Document:

Exhibit
10.1

LOAN AND
SECURITY AGREEMENT

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

1              ACCOUNTING
AND OTHER TERMS

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

2              LOAN
AND TERMS OF PAYMENT

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

2.1.1       Revolving
Advances.

(a)           Availability.  Subject to the terms and conditions of this
Agreement, and an audit of the Collateral, the results of which must be
satisfactory to Bank, Bank shall make Advances not exceeding the Availability
Amount.  Amounts borrowed under the
Revolving Line may be repaid and, prior to the Revolving Line Maturity Date,
reborrowed, subject to the applicable terms and conditions precedent herein.

(b)           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       Term Loan.

(a)           Availability.  Bank shall make one (1) term loan available
to Borrower in an amount up to the Term Loan Amount on the Effective Date
subject to the satisfaction of the terms and conditions of this Agreement.

(b)           Repayment.  Borrower shall repay the Term Loan in
thirty-six (36) equal monthly installments of principal and interest (the “Term Loan Payment”). 
Beginning on the first day of the month following the month in which the
Funding Date occurs, each Term Loan Payment shall be payable on the first day
of each month.  Borrower’s final Term
Loan Payment, due on the Term Loan Maturity Date, shall include all outstanding
principal and accrued and unpaid interest under the Term Loan.

(c)           Prepayment.  At Borrower’s option, so long as an Event of
Default has not occurred and is not continuing, Borrower shall have the option
to prepay, in whole or in part, the Term Loan Amount advanced by Bank under
this Agreement, provided Borrower (a) provides written notice to
Bank of its election to prepay the Term Loan at least five (5) Business Days
prior to such prepayment, and (b) pays, on the date of the prepayment
(i) such prepayment amount; and; (ii) if paid on or before December
31, 2006, a premium equal to the Make-Whole Premium.  Notwithstanding the foregoing, if Borrower
prepays all or any part of the Term Loan Amount after December 31, 2006,
Borrower may do so without premium or penalty, including but not limited to the
Make-Whole Premium.

2.2          Overadvances.  If, at any time, the Credit Extensions under
Section 2.1.1 exceed the lesser of either (a) the Revolving Line or (b) the
Borrowing Base, Borrower shall immediately pay to Bank in cash such excess.

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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 1.00 percentage point above the Prime Rate, which
interest shall be payable monthly in accordance with Section 2.3(f) below.

(ii)           Term
Loan.  Subject to Section 2.3(b), the
principal amount outstanding under the Term Loan shall accrue interest at a
fixed per annum rate equal to 1.25 percentage points above the Prime Rate (as
in effect on the Effective Date), which interest shall be payable monthly.

(b)           Default
Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, Obligations shall bear interest at a rate per annum which is
five percentage points above the rate 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 Advances 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 calendar day of each month.  Payments of principal and/or interest
received after 12:00 p.m. Pacific time are considered received at the opening
of business on the next Business Day. 
When a payment is due on a day that is not a Business Day, the payment
is due the next Business Day and additional fees or interest, as applicable,
shall continue to accrue.

2.4          Fees.  Borrower shall pay to Bank:

(a)           Revolving
Line Commitment Fee.  A fully earned,
non-refundable commitment fee, on account of the Revolving Line, of $5,000, on
the Effective Date;

(b)           Term
Loan Commitment Fee.  A fully-earned,
non-refundable commitment fee, on account of the Term Loan, of $15,000 on the
Effective Date;

(c)           Unused
Revolving Line Facility Fee.  A fee
(the “Unused Revolving Line Facility Fee”),
payable quarterly, in arrears, on a calendar year basis, in an amount equal to
one quarter of one percent (0.25%) per annum of the average unused portion of
the Revolving Line, as determined by Bank. 
Borrower shall not be entitled to any credit, rebate or repayment of any
Unused Revolving Line Facility Fee previously earned by Bank pursuant to this
Section notwithstanding any termination of the Agreement or the suspension or
termination of Bank’s obligation to make loans and advances hereunder; and

(d)           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.

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3              CONDITIONS
OF LOANS

3.1          Conditions
Precedent to Initial Credit Extension. 
Bank’s obligation to make the initial Credit Extension is subject to the
condition precedent that 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 (and each Guarantor) is a party;

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

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

(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(s) executed by Borrower and
each Guarantor;

(f)            Bank
shall have received fully executed copies of the Availl Acquisition Documents;

(g)           Borrower
shall have delivered a landlord’s consent executed by the landlord for Borrower’s
Texas premises in favor of Bank;

(h)           Borrower
shall have delivered the insurance policies and/or endorsements required
pursuant to Section 6.5 hereof; and

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

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

(a)           except
as otherwise provided in Section 3.4, 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.  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, Borrower shall notify Bank
(which notice shall be irrevocable) by electronic mail, facsimile, or telephone
by 12:00 p.m. Pacific time on the Funding Date of the Advance.  Together with any such electronic or
facsimile notification, Borrower shall deliver to Bank by electronic mail or
facsimile a completed Payment/Advance Form executed by a Responsible Officer or
his or her designee.  Bank may rely on
any telephone notice given by a person whom Bank believes is a Responsible
Officer or designee.  Bank shall credit
Advances to the Designated Deposit Account. 
Bank may make Advances under this Agreement based on instructions from a
Responsible Officer or his or her designee or without instructions if the Advances
are necessary to meet Obligations which have become due.

4              CREATION
OF SECURITY INTEREST.

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

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

4.2          Authorization
to File Financing Statements. 
Borrower hereby authorizes Bank to file financing statements, without
notice to Borrower, with all appropriate jurisdictions to perfect or protect
Bank’s interest or rights hereunder, including a notice that any disposition of
the Collateral, by either Borrower or any other Person, shall be deemed to
violate the rights of Bank under the Code.

5              REPRESENTATIONS
AND WARRANTIES

Borrower represents and warrants as follows:

5.1          Due
Organization and Authorization. 
Borrower and each of its Subsidiaries are duly existing and in good
standing as Registered Organizations in their respective jurisdictions of
formation and are qualified and licensed to do business and are in good
standing in any jurisdiction in which the conduct of their business or their
ownership of property requires that they 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 completed certificates
substantially in the form attached hereto as Exhibit F, each signed by
Borrower and each Guarantor, respectively, entitled “Perfection Certificate”.  Borrower represents and warrants to Bank that
(a) Borrower’s and each respective GlobalScape Subsidiaries’ exact legal name
is that indicated on the Perfection Certificate and on the signature page
hereof; (b) Borrower and each respective GlobalScape Subsidiaries’ 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 and each respective GlobalScape Subsidiaries’ organizational
identification number or accurately states that Borrower and each respective
GlobalScape Subsidiary has none; (d)

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the Perfection Certificate accurately sets forth
Borrower’s and each respective GlobalScape Subsidiaries’ place of business, or,
if more than one, its chief executive office as well as Borrower’s and each
respective GlobalScape Subsidiaries’ mailing address (if different than its
chief executive office); (e) Borrower and each respective GlobalScape
Subsidiary (and each of their predecessors) has not, in the past five (5)
years, changed its jurisdiction of formation, organizational structure or type,
or any organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each respective GlobalScape Subsidiary, and each of their Subsidiaries, is
accurate and complete in all material respects. 
If Borrower is not now a Registered Organization but later becomes one,
Borrower shall promptly notify Bank of such occurrence and provide Bank with
Borrower’s organizational identification number.

The execution, delivery and performance 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.

5.2          Collateral.  Borrower has good title to, has rights in,
and the power to transfer each item of the Collateral upon which it purports to
grant a Lien hereunder, free and clear of any and all Liens except Permitted
Liens.  Borrower has no deposit accounts
other than the deposit accounts with Bank, the deposit accounts, if any,
described in the Perfection Certificate delivered to Bank in connection
herewith, or of which Borrower has given Bank notice and taken such actions as
are necessary to give Bank a perfected security interest therein.  The Accounts are bona fide, existing
obligations of the Account Debtors.

The Collateral is not in the possession of any third
party bailee (such as a warehouse) except as otherwise provided in the
Perfection Certificate.  None of the
components of the Collateral shall be maintained at locations other than as provided
in the Perfection Certificate or as Borrower has given Bank notice pursuant to
Section 7.2.  In the event that Borrower,
after the date hereof, intends to store or otherwise deliver any portion of the
Collateral to a bailee, then Borrower will first receive the written consent of
Bank and such bailee must execute and deliver a bailee agreement in form and
substance satisfactory to Bank in its sole discretion.

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

Borrower is the sole owner of its owned intellectual
property, except for non-exclusive licenses granted to its customers in the
ordinary course of business.  Each patent
is valid and enforceable, and no part of the intellectual property has been judged
invalid or unenforceable, in whole or in part, and to the best of Borrower’s
knowledge, no claim has been made that any part of the intellectual property
violates the rights of any third party except to the extent such claim could
not reasonably be expected to have a material adverse effect on Borrower’s
business.  Except
as noted on the Perfection Certificate, Borrower is not a party to, nor is
bound by, any material license or other agreement with respect to which
Borrower is the licensee that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower’s interest in such license or
agreement or any other property. 
Borrower shall provide written notice to Bank within twenty (20) days of
entering or becoming bound by any such license or agreement which is reasonably
likely to have a material impact on Borrower’s business or financial condition
(other than over-the-counter software that is commercially available to the
public).  Borrower shall take such steps
as Bank requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for all such licenses or contract rights to be
deemed “Collateral” and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such
license or agreement (such consent or authorization may include a licensor’s
agreement to a contingent assignment of the license to Bank if Bank determines
that is necessary in its good faith judgment), whether now existing or entered
into in the future.

5.3          Accounts
Receivable.  For any Eligible Account
in any Borrowing Base Certificate, all statements made and all unpaid balances
appearing in all invoices, instruments and other documents evidencing such
Eligible Accounts are and shall be true and correct and all such invoices,
instruments and other documents, and all of Borrower’s Books are genuine and in
all respects what they purport to be. 
All sales and other transactions underlying or giving rise to each
Eligible Account shall comply in all material respects with all applicable laws
and governmental rules and regulations. 
Borrower has no knowledge of any actual or imminent Insolvency
Proceeding of any Account Debtor whose accounts are 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

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all Eligible Accounts are genuine, and all such
documents, instruments and agreements are legally enforceable in accordance
with their terms.

5.4          Litigation.  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 $50,000.

5.5          No
Material Deviation in Financial Statements. 
All consolidated financial statements for Borrower and any of its
Subsidiaries delivered to Bank fairly present in all material respects Borrower’s
consolidated financial condition and Borrower’s consolidated results of
operations.  There has not been any
material deterioration in Borrower’s consolidated financial condition since the
date of the most recent financial statements submitted to Bank.

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

5.7          Regulatory
Compliance.  Borrower is not an “investment
company” or a company “controlled” by an “investment company” under the
Investment Company Act.  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 applicable
laws, ordinances or rules, the violation of which could reasonably be expected
to have a material adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’
properties or assets has been used by Borrower or any Subsidiary or, to the
best of Borrower’s knowledge, by previous Persons, in disposing, producing,
storing, treating, or transporting any hazardous substance other than
legally.  Borrower and each of its
Subsidiaries have obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all government
authorities that are necessary to continue 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.  Borrower has paid all amounts necessary to
fund all present pension, profit sharing and deferred compensation plans in
accordance with their terms, and Borrower has not withdrawn from participation
in, and has not permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could
reasonably be expected to result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.

5.10        Use
of Proceeds.  Borrower shall use the
proceeds of (a) the Term Loan, for the acquisition of Availl; and (b) the
Revolving Line, solely as working capital and to fund its general business
requirements and not for personal, family, household or agricultural purposes.

5.11        Full
Disclosure.  No written
representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank, as of the date such 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

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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 could have a material adverse effect on
Borrower’s business.

6.2          Financial
Statements, Reports, Certificates.

(a)           Deliver
to Bank:  (i) as soon as available, but
no later than thirty (30) days after the last day of each month, company
prepared consolidated and consolidating balance sheets and income statements
covering Borrower’s and each of its Subsidiary’s operations during the period
certified by a Responsible Officer and in a form acceptable to Bank;
(ii) as soon as available, but no later than one hundred twenty (120) days
after the last day of Borrower’s fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank in its reasonable discretion;
(iii) within five (5) days of delivery, copies of all statements, reports
and notices made available to Borrower’s security holders or to any holders of
Subordinated Debt (iv) within five (5) days of filing, all reports on Form
10-K, 10-Q and 8-K filed with the Securities and Exchange Commission or a link
thereto on Borrower’s or another website on the Internet; (iv) a prompt report
of any legal actions pending or threatened against Borrower or any of its
Subsidiaries that could reasonably be expected to result in damages or costs to
Borrower or any of its Subsidiaries of Fifty Thousand Dollars ($50,000) or
more; (v) prompt notice of an event that could reasonably be expected to materially
and adversely affect the value of the intellectual property; (vi)  sales projections, operating plans and other
financial information reasonably requested by Bank; and (vii) as soon as
available, but no later than twenty (20) days after approval by the Board, or
by January 31st of each year, whichever is earlier, an annual budget.

(b)           Within
thirty (30) days after the last day of each month, deliver to Bank a duly
completed Borrowing Base Certificate signed by a Responsible Officer, with aged
listings of accounts receivable and accounts payable (by invoice date).

