borrowing Resolutions for Borrower;


(d) Bank shall have received 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;


(e) Borrower shall have delivered the Perfection Certificate executed by Borrower;


(f) Borrower shall have delivered a landlord’s consent executed by Chesterbrook Partners, LP in favor of Bank;


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


(h) Borrower shall have paid the fees and Bank Expenses then due as specified in Section 2.4.


3.2
  Conditions Precedent to all Credit Extensions. Bank’s
  obligations to make each Credit Extension, including the initial Credit Extension,
  is subject to the following:


(a)
  timely receipt of 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 Default or Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in Section 5 remain true in
all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and


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



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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 the extension of a Credit Extension 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 extension in the absence of a required item
  shall be in Bank’s sole discretion.


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
  Section 2.3(f)), Borrower shall notify Bank (which notice shall be irrevocable)
  by electronic mail, facsimile, or telephone by 12:00 p.m. Eastern time on the
  Funding Date of the Advance. Together with such notification, Borrower must
  promptly deliver to Bank by electronic mail or facsimile a completed Payment/Advance
  Form executed by a Responsible Officer or his or her designee. Bank shall credit
  Advances to the Designated Deposit Account. Bank may make Advances under this
  Agreement based on instructions from a Responsible Officer or his or her designee
  or without instructions if the Advances are necessary to meet Obligations which
  have become due. Bank may rely on any telephone notice given by a person whom
  Bank believes is a Responsible Officer or designee.


(b) Equipment Advances. Subject to the prior satisfaction of all other applicable conditions to the making of an Equipment Advance set forth in this Agreement, to obtain an Equipment Advance, Borrower must notify Bank (which notice shall be irrevocable) by electronic mail or facsimile no later than 12:00 p.m. Eastern time one (1) Business Day before the proposed Funding Date. The notice shall be a Payment/Advance Form, must be signed by a Responsible Officer or designee, and shall include a copy of the invoice for the Equipment being financed. If Borrower satisfies the conditions of each Equipment Advance, Bank shall disburse such Equipment Advance by transfer to the Designated Deposit Account.


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.



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This Agreement may be terminated prior to the Revolving Line Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given to Bank and paying to Bank the termination or fee required under this Agreement, or if Bank’s obligation to fund Credit Extensions terminates pursuant to the terms of Section 2.1.1(b). Notwithstanding any such termination, Bank’s lien and security interest in the Collateral shall continue until Borrower fully satisfies its Obligations. Upon payment in full of the Obligations and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall release its liens and security interests 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 in violation of the Loan Documents, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.


5.
  REPRESENTATIONS AND WARRANTIES


Borrower represents and warrants as follows:


5.1
  Due Organization and Authorization. Borrower is duly
  existing and in good standing as a Registered Organization only in the Commonwealth
  of Pennsylvania 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 in the form attached hereto as Exhibit
  E 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; (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),
  unless and to the extent that Borrower has advised Bank of any change of such
  places of business or chief executive office made in accordance with Section
  7.2 of this Agreement; (e) Borrower (and each of its predecessors) has not,
  in the past five (5) years, changed its state 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 to the extent permitted by one or more specific provisions
  in this Agreement.


The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower’s organizational documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.



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5.2 Collateral. Borrower has good title to the Collateral, free of Liens except Permitted Liens. Borrower has no deposit account other than the deposit accounts with Bank, other than those not prohibited under Section 7.6 of this Agreement. The Collateral is not in the possession of any third party bailee (such as a warehouse). Except as hereafter disclosed to Bank in writing by Borrower, none of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate. 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 acknowledge in writing that the bailee is holding such Collateral for the benefit of Bank. All Inventory is in all material respects of good and
marketable quality, free from material defects. 


Borrower is the sole owner of any Intellectual Property owned by Borrower, 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.


5.3
  Accounts Receivable.


(a) For each Account with respect to which Advances are requested, on the date each Advance is requested and made, such Account shall meet the Minimum Eligibility Requirements set forth in Section 13 below.


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


5.4
  Litigation. Except as 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 Fifty Thousand Dollars ($50,000) for any single claim or
  more than One Hundred Thousand Dollars ($100,000) in the aggregate. 


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 in accordance with GAAP. 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.



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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. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which would 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 its business 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. 


5.10 ERISA. With respect to any Plan that is maintained or contributed to by Borrower and/or by any Commonly Controlled Entity or as to which Borrower retains material liability: (a) no “accumulated funding deficiency” as defined in Code §412 or ERISA §302 has occurred, whether or not that accumulated funding deficiency has been waived; (b) no Reportable Event has occurred other than events for which reporting has been waived; (c) no termination of any plan subject to Title IV of ERISA has occurred; (d) neither Borrower nor any Commonly Controlled Entity has incurred a “complete withdrawal” within the meaning of ERISA §4203 from any Multi-employer Plan; (e) neither Borrower nor any Commonly Controlled Entity has incurred a “partial withdrawal” within the meaning of ERISA §4205 with respect to any Multi-employer Plan;
(f) no Multi-employer Plan to which Borrower or any Commonly Controlled Entity has an obligation to contribute is in “reorganization” within the meaning of ERISA §4241 nor has notice been received by Borrower or any Commonly Controlled Entity that such a Multi-employer Plan will be placed in “reorganization”.



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5.11 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital, to purchase Eligible Equipment, 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 representations, warranties, or other statements
  were 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).


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 would reasonably be expected to have a material adverse effect on
  Borrower’s business.


6.2
  Financial Statements; Reports, Certificates. 


(a) Borrower shall provide Bank with the following:


(i) weekly, a Transaction Report; provided, however, that a Transaction Report may be submitted monthly in each calendar month during which Borrower has no outstanding Obligations to Bank;


(ii) within fifteen (15) days after the end of each month, (A) monthly accounts receivable agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, and (C) monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports, and general ledger;


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


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




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(v) thirty (30) days prior to the end of each fiscal year of Borrower, annual internal operating plans (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower, and fifteen (15) days prior to the end of each fiscal year of Borrower, 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; and


(vi) as soon as available, and in any event within one hundred twenty (120) days following the end of Borrower’s fiscal year, annual financial statements certified by, and with an unqualified opinion of, independent certified public accountants acceptable to Bank.


(b) In the event that Borrower becomes subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, within forty-five (45) days after filing all reports on Form 10-Q, and within ninety (90) days after filing all reports on Forms 10-K and 8-K, filed with the Securities and Exchange Commission or a link thereto on Borrower’s or another website on the Internet.


(c) Prompt written notice of (i) the registration of any Copyright, including any subsequent ownership right of Borrower in or to any Copyright,(ii) the ownership of Borrower of any Patent or Trademark not currently shown in the IP Security Agreement, including, without limitation, any application or registration for any Patent or Trademark, or (iii) Borrower’s knowledge of an event that materially adversely affects the value of the Intellectual Property.


6.3 Accounts Receivable.


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


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


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(c) Collection of Accounts. Borrower shall have the right to collect all Accounts, unless and until a Default or an Event of Default has occurred and is continuing. Whether or not an Event of Default has occurred and is continuing, Borrower shall hold all payments on, and proceeds of, Accounts in trust for Bank, and Borrower shall immediately deliver all such payments and proceeds to Bank in their original form, duly endorsed, to be applied to the Obligations pursuant to the terms of Section 9.4. Bank may, in its good faith business judgment, require that all proceeds of Accounts be deposited by Borrower into a lockbox account, or such other “blocked account” as Bank may specify, pursuant to a blocked account agreement in such form as Bank may specify in its good faith business judgment.


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


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


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


6.4 Remittance of Proceeds. Except as otherwise provided in Section 6.3(c), deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations pursuant to the terms of  Section 9.4;  provided that, if no Default or Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Bank the proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower in good faith in an arm’s length transaction for an aggregate purchase price of Twenty-Five Thousand Dollars ($25,000) or less (for all such transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of Collateral with any of
Borrower’s other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Bank. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.


6.5 Taxes. Timely file all required tax returns and reports and timely pay all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except for deferred payment of any taxes contested pursuant to the terms of Section 5.9.


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6.6 Pensions. Borrower will, and will cause each of its Commonly Controlled Entities to, comply with the funding requirements of ERISA with respect to Plans for its respective employees. Borrower will not permit with respect to any Plan (a) any prohibited transaction or transactions under ERISA or the Internal Revenue Code, which results, or may result, in any material liability of Borrower and/or any Subsidiary and/or Affiliate, or (b) any Reportable Event if, upon termination of the Plan or Plans with respect to which one or more such Reportable Events shall have occurred, there is or would be any material liability of Borrower and/or any Subsidiary and/or Affiliate to the PBGC. Upon Bank’s request, Borrower will deliver to Bank a copy of the most recent actuarial report, financial statements and annual report completed with respect to any Plan.