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

(d)           Allow
Bank to audit Borrower’s Collateral at Borrower’s expense.  In addition to the initial audit, such audits
shall be conducted no more often than once every six (6) months unless a
Default or an Event of Default has occurred and is continuing.

6.3          Inventory;
Returns.  Keep all Inventory in good
and marketable condition, free from material defects.  Returns and allowances between Borrower and
its Account Debtors shall follow Borrower’s customary practices as they exist
at the Effective Date.  Borrower must
promptly notify Bank of all returns, recoveries, disputes and claims that
involve more than Fifty Thousand Dollars ($50,000).

6.4          Taxes;
Pensions.  Make, and cause each of
its Subsidiaries to make, timely payment of all foreign, federal, state, and
local taxes or assessments (other than taxes and assessments which Borrower is
contesting pursuant to the terms of Section 5.9 hereof) and shall deliver to Bank,
on demand, appropriate certificates attesting to such payments, and pay all
amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms.

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6.5          Insurance.  Keep its business and the Collateral insured
for risks and in amounts standard for companies in Borrower’s industry and
location and as Bank may reasonably request. 
Insurance policies shall be in a form, with companies, and in amounts
that are satisfactory to Bank.  All
property policies shall have a lender’s loss payable endorsement showing Bank
as an additional loss payee and waive subrogation against Bank, and all
liability policies shall show, or have endorsements showing, Bank as an
additional insured.  All policies (or the
loss payable and additional insured endorsements) shall provide that the
insurer 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 6.5 or
to pay any amount or furnish any required proof of payment to third persons and
Bank, Bank may make all or part of such payment or obtain such insurance
policies required in this Section 6.5, and take any action under the policies
Bank deems prudent.

6.6          Operating
Accounts.

(a)           Maintain
all of its and its Subsidiaries’ primary depository, operating and securities
accounts with Bank and Bank’s affiliates.

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

6.7          Financial
Covenants.

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

(a)           Minimum Fixed Charge
Coverage.  A ratio of (A) EBITDA less
the sum of (i) cash taxes paid and (ii) non-financed capital expenditures, to
(B) the sum of (i) principal plus (ii) interest paid to Bank, of at least 1.50
to 1.00.

(b)           Maximum Total Funded
Debt/EBITDA.  A ratio of Total Funded
Debt to EBITDA of not more than 2.00 to 1.00. 
For purposes of this Section 6.7(b), EBITDA shall be annualized as of
any date of determination.

6.8          Protection
and Registration of Intellectual Property Rights.  Borrower shall:  (a) protect, defend and maintain the validity
and enforceability of its intellectual property; (b) promptly advise Bank in
writing of material infringements of its intellectual property; and (c) not
allow any intellectual property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without Bank’s written
consent.  If Borrower decides to register
any copyrights or mask works in the United States Copyright Office, Borrower
shall: (x) provide Bank with at least fifteen (15) days prior written notice of
its intent to register such copyrights or mask works together with a copy of
the application it intends to file with the United States Copyright Office
(excluding exhibits thereto); (y) execute an intellectual property security
agreement or such other documents as Bank may reasonably request to maintain
the perfection and priority of Bank’s security interest in the copyrights or
mask works intended to be registered with the United States Copyright Office;
and (z) record such intellectual property security agreement with the United
States Copyright Office contemporaneously with filing the copyright or mask
work application(s) with the United States Copyright Office.  Borrower shall promptly provide to Bank 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 or mask works.  Borrower shall provide written notice to Bank
of any application filed by 

 8
 

 

Borrower in the United States Patent and Trademark
Office for a patent or to register a trademark or service mark within 30 days
after any such filing.

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

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

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

7.3          Mergers
or Acquisitions.  Merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with
any 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.  A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower.

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

7.5          Encumbrance.  Create, incur, or allow any Lien on any of
its property, or assign or convey any right to receive income, including the
sale of any Accounts, or permit any of its Subsidiaries to do so, except for
Permitted Liens, permit any Collateral not to be subject to the first priority
security interest granted herein, or enter into any agreement, document, instrument
or other arrangement (except with or in favor of Bank) with any Person which
directly or indirectly prohibits or has the effect of prohibiting Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s
intellectual property, except as is otherwise permitted in Section 7.1 hereof
and the definition of “Permitted Lien” herein.

7.6          Maintenance
of Collateral Accounts.  Maintain any
Collateral Account except pursuant to the terms of Section 6.6.(b) hereof.

7.7          Distributions;
Investments.  (a) 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.

 9
 

 

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; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation
plan which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.

8              EVENTS
OF DEFAULT

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

8.1          Payment
Default.  Borrower fails to
(a) make any payment of principal or interest on any Credit Extension on
its due date, or (b) pay any other Obligations within three (3) Business
Days after such Obligations are due and payable.  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 Section 6.2, 6.5 through 6.7, or
violates any covenant in Section 7; or

(b)           Borrower
fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement, any Loan
Documents, and as to any default (other than those specified in this Section 8)
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure the default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to cure the default shall
not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period).  Grace periods
provided under this section shall not apply, among other things, to financial
covenants or any other covenants set forth in subsection (a) above;

8.3          Material
Adverse Change.  A Material Adverse
Change occurs;

8.4          Attachment.  (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

 10

 

in excess of $50,000 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);

8.5          Insolvency. (a)
Borrower is unable to pay its debts (including trade debts) as they become due
or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding;
or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or
stayed within thirty (30) days (but no Credit Extensions shall be made while of
any of the conditions described in clause (a) exist and/or until any Insolvency
Proceeding is dismissed);

8.6          Other Agreements.  There is a default in any agreement to which
Borrower or any Guarantor is a party with a third party or parties resulting in
a right by such third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount in excess of Fifty Thousand
Dollars ($50,000) or that could have a material adverse effect on Borrower’s or
any Guarantor’s business; provided, however, that the Event of Default under
this Section 8.6 caused by the occurrence of a default under such other
agreement shall be cured or waived for purposes of this Agreement upon Bank
receiving written notice from the party asserting such default of such cure or
waiver of the default under such other agreement, if at the time of such cure
or waiver under such other agreement (a) Bank has not declared an Event of
Default under this Agreement and/or exercised any rights with respect thereto;
(b) any such cure or waiver does not result in an Event of Default under any
other provision of this Agreement or any Loan Document; and (c) in
connection with any such cure or waiver under such other agreement, the terms
of any agreement with such third party are not modified or amended in any
manner which could in the good faith judgment of Bank be materially less
advantageous to Borrower or any Guarantor;

8.7          Judgments.  A judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Fifty
Thousand Dollars ($50,000) (not covered by independent third-party insurance)
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;

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

8.10        Guaranty.  (a) Any guaranty of any Obligations
terminates or ceases for any reason to be in full force and effect; (b) any
Guarantor does not perform any obligation or covenant under any guaranty of the
Obligations; (c) any circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or
8.8. occurs with respect to any Guarantor, or (d) the liquidation, winding
up, or termination of existence of any Guarantor, except in connection with (i)
a merger of such Guarantor with or into another Guarantor or Borrower, or (ii)
a Transfer; in each case, as expressly permitted hereunder; or
(e) (i) a material impairment in the perfection or priority of Bank’s
Lien in the collateral provided by Guarantor or in the value of such collateral
or (ii) a material adverse change in the general affairs, management, results
of operation, condition (financial or otherwise) or the prospect of repayment
of the Obligations occurs with respect to any Guarantor.

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);

 11
 

 

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

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

(d)           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
true and completed copies 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.

 12
 

 

9.3          Accounts Verification; Collection.  Whether or not an Event of Default has
occurred and is continuing, Bank may notify any Person owing Borrower money of
Bank’s security interest in such funds and verify the amount of such account.  After the occurrence of an Event of Default,
any amounts received by Borrower shall be held in trust by Borrower for Bank,
and, if requested by Bank, Borrower shall immediately deliver such receipts to
Bank in the form received from the Account Debtor, with proper endorsements for
deposit.

9.4          Protective Payments.  If Borrower fails to obtain the insurance
called for by Section 6.5 or fails to pay any premium thereon or fails to pay
any other amount which Borrower is obligated to pay under this Agreement or any
other Loan Document, Bank may obtain such insurance or make such payment, and
all amounts so paid by Bank are Bank Expenses and immediately due and payable,
bearing interest at the then 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.

9.5          Application of Payments and Proceeds.  Unless an Event of Default has occurred and
is continuing, 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 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; second, to the interest due upon any of the
Obligations; and third, to the principal of the Obligations and any applicable
fees and other charges, in such order as Bank shall determine in its sole discretion.  Any surplus shall be paid to Borrower or
other Persons legally entitled thereto; Borrower shall remain liable to Bank
for any deficiency.  If an Event of
Default has occurred and is continuing, Bank may apply any funds in its
possession, whether from Borrower account balances, payments, proceeds realized
as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations in such order as Bank shall
determine in its sole discretion.  Any
surplus shall be paid to Borrower or other Persons legally entitled thereto;
Borrower shall remain liable to Bank for any deficiency.  If Bank, in its good faith business judgment,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the
option, exercisable at any time, of either reducing the Obligations by the
principal amount of the purchase price or deferring the reduction of the
Obligations until the actual receipt by Bank of cash therefor.

9.6          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. 
Except as set forth in the preceding sentence, Borrower bears all risk
of loss, damage or destruction of the Collateral.

9.7          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.

9.8          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”)
by any party to this Agreement or any other Loan Document must be in writing
and shall be deemed to have been validly served, given, or delivered: (a) upon
the earlier of actual receipt and three (3) Business Days after deposit in the
U.S. mail, first class, registered or certified mail return receipt requested,
with proper 

 13
 

 

postage prepaid; (b) upon transmission, when sent by
electronic mail or facsimile transmission; (c) one (1) Business Day after
deposit with a reputable overnight courier with all charges prepaid; or (d)
when delivered, if hand-delivered by messenger, all of which shall be addressed
to the party to be notified and sent to the address, facsimile number, or email
address indicated below.  Bank or
Borrower may change its address or facsimile number by giving the other party
written notice thereof in accordance with the terms of this Section 10.

	
  

  	
  If to Borrower:

  	
  GlobalSCAPE, INC.

  
	
   

  	
   

  	
  6000 Northwest
  Parkway, Suite 100

  
	
   

  	
   

  	
  San Antonio,
  Texas 78249

  
	
   

  	
   

  	
  Attn: Chief
  Financial Officer

  
	
   

  	
   

  	
  Fax: (210)
  690-8824

  
	
   

  	
   

  	
  Email:
  bschneider@globalscape.com

  
	
   

  	
   

  	
   

  
	
   

  	
  If to Bank:

  	
  Silicon Valley Bank

  
	
   

  	
   

  	
  7000 N. MoPac,
  Suite 360

  
	
   

  	
   

  	
  Austin, Texas
  78731

  
	
   

  	
   

  	
  Attn: Doug Mangum

  
	
   

  	
   

  	
  FAX: (512)
  794-0855

  
	
   

  	
   

  	
  Email:  dmangum@svb.com

  

 

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

California law governs the Loan Documents without
regard to principles of conflicts of law. 
Borrower and Bank each submit to the exclusive jurisdiction of the State
and Federal courts in Santa Clara County, California; provided, however, that
nothing in this Agreement shall be deemed to operate to preclude Bank from
bringing suit or taking other legal action in any other jurisdiction to realize
on the Collateral or any other security for the Obligations, or to enforce a
judgment or other court order in favor of Bank. 
Borrower expressly submits and consents in advance to such jurisdiction
in any action or suit commenced in any such court, and Borrower hereby waives
any objection that it may have based upon lack of personal jurisdiction,
improper venue, or forum non conveniens and hereby consents to the granting of
such legal or equitable relief as is deemed appropriate by such court.  Borrower hereby waives personal service of
the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower’s actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR
ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL
OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER
INTO THIS AGREEMENT.  EACH PARTY HAS
REVIEWED THIS WAIVER WITH ITS COUNSEL.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’
AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above
waiver of the right to a trial by jury is not enforceable, the parties hereto
agree that any and all disputes or controversies of any nature between them
arising at any time shall be decided by a reference to a private judge,
mutually selected by the parties (or, if they cannot agree, by the Presiding
Judge of the Santa Clara County, California Superior Court) appointed in
accordance with California Code of Civil Procedure Section 638 (or pursuant to
comparable provisions of federal law if the dispute falls within the exclusive
jurisdiction of the federal courts), sitting without a jury, in Santa Clara
County, California; and the parties hereby submit to the jurisdiction of such
court.  The reference proceedings shall be
conducted pursuant to and in accordance with the provisions of California Code
of Civil Procedure §§ 638 through 645.1, inclusive.  The private judge shall have the power, among
others, to grant provisional relief, including without limitation, entering
temporary restraining orders, issuing preliminary and permanent injunctions and
appointing receivers.  All such
proceedings shall be closed to the public and confidential and all records
relating thereto shall be permanently

 14
 

 

sealed.  If
during the course of any dispute, a party desires to seek provisional relief,
but a judge has not been appointed at that point pursuant to the judicial
reference procedures, then such party may apply to the Santa Clara County,
California Superior Court for such relief. 
The proceeding before the private judge shall be conducted in the same
manner as it would be before a court under the rules of evidence applicable to
judicial proceedings.  The parties shall
be entitled to discovery which shall be conducted in the same manner as it
would be before a court under the rules of discovery applicable to judicial
proceedings.  The private judge shall
oversee discovery and may enforce all discovery rules and order applicable to
judicial proceedings in the same manner as a trial court judge.  The parties agree that the selected or
appointed private judge shall have the power to decide all issues in the action
or proceeding, whether of fact or of law, and shall report a statement of
decision thereon pursuant to the California Code of Civil Procedure §
644(a).  Nothing in this paragraph shall
limit the right of any party at any time to exercise self-help remedies,
foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine all
issues relating to the applicability, interpretation, and enforceability of
this paragraph.

12           GENERAL PROVISIONS

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

12.2        Indemnification.  Borrower agrees to indemnify, defend and hold
Bank and its directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Bank 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.

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 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.

 15
 

 

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, including maintaining in
confidence Borrower’s confidential information, 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.

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

13           DEFINITIONS

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

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

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

“Availl Acquisition” means the
acquisition by Borrower of 100% of the issued and outstanding capital stock of
Availl pursuant to the Availl Acquisition Documents.

“Availl Acquisition Documents”
means that certain Agreement and Plan of Merger among Borrower, the
Stockholders (as defined therein) and the other parties thereto, all Schedules
and Exhibits and all other instruments and agreements delivered in connection
therewith.

“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.

“Availl” means
Availl, Inc., a Delaware corporation and, after the Availl Acquisition, a
wholly-owned Subsidiary of Borrower.

 16
 

 

“Availability Amount”
is (a) the lesser of (i) the Revolving Line or (ii) the Borrowing Base minus
the outstanding principal balance of any Advances.

“Bank” is
defined in the preamble hereof.

“Bank Expenses”
are all audit fees and expenses, costs, and expenses (including reasonable
attorneys’ fees and expenses) for preparing, 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.

“Bankruptcy-Related
Defaults” is defined in Section 9.1.

“Borrower” is
defined in the preamble hereof.

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

“Borrowing Base”
is (a) 80% of Eligible Accounts, as determined by Bank from Borrower’s
most recent Borrowing Base Certificate; 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 D.

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

“Cash Equivalents” means
(a) marketable direct obligations issued or unconditionally guaranteed by
the United States or any agency or any State thereof having maturities of not
more than one (1) year from the date of acquisition; (b) commercial paper
maturing no more than one (1) year after its creation and having the highest
rating from either Standard & Poor’s Ratings Group or Moody’s Investors
Service, Inc., (c) Bank’s certificates of deposit issued maturing no more than
one (1) year after issue.

“Change in Control”
means any event, transaction, or occurrence as a result of which (a) any “person”
(as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities
Exchange Act of 1934, as an amended (the “Exchange Act”)),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of Borrower, is or becomes a beneficial owner (within the meaning
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of Borrower, representing twenty-five percent (25%) or more of the
combined voting power of Borrower’s then outstanding securities; or (b) during
any period of twelve consecutive calendar months, individuals who at the
beginning of such period constituted the Board of Directors of Borrower
(together with any new directors whose election by the Board of Directors of
Borrower was approved by a vote of at least two-thirds of the directors then
still in office who either were directions at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason other than death or disability to constitute a majority of the
directors then in office.

“Code” is the
Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of California; provided, that, to the extent that the Code
is used to define any term herein or in any Loan Document and such term is
defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and
in effect in such other 

 17
 

 

jurisdiction solely for purposes on the provisions
thereof relating to such attachment, perfection, priority, or remedies and for
purposes of definitions relating to such provisions.

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

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

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

“Communication”
is defined in Section 10.

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

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

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

“Credit Extension”
is any Advance, Term Loan 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).

“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 3300521833, maintained with Bank.

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

“EBITDA” shall
mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted
in the calculation of Net Income, depreciation expense and amortization
expense, plus (d) income tax expense, plus (e) non-cash expenses incurred in
connection with stock-based compensation, plus (f) non-cash expenses incurred
in connection with the issuance of warrants or options to purchase the capital
stock of Borrower.

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

 18
 

 

“Eligible Accounts”
are Accounts which arise in the ordinary course of Borrower’s business that
meet all Borrower’s representations and warranties in Section 5.3.  Bank reserves the right at any time and from
time to time after the Effective Date, to adjust any of the criteria set forth
below and to establish new criteria in its good faith business judgment.  Unless Bank agrees otherwise in writing,
Eligible Accounts shall not include:

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

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

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

(d)           Credit
balances over ninety (90) days from invoice date;

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

(f)            Accounts
owing from an Account Debtor which does not have its principal place of
business in the United States;

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

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

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

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

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

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

(m)          Accounts
for which Bank in its good faith business judgment determines collection to be
doubtful; and

(n)           other
Accounts Bank deems ineligible in the exercise of its good faith business
judgment.

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

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

 19
 

 

“Event of Default”
is defined in Section 8.

“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.

“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.

“GlobalScape Subsidiaries”
means each of Availl, GS General, GS Limited and GlobalScape Texas, LLC, a
Nevada limited.

“GlobalScape Texas” means
GlobalSCAPE Texas, LP, a Texas limited partnership.

“GS General” means GS General,
LLC, a Nevada limited liability company, a wholly-owned Subsidiary of Borrower
and the general partner of GlobalScape Texas.

“GS Limited” means GlobalSCAPE
Limited, LLC, a Nevada limited liability company, a wholly-owned Subsidiary of
Borrower and the limited partner of GlobalScape Texas.

“Guarantor” is any present or future guarantor of the Obligations,
including the GlobalScape Subsidiaries.

“Guaranty” means each
Unconditional Guaranty executed by the GlobalScape Subsidiaries in favor of
Bank, dated as of the Effective Date.

“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.

“Interest Expense”
means for any fiscal period, interest expense (whether cash or non-cash)
determined in accordance with GAAP for the relevant period ending on such date,
including, in any event, interest expense with respect to any Credit Extension
and other Indebtedness of Borrower and its Subsidiaries, including, without
limitation or duplication, all commissions, discounts, or related amortization
and other fees and charges with respect to letters of credit and bankers’
acceptance financing and the net costs associated with interest rate swap, cap,
and similar arrangements, and the interest portion of any deferred payment
obligation (including leases of all types).

“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,

 20

 

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 those certain Intellectual Property Security Agreements executed and
delivered by Borrower and the GlobalScape Subsidiaries to Bank dated as of the
Effective Date.

“Letter of Credit”
means a standby letter of credit issued by Bank or another institution based
upon an application, guarantee, indemnity or similar agreement on the part of
Bank for the account of Borrower.

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

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

“Make-Whole Premium”
means an amount equal to $60,000.

“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 or (d) Bank determines, based upon
information available to it and in its reasonable judgment, that there is a
reasonable likelihood that Borrower shall fail to comply with one or more of
the financial covenants in Section 6 during the next succeeding financial
reporting period.

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

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

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

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

“Perfection Certificate”
is defined in Section 5.1.

“Permitted Indebtedness”
is:

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

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

 21
 

 

(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
secured by Permitted Liens;

(g)           Other
unsecured Indebtedness in an aggregate principal amount not to exceed $50,000;
and

(h)           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;

(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;

(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; and

(j)            Other
Investments not otherwise permitted by Section 7.7, not exceeding $50,000 in
the aggregate outstanding at any time.

“Permitted Liens”
are:

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

(b)           Liens
for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which Borrower maintains
adequate reserves on its Books, if they have no priority over any of
Bank’s Liens;

 22
 

 

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

(d)           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 Lien and the
aggregate amount of such Liens does not at any time exceed $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 $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 or sublicense of intellectual property granted to third parties in the
ordinary course of business; and

(i)            Liens
arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 8.4 or 8.7.

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

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

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

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

“Revolving Line”
is an Advance or Advances in an aggregate amount of up to $750,000 outstanding
at any time.

“Revolving Line Maturity Date” is
September       , 2008.

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

“Settlement Date” is defined in Section 2.1.3.

“Subordinated Debt”
is 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.

 23
 

 

“Subsidiary”
means, with respect to any Person, any Person of which more than 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.

“Term Loan” is a loan made by
Bank pursuant to the terms of Section 2.1.2 hereof.

“Term Loan Amount” is an
aggregate amount equal to $5,000,000 outstanding at any time.

“Term Loan Maturity Date”
is September     , 2009.

“Term Loan Payment”
is defined in Section 2.1.2(b).

“Third Party Security Agreement”
means each Security Agreement executed by the GlobalScape Subsidiaries in favor
of Bank, dated as of the Effective Date.

“Total Funded Debt”
means all obligations to repay borrowed money, whether direct or indirect,
incurred, assumed, or guaranteed; all capital lease obligations; all synthetic
leases; all obligations, contingent or otherwise, under any letter of credit;
all obligations under conditional sales agreements; provided that “Total Funded
Debt” does not include operating leases of Borrower and operating leases of
Borrower’s Subsidiaries guaranteed by Borrower.

“Transfer” is
defined in Section 7.1.

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

[Signature
page follows.]

 24

 

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

BORROWER:

GlobalSCAPE, Inc.

	
  By

  	
  /s/ Charles R.
  Poole

  	
   

  
	
  Name:

  	
  Charles R. Poole

  	
   

  
	
  Title:

  	
  President &
  CEO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BANK:

  
	
   

  
	
  SILICON VALLEY
  BANK

  
	
   

  
	
  By

  	
  /s/ Phillip A.
  Wright

  	
   

  
	
  Name:

  	
  Phillip A.
  Wright

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Effective Date:

  	
  9/22/06

  	
   

  
	
   

  
	
   

  
									

[Signature Page to
Loan and Security Agreement.]

 

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.

 

EXHIBIT B

Loan Payment/Advance Request Form

DEADLINE FOR SAME DAY PROCESSING
IS NOON P.S.T.*

	
  Fax To:

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
  LOAN PAYMENT:

  	
   

  
	
   

  	
   

  
	
  GlobalSCAPE,
  Inc.

  
	
   

  
	
  From Account #

  	
   

  	
   

  	
  To Account #

  	
   

  	
   

  
	
   

  	
  (Deposit Account
  #)

  	
   

  	
   

  	
  (Loan Account #)

  	
   

  
	
   

  	
   

  
	
  Principal $

  	
   

  	
   

  	
  and/or Interest $

  	
   

  	
   

  
	
   

  	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
  Phone Number:

  	
   

  	
   

  
	
  Print Name/Title:

  	
   

  	
   

  	
   

  
															

 

	
  LOAN ADVANCE:

  	
   

  
	
   

  	
   

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

  
	
   

  
	
  From Account #

  	
   

  	
   

  	
  To Account #

  	
   

  	
   

  
	
   

  	
  (Loan Account #)

  	
   

  	
   

  	
  (Deposit Account
  #)

  	
   

  
	
   

  
	
  Amount of Advance $

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
  Phone Number:

  	
   

  	
   

  
	
  Print Name/Title:

  	
   

  	
   

  	
   

  	
   

  	
   

  
														

 

	
  OUTGOING WIRE REQUEST:

  	
   

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

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

  	
   

  
	
   

  	
   

  
	
  Beneficiary Name:

  	
   

  	
   

  	
  Amount of Wire: $

  	
   

  	
   

  
	
  Beneficiary Bank:

  	
   

  	
   

  	
  Account Number:

  	
   

  	
   

  
	
  City and State:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Beneficiary Bank Transit (ABA) #:

  	
   

  	
   

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

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (For
  International Wire Only)

  
	
   

  	
   

  
	
  Intermediary Bank:

  	
   

  	
   

  	
  Transit (ABA) #:

  	
   

  	
   

  
	
  For Further Credit to:

  	
   

  
	
   

  	
   

  
	
  Special Instruction:

  	
   

  
	
   

  	
   

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

  
	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
  2nd Signature (if
  required):

  	
   

  	
   

  
	
  Print Name/Title:

  	
   

  	
   

  	
  Print Name/Title:

  	
   

  	
   

  
	
  Telephone #:

  	
   

  	
   

  	
  Telephone #:

  	
   

  	
   

  
																										

 

*  Unless otherwise provided for an Advance
bearing interest at LIBOR.

 

EXHIBIT C

BORROWING BASE CERTIFICATE

	
  Borrower: GlobalSCAPE, Inc.

  	
   

  
	
  Lender:   Silicon
  Valley Bank

  	
   

  
	
  Commitment Amount:         $750,000

  	
   

  
	
   

  	
   

  
	
  ACCOUNTS RECEIVABLE

  	
   

  
	
  2.

  	
  Accounts Receivable Book Value as of

  	
  $

  
	
  3.

  	
  Additions (please explain on reverse)

  	
  $

  
	
  4.

  	
  TOTAL ACCOUNTS RECEIVABLE

  	
  $

  
	
   

  	
   

  	
   

  
	
  ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

  	
   

  
	
  5.

  	
  Un-invoiced Accounts

  	
  $

  
	
  6.

  	
  Amounts over 90 days due

  	
  $

  
	
  7.

  	
  Balance of 50% over 90 day accounts

  	
  $

  
	
  8.

  	
  Credit balances over 90 days

  	
  $

  
	
  9.

  	
  Concentration Limits

  	
  $

  
	
  10.

  	
  Foreign Accounts

  	
  $

  
	
  11.

  	
  Governmental Accounts

  	
  $

  
	
  12.