6.7
  Access to Collateral; Books and Records. At reasonable
  times, on one (1) Business Day’s notice (provided
  no notice is required if an Event of Default has occurred and is continuing),
  Bank, or its agents, shall have the right to inspect the Collateral and the
  right to audit and copy Borrower’s Books. Borrower hereby acknowledges
  that the first such audit will be conducted within thirty (30) days after the
  execution of this Agreement and provided that no Event of Default has occurred
  and is continuing, no more than two such audits shall be conducted in any twelve
  month period. The foregoing inspections and audits shall be at Borrower’s
  expense, and the charge therefor shall be Seven Hundred Fifty Dollars ($750)
  per person per day (or such higher amount as shall represent Bank’s then-current
  standard charge for the same), plus reasonable out-of-pocket expenses. In the
  event Borrower and Bank schedule an audit more than ten (10) days in advance,
  and Borrower cancels or seeks to reschedules the audit with less than ten (10)
  days written notice to Bank, then (without limiting any of Bank’s rights
  or remedies), Borrower shall pay Bank a fee of One Thousand Dollars ($1,000)
  plus any out-of-pocket expenses incurred by Bank to compensate Bank for the
  anticipated costs and expenses of the cancellation or rescheduling. 


6.8 Financial Covenants.


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


(a) Liquidity. From and after the earlier of (i) the date of the initial Equipment Advance or (ii) the date of the closing of the IPO, unrestricted cash and Cash Equivalents plus the Committed Availability of at least Two Million Dollars ($2,000,000).


(b) Net Income. A minimum Net Income (Maximum Loss) of not less than the following amounts at the following times:


 






	

Quarter Ending:
 	

Net Income/(Maximum Loss)
 
	

 
 	

 
 
	

September 30, 2006
 	

($275,000);
 
	

December 31, 2006
 	

$750,000;
 
	

March 31, 2007
 	

$1,250,000;
 
	

June 30, 2007
 	

$1,600,000; and
 
	

At all times thereafter
 	

$2,000,000.
 







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6.9 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 the sole lender loss payee and waive subrogation against Bank, and all liability policies shall show, or have endorsements showing, Bank as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the insurer must 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. If Borrower fails to obtain insurance as required under this Section 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, and take any action under the policies Bank deems prudent.


6.10
  Operating Accounts. Maintain its and its Subsidiaries’
  primary depository and operating accounts and securities accounts with Bank
  and Bank’s affiliates.


6.11
  Protection and Registration of Intellectual Property Rights. Borrower shall:
  


(a) protect, defend and maintain the validity and enforceability of any Intellectual Property owned by Borrower, except to the extent that Borrower determines in its commercially reasonable judgment that such Intellectual Property is not material to Borrower’s business; 


(b) promptly upon Borrower’s knowledge thereof, advise Bank in writing of material infringements of its Intellectual Property; and 


(c) not allow any Intellectual Property owned by Borrower material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent. If Borrower decides to register any Copyrights in the United States Copyright Office, Borrower shall: (x) provide Bank with at least fifteen (15) days prior written notice of its intent to register such Copyrights 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 or such other documents as Bank may reasonably request to maintain the perfection and priority of Bank’s security interest in the Copyrights 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 application(s) with the United States Copyright Office. Borrower shall promptly provide to Bank a copy of the application(s) filed with the United States Copyright Office together with evidence of the recording of the intellectual property security agreement necessary for Bank to maintain the perfection and priority of its security interest in such Copyrights. Borrower shall provide written notice to Bank of any application filed by Borrower in the United States Patent and Trademark Office for a Patent or to register a Trademark or service mark within thirty (30) days after any such filing.


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


6.13
  Further Assurances. Borrower shall 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 that does not constitute
  Financed 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) (i) prior to the closing of an IPO, a Key Person ceases to hold such offices with Borrower and replacements satisfactory to Bank are not made within 90 days after their departure from Borrower; or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to venture capital investors so long as
Borrower identifies to Bank the venture capital investors prior to the closing of the transaction). 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 other Person, or acquire,
  or permit any of its Subsidiaries to acquire, all or substantially all of the
  capital stock or property of another Person.