  	
  Contra Accounts

  	
  $

  
	
  13.

  	
  Promotion or Demo Accounts

  	
  $

  
	
  14.

  	
  Intercompany/Employee Accounts

  	
  $

  
	
  15.

  	
  Disputed Accounts

  	
  $

  
	
  16.

  	
  Deferred Revenue 

  	
  $

  
	
  17.

  	
  Other (please explain on reverse)

  	
  $

  
	
  18.

  	
  TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

  	
  $

  
	
  19.

  	
  Eligible Accounts (#3 minus #17)

  	
  $

  
	
  20.

  	
  ELIGIBLE AMOUNT OF ACCOUNTS (80% of #18)

  	
  $

  
	
   

  	
   

  	
   

  
	
  BALANCES

  	
   

  
	
  21.

  	
  Maximum Loan Amount

  	
  $750,000

  
	
  22.

  	
  Total Funds Available Lesser of #21 or #20

  	
  $

  
	
  23.

  	
  Present balance owing on Line of Credit

  	
  $

  
	
  24.

  	
  Outstanding under Sublimits

  	
  $

  
	
  25.

  	
  RESERVE POSITION (#22 minus #23 and #24)

  	
  $

  

 

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

	
  

  	
  BANK
  USE ONLY

  
	
   

  	
  Received by: 

  	
   

  	
   

  
	
  COMMENTS:

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Verified:

  	
   

  	
   

  
	
  Authorized Signer

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
  Compliance Status:

  	
  Yes

  	
  No

  	
   

  
													

 

 

EXHIBIT D

BORROWING
RESOLUTIONS

   Silicon Valley Bank

CORPORATE
BORROWING CERTIFICATE

	
  BORROWER:
  GlobalSCAPE, Inc.

  	
  DATE:

  	
   

  
	
  BANK:

  	
  Silicon Valley Bank

  	
   

  
				

 

I hereby certify, in my
capacity as an officer of the Borrower and not individually, as follows, as of
the date set forth above:

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

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

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

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

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

	
  

  

  Name

  	
   

  	
  

  

  Title

  	
   

  	
  

  

  Signature

  	
   

  	
  Authorized to 

  Add or Remove 

  Signatories

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  o

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  o

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  o

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  o

  

 

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

RESOLVED
FURTHER, that such individuals may, on behalf of Borrower:

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

Execute Loan Documents.  Execute any loan documents Bank requires.

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

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

 

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

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

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

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

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

	
  

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

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

	
  I, the 

  	
   

  	
  of Borrower, hereby certify as to paragraphs 1
  through 5 above, as

  	
   

  
	
   

  	
  [print title]

  	
   

  	
   

  
	
  of the date set forth above.

  	
   

  

 

	
  

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

EXHIBIT E

COMPLIANCE
CERTIFICATE

	
  TO:

  	
  SILICON VALLEY BANK

  	
  Date:

  	
   

  
	
  FROM:

  	
  GlobalSCAPE, Inc.

  	
   

  

 

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

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

	
  Reporting
  Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly financial statements with Compliance
  Certificate

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes  No

  
	
  Annual financial statement (CPA Audited) + CC

  	
   

  	
  FYE within 120 days

  	
   

  	
  Yes  No

  
	
  10-Q, 10-K and 8-K

  	
   

  	
  Within 5 days after filing with SEC

  	
   

  	
  Yes  No

  
	
  Borrowing Base Certificate A/R & A/P Agings

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes  No

  
	
  Annual Budget

  	
   

  	
  Earlier of January 31 or 20 days after approval by
  Board of Directors

  	
   

  	
  Yes  No

  

 

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

 

	
  Financial
  Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum Fixed Charge Coverage Ratio

  	
   

  	
  1.50:1.00

  	
   

  	
  :1.00

  	
   

  	
  Yes  No

  
	
  Maximum Fund Debt/EBITDA

  	
   

  	
  2.00:1.00

  	
   

  	
  :1.00

  	
   

  	
  Yes  No

  

 

 

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

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

 

 

	
  GlobalSCAPE, Inc.

  	
  BANK USE ONLY

  
	
   

  	
   

  
	
   

  	
  Received by: 

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Verified:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Compliance Status:

  	
  Yes

  	
  No

  
															

 

 

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated:

I.              Minimum Fixed Charge Coverage Ratio (Section 6.7(a))

Required:               1.50:1.00

Actual:

 

	
  A.

  	
  Net Income of Borrower

  	
  $

  
	
   

  	
   

  	
   

  
	
  B.

  	
  To the extent included in the determination of Net
  Income

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  1.

  	
  The provision for income taxes

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
  Depreciation expense

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.

  	
  Amortization expense

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.

  	
  Net Interest Expense

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.

  	
  All other charges which are both non-cash and
  non-recurring

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.

  	
  All non-cash income

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.

  	
  The sum of lines 1 through 5 minus line 6

  	
  $

  
	
   

  	
   

  	
   

  
	
  C.

  	
  EBITDA (line A plus line B.7)

  	
   

  
	
   

  	
   

  	
   

  
	
  D.

  	
  Cash taxes paid

  	
  $

  
	
   

  	
   

  	
   

  
	
  E.

  	
  Non-financed capital expenditures

  	
  $

  
	
   

  	
   

  	
   

  
	
  F.

  	
  Line C minus Line D and Line E

  	
  $

  
	
   

  	
   

  	
   

  
	
  G.

  	
  The sum of principal plus interest paid to Bank

  	
  $

  
	
   

  	
   

  	
   

  
	
  H.

  	
  Line F divided by Line G

  	
   

  

 

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

	
  

  	
  No, not in compliance

  	
  Yes, in compliance

  

 

 

II.            Maximum Total Funded Debt/EBITDA (Section 6.7(b))

Required:               2.00:1.00

Actual:

	
  A.

  	
  Total Funded Debt (as defined in the Loan and
  Security Agreement)

  	
  $

  
	
  B.

  	
  Value of Line I.C. (EBITDA)

  	
  $

  
	
  C.

  	
  Line A divided by Line B

  	
  $

  

 

Is line C equal to or less than 2.00:1.00?

	
  

  	
             No,
  not in compliance

  	
  Yes, in compliance

  

 

 

EXHIBIT F

PERFECTION CERTIFICATE

[hard copy to be
inserted]

 

 

SILICON
VALLEY BANK

PRO FORMA
INVOICE FOR LOAN CHARGES

	
  BORROWER:

  	
  GlobalSCAPE, Inc.

  
	
   

  	
   

  
	
  LOAN OFFICER:

  	
  Doug Mangum

  
	
   

  	
   

  
	
  DATE:

  	
  September     , 2006

  
	
   

  	
   

  
	
   

  	
  Loan Fee

  	
  $20,000

  
	
   

  	
   

  	
   

  
	
   

  	
  Bank Expenses

  	
  $            (estimate)

  
	
   

  	
   

  	
   

  
	
   

  	
  TOTAL FEES DUE

  	
  $

  

 

o   A check for the total amount is attached.

o   Debit DDA #                            
for the total amount.

	
  BORROWER:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Authorized Signer

  	
  (Date)

  	
   

  
	
   

  	
   

  
	
  SILICON VALLEY BANK

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Loan Officer Signature

  	
  (Date)Exhibit
10.21

LEASE AGREEMENT

THIS LEASE  AGREEMENT (this “Agreement”) is made this 15th day
of July, 2006 (the “Effective Date”), by and between Millennium Gaming, Inc., a
Nevada corporation (the “Landlord”), and Cannery Casino Resorts, LLC, a Nevada
limited liability company (the “Tenant”).

NOW, THEREFORE, in consideration of the
mutual covenants and agreements set forth in this Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties, in accordance with the terms and subject to the
conditions set forth herein, agree as follows:

ARTICLE
I

DEFINITIONS
AND CONSTRUCTION

1.01                Definitions.  Certain terms used herein shall have the
meaning ascribed to such terms as set forth in Schedule 1.

1.02                Construction.

              (a)           The words “Schedule” or “Exhibit” shall mean an enumerated
schedule or exhibit all of which shall be deemed attached hereto and
incorporated herein by way of the specific reference or references made in this
Agreement.

              (b)           Each reference to a “Section” or an “Article” shall be
deemed a reference to an enumerated provision of this Agreement.

              (c)           Section headings are used for convenience only and shall
have no interpretative effect or impact whatsoever.

              (d)           All the defined terms, if defined in the singular or
present tense, shall also retain such general meaning if used in the plural or
past tense, and if used in the plural or past tense, shall retain the general
meaning if used in the singular or present tense.

              (e)           Whenever this Agreement refers to a number of days, such
number shall refer to calendar days unless Business Days are specified.

ARTICLE II

PREMISES

2.01                Premises.  Effective the Commencement Date, Landlord
leases to Tenant, and Tenant leases from Landlord, the Premises, on and subject
to the terms and conditions hereinafter set forth in this Agreement.

 

ARTICLE III

TERM; POSSESSION

3.01                Term.      This Agreement shall continue in force
during a period beginning on the Commencement Date and continuing until the
expiration of the Term, unless this Agreement is sooner terminated or extended
to a later date under any other term or provision of this Agreement.

3.02                Possession.  Exclusive possession of the Premises shall be
delivered to Tenant on the Commencement Date.

3.03                Effect of Tenant’s Holding
Over.  Any holding over after the
expiration of the Term, with the consent of Landlord, shall be construed to be
a tenancy from month to month and shall otherwise be on the terms and
conditions set forth in this Agreement, so far as applicable, except that Base
Rent for any holdover period shall be equal to one hundred fifty percent (150%)
of the monthly Base Rent that Tenant was required to pay for the period
immediately prior to the expiration of the Term.

3.04                Renewal Terms.  Provided Tenant is not in default under the
terms of this Agreement, the Tenant shall have two (2) consecutive separate
options to extend the Term for successive renewal terms of sixty (60) months
each.  Tenant may exercise each such
renewal option by giving written notice to the Landlord at least ninety (90)
days prior to the end of the initial period if this Agreement or the then
current renewal term, as the case may be. 
Each renewal term shall be on the same terms and conditions set forth in
the Agreement for the Term; provided, however, that Base Rent shall increase at
the commencement of each renewal term to an amount equal to one hundred five
percent (105%) of the Base Rent due and owing during the prior term (including
any previously exercised renewal term).

3.05                Surrender of Premises.  On expiration of the Term, Tenant shall
peacefully and quietly surrender to Landlord the Premises and all Tenant’s
Improvements and alterations in good order and condition (except for ordinary
wear and tear).  If Tenant fails to
surrender the Premises to Landlord either at expiration or within ten (10) days
after termination of the Term, whichever first occurs, Tenant shall hold
Landlord harmless from all Loss resulting from Tenant’s failure to surrender
the Premises, including, without limitation, Claims made by a succeeding tenant
resulting from Tenant’s failure to surrender the Premises.

ARTICLE IV

RENT; TAXES

4.01                Rent.

              (a)           Base Rent. 
Tenant covenants to pay Landlord during the Term, without demand,
notice, or any setoff or deduction whatsoever, the Base Rent, and all such
other sums of money as shall become due hereunder, the nonpayment of which
shall entitle Landlord to exercise all rights and remedies as are herein
provided in the case of the nonpayment of Base

 2
 

 

Rent.  The
annual Base Rent for each calendar year or portion thereof during the Term,
shall be due and payable in advance, in twelve (12) equal installments of thirty-two
thousand and 00¤100
Dollars ($32,000) (based on Two Dollars ($2.00) per Square Foot of the
Improvements) on the first day of each month during the Term, and Tenant hereby
covenants to pay such Base Rent to Landlord at Landlord’s address provided
herein (or such other address as may be designated by Landlord in writing from
time to time) monthly, in advance.  If
the Term commences on a day other than the first day of a month or terminates
on a day other than the last day of a month, then the installment of Base Rent
for such month or months shall be prorated, based on the number of days in such
month.

                                (b)           Additional Rent.  All charges payable by Tenant hereunder other
than Base Rent are called “Additional Rent.” 
Unless this Agreement provides otherwise, all Additional Rent accruing
for any period shall be paid with the next monthly installment of Base
Rent.  Base Rent and Additional Rent are
sometimes referred to collectively as “Rent.”

                                (c)           Interest on Late Payments.  Any installment of Rent not paid when due and
payable shall bear interest at the Lease Interest Rate from the date due until
paid.  Payments are deemed late if not
paid on the tenth (10th)
day of the month in which such Rent is due and payable.

                                (d)           CPI Adjustment.  The Base Rent shall be adjusted upward (but
not downward) (and such adjustments shall become effective) on each Adjustment
Date based on increases in the CPI for any Calculation Period as follows:

                     (i)            On each Adjustment Date, the increase in the CPI shall be
calculated by comparing the Beginning CPI to the Ending CPI for the Calculation
Period immediately preceding the applicable Adjustment Date, and calculating,
on a percentage basis, changes between the Beginning CPI and the Ending CPI
(for any Calculation Period, the “Applicable CPI Increase”).

                     (ii)           The Base Rent to become effective on the applicable
Adjustment Date shall be an amount equal to the sum of: (A) the Base Rent
during the immediately preceding Calculation Period, plus (B) an amount equal
to the Base Rent during the immediately preceding Calculation Period multiplied
by the Applicable CPI Increase.

4.02                Taxes.

              (a)           Tenant’s Liability. 
Tenant shall pay and discharge as they become due, promptly and before
delinquency, all Taxes, assessments, License fees, and Government Authority
Liens, charges or levies, excised or imposed, whether general or special, or
ordinary or extra-ordinary, of every name, nature, and kind whatsoever,
including all Government Authority charges of whatsoever name, nature, or kind,
which may be levied, assessed, charged, or imposed, or which may become a Lien
on or against the Premises (or really comprising a part thereof), or any part
thereof, any building or buildings, or any other Improvements now or hereafter
located thereon, or on or against Tenant’s leasehold estate hereby created
which may be

 3
 

 

subject of taxation, or on or against Landlord by
reason of the ownership of the fee estate of the Premises underlying this
Agreement, during the entire Term, excepting only the Excepted Taxes.

Specifically,
and without in any way limiting the generality of the foregoing, Tenant shall
pay all special assessments, and levies or charges made by any Government
Authority for local improvements and shall pay the same in cash as they shall
fall due and before they shall become delinquent and as required by the acts
and proceedings by which any such assessments, levies or charges are made by
any Government Authority.  If the right
is given to pay either in one (1) sum or installments, Tenant may elect either
method of payment and Tenant’s election to pay in installments shall be binding
on the Landlord.  If by making such
election to pay in installments, any such installment shall be payable after
the termination of this Agreement, such unpaid installment shall be prorated as
to the date of termination and amounts payable after such date shall be paid by
the Landlord.  All other Taxes and
charges under this section shall be prorated at the commencement and expiration
of the Term.

Landlord
shall take all reasonable steps to have future Tax bills sent directly to
Tenant from the Person imposing or levying such charges.  In the event the Person imposing or levying
such charges will not send future Tax bills directly to Tenant, Landlord shall
deliver same to Tenant upon receipt thereof. 
Tenant shall not be liable for any interest or penalties resulting from
late payment in the event Landlord fails to deliver a Tax statement to Tenant
at least thirty (30) days prior to a delinquency date.

Tenant
shall pay before delinquency all Taxes, assessments, License fees, and other
charges that are levied and assessed against Tenant’s personal property
installed or located in or on the Premises, that become payable during the
Term.

              (b)           Right to Contest. 
Tenant may contest the validity or amount of any Tax agreed to be paid
by Tenant and/or any assessed valuation of the Premises and the Improvements
located thereon and may thereupon defer the payment of any Tax so long as the
validity or amount thereof shall be contested by Tenant by appropriate Action
or Proceedings without expense or Liability to Landlord.  Should Tenant be unsuccessful in any such
Action or Proceeding, such Taxes and any interest and/or penalties resulting
therefrom shall be immediately discharged by Tenant, and Tenant shall
indemnify, defend and hold Landlord harmless from all Losses that may result
from Tenant’s Action or Proceeding.

Landlord
shall not be required to join in any Action of Proceeding brought by Tenant
unless the provisions of any Law requires that the Action or Proceeding be
brought by or in the name of Landlord or any owner of the Premises.  In such event, Landlord shall join in the
Action or Proceeding or permit the Action or Proceeding to be brought in
Landlord’s name provided there is no cost to Landlord.  Landlord hereby irrevocably appoints Tenant
as Landlord’s attorney in fact for the purpose of conducting any such Action or
Proceeding and for obtaining information and material necessary for the conduct
of such Action or Proceeding.

Prior
to the commencement of any such Action or Proceeding, Tenant shall furnish
Landlord a surety bond by an insurance company qualified to do business in the
State of Nevada

 4
 

 

in an amount equal to one and one-half times the total
amount of Taxes in dispute.  The bond shall
hold Landlord and the Premises harmless from all Taxes, costs, attorneys’ fees,
and Loss arising out of the Action or Proceeding and shall insure payment of
any Order that may be rendered.

              (c)           Special Improvement Districts.  Landlord further covenants that if at any
time during the Term any Government Authority shall undertake to create an
improvement or special assessment district, the proposed boundaries of which
shall include the Premises, Tenant shall be entitled to appear in any Action or
Proceeding relating thereto and to exercise all rights of the Landlord to have
the Premises excluded from such district, or to determine the degree of benefit
to the Premises resulting therefrom. 
Should either Party receive any notice or other information relating to
any proposed creation of such district, the proposed boundaries of which
include the Premises, such Party shall promptly advise the other Party in
writing of such receipt.  Landlord shall
reasonably cooperate with Tenant in any such Action or Proceeding in the event
Tenant should so request, but otherwise Landlord shall not oppose Tenant in any
such Action or Proceeding.

              (d)           Exclusions. 
Nothing contained in this Section 4.02 shall in any manner
obligate Tenant to pay all or any portion of any franchise or income or excess
profit Tax or any gift, inheritance, transfer, estate or succession Tax which
may be payable by the Landlord, or Landlord’s Representatives, successors or
assigns, nor shall Tenant be required to pay any Taxes that might become due on
account of ownership of property other than the Premises which might become a
Lien on the Premises or collectible from the same (collectively, “Excepted
Taxes”).  Tenant shall be obligated to
pay any Tax or excise on Rents which may be imposed upon Landlord and any
expenses, Taxes, charges or penalties imposed by the Environmental Law, or any
Law or Government Authority hereafter vested with the power to impose Taxes,
assessments or other types of surcharges as a means of controlling or abating
Releases in regard to the use, occupation or occupancy of the Premises.

              (e)           Disposition of Rebates.  All rebates on account of any such Taxes,
rates, levies, charges or assessments required to be paid, and paid by Tenant
under the provisions hereof, shall belong to Tenant and Landlord shall, on the
request of Tenant, execute any receipts, assignment, or other acquittances that
may be necessary in the Premises in order to secure the recovery of any such
rebates, and shall pay over to Tenant any such rebates which may be received by
Landlord.

              (f)            Receipts. 
Tenant shall obtain and deliver to Landlord within fifteen (l5) days
prior to the delinquency date receipts or duplicate receipts for all Taxes,
assessments, or other items required hereunder to be paid by the Tenant
promptly upon payment thereof.

4.03                Net Lease.  Notwithstanding any other provision in this
Agreement to the contrary, this Agreement is what is commonly known as a “net
lease”, it being understood that Landlord shall receive the Rent set forth in
this Agreement free and clear of any and all Taxes, Liens, charges or expenses
of any nature whatsoever in connection with the ownership and operation of the
Premises.  In addition to the Rent set
forth herein, Tenant shall pay to the

 5
 

 

Persons respectively entitled thereto all impositions,
insurance premiums, operating charges, maintenance charges, construction costs,
and any other charges, costs and expenses which arise or may be contemplated
under any provisions of this Agreement during the Term.  All of such charges, costs and expenses shall
constitute Additional Rent, and upon the failure of Tenant to pay any of such
Additional Rent.  It is the intention of
the Parties that this Agreement shall not be terminable for any reason by the
Tenant and that the Tenant shall in no event be entitled to any abatement of or
reduction in Rent payable hereunder, except as herein expressly provided.  Any present or future Law to the contrary
shall not alter this agreement of the Parties.

4.04                Late Payment Charge.  Tenant represents, warrants and covenants
that the late payment by Tenant to Landlord of Rent and other sums due
hereunder shall cause Landlord to incur costs not contemplated by this
Agreement, the exact amount of which shall be extremely difficult to ascertain.  Such costs include, but are not limited to,
processing and accounting charges. 
Accordingly, if any installment of Rent or other sum due from Tenant
shall not be received by Landlord within ten (10) days after such amount shall
be due, Tenant shall pay to Landlord a late charge equal to five percent (5%)
percent of such overdue amount.  The
Parties hereby represent, warrant and covenant that such late charge represents
a fair and reasonable estimate of the costs Landlord shall incur by reason of
the late payment by Tenant.  Acceptance
of such late charge by Landlord shall in no event constitute a waiver of Tenant’s
default with respect to such overdue amounts, nor prevent Landlord from
exercising any of the other rights and remedies granted to Landlord hereunder.

ARTICLE
V

USE; WARRANTIES

5.01                Use.  During the Term, the Premises may be occupied
and used only for office space in connection with Tenant’s business and such
other purposes as are normally and usually incident to such business.  Tenant covenants that it shall operate the
Premises in a lawful manner.   Tenant
represents, warrants and a covenants that: (a) Tenant has inspected the
Premises and is fully familiar with the physical condition thereof; and (b)
Landlord has made no warranties or representations, express or implied, of any
kind whatsoever concerning or relating to the Premises, the condition thereof
or any other matter in connection therewith, including but not limited to their
physical condition, income to be derived therefrom or expenses to be incurred
with respect thereto, and Landlord shall not be responsible to Tenant for any
patent or latent defects or conditions therein whether ascertainable by
physical inspection or otherwise.  Tenant
accepts the Premises in an “AS IS” condition. 
Without limiting the foregoing, Tenant’s rights in the Premises are
subject to all covenants, conditions, restrictions (and other documents)
recorded upon, or affecting, the Premises, and all laws, ordinances and
regulations governing and regulating the use and occupancy of the Premises.
There are no oral agreements, warranties or representations collateral to or
affecting the Premises except as may otherwise be expressly set forth herein.

5.02                Warranties.  Tenant represents, warrants and covenants
that no warranties whatsoever as to quality, condition, merchantability, use or
fitness for use for any purpose, whether express or implied, have been made by
Landlord.

 6
 

 

ARTICLE VI

IMPROVEMENTS; CONSTRUCTION; ALTERATIONS.

6.01                Ownership of Improvements.  The Parties represent, warrant and covenant
that title to all Improvements shall be vested in Landlord, and that such
Improvements consist of real property.

6.02                Notice of Construction;
Mechanics’ Liens.  Tenant covenants
that Landlord shall have the right to enter upon the Premises to post notices
of nonresponsibility.  No construction,
alteration, addition, improvement or repair estimated to cost in excess of Five
Thousand Dollars ($5,000.00) shall be commenced except upon not less than
thirty (30) days’ written notice to Landlord. 
Tenant covenants to post notices of nonresponsibility on behalf of
Landlord, if so requested by Landlord.

6.03                Tenant’s Duty to Keep
Premises Free of Liens. Tenant shall keep the Premises and every part
thereof and all buildings and other Improvements at any time located thereon
free and clear of any and all mechanics’, materialmen’s, and other Liens for or
arising out of or in connection with work or labor done, services performed, or
materials or appliances used or furnished for or in connection with any
operations of Tenant.  Any alteration,
improvement, or repairs or additions which Tenant may make or permit or cause
to be made, or any work or construction, by, for, or permitted by Tenant on or
about the Premises or any obligations of any kind incurred by Tenant shall be
promptly and fully paid and discharged by Tenant.  Tenant shall hold Landlord harmless from any
and all Claims on which any Lien may or could be based, and covenants to
indemnify Landlord for any Loss which may result therefrom.

If
Tenant desires to contest any such Lien, Tenant shall notify Landlord of Tenant’s
intention to do so within thirty (30) days after the filing of such Lien.  In such event, and provided that Tenant shall
on demand protect Landlord by obtaining a good and sufficient surety bond
against any such Lien and any Loss arising out of such Lien, in an amount equal
to one and one-half times the amount of the Claim of Lien.  Tenant shall not be in default hereunder
until thirty (30) days after the final determination of the validity thereof,
within which time Tenant shall satisfy and discharge such Lien to the extent
held valid; however, the satisfaction and discharge of any such Lien shall not,
in any case, be delayed until execution is had on any judgment rendered thereon
and such delay shall be a default of Tenant hereunder.  In the event of any such Action or
Proceeding, Tenant shall protect and indemnify Landlord against all Loss
resulting therefrom.

6.04                Capital
Improvements/Replacements. 
Notwithstanding the foregoing, Landlord shall be obligated to
repair/replace portions of the Improvements and portions of the Premises of a
capital nature (e.g., replacement of the roof or repaving of the parking lot);
provided, however, that Landlord may charge Tenant, and Tenant shall pay for,
the expense of such capital asset replacement proportionately over the
remaining Term based on the remaining useful life of the improvement, on a
monthly basis as Additional Rent (e.g., if there are 12 months remaining in the
Term, and replacement of the roof cost the Landlord $10,000, and the roof
replacement has an expected useful life of seven (7) years, Landlord may charge
Tenant for one-seventh (1/7) of

 7
 

 

the cost of the roof replacement (or $1,428.57),
payable on a monthly basis in installments of $119.05 over the remaining 12
months of the Term).

ARTICLE VII

REPAIRS AND MAINTENANCE

7.01                Landlord’s Nonresponsibility.  During the Term, Landlord shall not be
required to maintain or make any repairs, or replacements of any nature or
description whatsoever to the Improvements located on the Premises.  Tenant hereby expressly waives the right to
make repairs at the expense of Landlord as provided by Law in effect at the
time of execution of this Agreement, or in any Law which may hereafter be
enacted.