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


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7.5
  Encumbrance. Create, incur, or allow any Lien on any
  of the Collateral, 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 and the definition
  of “Permitted Lien” herein.


7.6
  Maintenance of Collateral Accounts. Maintain any Collateral
  Account except pursuant to the terms of Section 6.10.


7.7
  Investments; Distributions. 


(a) Directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so; or 


(b) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof; (ii) Borrower may pay dividends or make any distribution solely in common stock; and (iii) Borrower may pay accrued and unpaid dividends to the former holders of Series B and Series C preferred stock, in connection with the closing of an IPO and (iv) Borrower may repurchase the stock of former employees or consultants 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, provided such
repurchase does not exceed in the aggregate of Twenty-Five Thousand Dollars ($25,000) per fiscal year.


7.8
  Transactions with Affiliates. Directly or indirectly
  enter into or permit to exist any material transaction with any Affiliate of
  Borrower, except for transactions that are in the ordinary course of Borrower’s
  business, upon fair and reasonable terms that are no less favorable to Borrower
  than would be obtained in an arm’s length transaction with a non-affiliated
  Person.


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 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.


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7.11 ERISA Compliance. Neither Borrower nor any Commonly Controlled Entity shall:  (a) engage in or permit any “prohibited transaction” (as defined in ERISA); (b) cause any “accumulated funding deficiency” as defined in ERISA and/or the Internal Revenue Code; (c) terminate any pension plan in a manner which could result in the imposition of a lien on the property of Borrower pursuant to ERISA; (d) terminate or consent to the termination of any Multi-employer Plan; or (e) incur a complete or partial withdrawal with respect to any Multi-employer Plan.


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. During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);


8.2 Covenant Default.


(a)
  Borrower fails or neglects to perform any obligation in Sections 6.2, 6.7, 6.10,
  6.12, 6.13 or violates any covenant in Section 7;


(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement, any Loan Documents, and as to any default (other than those specified in Section 8.8 below) 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. 


(a) Any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in ten (10) days; (b) the service of process upon Bank 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; (c) Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d) a judgment or other claim in excess of Twenty-Five Thousand Dollars ($25,000) becomes a Lien on any of Borrower’s assets; or (e) a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency and not paid within ten (10) days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted
pending contest by Borrower (but no Credit Extensions shall be made during the cure period);


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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 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 Twenty-Five Thousand
  Dollars ($25,000) or that would reasonably be expected to have a material adverse
  effect on Borrower’s business;


8.7
  Judgments. A judgment or judgments for the payment of
  money in an amount, individually or in the aggregate, of at least Twenty-Five
  Thousand Dollars ($25,000) (not covered by independent third-party insurance)
  shall be rendered against Borrower and shall remain unsatisfied and unstayed
  for a period of ten (10) days after the entry thereof (provided
  that no Credit Extensions will be made prior to the satisfaction or stay of
  such judgment);


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.


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;


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


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


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


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


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


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


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


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


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9.3
  Protective Payments. If Borrower fails to obtain the
  insurance called for by Section 6.7 or fails to pay any premium thereon or fails
  to pay any other amount which Borrower is obligated to pay under this Agreement
  or any other Loan Document, Bank may obtain such insurance or make such payment,
  and all amounts so paid by Bank are Bank Expenses and immediately due and payable,
  bearing interest at the then highest applicable rate, and secured by the Collateral.
  Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining
  such insurance at the time it is obtained or within a reasonable time thereafter.
  No payments by Bank are deemed an agreement to make similar payments in the
  future or Bank’s waiver of any Event of Default.


9.4 Application of Payments and Proceeds. Unless an Event of Default has occurred and is continuing, except to the extent provided in Section 2.1.4(d), Bank shall apply any funds in its possession, whether from Borrower account balances, payments, or proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, first, to the principal of the Obligations; second, to Bank Expenses, including without limitation, the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Bank in the exercise of its rights under this Agreement; third, to the interest due upon any of the Obligations; and finally, to any applicable fees and other charges, in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower by credit to the Designated Deposit Account or other Persons
legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower by credit to the Designated Deposit Account or to 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.


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


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


10. NOTICES


All notices, consents, requests, approvals, demands, or other communication (collectively, “Communication”), other than Advance requests made pursuant to Section 3.4, by any party to this Agreement or any other Loan Document must be in writing and be delivered or sent by facsimile at the addresses or facsimile numbers listed below. Bank or Borrower may change its notice address by giving the other party written notice thereof. Each such Communication shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, registered or certified mail, return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by facsimile transmission (with such facsimile promptly confirmed by delivery of a copy by personal delivery or
United States mail as otherwise provided in this Section 10); (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated below. Advance requests made pursuant to Section 3.4 must be in writing and may be in the form of electronic mail, delivered to Bank by Borrower at the e-mail address of Bank provided below and shall be deemed to have been validly served, given, or delivered when sent (with such electronic mail promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 10). Bank or Borrower may change its address, facsimile number, or electronic mail address by giving the other party written notice thereof in accordance with the terms of this Section 10.


 





  	
        If
          to Borrower:

      	
         

      	
        MEDecision, Inc.
 601 Lee Road
 Wayne, Pennsylvania 19087
 Attn:  _ Carl Smith, Chief Financial Officer_
 Fax: (610) 540-0270
 Email: carl.smith@medecision.com
 
	

 
 	

 
 	

 
 
	

If to Bank:
 	

 
 	

Silicon Valley Bank
 5 Radnor Corporate Center
 Number 555
 100 Matsonford Road
 Radnor, Pennsylvania  19087
 Attn: Richard White
 Fax: (610) 971-2063
 Email: rwhite@svbank.com
 








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


Pennsylvania law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the jurisdiction of the State and Federal courts in the Commonwealth of Pennsylvania; provided, however, that if for any reason Bank can not avail itself of the courts of the Commonwealth of Pennsylvania, Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal Courts in Santa Clara County, California; provided, further, 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.


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 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 Bank 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 Bank’s gross negligence or willful misconduct.


12.3 Limitation of Actions. Any claim or cause of action by Borrower against Bank, its directors, officers, employees, agents, accountants, attorneys, or any other Person affiliated with or representing Bank based upon, arising from, or relating to this Loan Agreement or any other Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Bank, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by (a) the filing of a complaint within one year from the earlier of (i) the date any of Borrower’s officers or directors had knowledge of the first act, the occurrence or omission upon
which such claim or cause of action, or any part thereof, is based, or (ii) the date this Agreement is terminated, and (b) the service of a summons and complaint on an officer of Bank, or on any other person authorized to accept service on behalf of Bank, within thirty (30) days thereafter. Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Bank in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other Loan Document.



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12.4 Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.


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


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; and (e) as Bank considers appropriate in exercising remedies under this Agreement. 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.



25











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.


12.11 Right of Setoff. Borrower hereby grants to Bank a Lien and a right of setoff as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a subsidiary of Bank) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may setoff the same or any part thereof and apply the same to any liability or Obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.


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.


“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, 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.



26











“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” means an amount not to exceed eighty percent (80%) of Eligible Accounts; provided, however, that Bank may decrease the foregoing percentages in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.


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


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


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


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


“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the Commonwealth of Pennsylvania; 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.



27











“Commonly Controlled Entity” means an entity, whether or not incorporated, which is under common control with Borrower within the meaning of Section 414(b) or (c) of the Internal Revenue Code. 


“Committed Availability” means, as the date of determination, an amount equal to the sum of the Revolving Line plus the Equipment Line minus all outstanding Credit Extensions.


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


“Communication” is defined in Section 10.


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




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


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


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


“Credit Extension” is any Advance, Equipment Advance, Equipment Loan, Letter of Credit or any other extension of credit by Bank for Borrower’s benefit.


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


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



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“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 3300359975, maintained with Bank.


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


“Draw Period” is the period of time from the date on which Borrower meets the requirements of Section 6.8(a) through the earliest to occur of (a) December 31, 2006, (b) an Event of Default, or (c) the existence of any Default.


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


“Eligible Accounts” means Accounts arising in the ordinary course of Borrower’s business from Account Debtors that are U.S. Account Debtors, that meet all of Borrower’s representations and warranties in Section 5.3 which Bank, in its good faith business judgment, shall deem eligible for borrowing. Without limiting the fact that the determination of which Accounts are eligible for borrowing is a matter of Bank’s good faith business judgment, the following (the “Minimum Eligibility Requirements”) are the minimum requirements for an Account to be an Eligible Account. The Account must not:


(a) be outstanding for more than ninety (90) days from its invoice date (the “Eligibility Period”);


(b) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have not been paid within the Eligibility Period;


(c) have credit balances over ninety (90) days from invoice date;