7.02                Tenant’s Duty to Maintain
Premises.  Throughout the Term,
Tenant shall, at Tenant’s sole cost, maintain the Improvements (including the
interior surface of exterior walls; all windows, doors, door frames, and door
closures; all plate glass windows; all carpeting and other floor covering; all
electrical equipment; all heating and air conditioning equipment; and all
plumbing and sprinkler systems, if any, installed therein) on the Premises in
accordance with all applicable Laws in good and sanitary order, condition, and
repair, and shall make whatever repairs and replacements are required by such
Laws.  All fixtures installed in the
Premises by Tenant, whether as replacements or additions, shall forthwith
become the property of Landlord and a portion of the property leased to
Tenant.  Tenant shall take good care of
the fixtures used in connection with the operation of Tenant’s business,
renewing, repairing, and supplementing the same as may be necessary in the
ordinary course of business.  If Tenant
refuses or neglects to make repairs to and/or maintain the Premises, or any
part thereof, in a manner reasonably satisfactory to Landlord, Landlord shall
have the right, but shall not be obligated, to make such repairs or perform
such maintenance on behalf of and for the account of Tenant.  In such event, Tenant shall pay promptly upon
demand therefor, as additional rent, the cost of such work plus an overhead
surcharge of fifteen percent (15%) of such cost.

7.03                Contest of Government Orders.  Tenant has the right to contest by
appropriate Action or Proceeding, without cost to Landlord, the validity or
application of any Law requiring that Tenant repair, maintain, alter or replace
the Improvements now or hereafter located on the Premises in whole or in part,
and Tenant shall not be in default for failing to do such work until a
reasonable time following final determination of Tenant’s Action or
Proceeding;  provided, however,  that a bond equal to the estimated amount of
such Improvements is posted prior to such Action or Proceeding.

ARTICLE VIII

ASSIGNMENT; SUBLETTING; ENCUMBRANCES

8.01                Prohibition Against Voluntary
Assignment and Encumbering.  Without
the written consent of the Landlord, which consent shall not be unreasonably
withheld, conditioned or delayed, Tenant shall not assign, transfer, mortgage
or otherwise encumber or dispose of this Agreement or the leasehold estate of
Tenant or any interest of Tenant in the Premises, or in the building or
Improvements thereon.  Any such
assignment without Landlord’s consent shall be

 8
 

 

void and shall, at the option of Landlord, terminate
this Agreement.  If this Agreement is
attempted to be assigned without Landlord’s approval, Landlord may, after such
default by the Tenant, collect rent from the assignee, and apply the net amount
collected to the Rent herein reserved, but no such collection shall be deemed a
waiver of this Section 8.01 or be deemed the acceptance of the assignee
as tenant, nor be deemed as a release of the Tenant from the further observance
and performance of the provisions of this Agreement.  If Tenant is a corporation, limited liability
company or similar entity, the issuance or transfer of any of the shares of
stock of said corporation or membership interests in such limited liability company
or similar entity which issuance or transfer results in a change in the
ownership of (i) the voting control and/or (ii) the majority of the issued and
outstanding stock of said corporation or membership interests of such limited
liability company or similar entity, as compared with such ownership on the
date of this Agreement, shall be deemed to be an assignment by Tenant of its
interest in this Agreement.

8.02                Involuntary Assignment.  Neither this Agreement nor the leasehold
estate of Tenant nor any interest of Tenant in the Premises, or in the building
or Improvements thereon shall be assignable involuntarily or by operation of
Law.  Each of the following acts shall be
considered as an involuntary assignment:

              (a)           If Tenant or any subtenant or assignee of Tenant is or
becomes bankrupt or insolvent, makes an assignment for the benefit of
creditors, or institutes an Action or Proceeding under the United States
Bankruptcy Code in which Tenant is the bankrupt, or makes an assignment for the
benefit of creditors;

              (b)           If a writ of attachment or execution is levied on this
Agreement;

              (c)           If, in any Action or Proceeding or action to which Tenant
is a Party, a receiver is appointed with authority to take possession of the
Premises.

Any such attempt
of involuntary assignment, transfer or sale shall be void and of no
effect.  An  involuntary assignment shall constitute a
default by Tenant and, if said default is not timely cured as hereinafter
provided, Landlord shall have the right to elect to terminate this Agreement,
in which case this Agreement shall not be treated as an asset of Tenant.  If a writ of attachment or execution is
levied on this Agreement, Tenant shall have ten (10) days in which to cause the
attachment or execution to be removed. 
If any involuntary proceeding in bankruptcy is brought against Tenant,
or if a receiver is appointed, Tenant shall have sixty (60) days in which to
have the involuntary proceeding dismissed or the receiver removed.  This section shall have no application to the
rights of the mortgagee and/or beneficiary under an encumbrance placed upon the
leasehold estate and Improvements thereon by the Tenant.

8.03                Subletting.  Tenant shall not have the right (without
Landlord’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed) at any time during the Term to sublet parts
or all of the Premises; provided, however, that Tenant shall have the right to
sublet all or a portion of the Premises to an entity in which not less than
fifty-one percent (51%) of the equity interests are owned by those Persons who
presently control the Tenant.

 9
 

 

8.04                Leasehold Mortgages.  Tenant shall not have the right at any time
to subject the leasehold estate in the Premises and any or all Improvements to
one or more mortgages or deeds of trust or other security instruments, by way
of assignment or otherwise as security for a loan or loans or other obligations
of Tenant.

8.05                Landlord’s Assignment and
Encumbrances.  Landlord shall have
the right to sell, encumber or hypothecate Landlord’s fee interest in the
Premises or Landlord’s interest in this Agreement; provided, however, that such
sale, encumbrance or hypothecation shall in no way affect the rights of the
Tenant hereunder.  Upon Landlord’s
assignee’s express assumption and agreement to perform and discharge the
Landlord’s obligations under this Agreement, and in addition to the
indemnification set forth in Article XI, Landlord shall forever be
indemnified by Tenant and Landlord’s assignee against and held harmless from
all obligations, including, without limitation, all Loss and Liabilities
arising out of a default in or breach of the covenants and obligations on the
part of the Landlord to be performed under the Lease or arising from Landlord’s
ownership of the Premises.

8.06                Subordination.  This Agreement shall at all times be
subordinate to the lien of any mortgage or deed of trust (a “Mortgage”)
currently encumbering the Premises and any future Mortgage hereinafter placed
upon Premises.  If Tenant shall give Landlord
any notice of default, then Tenant shall simultaneously give a copy of such
notice of default to all lenders under such Mortgage(s) (the “Mortgagee(s)”)
provided that Tenant shall have received notice of their names and addresses
and their Mortgage(s) shall not have been satisfied or discharged of
record.  Such Mortgagee(s) shall be
permitted to correct or remedy Landlord’s alleged breach or default within the
same time within which Landlord is permitted to do so, and with like effect as
if Landlord had done so.  Tenant’s
failure to give Mortgagee(s) the notice required by this Section 9.06 shall not
be a default by Tenant, but no notice by Tenant of any default by Landlord
shall be legally effective against such Mortgagee(s) unless and until Tenant shall
have given such notice to Mortgagee(s). 
Tenant covenants to execute and deliver such further instrument(s)
subordinating this Agreement to the lien of any such Mortgage(s) provided for
herein as shall be desired by Mortgagee within ten (10) days of receipt of the
same.

ARTICLE IX

UTILITIES

9.01                Utilities.  Tenant shall fully and promptly pay all
charges for water, sewer, heat, fuel, light, electricity, gas, telephone, and
any other utility and services to the Premises and all other costs and expenses
of every kind whatsoever of, or in connection with the use, operation and
maintenance of the Premises, and all activities conducted thereon, and Landlord
shall have no responsibility of any kind for any thereof and Landlord shall in
no event be liable, and Tenant shall in no event be entitled to an abatement of
Rent, should any such utility service be interrupted for any reason.  If any such charges are not paid when due,
Landlord may (but is under no obligation to) pay the same, and any amount so
paid by Landlord shall thereupon become due to Landlord from Tenant as
additional rent.

 10

 

ARTICLE X

INDEMNITY

10.01              Indemnity.  Tenant waives all Claims against Landlord and
covenants to protect, save and keep Landlord harmless and indemnified against
and from, any Losses or Orders arising from injury or damage to any property or
Person (including employees, subtenants, patrons and invitees of Tenant), or
due to any failure of Tenant, Tenant’s agents, employees or subtenants to keep,
fulfill or perform any of the covenants, agreements, undertakings, obligations
and conditions contained in this Agreement on the part of Tenant to be kept,
fulfilled and performed, or due to any use, occupancy, management, operation or
possession by the Tenant of the Premises.

Landlord
shall not be liable to Tenant for any damage because of any act or negligence
by any owner or occupant of adjoining or contiguous property, nor for overflow,
breakage or leakage of water, steam, gas, or electricity from pipes, wires or
otherwise.

During
the Term, Landlord shall be held harmless by Tenant from any and all Liability
or Loss to any Person or property arising from the operation of or in or upon
the Premises or the sidewalks immediately adjoining the same, including Tenant’s
agents, invitees, employees, and its property; and Tenant covenants to pay any
and all attorneys’ fees, and Loss that Landlord may incur because of the
failure, if any, of Tenant to fulfill the covenants and agreements set out
herein.

ARTICLE
XI

DESTRUCTION;
INSURANCE

11.01              Damage to and Destruction of
Improvements.  The damage,
destruction or partial destruction of any Improvement which is a part of or
located on the Premises shall not release Tenant from any obligation hereunder
including the payment of Rent, except as hereinafter expressly provided, and in
case of damage to or destruction of any such Improvement, Tenant shall, at
Tenant’s own expense, promptly repair and restore the same to a condition as
good or better than that which existed prior to such damage or destruction.

11.02              Insurance.

              (a)           Insurance Coverage of Premises.  Tenant shall, at all times during the Term at
Tenant’s sole expense, keep all Improvements which are now or hereafter a part
of the Premises insured against loss or damage by fire and the extended
coverage hazards for of the Full Replacement Value of such Improvements, with
loss payable to Landlord, any Landlord mortgagee and/or beneficiary under
encumbrances of Landlord, and Tenant in accordance with their respective
interests therein.  Any loss adjustment
shall require the written consent of both Landlord and Tenant.

              (b)           Personal Injury Liability Insurance.  Tenant shall maintain in effect throughout
the Term personal injury liability insurance covering the Premises and its

 11
 

 

appurtenances and the sidewalks fronting thereon in
the amount of at least One Million Dollars ($1,000,000) in respect to injuries
to or death of any one Person, and an amount not less than Two Million Dollars
($2,000,000) for injuries to any number of Persons arising out of any one
occurrence, and an amount of not less than Two Hundred and Fifty Thousand Dollars
($250,000) in respect to property damaged or destroyed in any one occurrence,
and shall be subject to periodic increase upon reasonable demand by Landlord
based upon inflation, increased liability awards, recommendations of
professional insurance advisers, and other relevant factors; provided, however,
the limits of such insurance shall not limit Tenant’s liability nor relieve
Tenant of any such obligation hereunder. 
Landlord shall be named as an additional insured on said policies.

              (c)           Landlord’s Right to Pay Premiums On Behalf Of Tenant.  All of the policies of insurance referred to
in this section shall be written in form satisfactory to Landlord and by
insurance companies satisfactory to Landlord. 
Tenant shall pay all the premiums therefor and deliver such policies, or
certificates thereof, to Landlord, and in the event of the failure of Tenant
either to effect such insurance in the names herein called for or to pay the
premiums therefor or to deliver such policies, or certificates thereof to Landlord,
Landlord shall be entitled, but shall have no obligation, to procure such
insurance and pay the premiums therefor, which premiums shall be repayable by
Tenant to Landlord with the next installment of Rent as Additional Rent.  Each insurer mentioned in this section shall
agree, by endorsement on the policy or policies issued by it, or by independent
instrument furnished to Landlord, that it shall give to Landlord thirty (30)
days written notice before the policy or policies in question shall be altered
or canceled.  Landlord covenants that
Landlord shall not unreasonably withhold Landlord’s approval as to the form or
to the insurance companies selected by Tenant.

              (d)           Definition of Full Replacement Value.  In the event either Party believes that the Full
Replacement Value has increased or decreased, it shall have the right, but,
except as provided below, only at intervals of not less than two (2) years, to
have such Full Replacement Value redetermined by the fire insurance company
which is then carrying the largest amount of fire insurance carried on the
Premises (hereinafter referred to as “impartial appraiser”).  The Party desiring to have the Full
Replacement Value so redetermined by such impartial appraiser shall, prior to
submission of such request for determination, give written notice thereof to
the other Party.  The determination of
such impartial appraiser shall be final and binding on the Parties, and Tenant
shall forthwith increase or decrease the amount of the insurance carried
pursuant to this section, as the case may be, to the amount so determined by
the impartial appraiser.  Such
determination shall be binding for a period of two (2) years or until
superseded by agreement between the Parties or by a subsequent redetermination
by an impartial appraiser.  Each Party
shall pay one-half of the fee, if any, of the impartial appraiser.  If during any such two (2) year period Tenant
shall have made substantial improvements to the Premises, Landlord may have
such Full Replacement Value redetermined at any time after such Improvements
are made regardless of when the Full Replacement Value was last determined.