(d) be owing from an Account Debtor, including Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, except for Health Care Service Corporation, for which such percentage is thirty-five percent (35%), for the amounts that exceed that percentage, unless Bank approves in writing;


(e) represent progress billings, or be due under a fulfillment or requirements contract with an Account Debtor, except that advance billings for annual license renewals and monthly maintenance up to a maximum of Seven Hundred Fifty Thousand Dollars ($750,000) in the aggregate will not be excluded if such billings otherwise satisfy the Minimum Eligibility Requirements;


(f) be subject to any contingencies (including Accounts arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be conditional);



29











(g) be owing from an Account Debtor with whom Borrower has any dispute (whether or not relating to the particular Account),


(h) be owing from a Related Account Debtor;


(i) be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not acceptable to Bank, or which, fails or goes out of a material portion of its business;


(j) be owing from the United States or any department, agency or instrumentality thereof (unless there has been compliance, to Bank’s satisfaction, with the Federal Assignment of Claims Act of 1940, as amended);


(k) owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise (but, in such case, the Account will be deemed ineligible only to the extent of any amounts owed by Borrower to such Account Debtor); 


(l) 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; and


(m) Accounts owing from an Account Debtor which does not have its principal place of business in the United States, unless (a) covered by credit insurance satisfactory to Bank, less any deductible; (b) supported by letter(s) of credit acceptable to Bank; or (c) that Bank approves in writing.


Bank may, from time to time, revise the Minimum Eligibility Requirements. Furthermore, Bank shall maintain Reserves equal to thirty percent (30%) of total deferred maintenance and prepaid service revenue. 


“Eligible Equipment” is (a) general purpose computer equipment, office equipment, test and laboratory equipment, furnishings, subject to the limitations set forth herein, and (b) Other Equipment that complies with all of Borrower’s representations and warranties to Bank and which is acceptable to Bank in all respects and in which Bank has a first priority Lien.


“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.


“Equipment Advance” is defined in Section 2.1.5.


“Equipment Loans” is defined in Section 2.1.5.


“Equipment Line” is an Equipment Advance or Equipment Advances in an aggregate amount of up to One Million Dollars ($1,000,000) outstanding at any time.



30











“Equipment Maturity Date” is, for each Equipment Advance, the earliest of (a) a date thirty (30) months after the calendar quarter subsequent to such Equipment Advance, but no later than June 1, 2009 as to the final Equipment Advance, or (b) the occurrence of an Event of Default.


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


“Event of Default” is defined in Section 8.


“Event of Loss” is defined in Section 2.1.4(c).


“Financed Equipment” is all present and future Eligible Equipment in which Borrower has any interest, the purchase of which is financed by an Equipment Advance.


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


“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.


“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.


“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.


“Intellectual Property” is:


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


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


(c) All design rights, including chips, masks and associated software which may be available to Borrower now or later created, acquired or held;

31















(d)
Any claims for damages (past, present or future) for infringement of any of the
rights above, with the right, but not the obligation, to sue and collect damages
for use or infringement of the intellectual property rights above;
(e)
All Proceeds and products of the foregoing, including all insurance, indemnity
or warranty payments.
“Inventory”
is all “inventory” as defined in the Code in effect on the date hereof
with such additions to such term as may hereafter be made, and includes without
limitation all merchandise, raw materials, parts, supplies, packing and shipping
materials, work in process and finished products, including without limitation
such inventory as is temporarily out of Borrower’s custody or possession
or in transit and including any returned goods and any documents of title representing
any of the above.
“Investment”
is any beneficial ownership interest in any Person (including stock, partnership
interest or other securities), and any loan, advance or capital contribution to
any Person.
“IP
Agreement” is that certain Intellectual Property
Security Agreement executed and delivered by Borrower to Bank dated as of the
date hereof.
“Key
Person” is any of Borrower’s Chief Executive
Officer, Chief Financial Officer or Chief Operating Officer who are, as of the
Effective Date, David St.Clair, Carl Smith and John H. Capobianco, respectively.
“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).
“Lien”
is a mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
“Loan
Documents” means, collectively, this Agreement, the
Perfection Certificate, the IP Agreement and all other present and future documents,
instruments and agreements between Bank and Borrower, relating to this Agreement,
and all amendments and modifications thereto and replacements therefor.
“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.
“Minimum
Eligibility Requirements” is defined in the defined
term “Eligible Accounts.”
“Net
Borrowing Availability” is defined in Section 2.1.1(a).

 
32




  
“Net
Income” means, as calculated on a consolidated basis
for Borrower and its Subsidiaries for any period as at any date of determination,
the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries
for such period taken as a single accounting period, it being understood that
non-cash charges, including, without limitation, option expensing and the value
of the preferred conversion feature, are excluded from the calculation of Net
Income.
“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, 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 thirty (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.
“Patents”
are patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions and continuations in
part of the same.
“Payment”
means all checks, wire transfers and other items of payment received by Bank (including
proceeds of Accounts and payment of the Obligations in full) for credit to Borrower’s
outstanding Credit Extensions or, if the balance of the Credit Extensions has
been reduced to zero, for credit to its Deposit Accounts.
“Payment/Advance
Form” is that certain form attached hereto as Exhibit
B.
“PBGC”
means the Pension Benefit Guaranty Corporation.
“Perfection
Certificate” is defined in Section 5.1.
“Permitted
Indebtedness” is:
(a)
Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;
(b)
Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
 
33




  
(c)
Subordinated Debt;
(d)
unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e)
Indebtedness incurred as a result of endorsing negotiable instruments received
in the ordinary course of business;
(f)
Indebtedness in an aggregate principal amount not to exceed Three Million Dollars
($3,000,000) either unsecured or secured by Permitted Liens; 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:
(a)
Investments shown on the Perfection Certificate and existing on the Effective
Date;
(b)
Cash Equivalents;
(c)
Investments consisting of the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of Borrower;
(d)
Investments consisting of deposit accounts in which Bank has a perfected security
interest;
(e)
Investments accepted in connection with Transfers permitted by Section 7.1;
(f)
Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments
by Borrower in Subsidiaries not to exceed One Hundred Thousand Dollars ($100,000)
in the aggregate in any fiscal year;
(g)
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;
(h)
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
 
34




  
(i)
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 (i) shall not apply to Investments of Borrower in any Subsidiary.
“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 Borrower’s Books, if
they have no priority over any of Bank’s Liens;
(c)
purchase money Liens (i) on Equipment acquired or held by Borrower incurred for
financing the acquisition of the Equipment securing no more than Three Million
Dollars ($3,000,000) 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)
statutory Liens securing claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other Persons imposed without action of such parties,
provided, they have no priority
over any of Bank’s Liens and the aggregate amount of the Indebtedness secured
by such Liens does not at any time exceed Fifty Thousand Dollars ($50,000);
(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, provided, they
have no priority over any of Bank’s Liens and the aggregate amount of the
Indebtedness secured by such Liens does not at any time exceed Fifty Thousand
Dollars ($50,000);
(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; and
(i)
Liens arising from judgments, decrees or attachments in circumstances not constituting
an Event of Default under Section 8.4 or 8.7.
 
35




  
“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.
“Plan”
means any pension plan that is covered by Title IV of ERISA and in respect of
which Borrower or a Commonly Controlled Entity is an “employer” as defined
in Section 3 of ERISA. 
“Prime
Rate” is Bank’s most recently announced “prime
rate,” even if it is not Bank’s lowest rate. 
“Proceeds”
has the meaning described in the Code as in effect from
time to time. 
“Registered
Organization” is any “registered organization”
as defined in the Code with such additions to such term as may hereafter be made
“Related
Account Debtor” means, with respect to any Person,
any Affiliate, relative, partner, shareholder, director, officer, of employee
of such Person.
“Reportable
Event” means any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder.
“Reserves”
means, as of any date of determination, such amounts as Bank may from time to
time establish and revise which reduce the amount of the Advances, Letters of
Credit and other financial accommodations which would otherwise be available to
Borrower under the lending formula(s) provided herein: (a) for accrued interest;
(b) to reflect events, conditions, contingencies or risks which, as determined
by Bank, do or may adversely affect (i) the Collateral or any other property
which is security for the Obligations or its value (including without limitation
any increase in delinquencies of Accounts), (ii) the assets, business or prospects
of Borrower, or (iii) the security interests and other rights of Bank in the Collateral
(including the enforceability, perfection and priority thereof); (c) to reflect
Bank’s good faith belief that any collateral report or financial information
furnished by or on behalf of Borrower to Bank is or may have been incomplete,
inaccurate or misleading in any material respect; or (d) in respect of any state
of facts which Bank determines is reasonably likely to constitute an Event of
Default or Default.
“Revolving
Line” is an Advance or Advances in an aggregate amount
of up to Eight Million Dollars ($8,000,000) outstanding at any time.
“Revolving
Line Maturity Date” is September 29, 2007.
“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 Error! Reference source not found..
“Subordinated
Debt” is indebtedness incurred by Borrower subordinated
to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a
subordination, intercreditor, or other similar agreement in form and substance
satisfactory to Bank entered into between Bank and the other creditor), on terms
acceptable to Bank.
 