              (e)             Adjustment of Coverage.  In the event that either Party shall at any
time deem the limits of the personal injury or property damage public liability
insurance then carried to be either excessive or insufficient, the Parties
shall endeavor to agree on the proper and

 12
 

 

reasonable limits for such insurance then to be
carried and such insurance shall thereafter be carried with the limits thus agreed
on until further change pursuant to the provisions of this section; provided,
however, if the Parties shall be unable to agree thereon, the proper and
reasonable limits for such insurance then to be carried shall be determined by
an impartial third Person selected by the Parties or should they be unable to
agree on a selection, by an impartial third Person chosen by the insurance
carrier carrying the greatest percentage of liability insurance on the
Premises, or its successors, on application by either Party made after thirty
(30) days written notice to the other Party of the time and place of such
application, and the decision of such impartial third Person as to the proper
and reasonable limits for such insurance then to be carried shall be binding on
the Parties, and such insurance shall be carried with the limits as thus
determined until such limits shall again be changed pursuant to the provisions
of this section.  The expenses of such
determination shall be borne equally by the Parties.

              (f)            Blanket Insurance Policies.  Notwithstanding anything to the contrary
contained in this section, Tenant’s obligations to carry the insurance provided
for herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Tenant; provided, however, that
the coverage afforded Landlord shall not be reduced or diminished or otherwise
be different from that which would exist under a separate policy meeting all
other requirements of this Agreement by reason of the use of such blanket
policy of insurance.

11.03              Waiver of Subrogation.  Landlord and Tenant hereby waive all rights
of subrogation which their respective insurers might have under all policies of
insurance now existing or hereafter purchased during the Term by either
Landlord or Tenant, respectively, insuring or covering the Premises or any
portion thereof or the Improvements. 
Tenant and Landlord shall, upon obtaining the policies of insurance
required hereunder, give notice to their respective insurance carriers that the
foregoing mutual waiver of subrogation is contained in this Agreement.  This waiver of subrogation shall be effective
as to any insurance policy, provided that the particular insurance policy
permits such waiver or that endorsements may be obtained at no extra cost which
do not invalidate the policy.

ARTICLE XII

CONDEMNATION

12.01              Rights and Obligations of
Parties.  If, during the Term, there
is any Condemnation of all or any part of the Premises or any interest in this
Agreement, the rights and obligations of the Parties shall be determined
pursuant to this Article XII.

12.02              Total Taking - Effect on Lease.  If the total Premises are taken by
Condemnation, this Agreement shall terminate on the Date of Taking and Tenant
shall thereupon be released from any liability thereafter occurring hereunder.

12.03              Partial Taking - Effect on
Lease.  If any portion (but less than
the total) of the Premises is taken by Condemnation this Agreement shall remain
in effect, except that Tenant shall have the election to terminate this
Agreement if Tenant determines that the remaining

 13
 

 

portion of the Premises shall be uneconomical for
Tenant’s continued use, operation and management, as determined by Tenant in
its reasonable discretion.  Tenant must
elect to terminate this Agreement within thirty (30) days after the date
Landlord has notified Tenant in writing that the Premises has been so
appropriated or taken.

12.04              Partial Taking - Reduction of
Rent.  If any portion of the Premises
is taken by Condemnation and this Agreement remains in full force and effect,
on the Date of Taking the Rent shall be reduced in the same proportion that the
area of the portion of the Premises taken by the Condemnor bears to the total
area of the Premises immediately before the Date of Taking.

12.05              Restoration of Premises.  If there is a partial taking of the Premises
and this Agreement remains in full force and effect pursuant to Section
12.03, Landlord shall restore any partially taken Improvements so as to
render the same a complete architectural unit. 
Rent shall not be abated or reduced during the period from the Date of
Taking until the completion of restoration, and all other obligations of Tenant
under this Agreement shall remain in full force and effect.

12.06              Distribution of Award.  The Award shall be apportioned between
Landlord and Tenant in the event of the termination of this Agreement by reason
of the total or partial taking of the Premises as follows:  (a) 
For Tenant:  the unamortized value
of those Improvements placed on the Premises by Tenant; (b)  For Landlord: 
the remainder of said Award.  If,
in the event of a partial taking of the Premises, this Agreement is not
terminated, then Tenant shall have the right to make a Claim against the
Condemnor for only the unamortized value of the Improvements placed on the
Premises by Tenant which are located thereon at the time of the taking or
appropriation, which Improvements shall be deemed to amortize over fifteen (15)
years in equal annual amounts over the period commencing with the date of
completion of such Improvements.

ARTICLE XIII

HAZARDOUS SUBSTANCES

13.01       No Releases.  Tenant shall not cause or permit to occur:
(a) any violation of any Environmental Law now or hereafter enacted, related to
environmental conditions on, under, or about the Premises, or arising from
Tenant’s use or occupancy of the Premises, including, but not limited to, soil
and ground waste conditions; or (b) the use, generation, Release, manufacture,
refining, production, processing, storage, or disposal of any Hazardous
Material on, under, or about the Premises, or the transportation to or from the
Premises of any Hazardous Material.

13.02              Compliance with Environmental
Laws.  (a) Tenant shall, at Tenants
own expense, comply with all Environmental Laws; (b) Tenant shall, at Tenant’s
own expense, make all submissions to, provide all information required by, and
comply with all requirements of all Government Authorities under the
Environmental Laws; (c) should any Government Authority or any third Person
demand that a clean-up plan be prepared and that a clean-up be undertaken
because of any Release that occurs during the Term, at or from the Premises, or
which arises at any time from Tenant’s use or occupancy of the Premises, then
Tenant shall, at Tenant’s own

 14
 

 

expense, prepare and submit the required plans and all
related bonds and other financial assurances, and Tenant shall carry out all
such clean-up plans; (d) Tenant shall promptly provide all information
regarding the use, generation, storage, transportation, or disposal of
Hazardous Materials that is requested by Landlord.  If Tenant fails to fulfill any duty imposed
under this Section 13.02 within a reasonable time, Landlord may do so
and in such case, Tenant shall cooperate with Landlord in order to prepare all
documents Landlord deems necessary or appropriate to determine the
applicability of the Laws to the Premises and Tenant’s use thereof, and for
compliance therewith, and Tenant shall execute all documents promptly upon
Landlord’s request.  No such action by
Landlord and no attempt made by Landlord to mitigate damages under any Law
shall constitute a waiver of any of Tenant’s obligations under this Section
13.02, and Tenant’s obligations and liabilities under this Section 13.02
shall survive the expiration of this Agreement.

13.03              Environmental Indemnification.  Tenant shall indemnify, defend, and hold
harmless Landlord, and Landlord’s officers, members, managers, agents, and
employees from all Loss, Liability and Actions and Proceedings, of every kind,
and all costs associated therewith (including attorneys’ and consultants’ fees)
arising out of or in any way connected with any Release of Hazardous Materials
that occurs during the Term, at or from the Premises, or which arises at any
time from Tenant’s use or occupancy of the Premises, or from Tenant’s failure
to provide all information, make all submissions, and take all steps required
by all Government  Authorities under the
Environmental Laws.  Tenant’s obligations
and liabilities under this Section 13.03 shall survive the expiration of
this Agreement.

ARTICLE XIV

TENANT’S DEFAULT; NOTICE; NEW LEASE

14.01              Events of Default.  The following events shall be deemed to be
events of default (“Events of Default”) by Tenant under this Agreement:

(a)           If Tenant abandons the Premises or if
Tenant vacates the Premises for thirty (30) consecutive days;

(b)           If Tenant fails to pay Rent or any
other charge required to be paid by Tenant, as and when due;

(c)           If Tenant fails to perform any of
Tenant’s nonmonetary obligations under this Agreement for a period of thirty
(30) days after written notice from Landlord; provided that if more than thirty
(30) days are required to complete such performance, Tenant shall not be in
default if Tenant commences such performance within such thirty (30) day period
and thereafter diligently pursues its completion;

(d)           (i) If Tenant makes a general
assignment or general arrangement for the benefit of creditors; (ii) if a
petition for adjudication of bankruptcy or for reorganization or rearrangement
is filed by or against Tenant and is not dismissed with sixty (60) days; (iii)
if a trustee or receiver is appointed to take possession of substantially all
of Tenant’s assets located at the Premises or of Tenant’s interest in this Agreement
and possession is not restored to Tenant within sixty (60) days; or (iv) if
substantially all of Tenant’s assets located at

 15
 

 

the Premises or of Tenant’s interest in this Agreement
is subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days.  If a
court of competent jurisdiction determines that any of the acts described in
this subsection (d) is not a default under this Agreement, and a trustee is
appointed to take possession (or if Tenant remains a debtor in possession) and
such trustee or Tenant transfers Tenant’s interest hereunder, then Landlord
shall receive, as Additional Rent, the difference between the rent (or any
other consideration) paid in connection with such assignment or sublease and
the Rent payable by Tenant hereunder;

              (e)           Any representation or warranty made by Tenant or by
subtenant or assignee in connection with this Agreement shall have been false
or misleading as of the date such representation or warranty was made; or

              (f)             Failure by Tenant to comply with the limitations on use
of the Premises as set forth in Article V.

14.02              Landlord’s Remedies. Upon
the occurrence of any Event of Default by Tenant, Landlord may, at any time
thereafter, with or without notice or demand and without limiting Landlord in
the exercise of any right or remedy which Landlord may have:

              (a)           Terminate Tenant’s right to possession of the Premises by
any lawful means, in which case this Agreement shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all Loss incurred by Landlord
by reason of Tenant’s default, including without limitation (i) the worth at
the time of the award of the unpaid Base Rent, Additional Rent and other
charges which had been earned at the time of the termination; (ii) the worth at
the time of the award of the amount by which the unpaid Base Rent, Additional
Rent and other charges which would have been earned after termination until the
time of the award exceeds the amount of such rental Loss that Tenant proves
could have been reasonably avoided; (iii) the worth at the time of the award of
the amount by which the unpaid Base Rent, Additional Rent and other charges
which would have been paid for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant’s failure to perform its
obligation under the Agreement including, but not limited to, any costs or
expenses incurred by Landlord in maintaining or preserving the Premises after
such default, the cost of recovering possession of the Premises, expenses of
reletting, including necessary renovation or alteration of the Premises,
Landlord’s reasonable attorneys’ fees incurred in connection therewith, and any
real estate commission paid or payable. As used in subsections (i) and (ii)
above, the “worth at the time of the award” is computed by allowing interest on
unpaid amounts at the Lease Interest Rate, or such lesser amount as may then be
the maximum lawful rate, accruing from the date such payments are due until
paid. As used in subsection (iii) above, the “worth at the time of the award”
is computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of the award, plus one percent (1%);

 16
 

 

              (b)           Maintain Tenant’s right to
possession, in which case this Agreement shall continue in effect whether or
not Tenant shall have abandoned the Premises. 
In such event, Landlord shall be entitled to enforce all of Landlord’s
rights and remedies under this Agreement, including the right to recover Base
Rent as it becomes due hereunder, including charges for late payment of any
installment of Rent.  Landlord’s election
to maintain Tenant’s right to possession shall not prejudice Landlord’s right,
at any time thereafter to terminate Tenant’s right to possess and proceed in
accordance with Section 14.02(a) above;

(c)           Pursue any other remedy now or
hereafter available to Landlord under the Laws or judicial decisions of the
State of Nevada;

              (d)           Tenant shall, during the period Tenant remains in default,
be immediately liable to Landlord for all costs of reletting, including
brokerage commissions and costs of renovating and altering the Premises for
reletting; and

              (e)           Landlord’s exercise of any right or remedy or failure to
exercise any right or remedy shall not prevent it from exercising any other
right or remedy.

14.03              Landlord’s Default.  Landlord shall be in default hereunder in the
event Landlord has not begun and pursued with reasonable diligence the cure of
any failure of Landlord to meet its obligations hereunder within thirty (30)
days of receipt by Landlord of written notice from Tenant of the alleged
failure to perform.  In no event shall
Tenant have the right to terminate or rescind this Agreement as a result of
Landlord’s default as to any covenant or agreement contained in this Agreement
or as a result of the breach of any promise or inducement hereof, whether in
this Agreement or elsewhere.  Tenant
hereby waives such remedies of termination and recession and covenants that Tenant’s
remedies for default hereunder and for breach of any promise or inducement
shall be limited to an Action or Proceeding for damages and/or injunction. In
addition, Tenant hereby covenants that, prior to the exercise of any such
remedies, Tenant shall give the beneficiary holding a deed of trust on the
Premises notice and a reasonable time to cure any exculpation default by
Landlord.

ARTICLE
XV

MISCELLANEOUS
PROVISIONS

15.01              Estoppel Certificates.  Tenant and Landlord shall, at any time and
from time to time during the Term and upon not less than ten (10) days’ prior
request by the other Party, execute, acknowledge and deliver to Landlord, or
Tenant, as the case may be, a statement in writing certifying that this
Agreement is unmodified, and in full force and effect (or if there have been any
modifications, that the same is in full force and effect as modified and
stating the modifications) and, if so, the dates to which the Rent and other
charges have been paid in advance, it being intended that any such statement
delivered pursuant to this paragraph may be relied upon by any prospective
purchaser, encumbrancer, or assignee of the Premises.

15.02              Non-Merger.  There shall be no merger of this Agreement,
or of the leasehold estate created thereby, with the fee estate in and to the
Premises by reason of the fact that this

 17
 

 

Agreement, or the leasehold estate created hereby, or
any interest in either thereof, may be held directly or indirectly by or for
the account of any Person who shall own the fee estate in and to the Premises,
or any portion thereof, and no such merger shall occur unless and until all
Persons at the time having any interest in the fee estate and all Persons
having any interest in this Agreement or the leasehold estate, including a
leasehold mortgagee, if any, and the holder or any mortgage upon the fee estate
in and to the Premises, shall join in a written instrument effecting such
merger.