36




  
“Subsidiary”
means, with respect to any Person, any Person of which more than fifty percent
(50%) of the voting stock or other equity interests is owned or controlled, directly
or indirectly, by such Person or one or more Affiliates of such Person.
“Tangible
Net Worth” is, on any date, the consolidated total
assets of Borrower and its Subsidiaries minus
(a) any amounts attributable to (i) goodwill, (ii) intangible items including
unamortized debt discount and expense, patents, trade and service marks and names,
copyrights and research and development expenses except prepaid expenses, (iii)
notes, accounts receivable and other obligations owing to Borrower from its officers
or other Affiliates, and (iv) reserves not already deducted from assets, minus
(b) Total Liabilities.
“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.
“Trademarks”
are trademark and service mark rights, registered or not, applications to register
and registrations and like protections, and the entire goodwill of the business
of Borrower connected with the trademarks.
“Transfer”
is defined in Section 7.1.
“Unused
Revolving Line Facility Fee” is defined in Section
2.4(d).
[Signature
page follows.]
 
37




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

	 By:
	
/s/
Carl E. Smith
	
 
	
 
	
 

	  
	



 	
 
	
 
	
 

	 Name:
	
Carl
E. Smith
	  
	
 
	
 

	  
	


	  
	
 
	
 

	 Title:
	
Chief
Financial Officer
	
 
	
 
	
 

	  
	


	  
	
 
	
 



BANK:
SILICON
VALLEY BANK
 

	 By:
	
/s/
William Howell
	
 
	
 
	
 

	  
	



 	
 
	
 
	
 

	 Name:
	
William
Howell
	  
	
 
	
 

	  
	


	  
	
 
	
 

	 Title:
	
Senior
Vice President
	
 
	
 
	
 

	  
	


	  
	
 
	
 



Effective
Date: September 28, 2006
[Signature
page to Loan and Security Agreement]
 
38




  
EXHIBIT
A
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.
All
other terms contained in this Exhibit, unless otherwise indicated, shall have
the meanings provided by the Code (as defined herein), to the extent such terms
are defined in the Code. For purposes hereof, the following terms shall have the
following meanings:
“Accounts”
are all existing and later arising accounts, contract rights, and other obligations
owed Borrower in connection with its sale or lease of goods (including licensing
software and other technology) or provision of services, all credit insurance,
guaranties, other security and all merchandise returned or reclaimed by Borrower
and Borrower’s Books relating to any of the foregoing, as such definition
may be amended from time to time according to the Code.
“Borrower’s
Books” are all Borrower’s books and records
including ledgers, records regarding Borrower’s assets or liabilities, the
Collateral, business operations or financial condition and all computer programs
or discs or any equipment containing the information.
“Code”
is the Uniform Commercial Code as adopted in Pennsylvania as amended and in effect
from time to time.
“Equipment”
is all present and future machinery, equipment, tenant improvements, furniture,
fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.
“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.
Exhibit
A Page 1




  
“Inventory”
is present and future inventory in which Borrower has any interest, including
merchandise, raw materials, parts, supplies, packing and shipping materials, work
in process and finished products intended for sale or lease or to be furnished
under a contract of service, of every kind and description now or later owned
by or in the custody or possession, actual or constructive, of Borrower, including
inventory temporarily out of its custody or possession or in transit and including
returns on any accounts or other proceeds (including insurance proceeds) from
the sale or disposition of any of the foregoing and any documents of title.
“Letter-of-Credit
Right” means a right to payment or performance under
a letter of credit, whether or not the beneficiary has demanded or is at the time
entitled to demand payment or performance.
“Proceeds”
has the meaning described in the Code as in effect from
time to time. 
“Supporting
Obligation” means a letter-of-credit right, secondary
obligation or obligation of a secondary obligor or that supports the payment or
performance of an account, chattel paper, a document, a general intangible, an
instrument or investment property.
Exhibit
A Page 2