15.03              Notices.   All notices, requests and other
communications hereunder must be in writing and shall be deemed to have been
duly given only if delivered personally or by facsimile transmission or mailed
(first class postage prepaid) to the parties at the following addresses or
facsimile numbers

              To Landlord:                                         Millennium
Gaming, Inc.

                                           ____________________________

                                           ____________________________

                                           Attn:  William J. Paulos

                                           Fax
No.: (702) ________________

              To Tenant:                                            Cannery
Casino Resorts, LLC

                                           ____________________________

                                           ____________________________

                                           Attn: William C. Wortman

                                           Fax
No.: (702) ________________

All such notices,
requests and other communications will:

              (i)            if delivered personally to the address as provided in
this Section, be deemed given upon delivery;

              (ii)           if delivered by facsimile transmission to the facsimile
number as provided in this Section, be deemed given upon receipt, and

              (iii)          if delivered by mail in the manner described above to the
address as provided in this Section, be deemed given upon receipt (in each case
regardless of whether such notice, request or other communication is received
by any other Person to whom a copy of such notice, request or other
communication is to be delivered pursuant to this Section).  Any Party from time to time may change such
Party’s address, facsimile number or other information for the purpose of
notices to that Party by giving notice specifying such change to the other
Party.

15.04              Costs of Suit.  If either Party becomes a party to an Action
or Proceeding concerning this Agreement by reason of any act or omission of the
other Party or its Representatives, and not by any act or omission of the Party
that becomes a party to that Action or Proceeding or any act or omission of
such Party’s Representatives, the Party that causes the other Party to become
involved in the Action or Proceeding shall be liable to that Party for

 18
 

 

reasonable attorneys’ fees and court costs incurred in
such Action or Proceeding.  If an Action
or Proceeding shall be brought by either of the Parties hereto for the unlawful
detainer of the Premises, for the recovery of any Rent due under the provisions
of this Agreement, or because of the breach of any provision of this Agreement,
or to enforce or interpret any of the terms, covenants, agreements, or
conditions of this Agreement, the Party prevailing in said Action or Proceeding
(Landlord or Tenant as the case may be) shall be entitled to recover from the
Party not prevailing costs of suit and reasonable attorneys’ fees, including
attorneys’ fees incurred in connection with any appeal from a decision of the
trial court or an intermediate appellate court, which shall be fixed by the
court and be made a part of the judgment rendered.

15.05              Waiver.  The waiver by Landlord of, or the failure of
Landlord to take action with respect to any breach of any term, covenant, or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition, or subsequent breach of the same or any other term,
covenant or condition herein contained. 
No waiver by Landlord shall be effective unless it is in writing.  The subsequent acceptance of Rent hereunder
by Landlord shall not be deemed to be a waiver of any preceding breach of
Tenant of any term, covenant or condition of this Agreement, other than the
failure of Tenant to pay the particular Rent so accepted regardless of Landlord’s
knowledge of such preceding breach at the time of acceptance of such Rent.  Landlord’s consent to or approval of any act
by Tenant which act requires Landlord’s consent or approval shall not be deemed
to waive or render unnecessary Landlord’s consent to or approval of any subsequent
act by Tenant.

15.06              Parties Bound.  The covenants and conditions herein contained
shall, subject to the provisions as to assignment, transfer, and subletting,
apply to and bind the heirs, successors, executors, administrators and
permitted assigns of all the Parties; and all the Parties shall be jointly and
severally liable.

15.07.             Laws; Waste and Nuisance
Prohibited.  Tenant shall not violate
nor shall it permit any Person to violate any Law, on the Premises.  Tenant shall not commit or suffer to be
committed, any waste on the Premises or any nuisance.

15.08              Landlord’s Right of Entry.  Tenant shall permit Landlord and Landlord’s
Representatives, to enter into and upon the Premises at all reasonable times
for the purpose of inspecting, selling or financing the same or for the purpose
of posting notices of non-responsibility for construction, alterations,
additions, or repairs, without any rebate of Rent.

15.09              Recordation.  Landlord and Tenant consent to the
recordation of a memorandum of this Agreement in the Office of the County
Recorder, Clark County, Nevada, in the form attached hereto as Exhibit B.  The Parties shall execute Exhibit B on
the Effective Date and, thereafter, either Party may effect the recordation of
Exhibit B prior to the expiration of the Term.

15.10              Time of Essence.   It is specifically understood and agreed
that time is of the essence of this Agreement 
as to the payment of each and every installment of Rent and

 19
 

 

performance of each and every one of the terms,
covenants, and conditions hereof. 
Whenever, however, a period of time is herein provided for Landlord to
do or perform any act or thing, Landlord shall not be liable or responsible
for, and there shall be excluded from the computation of such periods of time,
any delays due to strikes, riots, acts of God, shortages of labor or materials,
national emergency, acts of the public enemy Government restrictions, laws or
regulations, or any other cause or causes, whether similar or dissimilar to
those enumerated, beyond Landlord’s reasonable control.

15.11              Governing Law.  This Agreement shall be construed and
interpreted in accordance with the Laws of the State of Nevada.

15.12              Integrated Agreement;
Modification.  This Agreement
contains all the agreements of the Parties with respect to the tenancy created
by this Agreement and cannot be amended or modified except by a written
agreement.

[Signature
Page Follows]

 20
 

 

IN WITNESS WHEREOF, this Agreement is
executed as of the Effective Date.

	
  Landlord:

  	
   

  	
  Millennium Gaming, Inc.,

  
	
   

  	
   

  	
  a Nevada corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ William J. Paulos

  
	
   

  	
   

  	
  Name:

  	
   

  	
  William J. Paulos

  
	
   

  	
   

  	
  Its:

  	
   

  	
  President

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tenant:

  	
   

  	
  Cannery Casino Resorts, LLC,

  
	
   

  	
   

  	
  a Nevada limited liability company

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Tom Lettero

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Tom Lettero

  
	
   

  	
   

  	
  Its:

  	
   

  	
  CFO

  

 

 21
 

 

SCHEDULE
1

DEFINITIONS

“Actions or
Proceedings” shall mean any action, suit, proceeding, arbitration or Government
Authority investigation.

“Additional Rent”
shall have the meaning ascribed to it in Section 4.01(b).

“Adjustment Date”
shall mean, with respect to the first Adjustment Date, the first day of the
first full calendar month following the first Calculation Period, and, for each
succeeding Adjustment Date, the first day of the first full calendar month
following the preceding Calculation Period.

“Agreement” shall
mean this Lease Agreement and the Schedules and Exhibits hereto, as the same
shall be amended from time to time.

“Award” means all
compensation, sums, or anything of value awarded, paid, or received on a total
or partial Condemnation.

“Base Rent” shall
mean, annually, an amount equal Twenty-four Dollars ($24.00) per square foot of
the Improvements, which shall be reasonable determined by Landlord prior to the
Commencement Date.

“Beginning CPI”
shall mean and refer to, with respect to any Calculation Period, the average
CPI of the first three (3) months of such Calculation Period.

“Business Day”
shall mean a day other than Saturday, Sunday or any day on which banks located
in the State of Nevada are authorized or obligated to close.

“Calculation
Period” shall mean the twelve (12) month period beginning the first day of the
first full month following the Commencement Date, and shall also refer to each
twelve (12) month period thereafter.

“CERCLA” shall mean
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and the rules and regulations promulgated thereunder.

“CERCLIS” shall
mean the Comprehensive Environmental Response and Liability Information System,
as provided by 40 C.F.R. §300.5.

“Claim” shall mean any lawsuit, cause of action, legal
action, demand, or claim of whatsoever nature, whether now known or unknown.

“Commencement Date”
shall mean                               
                   ,
2006.

“Condemnor” shall
mean any public or quasi-public Government Authority, or private Person, having
the power of Condemnation.

 22
 

 

“Condemnation”
shall mean (i) the exercise of any Government power, whether by Action or
Proceeding or otherwise, by a Condemnor, and (ii) a voluntary sale or transfer
by Landlord to any Condemnor, either under threat of condemnation or while an
Action or Proceeding is pending.

“Contract” shall
mean any agreement, lease, license, evidence of Indebtedness, mortgage,
indenture, security agreement or other contract.

“CPI” shall mean
the Consumer Price Index, Urban Wage Earners and Clerical Workers for Los
Angeles, Anaheim and Riverside Areas, all items (1982-1984=100), as published
by the Bureau of Labor of Statistics of the United States Department of
Labor.  If the CPI is calculated from a
base different form the base period 1982-84 = 100, such CPI shall be converted
to a base period of 1982-84 = 100 by use of a conversion factor supplied by
said Bureau of Labor Statistics. If the CPI is discontinued or replaced during
the Term, or any extensions thereof, such other governmental cost of living
index or computation which replaces the CPI shall be used in order to obtain
substantially the same result as would be obtained if the CPI had not been discontinued
or replaced.

“Date of Taking”
shall mean the date the Condemnor has the right to possession of the property
being Condemned.

“Effective Date”
shall have the meaning ascribed to it in the preamble of this Agreement.

“Ending CPI” shall
mean and refer to, with respect to any Calculation Period, the average CPI of
the last three (3) months of such Calculation Period.

“Environmental Law”
shall mean any Law or Order relating to the regulation or protection of human
health, safety or the environment or to emissions, discharges, Release or
threatened Releases of Hazardous Materials into the environment (including,
without limitation, ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.

“Events of Default”
shall have the meaning ascribed to it in Section 14.01.

“Full Replacement
Value” shall mean the actual replacement cost of the Improvements and personal
property from time to time less exclusions provided in the normal fire
insurance policy.

“Government
Authority” shall mean any court, tribunal, arbitrator, authority, agency,
commission, official or other instrumentality of the United States or any
state, county, city or other political subdivision.

“Hazardous
Material” shall mean: (i) any petroleum or petroleum products, flammable
explosives, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and transformers or other equipment
that contain dielectric fluid

 23
 

 

containing levels
of polychlorinated biphenyls (PCBs); (ii) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,”
“extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,”
“toxic pollutants” or words of similar import under any Environmental Law; and
(iii) any other chemical or other material or substance, exposure to which is
now or hereafter prohibited, limited or regulated by any Government Authority
under any Environmental Law.

“Improvements”
shall mean, without limitation, all buildings, structures, fixtures, paving,
landscaping and other physical improvements on the Premises.

“Laws” shall mean
all laws, statutes, rules, regulations, ordinances and other pronouncements
having the effect of law of the United States or any state, county, city or
other political subdivision or of any Government Authority.

“Lease Interest
Rate” shall mean the rate of six percent (6%) per annum.

“Landlord” shall
mean Millennium Gaming, Inc., a Nevada corporation.

“Liabilities”
shall mean all Indebtedness, obligations and other liabilities of a Person
(whether absolute, accrued, contingent, fixed or otherwise, or whether due or
to become due).

“Licenses” shall
mean all licenses, permits, certificates of authority, authorizations,
approvals, registrations, franchises and similar consents granted or issued by
any Government Authority.

“Lien” shall mean
any mortgage, pledge, assessment, security interest, lease, lien, adverse
Claim, levy, charge or other encumbrance of any kind, or any conditional sale
Contract, title retention Contract or other Contract to give any of the
foregoing.

“Loss” shall mean
any and all damages, fines, penalties, deficiencies, losses and expenses
(including, without limitation, interest, court costs, reasonable fees of
attorneys, accountants and other experts or other reasonable expenses of
litigation or other Action or Proceeding or of any Claim, default or
assessment).

“Mortgage” shall
have the meaning ascribed to it in Section 8.06.

“NPL” shall mean
the National Priorities List under CERCLA.

“Order” shall mean
any writ, judgment, decree, injunction or similar order of any Government
Authority (in each such case whether preliminary or final).

“Party” shall mean
either the Landlord or Tenant.

“Parties” shall
mean, collectively, Landlord and Tenant.

 24
 

 

“Person” shall
mean any natural person, corporation, limited liability company, general
partnership, limited partnership, limited liability partnership,
proprietorship, other business organization, trust, union, association or
Government Authority.

“Premises”  means that certain land together with the
Improvements located thereon, situated in the, County of Clark, State of
Nevada, more particularly described in Exhibit A attached hereto, together with
all rights, privileges, easements, and appurtenances thereto, commonly known as
                                                                  ,
Las Vegas, Nevada.

“Release” shall
mean any release, spill, emission, leaking, pumping, injection, deposit,
disposal, discharge, dispersal, leaching or migration into the indoor or
outdoor environment, including, without limitation, the movement of Hazardous
Materials through ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata.

“Representatives”
shall mean a Person’s officers, employees, counsel, accountants, financial
advisors, consultants and other representatives.

“Tenant” shall
mean Cannery Casino Resorts, LLC, a Nevada limited liability company.

“Term” shall mean
the period commencing on the Commencement Date and continuing for one hundred
twenty (120) consecutive months following the Commencement Date, as extended
pursuant to Section 3.04.

“Taxes” or “Tax”
shall mean any federal, state, local or foreign taxes, charges, fees, levies,
other assessments, or withholding taxes or charges imposed by any Government
Authority, and includes any interest and penalties on or additions to any such
taxes and any expenses incurred in connection with the determination,
settlement or litigation of any Tax liability.

 

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